10.         INCOME TAXES

Income tax benefit consists of the following (in thousands):





Income tax benefit differed from amounts that would result from applying the U.S. statutory income tax rate (35%) to income before income taxes as follows (in thousands):





The principal components of the Company’s deferred income tax assets and liabilities at December 31, 2017 and 2016 were as follows (in thousands):







The Company’s July 1, 2016 note exchange transactions triggered an ownership shift within the meaning of Section 382 of the Internal Revenue Code (“IRC”) due to the “deemed share issuance” that resulted from the note exchanges.  The ownership shift will limit Whiting’s usage of certain of its net operating losses and tax credits in the future. Accordingly, the Company recognized valuation allowances on its deferred tax assets totaling $259 million.  In the third quarter of 2017 there was a partial release of this valuation allowance in the amount of $41 million associated with built-on gains on the sale of the FBIR Assets.

As of December 31, 2017, the Company had federal net operating loss (“NOL”) carryforwards of $2.9 billion, which was net of the IRC Section 382 limitation.  The Company also has various state NOL carryforwards.  The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and that can thereby impact the amount of such carryforwards.  If unutilized, the federal NOL will expire between 2023 and 2037, and the state NOLs will expire between 2018 and 2037.

EOR credits are a credit against federal income taxes for certain costs related to extracting high-cost oil, utilizing certain prescribed enhanced tertiary recovery methods.  As of December 31, 2017, the Company had recognized aggregate EOR credits of $8 million.  As a result of the IRC Section 382 limitation in July 2016, the Company recorded a full valuation allowance on these credits.

The Company was subject to the alternative minimum tax (“AMT”) principally due to its significant intangible drilling cost deductions.  For 2017, the Company expects to forego bonus depreciation and claim a refund under the Protecting Americans from Tax Hikes Act for its AMT credits and has recognized a $7 million current benefit.  As of December 31, 2017, the Company had no remaining AMT credits available to offset future regular federal income taxes. 

On December 22, 2017, Congress passed the Tax Cuts and Jobs Act (the “TCJA”).  The new legislation significantly changes the U.S. corporate tax law by, among other things, lowering the U.S. corporate income tax rate from 35% to 21% beginning in January 2018, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.  FASB ASC Topic 740, Income Taxes, requires companies to recognize the impact of the changes in tax law in the period of enactment. 

The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used to account for business combinations, however, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting.  During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.  SAB 118 outlines a three-step process to be applied at each reporting period to account for and qualitatively disclose (i) the effects of the change in tax law for which accounting is complete, (ii) provisional amounts (or adjustments to provisional amounts) for the effects of the change in tax law where accounting is not complete, but where a reasonable estimate has been made, and (iii) areas affected by the change in tax law where a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the TCJA.

Amounts recorded during the year ended December 31, 2017 related to the TCJA principally relate to the reduction in the U.S. corporate income tax rate to 21%, which resulted in (i) income tax expense of $51 million from the revaluation of the Company’s deferred tax assets and liabilities as of the date of enactment and (ii) an income tax benefit totaling $93 million related to a reduction in the Company’s existing valuation allowances.  Reasonable estimates were made based on the Company’s analysis of the remeasurement of its deferred tax assets and liabilities and valuation allowances under tax reform.  These provisional amounts may be adjusted in future periods if additional information is obtained or further clarification and guidance is issued by regulatory authorities regarding the application of the law.

Other provisions of the TCJA that do not impact 2017, but may impact income taxes in future years include (i) a limitation on the current deductibility of net interest expense in excess of 30% of adjusted taxable income, (ii) a limitation on the usage of NOLs generated after 2017 to 80% of taxable income, (iii) additional limitations on certain meals and entertainment expenses, (iv) the inclusion of performance based compensation in determining the excessive compensation limitation, and (v) the unlimited carryforward of NOLs.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion, or all, of the Company’s deferred tax assets will not be realized.  In making such determination, the Company considers all available positive and negative evidence, including future reversals of temporary differences, tax-planning strategies and projected future taxable income and results of operations.  If the Company concludes that it is more likely than not that some portion, or all, of its deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance.  At December 31, 2017, after considering the impact of the federal tax rate reduction resulting from the enactment of the TCJA,  the Company had a valuation allowance totaling $271 million, comprised of $138 million of NOL carryforward limitations under Section 382 of the IRC, $8 million of EOR credits, which will expire between 2023 and 2025, $5 million of Canadian NOL carryforwards, which will expire between 2034 and 2035, and $1 million of short-term capital loss carryforwards that are not expected to be realized.  In addition, the Company has determined that it does not expect the carrying value of its deferred tax assets to be realized, and accordingly, has recorded a full valuation allowance totaling $119 million on its net deferred tax assets as of December 31, 2017.    At December 31, 2016, the Company had a valuation allowance totaling $265 million, comprised of $251 million of NOL carryforward limitations under Section 382 of the IRC, $8 million of EOR credits, and $5 million of Canadian NOL carryforwards.  These valuation allowances were recorded because the Company determined it was more likely than not that the benefit from these deferred tax assets would not be realized due to the IRC Section 382 limitation on the NOL carryforward and the EOR credit carryforwards, as well as the divestiture of all foreign operations.    

In 2014, the Company acquired Kodiak Oil & Gas Corp. (“Kodiak”), which is a Canadian entity that is disregarded for U.S. tax purposes.  Kodiak holds an interest in Whiting Resources Corporation, a U.S. entity.  Canadian taxes have not been recognized as the tax basis exceeds the book basis in the associated assets.  U.S. income taxes on Kodiak and its subsidiary, Whiting Resources Corporation, however, have been fully recognized on their cumulative losses to date.    The TCJA provides for a one-time “deemed repatriation” of accumulated foreign earnings for the year ended December 31, 2017.  We do not expect to pay U.S. federal cash taxes on the deemed repatriation due to an estimated accumulated deficit in foreign earnings for tax purposes. 

As of December 31, 2017 and 2016, the Company did not have any uncertain tax positions.  During the year ended December 31, 2016, the Company reversed an unrecognized tax benefit of $170,000 as a result of the IRC Section 382 limitation, which resulted in the Company recording a full valuation allowance on its EOR credits, the underlying asset generating the uncertain tax position.  For the years ended December 31, 2017, 2016 and 2015, the Company did not recognize any interest or penalties with respect to unrecognized tax benefits, nor did the Company have any such interest or penalties previously accrued.  The Company believes that it is reasonably possible that no increases to unrecognized tax benefits will occur in the next twelve months.

The Company files income tax returns in the U.S. federal jurisdiction and in various states, each with varying statutes of limitations.  The 2014 through 2017 tax years generally remain subject to examination by federal and state tax authorities.  Additionally, the Company has Canadian income tax filings which remain subject to examination by the related tax authorities for the 2012  through 2017  tax years.