NOTE 12. INCOME TAXES
The provision for income taxes is comprised of the following for the years ended December 31:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
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|||
|
Current taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Deferred taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
As we establish full valuation allowances against net deferred tax assets where we have determined that it is more likely than not that all of the deferred tax assets will not be realized, we have recognized no income taxes in our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015.
The geographic sources of our loss are as follows for the years ended December 31:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
U.S. |
|
$ |
(934,537 |
) |
|
$ |
(2,313,482 |
) |
|
$ |
(490,190 |
) |
|
Foreign |
|
|
(33,721 |
) |
|
|
(29,827 |
) |
|
|
(204,236 |
) |
|
Net loss |
|
$ |
(968,258 |
) |
|
$ |
(2,343,309 |
) |
|
$ |
(694,426 |
) |
The effective tax rate on our loss differs from the U.S. statutory rate as follows for the years ended December 31:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax expense (benefit) at the federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State income taxes, net of federal income tax benefit |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
Change in federal statutory rate |
|
|
(65.4 |
)% |
|
|
— |
% |
|
|
— |
% |
|
Foreign income tax |
|
|
3.7 |
% |
|
|
41.5 |
% |
|
|
13.5 |
% |
|
Cancellation of debt |
|
|
(5.7 |
)% |
|
|
(3.9 |
)% |
|
|
— |
% |
|
Other |
|
|
(0.2 |
)% |
|
|
(0.1 |
)% |
|
|
(0.5 |
)% |
|
Valuation allowance |
|
|
32.5 |
% |
|
|
(72.6 |
)% |
|
|
(48.1 |
)% |
|
Effective rate |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
On December 22, 2017, the Tax Cut and Jobs Act (the “Act”) was enacted into law. Many of the provisions of the Act are effective beginning January 1, 2018, most notable of which is the reduction in the federal corporate statutory rate from 35% to 21%. The changes included in the Act are broad and complex. We are currently in the process of finalizing and quantifying the tax effects of the Act, but have recorded provisional amounts based on reasonable estimates for the measurement and accounting of certain effects of the Act in our consolidated financial statements for 2017. The final transition impacts of the Act may differ from the estimate above due to, among other things, changes in interpretations of the Act, any legislative action to address questions that arise because of the Act, any changes in accounting standards for income taxes or related interpretations in response to the Act, or any updates or changes to estimates we have utilized to calculate the transition impacts. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Act to finalize the recording of the relates tax impacts.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of our temporary differences and net operating losses (“NOL”) are as follows at December 31:
|
|
|
2017 |
|
|
2016 |
|
||
|
Long-term deferred tax asset: |
|
|
|
|
|
|
|
|
|
Seismic and exploration costs |
|
$ |
1,753,263 |
|
|
$ |
2,227,489 |
|
|
Stock based compensation |
|
|
11,751 |
|
|
|
27,342 |
|
|
Domestic NOL carry forwards |
|
|
481,967 |
|
|
|
695,434 |
|
|
Foreign NOL carry forwards |
|
|
26,471 |
|
|
|
43,969 |
|
|
2019 Notes and 2024 Notes |
|
|
28,428 |
|
|
|
— |
|
|
Other |
|
|
24,919 |
|
|
|
11,522 |
|
|
Valuation allowance |
|
|
(2,289,519 |
) |
|
|
(2,597,708 |
) |
|
Total long-term deferred tax asset |
|
|
37,280 |
|
|
|
408,048 |
|
|
Long-term deferred tax liability: |
|
|
|
|
|
|
|
|
|
2019 Notes and 2024 Notes |
|
|
— |
|
|
|
(169,573 |
) |
|
Oil and natural gas properties |
|
|
(37,280 |
) |
|
|
(238,475 |
) |
|
Total long-term deferred tax liability |
|
|
(37,280 |
) |
|
|
(408,048 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net long-term deferred tax asset |
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2017, we had NOL carryforwards for federal and state income tax purposes of approximately $2,273.0 million and $73.3 million, respectively, which begin to expire in 2026 and 2025, respectively.
As of December 31, 2017, we had an NOL carryforward for foreign income tax purposes of approximately $51.3 million which began to expire in 2016.
The utilization of the NOL carryforwards is dependent upon generating sufficient future taxable income in the appropriate jurisdictions within the carryforward period.
Under the U.S. Internal Revenue Code, our ability to use our NOL carryforwards and other tax attributes may be limited if we experience a change of control, as determined under U.S. Internal Revenue Code. Accordingly, we obtained an order from the Bankruptcy Court that is intended to protect our ability to use our tax attributes by imposing certain notice procedures and transfer restrictions on the trading of our common stock.
In general, the order applies to any person or entity that, directly or indirectly, beneficially owns (or would beneficially own as a result of a proposed transfer) at least 4.5% of our common stock. Such persons are required to notify us and the Bankruptcy Court before effecting a transaction that might result in us losing the ability to use our tax attributes, and we have the right to seek an injunction to prevent the transaction if it might adversely affect our ability to use our tax attributes.
Any purchase, sale or other transfer of our equity securities in violation of the restrictions of the order is null and would be treated as invalid from the outset as an act in violation of a Bankruptcy Court order and would therefore confer no rights on a proposed transferee.
Our tax filings are subject to examination by federal and state tax authorities where we conduct our business. These examinations may result in assessments of additional tax that are resolved with the authorities or through the courts. We have evaluated whether any material tax position we have taken will more likely than not be sustained upon examination by the appropriate taxing authority. As we believe that all such material tax positions we have taken are supportable by existing laws and related interpretations, we believe there are no material uncertain tax positions to consider. There were no unrecognized tax benefits or accrued interest or penalties associated with unrecognized tax benefits as of December 31, 2017 and 2016.