Note 6 — Income Taxes
The following table summarizes the components of the provision for income taxes (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current income tax benefit (expense) |
|
$ |
293 |
|
|
$ |
(91 |
) |
|
$ |
— |
|
|
Deferred income tax benefit |
|
|
— |
|
|
— |
|
|
|
22,354 |
|
|
|
Total income tax benefit (expense) |
|
$ |
293 |
|
|
$ |
(91 |
) |
|
$ |
22,354 |
|
The provision for income taxes for the years ended December 31, 2017, 2016 and 2015 differs from the amount that would be provided by applying the statutory maximum U.S. federal corporate income tax rate of 35% to income before income taxes. This difference relates primarily to state income taxes and estimated permanent differences as follows (in thousands):
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Expected statutory income tax benefit |
|
$ |
534 |
|
|
$ |
56,571 |
|
|
$ |
267,621 |
|
|
State income tax benefit (expense) |
|
|
(116 |
) |
|
|
3,087 |
|
|
|
13,394 |
|
|
Change in state tax rate |
|
|
(2,466 |
) |
|
|
— |
|
|
|
— |
|
|
Equity compensation |
|
|
34 |
|
|
|
(2,761 |
) |
|
|
(4,822 |
) |
|
Non-deductible executive compensation |
|
|
(3,825 |
) |
|
|
(690 |
) |
|
|
— |
|
|
Prior year true up |
|
|
1,745 |
|
|
|
— |
|
|
|
— |
|
|
Tax credits |
|
|
1,034 |
|
|
|
— |
|
|
|
— |
|
|
Other |
|
|
1,636 |
|
|
|
(293 |
) |
|
|
(247 |
) |
|
Change in corporate tax rate (1) |
|
|
(114,786 |
) |
|
|
— |
|
|
|
— |
|
|
Valuation allowance |
|
|
116,503 |
|
|
|
(56,005 |
) |
|
|
(253,592 |
) |
|
Total income tax benefit (expense) |
|
$ |
293 |
|
|
$ |
(91 |
) |
|
$ |
22,354 |
|
(1) The change in the statutory maximum U.S. federal corporate income tax rate was enacted in December 2017 by Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”), effective for taxable years beginning on or after January 1, 2018. The Tax Act resulted in the Company generating a deferred tax expense primarily due to the reduction in the U.S. statutory corporate income tax rate from a maximum 35% to a flat 21% rate. This deferred tax expense was offset by the valuation allowance placed on the Company's deferred tax assets. Based on the Company’s current interpretation and subject to the release of regulations promulgated by the U.S. Department of Treasury and any other future interpretive guidance relating to the Tax Act, the Company believes the effects of the change in U.S. federal income tax laws incorporated herein are substantially complete.
The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are presented below (in thousands):
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred income tax assets (liabilities): |
|
|
|
|
|
|
|
|
|
Derivative financial instruments |
|
|
4,683 |
|
|
|
4,403 |
|
|
Net operating loss carryovers |
|
|
164,564 |
|
|
|
206,663 |
|
|
Asset retirement obligation |
|
|
613 |
|
|
|
7,530 |
|
|
Startup and organization costs |
|
|
51 |
|
|
|
104 |
|
|
Deferred acquisition costs |
|
|
26 |
|
|
|
45 |
|
|
Percentage depletion |
|
|
582 |
|
|
|
1,335 |
|
|
Property and equipment costs |
|
|
12,323 |
|
|
|
75,267 |
|
|
Equity compensation |
|
|
1,330 |
|
|
|
2,267 |
|
|
Tax credits |
|
|
3,837 |
|
|
|
283 |
|
|
Other |
|
|
5,084 |
|
|
|
11,700 |
|
|
Valuation allowance |
|
|
(193,093 |
) |
|
|
(309,597 |
) |
|
Total long term assets (liabilities) |
|
|
— |
|
|
|
— |
|
|
Net deferred tax asset (liability) |
|
$ |
— |
|
|
$ |
— |
|
The Company has U.S. net operating loss carry forwards of $723.2 million at December 31, 2017, which will begin expiring in 2026. The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the Company's analysis, it was concluded that as of December 31, 2017 and 2016 a valuation allowance should be established against the Company's deferred tax asset. The Company recorded a valuation allowance as of December 31, 2017 and 2016 of $193.1 million and $309.6 million, respectively, on its deferred tax assets. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.
The Company adopted the accounting for uncertain tax positions per FASB ASC Topic 740, Accounting for Income Taxes, from inception. This guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This guidance requires that the Company recognize in our consolidated financial statements, only those tax positions that are “more-likely-than-not” of being sustained, based on the technical merits of the position. In accordance with ASC 740-10, the Company performs a comprehensive review of our material tax positions. This guidance had no effect on the Company's financial position, cash flows or results of operations at 2017, 2016 and 2015 as the Company had no unrecognized tax benefits. The Company's policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. The Company has no accrued interest or penalties related to uncertain tax positions as of December 31, 2017, 2016 and 2015.
The Company is subject to the following material taxing jurisdictions: U.S. federal, Colorado, Texas and Utah. The tax years that remain open to examination by the Internal Revenue Service are the years 2014 through 2017. The tax years that remain open to examination by state taxing authorities are 2013 through 2017.