INCOME TAXES
On December 22, 2017, the Tax Act was enacted, which made significant changes to U.S. federal income tax law affecting RSP Inc. See Note 2 for a summary of changes and discussion of certain provisions of the Tax Act and the impact of such provisions on our results of operations and consolidated financial statements.
At December 31, 2017, we have made a reasonable estimate of the effects of the Tax Act on our existing deferred tax balances based on our understanding of the guidance available as of the date of this filing. We will continue to monitor for any new administrative guidance or interpretations of the Tax Act.
The components of the provision for income taxes for the year ended December 31, 2017, 2016, and 2015 is as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
(in thousands) | | 2017 | | 2016 | | 2015 |
Current Income Tax Expense (Benefit): | | | | | | |
Federal | | $ | (5,541 | ) | | $ | (4,074 | ) | | $ | 5,504 |
|
State | | — |
| | — |
| | (320 | ) |
Total income tax expense (benefit) | | (5,541 | ) | | (4,074 | ) | | 5,184 |
|
Deferred Income Tax Expense (Benefit): | | | | |
| | |
|
Federal (1) | | $ | (119,925 | ) | | $ | (19,195 | ) | | $ | (9,649 | ) |
State | | 2,297 |
| | 489 |
| | (1,714 | ) |
Federal alternative minimum tax | | 5,541 |
| | 4,074 |
| | (5,504 | ) |
Total deferred income tax benefit | | (112,087 | ) | | (14,632 | ) | | (16,867 | ) |
Total Income Tax Benefit | | $ | (117,628 | ) | | $ | (18,706 | ) | | $ | (11,683 | ) |
(1) Beginning January 1, 2018, our income will be taxed at a 21% federal corporate rate, a reduction from the 35% federal corporate rate in place prior to the Tax Act. We recognized the effect of this rate change as a result of the Tax Act on our deferred tax assets and liabilities in 2017, which resulted in a federal deferred income tax benefit of $144.4 million for the quarter ended December 31, 2017.
A reconciliation of tax expense (benefit) based upon the statutory federal income tax rate to the actual income tax expense (benefit)is as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
(in thousands) | | 2017 | | 2016 | | 2015 |
Income tax expense (benefit) at the federal statutory rate (35%) | | $ | 40,078 |
| | $ | (15,245 | ) | | $ | (10,478 | ) |
State income tax expense (benefit), net of federal tax benefit | | 1,493 |
| | 318 |
| | (1,322 | ) |
Impact of enacted legislation | | (144,361 | ) | | — |
| | — |
|
Equity-based compensation | | (4,386 | ) | | — |
| | — |
|
Research and development credit | | (10,478 | ) | | (3,804 | ) | | — |
|
Other | | 26 |
| | 25 |
| | 117 |
|
Provision for (benefit from) income taxes | | $ | (117,628 | ) | | $ | (18,706 | ) | | $ | (11,683 | ) |
The components of the Company’s deferred tax assets and liabilities are as follows:
|
| | | | | | | | |
| | For the year ended December 31, |
(in thousands) | | 2017 | | 2016 (2) |
Non-current deferred tax assets: | | | | |
Net operating loss carryforwards (subject to 20 year expiration) (1) | | $ | 101,220 |
| | $ | 88,632 |
|
Tax credit carryforwards | | 16,856 |
| | 9,320 |
|
Other | | 14,615 |
| | 13,185 |
|
Total noncurrent deferred tax assets | | 132,691 |
| | 111,137 |
|
Non-current deferred tax liabilities: | | | | |
Oil and natural gas properties and equipment | | (343,259 | ) | | (433,792 | ) |
Total noncurrent deferred tax liabilities | | (343,259 | ) | | (433,792 | ) |
Net noncurrent deferred tax liabilities | | $ | (210,568 | ) | | $ | (322,655 | ) |
(1) Federal NOL carryforwards totaled $482.0 million and $251.6 million at December 31, 2017 and 2016, respectively, and will begin to expire in 2034. As a result of the Tax Act, maximum deduction allowed for NOL carryforwards arising in tax years beginning after December 31, 2017 will be reduced to 80% of our taxable income, and any NOLs generated in tax years beginning after December 31, 2017 will be carried forward indefinitely.
(2) The deferred tax liability at December 31, 2016 was reduced by $0.6 million from the previously reported amount as a result of the adoption of ASU 2016-09. See Note 2 for additional discussion of ASU 2016-09.
We have not recognized any interest and penalties relating to unrecognized tax benefits in our consolidated financial statements. Changes in the balance of unrecognized tax benefits on uncertain positions were as follows:
|
| | | | | | | | | | | | |
| | For the year ended December 31, |
(in thousands) | | 2017 | | 2016 | | 2015 |
Unrecognized tax benefits at beginning of period | | $ | 9,035 |
| | $ | — |
| | $ | — |
|
Increase resulting from prior period tax positions | | 6,653 |
| | 8,483 |
| | — |
|
Increase resulting from current period tax positions | | 7,370 |
| | 552 |
| | — |
|
Unrecognized tax benefits at the end of period | | 23,058 |
| | 9,035 |
| | — |
|
Less: Effects of temporary items | | (3,729 | ) | | (5,256 | ) | | — |
|
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year | | $ | 19,329 |
| | $ | 3,779 |
| | $ | — |
|