Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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Income Taxes
9 Months Ended
Sep. 30, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

8.  Income Taxes

Our income tax benefit for the three and nine months ended September 30, 2016 was $3.8 million and $44.4 million, respectively.  Our effective tax rate for the three months ended September 30, 2016 was not meaningful primarily due to adjustments related to the book gain associated with the Exchange Transaction.  The annualized effective tax rate for the nine months ended September 30, 2016 was 14.3%.  Our income tax benefit for the three and nine months ended September 30, 2015 was $18.5 million and $166.2 million, respectively.  The annualized effective tax rate for the three and nine months ended September 30, 2015 was 3.7% and 14.3%, respectively.  Our annualized effective tax rates differs from the federal statutory rate of 35.0% for all periods presented primarily due to the valuation allowance recorded for our deferred tax assets.         

 During the three months and nine ended September 30, 2016, we recorded a reduction in the valuation allowance of $19.1 million and an increase in the valuation allowance of $63.1 million, respectively, related to federal and state deferred tax assets.  During the three and nine months ended September 30, 2015, we recorded a valuation allowance of $156.2 million and $241.6 million, respectively.  Deferred tax assets are recorded related to net operating losses and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods.  The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or net operating losses are deductible.  In addition, the realization depends on the ability to carryback certain items to prior years for refunds of taxes previously paid.  In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.  As of September 30, 2016 and December 31, 2015, we had a valuation allowance related to Federal, Louisiana and Alabama net operating losses and other deferred taxes.  The tax years 2012 through 2015 remain open to examination by the tax jurisdictions to which we are subject.   

In connection with the Exchange Transaction, we realized a tax gain due to the concession extended by the noteholders who elected to exchange their Unsecured Senior Notes.  This tax gain will be offset by a reduction in our net operating losses and other deferred tax asset attributes. The reduction in our deferred tax assets will be fully offset by a corresponding reduction in our valuation allowance. 

During the third quarter, we received an income tax refund of $5.6 million primarily for a net operating loss (“NOL”) claim for 2015 carried back to 2005 filed on Form 1139, Corporation Application for Tentative Refund.  In addition, we have recorded $52.1 million as non-current income tax receivables related to our NOL claims for the years 2012, 2013 and 2014 that were carried back to the years 2003, 2004, 2007, 2010 and 2011 filed on Form 1120X, U.S. Corporation Income Tax Return.  These carryback claims are made pursuant to Internal Revenue Code (“IRC”) Section 172(f) which permits certain platform dismantlement, well abandonment and site clearance costs to be carried back 10 years.  The refund claims filed on Form 1120X will require a review by the Congressional Joint Committee on Taxation and are accordingly classified as non-current.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense.  During the 2016 and 2015 periods reported, we recorded immaterial amounts of accrued interest expense related to our unrecognized tax benefit.