Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.6.0.2
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

12. Income Taxes

Income Tax Expense (Benefit)

Components of income tax expense (benefit) were as follows (in thousands):

 

Year Ended December 31,

 

 

2016

 

 

2015

 

 

2014

 

Current

$

(71,768

)

 

$

288

 

 

$

301

 

Deferred

 

28,392

 

 

 

(203,272

)

 

 

(4,760

)

Total income tax( benefit)

$

(43,376

)

 

$

(202,984

)

 

$

(4,459

)

 

Effective Tax Rate Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to our income tax benefit is as follows (in thousands, except percentages):

 

Year Ended December 31,

 

 

2016

 

 

2015

 

 

2014

 

Income tax (benefit) at the federal statutory rate

$

(102,339

)

 

 

35.0

%

 

$

(436,696

)

 

 

35.0

%

 

$

(5,642

)

 

 

35.0

%

Share-based compensation

 

4,920

 

 

 

(1.7

)

 

 

2,940

 

 

 

(0.2

)

 

 

 

 

 

 

State income taxes

 

(755

)

 

 

0.2

 

 

 

(2,343

)

 

 

0.2

 

 

 

263

 

 

 

(1.6

)

Valuation allowance

 

52,915

 

 

 

(18.1

)

 

 

232,925

 

 

 

(18.7

)

 

 

 

 

 

 

Debt restructuring cost

 

1,463

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

420

 

 

 

(0.1

)

 

 

190

 

 

 

 

 

 

920

 

 

 

(5.7

)

 

$

(43,376

)

 

 

14.8

%

 

$

(202,984

)

 

 

16.3

%

 

$

(4,459

)

 

 

27.7

%

 

Our effective tax rate for the years 2016 and 2015 differed from the federal statutory rate of 35.0% primarily due to recording and adjusting a valuation allowance for our deferred tax assets, which is discussed below.  Our effective tax rate for the year 2014 is distorted due to a small pre-tax loss; consequently, our permanent differences have a larger impact on our effective tax rate.   

Deferred Tax Assets and Liabilities

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.  Significant components of our deferred tax assets and liabilities were as follows (in thousands):

 

December 31,

 

 

2016

 

 

2015

 

Deferred tax liabilities:

 

 

 

 

 

 

 

Property and equipment

$

 

 

$

40,287

 

Derivatives

 

 

 

 

2,697

 

Other

 

1,423

 

 

 

3,000

 

Total deferred tax liabilities

 

1,423

 

 

 

45,984

 

Deferred tax assets:

 

 

 

 

 

 

 

Alternative minimum tax credit

 

 

 

 

20,486

 

Property and equipment

 

42,385

 

 

 

 

Asset retirement obligations

 

117,588

 

 

 

133,018

 

Federal net operating losses

 

 

 

 

145,733

 

State net operating losses

 

5,615

 

 

 

5,068

 

Valuation allowance

 

(290,190

)

 

 

(237,275

)

Exchange transaction

 

118,467

 

 

 

 

Share-based compensation

 

2,353

 

 

 

4,245

 

Other

 

4,798

 

 

 

2,304

 

Total deferred tax assets

 

1,016

 

 

 

73,579

 

Net deferred tax asset (liabilities)

$

(407

)

 

$

27,595

 

During 2016, we made income tax payments of $0.3 million and received $7.8 million of refunds, which includes an income tax refund of $5.8 million related to an NOL claim for 2015 carried back to 2005 filed on Form 1139, Corporation Application for Tentative Refund.  During 2015, we did not make any payments for federal or state income taxes or receive any refunds of significance.  During 2014, we did not make any payments for federal and state income taxes and we received refunds of $3.0 million.

Income Tax Receivables

As of December 31, 2016, we have recorded current income tax receivables of $11.9 million and non-current income tax receivables of $52.1 million.  The current income tax receivables primarily relates to a net operating loss claim for 2016 carried back to 2006 and is included in the receivable line Joint interest, insurance reimbursement and other on the Consolidated Balance Sheet.  The non-current income tax receivables relates 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 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.

Net Operating Loss and Tax Credit Carryovers

The table below presents the details of our net operating loss and tax credit carryovers as of December 31, 2016 (in thousands):

 

Amount

 

 

Expiration Year

Federal net operating loss

$

 

 

N/A

State net operating losses

 

112,512

 

 

2021-2030

Alternative minimum tax credit

 

 

 

N/A

General business credit

 

 

 

N/A

 

Exchange Transaction Tax Gain

The tax gain on the Exchange Transaction associated with the cancellation of a portion of our debt was not recognized pursuant to Internal Revenue Code Section 108.  Certain tax attributes including net operating losses, alternative minimum tax credit, general business credit carryovers and the tax basis of assets are required to be reduced, as reflected in the table above.  No carryovers will be available to 2017.

Valuation Allowance

 During 2016 and 2015, we recorded increases in the valuation allowance of $52.9 million and $232.9 million, respectively, related to federal and state deferred tax assets.  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 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 December 31, 2016 and 2015, we had a valuation allowance related to Federal and state deferred tax assets.   

Uncertain Tax Positions

The table below sets forth the beginning and ending balance of the total amount of unrecognized tax benefits.  There are no unrecognized benefits that would impact the effective tax rate if recognized.  While amounts could change in the next 12 months, we do not anticipate it having a material impact on our financial statements.  

Balances in the uncertain tax positions are as follows (in thousands):

 

December 31,

 

 

2016

 

 

2015

 

Balance, beginning and end of period

$

9,482

 

 

$

9,482

 

 

We recognize interest and penalties related to uncertain tax positions in income tax expense.  For 2016, 2015 and 2014, the amounts recognized in income tax expense were immaterial.

Years open to examination

The tax years from 2013 through 2016 remain open to examination by the tax jurisdictions to which we are subject.