Note 20 - Income Tax

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 20 — Income Taxes

The source of net loss before income tax expense (benefit) for the year ended December 31 is as follows (in thousands):

	2014			2013			2012
United States	$	(47,899	)	$	(31,163	)	$	(6,465	)
Foreign		(29,033	)		(32,323	)		(48,238	)
Loss before income taxes	$	(76,932	)	$	(63,486	)	$	(54,703	)

The income tax expense (benefit) for the year ended December 31 consists of the following (in thousands):

	2014		2013			2012
Current Taxes
Federal	$	-	$	668		$	-
Foreign		1,431		2,595			13,551
Total Current		1,431		3,263			13,551
Deferred Taxes
Federal		-		-			-
Foreign		29,543		(9,038	)		(29,165	)
Total Deferred		29,543		(9,038	)		(29,165	)
Total income tax expense (benefit)	$	30,974	$	(5,775	)	$	(15,614	)

The income tax expense (benefit) for the year ended December 31 differs from the amount computed by applying the U.S. statutory federal income tax rate for the applicable year to consolidated net loss before income taxes as follows (in thousands):

	2014			2013			2012
Federal statutory income tax rate	$	(26,157	)	$	(21,585	)	$	(18,599	)
Increases (decreases) resulting from:
Peruvian income tax - rate difference less than 34% statutory		6,694			3,341			7,791
Asset impairment		7,767			-			-
Permanent book/tax differences		1,530			262			(621	)
Non-deductible intercompany expenses and other		-			(198	)		2,763
Effect of asset sale with retained oil intangible tax attribute		-			-			(15,111	)
Effect of cumulative profit sharing adjustment		-			-			(895	)
Effect of foreign exchange rate		(126	)		(1,462	)		(1,678	)
Current year foreign withholding tax		1,433			1,690			1,699
Change in valuation allowance		39,833			11,509			9,037
Uncertain tax positions		-			668			-
Total income tax expense (benefit)	$	30,974		$	(5,775	)	$	(15,614	)

A summary of the components of deferred tax assets, deferred tax liabilities and other taxes deferred at December 31 are presented below (in thousands):

	2014			2013
Deferred Tax:
Asset:
Net Operating Loss	$	80,170		$	77,588
Deferred Compensation		5,330			4,704
Asset Basis Difference		9,858			9,253
Exploration Expense		15,624			15,836
Depletion		-			-
Asset Retirement Obligation		809			809
Overhead Allocation to Foreign Locations		19,601			10,207
Other		1,342			2,078
Liability:
Depreciation		(6,429	)		(6,272	)
Other		-			-
Net Deferred Tax Asset		126,305			114,203
Less Valuation Allowance		(92,308	)		(50,601	)
Deferred tax asset	$	33,997		$	63,602

At December 31, 2014, the Company has recognized a gross deferred tax asset related to net operating loss carryforwards of $80.2 million before application of the valuation allowances. Net deferred tax assets in the foregoing table include the deferred consequences of the future reversal of Peruvian deferred tax assets and liabilities on the impact of the Peruvian employee profit share plan tax of zero in 2014 and $7.0 million in 2013. For the year ended December 31, 2014, the Company established a full valuation allowance related to the $6.4 million deferred tax asset applicable to the Peruvian employee profit sharing plan as the more likely than not criteria as to whether the future benefits would be realized was not met.    

At December 31, 2014, the Company had recognized a gross deferred tax asset related to net operating loss carryforwards attributable to the United States of $62.7 million, before application of the valuation allowances. As of December 31, 2014, the Company had a valuation allowance for the full amount of the domestic deferred tax asset of $50.1 million, resulting from the income tax benefit generated from net losses, as it believes, based on the weight of available evidence, that it is more likely than not that the deferred tax asset will not be realized prior to the expiration of net operating loss carryforwards in various amounts through 2034. Furthermore, because the Company has no operations within the U.S. taxing jurisdiction, it is likely that sufficient generation of revenue to offset the Company’s deferred tax asset is remote. 

In 2011, the Company amended its 2009 U.S. Federal Tax return to elect to deduct its previously benefited foreign income tax credits.  This resulted in an increase to the Company’s net operating loss carryforward and the elimination of the foreign income tax credit carryforward previously accrued as a deferred tax asset.  Since the Company maintained a full valuation allowance against the net operating loss carryforward and the foreign tax credit carryforward deferred tax assets, the election to deduct the foreign tax credit resulted in no impact to overall tax expense.

At December 31, 2014, the Company had recognized a gross deferred tax asset related to net operating loss carryforwards attributable to foreign jurisdictions of $17.5 million, before application of the valuation allowances, attributable to foreign net operating losses, which begin to expire in 2015. The Company is subject to Peruvian income tax on its earnings at a statutory rate, as defined in the Block Z-1 License Contract, of 22%.  The Company assessed its ability to realize the deferred tax asset generated in Peru. The Company considered whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income in Peru during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income, the availability of certain prudent and feasible income tax planning opportunities and projections for future taxable income over the periods in which the deferred tax assets are deductible, along with the transition into the commercial phase under the Block Z-1 License Contract, the Company does not believe it is more likely than not that it will realize all of the deductible differences at December 31, 2014. Therefore, the Company has recorded a $42.2 million valuation allowance composed of the following:

(1) A $1.9 million valuation allowance on certain foreign deferred tax assets related to overhead allocations and exploration activities on Blocks XIX, XXII and XXIII, as it believes it may not receive the full benefit of these deductions,

(2) A $15.4 million valuation allowance on the 2011 through 2013 BPZ E&P net operating losses that expire starting in 2015 as the Company believes it may not receive the full benefit of these deductions,

(3) A $6.7 million valuation allowance on certain BPZ E&P overhead expenses that the Company believes it may not receive the full benefit of these deductions, and

(4) A $11.8 million valuation allowance on the deferred tax assets of its foreign subsidiary engaging in the development of the gas-to-power project, as the Company considered it more likely than not that a portion or all of the subsidiary’s deferred tax assets will not be realized. Further, the Company will place a valuation allowance on future deferred tax assets of that same foreign subsidiary until the Company believes it is more likely than not the deferred tax assets will be realized.

As a result, the Company recognized a net deferred tax asset of $34.0 million related to its foreign operations as of December 31, 2014.

The Company recognized a total tax provision for the year ended December 31, 2014 of approximately $31.0 million. No provision for U.S. federal and state income taxes has been made for the difference in the book and tax basis of the Company’s investment in foreign subsidiaries as such amounts are considered permanently invested. Distribution of earnings, as dividends or otherwise, from such investments could result in U.S. federal taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable in various foreign countries. Due to the Company’s significant net operating loss carryforward position the Company has not recognized any excess tax benefit related to its stock compensation plans. ASC Topic 718 prohibits the recognition of such benefits until the related compensation deduction reduces the current tax liability.

A reconciliation of the beginning and ending amount of unrecognized tax benefits at December 31 is as follows (in thousands):

	2014		2013		2012
Balance January 1	$	668	$	-	$	-
Additions related to tax positions taken in the current year		-		-		-
Additions related to tax positions of prior years		47		668		-
Reductions related to tax positions of prior years		-		-		-
Reductions related to settlements with taxing authorities		-		-		-
Reductions related to lapses in statute of limitations		-		-		-
Balance December 31	$	715	$	668	$	-

The December 31, 2014 balance of unrecognized tax benefits includes $0.7 million that, if recognized, would impact the Corporation’s effective income tax rate. Over the next 12 months, the Company does not anticipate any reduction in the balance. The Company had accrued interest and penalties related to unrecognized tax benefits of 47,000, $46,000 and zero as of December 31, 2014, 2013 and 2012, respectively. Estimated interest and penalties related to potential underpayment on unrecognized tax benefits, if any, are classified as a component of income tax expense in the Consolidated Statement of Operations.