Note 15. Income Taxes

The following table shows the components of the Company’s income tax provision for the years ended December 31, 2016, 2015 and 2014 (in thousands):

	Years Ended December 31,
	2016		2015			2014
Current:
Federal	$	—	$	—		$	—
State		—		91			—
Total current		—		91			—

Deferred:
Federal		515		(26,214	)		21,803
State		13		(319	)		302
Total deferred		528		(26,533	)		22,105
Total income tax provision (benefit)	$	528	$	(26,442	)	$	22,105

Effective Tax Rate

Our corporate structure requires the filing of two separate consolidated U.S. Federal income tax returns and one Canadian income tax return resulting from the Lynden Arrangement that includes Lynden USA, Inc. (“Lynden US”), Earthstone Energy, Inc. (“Earthstone”), and Lynden Energy Corp. (the Canadian entity), As such, taxable income of Earthstone cannot be offset by tax attributes, including net operating losses, of Lynden US, nor can taxable income of Lynden US, Inc.be offset by tax attributes of Earthstone.

A reconciliation of the effective tax rate to the statutory rate for the year ended December 31, 2016 rate is as follows (in thousands, except percentages):

	U.S.			Canada			Total
Net loss before income taxes	$	(54,032	)	$	19		$	(54,013	)
Statutory rate		34	%		26	%
Tax benefit computed at statutory rate		(18,370	)		5			(18,365	)
Non-deductible impairment of goodwill		5,961			—			5,961
Non-deductible transaction costs		878			—			878
Non-deductible general and administrative expenses		5			—			5
Return to accrual		15			—			15
State income taxes, net of Federal benefit		(128	)		—			(128	)
Valuation allowance		12,167			(5	)		12,162
Total income tax expense	$	528		$	—		$	528
Effective tax rate		-1.0	%		0.0	%		-1.0	%

During the year ended December 31, 2016, we recorded income tax expense related to Lynden of $0.5 million. For the remainder of the Company, we recorded an income tax benefit of $12.2 million as a result of the related pre-tax net losses which were offset by a full valuation allowance, as future realization of the related deferred tax asset cannot be assured.

A reconciliation of the effective tax rate to the statutory rate for the years ended December 31, 2015 and 2014 rates is as follows (in thousands, except percentages):

	Years Ended December 31,
	2015			2014
Net loss before income taxes	$	(143,097	)	$	(6,729	)
Tax benefit computed at Federal statutory rate		(48,653	)		(2,288	)
Non-taxable Oak Valley income prior to merger		—			(4,142	)
Deferred income tax arising from change in tax status of Oak Valley		—			28,347
Non-deductible general and administrative expenses		534			—
Return to accrual		(1,398	)		—
State income taxes, net of Federal benefit		(743	)		188
Valuation allowance		23,818			—
Total income tax (benefit) expense	$	(26,442	)	$	22,105
Effective tax rate		18.5	%		-328.5	%

The Company’s effective tax rate for the year ended December 31, 2015, is approximately 18.5% which is less than the U.S. Federal statutory tax rate primarily due to the increase in valuation allowance in 2015. The impairments recorded by the Company during 2015 reduced the book value of its properties below the tax basis; thereby, giving rise to a significant deferred tax asset associated with its oil and gas properties and putting the Company in an overall net deferred tax asset position prior to any realization assessment. The realizability of the Company’s deferred tax assets is not more likely-than-not, therefore the Company recorded a valuation allowance to reduce its overall net deferred tax asset portion to zero.

Deferred Tax Assets And Liabilities

The Company's deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of the deferred tax assets and liabilities at December 31, 2016 and 2015 are as follows (in thousands):

	December 31,
	2016			2015
Deferred noncurrent income tax assets (liabilities):
Office and other equipment		(48	)		(253	)
Oil & gas properties		7,428			23,177
Asset retirement obligation		2,042			1,788
Basis difference in subsidiary obligation		(4,226	)		—
Intangible assets		36			(7	)
Unrealized derivative loss (gain)		2,145			(1,284	)
Stock-based compensation		1,148			—
Federal net operating loss carryforward		15,109			339
Other		186			59
Net deferred noncurrent tax assets		23,820			23,819
Valuation allowance		(39,596	)		(23,819	)
Net deferred tax (liability) asset	$	(15,776	)	$	—

As of December 31, 2016, the Company has a valuation allowance recorded against its deferred tax assets of $39.6 million which is in excess of its Net deferred noncurrent tax assets of $23.8 million, as presented above. The Company’s corporate organizational structure requires the filing of two separate consolidated U.S. Federal income tax returns and one Canadian income tax return. As a result, tax attributes of one group cannot be offset by the tax attributes of another. At December 31, 2016, the deferred tax assets and liabilities related to the two U.S. Federal income tax returns and one Canadian income tax return are a $36.0 million deferred tax asset, a $15.8 million deferred tax liability and a $3.6 million deferred tax asset, respectively.

As of December 31, 2016, the Company has estimated U.S. net operating loss carryforwards of $36.4 million, the first expiring in 2034 and the last in 2036, and estimated Canadian net operating loss carryforwards of $10.0 million, the first expiring in 2024 and the last in 2036. The ability to utilize net operating losses and other tax attributes could be subject to a significant limitation if the Company were to undergo an ownership change for the purposes of Section 382 of the US Tax Code (“Sec 382”). The Company has an additional estimated U.S. net operating loss carryforward of $28.0 million limited by Sec 382 resulting from the Lynden Arrangement. The Company continues to evaluate the impact, if any, of potential Sec 382 limitations.

Uncertain Tax Positions

FASB ASC Topic 740, Income Taxes (ASC 740) prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2016, the Company has no material uncertain tax positions. The Company’s uncertain tax positions may change in the next twelve months; however, the Company does not expect any possible change to have a significant impact on its results of operations or financial position.

The Company files two federal income tax returns, one Canadian income tax return and various combined and separate filings in several state and local jurisdictions. The Company’s practice is to recognize estimated interest and penalties, if any, related to potential underpayment of income taxes as a component of income tax expense in its Consolidated Statement of Operations. As of December 31, 2016, the Company did not have any accrued interest or penalties associated with any uncertain tax liabilities.