Income Taxes

6 Months Ended

Jun. 30, 2019

7. Income Taxes

The Company’s estimated annual effective income tax rates are used to allocate expected annual income tax expense or benefit to interim periods. The rates are the ratio of estimated annual income tax expense or benefit to estimated annual income or loss before income taxes by taxing jurisdiction, excluding significant unusual or infrequent items, the tax effects of statutory rate changes, certain changes in the assessment of the realizability of deferred tax assets, and excess tax benefits or deficiencies related to the vesting of stock-based compensation awards, which are recognized as discrete items in the interim period in which they occur.

The Company’s income tax (expense) benefit differed from the income tax (expense) benefit computed by applying the U.S. federal statutory corporate income tax rate of 21% for the three and six months ended June 30, 2019 and 2018, to income before income taxes as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(In thousands)
Income before income taxes		$109,784			$35,792			$81,752			$63,603
Income tax expense at the U.S. federal statutory rate	(23,055		)	(7,517		)	(17,168		)	(13,357		)
State income tax expense, net of U.S. federal income tax benefit	(874		)	(487		)	(626		)	(806		)
Tax deficiencies related to stock-based compensation	(176		)	(16		)	(2,114		)	(2,542		)
(Recapture) release of valuation allowance	(1,423		)	—			177,723			—
Decrease in valuation allowance due to current period activity	23,211			8,048			19,273			16,449
Other	18			(511		)	8			(546		)
Income tax (expense) benefit		($2,299	)		($483	)		$177,096			($802	)

Deferred Tax Asset Valuation Allowance

The deferred tax asset valuation allowance was $45.9 million and $242.9 million as of June 30, 2019 and December 31, 2018, respectively. Throughout 2018, the Company maintained a full valuation allowance against its deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that the deferred tax assets would not be realized. A significant item of objective negative evidence considered was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2018, primarily due to impairments of proved oil and gas properties recognized in the first three quarters of 2016. As of March 31, 2019 and June 30, 2019, the Company is in a cumulative three-year pre-tax income position. Based on this factor, as well as other positive evidence including projected future taxable income for the current and future years, the Company concluded that it is more likely than not that the deferred tax assets would be realized and released $179.1 million of the valuation allowance during the first quarter of 2019. During the second quarter of 2019, the Company reduced the prior valuation allowance release by $1.4 million as a result of updating the Company’s forecasted taxable income for 2019 bringing the cumulative release of the valuation allowance to $177.7 million. The reduction of the release of the valuation allowance in the second quarter of 2019 is recognized as a decrease in deferred tax assets and an increase in income tax expense, while the cumulative release of the valuation allowance for the six months ended June 30, 2019 is recognized as an increase in deferred tax assets and an income tax benefit.