Income taxes

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. We are subject to U.S. federal corporate income taxes, state income tax in states where business is conducted (most notably Oklahoma), and margin tax in the state of Texas.

Income tax (benefit) expense from continuing operations consists of the following:



	Successor								Predecessor
						Period from			Period from
						March 22, 2017			January 1, 2017
	For the Year Ended December 31,					through			through
	2019		2018			December 31, 2017			March 21, 2017
Current income taxes
Federal	$	—	$	(77	)	$	(162	)	$	—
State	—		—			(187		)	37
Total current income taxes	—		(77		)	(349		)	37
Deferred income taxes
Federal	—		—			—			—
State	—		—			—			—
Total deferred income taxes	—		—			—			—
Income tax (benefit) expense	$	—	$	(77	)	$	(349	)	$	37

A reconciliation of the U.S. federal statutory income tax rate to the effective tax rate is as follows:



	Successor						Predecessor
					Period from		Period from
					March 22, 2017		January 1, 2017
	For the Year Ended December 31,				through		through
	2019		2018		December 31, 2017		March 21, 2017
Federal statutory rate	21.0	%	21.0	%	35.0	%	35.0	%
Remeasurement of deferred taxes—U.S. tax reform legislation	—	%	—	%	(94.7	)%	—	%
State remeasurement of deferred taxes	0.3	%	—	%	—	%	—	%
State income taxes, net of federal benefit	4.5	%	(0.1	)%	5.8	%	2.2	%
Statutory depletion	—	%	(0.4	)%	0.4	%	—	%
Valuation allowance	(25.0	)%	2.8	%	54.1	%	(25.9	)%
EOR tax credit	—	%	(25.9	)%	(8.4	)%	—	%
Return to provision adjustment	(0.6	)%	(1.7	)%	10.2	%	—	%
Other, net	(0.2	)%	4.1	%	(2.4	)%	(11.3	)%
Effective tax rate	—	%	(0.2	)%	—	%	—	%

Components of the deferred tax assets and liabilities are as follows:



	December 31, 2019			December 31, 2018
Deferred tax assets related to
Asset retirement obligations	$	8,500		$	10,013
Accrued expenses, allowance and other	2,254			2,264
Derivative instruments	4,095			—
Net operating loss carryforwards
Federal	258,388			242,070
State	69,100			66,575
Statutory depletion carryforwards	2,351			2,383
Enhanced oil recovery credit	18,758			18,758
Interest limitation	4,153			5,771
	367,599			347,834
Less valuation allowance	(336,123		)	(216,109		)
Deferred tax asset	31,476			131,725
Deferred tax liabilities related to
Property and equipment	(31,355		)	(125,224		)
Derivative instruments	—			(6,353		)
Inventories	(121		)	(148		)
Deferred tax liability	(31,476		)	(131,725		)
Net deferred tax liability	$	—		$	—

Deferred tax asset valuation allowance. The ultimate realization of our deferred tax assets is dependent upon the generation of future taxable income during the periods in which those deferred tax assets would be deductible. We assess the realizability of our deferred tax assets each period by considering whether it is more likely than not that all or a portion of our deferred tax assets will not be realized. We consider all available evidence (both positive and negative) when determining whether a valuation allowance is required. We evaluated possible sources of taxable income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies in making this assessment.

Due to continued tax losses, we maintained our deferred tax asset position at December 31, 2019. We believe that it is more likely than not that these deferred tax assets will not be realized and as such we are maintaining the full valuation allowance against our net deferred tax assets.

We will continue to evaluate whether the valuation allowance is needed in future reporting periods. The valuation allowance will remain until we can determine that the net deferred tax assets are more likely than not to be realized. Future events or new evidence which may lead us to conclude that it is more likely than not that our net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, improvements in oil prices, and taxable events that could result from one or more transactions. The valuation allowance does not prevent future utilization of the tax attributes if we recognize taxable income. As long as we conclude that the valuation allowance against our net deferred tax assets is necessary, we likely will not have any additional deferred income tax expense or benefit.

Net operating loss carryforwards. We have federal net operating loss carryforwards of approximately $1,230,419 at December 31, 2019, of which $1,011,368 will expire at various times between 2028 and 2037 if not utilized in earlier periods. However, because of the 2017 Tax Act, the estimated federal net operating loss of $219,051 generated in 2018 and 2019 does not expire but may only offset 80% of taxable income in any given year. At December 31, 2019, we have state net operating loss carryforwards of approximately $1,498,363, which will expire between 2020 and 2039 if not utilized in earlier periods. In addition, at December 31, 2019, we had federal percentage depletion carryforwards of approximately $11,194, which are not subject to expiration.

IRC Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 on March 21, 2017. The Company analyzed alternatives available within the IRC to taxpayers in Chapter 11 bankruptcy proceedings in order to minimize the impact of the March 21, 2017 ownership change on its tax attributes. Upon filing the 2017 U.S. Federal income tax return, the Company elected an available alternative which subjects existing tax attributes at emergence to an IRC Section 382 limitation that could result in some or all of the remaining net operating loss carryforwards expiring unused. Upon final determination of tax return amounts for the year ended December 31, 2017, including attribute reduction that occurred on January 1, 2018, the Company has total federal net operating loss carryforwards of $1,011,368 including $760,067 which are subject to limitation due to the ownership change that occurred upon emergence from bankruptcy and $251,301 of post-change net operating loss carryforwards not subject to this limitation. The limitation did not result in a current tax liability for the tax years ended December 31, 2017, 2018 and 2019.The Company has incurred additional net operating losses for the years ended December 31, 2018 and December 31, 2019 that are currently not subject to an IRC Section 382 limitation.