NOTE 14 - INCOME TAXES

The income tax provision (benefit) for the years ended December 31, 2019 and 2018 consisted of the following:



	December 31,
	2019			2018
	(in thousands)
U.S. Federal:
Current	$	—		$	—
Deferred	(55,366		)	(7,496		)
State and local:
Current	—			—
Deferred	(4,220		)	509
	(59,586		)	(6,987		)
Change in valuation allowance	59,586			6,987
Income tax provision	$	—		$	—

The tax effects of temporary differences that give rise to the Company’s deferred tax asset as of December 31, 2019 and 2018 consisted of the following:



	December 31,
	2019			2018
	(In thousands)
Deferred tax assets:
Net operating loss carry-forward	$	31,992		$	27,568
Share based compensation	531			808
Abandonment obligation	761			541
Derivative instruments	1,526			—
Deferred revenue	15,863			11,630
Interest expense	4,540			3,804
Lease Liability	386			—
Property Basis	27,837			—
Accrued liabilities and other	144			85
Total deferred tax asset	83,580			44,436
Valuation allowance	(83,197		)	(23,611		)
Deferred tax asset, net of valuation allowance	383			20,825

Deferred tax liabilities:
Derivative instruments	—			249
Oil and natural gas properties and equipment	—			20,576
Right of use asset	383			—
Total deferred tax liability	383			20,825
Net deferred tax asset (liability)	$	—		$	—

Reconciliation of the Company’s effective tax rate to the expected U.S. federal tax rate is:



	Year Ended December 31,
	2019		2018
Effective federal tax rate	21	%	21	%
State tax rate, net of federal benefit	1	%	2	%
Change in fair value derivative liability	—	%	296	%
Debt discount amortization	—	%	(73	)%
Change in rate	—	%	(6	)%
Other permanent differences	—	%	(6	)%
NOL true-up - §382 limitation	—	%	(6	)%
Loss from early debt extinguishment	—	%	(59	)%
Other	—	%	(1	)%
Valuation allowance	(22	)%	(169	)%
Net	—	%	—	%

As of December 31, 2019 and 2018, the Company had net operating loss carry-forwards for federal income tax purposes of approximately $142.2 million and $127.5 million respectively, available to offset future taxable income. To the extent not utilized, federal net operating loss carry-forwards incurred prior to January, 1 2018 of $69.9 million will expire beginning in 2028 through 2037. Federal net operating loss carryforwards incurred after December 31, 2017 of $77.1 million have no expiration and can only be used to offset 80% of taxable income when utilized. A portion of the net operating loss of $142.2 million is subject to Section 382 limitations of utilization due to ownership changes of more than 50% which occurred in the prior tax years.

In assessing the need for a valuation allowance on the Company’s deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon whether future book income is sufficient to reverse existing temporary differences that give rise to deferred tax assets, as well as whether future taxable income is sufficient to utilize net operating loss and credit carryforwards. Assessing the need for, or the sufficiency of, a valuation allowance requires the evaluation of all available evidence, both positive and negative. Negative evidence considered by management includes cumulative book and tax losses in recent years, no taxable income in available carryback years, and no tax planning strategies contemplated to realize the valued deferred tax assets.

As of December 31, 2019, and 2018, management assessed the available positive and negative evidence to estimate if sufficient future taxable income would be generated to use the Company’s deferred tax assets and determined that it is not more-likely-than-not that the deferred tax assets would be realized in the near future. Therefore, the Company recorded a full valuation allowance of approximately $83.2 million and $23.6 million on its deferred tax assets as of December 31, 2019 and 2018, respectively.