Note 15—Income Tax

For the year ended December 31, 2016, the Company’s annual effective tax rate is approximately 0.27%. The Company incurred a tax loss in the current year (due principally to pre-tax loss) and thus, no current federal income taxes will be due. This tax loss results in a net operating loss carryforward at December 31, 2016. Management assessed the realizability of the Company’s deferred tax assets based on the more likely than not standard. Management considered several factors such as: (i) the Company’s short tax history, (ii) the lack of carryback potential resulting in a tax refund, and (iii) in light of current commodity pricing uncertainty, there is insufficient external evidence to suggest that net federal tax attribute carryforwards are realizable. As such, the Company has provided a valuation allowance of $363 million as of December 31, 2016.

	For the Year Ended December 31,
	2016		2015			2014
Current
Federal	$	—	$	—		$	—
State		6		315			132
Total current		6		315			132
Deferred
Federal		—		(72,413	)		71,838
State		540		(348	)		(171	)
Total deferred		540		(72,761	)		71,667
Total income tax expense (benefit)	$	546	$	(72,446	)	$	71,799

The Company’s income tax expense differs from the amount derived by applying the statutory federal rate to pretax loss principally due the effect of the following items (in thousands):

	For the Year Ended December 31,
	2016			2015			2014
Loss before income taxes	$	(203,260	)	$	(1,043,856	)	$	(111,377	)
Statutory rate		35	%		35	%		35	%
Income tax benefit computed at statutory rate		(71,141	)		(365,350	)		(38,982	)
Reconciling items:
Non-deductible pre-IPO loss		—			—			13,264
State income taxes		546			(21	)		(39	)
Other, net		854			795			71
Change in tax status		—			—			97,609
Gain on acquisition of Eclipse Operating		—			(141	)		(124	)
Change in valuation allowance		70,287			292,271			—
Income tax expense (benefit)	$	546		$	(72,446	)	$	71,799

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of our deferred taxes are detailed in the table below (in thousands):

	For the Year Ended December 31,
	2016			2015
Deferred tax asset:
Oil and gas properties and equipment	$	193,095		$	235,884
Federal tax loss carryforwards		149,088			65,491
Derivative instruments and other		16,829			—
State effect of deferreds		—			540
Other, net		4,259			3,434
Deferred tax asset		363,271			305,349
Valuation allowance		(362,558	)		(292,271	)
Net deferred tax assets	$	713		$	13,078
Deferred tax liability:
Oil and gas properties and equipment	$	—		$	—
Derivative instruments and other		—			12,054
Other, net		713			484
Net deferred tax liability	$	713		$	12,538
Reflected in the accompanying consolidated balance sheet as:
Net deferred tax asset	$	—		$	540
Net deferred tax liability	$	—		$	—

The Company has U.S. federal tax loss carryforwards (“NOL”) of approximately $426 million as of December 31, 2016. The NOL carryforwards will begin to expire in 2034. The tax years ended December 31, 2015 and 2014 will remain open to examination under the applicable statute of limitations in the U.S. and other jurisdictions in which the Company and its subsidiaries file income tax returns. However, the statute of limitations for examination of NOLs and other similar attribute carryforwards does not commence until the year the attribute is utilized. In some instances, state statutes of limitations are longer than those under U.S. federal tax law. Tax returns for predecessor entities for 2012 tax year and prior are generally not subject to examination.

During the second quarter of 2016, the Internal Revenue Service notified the Company that it would examine the federal income tax return of Eclipse Resources Corporation and Subsidiaries for its 2014 tax year. The Company does not anticipate any material adjustments to its provision for income taxes as a result of the examination, as such no reserve has been recorded at this time.

As of December 31, 2016, 2015, and 2014 the Company has not recorded a reserve for any uncertain tax positions. No federal income tax payments are expected in the upcoming four quarterly reporting periods.