Income Taxes (Notes)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Note 6—Income Taxes

As a result of the Business Combination, the Company became the sole managing member of CRP, and as a result, began consolidating the financial results of CRP. CRP is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, CRP is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by CRP is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of CRP, as well as any stand-alone income or loss generated by the Company.

Income tax benefit (expense) are included in the consolidated statements of operations are detailed below:

	Successor		Predecessor
	October 11, 2016 through December 31, 2016		January 1, 2016 through October 10, 2016		Year Ended December 31,
(in thousands)					2015		2014
Current taxes
Federal	$	—	$	—	$	—	$	—
State	—		—		—		—
	—		—		—		—
Deferred taxes
Federal	—		—		—		—
State	—		406		572		(1,524		)
	—		406		572		(1,524		)
Income tax benefit (expense)	$	—	$	406	$	572	$	(1,524	)

A reconciliation of the statutory federal income tax expense to the income tax expense from continuing operations provided at December 31, 2016, is as follows:

	Successor			Predecessor
	October 11, 2016 through December 31, 2016			January 1, 2016 through October 10, 2016		Year Ended December 31,
(in thousands)						2015		2014
Income tax (benefit) expense at the federal statutory rate	$	(3,145	)	$	—	$	—	$	—
State income taxes - net of federal income tax benefits	—			406		572		(1,524		)
Excess depletion	—			—		—		—
Noncontrolling interest in partnership	273			—		—		—
Nondeductible expenses	4			—		—		—
Change in valuation allowance	2,868			—		—		—
Income tax benefit (expense)	$	—		$	406	$	572	$	(1,524	)

The tax effects of temporary differences that give rise to significant positions of the deferred income tax assets and liabilities are presented below:

	Successor			Predecessor
(in thousands)	December 31, 2016			December 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	2,590		$	—
Capitalized intangible drilling cost	10,314			—
Equity-based compensation	467			—
Other assets	291			—
Total deferred tax assets	13,662			—
Deferred tax liabilities:
Investment in Centennial Resource Production, LLC	(8,514		)	—
Other liabilities	—			(2,361		)
Total deferred tax liabilities	(8,514		)	(2,361		)
Valuation allowance	(5,148		)	—
Net deferred tax asset (liabilities)	$	—		$	(2,361	)

For the period from October 11, 2016, through December 31, 2016 (Successor), equity was debited $5.6 million in connection with the issuance of shares to a noncontrolling interest owner. No tax benefit was recorded in equity as a $2.0 million valuation allowance fully offset the attendant tax benefit.

As of December 31, 2016, the Company had approximately $7.3 million of federal net operating loss carryovers that commence expiry in 2035.

The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets, including net operating losses. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years. It is currently estimated that the Company’s net deferred tax assets will not be utilized. Accordingly, a valuation allowance against the net deferred tax assets has been recorded at December 31, 2016.

The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations. The Company gives financial statement recognition to those tax positions that it believes are more-likely-than-not to be sustained upon the examination by the Internal Revenue Service or other governmental agency. As of December 31, 2016, the Company did not have any accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. Interest and penalties related to uncertain tax positions are reported in income tax expense.

The Company is subject to the following material taxing jurisdictions: U.S., Colorado and Texas. As of December 31, 2016, the Company has no current tax years under audit. The Company remains subject to examination for federal income taxes and state income taxes for tax years 2015 and 2016.