Income Taxes

The income tax provision is as follows:



	Year Ended December 31,
In thousands	2018			2017
Current income tax (benefit) expense
Federal	$	(1,100	)	$	59
State	291			113
Total current income tax (benefit) expense	(809		)	172
Deferred tax expense (benefit)
Federal	7,686			(29,125		)
State	(85		)	(66		)
Total deferred income tax expense (benefit)	7,601			(29,191		)
Total income tax expense (benefit)	$	6,792		$	(29,019	)

The following table provides a reconciliation of Lonestar's actual income tax provision amounts from the expected income tax provision amount by applying the U.S. federal statutory corporate income tax rate of 21% and 35% for the years ended December 31, 2018 and 2017, respectively:



	Year Ended December 31,
In thousands	2018			2017
Expected income tax expense (benefit) at statutory rate	$	5,489		$	(25,370	)
Permanent differences	123			(357		)
Adjustment to NOL	1,119			—
Remeasurement of deferred balances due to federal rate change	—			(4,140		)
State tax, tax effected	146			97
Prior year differences	(210		)	779
Stock-based compensation differences	112			—
Other	13			(28		)
Actual income tax expense (benefit)	$	6,792		$	(29,019	)

Significant components of the Company's deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows:



	December 31,
In thousands	2018			2017
Deferred tax assets
Net operating loss carryforward	$	17,765		$	20,874
Stock-based compensation	1,973			1,891
Intangibles	304			351
Derivative instruments	—			4,429
Interest expense limitation	2,254			—
Organizational expenses and other	4,477			2,900
Total deferred tax assets	$	26,773		$	30,445
Deferred tax liabilities
Oil and gas properties, and other property and equipment, principally due to intangible drilling costs	$	(34,332	)	$	(35,214	)
Derivative instruments	(4,811		)	—
Net deferred tax liabilities	$	(12,370	)	$	(4,769	)

The net operating loss carryforward as of December 31, 2018, approximates $84.6 million and begins to expire in 2030 with the exception $0.8 million related to fiscal year 2018, which has no expiration.

On December 22, 2016, the Company completed a public offering of 13.8 million of its Class A common stock. A change of ownership, as defined under the provisions of Section 382 of the Internal Revenue Code (“IRC”) occurred on this date. A portion of our net operating loss and tax credit carryforwards will be limited in future periods. IRC Section 382 places limitations on the amount of taxable income which may be offset by tax carryforward attributes, such as net operating losses or tax credits after a change of ownership event. As a result of this ownership change, certain of our accumulated net operating losses will be subject to an annual limitation regarding their utilization against taxable income in future periods. The 2016 change creates an estimated annual utilization limit of approximately $1.0 million on our ability to utilize net operating losses generated prior to the ownership change event. Built-in gains associated with our deferred tax attributes on the date of the ownership change may increase the net operating loss utilization limit in future periods, allowing additional utilization of net operating losses generated prior to the date of the ownership change. Due to the ownership change and the resulting limitation on the utilization of net operating loss generated prior to the change, an estimated $141.7 million of the net operating loss carryforwards were written off in 2016. As of December 31, 2018, the Company has approximately $8.7 million of percentage depletion carryover which has no expiration.

On June 15, 2017, the Company entered into an amended and restated purchase agreement with Chambers Energy Capital III, LP (“Chambers”) where the Company closed transactions issuing Chambers 5,400 shares of Series A-1 Preferred Stock and 74,600 shares of Series A-2 Preferred Stock. These transactions created an additional change of ownership under the provision of Section 382 of the IRC. The 2017 change creates an additional estimated annual utilization limit of approximately $0.8 million on our ability to utilize net operating losses generated subsequent to the 2016 change in ownership, but prior to the June, 2017 change in ownership.

If the Company were to experience another ownership change in future periods, the net operating loss carryforwards may be subject to additional utilization limits.

The Company files income tax returns in the United States federal jurisdiction and in various state jurisdictions. As of December 31, 2018, there is one current examination of federal or state jurisdictions in progress. The Company’s income tax returns related to fiscal years ended December 31, 2010 through 2018 remain open to possible examination by the tax authorities. The Company has not recorded any interest or penalties associated with uncertain tax positions.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act (the “Act”), the Company revalued its deferred tax assets and liabilities at December 31, 2017, which resulted in a $4.1 million benefit.

The corporate alternative minimum tax (“AMT”) for tax years beginning in January 1, 2018 has also been repealed. The Act provides that existing AMT credit carryovers are refundable beginning in 2018. As of December 31, 2018, the Company had AMT credit carryovers of $1.2 million that are expected to be fully refunded by 2022.

The deductibility of interest expense for tax years beginning in January 1, 2018 has been limited to 30% of earnings before interest, taxes, depreciation, and amortization for the four years ending 2021. Deductibility of interest expense for tax years beginning in January 1, 2022 will then be limited to 30% of earnings before interest and taxes thereafter. For the year ended December 31, 2018, our deductible interest expense was limited to $25.5 million, which resulted in a $2.3 million deferred tax asset.