The Company under ASC 740 uses the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized.

For the years ended December 31, 2020, 2019, and 2018, the Company recorded an income tax expense of $0.6 million, $3.9 million and $3.3 million, respectively. Royal was historically treated as a partnership for federal income tax purposes, with each partner being separately taxed on its share of taxable income; therefore, there is no federal income tax expense reflected in Royal’s financial statements for any period prior to the Transactions on August 23, 2018.

As of December 31, 2020, and 2019, the Company had $55.8 million and $56.4 million, respectively, of net deferred tax assets. These net deferred tax assets relate to oil and gas assets and other temporary items where the tax basis differs from the GAAP carrying amounts.

As of December 31, 2020, and 2019, the Company had net operating loss carryforwards for federal income tax purposes of $9.7 million and $0 million, respectively, that, subject to limitation, may be available in future tax years to offset taxable income. The federal net operating loss carryforwards do not expire but are subject to certain income limitations in future tax years. In the event that the Company experiences an ownership change within the meaning of Section 382 of the Internal Revenue Code, our ability to utilize net operating losses, tax credits, and other tax attributes may be limited.

At December 31, 2020 and 2019, the Company had recorded a prepayment of income taxes of $0 million and $0.5 million, respectively.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

The components of the provision for income taxes for the years ended December 31, 2020, 2019, and 2018 are as follows:

	For the Year Ended December 31,
	2020		2019		2018
	(in thousands)
Current income tax provision:
Federal	$	10	$	1,459	$	995
State		-		38		12
Total current income tax provision		10		1,497		1,007
Deferred income tax provision:
Federal		574		2,399		2,264
State		5		22		21
Total deferred income tax provision		579		2,421		2,285
Total provision for income taxes	$	589	$	3,918	$	3,292

A reconciliation of the statutory federal income tax amount to the recorded expense is as follows:

	For the Year Ended December 31,
	2020			2019			2018
	(in thousands)
Income tax expense at the federal statutory tax rate (21%)	$	2,318		$	8,589		$	27,313
Impact of net income attributable to the non-controlling interests		(577	)		(3,478	)		(2,306	)
State taxes, net of federal benefit		4			47			-
Impact of net income attributable to pre-business combination period		-			-			(16,576	)
Impact of pre-business combination tax adjustment		-			-			824
Warrant liability adjustment		(1,077	)		(1,274	)		(5,838	)
Other, net		(79	)		34			(125	)
Provision for (benefit from) income taxes	$	589		$	3,918		$	3,292

The components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

	As of December 31,
	2020		2019
	(in thousands)
Deferred tax assets:
Difference in carrying value and tax basis in oil and gas assets	$	52,790	$	56,057
Net operating loss		2,032		-
Share-based compensation		1,052		394
Total deferred tax assets		55,874		56,451
Valuation allowance		-		-
Net deferred tax assets		55,874		56,451
Deferred tax liabilities:
Prepaid Expenses		101		99
Net deferred tax assets	$	55,773	$	56,352