INCOME TAXES

The components of Energen’s income taxes consisted of the following:



Years ended December 31, (in thousands)	2017			2016			2015
Current taxes:
Federal	$	(92,236	)	$	(23,277	)	$	3,972
State	532			832			758
Total current	(91,704		)	(22,445		)	4,730
Taxes deferred:
Federal	(113,412		)	(62,205		)	(513,187		)
State	5,675			5,012			(26,548		)
Total deferred	(107,737		)	(57,193		)	(539,735		)
Total income tax benefit	$	(199,441	)	$	(79,638	)	$	(535,005	)

Temporary differences and carryforwards which gave rise to Energen’s deferred tax assets and liabilities were as follows:



(in thousands)	December 31, 2017			December 31, 2016
	Noncurrent			Noncurrent
Deferred tax assets:
Minimum tax credit	$	—		$	64,203
Insurance and other accruals	1,455			3,151
Compensation accruals	6,645			13,895
Deferred compensation and other costs	2,605			5,401
Derivative instruments	16,032			22,402
Federal net operating losses and other carryforwards	2,350			—
State net operating losses and other carryforwards	15,642			12,947
Other	338			535
Total deferred tax assets	45,067			122,534
Valuation allowance	(7,710		)	(5,735		)
Total deferred tax assets	37,357			116,799
Deferred tax liabilities:
Depreciation and basis differences	417,376			603,324
Other comprehensive income	223			854
Other	7,565			8,509
Total deferred tax liabilities	425,164			612,687
Net deferred tax liabilities	$	(387,807	)	$	(495,888	)

Energen files a consolidated federal income tax return with all of its subsidiaries. Energen has a federal net operating loss generated in the current year of $46 million, which the Company intends to carry back $38 million and utilize in the 2015 tax year. The remaining $8.0 million federal net operating loss carryforward will expire in 2037. Energen made a reclassification of approximately $6.8 million between income tax receivable and deferred tax assets to reflect the impact of the federal net operating loss carryback. In addition, this federal net operating loss carryback and the final 2016 carryback claim filed in 2017 will generate an additional minimum tax credit carryforward of $13 million. As of December 31, 2017, the amount of minimum tax credit which Energen anticipates will be fully refundable over the taxable years 2018 through 2021 under the Tax Cuts and Jobs Act is $75.7 million. Energen reclassed the minimum tax credit to a noncurrent income tax receivable on the balance sheet and recorded a $5 million income tax writedown for the impact of sequestration of the refundable credit as discussed further in Note 2, Summary of Significant Accounting Policies.

Energen Resources has $301 million of state net operating loss carryforwards which will expire beginning in 2026 through 2037. Energen Resources has a valuation allowance recorded against deferred tax assets of $7.7 million arising from certain of these state net operating losses and other state deferred tax assets that are not expected to be realized through reversals of its existing taxable temporary differences. Energen intends to fully reserve these assets until it is determined that deferred tax assets can be realized through future taxable income in the respective state taxing jurisdictions. No other valuation allowance with respect to deferred taxes is deemed necessary as Energen anticipates generating adequate future taxable income from the reversals of its existing taxable temporary differences to realize the benefits of all remaining deferred tax assets on the consolidated balance sheets.

Total income tax expense from operations differs from the amount which would have been provided by applying the statutory federal income tax rate of 35 percent to earnings before taxes as illustrated below:



Years ended December 31, (in thousands)	2017			2016			2015
Income tax expense (benefit) at statutory federal income tax rate	$	37,585		$	(86,503	)	$	(518,258	)
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	3,235			925			(15,417		)
Impact of state law changes	(12		)	(9		)	(3,075		)
Impact of state deferred tax revaluation on San Juan properties	—			(153		)	(1,241		)
Change in deferred tax valuation allowance	1,975			2,500			1,305
Impact of sequestration on minimum tax credit refund	4,998			—			—
Impact of corporate rate reduction due to the Tax Cuts and Jobs Act (remeasurement of deferred taxes)	(247,844		)	—			—
Other, net	622			3,602			1,681
Total income tax benefit	$	(199,441	)	$	(79,638	)	$	(535,005	)
Effective income tax rate (%)	(185.72		)	32.22			36.13

The Tax Cuts and Jobs Act was signed into law on December 22, 2017. The change in tax rates and tax law are accounted for in the period of enactment. Accordingly, Energen recognized the impact of the corporate rate reduction from 35 percent to 21 percent for tax years beginning after December 31, 2017, as a discrete event in the fourth quarter of 2017 and remeasured its deferred tax assets and liabilities through income tax expense. The remeasurement of Energen’s net deferred tax liability resulted in a provisional income tax benefit of $247.8 million. As discussed further in the summary of significant accounting policies note to the financial statements, Energen recorded a $5.0 million income tax writedown for the impact of sequestration of the refundable minimum tax credit provision. The provisions of the Tax Cuts and Jobs Act were considered in the assessment of the change in deferred tax valuation allowance of $2.0 million. Other provisions of the Tax Cuts and Jobs Act did not have a material impact on Energen’s effective tax rate and have been included in the other, net line item above.

Under SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), provisional amounts must be recorded for certain income tax effects of the Tax Cuts and Jobs Act for which the accounting under Accounting Standard Codification 740 is incomplete but a reasonable estimate can be determined. Energen recorded a provisional estimate of $0.4 million deferred income tax expense with respect to the IRC Section 162(m) limitation and associated compensation-related deferred tax assets. Energen is awaiting guidance from the IRS with respect to transition relief on certain written binding contracts which were in effect on November 2, 2017. Any adjustment to this provisional estimate will be recorded in the period when further guidance is issued but no later than the fourth quarter of 2018.

In addition to other changes in state apportionment reflected in the state income taxes, net of federal income tax benefit above, Energen recognized $0.2 million and $1.2 million of income tax benefit during 2016 and 2015, respectively, as a result of re-measuring its state deferred tax liabilities. This re-measurement reflected the state apportionment changes related to certain San Juan Basin properties designated as held for sale as of December 31, 2015.

A reconciliation of Energen’s beginning and ending amount of unrecognized tax benefits is as follows:



(in thousands)
Balance as of December 31, 2014	$	17,530
Additions based on tax positions related to the current year	2,378
Reductions based on tax positions related to the current year	(6,589		)
Reductions for tax positions of prior years	(345		)
Lapse of statute of limitations	(1,785		)
Balance as of December 31, 2015	11,189
Additions based on tax positions related to the current year	2,936
Additions for tax positions of prior years	1,484
Reductions for tax positions of prior years	(99		)
Lapse of statute of limitations	(1,300		)
Balance as of December 31, 2016	14,210
Additions based on tax positions related to the current year	1,309
Reductions for tax positions of prior years	(2,733		)
Lapse of statute of limitations	(4,416		)
Balance as of December 31, 2017	$	8,370

The amount of unrecognized tax benefits at December 31, 2017 that would favorably impact Energen’s effective tax rate, if recognized, is $4.2 million. Energen recognizes potential accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2017, 2016 and 2015, Energen recognized approximately $31,000 of income, $101,000 of expense and $2,000 of income for interest (net of tax benefit) and penalties, respectively. Energen had approximately $0.3 million for the payment of interest (net of tax benefit) and penalties accrued at both December 31, 2017 and 2016, respectively.

Energen’s tax returns for years 2014-2016 remain open and subject to examination by the IRS and major state taxing jurisdictions. Energen is currently under IRS examination of its federal consolidated income tax returns for 2014 and 2016. Accordingly, it is reasonably possible that significant changes to the reserve for uncertain tax benefits may occur as a result of various audits and the expiration of the statute of limitations. Although the timing and outcome of tax examinations is highly uncertain, Energen does not expect the change in the unrecognized tax benefit within the next 12 months would have a material impact to the financial statements.