Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Expense (Benefit), Continuing Operations [Abstract]

Income Taxes

INCOME TAXES

The Company’s effective tax rate was approximately 18% and 0% for the three months ended September 30, 2019 and 2018, respectively, and (105)% and 0% for the nine months ended September 30, 2019 and 2018, respectively. The change in the effective tax rate for the three and nine months ended September 30, 2019 was primarily the effect of releasing the valuation allowances previously recorded against the Company’s deferred tax assets. A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized.  To assess that likelihood, the Company uses estimates and judgment regarding future taxable income, and considers the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required.  Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities and tax planning strategies as well as the current and forecasted business economics of the oil and gas industry.

For the year ended December 31, 2018, the Company maintained a full valuation allowance against its deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that the deferred tax assets would not be realized. A significant item of objective negative evidence considered was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2018, primarily due to impairments of proved natural gas and oil properties recognized in 2015 and 2016.  As of the first quarter of 2019, the Company had sustained a three-year cumulative level of profitability. Based on this factor and other positive evidence including forecasted income, the Company concluded that it was more likely than not that the deferred tax assets would be realized and determined $522 million of the valuation allowance will be released. For the nine months ended September 30, 2019, the Company recorded a discrete tax benefit of $399 million, with the remainder being recognized through current period activity. The Company expects to retain a valuation allowance of $87 million related to net operating losses in jurisdictions in which it no longer operates.