Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

During the fourth quarter of 2017, the U.S. government enacted the Tax Act. Among its many provisions, the Tax Act reduces the federal corporate tax rate from 35% to 21%, effective January 1, 2018. The change in tax law required the company to revalue its existing net deferred tax liability using the lower rate in the period of enactment resulting in the recognition of an income tax benefit of $81.3 million for the year ended December 31, 2017 related to that revaluation. As a result, the company recognized an overall income tax benefit of $57.7 million for the year ended December 31, 2017.

During the third quarter of 2019, we recognized a goodwill impairment charge of $62.8 million. Approximately $50.3 million of this amount was not deductible for income taxes resulting in a reduction of our effective tax rate and reduction of our income tax benefit of approximately $12.3 million for 2019.

A reconciliation of income tax expense (benefit), computed by applying the federal statutory rate to pre-tax income (loss) to our effective income tax expense (benefit) is as follows:


	2019		2018		2017
	(In thousands)
Income tax expense (benefit) computed by applying the statutory rate	$	(144,092)	$	(11,290)	$	21,059
State income tax expense (benefit), net of federal benefit	(21,733)		(1,882)		1,655
Deferred tax liability revaluation ⁽¹⁾	—		—		(81,307)
Restricted stock shortfall	347		424		1,867
Non-controlling interest in Superior	(11)		(1,138)		—
Goodwill impairment	12,346		—		—
Valuation allowance	19,654		—		—
Statutory depletion and other	1,163		(110)		(952)
Income tax benefit	$	(132,326)	$	(13,996)	$	(57,678)

__________________________

1.In 2017, the revaluation from the Tax Act.

For the periods indicated, the total provision for income taxes consisted of the following:


	2019		2018		2017
	(In thousands)
Current taxes:
Federal	$	(918)	$	(1,835)	$	—
State	(363)		(1,296)		5
	(1,281)		(3,131)		5
Deferred taxes:
Federal	(108,440)		(8,741)		(62,788)
State	(22,605)		(2,124)		5,105
	(131,045)		(10,865)		(57,683)
Total provision	$	(132,326)	$	(13,996)	$	(57,678)

Deferred tax assets and liabilities are comprised of the following at December 31:


	2019		2018
	(In thousands)
Deferred tax assets:
Allowance for losses and nondeductible accruals	$	31,822	$	27,953
Net operating loss carryforward	246,927		152,112
Alternative minimum tax and research and development tax credit carryforward	2,656		3,574
	281,405		183,639
Deferred tax liability:
Depreciation, depletion, amortization, and impairment	(226,034)		(291,542)
Investment in Superior	(49,430)		(36,845)
Net deferred tax asset (liability)	5,941		(144,748)
Valuation allowance	(19,654)		—
Current deferred tax asset	—		—
Non-current—deferred tax liability	$	(13,713)	$	(144,748)

A valuation allowance is established to reduce deferred tax assets if it is determined that it is more likely than not that the related tax benefit will not be realized. On a quarterly basis, management evaluates the need for and adequacy of valuation allowances based on the expected realizability of the deferred tax assets and adjusts the amount of such allowances, if necessary. To the extent a valuation allowance is established or is increased or decreased during a period, there is a corresponding expense or reduction of expense within the tax provision in the consolidated statement of operations.

During the year ended December 31, 2019, in evaluating whether it was more likely than not that the company's deferred tax assets were realizable through future net income, we considered all available positive and negative evidence, including (i) our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition, (ii) our ability to recover net operating loss carryforward deferred tax assets in future years, (iii) the existence of significant proved oil, NGL and natural gas reserves, (iv) future revenue and operating cost projections that indicate the company will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures and (vii) current market prices for oil, NGL and natural gas. Based on all the evidence available, we determined it was more likely than not that the deferred tax asset for net operating loss carryforwards were not fully realizable. As of December 31, 2019, a total valuation allowance of $19.7 million has been recorded.

We file income tax returns in the U.S. federal jurisdiction and various states. We are no longer subject to U.S. federal tax examinations for years before 2016 or state income tax examinations by state taxing authorities for years before 2015. At December 31, 2019, we have expected federal net operating loss carryforwards of approximately $980.8 million of which $584.2 million will expire from 2021 to 2037.