Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets are as follows:

	As of December 31,
	2016			2017			2018
	(In thousands)
Deferred tax liabilities:
Hedge contracts	$	-		$	-		$	3,167
Assets held for sale		3,390			-			-
Other		4,431			2,834			2,977
Total deferred tax liabilities		7,821			2,834			6,144
Deferred tax assets:
Oil and gas properties		48,436			20,011			4,310
Capital loss carryforwards		7,361			3,015			3,980
Depletion carryforward		5,216			3,174			3,098
U.S. net operating loss carryforward		80,670			53,545			61,309
Alternative minimum tax credit		757			757			757
Hedge contracts		3,135			2,777			-
Total deferred tax assets		145,575			83,279			73,454
Valuation allowance for deferred tax assets		(137,754	)		(80,445	)		(67,310	)
Net deferred tax assets		7,821			2,834			6,144
Net deferred tax	$	-		$	-		$	-

Significant components of the provision (benefit) for income taxes are as follows:

	Years ended December 31,
	2016		2017		2018
	(In thousands)
Current:
Federal	$	—	$	—	$	—
State		—		—		—
	$	—	$	—	$	—
Deferred:
Federal	$	—	$	—	$	—
	$	—	$	—	$	—

December 31, 2018,

the Company had,

$245.2

million of pre

2018

NOLs for U.S. tax purposes and

$46.8

million of

2018

NOLs for U.S. tax purposes. Our pre-

2018

NOLs will expire in varying amounts from

2023

through

2037,

not

utilized; and can offset

100%

of future taxable income for regular tax purposes. Any NOLs arising after

January 1, 2018,

can generally be carried forward indefinitely and can offset up to

80%

of future taxable income for regular tax purposes, (the alternative minimum tax

longer applies to corporations after

January 1, 2018).

The use of our NOLs will be limited if there is an "ownership change" in our common stock, generally a cumulative ownership change exceeding

50%

during a

three

year period, as determined under Section

382

of the Internal Revenue Code. As of

December 31, 2018,

we have

not

had an ownership change as defined by Section

382.

Given historical losses, uncertainties exist as to the future utilization of the NOL carryforwards, therefore, the Company has established a valuation allowance of

$137.8

million at

December 31, 2016,

$80.4

million at

December 31, 2017

and

$67.3

million at

December 31, 2018.

The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:

	Years Ended December 31,
	2016			2017			2018
	(In thousands)
Tax (expense) benefit at U.S. Statutory rates	$	33,732		$	(5,602	)	$	(12,142	)
(Increase) decrease in deferred tax asset valuation allowance		(34,072	)		57,309			13,135
Permanent differences		(1,133	)		(1,134	)		(500	)
Return to provision estimated revision		1,473			2,494			(470	)
Change in deferred tax rate		-			(53,125	)		-
Other		-			58			(23	)
	$	-		$	-		$	-

As of

December 31, 2016,

2017

and

2018,

the Company did

have any accrued interest or penalties related to uncertain tax positions. The tax years

2013

through

2018

remain open to examination by the tax jurisdictions to which the Company is subject.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act (H.R.

), was enacted on

December 22, 2017.

ASC740,

Accounting for Income Taxes

, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after

December 31, 2017.

Since our federal deferred tax asset was fully offset by a valuation allowance, the reduction in the U.S. corporate income tax rate to

21%

did

not

materially affect the Company's financial statements. Significant provisions that will impact income taxes in future years include: the repeal of the corporate Alternative Minimum Tax, the limitation on the current deductibility of net interest expense in excess of

30%

of adjusted taxable income for levered balance sheets, a limitation on utilization of net operating losses generated after tax year

2017

80%

of taxable income, the unlimited carryforward of net operating losses generated after tax year

2017,

temporary

100%

expensing of certain business assets, additional limitations on certain general and administrative expenses, and changes in determining the excessive compensation limitation. Currently, we do

not

anticipate paying cash federal income taxes in the near term due to any of the legislative changes, primarily due to the availability of our net operating loss carryforwards. Future interpretations relating to the recently enacted U.S. federal income tax legislation which vary from our current interpretation and possible changes to state tax laws in response to the recently enacted federal legislation

may

have a significant effect on this projection.