Income Taxes

On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the decrease in the corporate income tax rate, we revalued our ending net deferred tax assets at December 31, 2017, but did not recognize any incremental income tax expense in 2017 due to the revaluation of the valuation allowance.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. We have provisionally recognized the incremental tax impacts related to the revaluation of deferred tax assets and liabilities and our reassessment of uncertain tax positions and valuation allowances and included these amounts in our Consolidated Financial Statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional technical analysis including changes in interpretations and assumptions we have made with respect to the Tax Act. The accounting is expected to be complete by the fourth quarter of 2018.

Income tax expense (benefit) consists of the following (in thousands):



	Successor			Predecessor
	Years ended December 31,
	2017			2016			2015
Current:
Federal	$	(1,740	)	$	—		$	(151	)
State	(16		)	521			(9		)
Total	(1,756		)	521			(160		)
Deferred:
Federal	74			(4,486		)	(127,482		)
State	4			82			(3,688		)
Total	78			(4,404		)	(131,170		)
Total income tax expense (benefit)	$	(1,678	)	$	(3,883	)	$	(131,330	)

Basic paid no federal income taxes during the years 2017, 2016 and 2015. Basic received federal and state tax refunds of $1.1 million during the year ended December 31, 2017, as a result of electing to monetize alternative minimum tax credit carryforwards in lieu of accelerated tax depreciation.

Reconciliation between the amount determined by applying the federal statutory rate of 35% to loss before income taxes to income (benefit) expense is as follows (in thousands):



	Successor			Predecessor
	Years ended December 31,
	2017			2016				2015
Statutory federal income tax	$	(34,423	)	$	(44,540	)		$	(130,576	)
Meals and entertainment	706			522				684
State taxes, net of federal benefit	(1,662		)	(6,778		)		(3,698		)
Valuation allowance	(54,418		)	188,970			—	—
Remeasurement of Federal Deferred Taxes	87,227			—				—
Cancellation of debt income	—			(178,017		)	—	—
Bankruptcy transaction costs	—			9,783			—	—
Tax basis adjustments	(862		)	17,981			—	—
Goodwill impairment	—			—				2,833
Changes in estimates and other	1,754			8,196				(573		)
	$	(1,678	)	$	(3,883	)		$	(131,330	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows (in thousands):



	Successor			Predecessor
	December 31, 2017			December 31, 2016
Deferred tax assets:
Operating loss carryforward	$	151,468		$	208,973
Goodwill and intangibles	26,717			49,380
Accrued liabilities	9,418			12,351
Deferred debt costs	2,432			5,158
Deferred compensation	2,902			79
Receivables allowance	348			680
Asset retirement obligation	573			859
Inventory	105			167
Valuation Allowances	(146,330		)	(189,185		)
Total deferred tax assets	$	47,633		$	88,462
Deferred tax liabilities:
Property and equipment	(46,881		)	(88,450		)
Prepaid expenses	(830		)	(12		)
Total deferred tax liabilities	$	(47,711	)	$	(88,462	)
Net deferred tax liability	$	(78	)	$	—
Recognized as:
Deferred tax liabilities - non-current	(78		)	—
Net deferred tax liabilities	$	(78	)	$	—

Under the Prepackaged Plan, a substantial portion of the Company’s pre-petition debt securities were extinguished. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is the adjusted issue price of any indebtedness discharged less the sum of (i) the amount of cash paid, (ii) the issue price of any new indebtedness issued and (iii) the fair market value of any other consideration, including equity, issued. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of U.S. CODI was approximately $31.7 million, which reduced the value of the Company’s U.S. net operating losses.

IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes against future U.S. taxable income in the event of a change in ownership. We believe the Debtors’ emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. The limitation under the IRC is based on the value of the corporation as of the emergence date. The ownership changes, and resulting annual limitation, is not expected to result in the expiration of any net operating losses generated prior to the emergence date.

Basic provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2017, a valuation allowance of approximately $146.3 million has been recorded on the net deferred tax assets for all federal and state tax jurisdictions in order to measure only the portion of the deferred tax asset that more likely than not will be realized. As of December 31, 2016, a valuation allowance of $189.2 million was recorded against the net deferred tax assets not expected to be realized.

Interest is recorded in interest expense and penalties are recorded in income tax expense. Basic had no interest or penalties related to an uncertain tax positions during 2017. Basic files federal income tax returns and state income tax returns in Texas and other state tax jurisdictions.

As of December 31, 2017, Basic had approximately $664.8 million of net operating loss carryforwards ("NOL"), for federal income tax purposes, which begin to expire in 2031 and $246.8 million of net operating loss carryforwards for state income tax purposes which begin to expire in 2018.