Income Taxes

12 Months Ended

Dec. 31, 2019

Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and the tax bases of assets and liabilities. The Company’s net deferred tax position as of December 31, 2019 and 2018 is as follows (in thousands).



	December 31,
	2019			2018
Deferred tax assets
Net operating loss carryforwards	$	119,900		$	116,374
Percentage depletion carryover	1,467			1,624
Compensation	13,690			10,574
Lease liabilities	17,107			—
Other	9,099			7,207
Total deferred tax assets	161,263			135,779
Valuation allowance on deferred tax assets	(6,736		)	(6,519		)
Total deferred tax assets, net of valuation allowance	154,527			129,260
Deferred tax liabilities
Unrealized gain on derivatives	—			(12,326		)
Property and equipment	(151,504		)	(100,634		)
Less than wholly-owned subsidiaries	(20,604		)	(6,808		)
Lease right of use assets	(17,107		)	—
Other	(2,641		)	(2,256		)
Total deferred tax liabilities	(191,856		)	(122,024		)
Net deferred tax (liabilities) assets	$	(37,329	)	$	7,236

At December 31, 2019, the Company had net operating loss carryforwards of $525.2 million for federal income tax purposes and $163.9 million for state income tax purposes available to offset future taxable income, as limited by the applicable provisions, and which expire at various dates beginning in 2027 for the federal net operating loss carryforwards. The state net operating loss carryforwards begin expiring at various dates beginning in 2024; however, the significant portion of the Company’s state net operating loss carryforwards expire beginning in 2027.

At December 31, 2017, the Company’s deferred tax assets exceeded its deferred tax liabilities due to the deferred tax assets generated by impairment charges recorded in 2016 and 2015. As a result, the Company established a valuation allowance against most of the deferred tax assets beginning in the third quarter of 2015. Due to a variety of factors, including the Company’s significant net income in 2017 and 2018, the Company’s federal valuation allowance and a portion of the Company’s state valuation allowance were reversed at December 31, 2018 as the deferred tax assets were determined to be more likely than not to be utilized. As a portion of the Company’s state net operating loss carryforwards are not expected to be utilized before expiration, a valuation allowance will continue to be recognized until the state deferred tax assets are more likely than not to be utilized.

The current income tax provision and the deferred income tax provision for the years ended December 31, 2019, 2018 and 2017 were comprised of the following (in thousands).



	Year Ended December 31,
	2019		2018			2017
Current income tax (benefit) provision
Federal income tax	$	—	$	(455	)	$	(8,178	)
State income tax	—		—			21
Net current income tax benefit	$	—	$	(455	)	$	(8,157	)
Deferred income tax provision (benefit)
Federal income tax	$	29,171	$	(20,457	)	$	—
State income tax	6,361		13,221			—
Net deferred income tax provision (benefit)	$	35,532	$	(7,236	)	$	—

Reconciliations of the tax expense (benefit) computed at the statutory federal rate to the Company’s total income tax provision (benefit) for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands).



	Year Ended December 31,
	2019			2018			2017
Federal tax expense at statutory rate⁽¹⁾	$	33,441		$	61,543		$	45,447
State income tax	6,141			16,181			368
Permanent differences	(4,267		)	(2,488		)	(4,740		)
AMT credit refundable	—			455			8,178
Tax Cuts and Jobs Act rate change	—			—			51,525
Change in federal valuation allowance	—			(80,003		)	(101,917		)
Change in state valuation allowance	217			(2,924		)	1,139
Net deferred income tax provision (benefit)	35,532			(7,236		)	—
Net current income tax benefit	—			(455		)	(8,157		)
Total income tax provision (benefit)	$	35,532		$	(7,691	)	$	(8,157	)

__________________


(1)	The statutory federal tax rate was 21% for the years ended December 31, 2019 and 2018 and 35% for the year ended December 31, 2017.

The Company files a United States federal income tax return and several state tax returns, a number of which remain open for examination. The earliest tax year open for examination for the federal, the State of New Mexico and the State of Louisiana tax returns is 2016. The earliest tax year open for examination for the State of Texas tax return is 2015.

The Company has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained by examination. Therefore, at December 31, 2019, the Company had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act, the Company revalued its deferred tax assets and liabilities at December 31, 2017, which resulted in a $51.5 million tax provision. As the Company maintained a valuation allowance against its federal and state deferred tax assets at December 31, 2017, a corresponding reduction in the valuation allowance was recorded against this tax provision; therefore, there was no net impact to the Company’s consolidated statement of operations for the year ended December 31, 2017 as a result of this corporate income tax rate change.

Corporate alternative minimum taxes were also repealed under the Tax Cuts and Jobs Act; therefore, corporate alternative minimum tax carryforwards are expected to be refunded. As a result, the Company recorded $0.5 million and $8.2 million, respectively, as a current income tax benefit in its consolidated statements of operations for the years ended December 31, 2018 and 2017.