Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 6 — Income Taxes

We believe that our recorded deferred tax assets and liabilities are reasonable. However, tax laws and regulations are subject to interpretation, and the outcomes of tax disputes are inherently uncertain; therefore, our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions.

For the three- and six-month periods ended June 30, 2021, we applied the annual effective tax rate method in determining our overall income tax provision or benefit. Under this method, the estimated annual worldwide effective tax rate, adjusted for discrete tax items, is applied to the pre-tax income or loss for each interim reporting period. During the three- and six-month periods ended June 30, 2020, we utilized the discrete method to calculate income tax provision or benefit on a stand-alone basis for the interim reporting period based on management’s judgment that the discrete method was more appropriate than the annual effective tax rate method given the high degree of uncertainty in forecasting the impact of the COVID-19 pandemic on future market conditions and the overall oil and gas sector.

The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, is an economic stimulus package designed to aid in offsetting the economic damage caused by the ongoing COVID-19 pandemic and includes various changes to U.S. income tax regulations. The CARES Act permits the carryback of certain net operating losses, which previously had been required to be carried forward, at the tax rates applicable in the relevant carryback year. As a result of these changes, in the six-month period ended June 30, 2020 we recognized an estimated $5.2 million net tax benefit ($15.8 million current tax benefit and $10.6 million deferred tax expense). This net tax benefit was generated as our deferred tax assets related to U.S. net operating losses were realized at higher prior year income tax rates.

During the six-month period ended June 30, 2020, we migrated two of our foreign subsidiaries into our U.S. consolidated tax group. As a result, these subsidiaries are not subject to future U.S. branch profits tax and a net deferred tax benefit of $8.3 million was recognized.

The effective tax rates for the three-month periods ended June 30, 2021 and 2020 were 12.6% and (5.2)%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as the impact of the CARES Act in 2020. The effective tax rates for the six-month periods ended June 30, 2021 and 2020 were 10.0% and 71.6%, respectively. The variance was primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as the impact of the CARES Act and the foreign subsidiary restructuring in 2020.

The primary differences between the income tax provision (benefit) at the U.S. statutory rate and our actual income tax benefit are as follows (dollars in thousands):

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2021				2020				2021				2020
Taxes at U.S. statutory rate	$	(3,287)	21.0	%	$	1,087	21.0	%	$	(3,903)	21.0	%	$	(6,267)	21.0	%
Foreign tax provision		(527)	3.4			(2,166)	(41.8)			(1,465)	7.9			(1,116)	3.7
CARES Act		—	—			580	11.2			—	—			(5,234)	17.6
Subsidiary restructuring		—	—			—	—			—	—			(8,333)	27.9
Other (1)		1,846	(11.8)			228	4.4			3,516	(18.9)			(414)	1.4
Income tax benefit (2)	$	(1,968)	12.6	%	$	(271)	(5.2)	%	$	(1,852)	10.0	%	$	(21,364)	71.6	%

(1) Includes interim period allocations of $1.6 million and $2.8 million, respectively, for the three- and six-month periods ended June 30, 2021.

(2) The negative effective tax rate for the three-month period ended June 30, 2020 was driven by tax benefits of foreign losses in relation to nominal pre-tax income.