Income Taxes

The Company typically provides for income taxes at the statutory federal income tax rate adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes. As a result of ceiling test write-downs, the Company has incurred a three-year cumulative loss. Because of the impact the cumulative loss had on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. The Company had a valuation allowance of $115.9 million as of December 31, 2017 and $177.4 million as of December 31, 2016.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, eliminates the corporate alternative minimum tax and changes how existing alternative minimum tax credits are realized, creates a new limitation on deductible interest expense and changes the rules related to uses and limitations of net operating loss carryforwards generated in tax years beginning after December 31, 2017. As of December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Act. However, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and recognized a provisional amount of $64.9 million to remeasure deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. This amount is included as a component of income tax expense (benefit) from continuing operations and is fully offset by the related adjustment to the Company’s valuation allowance. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

As a result of the adoption of ASU 2016-09, the Company recognized an additional deferred tax asset of $4.7 million related to net operating loss carryforwards for excess tax benefits on share-based compensation that did not meet the criteria for recognition under previous guidance. This additional deferred tax asset was fully offset by the related adjustment to the Company's valuation allowance. The cumulative effect adjustment to record the previously unrecognized excess tax benefits and the related adjustment to the valuation allowance, were recorded in retained earnings on the date of adoption.

An analysis of the Company’s deferred tax assets and liabilities follows (amounts in thousands):



	December 31,
	2017			2016
Net operating loss carryforwards	$	78,541		$	92,072
Percentage depletion carryforward	5,701			9,372
Alternative minimum tax credits	—			784
Contributions carryforward and other	192			282
Temporary differences:
Oil and gas properties	8,279			27,992
Asset retirement obligation	7,602			13,620
Derivatives	(107		)	1,767
Share-based compensation	1,269			1,870
Original issue discount on debt exchanges	14,429			29,646
Valuation allowance	(115,906		)	(177,405		)
Deferred tax asset (liability)	$	—		$	—

At December 31, 2017, the Company had approximately $332.1 million of federal net operating loss carryforwards. If not utilized, approximately $6.9 million of such carryforwards would expire in 2025 and the remainder would expire by the year 2037. The Company also had approximately $139.4 million of Louisiana state net operating loss carryforwards as of December 31, 2017. If not utilized, approximately $3.2 million of such carryforwards would expire during 2018 and the remainder would expire by the year 2036. The Company has available for tax reporting purposes $26.9 million in statutory depletion deductions that may be carried forward indefinitely.

Income tax expense (benefit) for each of the years ended December 31, 2017, 2016 and 2015 was different than the amount computed using the federal statutory rate (35%) for the following reasons (amounts in thousands):



	For the Year Ended December 31,
	2017			2016			2015
Amount computed using the statutory rate	$	(2,655	)	$	(31,623	)	$	(102,257	)
Increase (reduction) in taxes resulting from:
Impact of rate change on deferred tax	64,915			—			—
State & local taxes	(368		)	(2,000		)	(6,477		)
Percentage depletion carryforward	(66		)	(163		)	(404		)
Non-deductible stock option expense (1)	305			77			90
Share-based compensation (2)	64			707			1,317
Other	(21		)	1,415			113
Change in valuation allowance	(63,123		)	32,130			110,244
Income tax expense (benefit)	$	(949	)	$	543		$	2,626


(1)	Relates to compensation expense related to Incentive Stock Options.


(2)	Relates to the write-off of deferred tax assets associated with share-based compensation that will not be deductible for tax purposes.