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, of which there were none as of December 31, 2018. The Company had a valuation allowance of $118.7 million as of December 31, 2018 and $115.9 million as of December 31, 2017.

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. The Company made a reasonable estimate of the effects on its existing deferred tax balances and recognized a provisional amount of $64.9 million as of December 31, 2017 to remeasure deferred tax assets and liabilities based on the rate at which they are expected to reverse in the future, which is generally 21%. This amount was included as a component of income tax expense (benefit) from continuing operations and was fully offset by the related adjustment to the Company’s valuation allowance. The Company finalized its accounting for the Act in connection with the filing of its 2017 federal tax return and determined no adjustment was necessary to the previously recognized provisional amount.

As a result of the adoption of ASU 2016-09 during the year ended December 31, 2017, 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,
	2018			2017
Net operating loss carryforwards	$	86,046		$	78,541
Percentage depletion carryforward	6,011			5,701
Interest expense carryforward	10,540			—
Contributions carryforward and other	194			192
Temporary differences:
Oil and gas properties	3,673			8,279
Asset retirement obligation	602			7,602
Derivatives	—			(107		)
Share-based compensation	1,403			1,269
Original issue discount on debt exchanges	9,815			14,429
Other	432			—
Valuation allowance	(118,716		)	(115,906		)
Deferred tax asset (liability)	$	—		$	—

At December 31, 2018, the Company had approximately $355.4 million of federal net operating loss carryforwards. If not utilized, approximately $6.9 million of such carryforwards would expire in 2025, $328.2 million would expire by the year 2037 and $20.3 million does not expire and is subject to a limitation of 80% of taxable income. The Company also had approximately $180.7 million of Louisiana state net operating loss carryforwards as of December 31, 2018. If not utilized, approximately $0.3 million of such carryforwards would expire during 2019 and the remainder would expire by the year 2038. The Company has available for tax reporting purposes $28.2 million in statutory depletion deductions that may be carried forward indefinitely. The Company had approximately $43.9 million of carryforwards related to the limitation on deductible interest expense. The interest expense carryforward does not expire and is subject to a limitation of 30% of adjusted taxable income.

Income tax expense (benefit) for each of the years ended December 31, 2018, 2017 and 2016 was different than the amount computed using the federal statutory rate (21%) for the following reasons (amounts in thousands):



	For the Year Ended December 31,
	2018			2017			2016
Amount computed using the statutory rate	$	(1,973	)	$	(2,655	)	$	(31,623	)
Increase (reduction) in taxes resulting from:
Impact of rate change on deferred tax	—			64,915			—
State & local taxes	(1,731		)	(368		)	(2,000		)
Percentage depletion carryforward	(256		)	(66		)	(163		)
Non-deductible stock option expense (1)	98			305			77
Share-based compensation (2)	—			64			707
Restructuring costs	1,528			—			—
Other	93			(21		)	1,415
Change in valuation allowance	2,393			(63,123		)	32,130
Income tax expense (benefit)	$	152		$	(949	)	$	543


(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.