Income Taxes

12 Months Ended

Dec. 31, 2019

Note 4 – Income Taxes

The provision for income taxes consists of the following:



	For the Years Ended December 31,
	2019			2018			2017
	(in thousands)
Current portion of income tax expense (benefit)
Federal	$	(3,826	)	$	—		$	5,698
State	1,618			1,662			3,398
Deferred portion of income tax expense (benefit)	(41,835		)	141,708			(192,066		)
Income tax expense (benefit)	$	(44,043	)	$	143,370		$	(182,970	)

Effective tax rate	19.1		%	22.0		%	53.2		%

The components of the net deferred tax liabilities are as follows:



	As of December 31,
	2019			2018
	(in thousands)
Deferred tax liabilities
Oil and gas properties	$	205,028		$	218,094
Derivative assets	4,646			35,247
Other	12,361			4,812
Total deferred tax liabilities	222,035			258,153
Deferred tax assets
Credit carryover	11,270			22,554
Pension	5,971			6,427
Federal and state tax net operating loss carryovers	4,172			4,217
Stock compensation	3,503			3,263
Other liabilities	10,803			1,497
Total deferred tax assets	35,719			37,958
Valuation allowance	(3,070		)	(3,083		)
Net deferred tax assets	32,649			34,875
Total net deferred tax liabilities	$	189,386		$	223,278

Current federal income tax refundable	$	3,885		$	59
Current state income tax payable	$	1,404		$	1,331

As of December 31, 2019, the Company estimated its federal net operating loss (“NOL”) carryforward at $3.3 million and state NOL carryforwards at $77.8 million. The Company has federal research and development (“R&D”) and AMT credit carryforwards of $7.4 million and $4.3 million, respectively. The majority of federal NOLs do not expire but the state NOLs and state tax credits expire between 2021 and 2038. The federal R&D credit carryforwards expire between 2028 and 2035. The Company’s AMT credit carryforwards are expected to be fully refunded by 2022. The Company’s current valuation allowance relates to state NOL carryforwards and state tax credits, which are expected to expire before they can be utilized.

Recorded income tax expense or benefit differs from the amount that would be provided by applying the statutory United States federal income tax rate to income before income taxes. These differences primarily relate to the effect of state income taxes, excess tax benefits and deficiencies from stock-based compensation awards, tax limitations on compensation of covered individuals, changes in valuation allowances, and the cumulative impact of other smaller permanent differences, and is reported as follows:



	For the Years Ended December 31,
	2019			2018		2017
	(in thousands)
Federal statutory tax expense (benefit)	$	(48,519	)	$	136,873	$	(120,335	)
Increase (decrease) in tax resulting from:
Federal tax reform changes - 2017 Tax Act	—			—		(63,675		)
State tax expense (benefit) (net of federal benefit)	260			2,771		(3,286		)
Change in valuation allowance	(13		)	105		(2,727		)
Employee share-based compensation	3,346			2,508		8,190
Other	883			1,113		(1,137		)
Income tax expense (benefit)	$	(44,043	)	$	143,370	$	(182,970	)

Acquisitions, divestitures, drilling activity, and basis differentials, which impact the prices received for oil, gas, and NGLs, impact the apportionment of taxable income to the states where the Company owns oil and gas properties. As these factors change, the Company’s state income tax rate changes. This change, when applied to the Company’s total temporary differences, impacts the total state income tax expense (benefit) reported in the current year. Items affecting state apportionment factors are evaluated upon completion of the prior year income tax return, after significant acquisitions and divestitures, if there are significant changes in drilling activity, or if estimated state revenue changes occur during the year. As a result of the 2018 divestitures, the Company’s state apportionment rate reflects its significant Texas presence.

During the fourth quarter of 2019, the Company claimed and received a $7.7 million refund for a portion of its deferred AMT credit carryover. An additional refund of $3.8 million is expected to be claimed in 2020. For all years before 2015, the Company is generally no longer subject to United States federal or state income tax examinations by tax authorities.

The Company complies with authoritative accounting guidance regarding uncertain tax provisions. The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized. Interest expense in the accompanying statements of operations includes a negligible amount associated with income taxes. The Company does not expect a significant change to the recorded unrecognized tax benefits in 2020.

The total amount recorded for unrecognized tax benefits for each of the years ended December 31, 2019, 2018, and 2017, was $446,000.