11. INCOME TAXES

VAALCO and its domestic subsidiaries file a consolidated United States income tax return. Certain subsidiaries’ operations are also subject to foreign income taxes.

Provision for income taxes consists of the following:



	Year Ended December 31,
(in thousands)	2015		2014		2013
U.S. Federal:
Current	$	-	$	-	$	-
Deferred		1,349		-		-
Foreign:
Current		13,238		22,486		34,115
Deferred		-		-		-
Total	$	14,587	$	22,486	$	34,115

The primary differences between the financial statement and tax bases of assets and liabilities resulted in deferred tax assets at December 31, 2015 and 2014 are as follows:



(in thousands)	2015		2014
Deferred tax assets:
Basis difference in fixed assets	$	98,890	$	63,931
Foreign tax credit carry forward		58,290		48,928
Alternative minimum tax credit carryover		1,349		1,349
U.S. federal net operating losses		13,878		-
Foreign net operating losses		64,187		44,228
Asset retirement obligations		5,658		5,196
Basis difference in receivables		4,148		3,510
Other		(649)		318
Total deferred tax assets		245,751		167,460
Valuation allowance		(245,751)		(166,111)
Net deferred tax assets	$	-	$	1,349

Foreign tax credits will start to expire between the years 2017 and 2025. The alternative minimum tax credits do not expire, and foreign net operating losses (“NOLs”) are not subject to expiry dates. The NOL for our United Kingdom subsidiary can be carried forward indefinitely, while the NOLs for our Gabon and Angola subsidiaries are included in the respective subsidiaries’ cost oil accounts, which will be offset against future taxable revenues. The U.S federal NOL can be carried forward until 2035. Management assesses the available positive and negative evidence to estimate if existing deferred tax assets will be utilized. We do not anticipate utilization of the foreign tax credits prior to expiration nor do we expect to generate sufficient taxable income to utilize other deferred tax assets. On the basis of this evaluation, valuation allowances of $245.8 million, $166.1 million and $137.3 million have been recorded as of December 31, 2015, 2014 and 2013. Valuation allowances reduce the deferred tax asset to the amount that is more likely than not to be realized.

As a result of activity in the U.S. in 2015, a full valuation allowance was recorded related to AMT credits and our expectation that these credits will not be utilized in the foreseeable future.

Income (loss) before income taxes is attributable as follows:



	Year Ended December 31,
(in thousands)	2015		2014		2013
United States	$	(15,177)	$	(6,349)	$	(17,649)
Foreign		(128,892)		(48,715)		94,836
	$	(144,069)	$	(55,064)	$	77,187

The reconciliation to the U.S. statutory rate is as follows:



	Year Ended December 31,
(in thousands)	2015		2014		2013
Tax provision computed at U.S. statutory rate	$	(50,424)	$	(19,273)	$	27,015
Foreign taxes not offset in U.S. by foreign tax credits		(19,445)		4,433		(2,072)
Effect of change in foreign statutory rates		3,014
Permanent differences		1,802		135		973
Foreign tax credit adjustments		-		8,417		(28,027)
Increase/(decrease) in valuation allowance		79,640		28,762		37,752
Other		-		12		(1,526)
Total income tax expense	$	14,587	$	22,486	$	34,115

At December 31, 2015, 2014 and 2013, we were subject to foreign and U.S. federal taxes only, with no allocations made to state and local taxes. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:



Jurisdiction		Years
United States		2008-2015
Gabon		2007-2015