Income Taxes

12 Months Ended

Dec. 31, 2019

Note 7. Income Taxes

Our income tax provision (benefit) is as follows:



	Year Ended December 31,
In thousands	2019		2018			2017
Current income tax expense (benefit)
Federal	$	2,645	$	(17,885	)	$	(19,485	)
State	1,236		1,884			(1,388		)
Total current income tax expense (benefit)	3,881		(16,001		)	(20,873		)

Deferred income tax expense (benefit)
Federal	89,950		93,395			(113,863		)
State	10,521		9,839			18,084
Total deferred income tax expense (benefit)	100,471		103,234			(95,779		)
Total income tax expense (benefit)	$	104,352	$	87,233		$	(116,652	)

At December 31, 2019, we had no federal net operating loss carryforwards (“NOLs”), tax effected business interest expense carryforward totaling $24.5 million (before provision for valuation allowance), state NOLs and tax credits totaling $52.9 million (before provision for valuation allowance), an estimated $49.9 million of enhanced oil recovery credits to carry forward related to our tertiary operations, an estimated $21.6 million of research and development credits, and $6.0 million of alternative minimum tax credits. Under the Tax Cut and Jobs Act (“the Act”) enacted in December 2017, all of our alternative minimum tax credits are fully refundable by 2021 and are recorded as a receivable on the balance sheet. We considered our assessment of the recorded tax benefit associated with the impacts of the Act to be substantially complete as of December 31, 2018, which is reflected in the table reconciling income tax expense below. Federal and state regulatory guidance of the Act are continuing to be issued and could result in further tax effects but are not expected to be material to our financial statements. In addition, the Tax Cut and Jobs Act

revised the rules regarding the deductibility of business interest expense by limiting that deduction to 30% of adjusted taxable income (as defined), with disallowed amounts being carried forward to future taxable years. Based on our evaluation, using information existing as of the balance sheet date, of the near-term ability to utilize the tax benefits associated with our 2019 and 2018 disallowed business interest expense, we have established a valuation allowance of $24.5 million for that portion of our business interest expense that is currently expected to exceed the allowed limitation under the Act. Our business interest expense carryforward does not expire. Our state NOLs expire in various years, starting in 2020, although most do not begin to expire until 2025. Our enhanced oil recovery credits and research and development credits begin to expire in 2025 and 2031, respectively.

Deferred income taxes reflect the available tax carryforwards and the temporary differences based on tax laws and statutory rates in effect at the December 31, 2019 and 2018 balance sheet dates. As of December 31, 2019, we had $52.7 million of deferred tax assets associated with State of Louisiana, Mississippi and Alabama net operating losses and tax credits. A tax valuation allowance was recorded in 2015 to reduce the carrying value of our Louisiana deferred tax assets as the result of a tax law enacted in the State of Louisiana, which limits a company’s utilization of certain deductions, including our net operating loss carryforwards. As of December 31, 2019, tax valuation allowances totaling $41.3 million were recorded for our State of Louisiana deferred tax assets. Based on losses from falling commodity prices and lower future forecasted income related to our Mississippi deferred tax assets, we concluded it was not more likely than not that the deferred tax assets would be realized. Accordingly, we recorded a valuation allowance against our Mississippi deferred tax assets in 2017. As of December 31, 2019, tax valuation allowances totaling $10.6 million were recorded for our State of Mississippi deferred tax assets. During 2019, we recorded a valuation allowance against our Alabama deferred tax assets totaling $0.8 million. After closing on the sale of our Citronelle Field in 2019, our ability to utilize our Alabama net operating losses will be limited, and we concluded it was not more likely than not that the deferred tax assets would be realized. The valuation allowances will remain until the realization of future deferred tax benefits are more likely than not to become utilized. The changes in our valuation allowance established for our state net operating losses and business interest expense carryforward for 2019, 2018, and 2017 are detailed below:



	Year Ended December 31,
In thousands	2019		2018			2017
Balance at beginning of year	$	51,093	$	51,134		$	36,510
Federal	23,124		—			—
State	2,998		(41		)	14,624
Balance at end of year	$	77,215	$	51,093		$	51,134

As of December 31, 2019, we had an unrecognized tax benefit of $5.4 million related to an uncertain tax position. The unrecognized tax benefit was recorded during 2015 as a direct reduction of the associated deferred tax asset and, if recognized, would not materially affect our annual effective tax rate. The tax benefit from an uncertain tax position will only be recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. We currently do not expect a material change to the uncertain tax position within the next 12 months. Our policy is to recognize penalties and interest related to uncertain tax positions in income tax expense; however, no such amounts were accrued related to the uncertain tax position as of December 31, 2019.

Significant components of our deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:



	December 31,
In thousands	2019			2018
Deferred tax assets
Loss and tax credit carryforwards – state	$	52,917		$	52,366
Business interest expense carryforward	24,513			9,049
Business credit carryforwards	71,555			79,528
Unrecognized gain and original issue discount on debt exchange	41,556			73,937
Accrued liabilities and other reserves	29,788			25,231
Other	18,725			23,208
Valuation allowances	(77,215		)	(51,093		)
Total deferred tax assets	161,839			212,226

Deferred tax liabilities
Property and equipment	(569,254		)	(492,214		)
Derivative contracts	(1,120		)	(23,127		)
Other	(1,695		)	(6,643		)
Total deferred tax liabilities	(572,069		)	(521,984		)
Total net deferred tax liability	$	(410,230	)	$	(309,758	)

Our reconciliation of income tax expense computed by applying the U.S. federal statutory rate and the reported effective tax rate on income from continuing operations is as follows:



	Year Ended December 31,
In thousands	2019		2018			2017
Income tax provision calculated using the federal statutory income tax rate	$	67,475	$	86,086		$	16,275
State income taxes, net of federal income tax benefit	7,435		11,968			2,764
Tax shortfall (windfall) on stock-based compensation deduction	1,912		(1,565		)	5,567
Valuation allowance	26,122		(42		)	5,562
Enhanced oil recovery tax credits generated	—		(10,818		)	(11,307		)
Re-measurement of deferreds related to federal tax rate change	—		—			(132,224		)
Other	1,408		1,604			(3,289		)
Total income tax expense (benefit)	$	104,352	$	87,233		$	(116,652	)

We file consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state jurisdictions. The statutes of limitation for our income tax returns for tax years ending prior to 2016 have lapsed and therefore are not subject to examination by respective taxing authorities. We have not paid any significant interest or penalties associated with our income taxes.