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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Taxes [Abstract] |
Income Taxes | 8. INCOME TAXES VAALCO and its domestic subsidiaries file a consolidated U.S. income tax return. Certain foreign subsidiaries also file tax returns in their respective local jurisdictions. Income taxes attributable to continuing operations for the years ended December 31, 2020, 2019, and 2018 are attributable to foreign taxes payable in Gabon as well as income taxes in the U.S. Provision for income taxes related to income (loss) from continuing operations consists of the following:
| Year Ended December 31,
| 2020 |  | 2019 |  | 2018
U.S. Federal: | (in thousands)
Current | $ | (337) |  | $ | (337) |  | $ | (674)
Deferred |  | 11,814 |  |  | 3,916 |  |  | (15,910)
Foreign: |  |  |  |  |  |  |  |
Current |  | 3,859 |  |  | 9,747 |  |  | 14,327
Deferred |  | 12,345 |  |  | 10,564 |  |  | (40,997)
Total | $ | 27,681 |  | $ | 23,890 |  | $ | (43,254)
As of December 31, 2020 and 2019, the Company had deferred tax assets of $126.3 million and $108.8 million, respectively. The deferred tax assets are primarily attributable to Gabon and U.S. federal income taxes related to basis differences in fixed assets, foreign tax credit carryforwards, as well as U.S. and foreign net operating loss carryforwards. I n assessing the realizability of the deferred tax assets, the Company considers all available positive and negative evidence and makes a determination whether it is more likely than not that some or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future income in periods in which the deferred tax assets can be utilized. Numerous judgments and assumptions are inherent in this assessment, including the determination of future taxable income, future operating conditions (particularly as related to prevailing crude oil prices). As of December 31, 2020, the Company determined it is more likely than not that it would not be able to utilize its deferred tax assets. As of December 31, 2019, the Company had anticipated it would not be able to fully utilize its deferred tax assets. On the basis of these evaluations, a valuation allowance of $126.3 million and $84.6 million were recorded as of December 31, 2020 and 2019, respectively. Valuation allowances reduce the deferred tax assets to the amount that is more likely than not to be realized. Taxes paid in Gabon with respect to earnings from the Etame Marin block are determined under the provisions of the Etame PSC. In accordance with the Etame PSC, the Consortium maintains a “Cost Account,” which accumulates capital costs and operating expenses that are deductible against revenues, net of royalties, in determining taxable profits. For each calendar year, the Consortium is entitled to receive a percentage of the production (“Cost Recovery Percentage”) remaining after deducting royalties so long as there are amounts remaining in the Cost Account. Prior to the PSC Extension, the Cost Recovery Percentage was 70%. As a result of the PSC Extension, the Cost Recovery Percentage has been increased to 80% for the period from September 17, 2018 through September 16, 2028. See Note 9 for further discussion of the PSC Extension. After September 16, 2028, the Cost Recovery Percentage returns to 70%. The difference between revenues, net of royalties, and the costs recovered for the period is “Profit Oil.” As payment of corporate income taxes, the Consortium pays the government an allocation of the remaining Profit Oil production from the contract area ranging from 50% to 60%. The percentage of Profit Oil paid to the government as tax is a function of production rates. When the Cost Account is less than the entitled recovery percentage (either 70% or 80%, depending on the period), Profit Oil as a percentage of revenues increases and Gabon taxes paid increase as a percentage of revenues. We also record as income tax expense the increase or decrease in the value of the government’s allocation of Profit Oil which results due to change in value from the time the allocation is originally produced to the time the allocation is actually lifted. The primary differences between the financial statement and tax bases of assets and liabilities resulted in deferred tax assets associated with continuing operations at December 31, 2020 and 2019 are as follows:
|  | As of December 31,
(in thousands) |  | 2020 |  | 2019
Deferred tax assets: |  |  |  |  |  |
Basis difference in fixed assets |  | $ | 27,995 |  | $ | 26,590
Foreign tax credit carryforward |  |  | 34,144 |  |  | 34,144
Alternative minimum tax credit carryover |  |  | — |  |  | 337
U.S. federal net operating losses |  |  | 32,579 |  |  | 30,572
Foreign net operating losses |  |  | 24,602 |  |  | 11,770
Asset retirement obligations |  |  | 3,640 |  |  | 3,407
Operating leases |  |  | 1,472 |  |  | —
Basis difference in accrued liabilities |  |  | 368 |  |  | 676
Basis difference in receivables |  |  | 331 |  |  | 171
Other |  |  | 1,121 |  |  | 1,120
Total deferred tax assets |  |  | 126,252 |  |  | 108,787
Valuation allowance |  |  | (126,252) |  |  | (84,628)
Net deferred tax assets |  | $ | — |  | $ | 24,159
Foreign tax credits will expire between the years 2021 and 2025. Foreign net operating losses (“NOLs”) are not subject to expiry dates. The NOLs for the Gabon subsidiaries are included in the respective subsidiaries’ cost oil accounts, which will be offset against future taxable revenues. All of the Company’s U.S. federal NOLs that were incurred prior to 2018 will expire between 2035 and 2037. U.S. federal NOLs incurred after 2017 do not expire. The ability to utilize NOLs and other tax attributes could be subject to a limitation if the Company were to undergo an ownership change as defined in Section 382 of the Tax Code. The Company does not anticipate utilization of the foreign tax credits prior to expiration nor the utilization of NOLs and has recorded a full valuation allowance on both of these deferred tax assets. The Company recognizes the financial statement benefit of a tax position only after determining that they are more likely than not to sustain the position following an audit. The Company believes that its income tax positions and deductions will be sustained on audit, and therefore no reserves for uncertain tax positions have been established. Accordingly, no interest or penalties have been accrued as of December 31, 2020 and 2019. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense. Income (loss) from continuing operations before income taxes is attributable as follows:
|  | Year Ended December 31,
(in thousands) |  | 2020 |  | 2019 |  | 2018
U.S. |  | $ | (2,908) |  | $ | (13,330) |  | $ | (5,672)
Foreign |  |  | (17,494) |  |  | 34,372 |  |  | 61,146
|  | $ | (20,402) |  | $ | 21,042 |  | $ | 55,474
The reconciliation of income tax expense (benefit) attributable to income (loss) from continuing operations to income tax on income (loss) from continuing operations at the U.S. statutory rate is as follows:
|  | Year Ended December 31,
(in thousands) |  | 2020 |  | 2019 |  | 2018
Tax provision computed at U.S. statutory rate |  | $ | (4,284) |  | $ | 4,386 |  | $ | 11,650
Foreign taxes not offset in U.S. by foreign tax credits |  |  | (9,801) |  |  | 16,015 |  |  | 24,840
Recognition of foreign deferred tax assets, net of U.S. impact |  |  | — |  |  | — |  |  | (45,751)
Unrealizable foreign deferred tax assets |  |  | — |  |  | — |  |  | 24,176
Permanent differences |  |  | 97 |  |  | 180 |  |  | (104)
Foreign tax credit expirations |  |  | — |  |  | 9,616 |  |  | 4,311
Increase/(decrease) in valuation allowance |  |  | 41,635 |  |  | (6,307) |  |  | (62,270)
Other |  |  | 34 |  |  | — |  |  | (106)
Total income tax expense (benefit) |  | $ | 27,681 |  | $ | 23,890 |  | $ | (43,254)
For the years ended December 31, 2020, 2019 and 2018, the Company is 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
U.S. |  | 2011-2020
Gabon |  | 2016-2020

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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