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Note 8 - Income Taxes | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | 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 that include Canada, Egypt, Equatorial Guinea and Gabon. Income taxes attributable to continuing operations for the years ended December 31, 2023 and December 31, 2022 are attributable to foreign taxes payable in Gabon and Egypt, whereas for the year ended December 31, 2021 the income taxes 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:
|  | Twelve Months Ended December 31, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
U.S. Federal: |  | (in thousands) |
Current |  | $ | — |  |  | $ | — |  |  | $ | — |
Deferred |  |  | 6,214 |  |  |  | (3,344 | ) |  |  | (34,548 | )
Foreign: |  |  |  |  |  |  |  |  |  |  |  |
Current |  |  | 92,642 |  |  |  | 26,615 |  |  |  | 20,282 |
Deferred |  |  | (9,079 | ) |  |  | 48,149 |  |  |  | (7,890 | )
Total |  | $ | 89,777 |  |  | $ | 71,420 |  |  | $ | (22,156 | )
As of December 31, 2023, the Company had total deferred tax assets of $120.9 million primarily attributable to Canada, Gabon and the U.S. whereas for December 31, 2022 deferred tax assets were $99.6 million primarily attributable to Canada, Gabon and the U.S. In both years, the income taxes related to basis differences in fixed assets, foreign tax credit carryforwards, as well as foreign net operating loss carryforwards and in the December 31,2022, period U.S. net operating loss carryforward as well. In assessing the realizability of the deferred tax assets, the Company considers all available positive and negative evidence by jurisdiction 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, 2023, the Company determined that it is more likely than not that it would not be able to utilize its deferred tax assets in Canada and in Egypt for its South Ghazalat concession, nor its Foreign Tax Credit carryforwards in the U.S. As of December 31, 2022, the Company determined that it is more likely than not that it would not be able to utilize its deferred tax assets in Canada and in Egypt for its South Ghazalat concession, and that it is more likely than not that it would not be able to utilize a portion of its deferred tax assets in the U.S. On the basis of these evaluations, a valuation allowance of $83.9 million and $47.6 million were recorded as of December 31, 2023 and 2022, respectively. Valuation allowances reduce the deferred tax assets to the amount that is more likely than not to be realized. 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, 2023 and 2022 are as follows:
|  | As of December 31, |
(in thousands) |  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |  |  |
Basis difference in fixed assets (1) |  | $ | 9,132 |  |  | $ | 9,299 |
Foreign tax credit carryforward |  |  | 55,069 |  |  |  | 14,848 |
Net operating losses |  |  | 32,306 |  |  |  | 48,981 |
Asset retirement obligations |  |  | 9,631 |  |  |  | 8,531 |
ROU lease liabilities |  |  | 10,345 |  |  |  | 10,753 |
Basis difference in accrued liabilities |  |  | 3,808 |  |  |  | 3,800 |
Basis difference in receivables |  |  | (146 | ) |  |  | 2,783 |
Other |  |  | 719 |  |  |  | 622 |
Total deferred tax assets |  |  | 120,864 |  |  |  | 99,617 |
Valuation allowance |  |  | (83,893 | ) |  |  | (47,583 | )
Net deferred tax assets |  | $ | 36,971 |  |  | $ | 52,034 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Basis difference in fixed assets |  |  | (81,310 | ) |  |  | (97,825 | )
Net deferred tax liabilities |  | $ | (81,310 | ) |  | $ | (97,825 | )
(1) This line includes ROU lease asset. Foreign net operating losses (“NOLs”) are subject to varying expiration periods depending on the jurisdiction. The NOLs for the Gabon subsidiaries are included in the respective subsidiaries’ cost oil accounts, which will be offset against future taxable revenues and do not expire. 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. Foreign tax credits will expire between the years 2024 and 2032. The Company does not anticipate utilization of the foreign tax credits prior to expiration and has recorded a full valuation allowance on these deferred tax assets. The Company has NOL’s, (in '000s) in the following jurisdictions as of December 31, 2023:
Jurisdiction |  | Amount |  |  | Expiration Period |
U.S. |  | $ | - |  |  | No expiration |
Gabon |  | $ | - |  |  | No expiration |
Egypt |  | $ | 16,000 |  |  |  | 2024-2028 |
Canada |  | $ | 85,407 |  |  |  | 2031-2040 |
Equatorial Guinea |  | $ | 12,313 |  |  | No expiration |
UK |  | $ | 7,222 |  |  | No expiration |
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, 2023 and 2022. 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) |  | 2023 |  |  | 2022 |  |  | 2021 |
U.S. |  | $ | (15,781 | ) |  | $ | (56,750 | ) |  | $ | (38,867 | )
Foreign |  |  | 165,927 |  |  |  | 180,132 |  |  |  | 98,645 |
|  | $ | 150,146 |  |  | $ | 123,382 |  |  | $ | 59,778 |
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) |  | 2023 |  |  | 2022 |  |  | 2021 |
Tax provision computed at U.S. statutory rate |  | $ | 31,530 |  |  | $ | 25,910 |  |  | $ | 12,553 |
Foreign taxes not offset in U.S. by foreign tax credits |  |  | 25,719 |  |  |  | 53,851 |  |  |  | 35,306 |
Permanent differences |  |  | 3,455 |  |  |  | 778 |  |  |  | (703 | )
Foreign tax credit expirations |  |  | — |  |  |  | 17,247 |  |  |  | 14,060 |
Increase/(decrease) in valuation allowance |  |  | 27,656 |  |  |  | (25,623 | ) |  |  | (83,372 | )
Other |  |  | 1,417 |  |  |  | (743 | ) |  |  | — |
Total income tax expense (benefit) |  | $ | 89,777 |  |  | $ | 71,420 |  |  | $ | (22,156 | )
For the years ended December 31, 2023, 2022 and 2021, 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. |  | 2014-2023 |
Gabon |  | 2019-2023 |
Egypt |  | 2017-2023 |
Canada |  | 2018-2023 |
With respect to the earnings of VAALCO's Canadian foreign subsidiary, the Company does not intend to repatriate funds and will indefinitely reinvest these foreign earnings. Determining the amount of the unrecorded deferred tax liability related to temporary differences at this time is not practicable. If circumstances change and it becomes apparent that some or all the undistributed earnings of our Canadian subsidiary will be remitted in the foreseeable future, the Company shall accrue as an expense of the current period income taxes attributable to that remittance. With respect to the earnings of VAALCO's Egyptian foreign subsidiaries, the earnings are available for repatriation, but the corresponding incremental tax expense on any remittances is not expected to be material. On August 16, 2022, legislation commonly known as the Inflation Reduction Act was signed into law. Among other things, the Inflation Reduction Act includes a 1% excise tax on corporate stock repurchases (applicable to repurchases after December 31, 2022) as well as a new minimum tax based on book income. The Company has determined that the Inflation Reduction Act did not have a material impact on its effective tax rate in December 31, 2023 and 2022.

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