Income Taxes

12 Months Ended

Dec. 31, 2018

The Company’s income tax (benefit) provision consisted of the following components (in thousands):


	Successor								Predecessor
	Year Ended December 31, 2018		Year Ended December 31, 2017		Period from October 2, 2016 through December 31, 2016		Period from January 1, 2016 through October 1, 2016
Current
Federal	$	(33)	$	(8,719)	$	—	$	—
State	(38)		(30)		9		11
	(71)		(8,749)		9		11
Deferred
Federal	—		—		—		—
State	—		—		—		—
	—		—		—		—
Total (benefit) provision	$	(71)	$	(8,749)	$	9	$	11

A reconciliation of the (benefit) provision for income taxes at the statutory federal tax rate to the Company’s actual income tax (benefit) provision is as follows (in thousands):


	Successor								Predecessor
	Year Ended December 31, 2018		Year Ended December 31, 2017		Period from October 2, 2016 through December 31, 2016		Period from January 1, 2016 through October 1, 2016
Computed at federal statutory rate	$	(1,921)	$	13,409	$	(116,891)	$	504,283
State taxes, net of federal benefit	119		(284)		(3,696)		10,512
Non-deductible expenses	849		1,711		144		462
Non-deductible debt costs	—		—		—		22,694
Stock-based compensation	1,874		1,109		306		5,884

Discharge of debt and other reorganization related items	206		1,018		—		359,278
Return to provision adjustments (1)	(1,292)		341,681		—		—
Impact of legislative changes	—		243,801		—		—
Release of valuation allowance	—		(8,719)		—		—
Change in valuation allowance	132		(602,452)		120,144		(903,102)
Other	(38)		(23)		2		—
Total (benefit) provision	$	(71)	$	(8,749)	$	9	$	11

____________________

1.The adjustment for the period ended December 31, 2017, primarily related to the Company’s decision to file its 2016 income tax returns using an alternate method than previously estimated with respect to its Chapter 11 related transactions.

Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. During the year ended December 31, 2017, the Company reduced the valuation allowance associated with deferred tax assets related to alternative minimum tax ("AMT") credits that became realizable as a result of a special tax election. Accordingly, the Company recorded an income tax benefit of $8.7 million in the year ended December 31, 2017. As a result of the significant weight placed on the Company’s cumulative negative earnings position, the Company continued to maintain the full valuation allowance against its remaining net deferred tax asset at December 31, 2017 and December 31, 2018.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):


	December 31, 2018		December 31, 2017
Deferred tax liabilities
Investments(1)	$	112,343	$	171,517
Derivative contracts	1,128		—
Total deferred tax liabilities	113,471		171,517
Deferred tax assets
Property, plant and equipment	267,865		391,273
Derivative contracts	—		3,131

Net operating loss carryforwards	302,190		217,259

Tax credits and other carryforwards	35,640		33,001
Asset retirement obligations	15,016		18,843
Other	3,816		8,959
Total deferred tax assets	624,527		672,466
Valuation allowance	(511,056)		(500,949)
Net deferred tax liability	$	—	$	—

____________________

1.Includes the Company’s deferred tax liability resulting from its investment in the Royalty Trusts.

The "Tax Cuts and Jobs Act" (the "TCJA") enacted in December 2017 includes significant changes to the taxation of business entities, most of which are effective for taxable years beginning after December 31, 2017. These changes include, among others, a permanent reduction to the corporate income tax rate from a maximum 35% to a flat 21% rate, expansion of expensing capital expenditures for a period of time, new limitations on the utilization of net operating losses ("NOLs"), and limitations on the deduction of interest expense and executive compensation. Based on our analysis of the TCJA and guidance currently available we recorded income tax expense of approximately $243.8 million in the period ended December 31, 2017, which was completely offset by a decrease in the corresponding valuation allowance. The provisional amount primarily related to the remeasurement of our gross deferred tax assets and liabilities existing at December 31, 2017 at the appropriate tax rate expected to exist at the time of their reversal. We completed our analysis of the impact of the TCJA and recorded an immaterial adjustment to income tax expense in the year ended December 31, 2018, which was completely offset by an increase in the corresponding valuation allowance.

Internal Revenue Code ("IRC") Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 on October 4, 2016 that subjected certain of the Company's tax attributes, including $1.9 billion of federal NOL carryforwards to the IRC Section 382 limitation. This limitation is expected to result in $1.6 billion of the $1.9 billion of federal NOL carryforwards expiring unused. As such, the Company’s deferred tax asset associated with NOLs and corresponding valuation allowance were reduced in the period ended December 31, 2017. The limitation did not result in a tax liability for the tax years ended December 31, 2016, December 31, 2017, or December 31, 2018. Since the October 4, 2016 ownership change, the Company has generated additional NOLs that are not currently subject to an IRC Section 382 limitation. See "Note 19 - Income Taxes" in the 2017 Form 10-K for additional discussion with respect to the impact of income tax elections associated with the Chapter 11 reorganization.

As of December 31, 2018, the Company had approximately $1.1 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.1 billion of federal NOL carryforwards, $0.8 billion expire during the years 2025 through 2037, while $0.3 billion do not have an expiration date. Additionally, the Company had federal tax credits in excess of $32.0 million which begin expiring in 2029.

A reconciliation of the beginning and ending amount of the Company's unrecognized tax benefits is as follows (in thousands):


	Year Ended December 31, 2018		Year Ended December 31, 2017
Unrecognized tax benefit at January 1	$	48	$	84
Changes to unrecognized tax benefits related to a prior period	—		2
Lapse of statute of limitations	(48)		(38)
Unrecognized tax benefit at December 31	$	—	$	48

Consistent with its policy to record interest and penalties on income taxes as a component of the income tax provision, the Company has included insignificant amounts of accrued gross interest with respect to unrecognized tax benefits in its accompanying consolidated statements of operations during the years ended December 31, 2017 and 2016, with none accrued in the year ended December 31, 2018.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2015 to present remain open for federal examination. Additionally, tax years 2005 through 2014 remain subject to examination for the purpose of determining the amount of federal NOL and other carryforwards. The number of years open for state tax audits varies, depending on the state, but is generally from three to five years.