Income Taxes

12 Months Ended

Dec. 31, 2019

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


	Year Ended December 31,
	2019		2018		2017
Current
Federal	$	—	$	(33)	$	(8,719)
State	—		(38)		(30)
	—		(71)		(8,749)
Deferred
Federal	—		—		—
State	—		—		—
	—		—		—
Total (benefit) provision	$	—	$	(71)	$	(8,749)

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):


	Year Ended December 31,
	2019		2018		2017
Computed at federal statutory rate	$	(94,354)	$	(1,921)	$	13,409
State taxes, net of federal benefit	(20,500)		119		(284)
Non-deductible expenses	137		849		1,711
Stock-based compensation	602		1,874		1,109

Discharge of debt and other reorganization related items	—		206		1,018
Return to provision adjustments (1)	(6,096)		(1,292)		341,681
Impact of legislative changes	—		—		243,801
Release of valuation allowance	—		—		(8,719)
Change in valuation allowance	120,211		132		(602,452)
Other	—		(38)		(23)
Total (benefit) provision	$	—	$	(71)	$	(8,749)

____________________

(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, December 31, 2018 and December 31, 2019.

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


	December 31, 2019		December 31, 2018
Deferred tax liabilities
Investments(1)	$	109,289	$	112,343
Derivative contracts	29		1,128
Total deferred tax liabilities	109,318		113,471
Deferred tax assets
Property, plant and equipment	300,704		267,865

Net operating loss carryforwards	383,418		302,190

Tax credits and other carryforwards	34,148		35,640
Asset retirement obligations	18,747		15,016
Other	2,290		3,816
Total deferred tax assets	739,307		624,527
Valuation allowance	(629,989)		(511,056)
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 during 2016 that subjected certain of the Company’s tax attributes, including net operating losses ("NOLs"), to an IRC Section 382 limitation. This limitation has not resulted in cash taxes for any period subsequent to the ownership change. Since the 2016 ownership change, the Company has generated additional NOLs and other tax attributes that are not currently subject to an IRC Section 382 limitation. The Company's ability to use NOLs and other tax attributes to reduce taxable income and income taxes could be materially impacted by a future IRC 382 ownership change. Future transactions involving the

Company's stock including those outside of the Company's control could cause an IRC 382 ownership change resulting in a limitation on tax attributes currently not limited and a more restrictive limitation on tax attributes currently subject to the previous IRC 382 limitation.

As of December 31, 2019, the Company had approximately $1.4 billion of federal NOL carryforwards, net of NOLs expected to expire unused due to the 2016 IRC Section 382 limitation. Of the $1.4 billion of federal NOL carryforwards, $0.8 billion expire during the years 2025 through 2037, while $0.6 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.

The Company did not have unrecognized tax benefits at December 31, 2019 or 2018.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2016 to present remain open for federal examination. Additionally, tax years 2005 through 2015 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.