XML 52 R20.htm IDEA: XBRL DOCUMENT

Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

14. INCOME TAXES

The Company incurred net losses for each of the years ended December 31, 2018 and 2017, and the Company has recorded valuation allowances for its net deferred tax assets for each of those years. Accordingly, the Company has not recognized a benefit for income taxes in the accompanying financial statements. Income tax benefit using the Company’s effective income tax rate differs from the U.S. federal statutory income tax rate due to the following:

		2018				2017
		(in thousands)
Income tax benefit at federal statutory rate		$	218			$	472
State income tax benefit, net of federal impact			37				38
Change in federal tax rate, net of state benefit ⁽¹⁾			-				(5,440	)
Change in state tax rate, net of federal benefit			(435	)
Loss on debt to equity conversion			-				(1,630	)
Change in value of warrant			163				-
Effect of Section 382 limitation			(1,303	)			(29,803	)
Incentive stock options and restricted stock not deductible for tax purposes			-				964
Percentage depletion carryover			4				138
Prior year true up			451				1,076
Other			50				76
Decrease in valuation allowance			815				34,109

Income tax benefit (expense)		$	-			$	-

⁽¹⁾

The change in the federal tax rate was due to the passage of Public Law 115-97 (Tax Cuts and Jobs Act). This resulted in a provisional reduction of the Company’s deferred tax assets before valuation analysis primarily due to a reduction in the U.S. statutory rate from 35% to 21%.

The components of deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows:

		2018				2017
		(in thousands)
Deferred tax assets:
Net operating loss carryover ⁽²⁾		$	3,594			$	874
Property and equipment			4,306				7,123
Percentage depletion and contribution carryovers⁽²⁾			1,721				1,872
Alternative minimum tax credit carryover ⁽²⁾			42				785
Equity method investment and other			592				398
Deferred compensation liability			9				8
Asset retirement obligations			221				221
Stock-based compensation			61				83

Total deferred tax assets			10,546				11,364

Deferred tax liabilities:
Property and equipment			-				-
Other			-				(3	)

Total deferred tax liabilities			-				(3	)

Net deferred tax assets			10,546				11,361
Less valuation allowance			(10,546	)			(11,361	)

Net deferred tax asset		$	-			$	-

⁽²⁾

In December 2017, the Company paid down debt through the issuance of common stock. This issuance represented a 49.3% ownership change in the Company. This change in ownership, combined with other equity events, triggered loss limitations under Internal Revenue Code (“I.R.C.”) Section 382. As a result, the Company wrote-off $29.8 million of gross deferred tax assets in 2017, and an additional $2.4 million in gross deferred tax assets in 2018. Since the Company has maintained a valuation allowance against these tax assets there is no impact to the consolidated statement of operations in either year.

As of December 31, 2018, The Company has approximately $4.2 million of net operating loss carryovers (after limitations) for federal income tax purposes. The net operating losses are not subject to limitation under I.R.C. Section 382 and carry forward indefinitely.

I.R.C. Section 382 of the Internal Revenue Code limits the Company’s ability to utilize the tax deductions associated with its oil and gas properties to offset taxable income in future years, due to the existence of a Net Unrealizable Built-In Loss (“NUBIL”) at the time of the change in control. Such a limitation will be effective for a five-year period subsequent to the change in control. In the event the Company has Recognized Built-In Losses (“RBIL”) during the five-year period, those losses will be limited; losses exceeding the annual limitation are carried forward as RBIL carryovers. As of December 31, 2018, the Company has approximately $4.4 million of RBIL carryovers, which carry forward indefinitely subject to the annual limitation.

The Company recognizes, measures, and discloses uncertain tax positions whereby tax positions must meet a “more-likely-than-not” threshold to be recognized. During the years ended December 31, 2018 and 2017, no adjustments were recognized for uncertain tax positions.

The Company files income tax returns in U.S. federal and multiple state jurisdictions. The Company is subject to tax audits in these jurisdictions until the applicable statute of limitations expires. The Company is no longer subject to U.S. federal tax examinations for tax years prior to 2014. The Company is open for various state tax examinations for tax years 2013 and later.