Gulfport Energy Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

The income tax provision consists of the following:



	2015			2014		2013
	(In thousands)
Current:
State	$	(1,069	)	$	14,384	$	6,860
Federal	(439		)	16,039		6,325
Deferred:
State	(14,218		)	4,314		7,385
Federal	(240,275		)	118,604		77,566
Total income tax (benefit) expense provision	$	(256,001	)	$	153,341	$	98,136

A reconciliation of the statutory federal income tax amount to the recorded expense follows:



	2015			2014		2013
	(In thousands)
(Loss) income before federal income taxes	$	(1,480,885	)	$	400,744	$	251,328
Expected income tax at statutory rate	(518,310		)	140,259		87,965
State income taxes	(15,908		)	11,570		9,297
Other differences	(420		)	1,512		874
Changes in valuation allowance	278,637			—		—
Income tax (benefit) expense recorded	$	(256,001	)	$	153,341	$	98,136

The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2015, 2014 and 2013 are estimated as follows:



	2015			2014			2013
	(In thousands)
Deferred tax assets:
Net operating loss carryforward	$	46,209		$	1,091		$	1,462
Oil and gas property basis difference	292,838			—			—
FASB ASC 718 compensation expense	1,922			1,562			634
AMT credit	23,629			24,053			7,968
Charitable contributions carryover	146			150			25
Unrealized loss on hedging activities	—			—			8,540
Foreign tax credit carryforwards	2,074			2,074			2,074
Accrued liabilities	—			1,260			—
ARO liability	9,415			—			—
State net operating loss carryover	4,344			2,627			4,408
Total deferred tax assets	380,577			32,817			25,111
Valuation allowance for deferred tax assets	(281,782		)	(3,145		)	(4,743		)
Deferred tax assets, net of valuation allowance	98,795			29,672			20,368
Deferred tax liabilities:
Oil and gas property basis difference	—			183,767			72,173
Investment in pass through entities	7,430			38,315			8,799
Non-oil and gas property basis difference	715			849			249
Investment in nonconsolidated affiliates	—			—			46,495
Unrealized gain on hedging activities	66,422			37,006			—
Total deferred tax liabilities	74,567			259,937			127,716
Net deferred tax asset (liability)	$	24,228		$	(230,265	)	$	(107,348	)

The Company has an available federal tax net operating loss carryforward estimated at approximately $132.0 million as of December 31, 2015. This carryforward will begin to expire in the year 2035. Based upon the December 31, 2015 net deferred tax asset position and a significant loss in 2015, management believes that there is sufficient negative evidence to place a valuation allowance on the net deferred tax asset that may not be utilized based upon a more likely than not basis. The Company also has state net operating loss carryovers of $88.6 million that will begin to expire in 2016, alternative minimum tax credits of $23.6 million with no expiration date and federal foreign tax credit carryovers of $2.1 million which begin to expire in 2017. The Company believes that it can utilize an Oklahoma state NOL as well as a portion of the AMT credit through carrybacks and a refundable election. Therefore, the Company has recorded a total valuation allowance of $281.8 million related to the remaining net deferred tax asset.

In 2013, the Company's sale of Diamondback common shares generated a $120.0 million taxable gain resulting in deferred tax expense of $35.7 million and current tax expense of $13.2 million. In 2014, the Company's sale of its remaining shares of Diamondback common stock, as well as its share of the proceeds from Blackhawk's sale of its interest in Ohio Gas Gathering Company, LLC and Ohio Condensate Company, LLC, generated $203.3 million and $83.7 million of taxable gain, respectively, resulting in a deferred tax expense of $79.4 million and $32.3 million, respectively. The Company's current federal tax benefit in 2015 is primarily attributable to the Company recording a full cost ceiling impairment of $1.4 billion against the oil and gas assets, while the federal tax expense in 2014 and 2013 is a result of operations plus the sale of Diamondback common shares and the sale of assets by Blackhawk.

At December 31, 2014, the Company owed approximately $17.7 million for state and federal income taxes payable which is included on the accompanying consolidated balance sheets. No amounts were owed at December 31, 2015.