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, 2016

The income tax provision consists of the following:



	2016			2015			2014
	(In thousands)
Current:
State	$	(1,330	)	$	(1,069	)	$	14,384
Federal	(19,770		)	(439		)	16,039
Deferred:
State	(386		)	(14,218		)	4,314
Federal	18,573			(240,275		)	118,604
Total income tax (benefit) expense provision	$	(2,913	)	$	(256,001	)	$	153,341

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



	2016			2015			2014
	(In thousands)
(Loss) income before federal income taxes	$	(982,622	)	$	(1,480,885	)	$	400,744
Expected income tax at statutory rate	(343,918		)	(518,310		)	140,259
State income taxes	(5,883		)	(15,908		)	11,570
Other differences	4,293			(420		)	1,512
Intraperiod tax allocation	(1,349		)	—			—
Changes in valuation allowance	343,944			278,637			—
Income tax (benefit) expense recorded	$	(2,913	)	$	(256,001	)	$	153,341

The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2016, 2015 and 2014 are estimated as follows:



	2016			2015			2014
	(In thousands)
Deferred tax assets:
Net operating loss carryforward	$	162,073		$	46,209		$	1,091
Oil and gas property basis difference	386,302			292,838			—
Investment in pass through entities	27,469			14,034			—
FASB ASC 718 compensation expense	2,084			1,922			1,562
Business energy investment tax credit	369			—			—
AMT credit	3,842			23,629			24,053
Charitable contributions carryover	303			146			150
Unrealized loss on hedging activities	48,317			—			—
Foreign tax credit carryforwards	2,074			2,074			2,074
Accrued liabilities	397			—			1,260
ARO liability	12,107			9,415			—
State net operating loss carryover	5,351			4,344			2,627
Total deferred tax assets	650,688			394,611			32,817
Valuation allowance for deferred tax assets	(645,841		)	(303,246		)	(13,522		)
Deferred tax assets, net of valuation allowance	4,847			91,365			19,295
Deferred tax liabilities:
Oil and gas property basis difference	—			—			183,767
Investment in pass through entities	—			—			27,938
Non-oil and gas property basis difference	155			715			849
Unrealized gain on hedging activities	—			66,422			37,006
Total deferred tax liabilities	155			67,137			249,560
Net deferred tax asset (liability)	$	4,692		$	24,228		$	(230,265	)

The Company has an available federal tax net operating loss carryforward estimated at approximately $463.1 million as of December 31, 2016. This carryforward will begin to expire in the year 2036. Based upon the December 31, 2016 net deferred tax asset position and a significant loss in 2016, 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 $111.9 million that will begin to expire in 2016, alternative minimum tax credits of $3.8 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 $645.8 million related to the remaining net deferred tax asset.

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 2016 and 2015 is primarily attributable to the Company recording a full cost ceiling impairment of $715.5 million and $1.4 billion against the oil and gas assets, while the federal tax expense in 2014 is a result of operations plus the sale of Diamondback common shares and the sale of assets by Blackhawk.

No amounts for state and federal income taxes payable were owed at December 31, 2016 and 2015.