Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.8.0.1
Income Taxes
12 Months Ended
Dec. 31, 2017
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes 

The following table presents Callon’s deferred tax assets and liabilities with respect to its carryforwards and other temporary differences:

 
As of December 31,

 
2017
 
2016
Deferred tax asset (a)
 
 
 
 
  Federal net operating loss carryforward (b)
 
$
97,437

 
$
135,711

Statutory depletion carryforward
 
5,381

 
8,843

Alternative minimum tax credit carryforward (c)
 
52

 
104

Asset retirement obligations
 
572

 
1,181

Derivatives
 
6,186

 
6,456

Unvested RSU equity awards
 
1,749

 
2,092

Other
 
2,401

 
4,376

Deferred tax asset before valuation allowance
 
113,778

 
158,763

Deferred tax liability (a)
 
 
 
 
Oil and natural gas properties
 
54,264

 
18,661

Total deferred tax liability
 
54,264

 
18,661

Net deferred tax asset before valuation allowance
 
59,514

 
140,102

Less: Valuation allowance
 
(60,919
)
 
(140,192
)
Net deferred tax liability
 
$
(1,405
)
 
$
(90
)
(a)
Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The 2017 Tax Reform lowered the U.S. federal corporate tax rate from 35% to 21%, which caused the Company to remeasure its deferred income tax assets and liabilities at the new rate. As of December 31, 2017 and 2016, the Company’s tax rate applied was 21% and 35%, respectively. As a result of the change in the applied tax rate on our deferred tax assets and liabilities, the Company recorded a $40,611 reduction in our net deferred tax assets with a corresponding reduction in our valuation allowance.
(b)
As of December 31, 2016, the Company’s $135,711 deferred tax asset related to NOL carryforwards was net of $9,288 of unrealized excess tax benefits related to stock based compensation.
(c)
The 2017 Tax Reform repealed the Alternative Minimum Tax (“AMT”) effective for years beginning after December 31, 2017. The result had an immaterial impact in income.

U.S. federal net operating loss (“NOL”) utilization was changed by the 2017 Tax Reform for losses incurred in tax years beginning after December 31, 2017. Post-2017 NOLs do not have an expiration period, but may only offset 80% of the Company’s taxable income in any year of utilization. If not utilized, the Company’s existing federal NOL carryforwards, unaffected by the 2017 Tax Reform, will expire as follows:໿

 
 
 
Year Expiring

 
Total
 
2018-2023
 
2024-2026
 
2027-2029
 
2030-2032
 
2033-2037
Federal NOL carryforwards
 
$
463,985

 
$
111,431

 
$
14,408

 
$
41,379

 
$
42,158

 
$
254,609



As a result of the write-down of oil and natural gas properties discussed in Notes 2 and 13, the Company has incurred a cumulative three year loss. Because of the impact the cumulative loss has on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the ability to realize its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a valuation allowance for a portion of the deferred tax asset. The valuation allowance was $60,919 as of December 31, 2017.

The Company had no significant unrecognized tax benefits at December 31, 2017. Accordingly, the Company does not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for years 2004 through 2017 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject.

The Company provides for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, which primarily relate to non-deductible executive compensation expenses, restricted stock windfalls, and state income taxes. The following table presents a reconciliation of the reported amount of income tax expense to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations:
໿

 
For the Year Ended December 31,
Components of income tax rate reconciliation
 
2017
 
2016
 
2015
Income tax expense computed at the statutory federal income tax rate
 
35
 %
 
35
 %
 
35
 %
State taxes net of federal benefit
 
1
 %
 
 %
 
1
 %
Section 162(m)
 
 %
 
(1
)%
 
(1
)%
Valuation allowance
 
(35
)%
 
(34
)%
 
(54
)%
Effective income tax rate
 
1
 %
 
 %
 
(19
)%

 
For the Year Ended December 31,
Components of income tax expense
 
2017
 
2016
 
2015
Current federal income tax benefit
 
$
(48
)
 
$
(104
)
 
$

Deferred federal income tax benefit
 
(45
)
 

 
(69,087
)
Deferred state income tax (benefit) expense
 
1,366

 
90

 
(1,282
)
Valuation allowance
 

 

 
108,843

Total income tax (benefit) expense
 
$
1,273

 
$
(14
)
 
$
38,474