|9 Months Ended|
Sep. 30, 2018
11. Income Taxes
On December 22, 2017, the Tax Act was enacted into law and the new legislation contains several key tax provisions that affected the Company, primarily a reduction of the corporate income tax rate to 21% effective January 1, 2018. The Company was required to recognize the effect of the tax law changes in the period of enactment. The Company re-measured its U.S. deferred tax assets and liabilities as well as reassessed the net realizability of its deferred tax assets and liabilities. In December 2017, the SEC staff issued SAB 118, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As the Tax Act was passed late in the fourth quarter of 2017, ongoing guidance from the Department of Treasury and state agencies and accounting interpretation is expected to be issued over the next several months. Therefore, for the nine months ended September 30, 2018, the Company considered the accounting of certain items to be incomplete due to forthcoming guidance and the ongoing analysis of final year-end data and tax positions.
For the nine months ended September 30, 2018, the Company has estimated deductions of $25.5 million associated with the full expensing of the costs of qualified property that were incurred and placed into service during the period from January 1, 2018 to September 30, 2018. The Company continues to analyze assets placed into service after September 27, 2017, but not qualifying for full expensing as a result of being acquired under an agreement entered into prior to that date. In addition, further transitional guidance has been issued related to IRC Section 162(m). The Company has begun to analyze this guidance and has reviewed the terms of the Company's compensation plans and agreements to assess its impact on awards granted prior to November 2, 2017, subject to the grandfather provisions. Thus, the Company has not adjusted certain tax items previously reported on its financial statements that may be impacted by IRC Section 162(m). The Company expects to complete its analysis within the measurement period in accordance with SAB 118. Management does not expect the future revision of its estimate for IRC Section 162(m) items due to the completion of this analysis to have a material impact on the financial statements because any revision would be offset by a valuation allowance.
For the nine months ended September 30, 2018, the Company recorded no income tax expense or benefit. The significant difference between its effective tax rate and the federal statutory income tax rate of 21% is primarily due to the effect of changes in the Company’s valuation allowance. During the nine months ended September 30, 2018, the Company’s valuation allowance decreased by $3.6 million from December 31, 2017, bringing the total valuation allowance to $116.5 million at September 30, 2018. A valuation allowance has been recorded as management does not believe that it is more-likely-than-not that its deferred tax assets are realizable.
The Company expects to incur a tax loss in the current year due to the flexibility in deducting or capitalizing current year intangible drilling costs; thus no current income taxes are anticipated to be paid.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef