Income Taxes
 12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Tax Disclosure
Note 12—Income Taxes
In 2016, the Company became the sole managing member of CRP, and as a result, began consolidating the financial results of CRP. CRP is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, CRP is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by CRP is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of CRP, as well as any stand-alone income or loss generated by the Company.
Income tax expenses and benefits included in the consolidated statements of operations are detailed below:
 
Successor
 
 
Predecessor
 
Year Ended December 31,
 
October 11, 2016
through
December 31, 2016
 
 
January 1, 2016
through
October 10, 2016
(in thousands)
2018
 
2017
 
 
 
Current taxes
 
 
 
 
 
 
 
 
Federal
$
—

 
$
—

 
$
—

 
 
$
—

State
—

 
—

 
—

 
 
—

 
—

 
—

 
—

 
 
—

Deferred taxes
 
 
 
 
 
 
 
 
Federal
(56,365
)
 
(26,713
)
 
—

 
 
—

State
(3,075
)
 
(3,217
)
 
—

 
 
406

 
(59,440
)
 
(29,930
)
 
—

 
 
406

 
 
 
 
 
 
 
 
 
Income tax benefit (expense)
$
(59,440
)
 
$
(29,930
)
 
$
—

 
 
$
406


A reconciliation of the statutory federal income tax expense, which is calculated at the federal statutory rate of 21% in 2018 and 35% in 2017 and 2016, to the income tax expense from continuing operations provided for the periods presented, is as follows:
 
Successor
 
 
Predecessor
 
Year Ended December 31,
 
October 11, 2016
through
December 31, 2016
 
 
January 1, 2016
through
October 10, 2016
(in thousands)
2018
 
2017
 
 
 
Income tax benefit (expense) at the federal statutory rate
$
(57,157
)
 
$
(39,720
)
 
$
3,145

 
 
$
—

State income tax benefit (expense) - net of federal income tax benefits
(3,075
)
 
(2,788
)
 
—

 
 
406

Change in Federal tax rate (net of state benefit)
—

 
4,425

 
—

 
 
—

Noncontrolling interest in partnership
2,696

 
2,795

 
(273
)
 
 
—

Equity based compensation
(1,825
)
 
241

 
—

 
 
—

Nondeductible expenses
(79
)
 
(31
)
 
(4
)
 
 
—

Change in valuation allowance


 
5,148

 
(2,868
)
 
 
—

Income tax benefit (expense)
$
(59,440
)
 
$
(29,930
)
 
$
—

 
 
$
406


The change in the Federal tax rate was due to the passage of Public Law No. 115-97, commonly referred to as the Jobs Act, which was enacted on December 22, 2017. The passage of this legislation resulted in the Company generating a deferred tax benefit primarily due to the reduction in the U.S. statutory rate from 35% to 21%.
The tax effects of temporary differences that give rise to significant positions of the deferred income tax assets and liabilities are presented below:
(in thousands)
December 31, 2018
 
December 31, 2017
Deferred tax assets:
 
 
 
Net operating loss carryforwards
$
87,196

 
$
88,968

Capitalized intangible drilling cost
29,159

 
5,137

Interest expense
6,023

 
—

Equity-based compensation
3,366

 
2,631

Other assets
282

 
288

Total deferred tax assets
126,026

 
97,024

Deferred tax liabilities:
 
 
 
Investment in Centennial Resource Production, LLC
(188,193
)
 
(106,923
)
 
 
 
 
Net deferred tax asset (liability)
$
(62,167
)
 
$
(9,899
)

During 2018 and 2017, in connection with the conversion of shares from a noncontrolling interest owner, a tax benefit was recorded in equity of $7.2 million and $20.0 million, respectively. For the period from October 11, 2016, through December 31, 2016 (Successor), equity was charged $5.6 million in connection with the issuance of shares to a non-controlling interest owner. No tax benefit was recorded in equity as a $2.0 million valuation allowance fully offset the tax benefit.
As of December 31, 2018, the Company had approximately $417.4 million and $61.7 million of U.S. federal and state net operating loss carryovers, respectively, which expire variously from 2035 to 2037.
The Company periodically assesses whether it is more-likely-than-not that it will generate sufficient taxable income to realize its deferred income tax assets, including interest limitations and net operating loss carry forwards. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment, its historical earnings and losses, current industry trends, and its outlook for future years. Based on when the Company expects existing taxable differences to be realized, management determined that sufficient positive evidence exists as of December 31, 2018 to conclude that it is more-likely-than-not that our remaining deferred tax assets will be realized prior to their expiration.
The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations. The Company gives financial statement recognition to those tax positions that it believes are more-likely-than-not to be sustained upon the examination by the Internal Revenue Service or other governmental agency. As of December 31, 2018 and 2017, the Company did not have any accrued liability for uncertain tax positions and does not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months. Interest and penalties related to uncertain tax positions are reported in income tax expense.
The Company is subject to the following material taxing jurisdictions: U.S., Colorado, New Mexico, and Texas. As of December 31, 2018, the Company has no current tax years under audit. The Company remains subject to examination for federal income taxes and state income taxes for tax years 2015 through 2018.