Gastar Exploration Inc. - 10-K filing on 2016-03-10

Income Taxes

12 Months Ended

Dec. 31, 2015

12. Income Taxes

The following table summarizes the components of the Company’s (loss) income before income taxes for the periods indicated:

	For the Year Ended December 31,
	2015			2014		2013
	(in thousands)
United States	$	(459,507	)	$	50,953	$	35,234
Foreign		—			—		(1,934	)
Total income (loss) before income taxes	$	(459,507	)	$	50,953	$	33,300

The Company did not report any current provision for income taxes for the years ended December 31, 2015, 2014 and 2013.

The Company’s deferred income tax expense (benefit) consists of the following for the periods presented:

	For the Years Ended December 31,
	2015		2014		2013
	(in thousands)
Deferred:
Federal	$	—	$	—	$	(15,299	)
State		—		—		(743	)
Foreign		—		—		—
Income tax expense (benefit)	$	—	$	—	$	(16,042	)

The following table provides a reconciliation of the Company’s effective tax rate from the U.S. 35% statutory rate for the periods indicated:

	For the Years Ended December 31,
	2015			2014			2013
	(in thousands)
Expected income tax provision (benefit) at statutory rate	$	(160,827	)	$	17,833		$	11,655
State tax, tax effected		(7,799	)		803			96
Stock-based compensation expense (benefit)		255			(1,291	)		605
Tax effect of Canadian tax rate differences		—			—			193
Loss of Canadian tax attributes due to migration from Canada		—			—			19,825
Gain on acquisition of assets at fair value		—			—			(9,685	)
Non-deductible costs of migration from Canada to U.S.		—			—			95
Other		17			38			(49	)
Other changes in valuation allowance		168,354			(17,383	)		(38,777	)
Actual income tax provision	$	—		$	—		$	(16,042	)

The components of the Company’s U.S. deferred taxes are as follows:

	As of December 31,
	2015			2014
	(in thousands)
Deferred tax asset (liability):
Capital assets	$	10,485		$	(134,223	)
Stock-based compensation		4,243			4,504
Net operating loss carry forwards		187,963			164,056
Foreign tax credit carry forwards		50,681			50,681
Valuation allowance		(253,372	)		(85,018	)
Net deferred tax asset	$	—		$	—

The Company has approximately $512.0 million of net operating loss carry forwards as of December 31, 2015, which, if not utilized, will expire between 2030 and 2035. For U.S. federal income tax purposes, as of December 31, 2015, the Company has foreign tax credit carry forwards of $50.7 million, which, if not utilized, will expire in 2019. The utilization of the net operating loss carry forward and the foreign tax credit carry forward are dependent on the Company generating future taxable income and U.S. tax liability, as well as other factors.

Effective November 14, 2013, the Company withdrew from Canada and re-incorporated in Delaware (the “Migration”). As a result of the Migration, the Company's Canadian tax attributes have effectively been forfeited. As all of the Canadian tax attributes were subject to a valuation allowance, the Migration from Canada to the U.S. did not result in any Canadian tax expense.

Current authoritative guidance requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For a tax position meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. At December 31, 2015, the Company did not have any material unrecognized tax benefits that, if recognized, would affect the effective tax rate.

The Company is subject to examination of income tax filings in the U.S. and various state jurisdictions for the periods 2010 and forward and the foreign jurisdiction of Canada for the tax periods 2000 through 2013 due to the Company’s continued loss position in such jurisdiction.

Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of general and administrative expense in the consolidated statement of operations. The Company has not recorded any interest or penalties associated with unrecognized tax benefits.