Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.19.3.a.u2
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Taxes

(13) Income Taxes

For the years ended December 31, 2017, 2018 and 2019, income tax expense (benefit) consisted of the following (in thousands):

Year ended December 31,

    

2017

    

2018

    

2019

 

Current income tax expense (benefit)

$

75

5,048

Deferred income tax benefit

 

(295,126)

 

(128,857)

 

(79,158)

Total income tax benefit

$

(295,051)

(128,857)

(74,110)

Income tax expense (benefit) differs from the amount that would be computed by applying the U.S. statutory federal income tax rate of 35% to the year ended December 31, 2017 and 21% to the years ended December 31, 2018 and 2019 to income or loss before taxes as a result of the following (in thousands):

Year ended December 31,

    

2017

    

2018

    

2019

 

Federal income tax expense (benefit)

$

171,530

(36,657)

(77,122)

State income tax expense (benefit), net of federal benefit

 

10,779

 

(12,627)

 

(8,826)

Change in Federal tax rate, net of state benefit (1)

(427,962)

Change in State tax rate, net of federal effect

(40,415)

24,041

Nondeductible equity-based compensation

 

12,098

 

6,079

 

6,920

Dividends received deduction

(4,201)

Noncontrolling interest in Antero Midstream Partners

(59,523)

(73,881)

(10,998)

Deconsolidation adjustment

(6,626)

Change in valuation allowance

 

(2,073)

 

28,116

 

1,325

Other

 

100

 

528

 

1,377

Total income tax benefit

$

(295,051)

(128,857)

(74,110)

(1) The change in the Federal tax rate was due to the passage of Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act. The passage of this legislation resulted in the Company generating a deferred tax benefit in 2017 primarily due to the reduction in the U.S. statutory rate from 35% to 21%.

Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax effect of the temporary differences giving rise to net deferred tax assets and liabilities at December 31, 2018 and 2019 is as follows (in thousands):

    

2018

    

2019

 

Deferred tax assets:

Net operating loss carryforwards

$

734,255

560,136

Equity-based compensation

10,633

7,669

Investment in Antero Midstream

172,460

Other

15,726

15,754

Total deferred tax assets

760,614

756,019

Valuation allowance

(45,477)

(46,802)

Net deferred tax assets

715,137

709,217

Deferred tax liabilities:

Unrealized gains on derivative instruments

271,747

206,677

Oil and gas properties

1,055,850

1,284,528

Investment in Antero Midstream Partners

11,258

Other

27,070

Total deferred tax liabilities

1,365,925

1,491,205

Net deferred tax liabilities

$

(650,788)

(781,987)

In assessing the realizability of deferred tax assets, management considers whether some portion or all of the deferred tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will not realize the benefits of certain of these deductible differences and has recorded a valuation allowance of approximately $45 million and $47 million at December 31, 2018 and 2019, respectively, related to state net operating loss (“NOL”) carryforwards. The increase in the valuation allowance from $45 million at December 31, 2018 to $47 million at December 31, 2019, is due to an increase in Colorado NOLs, resulting from tax return amendments, against which a full valuation allowance has been previously established. The amount of the deferred tax asset considered realizable could be further reduced in the near term if estimates of future taxable income during the carryforward period are revised.

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 examination by the Internal Revenue Service or state revenue authorities. The Company monitors potential uncertain tax positions but does not anticipate any changes within the next year. The Company has no unrecognized tax benefit balances through December 31, 2019.

As of December 31, 2019, the Company has U.S. federal and state NOL carryforwards of $2.2 billion and $2.0 billion, respectively. The federal, Colorado, and West Virginia NOL carryforwards generated in tax years prior to 2018 expire between 2032 and 2037. The 2018 NOL carryforwards generated in these jurisdictions have no expiration date. The Pennsylvania NOL carryforwards expire between 2037 and 2038.

Tax years 2016 through 2019 remain open to examination by the U.S. Internal Revenue Service. The Company and its subsidiaries file tax returns with various state taxing authorities and those returns remain open to examination for tax years 2015 through 2019.