|9 Months Ended|
Sep. 30, 2019
|Income Tax Disclosure [Abstract]|
The dollar amounts and the effective tax rates in this note have been restated as a result of the matter described in Note 1.
The Company records its quarterly tax provision based on an estimate of the annual effective tax rate expected to apply to continuing operations for the various jurisdictions in which it operates. The tax effects of certain items, such as tax rate changes, significant unusual or infrequent items, and certain changes in the assessment of the realizability of deferred taxes, are recognized as discrete items in the period in which they occur and are excluded from the estimated annual effective tax rate.
The Company’s ability to utilize NOL carryforwards and other tax attributes to reduce future federal taxable income is subject to potential limitations under Internal Revenue Code Section 382 (“Section 382”) and its related tax regulations. The utilization of these attributes may be limited if certain ownership changes by 5% stockholders (as defined in Treasury regulations pursuant to Section 382) and the effects of stock issuances by the Company during any three-year period result in a cumulative change of more than 50% in the beneficial ownership of Gulfport. The Company updates its Section 382 analysis to determine if an ownership change has occurred at each reporting period. If it is determined that an ownership change has occurred under these rules, the Company would generally be subject to an annual limitation on the use of pre-ownership change NOL carryforwards and certain other losses and/or credits. In addition, certain future transactions regarding the Company's equity, including the cumulative effects of small transactions as well as transactions beyond the Company’s control, could cause an ownership change and therefore a potential limitation on the annual utilization of its deferred tax assets.
For the three month period ended March 31, 2019, the Company maintained a full valuation allowance against its deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that the deferred tax assets would not be realized. A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses estimates and judgment regarding future taxable income, and considers the tax laws in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities and tax planning strategies as well as the current and forecasted business economics of the oil and gas industry.
As of June 30, 2019, in part because in the current year the Company achieved more than three years of cumulative pretax income in the U.S. federal tax jurisdiction and the Company determined that an ownership change under Internal Revenue Code Section 382 did not occur that would further limit its ability to utilize net operating loss carryforwards, management determined that there was sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $207.0 million are realizable.
For the three and nine months ended September 30, 2019, the Company recognized $27.7 million and $207.0 million, respectively, as a discrete tax benefit. It therefore reduced the valuation allowance accordingly and maintains a valuation allowance of $5.0 million related to foreign tax credits, general business credits and net operating losses in jurisdictions for which it has determined that it is more likely than not that deferred tax assets would not be realized before expiration.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. This assessment relies upon a number of areas of management’s judgment regarding forecast of results in subsequent years. Changes in those judgments could require the Company to establish a valuation allowance for currently recognized deferred tax assets in a subsequent reporting period. In addition, if the Company incurred an Internal Revenue Code Section 382 ownership change it would significantly limit the Company’s ability to utilize net operating loss carryforwards and other tax attributes.
For the three and nine months ended September 30, 2019, the Company's estimated annual effective tax rates were approximately 50.4% and 28.2%, respectively. The effective tax rate varies from the expected statutory tax rate of 21% primarily because of the release of the valuation allowance of $207.0 million for the nine months ended September 30, 2019. The Company also recognized tax expense of $1.6 million and $1.7 million for the three and nine months ended September 30, 2019, respectively, related to equity compensation book amounts that exceed the tax deduction.
No definition available.
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://fasb.org/us-gaap/role/ref/legacyRef