7.  Income Taxes

Our income tax expense for the three months ended September 30, 2017 was $5.5 million and our income tax benefit for the nine months ended September 30, 2017 was $11.1 million.  Our income tax benefit for the three and nine months ended September 30, 2016 was $3.8 million and $44.4 million, respectively. Under GAAP, we are required to use the annualized effective tax rate method in computing income tax expense or benefit for interim periods.  Somewhat improving commodity prices and a relatively lower forecasted spend for plug and abandonment work in 2017 revised our forecast, which required us to reduce the amount of benefits previously recorded in the first half of 2017 under the annualized effective tax rate method.  Our effective tax rate was not meaningful for any period presented.  The income tax benefit for all periods presented relates to net operating loss (“NOL”) carryback claims made pursuant to Internal Revenue Code (“IRC”) Section 172(f) (related to rules for “specified liability losses”), which permit certain platform dismantlement, well abandonment and site clearance costs to be carried back 10 years.

During the nine months ended September 30, 2017, we received $11.9 million of income tax refunds and made $0.2 of income tax payments.  During the nine months ended September 30, 2016, we received $7.8 million of income tax refunds and made income tax payments of $0.3 million.         

As of September 30, 2017, we recorded current income tax receivables of $11.6 million and non-current income tax receivables of $52.1 million.  As of December 31, 2016, we recorded current income tax receivables of $11.9 million and non-current income tax receivables of $52.1 million.  The current income tax receivables as of September 30, 2017 relates to our estimated NOL carryback claim for 2017.  The non-current income tax receivables relates to our NOL claims for the years 2012, 2013 and 2014 that were carried back to prior years.  These carryback claims are made pursuant to IRC Section 172(f) described above.  The refund claims related to the years 2012, 2013 and 2014 will require a review by the Congressional Joint Committee on Taxation and are accordingly classified as non-current.

As of September 30, 2017 and December 31, 2016, our valuation allowance was $274.5 million and $290.2 million, respectively, related to Federal, Louisiana and Alabama NOLs and other deferred assets.  Net deferred tax assets were recorded related to NOLs and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions in future periods.  The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or NOLs are deductible.  In addition, the realization depends on the ability to carryback certain items to prior years for refunds of taxes previously paid.  In assessing the need for a valuation allowance on our deferred tax assets, we consider whether it is more likely than not that some portion or all of them will not be realized.  

We recognize interest and penalties related to unrecognized tax benefits in income tax expense.  During the nine months ended September 30, 2017 and 2016, we recorded immaterial amounts of accrued interest expense related to our unrecognized tax benefit.

The tax years 2013 through 2016 remain open to examination by the tax jurisdictions to which we are subject.