13. Income Taxes

Income Tax (Benefit) Expense

Components of income tax (benefit) expense were as follows (in thousands):

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Reconciliation

The reconciliation of income taxes computed at the U.S. federal statutory tax rate to our income tax (benefit) expense is as follows (in thousands):

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Our effective tax rate for the years 2021, 2020 and 2019 differed from the applicable federal statutory rate of 21.0% primarily due to the impact of the valuation allowance on our deferred tax assets, which is discussed below. As a result, our effective tax rate for 2021 is 16.3% while our effective tax rates for the years 2020 and 2019 presented above are not meaningful.

Deferred Tax Assets and Liabilities

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows (in thousands):

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Income Taxes Receivable, Refunds and Payments

As of December 31, 2021 and 2020, we did not have any current income taxes receivable. During 2020 we received a refund of $2.0 million which related to a net operating loss (“NOL”) carryback claim for the year 2017 that we carried back to prior years.  This carryback claim was made pursuant to IRC Section 172(f) (related to rules regarding “specified liability losses”), which permits certain platform dismantlement, well abandonment and site clearance costs to be carried back 10 years. During the years ending December 31, 2021 and 2020, we did not make any tax payments of significance.

Net Operating Loss and Interest Expense Limitation Carryover

The table below presents the details of our net operating loss and interest expense limitation carryover as of December 31, 2021 (in thousands):

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Valuation Allowance

During 2021, our valuation allowance increased $2.0 million primarily due to an increase in our disallowed interest expense limitation carryover. During 2020, we recorded a decrease in the valuation allowance of $32.1 million; resulting in an income tax benefit in 2020 primarily as a result of the enactment of the CARES Act on March 27, 2020 and the issuance by the United States Treasury Department (Treasury) of final and proposed regulations under Internal Revenue Code (“IRC”) Section 163(j) on July 28, 2020 that provided additional guidance and clarification to the business interest expense limitation. Deferred tax assets are recorded related to net operating losses 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 net operating losses are deductible.  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.

The Company assesses available positive and negative evidence regarding our ability to realize our deferred tax assets including reversing temporary differences and projections of future taxable income during the periods in which those temporary differences become deductible, as well as negative evidence such as historical losses. Although the Company incurred a loss in 2021, we determined that these results were not indicative of future results and concluded that the positive evidence outweighed the negative evidence. The portion of the valuation allowance remaining relates to state net operating losses, charitable contributions carryover and the disallowed interest limitation carryover under IRC section 163(j). As of December 31, 2021, the Company’s valuation allowance was $24.4 million.

Years open to examination

The tax years from 2018 through 2021 remain open to examination by the tax jurisdictions to which we are subject.