|9 Months Ended|
Sep. 30, 2019
|Income Taxes [Abstract]|
16. INCOME TAXES
For 2019, the Company will determine its tax expense by estimating an annual effective income tax rate based on current and forecasted business results and enacted tax laws on a quarterly basis and apply this tax rate to the Company’s ordinary income or loss to calculate its estimated tax expense or benefit. The tax effect of discrete items is recognized in the period in which they occur at the applicable statutory tax rate.
The income tax provision for VAALCO consists primarily of Gabonese and United States income taxes. The Company’s operations in other foreign jurisdictions have a 0% effective tax rate because the Company has incurred losses in those countries and have full valuation allowances against the corresponding net deferred tax assets.
Provision for income tax expense (benefit) related to income from continuing operations consists of the following:
The Company’s effective tax rate for the three and nine months ended September 30, 2019 is 101%. For the three and nine months ended September 30, 2019, the Company’s overall effective tax rate was impacted by non-deductible items associated with operations and deducting foreign taxes rather than crediting them for United States tax purposes. The effective tax rate was also impacted by a change in current year expectations in the valuation allowance. The deferred income tax expense for the three months ended September 30, 2019 included a $4.8 million charge to increase the valuation allowances on U.S. deferred tax assets due to a decrease in future estimated taxable earnings primarily as result of lower crude oil prices. Additionally, the joint venture owners’ audit settlement was treated as discrete during the nine months ended September 30, 2019. Further, a change in the valuation allowance relating to a change in expectations in future periods was treated as discrete to the quarter. An income tax benefit and expense, respectively, was provided at the U.S. tax rate of 21%.
For the three and nine months ended September 30, 2018, we determined that the potential for a recovery of our Cost Account maintained under the Etame Marine PCS was no longer remote, and therefore we recorded a deferred tax asset of $46.5 million related
to the excess of the Cost Account over the book basis of the Etame Marin block assets. In addition, as a result of recording the deferred tax asset of $46.5 million related to our Cost Account, we recorded a corresponding deferred tax liability of $9.8 million attributable to the U.S. federal income tax impact. We also evaluated the amount of the valuation allowance needed related to deferred tax assets recognized related to U.S. federal income taxes. We determined that it is more likely than not that we will realize a portion of the benefit from the deferred tax assets related to the fixed asset basis differences as well as the net operating losses. Accordingly, we reversed $29.9 million of the valuation allowance recorded in prior periods.
The Company files income tax returns in all jurisdictions where such requirements exist, with Gabon and the United States being its primary tax jurisdictions.As of September 30, 2019, the Company had no material uncertain tax positions. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.
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