Quarterly report pursuant to Section 13 or 15(d)

Note 16 - Income Taxes

v3.22.2.2
Note 16 - Income Taxes
 9 Months Ended
Sep. 30, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

16. INCOME TAXES

 

VAALCO and its domestic subsidiaries file a consolidated U.S. income tax return. Certain foreign subsidiaries also file tax returns in their respective local jurisdictions.

 

Income taxes attributable to continuing operations for the three and nine months ended September 30, 2022 and 2021 are attributable to foreign taxes payable in Gabon as well as income taxes in the U.S.

 

Provision for income taxes related to income from continuing operations consists of the following:

 

   

Three Months Ended September 30,

    

Nine Months Ended September 30,

  
   

2022

    

2021

    

2022

    

2021

  
   

(in thousands)

  

U.S. Federal:

                                

Current

   $ —     $ —     $ —     $ —  

Deferred

     461       (17,619 )     (9,408 )     (19,668 )

Foreign:

                                

Current

     (1,165 )     5,516       24,928       15,099  

Deferred

     23,547       (5,080 )     48,947       (6,703 )

Total

   $ 22,843     $ (17,183 )   $ 64,467     $ (11,272 )

 

The Company’s effective tax rate for the nine months ended September 30, 2022 and 2021, excluding the impact of discrete items, was 90.3% and 37.5%, respectively. For the nine months ended September 30, 2022, the Company’s overall effective tax rate was appreciably impacted by non-deductible items associated with operations (which includes losses on derivative instruments), transaction costs attributable to the TransGlobe Arrangement, and the release of valuation allowance attributable to the current period. The total tax expense for the nine months ended September 30, 2022 includes a discrete adjustment for the release of an additional $20.2 million of valuation allowance as a result of an increase in forecasted future earnings. For the three months ended September 30, 2022, the current tax benefit of $1.2 million includes an $8.7 million favorable oil price adjustment as a result of the change in value of the government of Gabon’s allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding the impact, current income taxes were an expense of $7.5 million for the period. For the nine months ended September 30, 2022, the current tax expense of $24.9 million includes a $4.4 million favorable oil price adjustment as a result of the change in value of the government of Gabon’s allocation of Profit Oil between the time it was produced and the time it was taken in-kind. After excluding the impact, current income taxes were $29.3 million for the period.

 

As of September 30, 2022, 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.

 

In connection with the Arrangement with TransGlobe, the Company anticipates that a Section 382 change of ownership will result although it is not anticipated that this change will have any material impact on the Company’s financial statements.