Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes
12. INCOME TAXES

The income tax provision consists of the following:

 

     2011     2010     2009  

Current:

      

State

   $ —        $ 40,000      $ 28,000   

Federal

     282,000        95,000        32,000   

Deferred:

      

State

     —          —          —     

Federal

     (372,000     (95,000     (32,000
  

 

 

   

 

 

   

 

 

 

Total income tax expense (benefit) provision

   $  (90,000   $ 40,000      $ 28,000   
  

 

 

   

 

 

   

 

 

 

A reconciliation of the statutory federal income tax amount to the recorded expense follows:

 

     2011     2010     2009  

Income before federal income taxes

   $  108,332,000      $ 47,403,000      $ 23,655,000   
  

 

 

   

 

 

   

 

 

 

Expected income tax at statutory rate

     37,916,000        16,591,000        8,279,000   

State income taxes

     4,227,000        2,378,000        1,370,000   

Other differences

     (146,000     (111,000     (891,000

Changes in valuation allowance

     (42,087,000     (18,818,000     (8,730,000
  

 

 

   

 

 

   

 

 

 

Income tax expense (benefit) recorded

   $ (90,000   $ 40,000      $ 28,000   
  

 

 

   

 

 

   

 

 

 

The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2011, 2010 and 2009 are estimated as follows:

 

     2011     2010     2009  

Deferred tax assets:

      

Net operating loss carryforward

   $ 40,880,000      $ 20,967,000      $ 22,268,000   

Oil and gas property basis difference

     —          32,054,000        49,638,000   

FASB ASC 718 compensation expense

     520,000        347,000        341,000   

Investment in pass through entities

     78,000        722,000        528,000   

AMT credit

     1,000,000        693,000        598,000   

Non-oil and gas property basis difference

     103,000        279,000        316,000   

Charitable contributions carryover

     3,000        —          —     

State net operating loss carryover

     6,410,000        —          —     
  

 

 

   

 

 

   

 

 

 

Total deferred tax assets

     48,994,000        55,062,000        73,689,000   

Deferred tax liabilities:

      

Oil and gas property basis difference

     35,637,000        —          —     

Investment in pass through entities

     —          —          —     

Unrealized gain on hedging activities

     10,000        —          —     
  

 

 

   

 

 

   

 

 

 

Total deferred tax liabilities

     35,647,000        —          —     
  

 

 

   

 

 

   

 

 

 

Total deferred tax asset

     13,347,000        55,062,000        73,689,000   

Valuation allowance

     (12,347,000     (54,434,000     (73,156,000
  

 

 

   

 

 

   

 

 

 

Net deferred tax asset

   $ 1,000,000      $ 628,000      $ 533,000   
  

 

 

   

 

 

   

 

 

 

 

The Company has an available tax net operating loss carryforward estimated at approximately $116,800,000 as of December 31, 2011. This carryforward will begin to expire in the year 2013. A valuation allowance has been provided at December 31, 2011, 2010 and 2009 because it is management's belief, based upon the Company's past history of no taxable income and future projections of no taxable income during the carryforward period, it is more likely than not the net deferred tax assets will not be realized.

The Company had income tax expense of $40,000 related to state income tax for the year ended December 31, 2010.