Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
Income Taxes
INCOME TAXES
The income tax provision for continuing operations consists of the following:
 
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
State
$
84,000

 
$
—

 
$
40,000

Federal
646,000

 
282,000

 
95,000

Deferred:

 

 

State
2,214,000

 
—

 
—

Federal
23,419,000

 
(372,000
)
 
(95,000
)
Total income tax expense (benefit) provision from continuing operations
$
26,363,000

 
$
(90,000
)
 
$
40,000


A reconciliation of the statutory federal income tax amount to the recorded expense follows:
 
 
2012
 
2011
 
2010
Income from continuing operations before federal income taxes
$
98,199,000

 
$
108,332,000

 
$
47,403,000

Expected income tax at statutory rate
34,370,000

 
37,916,000

 
16,591,000

State income taxes
1,493,000

 
4,227,000

 
2,378,000

Other differences
292,000

 
(146,000
)
 
(111,000
)
Changes in valuation allowance
(9,792,000
)
 
(42,087,000
)
 
(18,818,000
)
Income tax expense (benefit) recorded for continuing operations
$
26,363,000

 
$
(90,000
)
 
$
40,000


The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2012, 2011 and 2010 are estimated as follows:
 
 
2012
 
2011
 
2010
Deferred tax assets:
 
 
 
 
 
Net operating loss carryforward
$
1,513,000

 
$
40,880,000

 
$
20,967,000

Oil and gas property basis difference
—

 
—

 
32,054,000

FASB ASC 718 compensation expense
762,000

 
520,000

 
347,000

Investment in pass through entities
—

 
78,000

 
722,000

AMT credit
1,643,000

 
1,000,000

 
693,000

Non-oil and gas property basis difference
—

 
103,000

 
279,000

Charitable contributions carryover
5,000

 
3,000

 
—

Unrealized gain on hedging activities
3,836,000

 
—

 
—

Foreign tax credit carryforwards
2,074,000

 
—

 
—

State net operating loss carryover
4,315,000

 
6,410,000

 
—

Total deferred tax assets
14,148,000

 
48,994,000

 
55,062,000

Valuation allowance for deferred tax assets
(4,629,000
)
 
(12,347,000
)
 
(54,434,000
)
Deferred tax assets, net of valuation allowance
9,519,000

 
36,647,000

 
628,000

Deferred tax liabilities:

 

 

Oil and gas property basis difference
15,049,000

 
35,637,000

 
—

Investment in pass through entities
3,618,000

 
—

 
—

Non-oil and gas property basis difference
227,000

 
—

 
—

Investment in nonconsolidated affiliates
9,232,000

 
—

 
—

Unrealized gain on hedging activities
—

 
10,000

 
—

Total deferred tax liabilities
28,126,000

 
35,647,000

 
—

Net deferred tax asset (liability)
$
(18,607,000
)
 
$
1,000,000

 
$
628,000

The Company has an available federal tax net operating loss carryforward estimated at approximately $4,323,000 as of December 31, 2012. This carryforward will begin to expire in the year 2018. Based upon the December 31, 2012 net deferred tax liability position of the Company's oil and gas assets, management believes that this is a positive source of evidence to utilize the carryforward before it expires. Therefore, a valuation allowance has not been provided at December 31, 2012. A valuation allowance has been provided at December 31, 2011 and 2010 because it was management’s belief in those years, based upon the Company’s past history of no taxable income and future projections of no taxable income during the carryforward period, it was more likely than not that the net deferred tax assets would not be realized. The Company also has state net operating loss carryovers of $84,031,000 from Oklahoma and Louisiana that will begin to expire in 2013, alternative minimum tax credits of $1,643,000 with no expiration date and federal foreign tax credit carryovers of $2,074,000 which begin to expire in 2017. The Company has recorded a valuation allowance of $4,629,000 related to state net operating loss carryovers and foreign tax credit carryovers as the carryovers may not be utilized based upon a more likely than not basis.
In 2012, the Diamondback Contribution generated an estimated $61.9 million taxable gain. As a result, the Company recognized $9,792,000 of its deferred tax assets which had previously been subject to a valuation allowance. The Company also recognized $25,633,000 of deferred tax expense in 2012 primarily due to the utilization of prior net operating losses from the Diamondback Contribution gain. Current federal expense in 2012, 2011 and 2010 is primarily attributable to alternative minimum tax. The Company also had income tax expense of $84,000 and $40,000 related to state income tax for the years ended December 31, 2012 and 2010.