| Income Taxes |
The income tax provision consists of the following:
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2011 |
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2010 |
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2009 |
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Current:
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State
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$ |
— |
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$ |
40,000 |
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$ |
28,000 |
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Federal
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282,000 |
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95,000 |
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32,000 |
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Deferred:
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State
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— |
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— |
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— |
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Federal
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(372,000 |
) |
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(95,000 |
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(32,000 |
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Total income tax expense (benefit) provision
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$ |
(90,000 |
) |
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$ |
40,000 |
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$ |
28,000 |
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A reconciliation of the statutory federal income tax amount to the recorded expense follows:
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2011 |
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2010 |
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2009 |
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Income before federal income taxes
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$ |
108,332,000 |
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$ |
47,403,000 |
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$ |
23,655,000 |
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Expected income tax at statutory rate
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37,916,000 |
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16,591,000 |
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8,279,000 |
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State income taxes
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4,227,000 |
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2,378,000 |
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1,370,000 |
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Other differences
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(146,000 |
) |
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(111,000 |
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(891,000 |
) |
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Changes in valuation allowance
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(42,087,000 |
) |
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(18,818,000 |
) |
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(8,730,000 |
) |
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Income tax expense (benefit) recorded
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$ |
(90,000 |
) |
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$ |
40,000 |
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$ |
28,000 |
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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:
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2011 |
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2010 |
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2009 |
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Deferred tax assets:
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Net operating loss carryforward
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$ |
40,880,000 |
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$ |
20,967,000 |
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$ |
22,268,000 |
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Oil and gas property basis difference
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— |
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32,054,000 |
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49,638,000 |
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FASB ASC 718 compensation expense
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520,000 |
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347,000 |
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341,000 |
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Investment in pass through entities
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78,000 |
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722,000 |
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528,000 |
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AMT credit
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1,000,000 |
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693,000 |
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598,000 |
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Non-oil and gas property basis difference
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103,000 |
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279,000 |
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316,000 |
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Charitable contributions carryover
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3,000 |
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— |
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— |
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State net operating loss carryover
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6,410,000 |
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— |
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— |
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Total deferred tax assets
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48,994,000 |
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55,062,000 |
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73,689,000 |
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Deferred tax liabilities:
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Oil and gas property basis difference
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35,637,000 |
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— |
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— |
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Investment in pass through entities
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— |
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— |
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— |
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Unrealized gain on hedging activities
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10,000 |
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— |
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— |
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Total deferred tax liabilities
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35,647,000 |
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— |
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— |
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Total deferred tax asset
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13,347,000 |
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55,062,000 |
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73,689,000 |
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Valuation allowance
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(12,347,000 |
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(54,434,000 |
) |
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(73,156,000 |
) |
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Net deferred tax asset
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$ |
1,000,000 |
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$ |
628,000 |
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$ |
533,000 |
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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.
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