Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes [Abstract]

Income Taxes

(2)   Income Taxes

The Company was formed in the Cayman Islands in 1979. Since then, the Company's income, to the extent that it is derived from sources outside the U.S., has not been subject to U.S. income taxes. Also, the Company has been granted an undertaking from the Cayman Islands government, expiring in 2019, to the effect that the Company will be exempt from tax liabilities resulting from tax laws enacted by the Cayman Islands government subsequent to 1979. The Cayman Islands currently has no applicable income tax or corporation tax. All of the Company's income during 2012 and 2011 was generated outside the United States.

Provision is made for deferred Argentine income taxes applicable to temporary differences between the financial statement and tax basis of the assets and liabilities. The table below summarizes the income tax expense for the periods shown.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	(in Thousands)
	2012			2011		2012			2011
Income taxes:
Current	$	3,611		$	1,835	$	11,502		$	6,780
Deferred		(78	)		7		(487	)		(63	)
Income tax expense	$	3,533		$	1,842	$	11,015		$	6,717

We are domiciled in the Cayman Islands where the income tax rate is zero.  However, we are required to pay income taxes in Argentina.  Our effective income tax rate reflected in the Consolidated Statements of Income differs from Argentina's statutory rate of 35 percent.  This is primarily because the Company also generates income and incurs expenses outside of Argentina that are not subject to income taxes in Argentina or in any other jurisdiction.  Therefore these amounts do not affect the amount of income taxes paid by the Company.  Such items include interest income resulting from the Company's cash and cash equivalents deposited in its Cayman Island and Bahamas bank accounts, general and administrative expenses incurred by the Company in its headquarters office in Tulsa, Oklahoma, and foreign exchange gains and losses resulting from changes in the value of the peso, which do not affect taxable income in Argentina.  The Company also incurred expenses related to exploration activity in Colombia that provide no benefit to income tax expense until these activities generate sufficient taxable income in Colombia.  Additionally, equity income from its investment in Petrolera is recorded by the Company on an after tax basis and is not subject to Argentine income tax. As of May 16, 2012 income generated from production in the province of Tierra del Fuego in Argentina is no longer exempt from income taxes based on Executive Decree 751/2012, which removed the exemption from taxes and duties previously provided by Law 19,640.

The effective income tax rate is higher for the three and nine months ended September 30, 2012, compared with the same period of 2011 primarily due to larger expenses in Colombia during 2012 which are providing no tax benefit.

As of September 30, 2012 and December 31, 2011, the Company had no unrecognized tax benefits or reserve for uncertain tax positions.

The Company's policy is to recognize tax related interest and penalties as a component of income tax expense.  The statute of limitations for income tax audits in Argentina is six years, and begins on December 31 in the year in which the tax return is filed, therefore the tax years 2005 through 2011 remain open to examination.