Income Taxes

The provision (benefit) for income taxes consists of the following:



	Year Ended December 31,
(in thousands)	2012		2011			2010
Current:
Federal	$	286	$	4,115		$	363
State	4,954		2,936			1,870
	5,240		7,051			2,233
Deferred:
Federal	80,083		(125,261		)	47,709
State	2,798		(24,018		)	4,026
	82,881		(149,279		)	51,735
Total	$	88,121	$	(142,228	)	$	53,968

The components of the net deferred income tax liabilities consist of the following:



	Year Ended December 31,
(in thousands)	2012			2011
Deferred income tax assets:
Federal benefit of state income taxes	$	(239	)	$	(2,479	)
Credit carryforwards	36,028			29,186
Equity and deferred compensation	15,139			12,620
Derivatives	—			8,669
Net operating loss	412			412
Bad debt expense	163			—
Other, net	610			980
Valuation allowance	(1,201		)	(403		)
	50,912			48,985
Deferred income tax liabilities:
Depreciation and depletion	(298,659		)	(220,656		)
Derivatives	(8,477		)	—
	(307,136		)	(220,656		)

Net deferred income tax liabilities	$	(256,224	)	$	(171,671	)

At December 31, 2012, the Company's net deferred income tax assets and liabilities were recorded as a net current liability of $0.8 million and a long-term liability of $255.5 million. At December 31, 2011, the Company's net deferred income tax assets and liabilities were recorded as a current asset of $13.8 million and a long-term liability of $185.5 million.

Reconciliation of the statutory federal income tax rate to the Company's effective income tax rate follows:



	Year Ended December 31,
	2012		2011		2010
Income tax computed at statutory federal rate	35	%	35	%	35	%
State income taxes, net of federal benefit	3		3		4
Deferred state rate impact	(1	)	—		(1	)
Research and development credits	(3	)	—		—
Net impact to uncertain income tax positions	—		1		—
Other	—		(1	)	2
Effective income tax rate	34	%	38	%	40	%

As of December 31, 2012, the Company had approximately $10.6 million of federal and $12.5 million of state (California) enhanced oil recovery (EOR) tax credit carryforwards available to reduce future income taxes. The EOR credits will begin to expire, if unused, in 2024 and 2017 for federal and California purposes, respectively. The Company has federal research and development credits of $10.4 million which will begin to expire, if unused, in 2024 and California research and development credits of $18.3 million that do not expire. The Company has federal alternative minimum income tax (AMT) credit carryforwards of $0.8 million and California AMT credits of $0.6 million that do not expire and can be used to offset regular income taxes in future years to the extent that regular income taxes exceed the AMT in any such year. The Company also has Colorado enterprise zone income tax credits of $3.0 million which will begin to expire in 2018 if not used. As of December 31, 2012 and 2011, valuation allowances of $1.2 million and $0.4 million, respectively, have been recorded against these enterprise zone credits to reduce the net deferred tax asset to an amount that is more likely than not to be recognized. As the gross amount of Colorado enterprise zone credits may be larger than the future projected Colorado income, some of the credits that are currently being carried forward may expire.

In 2012, the Company decreased the unrecognized tax benefits by $0.8 million due to the closing of certain federal and state income tax years, which resulted in a reduction of the effective income tax rate. Also in 2012, the Company increased the unrecognized tax benefits by $20.5 million for positions taken on prior returns, of portion of which increased the effective income tax rate. As of December 31, 2012, the Company had a gross liability for uncertain income tax benefits of $17.5 million which, if recognized, would affect the effective income tax rate. The Company estimates that it is reasonably possible that the balance of unrecognized income tax benefits as of December 31, 2012 could decrease by a maximum of $6.7 million in the next 12 months due to the expiration of statutes of limitations. The Company recognizes potential accrued interest and penalties related to unrecognized income tax benefits in income tax expense, which is consistent with the recognition of these items in prior reporting periods. The Company had accrued approximately $0.4 million and $0.8 million of interest related to its uncertain income tax positions as of December 31, 2012 and 2011, respectively. The Company recognized in earnings a benefit of $0.4 million and expenses of $0.5 million and $0.1 million related to interest on uncertain income tax positions for the years ended December 31, 2012, 2011 and 2010, respectively.

The following table illustrates changes in the gross unrecognized income tax benefits:



	Year Ended December 31,
(in millions)	2012			2011			2010
Unrecognized income tax benefits at January 1	$	2.9		$	5.2		$	6.1
Increases (decreases) for positions taken in a prior year	20.5			—			(0.8		)
Decreases for settlements with taxing authorities	—			(2.3		)	—
Decreases for lapses in the applicable statute of limitations	(0.8		)	—			(0.1		)
Unrecognized income tax benefits at December 31	$	22.6		$	2.9		$	5.2

As of December 31, 2012, the Company remains subject to examination in the following major tax jurisdictions for the tax years indicated below:



Jurisdiction:	Tax Years Subject to Exam:
Federal	2009 - 2011
California	2007 - 2011
Colorado	2007 - 2011
Texas	2008 - 2011
Utah	2007 - 2011