Income Taxes

The Company typically provides for income taxes at a statutory rate of 35% adjusted for permanent differences expected to be realized, primarily statutory depletion, non-deductible stock compensation expenses and state income taxes. As a result of the ceiling test write-downs recognized during 2011 and 2012, the Company incurred a cumulative three-year loss. Because of the impact the cumulative loss had on the determination of the recoverability of deferred tax assets through future earnings, the Company assessed the realizability of its deferred tax assets based on the future reversals of existing deferred tax liabilities. Accordingly, the Company established a valuation allowance of $33.3 million as of December 31, 2014.

An analysis of the Company’s deferred taxes follows (amounts in thousands):



	December 31,
	2014			2013			2012
Net operating loss carryforwards	$	17,705		$	21,810		$	16,641
Percentage depletion carryforward	10,206			8,645			7,317
Alternative minimum tax credits	784			784			784
Contributions carryforward and other	241			189			156
Temporary differences:
Oil and gas properties	(15,439		)	(7,248		)	12,575
Asset retirement obligation	20,449			18,056			10,141
Derivatives	(3,211		)	408			(222		)
Share-based compensation	2,560			2,887			3,474
Valuation allowance	(33,295		)	(45,531		)	(50,866		)
Deferred taxes	$	—		$	—		$	—

At December 31, 2014, the Company had approximately $60.2 million of operating loss carryforwards, of which $12.6 million relates to excess tax benefits with respect to share-based compensation that have not been recognized in the financial statements. If not utilized, approximately $8.7 million of such carryforwards would expire in 2025 and the remainder would expire by the year 2034. The Company has available for tax reporting purposes $29.2 million in statutory depletion deductions that may be carried forward indefinitely.

Income tax expense (benefit) for each of the years ended December 31, 2014, 2013 and 2012 was different than the amount computed using the Federal statutory rate (35%) for the following reasons (amounts in thousands):



	For the Year Ended December 31,
	2014			2013			2012
Amount computed using the statutory rate	$	9,887		$	5,041		$	(45,655	)
Increase (reduction) in taxes resulting from:
State & local taxes	904			317			(2,870		)
Percentage depletion carryforward	(1,564		)	(1,323		)	(1,309		)
Non-deductible stock option expense (1)	213			115			292
Share-based compensation (2)	90			780			9
Other	(643		)	1,132			303
Change in valuation allowance	(11,828		)	(5,742		)	50,866
Income tax expense (benefit)	$	(2,941	)	$	320		$	1,636


(1)	Relates to compensation expense recognized on the vesting of Incentive Stock Options.


(2)	Relates to the write-off of deferred tax assets associated with share-based compensation that will not be deductible for tax purposes.