Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes [Abstract]

Income Taxes

Note 13—Income Taxes

The Company follows the provisions of ASC Topic 740, which provides for recognition of deferred tax assets and liabilities for deductible temporary timing differences, operating loss carryforwards, statutory depletion carryforwards and tax credit carryforwards, net of a valuation allowance for any asset for which it is more likely than not will not be realized in the Company’s tax return. As a result of the ceiling test write-downs during 2009 and 2008, the Company has incurred a cumulative three-year loss. Because of the impact the cumulative loss has 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 with respect to a portion of its deferred tax assets. The valuation allowance was $3.2 million and $23.3 million as of December 31, 2010 and 2009, respectively. During 2011, the Company reversed the remaining valuation allowance as future reversals of existing deferred tax liabilities were sufficient to realize the entire deferred tax asset.

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

		September 30,			September 30,
	December 31,
	2011			2010
Net operating loss carryforwards	$	2,409		$	4,737
Percentage depletion carryforward		6,103			3,596
Alternative minimum tax credit		784			776
Contributions carryforward and other		130			90
Temporary differences:
Oil and gas properties—full cost		(10,541	)		(10,141	)
Hedges		(2,388	)		405
Share-based compensation		2,952			3,732
Valuation allowance		—			(3,195	)
Deferred tax liability	$	(551	)	$	—

At December 31, 2011, the Company had approximately $17,973,000 of operating loss carryforwards, of which $11,497,000 relates to excess tax benefits with respect to share-based compensation that have not been recognized in the financial statements. If not utilized, approximately $8,732,000 of such carryforwards would expire in 2025 and the remainder would expire by the year 2031. The Company has available for tax reporting purposes $17,437,000 in statutory depletion deductions that may be carried forward indefinitely.

Income tax expense (benefit) for each of the years ended December 31, 2011, 2010 and 2009 was different than the amount computed using the Federal statutory rate (35%) for the following reasons (amounts in thousands):

		September 30,			September 30,			September 30,
	For the Year-Ended December 31,
	2011			2010			2009
Amount computed using the statutory rate	$	3,058		$	17,065		$	(36,689	)
Increase (reduction) in taxes resulting from:
State & local taxes		192			1,073			(2,306	)
Percentage depletion carryforward		(2,507	)		(252	)		(725	)
Allowance for alternative minimum tax		8			575			—
Non-deductible stock option expense (1)		183			295			311
Share-based compensation (2)		346			3,041			1,334
Other		(300	)		321			161
Change in valuation allowance		(2,790	)		(20,488	)		23,279
Income tax expense (benefit)	$	(1,810	)	$	1,630		$	(14,635	)

(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 recognized for tax purposes.