INCOME TAXES

6 Months Ended

Jun. 30, 2011

INCOME TAXES

NOTE K – INCOME TAXES

For the six months ended June 30, 2011, the Company incurred income tax expense of $4,268,000 compared to a net income tax benefit of $1,838,000 for the six months ended June 30, 2010. These represent effective income tax rates of approximately 35% and 43% for the six months ended June 30, 2011 and, 2010, respectively. The decline in the effective tax rate is primarily due to the Company experiencing net income before taxes for the six months ending June 30, 2011 compared to a net loss for the same period in 2010. Having net income allows the Company to benefit from permanent tax differences such as depletion allowances primarily due to increased oil production and oil royalities. As of June 30, 2011, our balance sheet reflects an income tax payable of $2,181,000.

The Company classifies interest and penalties incurred on tax payments as income tax expenses. At June 30, 2011, the Company had made income tax payments of $2,351,000 for 2011.