INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

NOTE K – INCOME TAXES

For the nine months ended September 30, 2011, the Company incurred income tax expense of $5,710,000 compared to a net income tax expense of $3,233,000 for the six months ended September30, 2010. These represent effective income tax rates of approximately 35% and 38% for the nine months ended September 30, 2011 and, 2010, respectively. The decline in the effective tax rate is primarily due to the Company benefiting from permanent tax differences such as depletion allowances primarily due to increased oil production and oil prices. As of September 30, 2011, our balance sheet reflects an income tax payable of $2,072,000.

The Company classifies interest and penalties incurred on tax payments as income tax expenses. At September 30, 2011, the Company had made income tax payments of $3,901,000 for 2011. During 2011, the Company also received $1,598,000 in tax refunds related to prior year taxes paid due to the use of prior year net operating losses.