Income Taxes

12 Months Ended

Jun. 30, 2022

Income Taxes

Income Taxes

Note 7. Income Taxes

The Company files a consolidated federal income tax return in the United States and various combined and separate filings in several state and local jurisdictions.

There were no unrecognized tax benefits, nor any accrued interest or penalties associated with unrecognized tax benefits during the years ended June 30, 2022 and 2021. The Company believes that it has appropriate support for the income tax positions taken and to be taken on the Company’s tax returns and that the accruals for tax liabilities are adequate for all open years based on its assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company’s federal and state income tax returns are open to audit under the statute of limitations for the fiscal years ended June 30, 2018 through June 30, 2021 for federal tax purposes and for the fiscal years ended June 30, 2017 through June 30, 2021 for state tax purposes. To the extent the Company utilizes net operating losses (“NOLs”) generated in earlier years, such earlier years may also be subject to audit.

Income tax (expense) benefit for the years ended June 30, 2022 and 2021 is comprised of the following (in thousands):

	June 30, 2022		June 30, 2021
Current:
Federal	$	(6,309)	$	334
State		(1,062)		(454)
Total current income tax (expense) benefit		(7,371)		(120)
Deferred:
Federal		(913)		3,987
State		(229)		1,117
Total deferred income tax (expense) benefit		(1,142)		5,104
Total income tax (expense) benefit	$	(8,513)	$	4,984

For the year ended June 30, 2022 the Company recognized income tax expense of $8.5 million and had an effective tax rate of 20.7% compared to an income tax benefit of $5.0 million and an effective tax rates of 23.3% for the year ended June 30, 2021.

In certain prior years, the Company undertook a project to seek potential cash tax savings opportunities identifying available Enhanced Oil Recovery credits (“EOR credits”) related to its interests in the Delhi Field. To take advantage of the EOR credits, the Company amended federal and state tax returns for the years ended June 30, 2017 and 2018 and incorporated the associated impacts into its 2019 tax returns. Principally as a result of the EOR credits, the Company recorded a net tax benefit of $2.8 million during fiscal 2020, all of which was received during the year ended June 30, 2022. During year ended June 30, 2022, the Company recognized an income tax benefit of $0.4 million attributable to the EOR credit.

The Company’s effective tax rate will typically differ from the statutory federal rate as a result of state income taxes, primarily in the states of Louisiana and Texas, due to percentage depletion in excess of basis, valuation allowance, enhanced oil recovery credit, and other permanent differences. The following table presents the reconciliation of the Company’s income taxes calculated at the statutory federal tax rate to the income tax (expense) benefit (in thousands).

			% of Income					% of Income
			Before					Before
	June 30, 2022		Income Taxes			June 30, 2021		Income Taxes
Income tax (expense) benefit computed at the statutory federal rate:	$	(8,640)		21.0	%	$	4,499	21.0	%
Reconciling items:
Return to provision adjustments		(2)		—	%		(20)	(0.1)	%
Depletion in excess of tax basis		190		(0.5)	%		176	0.8	%
State income taxes, net of federal tax benefit		(1,020)		2.5	%		523	2.4	%
Permanent differences related to stock-based compensation and other		3		—	%		(55)	(0.3)	%
Federal valuation allowance		623		(1.5)	%		(570)	(2.7)	%
EOR credit benefit		377		(0.9)	%		336	1.6	%
Other		(44)		0.1	%		95	0.6	%
Income tax (expense) benefit	$	(8,513)		20.7	%	$	4,984	23.3	%

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of net deferred income tax assets (liabilities) recognized are as follows (in thousands):

	June 30, 2022		June 30, 2021
Deferred tax assets:
Non-qualified stock-based compensation	$	106	$	310
Net operating loss carry-forwards and other carry-forwards		8		365
Derivative losses		427		—
Asset retirement obligations		3,128		1,285
Other deferred tax assets		238		161
Gross deferred tax assets		3,907		2,121
Valuation allowance		—		(862)
Net deferred tax assets		3,907		1,259
Deferred tax liability:
Oil and natural gas properties		(11,006)		(7,216)
Total deferred tax liability		(11,006)		(7,216)
Net deferred tax liability	$	(7,099)	$	(5,957)

As of June 30, 2022, the Company had a federal tax loss carryforward of approximately $0.6 million that it acquired through a reverse merger in May 2004. The majority of the tax loss carryforwards from the reverse merger expired without being utilized. The remaining deferred tax asset and valuation allowance of $0.1 million related to the portion of the NOLs that were limited by IRC Section 382 was written off during the year ended June 30, 2022. The Company has considered all positive and negative evidence to assess the likelihood that it will be able to realize its deferred tax assets. Realization is dependent on generating sufficient taxable income over the period the deferred tax assets are deductible. For the three-year period ending June 30, 2022, the Company is in a cumulative income position. Based on the weight of available evidence, the Company believes that it is more likely than not that the deferred tax assets will be realized. As result, the Company has released the valuation allowance of $0.6 million.