Income Taxes

12 Months Ended

Dec. 31, 2011

Income Taxes

Note 10. Income Taxes

There is no current or deferred tax expense for 2011 and 2010, due to the Company’s loss position. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes and has recorded a full valuation allowance against the deferred tax asset. The income tax effect, utilizing a 34% income tax rate, of temporary differences comprising the deferred tax assets and deferred tax liabilities is a result of the following at December 31:

	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	1,768,000		$	1,499,000
Oil and gas properties		109,000			112,000
		1,877,000			1,611,000
Valuation allowance		(1,877,000	)		(1,611,000	)
Net deferred tax assets	$	-		$	-

The 2011 increase in the valuation allowance was $266,000 (2010:  $124,000).

The Company has available net operating loss carryforwards of approximately $5,200,000 for tax purposes to offset future taxable income which expires commencing 2012 through to the year 2031. Pursuant to the Tax Reform Act of 1986, annual utilization of the Company’s net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period.  The tax years 2008 through 2011 remain open to examination by federal agencies and other jurisdictions in which it operates.

A reconciliation between the statutory federal income tax rate (34%) and the effective rate of income tax expense for the years ended December 31 follows:

	2011			2010
Statutory federal income tax rate		34	%		(34	%)
Non-taxable losses (gains)		(40	%)		31	%
Valuation allowance		6	%		3	%
		0	%		0	%