Note 9 – Income Taxes

Our U.S. operations are taxed at a statutory rate of 35%. However, we currently do not record tax benefits due to losses in the U.S. as there is no assurance that we will generate any U.S. taxable earnings, resulting in a full valuation allowance of all deferred tax assets generated.

For years prior to January 1, 2015, our U.K. operations were taxed at a statutory rate of 62% (composed of a Ring Fence Corporation Tax rate of 30% and Supplementary Charge rate of 32%). In March 2015, the Supplementary Charge rate decreased to 20%, which was retroactive to January 1, 2015, so that for 2015 the statutory rate is 50%. However, we currently do not record tax benefits due to losses in the U.K. relating to Ring Fence Corporation Tax and Supplemental Charge as there is no assurance that we will generate any U.K. taxable earnings. As a result, we have a full valuation allowance on the deferred tax assets generated relating to these taxes.

In addition, certain of our U.K. fields are subject to a Petroleum Revenue Tax (“PRT”) rate of 50%. Our current tax expense is related to PRT on the Alba field, our only producing field subject to PRT. In March 2015, tax legislation was enacted that will decrease the PRT rate from 50% to 35% for years beginning on January 1, 2016.

UK Finance Act 2015

On March 26, 2015, the Finance Act 2015 received Royal Assent and was enacted by the U.K. government. The Finance Act 2015 implemented several changes affecting our U.K. activities, including:

a decrease in the Supplementary Charge rate from 32% to 20%, which is retroactive to January 1, 2015; and

a decrease in the PRT rate from 50% to 35%, beginning on January 1, 2016.

As a result of this enacted legislation, the Company recorded an $11.4 million deferred tax expense related to the decrease in the Supplementary Charge rate change during the first quarter of 2015, exactly offset by a reduction in the U.K. valuation allowance which resulted in a zero net charge to the Condensed Consolidated Statements of Operations for the quarter ended March 31, 2015.

Furthermore, the Company recorded a deferred PRT tax benefit of $7.9 million during the first quarter of 2015 related to the enacted decrease in the PRT rate for the deferred tax liabilities that will reverse subsequent to the January 1, 2016 effective date.