Note 11 — Income Taxes

Income tax (expense) benefit consisted of the following (in thousands):


	Year Ended December 31,
	2011			2010			2009
Current:
Domestic	$	—		$	924		$	(924	)
Foreign		1,327			(65	)		379

		1,327			859			(545	)

Deferred:
Domestic		58,057			117,459			19,809
Foreign		(15,334	)		12,790			4,570

		42,723			130,249			24,379

Valuation allowance		(62,118	)		(94,835	)		(1,300	)

Total income tax (expense) benefit	$	(18,068	)	$	36,273		$	22,534

Income (loss) before income taxes consisted of the following (in thousands):


	Year Ended December 31,
	2011			2010			2009
Domestic	$	(142,330	)	$	(329,497	)	$	(46,860	)
Foreign		(4,879	)		(28,822	)		(11,255	)

	$	(147,209	)	$	(358,319	)	$	(58,115	)

The reconciliation of income tax computed at the U.S. federal statutory tax rates to the provision for income taxes is as follows:


	Year Ended December 31,
	2011			2010			2009
Statutory federal income tax rate		35.00	%		35.00	%		35.00	%
Nondeductible and other		(0.13	)		(0.80	)		(3.63	)
Foreign operations		(11.28	)		0.88			1.52
Impact of redeemable noncontrolling interest		6.33			1.51			8.06
Valuation allowance		(42.19	)		(26.47	)		(2.18	)

		(12.27	%)		10.12	%		38.77	%

Included in 2011 foreign operations is the effect of an increase in the UK statutory tax rate from 20% to 30% resulting in a decrease of 8.28% to the effective tax rate benefit on the current year pre tax book loss.

Significant components of our deferred tax assets (liabilities) as of December 31, 2011 and 2010 are as follows (in thousands):


	December 31, 2011
	U.S.			Foreign			Total
Deferred tax asset:
Net operating loss carry forwards	$	190,883		$	297,338		$	488,221
Unrealized derivative loss		1,250			—			1,250
Alternative minimum tax credit		1,841			—			1,841
Stock-based compensation		5,047			435			5,482
Asset retirement obligation		12,289			—			12,289
Other		563			—			563
Valuation allowance		(155,442	)		(5,418	)		(160,860	)

Deferred tax asset		56,431			292,355			348,786


Deferred tax liability:
Oil and gas property basis differences		(55,588	)		(317,591	)		(373,179	)
Other		(843	)		(1,915	)		(2,758	)

Deferred tax liability		(56,431	)		(319,506	)		(375,937	)


Net deferred tax liability		—			(27,151	)		(27,151	)
Less net current deferred tax liability		—			138			138
Less net current deferred tax asset		(480	)		—			(480	)

Noncurrent deferred tax liability	$	(480	)	$	(27,013	)	$	(27,493	)


	December 31, 2010
	U.S.			Foreign			Total
Deferred tax asset:
Net operating loss carry forwards	$	215,174		$	178,882		$	394,056
Unrealized derivative loss		13,356			—			13,356
Alternative minimum tax credit		1,840			—			1,840
Stock-based compensation		5,064			211			5,275
Asset retirement obligation		10,918			—			10,918
Other		572			—			572
Valuation allowance		(97,385	)		(1,676	)		(99,061	)

Deferred tax asset		149,539			177,417			326,956


Deferred tax liability:
Oil and gas property basis differences		(143,431	)		(186,182	)		(329,613	)
Other		(6,108	)		—			(6,108	)

Deferred tax liability		(149,539	)		(186,182	)		(335,721	)


Net deferred tax liability		—			(8,765	)		(8,765	)
Less net current deferred tax asset		(8,191	)		—			(8,191	)

Noncurrent deferred tax liability	$	(8,191	)	$	(8,765	)	$	(16,956	)

We compute income taxes using an asset and liability approach which results in the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities. As of December 31, 2011 and 2010, for U.S. tax provision purposes, we have provided valuation allowance for that portion of excess tax benefits resulting from stock options and restricted stock outstanding as of the date we adopted the accounting standards for stock-based compensation. Beginning December 31, 2010, for U.S. tax provision purposes, we have also provided valuation allowance for the remainder of our net deferred tax assets based on our cumulative net losses. Additionally, the deferred tax asset related to the U.S. net operating loss carry forwards ("NOLs") as disclosed does not include an additional $19.9 million of net operating loss, as reflected in our U.S. Income Tax Return and net operating loss carry forwards in relation to excess tax benefits on stock option exercises and restricted stock vested through the fiscal year ended December 31, 2011.

No tax expense is provided on the income attributable to the redeemable noncontrolling interest in ATP Infrastructure Partners, LP, as the partnership is a pass-through entity and is not subject to federal income taxes. Taxes attributable to the income of the redeemable noncontrolling interest would be the liability of the ultimate taxpayers owning that interest.

At December 31, 2011 and 2010, we had U.S. net operating loss carry forwards ("NOLs") for financial statement purposes of approximately $545.3 million and $614.8 million, respectively, which begin to expire in 2024. ATP (UK) had NOLs of $936.8 million and $678.5 million available for corporate tax carry-forward at December 31, 2011 and 2010, respectively, which are presented in Foreign Operations above. As of December 31, 2011 we have a net current deferred tax asset of approximately $0.5 million, which is primarily attributable to bad debt reserve and unrealized hedging losses.

The U.K. supplementary charge of corporation tax was increased from 20% to 32%, effective March 24, 2011, and Royal Assent was received on July 19, 2011. The U.K. rate increase has been reflected in the income tax provision as of December 31, 2011. All U.K. deferred tax assets and liabilities subject to the supplementary charge of corporation tax have been updated to reflect the 32% rate as of December 31, 2011.

At December 31, 2011 and 2010, for Netherlands' income tax provision purposes, we had a valuation allowance of $4.9 million and $1.7 million, respectively, related to the net operating loss carryovers generated in 2011 and in prior periods. If activity, development and acquisitions increase within the Dutch sector, we will reevaluate this valuation allowance.

At December 31, 2011 for Israeli income tax provision purposes, we have a valuation allowance of $0.5 million related to the net operating loss carryover generated in 2011. Since 2012 will be the first year of active drilling and operations in this area, there is insufficient evidence of future taxable profits.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction, two states, the U.K., the Netherlands and Israel. Our open tax years in our major jurisdictions are from 2003 to current. As of December 31, 2011, we are not aware of any uncertain tax positions requiring adjustments to our tax liability. If applicable, we will record to the income tax provision any interest and penalties related to unrecognized tax positions.

U.S. deferred taxes have not been recognized with respect to foreign income of $54.4 million that is permanently reinvested internationally. We currently do not have any foreign tax credits available to reduce U.S. taxes on this income if it was repatriated.