Provision (Benefit) for Income Taxes

12 Months Ended

Dec. 31, 2011

Provision (Benefit) for Income Taxes [Abstract]

Provision (Benefit) for Income Taxes

3. Provision (Benefit) for Income Taxes

Income (Loss) from continuing operations before taxes is as follows (in thousands):

	Year Ended December 31,
	2011		2010		2009
Income (Loss) from Continuing Operations Before Income Taxes	$	135,104	$	74,308	($	64,617	)

The following is an analysis of the consolidated income tax provision (benefit) (in thousands):

	Year Ended December 31,
	2011		2010			2009
Current	$	1,616	($	2,957	)	($	10,792	)
Deferred		48,878		30,790			(14,749	)
Total	$	50,494	$	27,833		($	25,541	)

Current taxes are primarily U.S. Federal income taxes. For 2010 current income tax expense is a net credit due to realization of U.S. Federal income tax refunds that were not anticipated at the end of 2009. These refunds were realized as a result of provisions within the Work, Homeownership, and Business Assistance Act of 2009. Under the provisions of this act, the Company carried back its 2008 Federal net operating loss four years. However, upon IRS audit of these refunds, it was discovered that the Company could only carry back its 2008 Federal Net operating loss two years resulting in a charge in current expense during 2011. The 2010 refund and 2011 payments were primarily attributable to alternative minimum tax. The Company has no continuing operations in foreign jurisdictions.

Reconciliations of income taxes computed using the U.S. Federal statutory rate to the effective income tax rates are as follows (in thousands):

	Year Ended December 31,
	2011			2010			2009
Income taxes (or benefits) computed at U.S. statutory rate (35%)	$	47,282		$	26,008		($	22,616	)
State tax provisions (benefits), net of federal benefits		1,505			641			(1,956	)
Cumulative impact of adjustments to net state income tax rate		(2,663	)		(1,718	)		—
Valuation allowance of carryover tax assets		2,273			1,681			(1,082	)
Non-deductible equity compensation		1,537			867			105
Other, net		560			354			8
Provision (benefit) for income taxes	$	50,494		$	27,833		($	25,541	)
Effective rate		37.4	%		37.5	%		39.5	%

The primary upward adjustments in the effective tax rate above the U.S. statutory rate are the provision for state income taxes (computed net of the offsetting federal benefit) and non-deductible equity compensation. The provision for state income tax was a charge of $1.5 million and $0.6 million for 2011 and 2010, respectively, and a credit of $2.0 million for 2009. Non-deductible equity compensation increased tax expense by $1.5 million for 2011, $0.9 million for 2010, and by $0.1 million for 2009. Revisions in the Company’s long-term state apportionment rates resulted in a reduction to Louisiana income tax deferred liabilities of $2.7 million and $1.7 million in 2011 and 2010, respectively. However, these adjustments also reduced our future expectation to realize benefits for Louisiana state tax loss carryovers. Accordingly we took a charge of $2.3 million and $1.7 million for 2011 and 2010, respectively, for a valuation allowance against our Louisiana loss carryovers. In 2009 the Company was able to reverse a previously recorded $1.1 million valuation allowance as a result of a tax gain realized on a joint venture transaction.

The tax effects of temporary differences representing the net deferred tax asset (liability) at December 31, 2011 and 2010 were as follows (in thousands):

	2011			2010
Deferred tax assets:
Federal net operating losses (“NOLs”)	$	54,954		$	30,715
NOLs for excess stock-based compensation		(9,450	)		(7,590	)
Alternative minimum tax credits		3,451			2,092
Carryover items, net of valuation allowance		8,617			8,823
Unrealized stock compensation		7,151			5,519
Other		7,580			7,026
Total deferred tax assets	$	72,303		$	46,585
Deferred tax liabilities:
Oil and gas exploration and development costs	($	270,158	)	($	195,454	)
Other		(2,109	)		(2,349	)
Total deferred tax liabilities	($	272,267	)	($	197,803	)
Net deferred tax liabilities	($	199,964	)	($	151,218	)
Net current deferred tax assets		6,603			6,347
Net non-current deferred tax liabilities	($	206,567	)	($	157,565	)

Deferred tax assets increased by $25.7 million. The federal net operating loss tax assets, net of NOLs for excess stock-based compensation, increased by $22.3 million due to a current year tax operating loss. Current income taxes paid were for primarily for Alternative Minimum Tax (AMT) which increased credits available for future years by $1.4 million.

The total change in the deferred liability from 2010 to 2011 was an increase of $74.5 million. This increase is primarily attributable to a $74.7 million increase in the deferred liability for oil and gas exploration and development costs. This increase is attributable to accelerated tax deductions for oil and natural gas exploration and development costs.

The federal net operating losses will expire between 2027 and 2031 if not utilized in earlier periods. The Company’s federal NOL tax assets for 2011, 2010 and 2009 were $55.0 million, $30.7 million and $28.2 million, respectively, including deductions for excess stock-based compensation deductions. Excess stock-based compensation deductions in the amount of $9.5 million for 2011, $7.6 million for 2010 and $6.9 million for 2009 represent stock-based compensation that have generated tax deductions that have not yet resulted in a cash tax benefit because the Company has NOL carryforwards. The Company plans to recognize the federal NOL tax assets associated with excess stock-based compensation tax deductions only when all other components of the federal NOL tax assets have been fully utilized. If and when the excess stock-based compensation related NOL tax assets are realized, the benefit will be credited directly to equity. The other primary carryover item is a $7.5 million net asset, net of a $3.9 million valuation allowance for State of Louisiana net operating loss carryovers. These loss carryforwards are scheduled to expire between 2013 and 2026.

Unrealized stock compensation accounts for $7.2 million in deferred tax assets. These amounts are attributable to stock compensation expenses accrued for employee stock options and restricted stock that are not realized for income tax purposes until exercised (for stock options) or vested (for restricted stock). The actual tax deductions realized may be significantly different than the accrued amounts depending on the market value of the stock on the date of exercise or vesting.

As of December 31, 2011, The Internal Revenue Service (IRS) had completed their examination of the Company’s 2008 U.S. income tax returns which commenced in October 2010. There are no items under dispute related to this audit. Due to statutory requirements regarding IRS audits involving refunds of tax in excess of $2 million the IRS has submitted a report regarding the Company’s case to the United States Congress Joint Committee on Taxation (“Joint Committee”). Although not required by statue, the IRS standard practice is to comply with any significant adjustments requested by the Joint Committee. Therefore the IRS will not officially close the audit until the Joint Committee review is completed.