INCOME TAXES

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAXES

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of property and equipment for financial reporting versus income tax reporting.  The deferred taxes represent the future tax return consequences of those differences that will either be taxable or deductible when the differences in the basis of assets and liabilities reverse.

The Company recognizes and measures income tax benefits that are more likely than not to be sustained on eventual examination or settlement.  Deferred tax assets are recorded to the extent the Company believes these assets will more likely than not be realized.

The Company does not have any unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013.  In addition, the Company does not anticipate any unrecognized tax benefits during the next twelve months from the date these financials were available to be issued, March 29, 2016.

The Company did not incur any income tax deficiencies during fiscal years 2012, 2013, 2014, and 2015, and therefore had no interest or penalties assessed during the years ended December 31, 2012, 2013, 2014, and 2015.

The tax years of the Company that remain subject to examination by the Internal Revenue Service and other tax authorities are fiscal years 2012, 2013, 2014 and 2015.

The Company follows the liability and asset approach in accounting for income and state franchise taxes as required by the provisions of FASB concerning accounting for income taxes.  Deferred tax liabilities and assets are determined using the tax rates for the period in which those accounts are expected to be paid or received.

Provisions for income taxes are composed of the following for the years ended December 31, 2015, 2014 and 2013:

	Years Ended December 31,
	2015			2014			2013
Current income taxes (benefit):
Federal	$	(29,226	)	$	-		$	-
State		(1,963	)		-			-
Total		(31,189	)		-			-
Deferred income taxes (benefit):
Federal		(7,227,361	)		(2,377,192	)		2,705,688
State		(724,489	)		(176,662	)		374,584
Total		(7,951,850	)		(2,553,854	)		3,080,272
Total taxes (benefit) on income	$	(7,983,039	)	$	(2,553,854	)	$	3,080,272

Deferred tax liabilities (assets) that are recognized for the estimated future tax effects attributable to temporary differences and carryforwards at year-end are as follows:

	Years Ended December 31,
	2015			2014
Deferred tax liability (hedges)	$	-		$	1,843,409
Deferred tax liability from excess of book basis over tax basis
of certain assets including property, plant and equipment		30,009,264			30,081,226
Deferred tax liability		30,009,264			31,924,635
Stock-based compensation		(608,442	)		(1,205,722	)
Alternative minimum tax credit carryforwards		(121,686	)		(121,686	)
Net operating loss (“NOL”) carryforwards		(22,481,966	)		(15,585,820	)
Other deferred tax (asset)		-			(396,668	)
Deferred tax asset		(23,212,094	)		(17,309,896	)
Net deferred tax liability	$	6,797,170		$	14,614,739

The deferred tax assets at December 31, 2015 and 2014 of $23,212,094 and $17,309,896, respectively, consist of deductible temporary differences related to operating loss carryforwards, unrealized losses from oil and natural gas hedges, and tax credit carryforwards and stock-based compensation generated by the consolidated group:

Year NOL	NOL		Year of
generated	remaining		expiration
2015	$	14,926,752		2035
2014		14,943,985		2034
2013		9,417,693		2033
2012		8,082,421		2032
2011		5,511,938		2031
2009		4,844,318		2029
2007		1,095,474		2027
2002		3,050,662		2022
Total	$	61,873,243

The Company retroactively early adopted Accounting Standards Update 2015-14 during the fourth quarter of 2015 which requires the presentation of deferred tax assets and liabilities as noncurrent in the Consolidated Balance Sheet. See Not 1 - Summary of Significant Accounting Policies, Changes in Accounting Principles for further information regarding the adoption of Accounting Standards Update 2015-14.

The tax provisions differ from the amounts that would be calculated by using federal statutory rate of 35 percent to calculate income taxes because (i) no tax benefit has been recognized for nondeductible expenses; (ii) the Companies are subject to various state income taxes; and (iii) the tax provisions consider the effect of graduated rates, as follows:

	Years Ended December 31,
	2015			2014			2013
Amount computed using the statutory rate	$	(6,645,827	)	$	(7,972,651	)	$	(10,489,441	)
Increase (reduction) in taxes resulting from:
Non-deductible change in value of preferred
stock derivative liability		-			5,486,895			9,190,496
State taxes		(726,452	)		(210,021	)		254,645
Other		(610,760	)		141,923			4,124,572
Income tax expense (benefit)	$	(7,983,039	)	$	(2,553,854	)	$	3,080,272

For the year ended December 31, 2013, the Other, net amount relates primarily to changes in estimates to net operating losses, depletion and amortization.

When the Company believes that it is more likely than not that a net operating loss or credit carryforward may expire unused, it establishes a valuation allowance against the loss or credit.  No valuation allowance has been established as of December 31, 2015, 2014 or 2013.  Income taxes are allocated among the companies in the consolidated group on the basis of the tax effect each company contributed to income taxes for the years 2015 and 2014.