INCOME TAXES

12 Months Ended

Dec. 31, 2012

Income Taxes

INCOME TAXES

Note 6 – INCOME TAXES

Components of deferred taxes are as follows:

	December 31,
	2012			2011
Assets:
Net Leasehold Impairment Reserves	$	254,045		$	280,554
Gas Balance Receivable		52,379			52,379
Long-Lived Asset Impairment		1,293,338			940,713
Other		211,091			173,286
Total Assets		1,810,853			1,446,932
Liabilities:
Receivables		201,436			278,839
Intangible Drilling Costs		4,000,766			3,308,603
Depletion, Depreciation and Other		1,061,574			847,990
Total Liabilities		5,263,776			4,435,432
Net Deferred Tax Liability	$	(3,452,923	)	$	(2,988,500	)

The increase in the deferred tax liability for 2012 reflected in the above table is primarily the result of the Company’s increased current year drilling activity, which resulted in an increase in the intangible drilling costs. The lower bonus depreciation rate in 2012 on the lease and well equipment for successful wells (50% compared to 100% in 2011) resulted in a decrease in the 2012 deferred tax provision compared to 2011.

The following table summarizes the current and deferred portions of income tax expense:

	Year Ended December 31,
	2012		2011
Current Tax Provision:
Federal	$	1,153,057	$	620,591
State		34,341		18,445
		1,187,398		639,036
Deferred Provision		464,423		1,176,826
Total Provision	$	1,651,821	$	1,815,862

The total provision for income tax expressed as a percentage of income before income tax was 27% for 2012 and 26% for 2011. These amounts differ from the amounts computed by applying the statutory U.S. federal income tax rate of 34% for 2012 and 2011 to income before income tax as summarized in the following reconciliation:

	Year Ended December 31,
	2012			2011
Computed Federal Tax Provision	$	2,109,926		$	2,412,266
Increase (Decrease) in Tax From:
Allowable Depletion in Excess of Basis		(540,969	)		(580,488	)
Dividend Received Deduction		(136	)		(359	)
State Income Tax Provision		34,341			18,445
Other		48,659			(34,002	)
Provision for Income Tax	$	1,651,821		$	1,815,862
Effective Tax Rate		27	%		26	%