8. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:

	Years Ended December 31,
	2009			2010			2011
	(In thousands)
Deferred tax liabilities:
Marketable securities	$	67		$	57		$	36
Canada full cost pool		-			-			377
Investment in Blue Eagle		-			7,107			7,527
Hedge contracts		-			-			345
Total deferred tax liabilities		67			7,164			8,285
Deferred tax assets:
U.S. full cost pool		37,360			37,464			29,976
Canada full cost pool		-			1,238			-
Depletion carryforward		4,421			4,667			4,842
U.S. net operating loss carryforward		42,583			49,621			52,564
Canada net operating loss carryforward		-			301			2,151
Alternative minimum tax credit		503			422			422
Hedge contracts		3,798			1,904			-
Other		2,890			3,447			1,811
Total deferred tax assets		91,555			99,064			91,766
Valuation allowance for deferred tax assets		(91,488	)		(91,900	)		(83,481	)
Net deferred tax assets		67			7,164			8,285
Net deferred tax	$	-		$	-		$	-

Significant components of the provision (benefit) for income taxes are as follows:

	Years ended December 31,
	2009		2010			2011
	(In thousands)
Current:
Federal	$	425	$	-		$	(77	)
State		865		(79	)		-
Foreign		-		-			-
	$	1,290	$	(79	)	$	(77	)
Deferred:
Federal	$	-	$	-		$	-
Foreign		-		-			-
	$	-	$	-		$	-

At December 31, 2011, the Company had, subject to the limitation discussed below, $150.2 million of net operating loss carryforwards for U.S. tax purposes, and $7.7 million of net operating loss carryforwards for Canadian tax purposes. The U.S. loss carryforward will expire in varying amounts through 2031 and the Canadian loss carryforward will expire in 2031, if not utilized.

In addition to any Section 382 limitations, uncertainties exist as to the future utilization of the operating loss carryforwards under the criteria set forth under ASC 740-10. Therefore, the Company has established a valuation allowance of $91.5 million at December 31, 2009, $91.9 million at December 31, 2010 and $83.5 million at December 31, 2011.

The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:

	Years ended December 31,
	2009			2010			2011
	(In thousands)
Tax (expense) benefit at U.S. statutory rates (35%)	$	6,121		$	(591	)	$	(4,809	)
(Increase) decrease in deferred tax asset valuation allowance		(30,725	)		(412	)		5,408
Basis difference in hedge liability		-			1,890			-
Rate differential for non U.S. income		-			(385	)		(46	)
State income taxes		(562	)		-			-
Permanent differences		(4	)		(409	)		(533	)
Increase in asset basis for Merger		23,986			-			-
Other		(106	)		(14	)		57
	$	(1,290	)	$	79		$	77

During 2011, the Company reduced deferred tax assets by $3.0 million related to stock award plans, the full cost pool assets and the net operating loss carryforward. The deferred tax assets were fully offset by a valuation allowance which was reduced at the same time.

We account for uncertain tax positions under provisions of ASC 740-10. ASC 740-10 did not have any effect on the Company's financial position or results of operations for the year ended December 31, 2011. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2011, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years from 2001 through 2011 remain open to examination by the tax jurisdictions to which the Company is subject. The Company and Abraxas Energy Partners, L.P., which was merged into a wholly-owned subsidiary of Abraxas, are currently undergoing an Internal Revenue Service audit of their 2009 Federal income tax returns.