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,
	2011			2012			2013
	(In thousands)
Deferred tax liabilities:
Marketable securities	$	36		$	28		$	—
Canada full cost pool	377			—			—
Investment in Blue Eagle	7,527			—			—
Hedge contracts	345			—			—
Other	—			—			3,152
Total deferred tax liabilities	8,285			28			3,152
Deferred tax assets:
U.S. full cost pool	29,976			13,837			11,725
Canada full cost pool	—			3,720			4,081
Depletion carryforward	4,842			4,930			4,743
U.S. net operating loss carryforward	52,564			59,362			49,667
Canada net operating loss carryforward	2,151			4,196			5,736
Alternative minimum tax credit	422			422			1,369
Hedge contracts	—			2,231			1,397
Other	1,811			1,042			—
Total deferred tax assets	91,766			89,740			78,718
Valuation allowance for deferred tax assets	(83,481		)	(89,712		)	(75,566		)
Net deferred tax assets	8,285			28			3,152
Net deferred tax	$	—		$	—		$	—

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



	Years ended December 31,
	2011			2012		2013
	(In thousands)
Current:
Federal	$	(77	)	$	310	$	632
State	—			—		68
Foreign	—			—		—
	$	(77	)	$	310	$	700
Deferred:
Federal	$	—		$	—	$	—
Foreign	—			—		—
	$	—		$	—	$	—

At December 31, 2013, the Company had, subject to the limitation discussed below, $141.9 million of net operating loss carryforwards for U.S. tax purposes, and $20.5 million of net operating loss carryforwards for Canadian tax purposes. The U.S. loss carryforward will expire in varying amounts through 2033 and the Canadian loss carryforward will expire in 2033, if not utilized.

The use of our net operating loss carryforwards will be limited if there is an "ownership change" in our common stock, generally a cumulative ownership change exceeding 50% during a three year period, as determined under Section 382 of the Internal Revenue Code. As of December 31, 2013, we have not had an ownership change as defined by Section 382. 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 $83.5 million at December 31, 2011, $89.7 million at December 31, 2012 and $75.6 million at December 31, 2013.

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



	Years ended December 31,
	2011			2012			2013
	(In thousands)
Tax (expense) benefit at U.S. statutory rates (35%)	$	(4,809	)	$	6,468		$	(13,771	)
(Increase) decrease in deferred tax asset valuation allowance	5,408			(6,231		)	14,146
Rate differential for non U.S. income	(46		)	(1,533		)	(574		)
State income taxes	—			—			(47		)
Accrual of prior year federal taxes (2009)	—			(310		)	(81		)
Permanent differences	(533		)	(732		)	(743		)
Increase in asset for partnership distribution	—			1,945			—
Other	57			83			370
	$	77		$	(310	)	$	(700	)

During 2013, the Company reduced deferred tax assets by $11.0 million related to 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. There were no deferred income tax expense or benefit due to losses and/or loss carryforwards and valuation allowances which have been recorded against such benefits.

The Company accounts for uncertain tax positions under provisions ASC 740-10. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2013 and 2012, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years 2003 through 2013 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, have undergone audits of their 2009 Federal income tax returns. The audit of the Federal income tax return of Abraxas Energy Partners, L.P. was completed with no changes. The audit of Abraxas Petroleum Corporation resulted in a notice of a proposed adjustment of $619,000. For the year ended December 31, 2012, the Company accrued $310,000 in income tax expense related to the audit of its 2009 Federal tax return. This amount was determined by an analysis of what the amount that is greater than 50% likely to be paid upon final settlement. On July 23, 2013, we settled the assessment for $391,000 resulting in $81,000 being recognized as expense in 2013.