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,
	2012	2013	2014
	(In thousands)
Deferred tax liabilities:



Marketable securities	$	28		$	—		$	—
Hedge contracts	—			—			8,114
Other	—			3,152			4,458
Total deferred tax liabilities	28			3,152			12,572
Deferred tax assets:
U.S. full cost pool	13,837			11,725			3,352
Canada full cost pool	3,720			4,081			—
Capital loss carryforward	—			—			12,325
Depletion carryforward	4,930			4,743			4,936
U.S. net operating loss carryforward	59,362			49,667			50,941
Canada net operating loss carryforward	4,196			5,736			—
Alternative minimum tax credit	422			1,369			1,104
Hedge contracts	2,231			1,397			—
Other	1,042			—			—
Total deferred tax assets	89,740			78,718			72,658
Valuation allowance for deferred tax assets	(89,712		)	(75,566		)	(60,086		)
Net deferred tax assets	28			3,152			12,572
Net deferred tax	$	—		$	—		$	—

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



	Years ended December 31,
	2012		2013		2014
	(In thousands)
Current:
Federal	$	310	$	632	$	(276	)
State	—		68		(11		)
	$	310	$	700	$	(287	)
Deferred:
Federal	$	—	$	—	$	—
Foreign	—		—		—
	$	—	$	—	$	—

At December 31, 2014, the Company had, subject to the limitation discussed below, $145.5 million of net operating loss carryforwards for U.S. tax purposes. The U.S. federal loss carryforward will expire in varying amounts through 2034, 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, 2014, 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 $89.7 million at December 31, 2012, $75.6 million at December 31, 2013 and $60.1 million at December 31, 2014.

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



	Years ended December 31,
	2012			2013			2014
	(In thousands)
Tax (expense) benefit at U.S. statutory rates (35%)	$	6,468		$	(13,771	)	$	(22,044	)
(Increase) decrease in deferred tax asset valuation allowance	(6,231		)	14,146			15,480
Rate differential for non US income	(1,533		)	(574		)	(39		)



State income taxes	—			(47		)	—
Accrual of prior year federal taxes (2009 and 2013)	(310		)	(81		)	287
Permanent differences	(732		)	(743		)	(950		)
Return to provision estimate revision	—			—			4,562
Tax benefit related to the sale of Canadian subsidary	—			—			3,501
Increase in asset for partnership distribution	1,945			—			—
Other	83			370			(510		)
	$	(310	)	$	(700	)	$	287

During 2014, the Company decreased deferred tax assets by $6.0 million related to reductions in the full cost pool assets, the elimination of the Canadian full cost pooland net operating loss carryforward offset by the increase in the net capital 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, 2014 and 2013, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years 2004 through 2014 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.