INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES

INCOME TAXES

NOTE E—INCOME TAXES

        The Company and its subsidiaries file a consolidated federal income tax return.

        The Company's effective income tax rate differed from the federal statutory rate as follows:

	2011			2010			2009
	(in thousands)
Income taxes at federal statutory rate(a)	$	7,331		$	6,920		$	(4,697	)
Change in valuation allowance		(9,675	)		(8,267	)		16,497
Nondeductible expenses		574			91			50
State income taxes net of federal benefit		1,294			1,221			(829	)
Other		398			6			(10,958	)
	$	(78	)	$	(29	)	$	63

(a)

34% for 2011, 2010 and 2009.

        Deferred tax assets and liabilities are as follows as of December 31:

	2011		2010
	(in thousands)
Deferred tax assets relating to:
Net operating loss carryforward	$	99,183	$	88,008
Oil and gas properties and tangible equipment		34,655		52,001
Stock option expense		2,956		2,595
Unrealized loss on derivatives		480		4,276
Other		324		314
		137,598		147,194
Less valuation allowance		137,416		147,091
Total deferred tax asset		182		103
Deferred tax liabilities relating to:
Net unrealized gain on investments		182		103
Total deferred tax liability		182		103
Net deferred tax asset (liability)	$	—	$	—

        A valuation allowance for deferred tax assets is required when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of this deferred tax asset depends on the Company's ability to generate sufficient taxable income in the future. Management believes it is more likely than not that the net deferred tax asset will not be realized by future operating results. The valuation allowance increased (decreased) by approximately ($10 million), ($8 million) and $16 million for the years ended December 31, 2011, 2010 and 2009, respectively.

        At December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of approximately $248 million, of which approximately $1 million will expire in 2012, with the remaining $247 million to expire in years 2018 through 2030.

        Tax years beginning in 2007 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examination and adjustments for at least three years following the year in which the attributes are used.

        The Company routinely assesses potential uncertain tax positions and, if required, establishes accruals for such amounts. Only tax positions that meet the more-likely-than-not recognition threshold are recorded.