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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2011
Income Taxes [Abstract] |
Income Taxes | 11. Income Taxes The Company's income tax expense consists of the following:
|  |  | September 30, |  |  |  | September 30, |
|  | Year Ended December 31, |
|  | 2011 |  |  | 2010 |
|  | (In thousands) |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |
State |  |  | — |  |  |  | — |
|  |  | — |  |  |  | — |
Deferred: |  |  |  |  |  |  |  |
Federal |  | $ | 42,809 |  |  | $ | 38,153 |
State |  |  | 3,980 |  |  |  | 4,809 |
|  |  | 46,789 |  |  |  | 42,962 |
Total income tax expense |  | $ | 46,789 |  |  | $ | 42,962 |
Prior to its corporate reorganization in connection with the IPO (see Note 1), the Company was a limited liability company and not subject to federal or state income tax (in most states). Accordingly, no provision for federal or state income taxes was recorded prior to the corporate reorganization as the Company's equity holders were responsible for income tax on the Company's profits. In connection with the closing of the Company's IPO, the Company merged into a corporation and became subject to federal and state income taxes. The Company's book and tax basis in assets and liabilities differed at the time of the corporate reorganization due primarily to different cost recovery periods utilized for book and tax purposes for the Company's oil and natural gas properties. In 2011, the Company's effective tax rate differs from the federal statutory rate of 35% primarily due to state income taxes. In 2010, the Company recorded an estimated net deferred tax expense of $35.6 million to recognize a deferred tax liability for the initial book and tax basis differences. The Company's 2010 effective tax rate differs from the federal statutory rate of 35% due to the initial deferred tax expense and certain non-deductible IPO-related costs that occurred in 2010 coupled with state income taxes and non-deductible stock-based compensation expenses. The reconciliation of income taxes calculated at the U.S. federal tax statutory rate to the Company's effective tax rate for the years ended December 31, 2011 and 2010, respectively, is set forth below:
|  |  | September 30, |  |  |  | September 30, |  |  |  | September 30, |  |  |  | September 30, |
|  | Year Ended December 31, |
|  | 2011 |  |  | 2010 |
|  | (%) |  |  | (In thousands) |  |  | (%) |  |  | (In thousands) |
U.S. federal tax statutory rate |  |  | 35.00 | % |  | $ | 44,163 |  |  |  | 35.00 | % |  | $ | 4,644 |
State income taxes, net of federal income tax benefit |  |  | 2.38 | % |  |  | 3,004 |  |  |  | 2.75 | % |  |  | 364 |
Pass-through loss prior to IPO not subject to federal tax |  |  | — |  |  |  | — |  |  |  | 3.85 | % |  |  | 511 |
Initial deferred tax expense |  |  | — |  |  |  | — |  |  |  | 268.43 | % |  |  | 35,612 |
Non-deductible stock-based compensation |  |  | — |  |  |  | — |  |  |  | 10.08 | % |  |  | 1,338 |
Non-deductible IPO costs and other |  |  | (0.30 | %) |  |  | (378 | ) |  |  | 3.72 | % |  |  | 493 |
Annual effective tax expense |  |  | 37.08 | % |  | $ | 46,789 |  |  |  | 323.83 | % |  | $ | 42,962 |
Significant components of the Company's deferred tax assets and liabilities as of December 31, 2011 and 2010, respectively, were as follows:
|  |  | September 30, |  |  |  | September 30, |
|  | Year Ended December 31, |
|  | 2011 |  |  | 2010 |
|  | (In thousands) |
Deferred tax assets |  |  |  |  |  |  |  |
Derivatives instruments |  | $ | 1,888 |  |  | $ | 3,958 |
Net operating loss carryforward |  |  | 13,110 |  |  |  | 43,455 |
Bonus and stock compensation |  |  | 2,321 |  |  |  | — |
Total deferred tax assets |  |  | 17,319 |  |  |  | 47,413 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Oil and natural gas properties |  |  | 107,069 |  |  |  | 90,375 |
Total deferred tax liabilities |  |  | 107,069 |  |  |  | 90,375 |
Total net deferred tax liability |  | $ | 89,750 |  |  | $ | 42,962 |
The Company generated a federal net operating tax loss of $15.9 million for the year ended December 31, 2011, and no current income taxes are anticipated to be paid. The net operating loss carryforwards consist of $35.9 million of federal net operating loss carryforwards, which expire in 2030 and 2031 and $23.9 million of state net operating loss carryforwards, which expire between 2017 and 2031. The tax benefits of carryforwards are recorded as an asset to the extent that management assesses the utilization of such carryforwards to be "more likely than not." When the future utilization of some portion of the carryforwards is determined not to be "more likely than not," a valuation allowance is provided to reduce the recorded tax benefits from such assets. Management believes that the Company's taxable temporary differences and future taxable income will more likely than not be sufficient to utilize substantially all its tax carryforwards prior to their expiration. Pursuant to authoritative guidance, the Company's $13.1 million deferred tax asset related to net operating loss carryforwards is net of $0.3 million of unrealized excess tax benefits related to $0.8 million of stock-based compensation that has not yet been realized. Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2011, the Company had no unrecognized tax benefits. With respect to income taxes, the Company's policy is to account for interest charges as interest expense and any penalties as tax expense in the Consolidated Statement of Operations. The Company files income tax returns in the U.S. federal jurisdiction and in North Dakota, Montana and Texas. The Company has not been audited by the IRS or any state jurisdiction. Its statute of limitation for the year ended December 31, 2011 will expire in 2015. The Company's earliest open years in its key jurisdictions is 2010 for both the U.S. federal jurisdiction and various U.S. states. The current portion of the Company's net deferred tax liability was an asset of $3.2 million and $2.5 million at December 31, 2011 and 2010, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 + Details
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