Income Taxes

The Company’s income tax expense consists of the following:



	Year Ended December 31,
	2013		2012		2011
	(In thousands)
Current:
Federal	$	475	$	—	$	—
State	—		7		—
	475		7		—
Deferred:
Federal	122,853		82,841		42,809
State	11,730		9,638		3,980
	134,583		92,479		46,789
Total income tax expense	$	135,058	$	92,486	$	46,789

For the years ended December 31, 2013, 2012 and 2011, the Company’s effective tax rate differs from the federal statutory rate of 35% primarily due to state income taxes. 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, 2013, 2012 and 2011, is set forth below:



	Year Ended December 31,
	2013				2012				2011
	(%)		(In thousands)		(%)		(In thousands)		(%)		(In thousands)
U.S. federal tax statutory rate	35.00	%	$	127,056	35.00	%	$	86,056	35.00	%	$	44,163
State income taxes, net of federal income tax benefit	2.06	%	7,469		2.47	%	6,068		2.38	%	3,004
Other	0.14	%	533		0.15	%	362		(0.30	)%	(378		)
Annual effective tax expense	37.20	%	$	135,058	37.62	%	$	92,486	37.08	%	$	46,789

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012, were as follows:



	Year Ended December 31,
	2013		2012
	(In thousands)
Deferred tax assets
Net operating loss carryforward	$	17,215	$	13,926
Bonus and stock-based compensation	8,060		3,571
Derivative instruments and other	1,664		—
Total deferred tax assets	26,939		17,497
Deferred tax liabilities
Oil and natural gas properties	343,751		191,271
Derivative instruments	—		8,455
Total deferred tax liabilities	343,751		199,726
Total net deferred tax liability	$	316,812	$	182,229

The Company generated a federal net operating tax loss of $14.7 million and accrued $0.5 million of current income tax expense for the year ended December 31, 2013. The net operating loss carryforwards consist of $50.9 million of federal net operating loss carryforwards, which expire between 2030 and 2033, and $34.0 million of state net operating loss carryforwards, which expire between 2017 and 2033. 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 $17.2 million deferred tax asset related to net operating loss carryforwards is net of $1.8 million of unrealized excess tax benefits related to excess stock-based compensation on federal and state net operating losses of $4.8 million and $3.5 million, respectively.

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, 2013, 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’s income tax returns have not been audited by the IRS or any state jurisdiction. Its statute of limitation for the year ended December 31, 2013 will expire in 2017. The Company’s earliest open year 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 taxes was an asset of $6.3 million at December 31, 2013 and a liability of $4.6 million at December 31, 2012.