13. Income Taxes

The Company had taxable income for the years ended December 31, 2011 and 2010, but had no taxable income for the year ended December 31, 2009.

A reconciliation of the statutory U.S. Federal income tax and the income tax provision included in the accompanying consolidated statements of operations is as follows (in thousands):


	2011			2010			2009
Statutory rate		34	%		34	%		34	%
Tax (benefit) / expense at statutory rate	$	1,647		$	(964	)	$	(744	)
State income tax (benefit) expense		214			(125	)		(97	)
Permanent difference		34			-			-
Other		8			-			-
Net Change in deferred tax asset valuation allowance		(1,741	)		-			672
Total income tax provision (benefit)	$	162		$	(1,089	)	$	(169	)

Management has evaluated the positions taken in connection with the tax provisions and tax compliance for the years included in these financial statements as required by ASC 740. The Company does not believe that any of its positions it has taken will not prevail on a more likely than not basis. As such no disclosure of such positions was deemed necessary. Management continuously estimates its ability to recognize a deferred tax asset related to prior period net operating loss carry forwards based on its anticipation of the likely timing and adequacy of future net income. As of December 31, 2011, the Company had available approximately $16.2 million of net operating loss carryforwards to offset future taxable income.

As of December 31, 2011 management using the "more likely than not" criteria for recognition determined that increases in current projections of taxable income were sufficient that the valuation allowance was no longer necessary, therefore, the $1.7 million valuation allowance was removed.

During the year ended December 31, 2010, Management, using the "more likely than not" criteria for recognition, elected to recognize a deferred tax asset of $1.1 million. The recognition of the deferred tax asset in 2010 relates to net operating loss carryforwards, impairment of pipeline in 2010, and will provide a better matching of income tax expense with taxable income in future periods.

At December 31, 2011 and 2010, the deferred tax asset balance was $10.2 million and $10.4 million, respectively.

As of December 31, 2011, the Company had net operating loss carry forwards of approximately $16.2 million which will expire between 2021 and 2029 if not utilized. Our open tax years include all returns filed for 2008 and later.

The Company's deferred tax assets and liabilities are as follows: (in thousands)


	Year Ended December 31,
	2011		2010
Net deferred tax assets (liabilities) - current:
Unrealized derivative loss - current	$	164	$	264
Total deferred tax assets (liabilities) – current	$	164	$	264

Net deferred tax assets (liabilities) – noncurrent:
Net operating loss carryforwards	$	6,233	$	7,040
Oil and gas properties		3,341		4,165
Property, Plant and Equipment		430		631
Asset retirement obligation		37		-
Tax credits		36		-
Valuation allowance		-		(1,741	)
Total deferred tax assets (liabilities) – noncurrent	$	10,077	$	10,095

Net deferred tax asset (liability)	$	10,241	$	10,359