Income Taxes

12 Months Ended

Dec. 31, 2019

8. Income Taxes

The components of the provision (benefit) for income taxes for the years ended December 31, 2019 and 2018 are as follows:


	Year Ended December 31,
(Thousands of dollars)	2019			2018
Current:
Federal	$	(1,798	)	$	(4,742	)
State		123			(146	)

Total current		(1,675	)		(4,888	)
Deferred:
Federal		3,536			7,620
State		(440	)		246

Total deferred		3,096			7,866

Total income tax provision	$	1,421		$	2,978


	At December 31,
(Thousands of dollars)	2019		2018
Deferred Tax Assets:
Accrued liabilities	$	614	$	519
Allowance for doubtful accounts		95		51
Derivative Contracts		110		0
Disallowed Interest Carryforwards		—		769
Alternative minimum tax credits		1,720		4,760
State Net operating loss carry-forwards		821		469
Percentage depletion carry-forwards		—		—
General Business Credits		—		137

Total deferred tax assets		3,360		6,705
Deferred Tax Liabilities:
Basis differences relating to managed partnerships		2,109		2,296
Depletion and depreciation		37,173		36,711
Derivative Contracts		—		526

Total deferred tax liabilities		39,282		39,533

Net deferred tax liabilities	$	35,922	$	32,828

The total provision for income taxes for the years ended December 31, 2019 and 2018 varies from the federal statutory tax rate as a result of the following:


	Year Ended December 31,
(Thousands of dollars)	2019			2018
Expected tax expense	$	1,028		$	3,676
Revaluation of deferred tax attributes		—			0
Executive Compensation		597			553
State income tax, net of federal benefit		(303	)		79
Percentage depletion		(341	)		(140	)
AMT and Marginal Well Credits		436			(1,186	)
Other, net		4			(4	)

Total income tax provision (benefit)	$	1,421		$	2,978

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.

On December 22, 2017, the U.S. enacted into legislation the Tax Cuts and Jobs Act (2017 Tax Act). Under the 2017 Tax Act, the company may use alternative minimum tax (AMT) credits to fully offset any regular tax liability. In addition, a portion of the minimum tax credit which exceeds the regular tax liability is refundable in future years. The refundable portion is 50% of any excess credit in the years

201

through 2020 and 100% in 2021. The Company expects to receive a refund of $1.720 million in 20

based on refundable credits claimed on the 201

return, and additional $1.720 million refunds of previously paid taxes on its tax returns for the years 20

and

2021.

The Company is entitled to marginal well production credits under Internal Revenue Code section 45I.

The Marginal Well Credit is phased out when oil and gas prices exceed certain levels.

The Company is entitled to percentage depletion on certain of its wells, which is calculated without reference to the basis of the property. To the extent that such depletion exceeds a property’s basis, it creates a permanent difference, which lowers the Company’s effective rate. The availability of the percentage depletion deduction is phased out as an entity’s production exceeds certain levels, and based on the Company’s increasing production the percentage depletion deduction is becoming less significant.

The Company is allowed a credit against the Texas Franchise Tax based on net operating losses incurred in prior periods. The credits allowed are $89 thousand in the years 20

through 2026. Any credits not utilized in a given year due to the allowable credit exceeding the tax liability may be carried forward. No credit may be carried forward past 2026. The value of the credit is calculated net of the federal income tax effect.

The Company has not recorded any provision for uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The 2004, 2005, 2006, 2009

and

2017 federal income tax returns have been audited by the Internal Revenue Service. Returns for unexamined earlier years may be examined and adjustments made to the amount of percentage depletion and AMT credit carryforwards flowing from those years into an open tax year, although in general no assessment of income tax may be made for those years on which the statute has closed. State returns for the years 2017 through 2019 remain open for examination by the relevant taxing authorities