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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
8. Income Taxes
The components of the provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 are as follows:
 
 
  
Year Ended December 31,
 
(Thousands of dollars)
  
    2021    
 
  
    2020    
 
Current:
  
      
  
      
Federal
    $ 81      $ 950  
State
      59        80  
    
 
 
     
 
 
  
Total current
      140        1,030  
Deferred:
                  
Federal
      1,802        (1,491 ) 
State
      574        (56 ) 
    
 
 
     
 
 
  
Total deferred
      2,376        (1,547 ) 
    
 
 
     
 
 
  
Total income tax provision
    $ 2,516      $ (517 ) 
    
 
 
     
 
 
  
 
 
  
At December 31,
 
(Thousands of dollars)
  
2021
 
  
2020
 
Deferred Tax Assets:
  
      
  
      
Accrued liabilities
   
$
80
 
   
$
(584
) 
Allowance for doubtful accounts
   
 
85
 
   
 
136
 
Derivative Contracts
   
 
1,272
 
   
 
153
 
State Net operating loss carry-forwards
   
 
470
 
   
 
760
 
    
 
 
     
 
 
  
Total deferred tax assets
   
 
1,907
 
   
 
465
 
Deferred Tax Liabilities:
                  
Partnership basis difference
   
 
(98
 )   
 
544
 
Depletion and depreciation
   
 
40,748
 
   
 
36,288
 
    
 
 
     
 
 
  
Total deferred tax liabilities
   
 
40,650
 
   
 
36,832
 
    
 
 
     
 
 
  
Net deferred tax liabilities
   
$
38,743
 
   
$
36,367
 
    
 
 
     
 
 
  
The total provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 varies from the federal statutory tax rate as a result of the following:
 
 
  
Year Ended December 31,
 
(Thousands of dollars)
  
2021
 
  
2020
 
Expected tax expense
    $ 975      $ (595 ) 
Net changes in deferred assets and liabilities
      2,376        (1,547 )
Permanent differences
      (677 )       521  
State income tax, net of federal benefit
      47        63  
Provision to return adjustment
      744        1,547  
Tax Credits
      (948 )       (502 ) 
Other, net
      (1 )       (4 ) 
    
 
 
     
 
 
  
Total income tax provision (benefit)
    $ 2,516      $ (517 ) 
    
 
 
     
 
 
  
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
l
iability. In addition, a portion of the AMT credit which exceeds the regular tax liability is refundable in future years. The refundable portion was 50% of any excess credit in the years 2019 through 2020 and 100% in 2021. The Company expected to receive a refund of $1.720 million in 2020 based on refundable credits claimed on the 2019 return, and additional $1.720 million refunds of previously paid taxes on its tax returns for the years 2020 and 2021. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, AMT credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Under the CARES Act the refundable portion of AMT credits was increased to 100% therefore the Company received a full refund of such credits in 2020.
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 2020 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 201
9
through 202
1
remain open for examination by the relevant taxing authorities