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Note 8 - Income Taxes
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

8. Income Taxes

 

The components of the provision for income taxes for the years ended December 31, 2023 and 2022 are as follows:

 

   

Years Ended
December 31,

 

(Thousands of dollars)

  

2023

   

2022

 

Current:

                

Federal

   $ (891 )   $ 8,330  

State

     (258 )     774  

Total current

     (1,149 )     9,104  

Deferred:

                

Federal

     6,544       886  

State

     724       339  

Total deferred

     7,268       1,225  

Total income tax provision

   $ 6,119     $ 10,329  

 

The components of net deferred tax assets and liabilities are as follows:

 

   

At December 31,

 

(Thousands of dollars)

  

2023

   

2022

 

Deferred Tax Assets:

                

Accrued liabilities

   $ 349     $ 353  

Allowance for doubtful accounts

     154       77  

Derivative Contracts

     -       223  

Partnership basis difference

     106       90  

State Net operating loss carry-forwards

     278       283  

Total deferred tax assets

     887       1,026  

Deferred Tax Liabilities:

                

Depletion and depreciation

     48,123       40,994  

Total deferred tax liabilities

     48,123       40,994  

Net deferred tax liabilities

   $ 47,236     $ 39,968  

 

The total provision for income taxes for the years ended December 31, 2023 and 2022 varies from the federal statutory tax rate as a result of the following:

 

   

Years Ended
December 31,

 

(Thousands of dollars)

  

2023

   

2022

 

Expected tax expense

   $ 7,187     $ 12,389  

Permanent differences

     221       870  

State income tax, net of federal benefit

     204       612  

Provision to return adjustment

     (1,534

)

     (3,540 )

Other, net

     41       (2 )

Total income tax provision

   $ 6,119     $ 10,329  

 

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.

 

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 2023 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. Federal and State returns for the years 2020 through 2022 remain open for examination by the relevant taxing authorities.

 

Enactment of the Inflation Reduction Act of 2022.

 

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “IRA”), which includes, among other things, a corporate alternative minimum tax (the “CAMT”). Under the CAMT, a 15 percent minimum tax will be imposed on certain adjusted financial statement income of “applicable corporations,” which is effective for tax years beginning after December 31, 2022. The CAMT generally treats a corporation as an “applicable corporation” in any taxable year in which the “average annual adjusted financial statement income” of the corporation and certain of its subsidiaries and affiliates for a three taxable-year period ending prior to such taxable year exceeds $1 billion. The IRA also establishes a one percent excise tax on stock repurchases made by publicly traded U.S. corporations. The excise tax is effective for any stock repurchases after December 31, 2022. The value of share repurchases subject to the excise tax is reduced by the fair market value of any shares issued during the tax year, including the fair market value of any shares issued or provided to employees or specified affiliates. During the year ended December 31, 2023, the Company recorded $74 thousand related to the IRA excise tax payable on share repurchases.