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Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

9. Income Taxes

Net income (loss) before income taxes is as follows for the periods indicated:

​

​	​	​	​	​	​	​
​	​	Year ended December 31,
​		2022			2021
Foreign		$	(700,255)	​	$	(571,646)
U.S.		​	48,212,421	​		16,639,671
​	​	$	47,512,166	​	$	16,068,025

​

We file a federal income tax return in the United States, Canada, and various state and local jurisdictions.

We believe that we have appropriate support for the income tax positions taken and to be taken on the Company's tax returns and that the accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company's tax returns are open to audit under the statute of limitations for the years ending December 31, 2018 through December 31, 2022.

The following tables present the Company’s current and deferred tax expense (benefit) for the periods indicated:

​

​	​	​	​	​	​	​
​	​	Year ended December 31,
​		2022			2021
Current:	​	​	​	​	​	​
Federal	​	$	7,788,302	​	$	3,152,866
State	​	​	3,657,231	​	​	1,485,054
Total current income tax expense	​	​	11,445,533	​	​	4,637,920
Deferred:	​	​	​	​	​	​
Federal	​	​	1,587,935	​	​	84,631
State	​	​	(875,981)	​	​	(282,043)
Total deferred tax expense	​	​	711,954	​	​	(197,412)
Income tax expense	​	$	12,157,487	​	$	4,440,508

​

The following table presents the reconciliation of our income taxes calculated at the statutory federal tax rate to the income tax provision in our financial statements. Our effective tax rate for 2022 differs from the statutory rate primarily due to states taxes and the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets. Our effective tax rate for 2021 differs from the statutory rate primarily due to states taxes and the recognition of a valuation allowance on our Canadian and Oklahoma state deferred tax assets.

​

​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended			​		Year Ended			​
​	​	December 31,		​	Effective	​	December 31,		​	Effective	​
​		2022			Tax Rate		2021			Tax Rate
Income tax provision computed at the statutory federal tax rate	​	$	9,977,555		21.00	%	$	3,377,625		21.00	%
Difference in Canadian and U.S. tax rate	​		(14,005)		(0.03)	%		(11,433)		(0.07)	%
Adjustment of Canadian deferred tax balances	​	​	39,839	​	0.08	%	​	762,000	​	4.74	%
Valuation allowance on Canadian loss	​		121,220		0.26	%		(688,388)		(4.28)	%
Return to provision adjustment	​		(4,538)		(0.01)	%		57,875		0.36	%
State taxes	​		2,304,218		4.85	%		1,057,924		6.58	%
State valuation allowance	​	​	(107,030)	​	(0.23)	%	​	(107,545)	​	(0.67)	%
Miscellaneous other items	​		(159,772)		(0.34)	%		(7,550)		(0.05)	%
Income tax expense	​	$	12,157,487		25.58	%	$	4,440,508		27.61	%

​

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Net deferred tax liabilities consisted of the following at December 31, 2022 and 2021:

​

​	​	​	​	​	​	​
​	​	As of December 31,
​		2022			2021
Deferred tax assets:	​	​	​	​	​	​
State net operating loss carryforwards	​	$	313,018	​	$	244,582
Canadian net operating loss carryforwards	​		11,113,319	​		11,669,601
ARO	​	​	702,522	​	​	796,339
Unrealized derivatives/other	​		92,785	​		255,852
Gross deferred tax assets	​		12,221,644	​		12,966,374
Valuation allowance	​		(11,158,602)	​		(11,821,914)
Total deferred tax assets	​		1,063,042	​		1,144,460
Deferred tax liabilities:	​			​
Oil and gas property	​		(9,336,638)	​		(8,558,064)
Partnership	​		(2,034,995)	​		(2,491,836)
Unrealized derivatives/other	​	​	(308,803)	​	​	—
Gross deferred tax liabilities	​		(11,680,436)	​		(11,049,900)
Net deferred tax liability	​	$	(10,617,394)	​	$	(9,905,440)

​

As of December 31, 2022, we have no U.S. federal net operating loss carry-forwards and approximately $9.9 million of state net operating loss carry-forwards, of which $0.3 million expires in 2037 and the remaining can be carried forward indefinitely. These loss carryforwards may reduce future taxable income, however, the extent of which may be limited due to any Internal Revenue Code Section 382 limitation. A state valuation allowance of $0.05 million is applicable to the net state deferred tax assets attributable to Oklahoma because of objective negative evidence on the cumulative loss incurred in the state over the three-year period ended December 31, 2022. As of December 31, 2022, we have $40.6 million of Canadian net operating loss carry-forwards.  A separate valuation allowance of $11.1 million attributable to Canadian net operating losses and other tax carryovers is recorded because it is more likely than not to be utilized.

On August 16, 2022, legislation commonly known as the Inflation Reduction Act was signed into law. Among other things, the Inflation Reduction Act includes a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022, and also a new minimum tax based on book income. While we do not currently expect the Inflation Reduction Act to have a material impact on our effective tax rate in 2022, our analysis of the impact of the Inflation Reduction Act on us is ongoing, and it is possible that the Inflation Reduction Act (or implementing regulations and other guidance, which have not yet been issued) could adversely impact our current and deferred federal tax liability in future periods.

The Company does not have any material uncertain tax positions. The Company recognizes interest expense and penalties related to the uncertain tax position in the income tax expense line in the accompanying consolidated statements of operations and comprehensive loss.  Accrued interest and penalties are included in other non-current liabilities in the consolidated balance sheets and were $0 as of December 31, 2022 and 2021.

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The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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