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15. INCOME TAXES
 12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
INCOME TAXES

Due to the Company’s net losses, there were no provisions for income taxes for the years ended December 31, 2016 and 2015.

 

The difference between the income tax expense of zero shown in the statement of operations and pre-tax book net loss times the federal statutory rate of 34% is principally due to the change in the valuation allowance.

 

Deferred income tax assets for years ended December 31, 2016 and 2015 are as follows (in thousands):

 

Deferred Tax Assets (Liabilities)  

Year ended

December 31,

2016

    

Year ended

December 31,

2015

  
Difference in depreciation, depletion, and capitalization methods – oil and natural gas properties   $ 479     $ 1,863  
Net operating losses     5,507       4,131  
Impairment – oil and natural gas properties     -       (1,122 )
Other     438       753  
Total deferred tax asset     6,424       5,625  
                 
Less valuation allowance     (6,424 )     (5,625 )
Total deferred tax assets   $ -     $ -  

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

 

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at December 31, 2016 and 2015. The net change in the total valuation allowance from December 31, 2015 to December 31, 2016, was an increase of $799,000.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2016 and 2015, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the years ended December 31, 2016 and 2015.

 

As of December 31, 2016, the Company has federal net operating loss carryforwards of approximately $79,212,000 and $49,922,000 (subject to limitations) for federal and state tax purposes, respectively, which if not utilized, will expire beginning in 2033 and 2023, respectively, for both federal and state purposes.

 

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

 

Due to the impact of temporary and permanent differences between the book and tax calculations of net loss, the Company experiences an effective tax rate above the federal statutory rate of 34%.

 

The Company currently has tax returns open for examination by the Internal Revenue Service for all years since 2009.