Note 8 – Income Taxes
The provision for income taxes for the years ended December 31, 2016 and 2015 consists of the following:
| (in thousands) | Year Ended | |||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Current income tax expense | $ | - | $ | - | ||||
| Deferred income tax (benefit) expense | (4,472 | ) | (3,733 | ) | ||||
| Change in valuation allowance | 4,472 | 3,773 | ||||||
| Total income tax expense | $ | - | $ | - | ||||
The effective income tax rate for the years ended December 31, 2016 and 2015 differed from the statutory U.S. federal income tax rate as follows:
| Year Ended | ||||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Federal income tax rate | 35.0 | % | 35.0 | % | ||||
| State income taxes, net of federal benefit | 3.5 | 3.5 | ||||||
| Percentage depletion in excess of basis | 1.1 | 1.3 | ||||||
| Non-controlling interest in consolidated partnerships | (.4 | ) | (.4 | ) | ||||
| True-up of prior year depletion in excess of basis | .2 | .2 | ||||||
| Stock-based compensation deficiency | (2.9 | ) | (1.8 | ) | ||||
| Rate changes of prior year deferreds | (1.6 | ) | 4.2 | |||||
| Increase in valuation allowance and other | (34.9 | ) | (42.0 | ) | ||||
| Total income tax expense | - | - | ||||||
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities at December 31, 2016 and 2015 are presented below:
| (in thousands) | December 31, 2016 |
December 31, 2015 |
||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforwards | $ | 8,274 | $ | 5,433 | ||||
| Depletion carryforwards | 2,740 | 2,570 | ||||||
| Accrual and other | 1,694 | 1,318 | ||||||
| Derivatives | 730 | (213 | ) | |||||
| Asset retirement obligations | 1,936 | 1,168 | ||||||
| Property, plant and equipment | 6,439 | 7,185 | ||||||
| Total deferred tax assets | 21,813 | 17,461 | ||||||
| Deferred tax liability | ||||||||
| Interest in partnerships | (762 | ) | (757 | ) | ||||
| Less valuation allowance | (21,051 | ) | (16,704 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
The Company has net operating losses (“NOL”) of approximately $19.7 million available to reduce future years’ federal taxable income. The federal net operating losses expire beginning in 2031 through 2036. The Company has NOL of approximately $34.4 million available to reduce future years’ state taxable income. These state NOL carryforwards will expire beginning in 2023 through 2036 depending on each jurisdiction’s specific law surrounding NOL carryforwards. Tax returns are subject to audit by various taxation authorities. The results of any audits will be accounted for in the period in which they are determined.
The Company believes that the tax positions taken in the Company's tax returns satisfy the more likely than not threshold for benefit recognition. Accordingly, no liabilities have been recorded by the Company. Any potential adjustments for uncertain tax positions would be a reclassification between the deferred tax asset related to the Company’s NOL and another deferred tax asset.
The Company’s policy is to classify accrued penalties and interest related to unrecognized tax benefits in the Company’s income tax provision. As of December 31, 2016, the Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the current year.