Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
12 Months Ended
Dec. 31, 2014
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 10     INCOME TAXES

The Company utilizes the asset and liability approach to measuring deferred tax assets and liabilities based on temporary differences existing at each balance sheet date using currently enacted tax rates.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

In 2013, the State of North Dakota lowered its corporate income tax rate.  The impact of this rate change was to lower the Company’s deferred state income tax expense by approximately $0.5 million during the year ended December 31, 2013.

The income tax provision for the year ended December 31, 2014, 2013, and 2012 consists of the following:

   
2014
   
2013
   
2012
 
Current Income Taxes
  $ 3,259,445     $ (8,386 )   $ 17,772  
Deferred Income Taxes
                       
   Federal
    87,625,430       29,826,000       39,850,000  
   State
    8,482,125       1,950,000       3,134,000  
Total Expense
  $ 99,367,000     $ 31,767,614     $ 43,001,772  

The following is a reconciliation of the reported amount of income tax expense for the years ended December 31, 2014, 2013, and 2012 to the amount of income tax expenses that would result from applying the statutory rate to pretax income.

Reconciliation of reported amount of income tax expense:

   
2014
   
2013
   
2012
 
Income Before Taxes and NOL
  $ 263,112,945     $ 84,834,650     $ 115,286,396  
Federal Statutory Rate
    X 35 %     X 35 %     X 35 %
Taxes Computed at Federal Statutory Rates
    92,090,000       29,692,000       40,350,000  
State Taxes, Net of Federal Taxes
    5,404,300       909,614       2,086,772  
Non-Deductible Compensation
    1,872,700       1,166,000       565,000  
      Reported Provision
  $ 99,367,000     $ 31,767,614     $ 43,001,772  

At December 31, 2014, the Company had a net operating loss carryforward for federal income tax purposes of $516.5 million.  If unutilized, the federal net operating losses will expire in 2027-2034.  At December 31, 2014, the Company had an alternative minimum tax credit for federal income tax purpose of $3.3 million.  This credit carryforward does not expire.
 
The components of the Company’s deferred tax asset (liability) were as follows:

   
Year Ended December 31,
 
   
2014
   
2013
 
Deferred Tax Assets
           
Current:
           
Share Based Compensation
  $ 1,141,000     $ 1,834,000  
Accrued Interest
    1,238,000       1,241,000  
Derivative Instruments
    -       7,094,000  
Accrued Expenses
    986,000       -  
Other
    683,000       391,000  
     Total Current
    4,048,000       10,560,000  
                 
Non-Current:
               
Net Operating Loss (NOLs) and Tax Credit Carryforwards
    194,227,445       316,266,000  
Other
    94,000       69,000  
     Total Non-Current
    194,321,445       316,335,000  
     Total Deferred Tax Asset
  $ 198,369,445     $ 326,895,000  
                 
Deferred Tax Liabilities
               
Current:
               
Derivative Instruments
    (47,877,000 )     -  
Other
    (110,000 )     (129,000 )
    Total Current
  $ (47,987,000 )   $ (129,000 )
                 
Non-Current:
               
Crude Oil and Natural Gas Properties and Other Property
    (343,657,000 )     (432,596,000 )
Derivative Instruments
    (9,076,000 )     (413,000 )
    Total Non-Current
    (352,733,000 )     (433,009,000 )
                 
Total Deferred Tax Liability
    (400,720,000 )     (433,138,000 )
 
               
Total Net Deferred Tax Liability
  $ (202,350,555 )   $ (106,243,000 )
                 

Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities.  The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement.  Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards.

The Company has no liabilities for unrecognized tax benefits.

The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense.  For the years ended December 31, 2014, 2013 and 2012,  the Company did not recognize any interest or penalties in its statements of comprehensive income, nor did it have any interest or penalties accrued in its balance sheet at December 31, 2014 and 2013 relating to unrecognized benefits.

The tax years 2014, 2013, 2012 and 2011 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject.