Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax [Abstract]  
INCOME TAXES
5. INCOME TAXES

 

The Company and its domestic subsidiaries file a consolidated United States income tax return. Certain subsidiaries’ operations are also subject to foreign income taxes. Provision for income taxes consists of the following:

 

                         
(in thousands)   Year Ended December 31,  
    2012     2011     2010  

U.S. Federal:

                        

Current

   $ —       $ —       $ —    

Deferred

     —         —         —    

Foreign:

                        

Current

     81,813       93,468       35,260  

Deferred

     —         —         —    
   

 

 

    

 

 

    

 

 

  

Total

   $ 81,813     $ 93,468     $ 35,260  
   

 

 

    

 

 

    

 

 

  

 

The primary differences between the financial statement and tax bases of assets and liabilities at December 31, 2012 and 2011 are as follows: (In thousands)

 

                 
     2012     2011  

Deferred Tax Assets:

                

Basis difference in fixed assets

   $ 30,619     $ 23,821  

Foreign tax credit carry forward

     23,836       9,447  

Alternative minimum tax credit carryover

     1,349       1,349  

Foreign net operating losses

     38,782       35,766  

Asset retirement obligations

     3,629       5,322  

Other

     2,731       1,566  
   

 

 

    

 

 

  
    $ 100,946     $ 77,271  

Valuation allowance

     (99,597 )      (75,922 ) 
   

 

 

    

 

 

  

Total deferred tax asset

   $ 1,349     $ 1,349  
   

 

 

    

 

 

  

 

Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2011, management determined that certain income tax amounts disclosed in the 2011 tax footnote were not properly stated. The errors were primarily attributed to the calculation of foreign tax credits and foreign net operating losses. This correction in the disclosure is offset by an equal adjustment to our valuation allowance with no impact to the consolidated financial statements. As a result of these corrections to the deferred tax assets, the previously presented disclosure for uncertain tax benefits under ASC 740-10 was no longer applicable.

 

The Company’s unused foreign tax credit will start to expire between the years 2013 and 2021. The alternative minimum tax credits do not expire, and foreign net operating losses (“NOL”) are not subject to expiry dates. The NOL for the Company’s UK subsidiary can be carried forward indefinitely, while the NOLs for the Company’s Gabon and Angola subsidiaries are included in the respective subsidiaries’ cost oil accounts, which will be offset against future taxable revenues. Management assesses the available positive and negative evidence to estimate if existing deferred tax assets will be utilized. The Company does not anticipate utilization of the foreign tax credits prior to expiration nor does the Company expect to generate sufficient taxable income to utilize other deferred tax assets. On the basis of this evaluation, a valuation allowance of $99.6 million and $75.9 million has been recorded as of December 31, 2012 and 2011, respectively, to reduce the deferred tax asset to the amount that is more likely than not to be realized.

 

Pretax income (loss) is comprised of the following:

 

                         
(in thousands)   Year Ended December 31,  
    2012     2011     2010  

United States

   ($ 56,979 )    ($ 16,282 )    ($ 4,129 ) 

Foreign

     144,131       150,312       81,776  
   

 

 

    

 

 

    

 

 

  
    $ 87,152     $ 134,030     $ 77,647  
   

 

 

    

 

 

    

 

 

  

 

The statutory rate reconciliation is as follows:

 

                         
(In Thousands)   Year Ended December 31,  
    2012     2011     2010  

Tax Provision Computed at Statutory Rate

     30,503     $ 46,911     $ 27,176  

Foreign taxes not offset in U.S. by foreign tax credits

     25,266       28,414       8,377  

Permanent Differences

     2,370       —         —    

Rate Differential Items

     —         (2,889 )      —    

Increase/(Decrease) in Valuation Allowance

     23,675       22,038       (293 ) 

Other

     (0 )      (1,006 )      —    
   

 

 

    

 

 

    

 

 

  

Total Tax Expense

   $ 81,813     $ 93,468     $ 35,260  
   

 

 

    

 

 

    

 

 

  

 

At December 31, 2012, the Company was subject to foreign and United States federal taxes only, with no allocations made to state and local taxes.

 

The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:

 

         

United States

     2006-2012  

Gabon

     2007-2012