Callon Petroleum Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2013

The following table presents Callon’s net tax benefits relating to its reported net losses and other temporary differences from operations:



	For the Year Ended December 31
	2013		2012
Deferred tax asset
Federal net operating loss carryforward	$	70,365	$	87,774
Statutory depletion carryforward	8,880		8,184
Alternative minimum tax credit carryforward	208		208
Asset retirement obligations	1,024		3,357
Other	7,575		9,571
Total deferred tax asset	88,052		109,094
Deferred tax liability
Oil and natural gas properties	26,412		41,336
Other	32		3,375
Total deferred tax liability	26,444		44,711
Net deferred tax asset	$	61,608	$	64,383

Prior to 2012, the Company carried a full valuation allowance against its net deferred tax assets. The Company considered both the positive and negative evidence in determining whether it was more likely than not that its deferred tax assets were recoverable. The Company incurred a loss in 2008, primarily as a result of a write-down of its oil and natural gas properties following the ceiling test, which created a loss on an aggregate basis for the three-year period ended December 31, 2008. Primarily as a result of recent cumulative losses, the Company established a full valuation allowance as of December 31, 2008, and continued to carry the full valuation allowance each reporting period until December 31, 2011. At December 31, 2011, after considering all available positive and negative evidence, including the Company’s profitable operations from 2009 to 2011 which resulted in income on an aggregate basis for the three year period ended December 31, 2011, and future operating results based on proved reserves, the Company determined that it was more likely than not that it would fully utilize its deferred tax assets recorded at December 31, 2011. Therefore, the Company reversed its valuation allowance at December 31, 2011.

If not utilized, the Company’s federal operating loss (“NOL”) carryforwards will expire as follows:



			Year Expiring
	Total		2014-2019		2020-2022		2023-2025		2026-2028		2029-2033
Federal NOL carryforwards	$	201,042	$	—	$	48,986	$	65,878	$	32,714	$	53,464

The Company has limited state taxable income. Accordingly, the Company has established a full valuation allowance on the tax benefits associated with the state net operating loss carryforwards of approximately$167,795 which expire in years through 2033, as the Company does not anticipate generating taxable state income in the states in which these carryforwards apply. These amounts are not included in the deferred tax summary table above.

In 2009, the Company began to shift its operational focus from exploration, development and production in the Gulf of Mexico to the acquisition and development of onshore properties. This shift in exploration and development activity resulted in an increase in Texas income from production. This, coupled with the Company’s exit from the Gulf of Mexico (the sale of its interest in the Habanero field in December 2012 and the Medusa field in December 2013), results in a change in the projected future Texas state tax rate beyond 2013 as a component of overall anticipated future taxes.

The Company had no significant unrecognized tax benefits at December 31, 2013. Accordingly, the Company does not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. Tax periods for years 2001 through 2013 remain open to examination by the federal and state taxing jurisdictions to which the Company is subject.

Below is a reconciliation of the reported amount of income tax expense attributable to continuing operations to the amount of income tax expense that would result from applying domestic federal statutory tax rates to pretax income from continuing operations.



	For the Years Ended December 31,
Component of Income Tax Rate Reconciliation	2013			2012			2011
Income tax expense computed at the statutory federal income tax rate	35		%	35		%	35		%
Change in valuation allowance	—		%	—		%	(227		)%
Percentage depletion carryforward	(8		)%	(22		)%	(3		)%
State taxes net of federal benefit	4		%	6		%	—		%
Restricted stock and stock options	5		%	2		%	—		%
Section 162(m)	6		%	22		%	—		%
Other	—		%	4		%	4		%
Effective income tax rate	42		%	47		%	(191		)%

	For the Years Ended December 31,
Components of Income Tax Expense	2013			2012			2011
Current federal income tax benefit	$	—		$	—		$	—
Current state income tax expense	326			110			—
Deferred federal income tax expense	2,652			1,777			13,176
Deferred state income tax expense	126			336			—
Valuation allowance	—			—			(82,459		)
Total income tax expense (benefit)	$	3,104		$	2,223		$	(69,283	)

- Definition

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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