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Oil and natural gas properties not subject
to amortization consist of the cost of unevaluated leaseholds, seismic
costs associated with specific unevaluated properties, exploratory
wells in progress, and secondary recovery projects before the assignment
of proved reserves. These unproved costs are reviewed periodically
by management for impairment, with the impairment provision included
in the cost of oil and natural gas properties subject to amortization.
Factors considered by management in its impairment assessment include
drilling results by the Company and other operators, the terms of
oil and natural gas leases not held by production, production response
to secondary recovery activities and available funds for exploration
and development. The Company expects it will complete its evaluation
of the properties representing the majority of these costs within
the next two to five years.
5. INCOME TAXES
All of the Company’s income is derived from
domestic activities. Actual income tax expense differs from income
tax expense computed by applying the U.S. federal statutory corporate
rate of 35% to pretax income as follows:
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Deferred income tax provisions result from temporary differences
in the recognition of income and expenses for financial reporting
purposes and for tax purposes. At December 31, 2006 and 2005, the
tax effects of these temporary differences resulted principally
from the following:
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