The Company's decommissioning obligations result from its ownership interest in oil and natural gas assets including well sites and gathering systems. The Company has estimated the net present value of the decommissioning obligations to be $46.5 million as at December 31, 2012 (December 31, 2011 - $62.8 million) based on an undiscounted inflation-adjusted total future liability of $55.8 million (December 31, 2011 - $80.8 million). These payments are expected to be made over the next 25 years with the majority of costs to be incurred between 2013 and 2030 (current portion estimated - $1.2 million). At December 31, 2012, the liability has been calculated using an inflation rate of 2.0% (December 31, 2011 - 2.0%) and discounted using a risk-free rate of 1.0% to 2.5% (December 31, 2011 - 0.9% to 3.1%) depending on the estimated timing of the future obligation.
11. TAXES
The temporary differences that gave rise to the Company's deferred income tax liabilities (assets) at December 31, 2012 and December 31, 2011 were as follows:
December December 31, 2012 31, 2011Deferred income tax liabilities (assets): Property, plant and equipment $ 3,573 $ 1,395 Decommissioning obligations (11,617) (15,712) Derivative contracts (274) 346 Convertible debentures 2,312 2,820 Share issue costs (1,153) (1,909) Non-capital losses (38,484) (29,843) Current income deferred 9 7,514 --------------------------Ending balance $ (45,634) $ (35,389)----------------------------------------------------------------------------
The Company has recognized a net deferred tax asset based on the independently evaluated reserves report as cash flows are expected to be sufficient to realize the deferred tax asset.
The provision for income taxes differs from the result that would have been obtained by applying the combined federal and provincial tax rates to the loss before income taxes. The difference results from the following items:
December December 31, 2012 31, 2011Loss before taxes $ (41,738) $ (29,707)Combined federal and provincial tax rates 25.0% 26.5% -------------------------Expected deferred income tax benefit (10,434) (7,872)Increase in income taxes resulting from: Changes in expected deferred tax rates 12 365 Non-deductible share-based compensation and other 177 244 -------------------------Deferred income tax benefit $ (10,245) $ (7,263)---------------------------------------------------------------------------
At December 31, 2012, the Company has loss carry forwards of approximately $153 million that will expire between 2025 and 2032. The Company expects to be able to fully utilize these losses. The statutory tax rate decreased to 25% in 2012 from 26.5% in 2011 as a result of tax legislation enacted in 2007.
