FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1998

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Provision for Income Taxes

The following is an analysis of the consolidated income tax provision:

	Year Ended December 31,
	1998	1997	1996
	------------	------------	------------
Current	$      214,169	$      77,402	$      759,253
Deferred	(25,380,546)	10,742,015	9,001,080
	------------	------------	------------
Total	$ (25,166,377)	$ 10,819,417	$ 9,760,333
	=========	=========	=========

There are differences between income taxes computed using the statutory rate (34% for 1998, 1997, and 1996) and the Company’s effective income tax rates (34.3%, 32.7%, and 33.9% for 1998, 1997, and 1996, respectively), primarily as the result of certain tax credits available to the Company. Reconciliations of income taxes computed using the statutory rate to the effective income tax rates are as follows:

The tax effects of significant temporary differences representing the net deferred tax liability (asset) at December 31, 1998 and 1997, were as follows:

	1998	1997
	---------------	---------------
Deferred tax assets:
Alternative minimum tax credits	$(1,979,399)	$(1,831,299)
Other	(237,587)	(237,587)
	---------------	---------------
Total deferred tax assets	$(2,216,986)	$(2,068,886)
Deferred tax liabilities:
Oil and gas properties	$ 1,531,651	$ 26,785,212
Other	430,351	637,824
	----------------	----------------
Total deferred tax liabilities	$ 1,962,002	$ 27,423,036
	----------------	----------------
Net deferred tax liability (asset)	$ (254,984)	$ 25,354,150
	============	============

    

The Company did not record any valuation allowances against deferred tax assets at December 31, 1998 or 1997.

At December 31, 1998, the Company had alternative minimum tax credits of $1,979,399 that carry forward indefinitely and are available to reduce future regular tax liability to the extent they exceed the related tentative minimum tax otherwise due.

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