Reconciliations of income taxes computed using the U.S. Federal statutory rate to the effective income tax rates are as follows:

As noted in the above table, the most significant contributor to the difference between the federal statutory rate and the effective rate is the currency exchange impact on the foreign income tax calculation. The Company’s New Zealand subsidiaries use the U.S. Dollar as their functional currency for financial reporting purposes, but income taxes are calculated from New Zealand Dollar financial statements and re-measured into U.S. Dollars. Volatility in exchange rates creates variable results when computing income in different currencies. The most significant difference in the relative income computations (computed using historical basis U.S. dollars versus historical basis New Zealand dollars) was attributable to depreciation, depletion, and amortization (DD&A). Because of the relative strengthening of the New Zealand Dollar vs. the U.S. Dollar, the value of the tax DD&A deduction reflects the relative appreciation in the New Zealand Dollar tax basis of amortizable assets vs. the historical U.S. Dollar investment costs. As a result, taxable income (and accordingly income tax expense) computed in New Zealand Dollars and then converted to U.S. Dollars at the average exchange rates for each respective year was significantly less than net income computed in the subsidiaries’ U.S. Dollar financial statements. In aggregate, the Company recognized foreign exchange benefits to tax expense in the amounts of $2.8 million, $2.5 million, and $2.9 million for 2005, 2004, and 2003, respectively.

The primary unfavorable differences between the federal statutory and the effective rate are attributable to state income taxes (computed net of the offsetting federal benefit), which were $2.1 million, $1.1 million and $0.4 million for 2005, 2004, and 2003, respectively. Additionally, the Company recorded adjustments to the cumulative state deferred tax liability in the amounts of $1.0 million, $0.9 million, and $1.2 million for 2005, 2004, and 2003, respectively. For 2005 the change is due to an increase in the portion of income the Company expects to be subject to Texas’ earned surplus tax. For 2004 and 2003 the increases are due to increases in the level of business activity in Louisiana. The Company calculates its Louisiana income tax using the “apportionment” accounting method. Under apportionment accounting, total federal taxable income is allocated based on the proportional level of U.S. business activity within the state. Due to the relative increases in the Company’s Louisiana activity in 2003 and 2004, the Company increased its estimate of future Louisiana taxable income that will result from the reversal of prior years’ timing differences.

The New Zealand statutory rate is 33%, which resulted in differences of $0.5 million, $0.3 million, and $0.2 million for 2005, 2004, and 2003 respectively vs. the U.S. statutory rate. The Company does not compute a provision for U.S. taxes on the undistributed earnings of our New Zealand subsidiaries as management has plans to reinvest such earnings outside of the United States indefinitely. As of December 31, 2005, the undistributed earnings of foreign subsidiaries is approximately $47.4 million. If, in the future, these earnings are distributed into the U.S. in the form of dividends or otherwise, we may be subject to U.S. income taxes and New Zealand withholding taxes. It is not practical, however, to estimate the amount of taxes that may be payable if such remittances occur. Presently, there are no foreign tax credits available to reduce the U.S. taxes on such amounts if repatriated.

The tax effects of temporary differences representing the net deferred tax liability (asset) at December 31, 2005 and 2004, were as follows:

The total change in the net deferred liability from 2004 to 2005 was $57.9 million. Increases in the liability were attributable to deferred tax expense of $62.0 million plus $0.6 million for other adjustments. Reductions were made to the net liability for the tax benefit of stock compensation deductions of $4.4 million, which are recorded as additions to paid-in-capital, and $0.4 million for other items.

The tax basis of the assets of Southern Petroleum (NZ) Exploration Limited (“Southern NZ”) on the acquisition date exceeded the cash purchase price paid by SENZ to acquire this entity. The asset is being amortized over the period in which the tax amortization is deducted. The remaining asset value at December 31, 2005, was $2.4 million. The other foreign carryover asset is attributable to cumulative New Zealand net operating losses of $139.7 million. New Zealand tax net operating losses do not expire.

At December 31, 2005, the Company had alternative minimum tax credits of $3.2 million that carry forward indefinitely. These credits are available to reduce future regular tax liability to the extent they exceed the alternative minimum tax otherwise due.

The domestic deferred tax carryover items are attributable to expected future tax benefits in the amounts of $28.6 million for federal net operating losses, $2.4 million for State of Louisiana net operating losses and $7.1 million net for capital losses. The gross capital loss asset is $7.6 million less a $0.5 million impairment. At December 31, 2005, cumulative estimated federal net operating losses were $81.5 million, which will expire between 2019 and 2023. Louisiana estimated net operating losses total $69.2 million and will expire between 2013 and 2019.

The Company has not recorded any valuation allowance against the deferred tax assets attributable to net operating loss carryovers at December 31, 2005 and 2004, as management estimates that it is more likely than not that these assets will be fully utilized before they expire. Significant changes in estimates caused by changes in oil and gas prices, production levels, capital expenditures, and other variables could impact the Company’s ability to utilize the carryover amounts.

In 2002 we recognized a capital loss of approximately $18.6 million as the result of the liquidation of our partnerships. In 2005 we recognized an additional capital loss of $3.1 million for partnerships liquidated during the year. These losses can only be utilized to offset capital gains. The 2002 losses will expire in 2007, and the 2005 losses will expire in 2010. The Company plans to sell some combination of its oil and gas properties before the loss carryovers expire that will generate sufficient capital gains to utilize the loss carry over. To generate capital gains from these dispositions, the sales proceeds must exceed the Company’s total investment in the properties. Company management has identified several qualified properties that have estimated current market values well in excess of the total original costs. Management believes that it is more likely than not that the Company will fully utilize the capital loss carryover. If the Company is unable to complete the sale of these properties at the prices it has estimated to be the fair market value, then a significant portion of the capital loss carryover could expire before it is utilized. During 2004 the Company recorded a valuation allowance of $0.5 million, primarily for incremental state income tax expenses that it expects to incur as a result of the planned property dispositions.