For the years ended December 31, income (loss) before income taxes consisted of the following:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In millions) |
U.S. | | $ | 357 |
| | $ | (1,181 | ) | | $ | (4,865 | ) |
International | | 29 |
| | (27 | ) | | (82 | ) |
Total income (loss) before income taxes | | $ | 386 |
| | $ | (1,208 | ) | | $ | (4,947 | ) |
For the years ended December 31, the total provision (benefit) for income taxes consisted of the following:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In millions) |
Current taxes: | | | | | | |
U.S. federal | | $ | (79 | ) | | $ | (13 | ) | | $ | (12 | ) |
U.S. state | | — |
| | — |
| | (2 | ) |
International | | 1 |
| | 22 |
| | 31 |
|
| | (78 | ) | | 9 |
| | 17 |
|
Deferred taxes: | | | | | | |
U.S. federal | | 4 |
| | 10 |
| | (1,507 | ) |
U.S. state | | 37 |
| | 13 |
| | (27 | ) |
International | | (4 | ) | | (10 | ) | | (68 | ) |
| | $ | 37 |
| | $ | 13 |
| | $ | (1,602 | ) |
Total provision (benefit) for income taxes | | $ | (41 | ) | | $ | 22 |
| | $ | (1,585 | ) |
Taxes for the year were impacted by our ability to monetize $19 million of the alternative minimum tax (AMT) credit carryover on the 2017 U.S federal tax provision by an election to refund AMT credits in lieu of bonus depreciation. The newly enacted Tax Cuts and Jobs Act (the Tax Act) repealed the corporate AMT for tax years beginning January 1, 2018, and provides that any remaining AMT credit carryovers are refundable beginning in 2019. We had approximately $42 million of AMT credit carryovers at the end of 2017 that will be fully refunded between 2019 and 2022. The valuation allowance related to this deferred tax asset was released and a noncurrent receivable was established, which resulted in a tax benefit of $42 million for the year ended December 31, 2017. Also included in the net tax benefit for the year were refunds of $17 million related to the carryback of net operating losses to previously filed U.S. federal returns.
The provision for state deferred income taxes on the consolidated statement of operations for the year ended December 31, 2017 was attributable to Oklahoma state deferred tax expense. Other state taxing jurisdictions were in a net deferred tax asset position for which a corresponding valuation allowance was recorded resulting in zero deferred tax benefit for those jurisdictions.
Our effective tax rate for 2017 differs from the U.S. statutory rate primarily due to domestic and international deferred tax asset valuation allowances discussed below. The amount for state income taxes in the rate reconciliation table below is the net deferred tax expenses before valuation allowances, if any, generated from all states. This table presents a reconciliation of the United States statutory income tax rate to our effective income tax rate.
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
U.S. statutory income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State and local income taxes, net of federal effect | | 6.9 |
| | — |
| | 0.9 |
|
Valuation allowance, domestic | | (210.1 | ) | | (35.5 | ) | | (4.0 | ) |
Valuation allowance, international | | (1.2 | ) | | (2.4 | ) | | (0.3 | ) |
Foreign tax on foreign earnings | | 1.5 |
| | 0.6 |
| | 0.4 |
|
Impact of Tax Act | | 157.4 |
| | — |
| | — |
|
Other | | — |
| | 0.5 |
| | — |
|
Effective income tax rate | | (10.5 | )% | | (1.8 | )% | | 32.0 | % |
At December 31, 2017 and 2016 respectively, the components of our deferred tax asset (liability) were as follows:
|
| | | | | | | |
| 2017(1) | | 2016 |
Deferred tax asset: | | | |
Net operating loss carryforwards | $ | 314 |
| | $ | 301 |
|
Alternative Minimum Tax credit | — |
| | 73 |
|
Stock-based compensation | 11 |
| | 15 |
|
Oil and gas properties | 15 |
| | 306 |
|
Commodity derivatives | 19 |
| | 9 |
|
Foreign tax credit | — |
| | 593 |
|
Other | 3 |
| | 13 |
|
Total deferred tax asset | 362 |
| | 1,310 |
|
Deferred tax asset valuation allowances | (362 | ) | | (1,310 | ) |
Net deferred tax asset | — |
| | — |
|
Deferred tax liability: | | | |
Commodity derivatives | — |
| | — |
|
Oil and gas properties | (76 | ) | | (39 | ) |
Total deferred tax liability | (76 | ) | | (39 | ) |
Net deferred tax liability | $ | (76 | ) | | $ | (39 | ) |
_________________
| |
(1) | The December 31, 2017 deferred tax asset (liability) has been adjusted for the lower federal statutory rate under the Tax Act. |
At December 31, 2017 we have a net deferred tax liability in Oklahoma of $76 million. All other taxing jurisdictions are in a net deferred tax asset position, for which we recorded an offsetting full valuation allowance, as prescribed by the accounting standards.
Beginning January 1, 2018, our U.S. income will be taxed at a 21 percent federal corporate rate under the Tax Act. We were required to recognize the effect of this rate change on our deferred tax assets and liabilities in 2017, the period the tax rate change was enacted. We maintain a full valuation allowance on the net deferred tax asset balance, therefore the rate change resulted in a non-cash decrease to the deferred tax asset and a corresponding and offsetting decrease in the valuation allowance balances of approximately $199 million for the year ended December 31, 2017.
As of December 31, 2017 and 2016, we had gross net operating loss (NOL) carryforwards of approximately $1.75 billion and $849 million, respectively, for federal income tax and $1.5 billion for state income tax purposes, which may be used in future years to offset taxable income. To the extent not utilized, the federal NOL carryforwards will begin to expire during the years 2019 through 2037.
As of December 31, 2017 and 2016, we had foreign tax credits of approximately $0 million and $593 million, respectively, which would have expired during the years 2022 through 2026. During 2017, we filed amended returns to deduct $185 million of the foreign taxes paid, thereby converting the credit to a net operating loss carryforward. We are unable to utilize the remaining $408 million under the Tax Act and therefore, removed the deferred tax asset and the corresponding valuation allowance.
Utilization of deferred tax assets is dependent upon generating sufficient future taxable income in the appropriate jurisdictions within the carryforward period. Estimates of future taxable income can be significantly affected by changes in oil, gas and NGL prices; estimates of the timing and amount of future production; and estimates of future operating and capital costs. Therefore, no certainty exists that we will be able to fully utilize our existing deferred tax assets.
The change in our deferred tax asset valuation allowance is as follows at December 31:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In millions) |
Balance at the beginning of the year | | $ | (1,310 | ) | | $ | (790 | ) | | $ | (549 | ) |
Charged to provision for income taxes: | | | | | | |
U.S. state net operating loss carryforwards | | 7 |
| | (4 | ) | | (1 | ) |
U.S. federal and state valuation allowance | | 343 |
| | (466 | ) | | (202 | ) |
Foreign tax credit valuation allowance | | 593 |
| | (21 | ) | | (25 | ) |
China valuation allowance | | 5 |
| | (29 | ) | | (13 | ) |
Balance at the end of the year | | $ | (362 | ) | | $ | (1,310 | ) | | $ | (790 | ) |
Due to the ceiling test impairments of our oil and gas properties in prior periods, we moved from a deferred tax liability position to a deferred tax asset position in most taxing jurisdictions. We consider it more likely than not that the related tax benefits will not be realized and therefore, we recorded a full valuation allowance on our deferred tax assets of $362 million and $1.3 billion for the years ended December 31, 2017 and 2016, respectively. The net change in the U.S. federal and state valuation allowance for 2017 of $343 million included a decrease of $199 million for the corporate tax rate reduction under the Tax Act. The net change in the U.S. federal and state valuation allowance for 2016 of $466 million included an increase of $37 million for the early adoption of the simplification of employee share-based payment transactions. The net change in the foreign tax credit valuation allowance for 2017 of $593 million included a decrease of $185 million for the conversion of the credit to a net operating loss and a decrease of $408 million for the permanent loss of the foreign tax credit under the Tax Act. We recorded a full valuation allowance on our China deferred tax assets of $37 million and $42 million for the years ended December 31, 2017 and 2016, respectively.
As of December 31, 2017, we did not have a liability for uncertain tax positions, and as such, we did not accrue related interest or penalties. The tax years 2013 through 2016 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which we are subject.