14. Income Taxes
The provision (benefit) for income taxes from continuing operations consisted of:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(In millions) |
|
|||||||||
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
(23 |
) |
|
$ |
(27 |
) |
|
$ |
(7 |
) |
|
Deferred taxes and other accruals |
|
|
(6 |
) |
|
|
1,948 |
|
|
|
(995 |
) |
|
State |
|
|
— |
|
|
|
23 |
|
|
|
(61 |
) |
|
|
|
|
(29 |
) |
|
|
1,944 |
|
|
|
(1,063 |
) |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
179 |
|
|
|
36 |
|
|
|
4 |
|
|
Deferred taxes and other accruals |
|
|
(1,987 |
) |
|
|
235 |
|
|
|
(231 |
) |
|
|
|
|
(1,808 |
) |
|
|
271 |
|
|
|
(227 |
) |
|
Total |
|
|
(1,837 |
) |
|
|
2,215 |
|
|
|
(1,290 |
) |
|
Adjustment of deferred taxes for foreign income tax law changes |
|
|
— |
|
|
|
7 |
|
|
|
(9 |
) |
|
Total Provision (Benefit) For Income Taxes (a) |
|
$ |
(1,837 |
) |
|
$ |
2,222 |
|
|
$ |
(1,299 |
) |
|
(a) |
Includes charges of $3,749 million in 2016 to establish valuation allowances on net deferred tax assets. |
Income (loss) from continuing operations before income taxes consisted of the following:
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
|
|
(In millions) |
|
|||||||||
|
United States (a) |
|
$ |
(2,784 |
) |
|
$ |
(2,431 |
) |
|
$ |
(2,728 |
) |
|
Foreign |
|
|
(2,994 |
) |
|
|
(1,423 |
) |
|
|
(1,530 |
) |
|
Total Income (Loss) from Continuing Operations Before Income Taxes |
|
$ |
(5,778 |
) |
|
$ |
(3,854 |
) |
|
$ |
(4,258 |
) |
|
(a) |
Includes substantially all of our interest expense, corporate expense and the results of commodity hedging activities. |
The components of deferred tax liabilities and deferred tax assets at December 31 were as follows:
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In millions) |
|
|||||
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
|
Property, plant and equipment and investments |
|
$ |
(629 |
) |
|
$ |
(3,810 |
) |
|
Other |
|
|
(24 |
) |
|
|
(255 |
) |
|
Total Deferred Tax Liabilities |
|
|
(653 |
) |
|
|
(4,065 |
) |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
|
4,029 |
|
|
|
5,767 |
|
|
Tax credit carryforwards |
|
|
138 |
|
|
|
164 |
|
|
Property, plant and equipment and investments |
|
|
746 |
|
|
|
834 |
|
|
Accrued compensation, deferred credits and other liabilities |
|
|
283 |
|
|
|
526 |
|
|
Asset retirement obligations |
|
|
212 |
|
|
|
1,077 |
|
|
Other |
|
|
36 |
|
|
|
62 |
|
|
Total Deferred Tax Assets |
|
|
5,444 |
|
|
|
8,430 |
|
|
Valuation allowances |
|
|
(5,199 |
) |
|
|
(5,450 |
) |
|
Total deferred tax assets, net of valuation allowances |
|
|
245 |
|
|
|
2,980 |
|
|
Net Deferred Tax Assets (Liabilities) |
|
$ |
(408 |
) |
|
$ |
(1,085 |
) |
At December 31, 2017, we have recognized a gross deferred tax asset related to net operating loss carryforwards of $4,029 million before application of valuation allowances. The deferred tax asset is comprised of $1,386 million attributable to foreign net operating losses which begin to expire in 2024, $2,180 million attributable to U.S. federal operating losses a portion of which begin to expire in 2028, and the majority of which begin to expire in 2034, and $463 million attributable to losses in various U.S. states which began to expire in 2018. The deferred tax asset attributable to foreign net operating losses, net of valuation allowances, is $9 million. A full valuation allowance is established against the deferred tax asset attributable to U.S. federal and state net operating losses. At December 31, 2017, we have U.S. federal, U.S. state and foreign alternative minimum tax credit carryforwards of $53 million, which can be carried forward indefinitely, and approximately $15 million of other business credit carryforwards. The deferred tax asset attributable to these credits, net of valuation allowances, is $4 million. A full valuation allowance is established against our foreign tax credit carryforwards of $70 million, which begin to expire in 2018.
As of December 31, 2017, the Balance Sheet reflects a $5,199 million valuation allowance against the net deferred tax assets for multiple jurisdictions based on application of the relevant accounting standards. Hess continues to maintain a full valuation allowance against its deferred tax assets in the U.S., Denmark (hydrocarbon tax only), Malaysia, and Guyana. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The cumulative loss incurred over the three-year period ending December 31, 2017 constitutes significant objective negative evidence. Such objective negative evidence limits our ability to consider subjective positive evidence, such as our projections of future taxable income, resulting in the recognition of a valuation allowance against the net deferred tax assets for these jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight can be given to subjective evidence.
The enactment of U.S. federal tax reform, commonly referred to as the U.S. Tax Cuts and Jobs Act (“Act”), provided for broad changes to the taxation of both domestic and foreign operations. The provisions of the Act, including its extensive transition rules, are complex and interpretive guidance continues to develop. Final application of the Act to our operations and financial results may differ from that for which we have provisionally provided as of December 31, 2017. Changes could arise as regulatory and interpretive action continues to clarify aspects of the Act and as changes are made to estimates that the Corporation has utilized in calculating the transition impacts. No U.S. federal tax has been accrued on the deemed repatriation of unremitted earnings of our foreign subsidiaries. A decrease in the U.S. federal corporate tax rate to 21% from 35% resulted in a $1,476 million reduction to our U.S. federal net deferred tax asset as of December 31, 2017, with a corresponding reduction in the previously established U.S. valuation allowance. A deferred tax liability of $110 million no longer meets the recognition criteria with the transition to a territorial regime for U.S. taxation of foreign earnings and has been derecognized, with a corresponding adjustment to the valuation allowance against the U.S. federal net deferred tax asset. Under the transition rules related to the repeal of the alternative minimum tax regime, an alternative minimum tax credit carryforward of $4 million will be refundable if not used to offset regular tax liability. The previously established valuation allowance against this credit carryforward has been released. Consequently, these tax law changes resulted in a net $4 million increase to net deferred tax asset on the balance sheet and benefit to deferred tax expense.
In the Consolidated Balance Sheet, deferred tax assets and liabilities are netted by taxing jurisdiction and are recorded at December 31 as follows:
|
|
|
2017 |
|
|
2016 |
|
||
|
|
|
(In millions) |
|
|||||
|
Deferred income taxes (long-term asset) |
|
$ |
21 |
|
|
$ |
59 |
|
|
Deferred income taxes (long-term liability) |
|
|
(429 |
) |
|
|
(1,144 |
) |
|
Net Deferred Tax Assets (Liabilities) |
|
$ |
(408 |
) |
|
$ |
(1,085 |
) |
The difference between our effective income tax rate from continuing operations and the U.S. statutory rate is reconciled below:
|
|
|
2017 |
|
2016 |
|
2015 |
|||||||||
|
U.S. statutory rate |
|
|
35.0 |
|
% |
|
|
35.0 |
|
% |
|
|
35.0 |
|
% |
|
Effect of foreign operations (a) |
|
|
17.4 |
|
|
|
|
4.6 |
|
|
|
|
5.9 |
|
|
|
State income taxes, net of Federal income tax |
|
|
— |
|
|
|
|
1.9 |
|
|
|
|
0.9 |
|
|
|
Change in enacted tax laws (b) |
|
|
(23.6 |
) |
|
|
|
(0.2 |
) |
|
|
|
0.2 |
|
|
|
Valuation allowance adjustment with tax law change (b) |
|
|
23.6 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
Rate differential on U.S. impairment |
|
|
(4.1 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
Gains on asset sales, net |
|
|
(2.2 |
) |
|
|
|
— |
|
|
|
|
(0.2 |
) |
|
|
Impairment |
|
|
— |
|
|
|
|
(2.1 |
) |
|
|
|
(12.2 |
) |
|
|
Valuation allowance on current year operations |
|
|
(14.9 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
Valuation allowance against previously benefitted deferred tax assets |
|
|
0.1 |
|
|
|
|
(97.3 |
) |
|
|
|
(3.1 |
) |
|
|
Benefit of legal entity restructuring |
|
|
— |
|
|
|
|
— |
|
|
|
|
3.5 |
|
|
|
Other |
|
|
0.5 |
|
|
|
|
0.4 |
|
|
|
|
0.5 |
|
|
|
Total |
|
|
31.8 |
|
% |
|
|
(57.7 |
) |
% |
|
|
30.5 |
|
% |
|
(a) |
The variance in effective income tax rates attributable to the effect of foreign operations primarily resulted from the mix of income among high and low tax rate jurisdictions. |
|
(b) |
The enactment of the U.S. Tax Cuts and Jobs Act provided for a decrease in the corporate tax rate to 21% from 35% and a change to a territorial tax regime, resulting in a net $1,366 million reduction to our U.S. net deferred tax asset as of December 31, 2017, with a corresponding reduction in the previously established U.S. valuation allowance. |
Below is a reconciliation of the gross beginning and ending amounts of unrecognized tax benefits:
|
|
|
2017 |
|
2016 |
|
2015 |
|
|
|
(In millions) |
||||
|
Balance at January 1 |
|
$424 |
|
$604 |
|
$603 |
|
Additions based on tax positions taken in the current year |
|
14 |
|
19 |
|
19 |
|
Additions based on tax positions of prior years |
|
4 |
|
113 |
|
29 |
|
Reductions based on tax positions of prior years |
|
(147) |
|
(274) |
|
(31) |
|
Reductions due to settlements with taxing authorities |
|
(85) |
|
(27) |
|
(12) |
|
Reductions due to lapses in statutes of limitation |
|
(5) |
|
(11) |
|
(4) |
|
Balance at December 31 |
|
$205 |
|
$424 |
|
$604 |
The December 31, 2017 balance of unrecognized tax benefits includes $30 million (2016: $233 million) that, if recognized, would impact our effective income tax rate. Over the next 12 months, it is reasonably possible that the total amount of unrecognized tax benefits could decrease between $58 million and $139 million due to settlements with taxing authorities or other resolutions, as well as lapses in statutes of limitation. At December 31, 2017, our accrued interest and penalties related to unrecognized tax benefits is $23 million (2016: $29 million).
We are no longer indefinitely reinvested with respect to the book in excess of tax basis in the investment in our foreign subsidiaries. Because of U.S. tax reform we expect that the future reversal of such temporary differences will occur free of material taxation.
We file income tax returns in the U.S. and various foreign jurisdictions. We are no longer subject to examinations by income tax authorities in most jurisdictions for years prior to 2005.