v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Taxes [Abstract]  
Income Taxes
Components of income tax provision
 
(benefit) were:
Millions of Dollars
2021
2020
2019
Income Taxes
Federal
Current
$
32
3
18
Deferred
1,161
(625)
(113)
Foreign
Current
3,128
350
2,545
Deferred
66
(70)
(323)
State and local
Current
127
(4)
148
Deferred
119
(139)
(8)
Total
 
tax provision (benefit)
$
4,633
(485)
2,267
Deferred income taxes
 
reflect the net tax effect
 
of temporary differences
 
between the carrying amounts of
assets and liabilities for financial reporting purposes
 
and the amounts used for tax purposes.
 
Major components
of deferred tax liabilities and
 
assets at December 31 were:
Millions of Dollars
2021
2020
Deferred Tax
 
Liabilities
PP&E and intangibles
$
10,170
7,744
Inventory
44
64
Other
213
242
Total
 
deferred tax liabilities
10,427
8,050
Deferred Tax
 
Assets
Benefit plan accruals
321
540
Asset retirement obligations
 
and accrued environmental costs
2,297
2,262
Investments in joint ventures
1,684
1,653
Other financial accruals and deferrals
827
907
Loss and credit carryforwards
7,402
8,904
Other
399
365
Total
 
deferred tax assets
12,930
14,631
Less: valuation allowance
(8,342)
(9,965)
Total
 
deferred tax assets
 
net of valuation allowance
4,588
4,666
Net deferred tax liabilities
$
5,839
3,384
At December 31, 2021, noncurrent assets
 
and liabilities included deferred taxes
 
of $
340
 
million and $
6,179
 
million,
respectively.
 
At December 31, 2020, noncurrent assets
 
and liabilities included deferred taxes
 
of $
363
 
million and
$
3,747
 
million, respectively.
At December 31, 2021, the loss and credit carryforward
 
deferred tax assets
 
were primarily related to U.S.
 
foreign
tax credit carryforwards
 
of $
5.5
 
billion and various jurisdictions net operating
 
loss and credit carryforwards of $
1.9
billion.
 
If not utilized, U.S. foreign
 
tax credits and net operating
 
losses will begin to expire in 2022.
Our overall deferred
 
tax liability increased during 2021 by $
1.1
 
billion due to our Concho acquisition.
 
The following table shows a reconciliation
 
of the beginning and ending deferred tax
 
asset valuation allowance for
for 2021, 2020 and 2019:
Millions of Dollars
2021
2020
2019
Balance at January 1
$
9,965
10,214
3,040
Charged to expense (benefit)
(45)
460
(225)
Other*
(1,578)
(709)
7,399
Balance at December 31
$
8,342
9,965
10,214
*Represents changes due to originating deferred tax asset that have no impact to our effective tax rate, acquisitions/dispositions/revisions and
the effect of translating foreign financial statements.
Valuation allowances
 
have been established to
 
reduce deferred tax assets
 
to an amount that will, more likely than
not, be realized.
 
At December 31, 2021, we have maintained
 
a valuation allowance with respect to
 
substantially all
U.S. foreign tax credit
 
carryforwards as well as certain
 
net operating loss carryforwards
 
for various jurisdictions.
 
During 2021, the valuation allowance movement
 
charged to earnings primarily relates
 
to the fair value
measurement of our CVE common shares that
 
are not expected to be realized,
 
and the expected realization of
certain U.S. tax attributes
 
associated with our planned disposition of our Indonesia assets.
 
This is partially offset
by Australian tax benefits
 
associated with our impairment of APLNG that we do not
 
expect to be realized.
 
Other
movements are primarily related
 
to valuation allowances on expiring
 
tax attributes.
 
Based on our historical
taxable income, expectations
 
for the future, and available
 
tax-planning strategies, management
 
expects deferred
tax assets, net of valuation
 
allowances, will primarily be realized as offsets
 
to reversing deferred
 
tax liabilities.
 
For
more information on our pending Indonesia
 
disposition
During 2020, the valuation allowance movement
 
charged to earnings primarily related
 
to capital losses in Australia
and to the fair value measurement of our
 
CVE common shares that are not expected
 
to be realized.
 
Other
movements are primarily related
 
to valuation allowances on expiring
 
tax attributes.
 
On December 2, 2019, the Internal Revenue Service finalized
 
foreign tax credit regulations
 
related to the 2017 Tax
Cuts and Jobs Act.
 
Due to the finalization of these regulations,
 
in the fourth quarter of 2019 we recognized
 
$
151
million of net deferred tax
 
assets.
 
Correspondingly,
 
we recorded $
6,642
 
million of existing foreign tax
 
credit
carryovers where recognition
 
was previously considered to
 
be remote.
 
Present legislation still makes
 
their
realization unlikely and
 
therefore these credits have
 
been offset with a full valuation allowance.
 
At December 31, 2021, unremitted
 
income considered to be permanently reinvested
 
in certain foreign subsidiaries
and foreign corporate
 
joint ventures totaled
 
approximately $
4,384
 
million.
 
Deferred income taxes
 
have not been
provided on this amount, as we do not plan to
 
initiate any action that would require
 
the payment of income taxes.
 
The estimated amount of additional tax,
 
primarily local withholding tax, that would
 
be payable on this income if
distributed is approximately
 
$
219
 
million.
The following table shows a reconciliation
 
of the beginning and ending unrecognized
 
tax benefits for 2021,
 
2020 and 2019:
Millions of Dollars
2021
2020
2019
Balance at January 1
$
1,206
1,177
1,081
Additions based on tax positions related
 
to the current year
15
6
9
Additions for tax positions of prior years
177
67
120
Reductions for tax positions
 
of prior years
(5)
(34)
(22)
Settlements
-
(9)
(9)
Lapse of statute
(48)
(1)
(2)
Balance at December 31
$
1,345
1,206
1,177
Included in the balance of unrecognized tax
 
benefits for 2021, 2020 and 2019 were $
1,261
 
million, $
1,128
 
million
and $
1,100
 
million, respectively,
 
which, if recognized, would impact our effective
 
tax rate.
 
The balance of the
unrecognized tax benefits
 
increased
 
in 2021 mainly due to U.S. tax credits acquired
 
through our Concho
acquisition.
 
The balance of the unrecognized tax benefits
 
increased in 2019 mainly due to the treatment
 
of our
PDVSA settlement.
 
 
and
 
At December 31, 2021, 2020 and 2019, accrued liabilities for
 
interest and penalties totaled $
47
 
million, $
46
 
million
and $
42
 
million, respectively,
 
net of accrued income taxes.
 
Interest and penalties resulted
 
in a reduction to
earnings of $
1
 
million in 2021, a reduction of $
4
 
million in 2020, and benefit to earnings of $
3
 
million in 2019.
 
We file tax returns
 
in the U.S. federal jurisdiction and
 
in many foreign and state
 
jurisdictions.
 
Audits in major
jurisdictions are generally complete as
 
follows: Canada (2016), U.S. (2017)
 
and Norway (2020).
 
Issues in dispute
for audited years and audits
 
for subsequent years are ongoing
 
and in various stages of completion in
 
the many
jurisdictions in which we operate around
 
the world.
 
Consequently,
 
the balance in unrecognized tax benefits
 
can
be expected to fluctuate from
 
period to period.
 
Within the next twelve months, we may
 
have audit periods close
that could significantly impact our total
 
unrecognized tax benefits.
 
It is reasonably possible such changes could be
significant when compared with our total
 
unrecognized tax benefits, but
 
the amount of change is not estimable.
 
In January 2022, the IRS closed the 2017 audit of our U.S. federal
 
income tax return.
 
As a result, in the first quarter
of 2022, we will recognize a previously
 
unrecognized $
475
 
million federal tax benefit
 
related to the recovery
 
of
outside tax basis previously offset
 
by a full reserve.
The amounts of U.S. and foreign income
 
(loss) before income taxes,
 
with a reconciliation of tax at
 
the federal
statutory rate
 
to the provision for income taxes,
 
were:
Millions of Dollars
Percent of Pre-Tax
 
Income (Loss)
2021
2020
2019
2021
2020
2019
Income (loss) before income taxes
United States
$
8,024
(3,587)
4,704
63.1
%
114.2
49.4
Foreign
4,688
447
4,820
36.9
(14.2)
50.6
$
12,712
(3,140)
9,524
100.0
%
100.0
100.0
Federal statutory
 
income tax
$
2,670
(659)
2,000
21.0
%
21.0
21.0
Non-U.S. effective tax
 
rates
1,915
194
1,399
15.1
(6.2)
14.7
Tax impact of debt
 
restructuring
75
-
-
0.6
-
-
Australia disposition
-
(349)
-
-
11.1
-
U.K. disposition
-
-
(732)
-
-
(7.7)
Recovery of outside basis
(55)
(22)
(77)
(0.4)
0.7
(0.8)
Adjustment to tax reserves
(11)
18
9
(0.1)
(0.6)
0.1
Adjustment to valuation allowance
(45)
460
(225)
(0.4)
(14.6)
(2.4)
State income tax
194
(112)
123
1.5
3.6
1.3
Malaysia Deepwater Incentive
-
-
(164)
-
-
(1.7)
Enhanced oil recovery credit
(99)
(6)
(27)
(0.8)
0.2
(0.3)
Other
(11)
(9)
(39)
(0.1)
0.3
(0.4)
Tota
 
l
$
4,633
(485)
2,267
36.4
%
15.5
23.8
Our effective tax rate
 
for 2021 was driven by our
 
jurisdictional tax rates for
 
this profit mix with net favorable
impacts from routine tax credits
 
and valuation allowance adjustments.
 
The valuation allowance adjustment is
primarily related to the fair value
 
measurement and disposition of our CVE common shares
 
of $
218
 
million and the
ability to utilize the U.S. foreign
 
tax credit and capital loss carryforward
 
due to our anticipated disposition
 
of our
Indonesia entities of $
29
 
million. This was partially offset by an increase
 
to our valuation allowance related
 
to the
tax impact of the impairment of our APLNG investment
 
of $
206
 
million for which we do not expect to receive
 
a tax
benefit.
Our effective tax rate
 
for 2020 was impacted by the disposition
 
of our Australia-West
 
assets as well as the
valuation allowance related
 
to the fair value measurement of our
 
CVE common shares.
 
The Australia-West
disposition generated a before-tax
 
gain of $
587
 
million with an associated tax benefit
 
of $
10
 
million and resulted in
the de-recognition of deferred
 
tax assets resulting in $
92
 
million of tax expense.
 
The disposition also generated an
Australia capital loss tax
 
benefit of $
313
 
million which has been fully offset by a valuation
 
allowance.
 
Due to
changes in the fair market value
 
of CVE common shares, the valuation allowance
 
was increased by $
178
 
million to
offset the expected capital
 
loss.
Our effective tax rate
 
for 2019 was favorably
 
impacted by the sale of two of our U.K. subsidiaries. The disposition
generated a before-tax
 
gain of more than $
1.7
 
billion with an associated tax
 
benefit of $
335
 
million. The
disposition generated a U.S.
 
capital loss of approximately
 
$
2.1
 
billion which has generated a U.S.
 
tax benefit of
approximately $
285
 
million. The remaining U.S. capital loss has
 
been recorded as a deferred
 
tax asset fully offset
with a valuation allowance.
 
During 2019, we received final partner approval
 
in Malaysia Block G to claim certain deepwater
 
tax credits.
 
As a
result, we recorded an income tax
 
benefit of $
164
 
million.