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.