Provision (Benefit) for Income Taxes

12 Months Ended

Dec. 31, 2019

The following table includes the provision (benefit) for income taxes from continuing operations.


	Years Ended December 31,
	2019		2018		2017
	(Millions)
Provision (benefit):
Current:
Federal	$	(19)	$	(38)	$	(18)
State	(1)		1		1

	(20)		(37)		(17)
Deferred:
Federal	81		107		(100)
State	9		4		(11)

	90		111		(111)
Total provision (benefit)	$	70	$	74	$	(128)

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“Act”). The income tax effects of changes in tax laws are recognized in the period when enacted. The Act lowered the corporate regular tax rate. The Act also repealed the corporate alternative minimum tax (“AMT”) and amended Section 53 of the Internal Revenue Code to allow for refunds of AMT credit carryforwards. Under Section 53(e), taxpayers receive 50 percent of their uncredited balance in years 2018–2020. Taxpayers receive 100 percent of the remaining balance in 2021. Accordingly, the Company had current receivables of $19 million and $38 million as of December 31, 2019 and 2018, respectively, related to AMT credit carryforward refunds. In 2019, we received the $38 million and expect the $19 million to be collected in 2020. However, our AMT credit carryforwards are subject to change based on the results of the 2011 Williams audit discussed below and may impact future refunds and those already received.

The following table provides reconciliations from the provision (benefit) for income taxes from continuing operations at the federal statutory rate to the realized provision (benefit) for income taxes.


	Years Ended December 31,
	2019			2018			2017
	(Millions)
Federal Statutory Rate	21		%	21		%	35		%
Provision (benefit) at statutory rate	$	69		$	66		$	(36)
Increases (decreases) in taxes resulting from:
State income taxes (net of federal benefit)	2			(8)			(12)
Valuation allowance on state net operating losses and other assets (net of federal benefit)	14			17			17
Deferred state income tax rate change (net of federal benefit)	(10)			(5)			(12)
Reversal of valuation allowance on federal capital loss	(10)			—			—





Provisional impact of Tax Cuts and Jobs Act	—			—			(92)
Executive compensation deduction limitation	4			4			2
Other	1			—			5
Provision (benefit) for income taxes	$	70		$	74		$	(128)

As discussed below, we record a valuation allowance on certain state net operating loss (“NOL”) carryovers generated in current years.

Significant changes to our operations during 2019, 2018 and 2017 resulted in changes to our anticipated future state apportionment for our estimated state deferred tax liability. As a result of these changes and the differing state tax rates, we recorded an additional $10 million, $5 million and $12 million deferred tax benefit in 2019, 2018 and 2017, respectively.

Due to the uncertainty or diversity in views about the application of ASC 740 in the period of enactment of the Act, the SEC issued Staff Accounting Bulletin (“SAB”) 118 which allowed us to provide a provisional estimate of the impacts of the Act in our earnings for the year ending December 31, 2017. Additional impacts from the enactment of the Act were allowed to

be recorded as they were identified during the one-year measurement period as provided for in SAB 118. However, the Company did not have any adjustments to its provisional amounts.

The following table includes significant components of deferred tax liabilities and deferred tax assets.


	December 31,
	2019		2018
	(Millions)
Deferred tax liabilities:
Properties and equipment	$	938	$	797
Derivatives, net	—		33

Total deferred tax liabilities	938		830
Deferred tax assets:
Accrued liabilities and other	156		137
Alternative minimum tax credits	21		40
NOL and other carryovers	682		665
Derivatives, net	5		—

Total deferred tax assets	864		842
Less: valuation allowance	216		213
Total net deferred tax assets	648		629
Net deferred tax liabilities	$	290	$	201

Net cash payments (receipts) for income taxes, including AMT credit carryforward refunds, were $(38) million, $2 million and $(39) million in 2019, 2018 and 2017, respectively.

The Company has federal NOL carryovers of approximately $2.1 billion at December 31, 2019, including a $218 million NOL acquired in 2015 ("RKI NOL"), that will not begin to expire until 2032. In addition, the Company has federal excess business interest expense carryover of approximately $20 million. The Company's $48 million federal capital loss carryovers have been utilized due to current year divestments.

The Company has state NOL carryovers of approximately $4.2 billion and $4.1 billion at 2019 and 2018, respectively, of which more than 99 percent expire after 2029.

We have recorded valuation allowances against deferred tax assets attributable primarily to certain state NOL carryovers. When assessing the need for a valuation allowance, we primarily consider future reversals of existing taxable temporary differences. To a lesser extent we may also consider future taxable income exclusive of reversing temporary differences and carryovers, and tax-planning strategies that would, if necessary, be implemented to accelerate taxable amounts to utilize expiring carryovers. The ultimate amount of deferred tax assets realized could be materially different from those recorded, as influenced by future operational performance, potential changes in jurisdictional income tax laws and other circumstances surrounding the actual realization of related tax assets. Valuation allowances that we have recorded are due to our expectation that we will not have sufficient income, or income of a sufficient character, in those jurisdictions to which the associated deferred tax asset applies. As of December 31, 2019, our assessment of federal net operating loss carryovers was that no valuation allowance was required; however, a future pretax loss may result in the need for a valuation allowance on our deferred tax assets.

The ability of WPX to utilize loss carryovers to reduce future federal taxable income and income tax could be subject to limitations under the Internal Revenue Code. The utilization of such carryovers may be limited upon the occurrence of certain ownership changes during any three year period resulting in an aggregate change of more than 50 percent in beneficial ownership (an “Ownership Change”). As of December 31, 2019, we do not believe that an Ownership Change has occurred for WPX, but an Ownership Change did occur for the company we acquired in 2015. Therefore, there is an annual limitation on the benefit that WPX can claim from RKI NOL that arose prior to the acquisition.

Pursuant to our tax sharing agreement with The Williams Companies ("Williams"), we remain responsible for the tax from audit adjustments related to our business for periods prior to our spin-off from Williams on December 31, 2011. The 2011 consolidated tax filing by Williams is currently being audited by the IRS and is the only pre spin-off period for which we continue to have exposure to audit adjustments as part of Williams. The IRS has proposed an adjustment related to our business for which a payment to Williams could be required. We have evaluated the issue and are in the process of protesting the adjustment within the normal Appeals process of the IRS. In addition, the AMT credit carryforward deferred tax asset that was

allocated to us by Williams at the time of the spin-off could change due to audit adjustments unrelated to our business. Any such adjustments to this allocated deferred tax asset will not be known until the IRS examination is completed but is not expected to result in a cash settlement with Williams. However, if the Company has to amend filed returns whereby refunds of AMT credit carryforwards have been received, the Company may have to remit cash to the IRS. Through December 31, 2019, we have received approximately $50 million related to these AMT credit carryforwards.

The Company files a consolidated federal income tax return and several state income tax returns. The Company’s federal income tax returns for tax years 2014 through 2018 remain open for examination. The statute of limitations for most states expires one year after expiration of the IRS statute. During the year ended December 31, 2017, the IRS began an examination of the Company’s 2014, 2015 and 2016 federal income tax returns. In addition, the IRS began an examination of RKI’s 2014 and short-period 2015 federal income tax returns. These examinations remain ongoing and no additional taxes or refunds have been recorded at this time.

The Company’s policy is to recognize related interest and penalties as a component of income tax expense. The amounts accrued for interest and penalties are approximately $1 million or less for 2019, 2018 and 2017. The impact of this accrual is included within Other in our reconciliation of the provision (benefit) at statutory rate to recorded provision (benefit) for income taxes.

As of December 31, 2019, the Company has approximately $9 million of unrecognized tax benefits, which is offset by an increase in deferred tax assets of approximately $7 million. During the next 12 months, we do not expect ultimate resolution of any uncertain tax position that would result in a significant increase or decrease of an unrecognized tax benefit.