16. Income Taxes

The provision (benefit) for income taxes from continuing operations consisted of:

	2016			2015			2014
	(In millions)
United States
Federal
Current	$	(27	)	$	(7	)	$	(1	)
Deferred taxes and other accruals		1,948			(995	)		156
State		23			(61	)		57
		1,944			(1,063	)		212
Foreign
Current		36			4			453
Deferred taxes and other accruals		235			(231	)		79
		271			(227	)		532
Total		2,215			(1,290	)		744
Adjustment of deferred taxes for foreign income tax law changes		7			(9	)		—
Total Provision (Benefit) For Income Taxes (a)	$	2,222		$	(1,299	)	$	744

(a)	Includes charges of $3,749 million in 2016 to establish valuation allowances on net deferred tax assets which is discussed further below.

Income (loss) from continuing operations before income taxes consisted of the following:

	2016			2015			2014
	(In millions)
United States (a)	$	(2,431	)	$	(2,728	)	$	676
Foreign		(1,423	)		(1,530	)		1,760
Total Income (Loss) from Continuing Operations Before Income Taxes	$	(3,854	)	$	(4,258	)	$	2,436

(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:

	2016			2015
	(In millions)
Deferred Tax Liabilities
Property, plant and equipment and investments	$	(3,810	)	$	(3,743	)
Other		(255	)		(257	)
Total Deferred Tax Liabilities		(4,065	)		(4,000	)
Deferred Tax Assets
Net operating loss carryforwards		5,767			3,852
Tax credit carryforwards		164			188
Property, plant and equipment and investments		834			981
Accrued compensation, deferred credits and other liabilities		526			492
Asset retirement obligations		1,077			1,220
Other		62			165
Total Deferred Tax Assets		8,430			6,898
Valuation allowances		(5,450	)		(1,579	)
Total deferred tax assets, net of valuation allowances		2,980			5,319
Net Deferred Tax Assets (Liabilities)	$	(1,085	)	$	1,319

At December 31, 2016, we have recognized a gross deferred tax asset related to net operating loss carryforwards of $5,767 million before application of valuation allowances. The deferred tax asset is comprised of $2,610 million attributable to foreign net operating losses which begin to expire in 2024, $2,766 million attributable to U.S. federal operating losses which begin to expire in 2021 and $391 million attributable to losses in various U.S. states which began to expire in 2017. The deferred tax asset attributable to foreign net operating losses, net of valuation allowances, is $1,468 million, substantially all of which relates to loss carryforwards in Norway. The deferred tax asset attributable to U.S. federal net operating losses, net of valuation allowances, is $39 million. A full valuation allowance is established against the deferred tax asset attributable to U.S. state net operating losses. At December 31, 2016, we have U.S. federal, U.S. state and foreign alternative minimum tax credit carryforwards of $77 million which can be carried forward indefinitely, and approximately $6 million of other business credit carryforwards. The deferred tax asset attributable to these credits, net of valuation allowances, is $1 million. A full valuation allowance is established against our foreign tax credit carryforwards of $81 million, which begin to expire in 2017.

As of December 31, 2016, the Balance Sheet reflects a $5,450 million valuation allowance against the net deferred tax assets for multiple jurisdictions based on application of the relevant accounting standards, with $3,749 million recorded in the fourth quarter of 2016 related primarily to the U.S., Denmark (hydrocarbon tax only), and Malaysia. The charge in 2016 is comprised of net deferred tax assets as of the beginning of the year totaling $2,683 million and additional net deferred tax assets recognized during the year of $1,066 million. 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, 2016 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.

In the Consolidated Balance Sheet, deferred tax assets and liabilities are netted by taxing jurisdiction and are recorded at December 31 as follows:

	2016			2015
	(In millions)
Deferred income taxes (long-term asset)	$	59		$	2,653
Deferred income taxes (long-term liability)		(1,144	)		(1,334	)
Net Deferred Tax Assets (Liabilities)	$	(1,085	)	$	1,319

The difference between our effective income tax rate from continuing operations and the U.S. statutory rate is reconciled below:

	2016				2015				2014
U.S. statutory rate		35.0		%		35.0		%		35.0		%
Effect of foreign operations (a)		4.6				5.9				0.7
State income taxes, net of Federal income tax		1.9				0.9				1.5
Change in enacted tax laws		(0.2	)			0.2				—
Gains on asset sales, net		—				(0.2	)			(8.3	)
Impairment		(2.1	)			(12.2	)			—
Valuation allowance against previously benefitted deferred tax assets		(97.3	)			(3.1	)			0.6
Benefit of legal entity restructuring		—				3.5				—
Other		0.4				0.5				1.0
Total		(57.7	)	%		30.5		%		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.

Below is a reconciliation of the gross beginning and ending amounts of unrecognized tax benefits:

	2016	2015
	(In millions)
Balance at January 1	$ 604	$ 603
Additions based on tax positions taken in the current year	19	19
Additions based on tax positions of prior years	113	29
Reductions based on tax positions of prior years	(274)	(31)
Reductions due to settlements with taxing authorities	(27)	(12)
Reductions due to lapses in statutes of limitation	(11)	(4)
Balance at December 31	$ 424	$ 604

The December 31, 2016 balance of unrecognized tax benefits includes $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 by approximately $85 million due to settlements with taxing authorities or other resolutions, as well as lapses in statutes of limitation. At December 31, 2016, our accrued interest and penalties related to unrecognized tax benefits is $29 million (2015: $74 million).

We have not recognized deferred income taxes on the portion of undistributed earnings of foreign subsidiaries expected to be indefinitely reinvested in foreign operations. At December 31, 2016, we have undistributed earnings from foreign subsidiaries, which we expect to be indefinitely reinvested in foreign operations, of approximately $7.6 billion. We have not measured the unrecognized deferred tax liability related to these earnings because this determination is not practicable.

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.