Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

15.  Income Taxes

The provision (benefit) for income taxes consisted of:

	2020		2019		2018
	(In millions)
United States
Federal
Current	$	(4)	$	(1)	$	1
Deferred taxes and other accruals	6		72		(74)
State	(1)		16		(45)
	1		87		(118)
Foreign
Current (a)	48		447		455
Deferred taxes and other accruals	(60)		(73)		(2)
	(12)		374		453
Provision (Benefit) For Income Taxes	$	(11)	$	461	$	335

(a)Primarily comprised of Libya in 2019 and 2018.

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

	2020		2019		2018
	(In millions)
United States (a)	$	(1,509)	$	(338)	$	(219)
Foreign	(1,341)		559		439
Income (Loss) Before Income Taxes	$	(2,850)	$	221	$	220

(a)Includes substantially all of our interest expense, corporate expense and the results of commodity hedging activities.

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

	2020		2019		2018
U.S. statutory rate	21.0	%	21.0	%	21.0	%
Effect of foreign operations (a)	12.1		142.9		141.2
State income taxes, net of federal income tax	0.1		5.8		(18.9)
Valuation allowance on current year operations	(36.5)		41.8		55.2
Release valuation allowance against previously unbenefited deferred tax assets	—		(24.5)		—
Noncontrolling interests in Midstream	1.7		(16.0)		(15.9)
Intraperiod allocation	—		33.7		(37.3)
Credits	2.0		—		—
Equity and executive compensation	(0.1)		2.2		7.4
Other	0.1		1.2		(0.3)
Total	0.4	%	208.1	%	152.4	%

(a)The variance in effective income tax rates attributable to the effect of foreign operations primarily resulted from the mix of income among high, primarily Libya, and low tax rate jurisdictions.

The components of deferred tax liabilities and deferred tax assets at December 31, were as follows:

	2020		2019
	(In millions)
Deferred Tax Liabilities
Property, plant and equipment and investments	$	(847)	$	(1,318)
Other	(45)		(45)
Total Deferred Tax Liabilities	(892)		(1,363)
Deferred Tax Assets
Net operating loss carryforwards	5,037		4,733
Tax credit carryforwards	135		66
Property, plant and equipment and investments	55		206
Accrued compensation, deferred credits and other liabilities	196		179
Asset retirement obligations	252		261
Other	325		317
Total Deferred Tax Assets	6,000		5,762
Valuation allowances (a)	(5,391)		(4,734)
Total deferred tax assets, net of valuation allowances	609		1,028
Net Deferred Tax Assets (Liabilities)	$	(283)	$	(335)

(a)In 2020, the valuation allowance increased by $657 million (2019: decrease of $143 million; 2018: decrease of $322 million).

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

	2020		2019
	(In millions)
Deferred income taxes (long-term asset)	$	59	$	80
Deferred income taxes (long-term liability)	(342)		(415)
Net Deferred Tax Assets (Liabilities)	$	(283)	$	(335)

At December 31, 2020, we have recognized a gross deferred tax asset related to net operating loss carryforwards of $5,037 million before application of valuation allowances.  The deferred tax asset is comprised of $1,121 million attributable to foreign net operating losses which begin to expire in 2025, $3,277 million attributable to U.S. federal operating losses which begin to expire in 2034, and $639 million attributable to losses in various U.S. states which begin to expire in 2021.  The deferred tax asset attributable to foreign net operating losses, net of valuation allowances, is $155 million.  A full valuation allowance is established against the deferred tax asset attributable to U.S. federal and state net operating losses, except for $3 million U.S. federal and $1 million U.S. state deferred tax asset attributable to Midstream activities.  At December 31, 2020, we have U.S. federal, state and foreign alternative minimum tax credit carryforwards of $49 million, which can be carried forward indefinitely, and approximately $83 million of other business credit carryforwards.  The deferred tax asset attributable to these credits, net of valuation allowances was not significant.  A full valuation allowance is established against our foreign tax credit carryforwards of $3 million, which begin to expire in 2021.

At December 31, 2020, the Consolidated Balance Sheet reflects a $5,391 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, and Malaysia.  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, 2020 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.  At December 31, 2019 the valuation allowance established against the net deferred tax asset in Guyana for the Stabroek Block was released as a result of the positive evidence from first production in December 2019, and the significant forecasted pre-tax income from operations.  The cumulative pre-tax losses in Guyana were driven by pre-production activities.

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

	2020		2019		2018
	(In millions)
Balance at January 1	$	168	$	168	$	205
Additions based on tax positions taken in the current year	2		2		19
Additions based on tax positions of prior years	1		1		36
Reductions based on tax positions of prior years	(2)		(1)		(78)
Reductions due to settlements with taxing authorities	(1)		—		(10)
Reductions due to lapses in statutes of limitation	(2)		(2)		(4)
Balance at December 31	$	166	$	168	$	168

The December 31, 2020 balance of unrecognized tax benefits includes $16 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 zero and $41 million due to settlements with taxing authorities or other resolutions, as well as lapses in statutes of limitation.  At December 31, 2020, our accrued interest and penalties related to unrecognized tax benefits is $6 million (2019: $7 million).

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 2010.