Income Taxes

3 Months Ended

Mar. 31, 2020

INCOME TAXES

Due to the economic uncertainty presented by COVID-19 and the current volatility in the oil and natural gas markets, we believe using a discrete tax provision method for the period ended March 31, 2020, based on actual earnings for the quarter, is a more reliable method for providing for income taxes because our annual effective tax rate as calculated under ASC 740-270 is highly sensitive to changes in estimates of total ordinary income (loss). The tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographic mix in the sources of our results. The effective tax rate for the three months ended March 31, 2020 and March 31, 2019 was different than the federal statutory rate of 21%, primarily due to the 2020 enactment of the U.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the geographic mix of operating revenue and results, and changes in uncertain tax positions and other discrete items. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings. Therefore, we do not believe a discussion of the effective tax rate is meaningful.

In the three-month period ended March 31, 2020, we recognized tax benefit of $42.2 million from discrete items, primarily related to an $33.8 million benefit related to the CARES Act and $9.7 million of uncertain tax positions, partially offset by $1.0 million related to share-based compensation and $0.3 million associated with various other matters. Under the CARES Act, we expect to file a carryback claim for the U.S. net operating loss generated in 2019 to tax year 2014. We also intend to file an amended 2013 income tax return utilizing foreign tax credits

released from the 2014 income tax return. As a result, we expect to receive refunds of approximately $16 million and $18 million related to the 2014 and 2013 tax years, respectively. These refunds are classified as income taxes receivable in the consolidated balance sheet as of March 31, 2020. We also realized a non-cash tax benefit of $9.9 million due to the carryback provision of the CARES Act. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. In the three-month period ended March 31, 2019, we recognized additional tax expense of $1.4 million from discrete items, primarily related to share-based compensation and valuation allowances.

We conduct our international operations in jurisdictions that have varying laws and regulations with regard to income and other taxes, some of which are subject to interpretation. We recognize the expense or benefit for a tax position if it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax expense or benefit is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.

We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements. Including associated foreign tax credits, penalties and interest, we have accrued a net total of $11 million and $21 million in other long-term liabilities on our balance sheet for unrecognized tax liabilities as of March 31, 2020 and December 31, 2019, respectively. Changes in management's judgment related to those liabilities would affect our effective income tax rate in the periods of change.

Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following table lists the earliest tax years open to examination by tax authorities where we have significant operations:




Jurisdiction		Periods
United States		2014
United Kingdom		2018
Norway		2015
Angola		2013
Brazil		2015

We have ongoing tax audits in various jurisdictions. The outcome of these audits may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.