Income Taxes

9 Months Ended

Sep. 30, 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 nine-month period ended September 30, 2020, based on actual earnings for the period, 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). Therefore, we do not believe a discussion of the annual effective tax rate is meaningful. 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 nine-month periods ended September 30, 2020 and 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.

In the nine-month period ended September 30, 2020, we recognized a discrete tax benefit of $42 million, primarily related to a cash tax benefit of $33 million and a non-cash tax benefit of $9.9 million related to the CARES Act. These benefits are classified as an income tax receivable and a reduction in long-term liabilities, respectively. To secure these benefits, we filed a 2014 refund claim to carryback our U.S. net operating loss generated in 2019 and amended 2012 and 2013 income tax returns impacted by the net operating loss carryback. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. In the nine-month period ended September 30, 2019, we recognized discrete tax expense of $5.1 million, primarily related to share-based compensation and valuation allowances.

We conduct our international operations in jurisdictions that have varying laws and regulations regarding 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 will continue to monitor this legislation as subsequent actions could postpone, modify or suspend these changes.

Our tax expense for the quarter ending September 30, 2020, was impacted by changes in the corporate income tax and withholding tax laws in Angola enacted during the quarter. The Angola Corporate Income Tax (CIT) Code was amended by Law No. 26/2020, on July 20, 2020 with enforcement beginning on August 20, 2020. Among other

changes, the new law decreased the corporate income tax rate from 30% to 25% and increased the withholding tax rate on certain payments made to entities not resident to Angola from 6.5% to 15%.

We have accrued a net total of $12 million and $21 million in other long-term liabilities on our balance sheet for worldwide unrecognized tax liabilities as of September 30, 2020 and December 31, 2019, respectively. We account for any applicable interest and penalties related to uncertain tax positions as a component of our provision for income taxes on our financial statements. 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.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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