Income Taxes

12 Months Ended

Dec. 31, 2019

The Company and its eligible subsidiaries file a consolidated U.S. federal income tax return. Certain subsidiaries are not eligible to be included in the consolidated U.S. federal income tax return and separate provisions for income taxes have been determined for these entities or groups of entities. The tax returns and the amount of taxable income or loss are subject to examination by U.S. federal, state, local and foreign taxing authorities.

The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that deferred tax assets can be realized prior to their expiration. Pioneer monitors Company-specific, oil and gas industry and worldwide economic factors and based on that information, along with other data, reassesses the likelihood that the Company's net operating loss carryforwards ("NOLs") and other deferred tax attributes in the U.S. federal, state, local and foreign tax jurisdictions will be utilized prior to their expiration.

Enactment of the Tax Cuts and Jobs Act. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the "Tax Reform Legislation"), which introduced significant changes to the U.S. federal income tax law. The changes that most impact the Company include:

•A reduction in the federal corporate income tax rate from 35 percent to 21 percent. The rate reduction is effective for the Company as of January 1, 2018. The application of the rate change on the Company's deferred tax liabilities resulted in a $625 million income tax benefit to the Company during 2017.

•Repeal of the corporate alternative minimum tax ("AMT"). The Tax Reform Legislation provides that existing AMT credit carryovers are refundable beginning in 2018. As of December 31, 2019, the Company had AMT credit carryovers of $12 million that are expected to be fully refunded by 2022.

•The Tax Reform Legislation preserves the deductibility of intangible drilling costs and provides for 100 percent bonus depreciation on personal tangible property expenditures through 2022. The bonus depreciation percentage will be phased out from 2023 through 2026.

The Tax Reform Legislation is a comprehensive bill containing other provisions, such as limitations on the deductibility of interest expense and certain executive compensation, that are not expected to materially affect Pioneer. The ultimate impact of the Tax Reform Legislation may differ from the Company's estimates due to changes in the interpretations and assumptions made by the Company as well as additional regulatory guidance that may be issued.

Uncertain tax positions. The Company has unrecognized tax benefits ("UTBs") resulting from research and experimental expenditures related to horizontal drilling and completion innovations. In December 2019, the Company and the taxing authorities effectively settled the uncertain tax position for the 2012-2015 tax years. The Company believes it will substantially resolve the uncertainties associated with the remaining UTB within the next twelve months.

Unrecognized tax benefit activity is as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Beginning unrecognized tax benefits	$	141	$	124	$	112
Current year additions	—		17		12
Effectively settled tax positions	(102)		—		—
Ending unrecognized tax benefits	$	39	$	141	$	124

Other tax matters.

Net tax refunds are as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Tax refunds, net	$	(5)	$	—	$	—

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of December 31, 2019, there are no proposed adjustments in any jurisdiction that would have a significant effect on the Company's future results of operations or financial position.

The earliest open years in the Company's key jurisdictions are as follows:


U.S. federal			2012
Various U.S. states			2013

Income tax (provision) benefit is as follows:


	Year Ended December 31,
	2019		2018		2017
	(in millions)
Current:
U.S. federal	$	8	$	—	$	5
U.S. state	(3)		(2)		—
Current income tax (provision) benefit	5		(2)		5
Deferred:
U.S. federal	(224)		(258)		526
U.S. state	(12)		(16)		(7)
Deferred income tax (provision) benefit	(236)		(274)		519
Income tax (provision) benefit	$	(231)	$	(276)	$	524

The effective tax rate for income (loss) is reconciled to the United States federal statutory rate as follows:


	Year Ended December 31,
	2019			2018			2017
	(in millions, except percentages)
Income before income taxes	$	987		$	1,251		$	309
Net loss attributable to noncontrolling interests	—			3			—
Income attributable to common stockholders before income taxes	$	987		$	1,254		$	309
Federal statutory income tax rate	21		%	21		%	35		%
Provision for federal income taxes at the statutory rate	(207)			(263)			(108)
State income tax provision (net of federal tax)	(12)			(12)			(4)
Change in federal income tax rate (a)	—			—			625
Other	(12)			(1)			11
Income tax (provision) benefit	$	(231)		$	(276)		$	524
Effective income tax rate, excluding net loss attributable to noncontrolling interests	23		%	22		%	(170		%)

____________________

(a)During 2017, the Company recorded a benefit of $625 million as a result of the Tax Reform Legislation that reduced the federal income tax rate beginning in 2018.

Significant components of deferred tax assets and deferred tax liabilities are as follows:


	As of December 31,
	2019		2018
	(in millions)
Deferred tax assets:
Net operating loss carryforward (a)	$	996	$	882
Credit carryforwards (b)	101		111
Deferred interest carryforward (c)	43		—
Asset retirement obligations	41		40
Incentive plans	40		48
Net deferred hedge losses	—		11
South Texas Divestiture	75		—
Lease deferred tax assets	191		—
Other	47		51
Deferred tax assets	1,534		1,143
Deferred tax liabilities:
Oil and gas properties, principally due to differences in basis, depletion and the deduction of intangible drilling costs for tax purposes	(2,628)		(2,248)
Other property and equipment, principally due to the deduction of bonus depreciation for tax purposes and differences in lease right of use assets	(189)		(47)
Net deferred hedge gains	(4)		—
South Texas Divestiture	(35)		—
Lease deferred tax liabilities	(61)		—
Other	(6)		—
Deferred tax liabilities	(2,923)		(2,295)
Net deferred tax liability	$	(1,389)	$	(1,152)

____________________

(a)Net operating loss carryforwards as of December 31, 2019, consist of $5.0 billion of U.S. federal NOLs, which expire between 2032 and 2039 and $177 million of Colorado NOLs that begin to expire in 2027. The Colorado NOL has a fully offsetting valuation allowance.

(b)Credit carryforwards as of December 31, 2019, consist of $12 million of U.S. federal minimum tax credits and U.S. federal and Texas credits for research activities of $88 million and $1 million, respectively. The U.S. federal and state research credits as of December 31, 2019 exclude $39 million of unrecognized tax benefits.

(c)The deferred interest carryforward represents disallowed interest deductions under IRC Section 163(j) (Limitation on Deduction for Interest on Certain Indebtedness) for the current and prior years. The disallowed interest can be carried forward indefinitely and utilized in future years.