Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

15.  Income Taxes

The provision (benefit) for income taxes consisted of:

	2021		2020		2019
	(In millions)
United States
Federal
Current	$	—	$	(4)	$	(1)
Deferred taxes and other accruals	12		6		72
State	3		(1)		16
	15		1		87
Foreign
Current (a)	478		48		447
Deferred taxes and other accruals	107		(60)		(73)
	585		(12)		374
Provision (Benefit) For Income Taxes	$	600	$	(11)	$	461

(a)Primarily comprised of Libya in 2021, 2020 and 2019.

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

	2021		2020		2019
	(In millions)
United States (a)	$	143	$	(1,509)	$	(338)
Foreign	1,347		(1,341)		559
Income (Loss) Before Income Taxes	$	1,490	$	(2,850)	$	221

(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:

	2021		2020		2019
U.S. statutory rate	21.0	%	21.0	%	21.0	%
Effect of foreign operations (a)	28.0		12.1		142.9
State income taxes, net of federal income tax	0.2		0.1		5.8
Valuation allowance on current year operations	(5.3)		(36.5)		41.8
Release valuation allowance against previously unbenefited deferred tax assets	—		—		(24.5)
Noncontrolling interests in Midstream	(4.0)		1.7		(16.0)
Intraperiod allocation	—		—		33.7
Credits	—		2.0		—
Equity and executive compensation	0.4		(0.1)		2.2
Other	—		0.1		1.2
Total	40.3	%	0.4	%	208.1	%

(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:

	2021		2020
	(In millions)
Deferred Tax Liabilities
Property, plant and equipment and investments	$	(1,712)	$	(847)
Other	(38)		(45)
Total Deferred Tax Liabilities	(1,750)		(892)
Deferred Tax Assets
Net operating loss carryforwards	4,323		5,037
Tax credit carryforwards	89		135
Property, plant and equipment and investments	258		55
Accrued compensation, deferred credits and other liabilities	71		196
Asset retirement obligations	258		252
Other	277		325
Total Deferred Tax Assets	5,276		6,000
Valuation allowances (a)	(3,838)		(5,391)
Total deferred tax assets, net of valuation allowances	1,438		609
Net Deferred Tax Assets (Liabilities)	$	(312)	$	(283)

(a)In 2021, the valuation allowance decreased by $1,553 million (2020: increase of $657 million; 2019: decrease of $143 million).

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

	2021		2020
	(In millions)
Deferred income taxes (long-term asset)	$	71	$	59
Deferred income taxes (long-term liability)	(383)		(342)
Net Deferred Tax Assets (Liabilities)	$	(312)	$	(283)

At December 31, 2021, we have recognized a gross deferred tax asset related to net operating loss carryforwards of $4,323 million before application of valuation allowances.  The deferred tax asset is comprised of $300 million attributable to foreign net operating losses which will begin to expire in 2025, $3,507 million attributable to U.S. federal operating losses which will begin to expire in 2034, and $516 million attributable to losses in various U.S. states which will begin to expire in 2022.  The deferred tax asset attributable to foreign net operating losses, net of valuation allowances, is $166 million.  A full valuation allowance is established against the deferred tax asset attributable to U.S. federal and state net operating losses, except for $12 million of U.S. federal and $3 million of U.S. state deferred tax assets attributable to Midstream activities for which separate U.S. federal and state tax returns are filed.  At December 31, 2021, we have U.S. state tax credit carryforwards of $18 million, which will begin to expire in 2034, $71 million of other business credit carryforwards, which will begin to expire in 2036, and foreign tax credit carryforwards of $1 million, which will begin to expire in 2024. A full valuation allowance is established against the deferred tax asset attributable to these credits.

At December 31, 2021, the Consolidated Balance Sheet reflects a $3,838 million (2020: $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. (non-Midstream) and Malaysia, and other certain jurisdictions, and did so against its deferred tax assets in Denmark prior to its sale in 2021 (see Note 11, Dispositions). The reduction in valuation allowance year over year is primarily due to the sale of the Denmark asset with its deferred tax asset and related valuation allowance being derecognized as part of net basis of property sold and partially due to a reduction in deferred tax asset balances in jurisdictions where we continue to maintain a full valuation allowance. 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, 2021 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.

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

	2021		2020		2019
	(In millions)
Balance at January 1	$	166	$	168	$	168
Additions based on tax positions taken in the current year	12		2		2
Additions based on tax positions of prior years	3		1		1
Reductions based on tax positions of prior years	(48)		(2)		(1)
Reductions due to settlements with taxing authorities	—		(1)		—
Reductions due to lapses in statutes of limitation	—		(2)		(2)
Balance at December 31	$	133	$	166	$	168

The December 31, 2021 balance of unrecognized tax benefits includes $15 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 $15 million due to settlements with taxing authorities or other resolutions, as well as lapses in statutes of limitation.  At December 31, 2021, our accrued interest and penalties related to unrecognized tax benefits is $6 million (2020: $6 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 2009.