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INCOME TAXES | 12 Months Ended
--- | ---
Dec. 31, 2022
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income (loss) before income taxes was composed of the following:
|  | For the Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
|  | (In millions)
U.S. |  | $ | 2,675 |  |  | $ | 629 |  |  | $ | (4,581) |
Foreign |  | 3,059 |  |  | 1,262 |  |  | (259) |
Total |  | $ | 5,734 |  |  | $ | 1,891 |  |  | $ | (4,840) |
The total income tax provision consisted of the following:
|  | For the Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
|  | (In millions)
Current income taxes: |  |  |  |  |  |
Federal |  | $ | 1 |  |  | $ | 16 |  |  | $ | (2) |
State |  | 11 |  |  | — |  |  | — |
Foreign |  | 1,495 |  |  | 636 |  |  | 178 |
|  | 1,507 |  |  | 652 |  |  | 176 |
Deferred income taxes: |  |  |  |  |  |
Federal |  | — |  |  | — |  |  | — |
Foreign |  | 145 |  |  | (74) |  |  | (112) |
|  | 145 |  |  | (74) |  |  | (112) |
Total |  | $ | 1,652 |  |  | $ | 578 |  |  | $ | 64 |
The total income tax provision differs from the amounts computed by applying the U.S. statutory income tax rate to income (loss) before income taxes. A reconciliation of the tax on the Company’s income (loss) before income taxes and total tax expense is shown below:
|  | For the Year Ended December 31,
|  | 2022 |  | 2021 |  | 2020
|  | (In millions)
Income tax expense (benefit) at U.S. statutory rate |  | $ | 1,204 |  |  | $ | 397 |  |  | $ | (1,016) |
State income tax, less federal effect(1) |  | 9 |  |  | — |  |  | — |
Taxes related to foreign operations |  | 745 |  |  | 298 |  |  | 97 |
Tax credits |  | (4) |  |  | (10) |  |  | (13) |
Net change in tax contingencies |  | 1 |  |  | 16 |  |  | 1 |
Goodwill impairment |  | — |  |  | — |  |  | 35 |
Valuation allowances(1) |  | (646) |  |  | (90) |  |  | 965 |
Tax adjustments attributable to BCP Business Combination |  | 126 |  |  | — |  |  | — |
Remeasurement of U.K. deferred tax liability |  | 208 |  |  | — |  |  | — |
Tax attributable to Altus Preferred Unit limited partners |  | — |  |  | (34) |  |  | (16) |
All other, net |  | 9 |  |  | 1 |  |  | 11 |
|  | $ | 1,652 |  |  | $ | 578 |  |  | $ | 64 |
(1)The change in state valuation allowance is included as a component of state income tax. The net deferred income tax liability reflects the net tax impact of temporary differences between the asset and liability amounts carried on the balance sheet under GAAP and amounts utilized for income tax purposes. The net deferred income tax liability consisted of the following as of December 31:
|  | 2022 |  | 2021
|  | (In millions)
Deferred tax assets: |  |  |  |
U.S. and state net operating losses |  | $ | 2,029 |  |  | $ | 2,497 |
Capital losses |  | 357 |  |  | 647 |
Foreign net operating losses |  | 27 |  |  | 4 |
Tax credits and other tax incentives |  | 26 |  |  | 24 |
Foreign tax credits |  | 2,241 |  |  | 2,241 |
Accrued expenses and liabilities |  | 156 |  |  | 152 |
Asset retirement obligation |  | 672 |  |  | 712 |
Property and equipment |  | 44 |  |  | 12 |
Investment in Altus Midstream LP |  | — |  |  | 64 |
Net interest expense limitation |  | 74 |  |  | 146 |
Lease liability |  | 114 |  |  | 81 |
Decommissioning contingency for sold Gulf of Mexico properties |  | 275 |  |  | 263 |
Other |  | — |  |  | 1 |
Total deferred tax assets |  | 6,015 |  |  | 6,844 |
Valuation allowance |  | (4,918) |  |  | (5,902) |
Net deferred tax assets |  | 1,097 |  |  | 942 |
Deferred tax liabilities: |  |  |  |
Equity investments |  | 1 |  |  | 2 |
Property and equipment |  | 1,023 |  |  | 748 |
Right-of-use asset |  | 110 |  |  | 77 |
Decommissioning security for sold Gulf of Mexico properties |  | 148 |  |  | 164 |
Other |  | 90 |  |  | 86 |
Total deferred tax liabilities |  | 1,372 |  |  | 1,077 |
Net deferred income tax liability |  | $ | 275 |  |  | $ | 135 |
Net deferred tax assets and liabilities are included in the consolidated balance sheet as of December 31 as follows:
|  | 2022 |  | 2021
|  | (In millions)
Assets: |  |  |  |
Deferred charges and other |  | $ | 39 |  |  | $ | 13 |
Liabilities: |  |  |  |
Income taxes |  | 314 |  |  | 148 |
Net deferred income tax liability |  | $ | 275 |  |  | $ | 135 |
On January 14, 2022, Apache Midstream LLC, a wholly owned subsidiary of Apache, exchanged 12.5 million Common Units in Altus Midstream LP for 12.5 million shares of ALTM Class A Common Stock, in a taxable exchange. On February 22, 2022, as a result of the BCP Business Combination, the Company deconsolidated ALTM. On March 11, 2022, the Company sold four million of its shares of Kinetik Class A Common Stock. The Company recorded tax expense of $126 million associated with the BCP Business Combination. The tax impact of the BCP Business Combination was fully offset by a change in valuation allowance. Refer to Note 2— Acquisitions and Divestitures for further detail. On May 26, 2022, the U.K. Chancellor of the Exchequer announced a new tax (the Energy Profits Levy) on the profits of oil and gas companies operating in the U.K. and the U.K. Continental Shelf. Under the new law, an additional levy is assessed at a 25 percent rate and is effective for the period of May 26, 2022, through December 31, 2025. The Company recorded a deferred tax expense of $208 million associated with the remeasurement of the U.K. deferred tax liability. On November 17, 2022, the U.K. Chancellor of the Exchequer announced in the Autumn Statement 2022 further changes to the Energy Profits Levy, increasing the levy assessed from a 25 percent rate to a 35 percent rate, effective for the period of January 1, 2023, through March 31, 2028. On November 22, 2022, the U.K. Government published draft legislation to implement this change, among other provisions, and on January 10, 2023, the Finance Act 2023 was enacted, receiving Royal Assent. Under U.S. GAAP, the financial statement impact of new legislation is recorded in the period of enactment. Therefore, in the first quarter of 2023, the Company expects to record a deferred tax expense of approximately $170 million to $190 million related to the remeasurement of the December 31, 2022 U.K. deferred tax liability. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA). The IRA includes a new 15 percent corporate alternative minimum tax (Corporate AMT) on applicable corporations with an average annual adjusted financial statement income that exceeds $1 billion for any three consecutive years preceding the tax year at issue. The Corporate AMT is effective for tax years beginning after December 31, 2022. The Company is continuing to evaluate the provisions of the IRA and awaits further guidance from the U.S. Treasury Department to properly assess the impact of these provisions on the Company. The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to realize the existing deferred tax assets. A significant piece of negative evidence evaluated was the U.S. pre-tax book cumulative loss incurred over the three-year period ended December 31, 2022. This cumulative loss was primarily the result of low commodity prices and oil and gas impairments during this period. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future growth. However, given the Company’s current and anticipated future domestic earnings, the Company believes that there is a reasonable possibility that within the next 12 months the U.S. will exit its cumulative loss, allowing the Company to reach a conclusion that a material portion of the U.S. valuation allowance may no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense, which could be material for the period the release is recorded. In 2022, 2021, and 2020, the Company’s valuation allowance decreased by $1.0 billion, decreased by $89 million, and increased by $1.0 billion, respectively, as detailed in the table below:
|  | 2022 |  | 2021 |  | 2020
|  | (In millions)
Balance at beginning of year |  | $ | 5,902 |  |  | $ | 5,991 |  |  | $ | 4,959 |
State(1) |  | (111) |  |  | 1 |  |  | 67 |
U.S. |  | (706) |  |  | (97) |  |  | 960 |
Foreign |  | (167) |  |  | 7 |  |  | 5 |
Balance at end of year |  | $ | 4,918 |  |  | $ | 5,902 |  |  | $ | 5,991 |
(1)Reported as a component of state income taxes. On December 31, 2022, the Company had net operating losses as follows:
|  | Amount |  | Expiration
|  | (In millions) |  |
U.S. |  | $ | 7,942 |  |  | 2027 - Indefinite
State |  | 6,505 |  |  | Various
Foreign |  | 75 |  |  | 2028 - Indefinite
The Company has a U.S. net operating loss carryforward of $7.9 billion, which includes $82 million of net operating loss subject to annual limitation under Section 382 of the Internal Revenue Code (Code). Net operating losses generated in tax years beginning after 2017 are subject to an 80 percent taxable income limitation with indefinite carryover under the 2017 Tax Cuts and Jobs Act. The Company also has state net operating losses of $6.5 billion, foreign net operating losses of $75 million, a net interest expense carryover of $334 million under Section 163(j) of the Code subject to indefinite carryover, and a U.S. capital loss carryforward of $1.6 billion, which has a five year carryover period expiring between 2023-2027. The Company has recorded a full valuation allowance against the U.S. net operating losses, the state net operating losses, the foreign net operating losses, the net interest expense carryover, and the U.S. capital loss because it is more likely than not that these attributes will not be realized. On December 31, 2022, the Company had foreign tax credits as follows:
|  | Amount |  | Expiration
|  | (In millions) |  |
Foreign tax credits |  | $ | 2,241 |  |  | 2025-2026
The Company has a $2.2 billion U.S. foreign tax credit carryforward. The Company has recorded a full valuation allowance against the U.S. foreign tax credits listed above because it is more likely than not that these attributes will expire unutilized. The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold that a tax position must meet before being recognized in the financial statements. Tax positions generally refer to a position taken in a previously filed income tax return or expected to be included in a tax return to be filed in the future that is reflected in the measurement of current and deferred income tax assets and liabilities. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|  | 2022 |  | 2021 |  | 2020
|  | (In millions)
Balance at beginning of year |  | $ | 116 |  |  | $ | 93 |  |  | $ | 82 |
Additions based on tax positions related to prior year |  | — |  |  | 16 |  |  | — |
Additions based on tax positions related to the current year |  | — |  |  | 7 |  |  | 11 |
Reductions for tax positions of prior years |  | (27) |  |  | — |  |  | — |
Balance at end of year |  | $ | 89 |  |  | $ | 116 |  |  | $ | 93 |
The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. Each quarter, the Company assesses the amounts provided for and, as a result, may increase or reduce the amount of interest and penalties. During each of the years ended December 31, 2022, 2021, and 2020, the Company recorded tax expense of $1 million for interest and penalties. At December 31, 2022, 2021, and 2020, the Company had an accrued liability for interest and penalties of $5 million, $4 million, and $3 million, respectively. In 2022, 2021, and 2020, the Company recorded a $27 million net decrease, a $23 million net increase, and an $11 million net increase, respectively, in its reserve for uncertain tax positions. On September 26, 2022, the Company received a Statutory Notice of Deficiency from the IRS disallowing certain net operating loss carryback and research and development credit refund claims. As a result of the disallowance, on December 14, 2022, the Company filed a petition with the U.S. Tax Court challenging the tax adjustments and requesting a redetermination of the deficiencies stated in the notice. Apache and its subsidiaries are subject to U.S. federal income tax as well as income tax in various states and foreign jurisdictions. The Company’s uncertain tax positions are related to tax years that may be subject to examination by the relevant taxing authority. Apache’s earliest open tax years in its key jurisdictions are as follows: Jurisdiction
U.S. | 2014
Egypt | 2005
U.K. | 2021

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