Summary
EOG Resources, Inc. (EOG) filed an 8-K on January 3, 2018, to disclose preliminary assessments of the significant impacts of the Tax Cuts and Jobs Act (Tax Reform Legislation) enacted on December 22, 2017. The company anticipates substantial positive effects on its future after-tax earnings due to a reduction in the U.S. federal statutory corporate tax rate from 35% to 21%, effective January 1, 2018. This rate change is expected to lead to a significant non-cash decrease in EOG's income tax provision for the fourth quarter of 2017.
Key Highlights
- 1EOG expects a non-cash decrease in its Income Tax Provision of approximately $2.2 billion for Q4 2017 due to the U.S. federal corporate tax rate reduction to 21%.
- 2The Tax Reform Legislation repeals the corporate alternative minimum tax (AMT) starting in 2018.
- 3EOG has approximately $700 million in AMT credit carryovers expected to be refunded between 2018 and 2021.
- 4A one-time 'deemed repatriation' tax will be applied to accumulated foreign earnings, with EOG estimating a U.S. federal cash tax payment of approximately $200 million over eight years.
- 5EOG does not anticipate future foreign earnings will be subject to U.S. federal income tax.
- 6The legislation allows for 100% bonus depreciation on certain expenditures through 2022, phased down thereafter.
Frequently Asked Questions
The primary impact is a significant reduction in EOG's U.S. federal corporate income tax rate from 35% to 21%, effective January 1, 2018. This is expected to positively affect future after-tax earnings and resulted in a substantial non-cash tax benefit recognized in the fourth quarter of 2017.
EOG expects to record a non-cash decrease to its Income Tax Provision of approximately $2.2 billion for the fourth quarter of 2017 due to the new, lower corporate tax rate. This reflects the revaluation of deferred tax assets and liabilities at the new rate.
The Tax Reform Legislation imposes a one-time tax on accumulated foreign earnings. EOG estimates this will result in a U.S. federal cash tax payment of around $200 million, to be paid over an eight-year period. Importantly, this change means EOG does not expect its future foreign earnings to be subject to U.S. federal income tax.
Yes, the legislation repeals the corporate alternative minimum tax (AMT) and makes existing AMT credit carryovers refundable. EOG has approximately $700 million in such credits that are expected to be refunded between 2018 and 2021. Additionally, 100% bonus depreciation for eligible expenditures through 2022 could provide further tax advantages.