APA CorpAPA

APA Corp Income Taxes Disclosure

10-KFiled Feb 26, 202610 min read
INCOME TAXES
Net income before income taxes was composed of the following:
 For the Year Ended December 31,    
 202520242023
 (In millions)
U.S.$1,488 $705 $627 
Foreign1,303 830 2,256 
Total$2,791 $1,535 $2,883 
The total income tax provision (benefit) consisted of the following:
 For the Year Ended December 31,    
 202520242023
 (In millions)
Current income taxes:
Federal$(104)$76 $2 
State(1)2 6 
Foreign844 1,075 1,330 
739 1,153 1,338 
Deferred income taxes:
Federal384 (96)(1,708)
State41 3 (32)
Foreign(65)(643)78 
360 (736)(1,662)
Total$1,099 $417 $(324)
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 net income before income taxes and total income tax provision (benefit) is shown below:
 
For the Year Ended December 31,
 202520242023
Amount
% of Income Before Income Taxes
Amount
% of Income Before Income Taxes
Amount
% of Income Before Income Taxes
 (In millions)
U.S. federal statutory tax rate$586 21.0 %$322 21.0 %$605 21.0 %
State and local income taxes, net of federal income tax effect(1)
31 1.1 %2 0.1 %(23)(0.8)%
Foreign tax effects:
Egypt:
Statutory tax rate difference between Egypt and U.S.277 9.9 %334 21.8 %366 12.7 %
Concessions on production-sharing contracts
75 2.8 %77 5.0 %65 2.3 %
U.K.:
Statutory tax rate difference between U.K. and U.S.4 0.1 %(376)(24.5)%283 9.8 %
Enacted changes in tax law78 2.8 %— — %174 6.0 %
Annual Energy Profits Levy deferred adjustment
30 1.1 %200 13.0 %78 2.7 %
Accretion expense44 1.6 %37 2.4 %27 0.9 %
Financing activities(43)(1.5)%(46)(3.0)%(39)(1.3)%
Changes in valuation allowances23 0.8 %— — %— — %
Other— — %5 0.3 %(40)(1.4)%
Suriname:
Statutory tax rate difference between Suriname and U.S.(5)(0.2)%(13)(0.8)%(8)(0.3)%
Changes in valuation allowances(8)(0.3)%18 1.2 %10 0.4 %
Other20 0.7 %13 0.8 %9 0.3 %
Other foreign jurisdictions10 0.4 %9 0.6 %9 0.3 %
Cross-border tax laws1 — %1 0.1 %1 — %
Tax credits:
Corporate alternative minimum tax credit71 2.5 %(74)(4.8)%— — %
Other tax credits(1)— %(3)(0.2)%— — %
Foreign tax credits
269 9.6 %— — %— — %
Changes in valuation allowances(273)(9.8)%— — %(1,852)(64.2)%
Non-taxable or non-deductible items:
Stock compensation1 — %17 1.1 %(2)(0.1)%
Legal reserves— — %14 0.9 %— — %
Transaction costs— — %5 0.3 %— — %
U.S tax basis of investment in U.K.— — %(214)(13.9)%— — %
Other(1)— %10 0.7 %8 0.3 %
Changes in unrecognized tax benefits(16)(0.6)%2 0.1 %5 0.2 %
Other adjustments:
Corporate alternative minimum tax(71)(2.5)%74 4.8 %— — %
Other adjustments(3)(0.1)%3 0.2 %— — %
Total income tax provision (benefit)
$1,099 39.4 %$417 27.2 %$(324)(11.2)%
(1)Taxes in Texas and New Mexico represented greater than 50 percent of the total state and local income tax effect.
The net deferred income tax asset 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 asset consisted of the following as of December 31:
 20252024
 (In millions)
Deferred tax assets:
U.S. and state net operating losses$2,298 $2,487 
Capital losses13 14 
Foreign net operating losses76 55 
Tax credits and other tax incentives36 105 
Foreign tax credits1,935 2,204 
Accrued expenses and liabilities96 76 
Asset retirement obligation1,021 952 
Property and equipment16 45 
Equity investments 1 1 
Net interest expense limitation130 287 
Lease liability93 114 
Decommissioning contingency for sold Gulf of America properties
200 232 
Other51 — 
Total deferred tax assets5,966 6,572 
Valuation allowance(2,401)(2,623)
Net deferred tax assets3,565 3,949 
Deferred tax liabilities:
Property and equipment1,108 1,060 
Right-of-use asset87 111 
Decommissioning security for sold Gulf of America properties
9 40 
Other33 49 
Total deferred tax liabilities1,237 1,260 
Net deferred income tax asset
$2,328 $2,689 
Net deferred tax assets and liabilities are included in the consolidated balance sheet as of December 31 as follows:
 20252024
 (In millions)
Assets:
Other assets
Deferred tax asset
$2,328 $2,703 
Liabilities:
Deferred credits and other noncurrent liabilities
Deferred tax liability
— 14 
Net deferred income tax asset
$2,328 $2,689 
On April 1, 2024, the Company completed its acquisition of Callon in an all-stock transaction. The Company’s deferred tax asset increased by approximately $565 million as part of the assets assumed through the Callon acquisition. Refer to Note 2— Acquisitions and Divestitures for further detail.
On January 10, 2023, Finance Act 2023 was enacted, receiving Royal Assent, and included amendments to the Energy (Oil and Gas) Profits Levy Act of 2022 (the Energy Profits Levy), increasing the levy from a 25 percent rate to a 35 percent rate, effective for the period of January 1, 2023 through March 31, 2028. On March 20, 2025, Finance Act 2025 was enacted, receiving Royal Assent, and included further amendments to the Energy Profits Levy, increasing the levy from a 35 percent rate to a 38 percent rate, among other changes, effective for the period of November 1, 2024 through March 31, 2030. Under U.S. GAAP, the financial statement impact of new legislation is recorded in the period of enactment. As a result, the Company recorded tax expense of $78 million and $174 million related to the change in tax law in 2025 and 2023, respectively.
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 (CAMT) on applicable corporations with an average annual adjusted financial statement income that exceeds $1.0 billion for any three consecutive years preceding the tax year at issue. The CAMT is effective for tax years beginning after December 31, 2022. The Company became an applicable corporation subject to CAMT beginning on January 1, 2024. On September 12, 2024, the U.S. Department of Treasury and the Internal Revenue Service released proposed regulations relating to the application and implementation of CAMT. In 2025, the Company recorded a current tax benefit of $71 million related to the 2024 return-to-accrual adjustment, with an offsetting deferred tax expense of the same amount for the change in CAMT credits.
On July 4, 2025, the U.S. enacted the One Big Beautiful Bill Act of 2025 (OBBBA). Among other changes, the OBBBA expanded and made permanent 100 percent bonus depreciation for eligible assets acquired and placed in service after January 19, 2025, and aligned the treatment of intangible drilling costs for CAMT purposes with regular tax treatment starting in 2026. OBBBA did not have a material impact on total tax expense for the year ended December 31, 2025, as impacts to current tax expense are offset by impacts to deferred tax expense. In 2025, the law change resulted in a current tax benefit of $42 million fully offset by a deferred tax expense of the same amount.
On September 30, 2025, the Internal Revenue Service issued further interim guidance on CAMT. Among other changes, the guidance provided for a reduction to CAMT related to net operating loss utilization for regular federal income tax purposes. This guidance did not have a material impact on total tax expense for the year ended December 31, 2025, as impacts to current tax expense are offset by impacts to deferred tax expense. In 2025, the guidance resulted in a current tax benefit of $72 million, fully offset by a deferred tax expense of the same amount.
In December 2021, the Organisation for Economic Co-operation and Development issued Pillar Two Model Rules introducing a new global minimum tax of 15 percent on a country-by-country basis, with certain aspects effective in certain jurisdictions on January 1, 2024. Although the Company continues to monitor enacted legislation to implement these rules in countries where the Company could be impacted, the Company does not expect that the Pillar Two framework will have a material impact on its consolidated financial statements.
Deferred tax assets are recorded for future deductible amounts and certain other tax benefits, such as net operating losses, tax credits and other tax attributes, provided that the Company assesses the utilization of such assets to be “more likely than not.” 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. Based on this assessment, the Company has recorded valuation allowances for certain net operating losses, foreign tax credits and capital loss carryforwards that it does not believe are more likely than not to be realized.
During the fourth quarter of 2023, as a result of increases in projections of future taxable income and the absence of objective negative evidence such as a cumulative loss in recent years, the Company determined there was sufficient positive evidence to release a majority of the U.S. valuation allowance, which resulted in a non-cash deferred income tax benefit of $1.7 billion.
In 2025, 2024, and 2023, the Company’s valuation allowance decreased by $222 million, $7 million and $2.3 billion, respectively, as detailed in the table below:
202520242023
 (In millions)
Balance at beginning of year$2,623 $2,630 $4,918 
State(1)
33 (51)(63)
U.S.(270)26 (2,235)
Foreign15 18 10 
Balance at end of year$2,401 $2,623 $2,630 
(1)Reported as a component of state income taxes.
On December 31, 2025, the Company had net operating losses as follows:
 Amount    Expiration    
 (In millions) 
U.S.$9,463 2029 - Indefinite
State6,523 Various
Foreign211 2026 - Indefinite
The Company has a U.S. net operating loss carryforward of $9.5 billion, which includes $2.1 billion 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 $211 million, and a net interest expense carryover of $607 million under Section 163(j) of the Code with indefinite carryover. The Company has recorded a valuation allowance against some of the U.S. net operating losses, the state net operating losses, the foreign net operating losses, and the U.S. capital loss because it is more likely than not that these net operating losses and the capital loss carryforward will not be realized. The Company believes it is more likely than not that the deferred tax assets related to the remaining U.S. net operating losses and the net interest expense carryover will be utilized prior to their expiration.
On December 31, 2025, the Company had foreign tax credits as follows:
 Amount    Expiration    
 (In millions) 
Foreign tax credits$1,935 2026
The Company has a $1.9 billion U.S. foreign tax credit carryforward. The Company has recorded a 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 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:
202520242023
 (In millions)
Balance at beginning of year$89 $93 $89 
Additions based on tax positions related to prior year— 1 4 
Reductions for tax positions of prior years(25)(5)— 
Balance at end of year$64 $89 $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 the year ended December 31, 2025, the Company recorded an income tax benefit of $8.2 million for interest and penalties. In each of the years ended December 31, 2024 and 2023, the Company recorded tax expense of $2 million, respectively, for interest and penalties. At December 31, 2025, 2024, and 2023, the Company had an accrued liability for interest and penalties of nil, $9 million, and $7 million, respectively.
Income taxes paid (net of refunds) for the year ended December 31, 2025 were as follows:
Amount
(In millions)
U.S. Federal
$92 
U.S. State and Local
(15)
Foreign:
Egypt
650 
U.K.
272 
Foreign subtotal
922 
Total
$999 
The Company 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. The Company’s earliest open tax years in its key jurisdictions are as follows:
Jurisdiction
U.S.2014
Egypt2007
U.K.2022

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Feb 28, 2025
2023Feb 22, 2024
2022Feb 23, 2023
2021Feb 22, 2022

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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