Discontinued Operations:
In February 2013, we announced our decision to explore strategic alternatives for our international businesses. In accordance with specific accounting requirements, we met the criteria to classify our international businesses as held-for-sale and discontinued operations during the second quarter of 2013. As a result, the historical results of operations for our Malaysia and China businesses are reflected in our financial statements as “discontinued operations.”
Malaysia Update
As discussed in Note 17, "Subsequent Events," we closed the sale of our Malaysia business on February 10, 2014.
China Update
In August of 2013, during the installation of the LF-7 topside facilities by a third-party contractor, a hydraulic jacking system malfunctioned and the installation was suspended. The installation of the facility has been delayed and the potential cost and timing for the reinstallation is uncertain at this time. As a result of this incident, the timing of the China divestiture has been delayed. The Company continues to actively market its China business. After reevaluating the criteria to be classified as discontinued operations, we believe that our China operations continue to meet the “held for sale” criteria and therefore remain in discontinued operations as of December 31, 2013. We will continue to monitor the facts and circumstances surrounding the completion of the production facilities and sale of our China operations on a quarterly basis.
Financial Results of Discontinued Operations
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
| | (In millions) |
Oil and gas revenues (1) | | $ | 891 |
| | $ | 1,092 |
| | $ | 729 |
|
Operating expenses | | 689 |
| | 664 |
| | 508 |
|
Income from discontinued operations | | 202 |
| | 428 |
| | 221 |
|
Other income (expense) | | 4 |
| | (3 | ) | | — |
|
Income from discontinued operations before income taxes | | 206 |
| | 425 |
| | 221 |
|
Income tax provision (benefit): | |
|
| |
|
| |
|
|
Current | | 90 |
| | 193 |
| | 76 |
|
Deferred | | 77 |
| | 514 |
| | 7 |
|
Total income tax provision (benefit) | | 167 |
| | 707 |
| | 83 |
|
Income (loss) from discontinued operations, net of tax | | $ | 39 |
| | $ | (282 | ) | | $ | 138 |
|
________________
(1) Certain payments to foreign governments made on our behalf that are part of the revenue process are recorded as a reduction of the related oil and gas revenues.
Income Taxes
The effective tax rates for our discontinued operations for the year ended December 31, 2013, 2012 and 2011 were 81%, 166% and 37%, respectively. Historically, our international effective tax rate was approximately 37%. However, the effective tax rates for 2013 and 2012 were affected by our decision to repatriate earnings from our foreign operations, which resulted in net income of our international businesses being taxed both in the U.S. and the local country, and the recording of a valuation allowance related to our deferred tax asset in Malaysia.
Assets and Liabilities in the Consolidated Balance Sheet from Discontinued Operations
|
| | | | | | | | |
|
| December 31, |
|
| 2013 |
| 2012 |
|
| (In millions) |
Current assets: |
|
|
|
|
Cash and cash equivalents |
| $ | 84 |
| | $ | 76 |
|
Accounts receivable |
| 200 |
| | 207 |
|
Inventories |
| 130 |
| | 91 |
|
Other current assets |
| 33 |
| | 31 |
|
Total current assets |
| 447 |
| | 405 |
|
Noncurrent assets: |
|
|
| |
|
|
Oil and gas properties, net of accumulated depreciation, depletion and amortization of $1,121 and $843 as of December 31, 2013 and 2012, respectively |
| 989 |
| | 781 |
|
Deferred taxes |
| 19 |
| | 24 |
|
Other assets |
| 4 |
| | 4 |
|
Total noncurrent assets |
| 1,012 |
| | 809 |
|
Total assets |
| $ | 1,459 |
| | $ | 1,214 |
|
|
|
|
| |
|
|
Current liabilities: |
|
|
| |
|
|
Accounts payable |
| $ | 38 |
| | $ | 50 |
|
Accrued liabilities |
| 324 |
| | 269 |
|
Asset retirement obligations | | 49 |
| | 5 |
|
Other current liabilities |
| 18 |
| | 16 |
|
Total current liabilities |
| 429 | | 340 |
Noncurrent liabilities: |
|
|
| |
|
|
Asset retirement obligations |
| 86 |
| | 37 |
|
Deferred taxes |
| 129 |
| | 41 |
|
Other liabilities |
| 11 |
| | 24 |
|
Total noncurrent liabilities |
| 226 |
| | 102 |
|
Total liabilities |
| $ | 655 |
| | $ | 442 |
|
Crude Oil Inventories
Substantially all of the crude oil from our offshore operations in Malaysia and China is produced into floating production, storage and off-loading vessels (FPSOs) or onshore storage terminals and “lifted” and sold periodically as barge quantities are accumulated. The product inventory from our international operations consisted of approximately 1.1 million barrels and 0.7 million barrels of crude oil valued at cost of $90 million and $64 million at December 31, 2013 and 2012, respectively, and are included in the "Inventories" line item in the preceding table and our consolidated balance sheet. Cost for purposes of the carrying value of oil inventory is the sum of production costs and depletion expense.
Oil and Gas Properties
At December 31, 2013, the oil and gas properties associated with our discontinued operations included $115 million not subject to amortization, comprised of $45 million incurred prior to 2011, $2 million incurred in 2011, $24 million incurred in 2012 and $44 million incurred in 2013.
At December 31, 2013, we performed a fair value assessment of our Malaysia and China discontinued operations, noting no indication of impairment based on the current carrying value.
During 2012, when our Malaysia and China businesses were reported as continuing operations, we performed a ceiling test for each full cost pool. The ceiling value of our reserves was calculated based upon SEC pricing of $2.76 per MMBtu for natural gas and $94.84 per barrel for oil. At December 31, 2011, the ceiling value of our reserves was calculated based upon SEC pricing of $4.12 per MMBtu for natural gas and $96.13 per barrel for oil. Using these prices, the cost center ceilings with respect to our Malaysia and China full cost pools exceeded the net capitalized costs of the respective cost centers at December 31, 2012 and December 31, 2011, and as such, no ceiling test writedowns were required.
The change in our ARO for discontinued operations for each of the three years ended December 31, is set forth below:
|
| | | | | | | | | | | | |
| | 2013 | | 2012 | | 2011 |
| | (In millions) |
Balance at January 1 | | $ | 42 |
| | $ | 39 |
| | $ | 12 |
|
Accretion expense | | 3 |
| | 3 |
| | 2 |
|
Additions | | 4 |
| | 4 |
| | 29 |
|
Revisions | | 101 |
| | — |
| | — |
|
Settlements | | (15 | ) | | (4 | ) | | (4 | ) |
Balance at December 31 | | 135 |
| | 42 |
| | 39 |
|
Less: Current portion of ARO at December 31 | | (49 | ) | | (5 | ) | | (6 | ) |
Total long-term ARO at December 31 | | $ | 86 |
| | $ | 37 |
| | $ | 33 |
|
