Discontinued Operations

9 Months Ended

Sep. 30, 2012

Discontinued Operations

Note D – Discontinued Operations

During the third quarter 2012, the Company’s Board of Directors authorized management to sell its exploration and production operations in the United Kingdom. The Company currently expects to complete the sale of these operations near year-end 2012. Beginning in the third quarter 2012, the Company has begun to account for U.K. upstream operations as discontinued operations for all periods presented, including a reclassification of all prior year’s results for these operations to discontinued operations.

In 2010, the Company announced that its Board of Directors had approved plans to exit the U.S. refining and U.K. refining and marketing businesses. On September 30, 2011, the Company sold the Superior, Wisconsin refinery and related assets for $214 million, plus certain capital expenditures between July 25 and the date of closing and the fair value of all associated hydrocarbon inventories at these locations. On October 1, 2011, the Company sold the Meraux, Louisiana refinery and related assets for $325 million, plus the fair value of associated hydrocarbon inventories. The Company has accounted for operating results of the Superior, Wisconsin and Meraux, Louisiana refineries and associated marketing assets as discontinued operations for all prior periods presented. The cash proceeds from these refinery sales were primarily used to pay down outstanding loans under existing revolving credit facilities in 2011.

The results of operations associated with discontinued operations for the three-month and nine-month periods ended September 30, 2012 and 2011 were as follows:

	Three Months Ended Sept. 30,				Nine Months Ended Sept. 30,
(Thousands of dollars)	2012		2011		2012		2011
Revenues	$	31,779		1,335,452		102,096		3,784,742
Income before income taxes, including a net gain on sale of two U.S. refineries of $15,959 in the three-month and nine-month periods in 2011		10,631		114,842		45,331		248,381
Income tax expense		12,861		56,038		34,797		109,175

In July 2012, the United Kingdom enacted tax changes that limited tax relief on oil and gas decommissioning costs to 50%, a reduction from the 62% tax relief previously allowed for these costs. This tax rate change led to a net increase in tax expense of discontinued operations of $5.5 million in the three-month and nine-month periods that ended September 30, 2012. In July 2011, the United Kingdom enacted a supplemental tax rate increase for oil and gas companies effective retroactive to March 2011. The total U.K. tax rate increased from 50% to 62% for oil and gas companies. The supplemental tax increased income tax expense of discontinued operations by $14.5 million for the three-month and nine-month periods ended September 30, 2011.

The Company continues to offer for sale its U.K. refinery at Milford Haven, Wales and all U.K. product terminals and motor fuel stations. Based on current market conditions, it is possible that the Company could incur a loss on future sales of the U.K. downstream assets. Through September 30, 2012, the Company has accounted for U.K. downstream results as a component of continuing operations. If the sale of the U.K. refining and marketing assets continues to progress, the Company expects that the results of these operations will be presented as discontinued operations in future periods when the criteria for held for sale under U.S. generally accepted accounting principles have been met.