Note 13. Income Taxes

The income tax provision consists of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Current	$	179		$	42		$	289		$	180
Deferred		102			24			147			109
Total Income Tax Provision	$	281		$	66		$	436		$	289
Effective Tax Rate		39	%		22	%		37	%		30	%

Our effective tax rate increased for the first nine months of 2011 as compared with the first nine months of 2010. This was primarily due to the changes in Israeli and UK tax law discussed below and to a $16 million increase in the valuation allowance against our deferred tax asset for foreign tax credits. Partially offsetting this increase was the impact of greater earnings from equity method subsidiaries in 2011, which has the effect of decreasing the rate when we have pre-tax income. In third quarter 2010, we reversed a $28 million valuation allowance which had been established against a deferred tax asset of the same amount for the future foreign tax credits associated with deferred tax liabilities recorded by foreign branch operations and recorded a corresponding reduction in income tax expense. Finally, the rate for the first nine months of 2010 was increased by a nondeductible allocation of goodwill to assets sold.

Changes in Israeli Tax Law In March 2011, the Israeli government enacted the Oil Profits Taxation Law, 2011, which imposes additional income tax on oil and gas production. The Israeli government also repealed the percentage depletion deduction and made certain changes to the rules for deducting tangible and intangible development costs. We expect these changes to increase our 2011 consolidated effective income tax rate by approximately two percentage points. We expect no remeasurement of our deferred tax assets or liabilities as of December 31, 2010.

Changes in UK Tax Law Also in March 2011, the UK government announced that the Finance Bill 2011 will increase the rate of the Supplementary Charge levied on oil and gas income in the UK from 20% to 32% effective March 24, 2011. This change, which became law on July 19, 2011, increased the tax rate on our UK oil and gas income from 50% to 62% and our 2011 consolidated effective income tax rate by approximately four percentage points. The change also resulted in a remeasurement of our UK deferred tax liability as of December 31, 2010 to reflect the higher effective rate. As a result, we recorded a $34 million increase in both our deferred income tax liability and deferred income tax expense during third quarter 2011. These changes are reflected in our balance sheet and results of operations at September 30, 2011.

Years Remaining Open to Examination In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2006, Equatorial Guinea – 2007, Israel – 2008, UK – 2007, the Netherlands – 2009, and China – 2006.