The following is an analysis of the effective income tax rates for continuing operations for the periods presented:

	Nine Months Ended September 30,
	2011		2010
Statutory U.S. income tax rate	35	%	35	%
Effects of foreign operations, including foreign tax credits	7		19
Change in permanent reinvestment assertion	7		0
Adjustments to valuation allowances	11		0
Tax law changes	2		2
Other tax effects	2		(1)
Effective income tax rate for continuing operations	64	%	55	%

The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income, the relative magnitude of these sources of income, and foreign currency remeasurement effects. The provision for income taxes is allocated on a discrete, stand-alone basis to pretax segment income and to individual items not allocated to segments. The difference between the total provision and the sum of the amounts allocated to segments and to individual items not allocated to segments is reported in “Corporate and other unallocated items” shown in Note 8.

The effects of foreign operations on our effective tax rate decreased in the first nine months of 2011 as compared to the first nine months of 2010, primarily due to the suspension of all production operations in Libya in the first quarter of 2011, where the statutory tax rate is in excess of 90 percent. This decrease was partially offset by a deferred tax charge of $122 million related to an internal restructuring of our international subsidiaries in the second quarter of 2011.

A principal tax planning strategy available to realize the deferred tax asset for our foreign tax credit benefits relates to the permanent reinvestment of our foreign subsidiaries' earnings, which is reconsidered quarterly to give effect to changes in our portfolio of producing properties and in our tax profile. In the second quarter of 2011, we recorded $716 million of deferred U.S. tax on undistributed earnings of $2,046 million that we previously intended to permanently reinvest in foreign operations. Offsetting this tax expense were associated foreign tax credits of $488 million. In addition, we reduced our valuation allowance related to foreign tax credits by $228 million due to recognizing deferred U.S. tax on previously undistributed earnings.

The ability to realize the benefit of foreign tax credits is based on certain estimates concerning future operating conditions (particularly as related to prevailing liquid hydrocarbon, natural gas and synthetic crude oil prices), future financial conditions, income generated from foreign sources and Marathon Oil's tax profile in the years that such credits may be claimed. In the third quarter of 2011, we increased the valuation allowance against foreign tax credits by $227 million because it is more likely than not that we will be unable to realize all U.S. benefits on foreign taxes accrued in 2011. A higher price and production outlook over the next several years for Norway due to better than expected performance contributed to our generating excess foreign tax credits.

During the second quarter of 2011, we recorded a valuation allowance of $18 million on our deferred tax assets related to state operating loss carryforwards. Due to the spin-off (see Note 2), we have determined it is more likely than not that we will be unable to realize all recorded deferred tax assets.

On July 19, 2011, the U.K. enacted Finance Bill 2011 which increased the rate of the supplementary charge levied on profits from U.K. oil and gas production from 20 percent to 32 percent, effective March 24, 2011. As a result of this legislation, we recorded deferred tax expense of $15 million in the third quarter of 2011.

On May 25, 2011, Michigan enacted legislation that replaced the Michigan Business Tax (“MBT”) with a corporate income tax (“CIT”), effective January 1, 2012. The new CIT legislation eliminates the “book-tax difference deduction” that was provided under the MBT to mitigate the net increase in a taxpayer's deferred tax liability resulting when Michigan moved from the Single Business Tax, a non-income tax, to the MBT, an income tax, on July 12, 2007. Such a change in the tax law must be recognized in earnings in the period enacted regardless of the effective date. The total effect of tax law changes on deferred tax balances is recorded as income tax expense related to continuing operations in the period the law is enacted, even if a portion of the deferred tax balances relate to discontinued operations. As a result of the new CIT legislation, we recorded an expense of $32 million in the second quarter of 2011.

The Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010 (“HCERA”), (together, the “Acts”) were signed in to law in March 2010. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D. The federal subsidy paid to employers was introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MPDIMA”). Under the MPDIMA, the federal subsidy does not reduce our income tax deduction for the costs of providing such prescription drug plans nor is it subject to income tax individually. Beginning in 2013, under the Acts, our income tax deduction for the costs of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Such a change in the tax law must be recognized in earnings in the period enacted regardless of the effective date. The total effect of tax law changes on deferred tax balances is recorded as income tax expense related to continuing operations in the period the law is enacted, even if a portion of the deferred tax balances relate to discontinued operations. As a result, we have recorded a charge of $45 million in the first quarter of 2010 for the write-off of deferred tax assets to reflect the change in the tax treatment of the federal subsidy.

	Nine Months Ended September 30,
(In millions)	2011		2010
Beginning balance	$	103	$	75
Additions based on tax positions related to the current year		3		4
Reductions based on tax positions related to the current year		(3)		(4)
Additions for tax positions of prior years		71		16
Reductions for tax positions of prior years		(24)		(22)
Settlements		(9)		(1)
Ending balance	$	141	$	68

If the unrecognized tax benefits as of September 30, 2011 were recognized, $90 million would affect our effective income tax rate. There were $10 million of uncertain tax positions as of September 30, 2011 for which it is reasonably possible that the amount of unrecognized tax benefits would decrease during the next twelve months