Provision (Benefit) for Income Taxes

9 Months Ended

Sep. 30, 2012

Provision (Benefit) for Income Taxes [Abstract]

Provision (Benefit) for Income Taxes

Note 5. Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes includes:

		Three months ended				Nine months ended
		September 30,				September 30,
			2012		2011		2012		2011
			(Millions)				(Millions)
Current:
	Federal	$	58	$	31	$	112	$	119
	State		10		7		18		15
	Foreign		6		9		30		3
			74		47		160		137
Deferred:
	Federal		6		(16)		123		(23)
	State		(3)		(2)		(9)		(3)
	Foreign		-		4		7		9
			3		(14)		121		(17)
Total provision (benefit)		$	77	$	33	$	281	$	120

The effective income tax rate for the total provision for the three months ended September 30, 2012,is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests.

The effective income tax rate for the total provision for the nine months ended September 30, 2012, is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests and taxes on foreign operations.

The effective income tax rate for the total provision for the three months ended September 30, 2011, is less than the federal statutory rate primarily due to the reversal of previously provided deferred taxes on undistributed earnings of certain foreign operations that are considered to be permanently reinvested, the impact of nontaxable noncontrolling interests and federal settlements.

The effective income tax rate for the total provision for the nine months ended September 30, 2011, is less than the federal statutory rate primarily due to federal settlements, an international revised assessment, the impact of nontaxable noncontrolling interests, the reversal of previously provided deferred taxes on undistributed earnings of certain foreign operations that are considered to be permanently reinvested and taxes on foreign operations.

During the third quarter of 2012, we reached a tentative agreement subject to government approval with the Internal Revenue Service (IRS) on tax matters related to the IRS's examination of our 2009 and 2010 consolidated corporate income tax returns.  These matters resulted in a tax provision of approximately $2 million recorded during the third quarter of 2012.   With respect to the examined years, we anticipate making approximately $12 million of cash payments to the IRS in the fourth quarter of 2012.

During the first quarter of 2011, we finalized settlements for 1997 through 2008 on certain contested matters with the IRSand also received a revised assessment on an international matter. These settlements and revised assessment resulted in a2011 year-to-date tax benefit of approximately $135 million. As a result of these settlements and revised assessment, we decreased our unrecognized tax benefits by approximately $62 million during the first quarter of 2011. In July and August 2011, we made cash payments to the IRS of $82 million and $77 million, respectively, related to these settlements.

In the fourth quarter of 2010, we provided $66 million of deferred taxes on the undistributed earnings of certain foreign operations that we no longer could assert were permanently reinvested due to alternatives being considered related to an existing structure impacted by the potential timing of our plan approved by our Board of Directors to pursue the separation of our exploration and production business through an IPO and subsequent tax-free spin-off. During the third quarter of 2011, associated with a ruling received from the IRS related to this separation plan, and following a certain internal reorganization, we recognized a deferred tax benefit of $66 million as we considered the undistributed earnings of these certain foreign operations to be permanently reinvested.

On December 23, 2011, the IRS issued temporary and proposed regulations providing guidance relating to the deduction and capitalization of expenditures made to acquire, produce, or improve tangible property. These regulations, effective January 1, 2012, will generally require changes in accounting methods. Once complete guidance has been released, we will assess the impact of the regulations on our Consolidated Financial Statements.

During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.