Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes

Note J – Income Taxes

The Company’s effective income tax rate generally exceeds the statutory U.S. tax rate of 35%. The effective tax rate is calculated as the amount of income tax expense divided by income before income tax expense. For the three-month and six-month periods in 2012 and 2011, the Company’s effective income tax rates were as follows:

	2012			2011
Three months ended June 30		40.9	%		44.6	%
Six months ended June 30		40.8	%		43.4	%

The effective tax rates for the periods presented exceeded the U.S. statutory tax rate of 35% due to several factors, including: the effects of income generated in foreign tax jurisdictions; U.S. state tax expense; and certain expenses, including exploration and other expenses in certain foreign jurisdictions, for which no income tax benefits are available or are not presently being recorded due to a lack of reasonable certainty of adequate future revenue against which to utilize these expenses as deductions.

In July 2012, the United Kingdom enacted tax changes that reduced the corporation tax rate from 25% to 24% effective from April 1, 2012. The corporation tax rate will be further reduced effective April 1, 2013 to 23%. This tax change also limits tax relief on oil and gas decommissioning costs to 50%, a reduction from the 62% tax relief previously allowed for these costs. The Company currently estimates that these tax changes will lead to a net increase to tax expense of approximately $7 million when recorded in the third quarter 2012.

The Company’s tax returns in multiple jurisdictions are subject to audit by taxing authorities. These audits often take years to complete and settle. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future years from resolution of outstanding unsettled matters. As of June 30, 2012, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2008; Canada – 2007; United Kingdom – 2010; and Malaysia – 2006.