Income Taxes

9 Months Ended

Sep. 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 from continuing operations before income tax expense. For the three-month and nine-month periods in 2012 and 2011, the Company’s effective income tax rates for continuing operations were as follows:

	2012			2011
Three months ended September 30		43.7	%		34.1	%
Nine months ended September 30		41.1	%		39.7	%

The effective tax rates for most 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 the third quarter 2011, it was determined that Block P expenditures in Malaysia are deductible against the earnings of adjacent Block K. The Company recorded a $25.6 million income tax benefit in the three-month and nine-month periods ended September 30, 2011 associated with prior-year expenditures in Block P. The Company had previously recognized no tax benefits prior to the third quarter 2011 associated with Block P expenditures.

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 September 30, 2012, the earliest years remaining open for audit and/or settlement in our major taxing jurisdictions are as follows: United States – 2009; Canada – 2007; United Kingdom – 2010; and Malaysia – 2006.