Note 12. Income Taxes

The income tax provision consists of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
(millions)
Current	$	97		$	59		$	110		$	138
Deferred		34			57			44			85
Total Income Tax Provision	$	131		$	116		$	154		$	223
Effective Tax Rate		31	%		36	%		33	%		34	%

Our effective tax rate decreased for the first six months of 2011 as compared with the first six months of 2010. This was due to increased earnings from equity method subsidiaries, which has the impact of decreasing the effective rate when we have pre-tax income. This decrease in the rate was partially offset by the impact of the changes in Israeli tax law discussed below and by a $14 million increase in the valuation allowance against our deferred tax asset for foreign tax credits during 2011. In addition, the rate for the first six months of 2010 was higher due to 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 The Israeli government also repealed the percentage depletion deduction and made certain changes to the rules for deducting tangible and intangible development costs.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 became law on July 19, 2011 and will increase the tax rate on our UK oil and gas income from 50% to 62% and increase our 2011 consolidated effective income tax rate by approximately four percentage points. The change will also result in a remeasurement of our UK deferred tax liability as of December 31, 2010 to reflect the higher effective rate. These changes will be reflected in our balance sheet and results of operations in the third quarter of 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.