Note 2. Basis of Presentation

Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and shareholders' equity for such periods. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. Certain reclassifications of amounts previously reported have been made to conform to current year presentations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Consolidation Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries. In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.

Estimates The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

Statements of Operations Information Other statements of operations information is as follows:

	Three Months Ended March 31,
	2012			2011
(millions)
Other Revenues (1)	$	-		$	21
Production Expense
Lease Operating Expense	$	118		$	92
Production and Ad Valorem Taxes		38			32
Transportation and Gathering Expense		23			18
Total	$	179		$	142
Other Operating (Income) Expense, Net
Deepwater Gulf of Mexico Moratorium Expense (2)	$	-		$	18
Electricity Generation Expense (1)		-			17
Other, Net		12			1
Total	$	12		$	36
Other Non-Operating (Income) Expense, Net
Deferred Compensation Expense (3)	$	3		$	10
Interest Income		-			(3	)
Other (Income) Expense, Net		(4	)		1
Total	$	(1	)	$	8

(1)

Other revenues for first quarter 2011 consist of electricity sales from the Machala power plant located in Machala, Ecuador. Electricity generation expense includes all operating and non-operating expenses associated with the plant, including depreciation and changes in the allowance for doubtful accounts. In May 2011, we transferred our assets in Ecuador to the Ecuadorian government.

(2)	Amount relates to rig stand-by expense incurred prior to receiving a permit to resume drilling activities in the deepwater Gulf of Mexico in 2011.

(3)	Amounts represent increases in the fair value of shares of our common stock held in a rabbi trust.

Balance Sheet Information Other balance sheet information is as follows:

	March 31,			December 31,
	2012			2011
(millions)
Accounts Receivable, Net
Commodity Sales	$	467		$	356
Joint Interest Billings		344			313
Other		117			123
Allowance for Doubtful Accounts		(9	)		(9	)
Total	$	919		$	783
Other Current Assets
Inventories, Current	$	77		$	78
Commodity Derivative Assets, Current		17			10
Deferred Income Taxes, Net, Current (1)		159			41
Probable Insurance Claims (2)		22			15
Prepaid Expenses and Other Current Assets, Current		55			36
Total	$	330		$	180
Other Noncurrent Assets
Equity Method Investments	$	376		$	329
Mutual Fund Investments		108			99
Commodity Derivative Assets, Noncurrent		22			37
Other Assets, Noncurrent		86			83
Total	$	592		$	548
Other Current Liabilities
Production and Ad Valorem Taxes	$	123		$	121
Commodity Derivative Liabilities, Current		119			76
Income Taxes Payable		131			127
Asset Retirement Obligations, Current		41			33
Interest Payable		41			56
CONSOL Installment Payment (3)		325			324
Current Portion of FPSO Lease Obligation		48			45
Other		123			143
Total	$	951		$	925
Other Noncurrent Liabilities
Deferred Compensation Liabilities, Noncurrent	$	237		$	222
Asset Retirement Obligations, Noncurrent		350			344
Accrued Benefit Costs, Noncurrent		90			88
Commodity Derivative Liabilities, Noncurrent		29			7
Other		113			91
Total	$	819		$	752

(1)	Increase from December 31, 2011 is due to reclassification of deferred income tax assets from long-term to short-term as certain foreign entities are estimated to begin utilizing net operating loss carryforwards in 2012 and 2013.

(2)	Amounts represent the costs incurred to date of the Leviathan-2 appraisal well in excess of the insurance deductible and insurance proceeds received to date.

(3)	See Note 3. Acquisitions and Note 4. Debt.

Changes in Shareholders' Equity On April 24, 2012, our shareholders voted to approve an amendment to the Company's Certificate of Incorporation to (i) increase the number of authorized shares of our common stock from 250 million to 500 million shares and (ii) reduce the par value of the Company's common stock from $3.33 1/3 per share to $0.01 per share.

Recently Issued Accounting Standards Updates In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-04: Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 clarifies application of fair value measurement and disclosure requirements and is effective for annual and interim periods beginning after December 15, 2011. As of March 31, 2012, we have adopted the provisions of ASU 2011-04, which did not impact our consolidated financial statements. The only impact was to our fair value disclosures.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). ASU 2011-11 requires that an entity disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013. We are currently evaluating the provisions of ASU 2011-11 and assessing the impact, if any, it may have on our financial position and results of operations.