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Noble Energy 10-Q 2014
NBL-2014.9.30-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission file number: 001-07964


NOBLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
73-0785597
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
1001 Noble Energy Way
 
 
Houston, Texas
 
77070
(Address of principal executive offices)
 
(Zip Code)
(281) 872-3100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý
 
As of September 30, 2014, there were 361,856,652 shares of the registrant’s common stock,
par value $0.01 per share, outstanding.




Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information  
 
 
Item 1.  Legal Proceedings 
 
 
Item 1A.  Risk Factors 
 
 
 
 
 
 
 
 
 
 
Item 6.  Exhibits 
 
 
 
 


2


Part I. Financial Information
Item 1. Financial Statements
Noble Energy, Inc.
Consolidated Statements of Operations
(millions, except per share amounts)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
1,228

 
$
1,341

 
$
3,893

 
$
3,537

Income from Equity Method Investees
41

 
53

 
138

 
150

Total
1,269

 
1,394

 
4,031

 
3,687

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
217

 
221

 
697

 
619

Exploration Expense
217

 
60

 
350

 
211

Depreciation, Depletion and Amortization
460

 
412

 
1,297

 
1,146

General and Administrative
132

 
109

 
399

 
324

Gain on Divestitures
(30
)
 

 
(72
)
 
(12
)
Asset Impairments
33

 
63

 
164

 
63

Other Operating Expense, Net
10

 
6

 
33

 
27

Total
1,039

 
871

 
2,868

 
2,378

Operating Income
230

 
523

 
1,163

 
1,309

Other (Income) Expense
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
(385
)
 
157

 
(74
)
 
69

Interest, Net of Amount Capitalized
52

 
46

 
151

 
104

Other Non-Operating (Income) Expense, Net
(13
)
 
9

 
1

 
21

Total
(346
)
 
212

 
78

 
194

Income from Continuing Operations Before Income Taxes
576

 
311

 
1,085

 
1,115

Income Tax Provision
157

 
116

 
274

 
330

Income from Continuing Operations
419

 
195

 
811

 
785

Discontinued Operations, Net of Tax

 
10

 

 
58

Net Income
$
419

 
$
205

 
$
811

 
$
843

 
 
 
 
 
 
 
 
Earnings Per Share, Basic
 
 
 
 
 
 
 
Income from Continuing Operations
$
1.16

 
$
0.54

 
$
2.25

 
$
2.19

Discontinued Operations, Net of Tax

 
0.03

 

 
0.16

Net Income
$
1.16

 
$
0.57

 
$
2.25

 
$
2.35

Earnings Per Share, Diluted
 
 
 
 
 
 
 
Income from Continuing Operations
$
1.12

 
$
0.53

 
$
2.21

 
$
2.17

Discontinued Operations, Net of Tax

 
0.03

 

 
0.16

Net Income
$
1.12

 
$
0.56

 
$
2.21

 
$
2.33

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
362

 
359

 
361

 
359

   Diluted
367

 
363

 
367

 
363


The accompanying notes are an integral part of these financial statements.

3


Noble Energy, Inc.
Consolidated Statements of Comprehensive Income
(millions)
(unaudited)

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Net Income
$
419

 
$
205

 
$
811

 
$
843

Other Items of Comprehensive Income
 
 
 
 
 
 
 
Net Change in Pension and Other
6

 
4

 
16

 
15

      Less Tax Benefit
(2
)
 
(1
)
 
(6
)
 
(5
)
Other Comprehensive Income
4

 
3

 
10

 
10

Comprehensive Income
$
423

 
$
208

 
$
821

 
$
853


The accompanying notes are an integral part of these financial statements.


4


Noble Energy, Inc.
Consolidated Balance Sheets
(millions)
(unaudited)

 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,169

 
$
1,117

Accounts Receivable, Net
740

 
947

Other Current Assets
361

 
547

Total Current Assets
2,270

 
2,611

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
24,465

 
22,243

Property, Plant and Equipment, Other
618

 
517

Total Property, Plant and Equipment, Gross
25,083

 
22,760

Accumulated Depreciation, Depletion and Amortization
(7,325
)
 
(7,035
)
Total Property, Plant and Equipment, Net
17,758

 
15,725

Goodwill
620

 
627

Other Noncurrent Assets
538

 
679

Total Assets
$
21,186

 
$
19,642

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 

 
 

Accounts Payable - Trade
$
1,425

 
$
1,354

Other Current Liabilities
807

 
988

Total Current Liabilities
2,232

 
2,342

Long-Term Debt
5,498

 
4,566

Deferred Income Taxes, Noncurrent
2,464

 
2,441

Other Noncurrent Liabilities
1,054

 
1,109

Total Liabilities
11,248

 
10,458

Commitments and Contingencies

 


Shareholders’ Equity
 

 
 

Preferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued

 

Common Stock - Par Value $0.01 per share; 500 Million Shares Authorized; 402 Million and 400 Million Shares Issued, respectively
4

 
4

Additional Paid in Capital
3,593

 
3,463

Accumulated Other Comprehensive Loss
(107
)
 
(117
)
Treasury Stock, at Cost; 38 Million Shares
(674
)
 
(659
)
Retained Earnings
7,122

 
6,493

Total Shareholders’ Equity
9,938

 
9,184

Total Liabilities and Shareholders’ Equity
$
21,186

 
$
19,642


The accompanying notes are an integral part of these financial statements.


5


Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2013
Cash Flows From Operating Activities
 
 
 
Net Income
$
811

 
$
843

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
 

 
 

Depreciation, Depletion and Amortization
1,297

 
1,148

Asset Impairments
164

 
63

Dry Hole Cost
163

 
22

Deferred Income Taxes
61

 
168

Income from Equity Method Investees, Net of Dividends
53

 
(12
)
(Gain) Loss on Commodity Derivative Instruments
(74
)
 
69

Net Cash Received (Paid) in Settlement of Commodity Derivative Instruments
(95
)
 
(2
)
Gain on Divestitures
(72
)
 
(67
)
Stock Based Compensation
67

 
59

Other Adjustments for Noncash Items Included in Income
42

 
63

Changes in Operating Assets and Liabilities
 
 
 

(Increase) Decrease in Accounts Receivable
166

 
(260
)
Increase in Accounts Payable
103

 
63

Increase (Decrease) in Current Income Taxes Payable
21

 
(48
)
Increase (Decrease) in Other Current Assets and Liabilities, Net
16

 
(7
)
Other Noncurrent Operating Assets and Liabilities, Net
(20
)
 
51

Net Cash Provided by Operating Activities
2,703

 
2,153

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(3,585
)
 
(3,021
)
Additions to Equity Method Investments
(58
)
 
(30
)
Distribution from Equity Method Investee
156

 

Proceeds from Divestitures
312

 
119

Other

 
(5
)
Net Cash Used in Investing Activities
(3,175
)
 
(2,937
)
Cash Flows From Financing Activities
 

 
 

Exercise of Stock Options
45

 
39

Excess Tax Benefits from Stock-Based Awards
18

 
15

Dividends Paid, Common Stock
(182
)
 
(146
)
Purchase of Treasury Stock
(15
)
 
(14
)
Proceeds from Credit Facilities
900

 
800

Repayment of CONSOL Installment Loan

 
(328
)
Repayment of Senior Notes
(200
)
 

Repayment of Capital Lease Obligation
(42
)
 
(31
)
Net Cash Provided by Financing Activities
524

 
335

Increase (Decrease) in Cash and Cash Equivalents
52

 
(449
)
Cash and Cash Equivalents at Beginning of Period
1,117

 
1,387

Cash and Cash Equivalents at End of Period
$
1,169

 
$
938

 
The accompanying notes are an integral part of these financial statements.


6


Noble Energy, Inc.
Consolidated Statements of Shareholders' Equity
(millions)
(unaudited)

 
Common
Stock (1)
 
Additional
Paid in
Capital (1)
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Total
Shareholders'
Equity
December 31, 2013
$
4

 
$
3,463

 
$
(117
)
 
$
(659
)
 
$
6,493

 
$
9,184

Net Income

 


 

 

 
811

 
811

Stock-based Compensation

 
67

 

 

 

 
67

Exercise of Stock Options

 
45

 

 

 

 
45

Tax Benefits Related to Exercise of Stock Options

 
18

 

 

 

 
18

Dividends (50 cents per share)

 

 

 

 
(182
)
 
(182
)
Changes in Treasury Stock, Net

 

 

 
(15
)
 

 
(15
)
Net Change in Pension and Other

 

 
10

 

 

 
10

September 30, 2014
$
4

 
$
3,593

 
$
(107
)
 
$
(674
)
 
$
7,122

 
$
9,938

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
$
4

 
$
3,302

 
$
(113
)
 
$
(648
)
 
$
5,713

 
$
8,258

Net Income

 

 

 

 
843

 
843

Stock-based Compensation

 
59

 

 

 

 
59

Exercise of Stock Options

 
39

 

 

 

 
39

Tax Benefits Related to Exercise of Stock Options

 
15

 

 

 

 
15

Dividends (41 cents per share)

 

 

 

 
(146
)
 
(146
)
Changes in Treasury Stock, Net

 

 

 
(14
)
 

 
(14
)
Net Change in Pension and Other

 

 
10

 

 

 
10

September 30, 2013
$
4

 
$
3,415

 
$
(103
)
 
$
(662
)
 
$
6,410

 
$
9,064


(1) 
Amounts reflect impact of 2-for-1 stock split which occurred during the second quarter of 2013.

The accompanying notes are an integral part of these financial statements.

7

Noble Energy, Inc.
Notes to Consolidated Financial Statements


Note 1.  Organization and Nature of Operations
Noble Energy, Inc. (Noble Energy, we or us) is a leading independent energy company engaged in worldwide crude oil and natural gas exploration and production. Our core operating areas are onshore US, primarily in the DJ Basin and Marcellus Shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa.

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 September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013 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. Certain prior-period amounts have been reclassified to conform to the current-period presentation. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
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, 2013.
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.
Equity Investees On September 24, 2014, our equity method investee, CONE Gathering LLC (CONE Gathering), contributed substantially all of its assets to a newly-formed master limited partnership, CONE Midstream Partners LP (CONE Midstream), concurrently with an initial public offering of limited partner units. CONE Gathering subsequently made a cash distribution of $204 million to us, which is reflected within cash flows from operating activities ($48 million) and cash flows from investing activities ($156 million) within our consolidated statement of cash flows. As a result of the transaction, we own a 32.1% interest in CONE Midstream, which we account for using the equity method of accounting.
Discontinued Operations In 2012, we initiated a strategy to exit the North Sea geographical area through sales of our non-operated working interests in the assets. The North Sea geographical segment was classified as held for sale and the operations were reflected as discontinued operations in 2012 and 2013.
The most significant North Sea assets were sold during 2012 and 2013. However, we have been unable to locate purchasers for the remaining assets, and a sale is no longer considered probable. Therefore, during first quarter 2014, we reclassified the remaining North Sea assets to held and used, and the North Sea geographical segment is included in continuing operations in the first, second, and third quarters 2014. In addition, we recorded impairments for the North Sea assets in both the first and second quarters of 2014. See Note 4. Asset Impairments.
North Sea revenues and operating expenses for the nine months ended September 30, 2014, except for the impairments recorded in the first and second quarters 2014, were de minimis. See Note 3. Divestitures, Note 4. Asset Impairments, and Note 7. Fair Value Measurements and Disclosures.
Common Stock Split   On April 22, 2013, Noble Energy’s Board of Directors approved a 2-for-1 split of its common stock to be effected in the form of a stock dividend. The stock dividend was distributed on May 28, 2013 to shareholders of record as of May 14, 2013. Earnings per share and common shares outstanding are reported giving retrospective effect to the common stock split.
Recently Issued Accounting Standards In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08: Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU 2014-08 changes the criteria for reporting discontinued operations while enhancing disclosures in this area and is effective for annual and interim periods beginning after December 15, 2014. Early adoption is permitted for disposals or for assets classified as held for sale that have not been reported in previously issued financial statements. We elected to early adopt ASU 2014-08 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition,

8

Noble Energy, Inc.
Notes to Consolidated Financial Statements

ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. We are currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial position and results of operations.
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. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Statements of Operations Information   Other statements of operations information is as follows: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
133

 
$
137

 
$
432

 
$
393

Production and Ad Valorem Taxes
44

 
51

 
146

 
137

Transportation and Gathering Expense
40

 
33

 
119

 
89

Total
$
217

 
$
221

 
$
697

 
$
619

Other Non-Operating (Income) Expense, Net
 

 
 

 
 
 
 
Deferred Compensation (Income) Expense (1)
$
(12
)
 
$
10

 
$

 
$
24

Other (Income) Expense, Net
(1
)
 
(1
)
 
1

 
(3
)
Total
$
(13
)
 
$
9

 
$
1

 
$
21

 
(1) 
Amounts represent increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.


9

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Balance Sheet Information   Other balance sheet information is as follows:
(millions)
September 30,
2014
 
December 31,
2013
Accounts Receivable, Net
 
 
 
Commodity Sales
$
345

 
$
495

Joint Interest Billings
310

 
382

Other
101

 
81

Allowance for Doubtful Accounts
(16
)
 
(11
)
Total
$
740

 
$
947

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
95

 
$
96

Inventories, Crude Oil
28

 
25

Commodity Derivative Assets
79

 
1

Deferred Income Taxes, Net
5

 
62

Assets Held for Sale
98

 
292

Prepaid Expenses and Other Current Assets
56

 
71

Total
$
361

 
$
547

Other Noncurrent Assets
 

 
 

Equity Method Investments
$
290

 
$
437

Mutual Fund Investments
121

 
114

Commodity Derivative Assets
32

 
16

Other Assets
95

 
112

Total
$
538

 
$
679

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
110

 
$
103

Commodity Derivative Liabilities

 
65

Income Taxes Payable
183

 
156

Asset Retirement Obligations
155

 
39

Interest Payable
56

 
63

Current Portion of Long Term Debt 

 
200

Current Portion of Capital Lease
67

 
58

Liabilities Associated with Assets Held for Sale
12

 
111

Other
224

 
193

Total
$
807

 
$
988

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
264

 
$
253

Asset Retirement Obligations
543

 
547

Accrued Benefit Costs
108

 
155

Commodity Derivative Liabilities

 
10

Other
139

 
144

Total
$
1,054

 
$
1,109




10

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 3. Divestitures
Onshore US Properties   During the first nine months of 2014, we sold certain non-core onshore US crude oil and natural gas properties. The information regarding the assets sold is as follows:
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
(millions)
2014
2014
Sales Proceeds
$
16

$
126

Less
 
 
     Net Book Value of Assets Sold

(118
)
     Goodwill Allocated to Assets Sold
(1
)
(7
)
     Asset Retirement Obligations Associated with Assets Sold
14

34

     Other Closing Adjustments
1

2

Gain on Divestitures
$
30

$
37

On October 23, 2014, we closed the sale of our non-core onshore US properties in the Piceance Basin of western Colorado, with net proceeds of $9 million. These properties were reclassified as held for sale at September 30, 2014, and written down to expected proceeds less costs to sell which resulted in an impairment charge of $31 million. See Note 4. Asset Impairments and Note 7. Fair Value Measurements and Disclosures.
In October 2014, we signed a purchase and sale agreement related to certain of our properties located on the western side of the DJ Basin, outside of our core DJ Basin operating area. The sale is expected to close in late 2014, with net proceeds of approximately $145 million.
China On June 30, 2014, we closed the sale of our China assets. The information regarding the China assets sold is as follows:
 
Nine Months Ended
September 30,
(millions)
2014
Sales Proceeds
$
186

Less
 
     Net Book Value of Assets Sold
(149
)
     Other Closing Adjustments
(2
)
Gain on Divestiture
35

Offshore Israel Properties Assets held for sale as of September 30, 2014, include two natural gas discoveries, Tanin and Karish, offshore Israel. We expect to divest these assets pursuant to an agreement we and our partners reached with the Israeli Antitrust Authority in March 2014 on various antitrust matters. The agreement is subject to final approval of the Israeli government.
North Sea Properties   During the first nine months of 2013, we sold non-operated working interests in properties located in the North Sea. The sales resulted in a $55 million gain based on net sales proceeds of $54 million. See Note 2. Basis of Presentation - Discontinued Operations.
Summarized results of discontinued operations are as follows:
 
Nine Months Ended
September 30,
(millions)
2013
Oil and Gas Sales
$
32

Income Before Income Taxes
10

Income Tax Expense
7

Operating Loss, Net of Tax
3

Gain on Sale, Net of Tax
55

Discontinued Operations, Net of Tax
$
58


11

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 4. Asset Impairments
Pre-tax (non-cash) asset impairment charges were as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Deepwater Gulf of Mexico (US Properties)
$
2

 
$
16

 
$
25

 
$
16

Piceance Basin (US Properties)
31

 

 
31

 

Mari-B (Offshore Israel)

 
47

 
14

 
47

McCulloch and Other North Sea Properties

 

 
94

 

Total
$
33

 
$
63

 
$
164

 
$
63

US and Offshore Israel During the third quarter of 2014, we reclassified our non-core onshore US properties in the Piceance Basin as assets held for sale. The assets were written down to expected proceeds less costs to sell.
During the first nine months of 2014, the asset carrying values of certain oil and natural gas assets in the deepwater Gulf of Mexico and offshore Israel increased when we recorded associated increases in asset retirement obligations. We determined that the recorded asset carrying values of some of these assets were not recoverable from future cash flows and recorded impairment expense. US properties included the currently-producing Raton natural gas well, as well as the Conquest and Gemini fields, which are being abandoned.
North Sea In March 2014, the operator of one of our remaining North Sea fields notified the working interest owners that expected field abandonment costs would be higher than originally projected. The operator also notified the working interest owners that it would begin working with the appropriate regulatory agency for approval of cessation of production and subsequent field abandonment sooner than anticipated.
As a result of this new information, we adjusted the asset retirement obligation to reflect the updated estimate of abandonment costs and timing. We assessed the asset for impairment and determined that it was impaired. The impairment charge was included in consolidated income from continuing operations.
See Note 2. Basis of Presentation and Note 7. Fair Value Measurements and Disclosures.

12

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 5.  Derivative Instruments and Hedging Activities
Objective and Strategies for Using Derivative Instruments   We are exposed to fluctuations in crude oil and natural gas prices on the majority of our production. In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows relating to the marketing of our global crude oil and domestic natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. We also may enter into forward contracts to hedge anticipated exposure to interest rate risk associated with public debt financing.
While these instruments mitigate the cash flow risk of future decreases in commodity prices or increases in interest rates, they may also curtail benefits from future increases in commodity prices or decreases in interest rates. See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.
Unsettled Commodity Derivative Instruments   As of September 30, 2014, we had entered into the following crude oil derivative instruments: 
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of September 30, 2014
 
 
 
 
 
 
2014
Swaps
NYMEX WTI
37,000
$
92.67

 
$

$

$

2014
Swaps
Dated Brent
13,000
103.21

 



2014
Three-Way Collars
NYMEX WTI
12,000

 
75.67

90.67

100.88

2014
Three-Way Collars
Dated Brent
8,000

 
84.38

98.25

121.56

2015
Swaps
NYMEX WTI
27,000
88.80

 



2015
Swaps
Dated Brent
8,000
100.31

 



2015
Three-Way Collars
NYMEX WTI
20,000

 
70.50

87.55

94.41

2015
Three-Way Collars
Dated Brent
13,000

 
76.92

96.00

108.49

2016
Swaps
NYMEX WTI
6,000
87.95

 



2016
Swaps
Dated Brent
9,000
97.96

 



2016
Three-Way Collars
NYMEX WTI
3,000

 
72.00

85.00

94.82

2016
Three-Way Collars
Dated Brent
6,000

 
80.00

95.00

105.87

(1) 
West Texas Intermediate
As of September 30, 2014, we had entered into the following natural gas derivative instruments:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
MMBtu
Per Day
Weighted
Average
Fixed
Price
 
Weighted
Average
Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
Ceiling
Price
Instruments Entered Into as of September 30, 2014
 
 
 
 
 
 
2014
Swaps
NYMEX HH
60,000
$
4.24

 
$

$

$

2014
Three-Way Collars
NYMEX HH
230,000

 
2.83

3.75

4.98

2015
Swaps
NYMEX HH
140,000
4.30

 



2015
Three-Way Collars
NYMEX HH
150,000

 
3.58

4.25

5.04

(1) 
Henry Hub

13

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Fair Value Amounts and (Gain) Loss on Commodity Derivative Instruments   The fair values of commodity derivative instruments in our consolidated balance sheets were as follows:
Fair Value of Derivative Instruments
 
Asset Derivative Instruments
 
Liability Derivative Instruments
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
(millions)
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
 Value
 
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
Value
Commodity Derivative Instruments
Current Assets
 
$
79

 
Current Assets
 
$
1

 
Current Liabilities
 
$

 
Current Liabilities
 
$
65

 
Noncurrent Assets
 
32

 
Noncurrent Assets
 
16

 
Noncurrent Liabilities
 

 
Noncurrent Liabilities
 
10

Total
 
 
$
111

 
 
 
$
17

 
 
 
$

 
 
 
$
75


The effect of commodity derivative instruments on our consolidated statements of operations was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
$
(360
)
 
$
167

 
$
(68
)
 
$
99

   Natural Gas
(25
)
 
(10
)
 
(6
)
 
(30
)
Total (Gain) Loss on Commodity Derivative Instruments
(385
)
 
157

 
(74
)
 
69

Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
14

 
24

 
87

 
39

  Natural Gas
(2
)
 
(14
)
 
8

 
(37
)
Total Cash (Received) Paid in Settlement of Commodity Derivative Instruments
12

 
10

 
95

 
2

Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
(374
)
 
143

 
(155
)
 
60

   Natural Gas
(23
)
 
4

 
(14
)
 
7

Total Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
$
(397
)
 
$
147

 
$
(169
)
 
$
67

AOCL Accumulated other comprehensive loss (AOCL) at September 30, 2014 included deferred losses of $23 million, net of tax, related to interest rate derivative instruments. This amount will be reclassified to earnings as an adjustment to interest expense over the term of our senior notes due March 2041. The amount of deferred losses (net of tax) which will be reclassified to earnings during the next 12 months, and recorded as an increase in interest expense, is de minimis.

14

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 6. Debt
Debt consists of the following:
 
September 30,
2014
 
 
December 31,
2013
 
(millions, except percentages)
Debt
 
Interest Rate
 
 
Debt
 
Interest Rate
 
Credit Facility, due October 3, 2018
$
900

 
1.43
%
 
 
$

 
%
 
Capital Lease and Other Obligations
399

 

 
 
359

 

 
5¼% Senior Notes, due April 15, 2014 (1)

 

 
 
200

 
5.25
%
 
8¼% Senior Notes, due March 1, 2019
1,000

 
8.25
%
 
 
1,000

 
8.25
%
 
4.15% Senior Notes, due December 15, 2021
1,000

 
4.15
%
 
 
1,000

 
4.15
%
 
7¼% Senior Notes, due October 15, 2023
100

 
7.25
%
 
 
100

 
7.25
%
 
8% Senior Notes, due April 1, 2027
250

 
8.00
%
 
 
250

 
8.00
%
 
6% Senior Notes, due March 1, 2041
850

 
6.00
%
 
 
850

 
6.00
%
 
5¼% Senior Notes, due November 15, 2043
1,000

 
5.25
%
 
 
1,000

 
5.25
%
 
7¼% Senior Debentures, due August 1, 2097
84

 
7.25
%
 
 
84

 
7.25
%
 
Total
5,583

 
 
 
 
4,843

 
 

 
Unamortized Discount
(18
)
 
 

 
 
(19
)
 
 

 
Total Debt, Net of Discount
5,565

 
 

 
 
4,824

 
 

 
Less Amounts Due Within One Year
 

 
 

 
 
 

 
 

 
5¼% Senior Notes, due April 15, 2014, net of discount (1)

 
 
 
 
(200
)
 
 
 
Capital Lease Obligations
(67
)
 
 

 
 
(58
)
 
 

 
Long-Term Debt Due After One Year
$
5,498

 
 

 
 
$
4,566

 
 

 
 
(1) 
We repaid the Senior Notes on their due date.
Credit Facility Our Credit Agreement provides for a $4.0 billion unsecured revolving credit facility (Credit Facility), which is available for general corporate purposes. The Credit Facility (i) provides for facility fee rates that range from 12.5 basis points to 30 basis points per year depending upon our credit rating, (ii) includes sub-facilities for short-term loans and letters of credit up to an aggregate amount of $500 million under each sub-facility and (iii) provides for interest rates that are based upon the Eurodollar rate plus a margin that ranges from 100 basis points to 145 basis points depending upon our credit rating.
See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of debt.

Note 7.  Fair Value Measurements and Disclosures  
Assets and Liabilities Measured at Fair Value on a Recurring Basis 
Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values: 
Cash, Cash Equivalents, Accounts Receivable and Accounts Payable   The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments. 
Mutual Fund Investments   Our mutual fund investments, which primarily include assets held in a rabbi trust, consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets. 
Commodity Derivative Instruments   Our commodity derivative instruments may include: variable to fixed price commodity swaps, two-way collars, and/or three-way collars. We estimate the fair values of these instruments based on published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 5. Derivative Instruments and Hedging Activities

15

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Deferred Compensation Liability   The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust. See Mutual Fund Investments above. 
Measurement information for assets and liabilities that are measured at fair value on a recurring basis was as follows: 
 
Fair Value Measurements Using
 
 
 
 
 
Quoted Prices in 
Active Markets
(Level 1) (1)
 
Significant Other
Observable Inputs
(Level 2) (2)
 
Significant
Unobservable
Inputs (Level 3) (3)
 
Adjustment (4)
 
Fair Value Measurement
(millions)
 
 
 
 
 
 
 
 
 
September 30, 2014
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
121

 
$

 
$

 
$

 
$
121

Commodity Derivative Instruments

 
117

 

 
(6
)
 
111

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(6
)
 

 
6

 

Portion of Deferred Compensation Liability Measured at Fair Value
(181
)
 

 

 

 
(181
)
December 31, 2013
 
 
 
 
 
 
 

 
 

Financial Assets
 

 
 

 
 

 
 

 
 

Mutual Fund Investments
$
114

 
$

 
$

 
$

 
$
114

Commodity Derivative Instruments

 
28

 

 
(11
)
 
17

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(86
)
 

 
11

 
(75
)
Portion of Deferred Compensation Liability Measured at Fair Value
(176
)
 

 

 

 
(176
)
 
(1) 
Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.
(2) 
Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.
(3) 
Level 3 measurements are fair value measurements which use unobservable inputs.
(4) 
Amount represents the impact of netting provisions within our master agreements that allow us to net cash settle asset and liability positions with the same counterparty.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
Asset Impairments Information about impaired assets is as follows:
 
Fair Value Measurements Using
 
 
 
 
Description
Quoted Prices in 
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Net Book Value (1)
 
Total Pre-tax (Non-cash) Impairment Loss
millions
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$
9

 
$
42

 
$
33

Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 
75

 
138

 
63

Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$
23

 
$
187