Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 31, 2017)
  • 10-Q (Aug 3, 2017)
  • 10-Q (May 2, 2017)
  • 10-Q (Nov 2, 2016)
  • 10-Q (Aug 3, 2016)
  • 10-Q (May 4, 2016)

 
8-K

 
Other

Noble Energy 10-Q 2016
Document
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 June 30, 2016

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 June 30, 2016, there were 429,671,813 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
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
823

 
$
732

 
$
1,528

 
$
1,481

Income from Equity Method Investees
24

 
6

 
43

 
24

Total
847

 
738

 
1,571

 
1,505

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
274

 
218

 
546

 
469

Exploration Expense
89

 
41

 
252

 
106

Depreciation, Depletion and Amortization
622

 
451

 
1,239

 
905

General and Administrative
107

 
104

 
198

 
198

Other Operating Expense, Net
17

 
85

 
20

 
121

Total
1,109

 
899

 
2,255

 
1,799

Operating Loss
(262
)
 
(161
)
 
(684
)
 
(294
)
Other Expense (Income)
 

 
 

 
 
 
 
Loss (Gain) on Commodity Derivative Instruments
151

 
87

 
107

 
(63
)
Interest, Net of Amount Capitalized
78

 
54

 
157

 
112

Other Non-Operating Expense (Income), Net
7

 
(9
)
 
3

 
(9
)
Total
236

 
132

 
267

 
40

Loss Before Income Taxes
(498
)
 
(293
)
 
(951
)
 
(334
)
Income Tax Benefit
(183
)
 
(184
)
 
(349
)
 
(203
)
Net Loss
$
(315
)
 
$
(109
)
 
$
(602
)
 
$
(131
)
 
 
 
 
 
 
 
 
Loss Per Share, Basic
$
(0.73
)
 
$
(0.28
)
 
$
(1.40
)
 
$
(0.35
)
Loss Per Share, Diluted
$
(0.73
)
 
$
(0.28
)
 
$
(1.40
)
 
$
(0.35
)
 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
430

 
387

 
429

 
378

   Diluted
430

 
387

 
429

 
378


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

3


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

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net Loss
$
(315
)
 
$
(109
)
 
$
(602
)
 
$
(131
)
Other Items of Comprehensive Loss
 
 
 
 
 
 
 
Net Change in Mutual Fund Investment

 

 

 
(11
)
Less Tax Expense

 

 

 
3

Net Change in Pension and Other
1

 
24

 
1

 
25

      Less Tax Benefit

 
(10
)
 

 
(10
)
Comprehensive Loss
$
(314
)
 
$
(95
)
 
$
(601
)
 
$
(124
)

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


4


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

 
June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,300

 
$
1,028

Accounts Receivable, Net
476

 
450

Commodity Derivative Assets
229

 
582

Other Current Assets
184

 
216

Total Current Assets
2,189

 
2,276

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
30,713

 
31,220

Property, Plant and Equipment, Other
877

 
858

Total Property, Plant and Equipment, Gross
31,590

 
32,078

Accumulated Depreciation, Depletion and Amortization
(11,856
)
 
(10,778
)
Total Property, Plant and Equipment, Net
19,734

 
21,300

Other Noncurrent Assets
593

 
620

Total Assets
$
22,516

 
$
24,196

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 

 
 

Accounts Payable - Trade
$
780

 
$
1,128

Other Current Liabilities
595

 
677

Total Current Liabilities
1,375

 
1,805

Long-Term Debt
7,868

 
7,976

Deferred Income Taxes
2,387

 
2,826

Other Noncurrent Liabilities
1,173

 
1,219

Total Liabilities
12,803

 
13,826

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; 1 Billion Shares Authorized; 471 Million and 470 Million Shares Issued, respectively
5

 
5

Additional Paid in Capital
6,398

 
6,360

Accumulated Other Comprehensive Loss
(32
)
 
(33
)
Treasury Stock, at Cost; 38 Million Shares
(696
)
 
(688
)
Retained Earnings
4,038

 
4,726

Total Shareholders’ Equity
9,713

 
10,370

Total Liabilities and Shareholders’ Equity
$
22,516

 
$
24,196


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


5


Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Six Months Ended
June 30,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net Loss
$
(602
)
 
$
(131
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities
 

 
 

Depreciation, Depletion and Amortization
1,239

 
905

Asset Impairments

 
43

Dry Hole Cost
114

 
19

Gain on Extinguishment of Debt
(80
)
 

Finalization of Purchase Price Allocation for Rosetta Merger
(25
)
 

Loss on Asset Due to Terminated Contract
47

 

Deferred Income Tax Benefit
(414
)
 
(312
)
(Income) Loss from Equity Method Investees, Net of Dividends
(9
)
 
4

Loss (Gain) on Commodity Derivative Instruments
107

 
(63
)
Net Cash Received in Settlement of Commodity Derivative Instruments
322

 
397

Loss on Divestitures
23

 

Stock Based Compensation
40

 
38

Non-cash Pension Termination Expense

 
21

Other Adjustments for Noncash Items Included in Income
59

 
11

Changes in Operating Assets and Liabilities


 
 

(Increase) Decrease in Accounts Receivable
(6
)
 
304

Decrease in Accounts Payable
(232
)
 
(167
)
Decrease in Current Income Taxes Payable
(51
)
 
(63
)
Other Current Assets and Liabilities, Net
(51
)
 
(45
)
Other Operating Assets and Liabilities, Net
(41
)
 
5

Net Cash Provided by Operating Activities
440

 
966

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(812
)
 
(1,898
)
Additions to Equity Method Investments
(6
)
 
(65
)
Proceeds from Divestitures and Other
767

 
151

Net Cash Used in Investing Activities
(51
)
 
(1,812
)
Cash Flows From Financing Activities
 

 
 

Dividends Paid, Common Stock
(86
)
 
(134
)
Proceeds from Issuance of Shares of Common Stock to Public, Net of Offering Costs

 
1,112

Proceeds from Term Loan Facility
1,400

 

Repayment of Senior Notes
(1,383
)
 

Repayment of Capital Lease Obligation
(27
)
 
(29
)
Other
(21
)
 
(8
)
Net Cash (Used in) Provided by Financing Activities
(117
)
 
941

Increase in Cash and Cash Equivalents
272

 
95

Cash and Cash Equivalents at Beginning of Period
1,028

 
1,183

Cash and Cash Equivalents at End of Period
$
1,300

 
$
1,278

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

6



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

 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Total
Shareholders'
Equity
December 31, 2015
$
5

 
$
6,360

 
$
(33
)
 
$
(688
)
 
$
4,726

 
$
10,370

Net Loss

 

 

 

 
(602
)
 
(602
)
Stock-based Compensation

 
36

 

 

 

 
36

Dividends (20 cents per share)

 

 

 

 
(86
)
 
(86
)
Other

 
2

 
1

 
(8
)
 

 
(5
)
June 30, 2016
$
5

 
$
6,398

 
$
(32
)
 
$
(696
)
 
$
4,038

 
$
9,713

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
$
4

 
$
3,624

 
$
(90
)
 
$
(671
)
 
$
7,458

 
$
10,325

Net Loss

 

 

 

 
(131
)
 
(131
)
Stock-based Compensation

 
38

 

 

 

 
38

Dividends (36 cents per share)

 

 

 

 
(134
)
 
(134
)
Issuance of Shares of Common Stock to Public, Net of Offering Costs

 
1,112

 

 



 
1,112

Other

 
4

 
7

 
(12
)
 

 
(1
)
June 30, 2015
$
4

 
$
4,778

 
$
(83
)
 
$
(683
)
 
$
7,193

 
$
11,209


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 (DJ Basin, Marcellus Shale, Eagle Ford Shale, and Permian Basin), and offshore in deepwater Gulf of Mexico, Eastern Mediterranean and 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 June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
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, 2015.
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. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Issuance of Phantom Units On February 1, 2016, we issued cash-settled awards to certain employees under the Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan in lieu of a portion of restricted stock and stock options. We issued approximately one million awards (so called phantom units, the nomenclature used in accounting literature), a portion of which are subject to the achievement of specific performance goals. These phantom units, once vested, are settled in cash. The phantom units represent a hypothetical interest in the Company. The phantom unit value is the lesser of the fair market value of a share of common stock of the Company as of the vesting date or up to four times the fair market value of a share of common stock of the Company as of the grant date, which was $31.65. The Company recognizes the value of our cash-settled awards utilizing the liability method as defined under Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The fair value of liability awards is remeasured at each reporting date, based on the fair market value of a share of common stock of the Company as of the reporting date, through the settlement date with the change in fair value recognized as compensation expense over that period. As of June 30, 2016, the fair value remeasurement had a de minimis impact on our consolidated statement of operations and balance sheet. See Note 7. Fair Value Measurements and Disclosures.
Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. This ASU also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted. We are currently evaluating the provisions of this guidance to determine the effects it will have on our consolidated financial statements and related disclosures. In the normal course of business, we enter into capital and operating lease agreements to support our exploration and development operations and lease assets such as drilling rigs, platforms, storage facilities, field services and well equipment, pipeline capacity, office space and other assets. We believe the adoption and implementation of this ASU will likely have a material impact on our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09): Compensation - Stock Compensation, to reduce complexity and enhance several aspects of accounting and disclosure for share-based payment transactions, including the accounting for income taxes, award forfeitures, and statutory tax withholding requirements, as well

8

Noble Energy, Inc.
Notes to Consolidated Financial Statements

as classification in the statement of cash flows. The ASU will be effective for annual and interim periods beginning after December 15, 2016, with earlier application permitted. Certain aspects of this guidance will require retrospective application while other aspects are to be applied prospectively. We are currently evaluating the effect that the guidance will have on our consolidated financial statements and related disclosures.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13): Financial Instruments - Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more useful information about expected credit losses. The amended guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect, if any, that the guidance will have on our consolidated financial statements and related disclosures.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11 (ASU 2015-11): Simplifying the Measurement of Inventory, effective for annual and interim periods beginning after December 15, 2016. ASU 2015-11 changes the inventory measurement principle for entities using the first-in, first out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle will change from lower of cost or market to the lower of cost and net realizable value. We follow the average cost method and do not believe adoption of ASU 2015-11 will have a material impact on our financial position and results of operations.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from 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 standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. In March 2016, the FASB released certain implementation guidance through ASU 2016-08 to clarify principal versus agent considerations. We are continuing to evaluate the provisions of ASU 2014-09 and have not yet determined the full impact it may have on our financial position and results of operations. At a minimum, we expect we will be required to change from the entitlements method used for certain domestic natural gas sales to the sales method of accounting. We believe the impact of utilizing the sales method of accounting for our current domestic natural gas sales agreements will be de minimus.
In March 2016, the FASB issued Accounting Standards Update No. 2016-07 (ASU 2016-07): Investments - Equity Method and Joint Ventures, to eliminate retroactive application of equity method accounting when an investment becomes qualified for equity method accounting as a result of an increase in the level of ownership interest or degree of influence. The ASU will be effective for annual and interim periods beginning after December 15, 2016, with earlier application permitted. We do not believe adoption of this guidance will have a material impact on our consolidated financial statements and related disclosures as all current investments are accounted for under the equity method of accounting.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02): Consolidation - Amendments to the Consolidation Analysis, which changes the guidance as to whether an entity is a variable interest entity (VIE) or a voting interest entity and how related parties are considered in the VIE model. As of March 31, 2016, we have adopted the provisions of ASU 2015-02, which did not impact our consolidated financial statements.



9

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Statements of Operations Information   Other statements of operations information is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2016
 
2015
 
2016
 
2015
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
119

 
$
129

 
$
281

 
$
286

Production and Ad Valorem Taxes
40

 
28

 
43

 
61

Transportation and Gathering Expense (1)
115

 
61

 
222

 
122

Total
$
274

 
$
218

 
$
546

 
$
469

Other Operating (Income) Expense, Net
 

 
 

 
 
 
 
Loss on Asset Due to Terminated Contract (2)
$
5

 
$

 
$
47

 
$

Marketing and Processing Expense, Net (3)
15

 
12

 
37

 
22

Loss (Gain) on Divestitures
23

 
(1
)
 
23

 

Corporate Restructuring Expense

 
18

 
1

 
18

Purchase Price Allocation Adjustment (4)
(25
)
 

 
(25
)
 

Gain on Extinguishment of Debt (5)

 

 
(80
)
 

Asset Impairments

 
15

 

 
43

Pension Plan Expense

 
21

 

 
21

Stacked Drilling Rig Expense
3

 
7

 
5

 
7

Other, Net
(4
)
 
13

 
12

 
10

Total
$
17

 
$
85

 
$
20

 
$
121

Other Non-Operating Expense (Income), Net
 

 
 

 
 
 
 
Deferred Compensation Expense (Income) (6)
$
5

 
$
(7
)
 
$
5

 
$
(5
)
Other Expense (Income), Net
2

 
(2
)
 
(2
)
 
(4
)
Total
$
7

 
$
(9
)
 
$
3

 
$
(9
)
(1) 
Certain of our revenue received from purchasers was historically presented with deductions for transportation, gathering, fractionation or processing costs. Beginning in 2016, we have changed our presentation of revenue to no longer include these expenses as deductions from revenue. These costs are now included within production expense and prior year amounts of $10 million and $19 million for the three and six months ended June 30, 2015 have been reclassified to conform to the current presentation.
(2) 
Amount relates to the termination of a rig contract offshore Falkland Islands as a result of a supplier's non-performance. See Note 8. Capitalized Exploratory Well Costs and Undeveloped Leasehold and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Exploration Program Update.
(3) 
For the three months and six months ended June 30, 2016, amount includes $7 million and $23 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.
For the three months and six months ended June 30, 2015, amount includes $5 million and $9 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.
(4) 
Amount relates to an adjustment recorded to the purchase price allocation related to the Rosetta Merger. See Note 3. Rosetta Merger.
(5) 
Amount relates to the tendering of senior notes assumed in the Rosetta Merger. See Note 6. Debt.
(6) 
Amounts represent decreases (increases) in the fair value of shares of our common stock held in a rabbi trust.


10

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Balance Sheet Information   Other balance sheet information is as follows:
(millions)
June 30,
2016
 
December 31,
2015
Accounts Receivable, Net
 
 
 
Commodity Sales
$
338

 
$
298

Joint Interest Billings
19

 
20

Proceeds Receivable (1)
40

 

Severance Tax Refund (2)
28

 

Other
75

 
151

Allowance for Doubtful Accounts
(24
)
 
(19
)
Total
$
476

 
$
450

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
93

 
$
92

Inventories, Crude Oil
25

 
23

Assets Held for Sale (3)
18

 
67

Prepaid Expenses and Other Current Assets
48

 
34

Total
$
184

 
$
216

Other Noncurrent Assets
 

 
 

Investments in Unconsolidated Subsidiaries
$
467

 
$
453

Mutual Fund Investments
79

 
90

Commodity Derivative Assets

 
10

Other Assets
47

 
67

Total
$
593

 
$
620

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
142

 
$
166

Commodity Derivative Liabilities
35

 

Income Taxes Payable
35

 
86

Asset Retirement Obligations
128

 
128

Interest Payable
75

 
83

Current Portion of Capital Lease Obligations
56

 
53

Other
124

 
161

Total
$
595

 
$
677

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
225

 
$
217

Asset Retirement Obligations
855

 
861

Production and Ad Valorem Taxes
21

 
68

Commodity Derivative Liabilities
31

 

Other
41

 
73

Total
$
1,173

 
$
1,219

(1) 
Amount relates to proceeds to be received from our farm-out of 35% interest in Block 12 offshore Cyprus. See Note 4. Divestitures.
(2) 
Amount relates to the accrual of a $28 million onshore US severance tax receivable.
(3) 
Assets held for sale at June 30, 2016 include certain producing and undeveloped crude oil and natural gas interests in the DJ Basin, while assets held for sale at December 31, 2015 include the Karish and Tanin natural gas discoveries, offshore Israel. See Note 4. Divestitures.

Note 3. Rosetta Merger

On July 20, 2015, Noble Energy completed the merger of Rosetta Resources Inc. (Rosetta) into a subsidiary of Noble Energy (Rosetta Merger). The results of Rosetta's operations since the merger date are included in our consolidated statements of operations. The merger was effected through the issuance of approximately 41 million shares of Noble Energy common stock in exchange for all outstanding shares of Rosetta common stock using a ratio of 0.542 of a share of Noble Energy common stock for each share of Rosetta common stock and the assumption of Rosetta's liabilities, including approximately $2 billion fair value of outstanding debt. The merger added two new onshore US shale positions to our portfolio including approximately 50,000 net acres in the Eagle Ford Shale and 54,000 net acres in the Permian Basin (45,000 acres in the Delaware Basin and 9,000 acres in the Midland Basin). In connection with the Rosetta Merger, we incurred merger-related costs in 2015 of approximately $81 million, including (i) $66 million of severance, consulting, investment, advisory, legal and other merger-

11

Noble Energy, Inc.
Notes to Consolidated Financial Statements

related fees, and (ii) $15 million of noncash share-based compensation expense, all of which were expensed and were included in Other Operating (Income) Expense, Net.
Allocation of Purchase Price The merger has been accounted for as a business combination, using the acquisition method. The following table represents the final allocation of the total purchase price of Rosetta to the assets acquired and the liabilities assumed based on the fair value at the merger date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.
The following table sets forth our final purchase price allocation:
 
(in millions, except stock price)
Shares of Noble Energy common stock issued to Rosetta shareholders
41

Noble Energy common stock price on July 20, 2015
$
36.97

Fair value of common stock issued
$
1,518

Plus: Fair value of Rosetta's restricted stock awards and performance awards assumed
10

Plus: Rosetta stock options assumed
1

Total purchase price
1,529

Plus: Liabilities assumed by Noble Energy
 
Accounts Payable
100

Current Liabilities
37

Long-Term Debt
1,992

Other Long Term Liabilities
23

Asset Retirement Obligation
27

Total purchase price plus liabilities assumed
$
3,708

 
 
Fair Value of Rosetta Assets
 
Cash and Equivalents
$
61

Other Current Assets
76

Derivative Instruments
209

Oil and Gas Properties
 
Proved Reserves
1,613

Undeveloped Leaseholds
1,355

Gathering & Processing Assets
207

Asset Retirement Obligation
27

Other Property Plant and Equipment
5

Long Term Deferred Tax Asset
17

Goodwill (1)
138

Total Asset Value
$
3,708

(1) 
As of December 31, 2015, our preliminary purchase price allocation reflected goodwill of $163 million based on the fair value of assets acquired and liabilities assumed at the Rosetta Merger date. In conducting our goodwill impairment test as of December 31, 2015, we determined that our goodwill balance was no longer recoverable and fully impaired it, resulting in a goodwill impairment charge in fourth quarter 2015. In second quarter 2016, we finalized the purchase price allocation and recorded a $25 million gain to Other Operating Expense, Net driven by adjustments made based on the filing of the final Rosetta federal income tax return for the period ending on the Rosetta Merger date. 
The fair value measurements of derivative instruments assumed were determined based on published forward commodity price curves as of the date of the merger and represent Level 2 inputs. 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. The fair value measurements of long-term debt were estimated based on published market prices and represent Level 1 inputs.
The fair value measurements of crude oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of crude oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital. These inputs required significant judgments and estimates by management at the time of the valuation and were the most sensitive and subject to change.

12

Noble Energy, Inc.
Notes to Consolidated Financial Statements

The results of operations attributable to Rosetta are included in our consolidated statements of operations beginning on July 21, 2015. Revenues of $127 million and $214 million and pre-tax net income of $17 million and pre-tax net loss of $14 million were generated from Rosetta assets during the three and six months ended June 30, 2016, respectively.
Proforma Financial Information The following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Rosetta and gives effect to the merger as if it had occurred on January 1, 2015. The below information reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) adjustments to conform Rosetta's historical policy of accounting for its crude oil and natural gas properties from the full cost method to the successful efforts method of accounting, (ii) depletion of Rosetta's fair-valued proved crude oil and natural gas properties, and (iii) the estimated tax impacts of the pro forma adjustments. The pro forma results of operations do not include any cost savings or other synergies that may result from the Rosetta Merger or any estimated costs that have been or will be incurred by us to integrate the Rosetta assets. The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Rosetta Merger taken place on January 1, 2015; furthermore, the financial information is not intended to be a projection of future results.
 
Three Months Ended
June 30,
Six Months Ended
June 30,
(in millions, except per share amounts)
2016 (1)
2015
2016 (1)
2015
Revenues
$
847

$
881

$
1,571

$
1,773

Net Loss
$
(315
)
$
(125
)
$
(602
)
$
(145
)
 
 
 
 
 
Loss per share
 
 
 
 
Basic
$
(0.73
)
$
(0.29
)
$
(1.40
)
$
(0.35
)
Diluted
$
(0.73
)
$
(0.29
)
$
(1.40
)
$
(0.35
)
(1) 
No pro forma adjustments were made for the period as the acquisition is included in the Company's historical results.

Note 4. Divestitures
Onshore US Properties
During the first six months of 2016, we entered into certain onshore transactions for which we:
closed the divestiture of our Bowdoin property in northern Montana generating proceeds of $43 million and recognized a $23 million loss on sale of assets;
sold other certain onshore US crude oil and natural gas properties, generating net proceeds of $20 million. Proceeds were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss;
entered into a purchase and sale agreement for the divestiture of certain producing and undeveloped crude oil and natural gas interests covering approximately 33,100 producing and undeveloped net acres in the DJ Basin for $505 million, subject to customary closing adjustments. We received proceeds of $486 million and expect to receive the remaining consideration, subject to post-close adjustments, around year-end 2016. Proceeds were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss; and
executed an acreage exchange agreement to receive approximately 11,700 net acres within our Wells Ranch development area in exchange for approximately 13,500 net acres primarily from our Bronco area, located southwest of Wells Ranch. No gain or loss was recognized for the transaction.
During the first six months of 2015, we sold certain onshore US crude oil and natural gas properties, generating net proceeds of $151 million. Proceeds were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss, other than a de minimus gain in second quarter 2015.
Cyprus Project (Offshore Cyprus) During fourth quarter 2015, we entered into a farm-out agreement with a partner for a 35% interest in Block 12, which includes the Aphrodite natural gas discovery, for $171 million. In first quarter 2016, we received proceeds of $131 million related to the farm-out agreement and expect to receive the remaining consideration of $40 million, subject to post-close adjustments, in 2017. The proceeds were applied to the Cyprus project asset with no gain or loss recognized.

13

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Offshore Israel Assets In November 2015, we executed an agreement to divest our 47% interest in the Alon A and Alon C offshore Israel licenses, which include the Karish and Tanin fields, for a total transaction value of $73 million. These assets were held for sale as of December 31, 2015, and the transaction closed in January 2016.
Subsequent Event On July 4, 2016, we signed a definitive agreement to divest a 3% working interest in the Tamar field, offshore Israel, for $369 million, subject to customary closing adjustments. Under the terms of the agreement, the purchaser has the option to elect, before closing, to purchase an additional 1% working interest at the same valuation. The divestiture is expected to close in the third quarter of 2016, with an effective date of January 1, 2016.
Note 5.  Derivative Instruments and Hedging Activities
Objective and Strategies for Using Derivative Instruments   We are exposed to fluctuations in crude oil, natural gas and natural gas liquids pricing. 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.
While these instruments mitigate the cash flow risk of future decreases in commodity prices, they may also curtail benefits from future increases in commodity prices. 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 June 30, 2016, the following crude oil derivative contracts were outstanding:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
2016
Call Option (1)
NYMEX WTI
5,000

$

 
$

$

$
54.16

2016
Swaps
NYMEX WTI
16,000

67.69

 



2016
    Swaps (2)
(3) 
6,000

90.28

 



2016
Two-Way Collars
NYMEX WTI
10,000


 

40.50

53.42

2016
Three-Way Collars
NYMEX WTI
8,000


 
54.50

65.63

79.03

2016
Swaps
Dated Brent
9,000

97.96

 



2016
Three-Way Collars
Dated Brent
8,000


 
72.50

86.25

101.79

1H17 (4)
Swaps
NYMEX WTI
6,000
55.08

 



1H17 (4)
Two-Way Collars
NYMEX WTI
2,000

 

40.00

50.44

1H17 (4)
Swaps
Dated Brent
3,000
62.80

 



2H17 (4)
Call Option (1)
NYMEX WTI
3,000

 


60.12

2H17 (4)
Swaptions (5)
Dated Brent
3,000

 


62.80

2H17 (4)
Swaptions (5)
NYMEX WTI
3,000

 


50.05

2017
Two-Way Collars
NYMEX WTI
7,000

 

40.00

53.29

2017
Call Option (1)
 NYMEX WTI
3,000

 


57.00

2017
Swaptions (5)
NYMEX WTI
4,000

 


47.34

2017
Three-Way Collars
NYMEX WTI
15,000

 
36.33

46.33

60.68

2017
Three-Way Collars
Dated Brent
2,000

 
35.00

45.00

66.33

2018
Three-Way Collars
Dated Brent
3,000


 
40.00

50.00

70.41

(1) 
We have entered into crude oil derivative enhanced swaps with strike prices that are above the market value as of trade commencement. To effect the enhanced swap structure, we sold call options to the applicable counterparty to receive the above market terms.
(2) 
Includes derivative instruments assumed by our subsidiary, NBL Texas, LLC, in connection with the Rosetta Merger.
(3) 
The indices for these derivative instruments are NYMEX WTI and Argus LLS.
(4) 
We have entered into crude oil swap contracts for portions of 2016 and 2017 resulting in the difference in hedge volumes for the full year.
(5) 
We have entered into certain derivative contracts (swaptions), which give counterparties the option to extend with similar terms for an additional 6-month or 12-month period.


14

Noble Energy, Inc.
Notes to Consolidated Financial Statements

As of June 30, 2016, the following natural gas derivative contracts were outstanding:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
MMBtu
Per Day
Weighted
Average
Fixed
Price
 
Weighted
Average
Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
Ceiling
Price
2016
Swaps
NYMEX HH
70,000

3.24

 



2016
Two-Way Collars
NYMEX HH
30,000


 

3.00

3.50

2016
Three-Way Collars
NYMEX HH
90,000


 
2.83

3.42

3.90

2016
Swaps (1)
(2) 
30,000

4.04

 



2016
Two-Way Collars (1)
(2) 
30,000


 

3.50

5.60

1H17
Swaps
NYMEX HH
30,000
2.92

 



2H17
Swaptions (3)
NYMEX HH
30,000

 


2.92

2017
Swaptions (3)
NYMEX HH
60,000

 


3.14

2017
Three-Way Collars
NYMEX HH
100,000

 
2.50

2.87

3.48

2017
Two-Way Collars
NYMEX HH
20,000

 

2.75

3.02

2018
Three-Way Collars
NYMEX HH
70,000

 
2.50

2.80

3.76

(1) 
Includes derivative instruments assumed by our subsidiary, NBL Texas, LLC, in connection with the Rosetta Merger.
(2) 
The index for these derivative instruments is Houston Ship Channel.
(3) 
We have entered into certain natural gas derivative contracts (swaptions), which give counterparties the option to extend with similar terms for an additional 6-month or 12-month period.
Fair Value Amounts and Loss (Gain) 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
 
June 30,
2016
 
December 31,
2015
 
June 30,
2016
 
December 31,
2015
(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
 
$
229

 
Current Assets
 
$
582

 
Current Liabilities
 
$
35

 
Current Liabilities
 
$

 
Noncurrent Assets
 

 
Noncurrent Assets
 
10

 
Noncurrent Liabilities
 
31

 
Noncurrent Liabilities
 

Total
 
 
$
229

 
 
 
$
592

 
 
 
$
66

 
 
 
$



15

Noble Energy, Inc.
Notes to Consolidated Financial Statements

The effect of commodity derivative instruments on our consolidated statements of operations was as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2016
 
2015
 
2016
 
2015
Cash Received in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
$
(120
)
 
$
(157
)
 
$
(276
)
 
$
(342
)
  Natural Gas
(24
)
 
(30
)
 
(46
)
 
(55
)
Total Cash Received in Settlement of Commodity Derivative Instruments
(144
)
 
(187
)
 
(322
)
 
(397
)
Non-cash Portion of Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
233

 
242

 
360

 
297

   Natural Gas
62

 
32

 
69

 
37

Total Non-cash Portion of Loss on Commodity Derivative Instruments
295

 
274

 
429

 
334

Loss (Gain) on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
113

 
85

 
84

 
(45
)
   Natural Gas
38

 
2

 
23

 
(18
)
Total Loss (Gain) on Commodity Derivative Instruments
$
151

 
$
87

 
$
107

 
$
(63
)
Note 6. Debt
Debt consists of the following:
 
June 30,
2016
 
December 31,
2015
(millions, except percentages)
Debt
 
Interest Rate
 
Debt
 
Interest Rate
Revolving Credit Facility, due August 27, 2020
$

 
%
 
$

 
%
Capital Lease and Other Obligations
377

 
%
 
403

 
%
Term Loan Facility, due January 6, 2019
1,400

 
1.71
%
 

 
%
8.25% Senior Notes, due March 1, 2019
1,000

 
8.25
%
 
1,000

 
8.25
%
5.625% Senior Notes, due May 1, 2021
379

 
5.625
%
 
693

 
5.625
%
4.15% Senior Notes, due December 15, 2021
1,000

 
4.15
%
 
1,000

 
4.15
%
5.875% Senior Notes, due June 1, 2022
18

 
5.875
%
 
597

 
5.875
%
7.25% Senior Notes, due October 15, 2023
100

 
7.25
%
 
100

 
7.25
%
5.875% Senior Notes, due June 1, 2024
8

 
5.875
%
 
499

 
5.875
%
3.90% Senior Notes, due November 15, 2024
650

 
3.90
%
 
650

 
3.90
%
8.00% Senior Notes, due April 1, 2027
250

 
8.00
%
 
250

 
8.00
%
6.00% Senior Notes, due March 1, 2041
850

 
6.00
%
 
850

 
6.00
%
5.25% Senior Notes, due November 15, 2043
1,000

 
5.25
%
 
1,000

 
5.25
%
5.05% Senior Notes, due November 15, 2044
850

 
5.05
%
 
850

 
5.05
%
7.25% Senior Debentures, due August 1, 2097
84

 
7.25
%
 
84

 
7.25
%
Total
7,966

 
 
 
7,976

 
 

Unamortized Discount
(23
)
 
 

 
(24
)
 
 

Unamortized Premium
18

 
 
 
113

 
 
Unamortized Debt Issuance Costs
(37
)
 
 
 
(36
)
 
 
Total Debt, Net of Unamortized Discount, Premium and Debt Issuance Costs
7,924

 
 

 
8,029

 
 

Less Amounts Due Within One Year
 

 
 

 
 

 
 

Capital Lease Obligations
(56
)
 
 

 
(53
)
 
 

Long-Term Debt Due After One Year
$
7,868

 
 

 
$
7,976

 
 

Revolving Credit Facility Our Credit Agreement, as amended, provides for a $4.0 billion unsecured revolving credit facility (Revolving Credit Facility), which is available for general corporate purposes. The Revolving Credit Facility (i) provides for facility fee rates that range from 10 basis points to 25 basis points per year depending upon our credit rating, (ii) provides for interest rates that are based upon the Eurodollar rate plus a margin that ranges from 90 basis points to 150 basis points depending upon our credit rating, and (iii) includes a sub-limit for letters of credit up to an aggregate amount of $500 million ($450 million of this capacity is committed as of June 30, 2016).

16

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Term Loan Agreement and Completed Tender Offers On January 6, 2016, we entered into a term loan agreement (Term Loan Facility) with Citibank, N.A., as administrative agent, Mizuho Bank, Ltd., as syndication agent, and certain other financial institutions party thereto, which provides for a three-year term loan facility for a principal amount of $1.4 billion. Provisions of the Term Loan Facility are consistent with those in the Revolving Credit Facility. Borrowings under the Term Loan Facility may be prepaid prior to maturity without premium. The Term Loan Facility will accrue interest, at our option, at either (a) a base rate equal to the highest of (i) the rate announced by Citibank, N.A., as its prime rate, (ii) the Federal Funds Rate plus 0.5%, and (iii) a London interbank offered rate plus 1.0%, plus a margin that ranges from 10 basis points to 75 basis points depending upon our credit rating, or (b) a London interbank offered rate, plus a margin that ranges from 100 basis points to 175 basis points depending upon our credit rating. The interest rate for our Term Loan Facility is 1.71% as of June 30, 2016.
In connection with the Term Loan Facility, we launched cash tender offers for the 5.875% Senior Notes due June 1, 2024, 5.875% Senior Notes due June 1, 2022 and 5.625% Senior Notes due May 1, 2021, all of which were assumed in the Rosetta Merger. The borrowings under the Term Loan Facility were used solely to fund the tender offers. Approximately $1.38 billion of notes were validly tendered and accepted by us, with a corresponding amount borrowed under the new Term Loan Facility. As a result, we recognized a gain of $80 million which is reflected in other operating (income) expense, net in our consolidated statements of operations.
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 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, three-way collars, swaptions and enhanced swaps. We estimate the fair values of these instruments using 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
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. 
Phantom Units The fair value of phantom unit awards is measured based on the fair market value of our common stock on the date of grant. We recognize the value of these awards utilizing the liability method whereby these liability awards are remeasured at each reporting date, based on the fair market value of a share of common stock of the Company as of the reporting date, through the settlement date with the change in fair value recognized as compensation expense over that period. See Note 2. Basis of Presentation.

17

Noble Energy, Inc.
Notes to Consolidated Financial Statements

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)
 
 
 
 
 
 
 
 
 
June 30, 2016
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
79

 
$

 
$

 
$

 
$
79

Commodity Derivative Instruments

 
237

 

 
(8
)
 
229

Financial Liabilities