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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 September 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

nbllogoupdated9302014a01a11.jpg

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, 2016, there were 429,701,812 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,
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
882

 
$
783

 
$
2,411

 
$
2,264

Income from Equity Method Investees
28

 
36

 
70

 
60

Total
910

 
819

 
2,481

 
2,324

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
274

 
247

 
820

 
715

Exploration Expense
125

 
203

 
376

 
308

Depreciation, Depletion and Amortization
621

 
539

 
1,859

 
1,444

General and Administrative
95

 
109

 
293

 
308

Other Operating Expense, Net
45

 
188

 
66

 
310

Total
1,160

 
1,286

 
3,414

 
3,085

Operating Loss
(250
)
 
(467
)
 
(933
)
 
(761
)
Other Expense (Income)
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
(55
)
 
(267
)
 
53

 
(331
)
Interest, Net of Amount Capitalized
86

 
71

 
242

 
183

Other Non-Operating (Income) Expense, Net
(1
)
 
(12
)
 
3

 
(20
)
Total
30

 
(208
)
 
298

 
(168
)
Loss Before Income Taxes
(280
)
 
(259
)
 
(1,231
)
 
(593
)
Income Tax (Benefit) Provision
(137
)
 
24

 
(486
)
 
(180
)
Net Loss Including Noncontrolling Interests
(143
)
 
(283
)
 
(745
)
 
(413
)
Less: Net Income Attributable to Noncontrolling Interests
1

 

 
1

 

Net Loss Attributable to Noble Energy
$
(144
)
 
$
(283
)
 
$
(746
)
 
$
(413
)
 
 
 
 
 
 
 
 
Net Loss Attributable to Noble Energy Per Share of Common Stock
 
 
 
 
 
 
 
Loss Per Share, Basic
$
(0.33
)
 
$
(0.67
)
 
$
(1.73
)
 
$
(1.05
)
Loss Per Share, Diluted
$
(0.33
)
 
$
(0.67
)
 
$
(1.73
)
 
$
(1.05
)
 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
430

 
420

 
430

 
392

   Diluted
430

 
420

 
430

 
392


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
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net Loss Including Noncontrolling Interests

$
(143
)
 
$
(283
)
 
$
(745
)
 
$
(413
)
Other Items of Comprehensive Loss
 
 
 
 
 
 
 
Net Change in Mutual Fund Investment

 

 

 
(11
)
Less Tax Expense

 

 

 
3

Net Change in Pension and Other
1

 
69

 
2

 
94

      Less Tax Benefit
(1
)
 
(23
)
 
(1
)
 
(33
)
Other Comprehensive Income

 
46

 
1

 
53

Comprehensive Loss Including Noncontrolling Interests
(143
)
 
(237
)
 
(744
)
 
(360
)
Less: Comprehensive Income Attributable to Noncontrolling Interests
1

 

 
1

 

Comprehensive Loss Attributable to Noble Energy
$
(144
)
 
$
(237
)
 
$
(745
)
 
$
(360
)

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


4


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

 
September 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,819

 
$
1,028

Accounts Receivable, Net
486

 
450

Commodity Derivative Assets
120

 
582

Other Current Assets
352

 
216

Total Current Assets
2,777

 
2,276

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
30,372

 
31,220

Property, Plant and Equipment, Other
919

 
858

Total Property, Plant and Equipment, Gross
31,291

 
32,078

Accumulated Depreciation, Depletion and Amortization
(12,186
)
 
(10,778
)
Total Property, Plant and Equipment, Net
19,105

 
21,300

Other Noncurrent Assets
587

 
620

Total Assets
$
22,469

 
$
24,196

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 

Accounts Payable - Trade
$
786

 
$
1,128

Other Current Liabilities
742

 
677

Total Current Liabilities
1,528

 
1,805

Long-Term Debt
7,854

 
7,976

Deferred Income Taxes
2,103

 
2,826

Other Noncurrent Liabilities
1,139

 
1,219

Total Liabilities
12,624

 
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
6,417

 
6,360

Accumulated Other Comprehensive Loss
(32
)
 
(33
)
Treasury Stock, at Cost; 38 Million Shares
(696
)
 
(688
)
Retained Earnings
3,851

 
4,726

Noble Energy Share of Equity
9,545

 
10,370

Noncontrolling Interests
300



Total Equity
9,845

 
10,370

Total Liabilities and Equity
$
22,469

 
$
24,196


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,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net Loss Including Noncontrolling Interests
$
(745
)
 
$
(413
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities
 

 
 

Depreciation, Depletion and Amortization
1,859

 
1,444

Asset Impairments

 
43

Dry Hole Cost
105

 
154

Undeveloped Leasehold Impairment
81

 

Gain on Extinguishment of Debt
(80
)
 

Loss on Asset Due to Terminated Contract
44

 

Deferred Income Tax Benefit
(699
)
 
(244
)
Loss (Gain) on Commodity Derivative Instruments
53

 
(331
)
Net Cash Received in Settlement of Commodity Derivative Instruments
454

 
683

Stock Based Compensation
61

 
69

Non-cash Pension Termination Expense

 
81

Other Adjustments for Noncash Items Included in Income
92

 
74

Changes in Operating Assets and Liabilities


 
 

(Increase) Decrease in Accounts Receivable
6

 
370

Decrease in Accounts Payable
(124
)
 
(248
)
Increase (Decrease) in Current Income Taxes Payable
82

 
(118
)
Other Current Assets and Liabilities, Net
(72
)
 
(28
)
Other Operating Assets and Liabilities, Net
(63
)
 
(50
)
Net Cash Provided by Operating Activities
1,054

 
1,486

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(1,164
)
 
(2,519
)
Cash Acquired in Rosetta Merger

 
61

Additions to Equity Method Investments
(8
)
 
(86
)
Proceeds from Divestitures and Other
786

 
151

Net Cash Used in Investing Activities
(386
)
 
(2,393
)
Cash Flows From Financing Activities
 

 
 

Dividends Paid, Common Stock
(129
)
 
(214
)
Proceeds from Issuance of Noble Energy Common Stock, Net of Offering Costs

 
1,112

Proceeds from Issuance of Noble Midstream Common Units, Net of Offering Costs
299

 

Proceeds from Term Loan Facility
1,400

 

Repayment of Credit Facility

 
(74
)
Repayment of Senior Notes
(1,383
)
 
(12
)
Repayment of Capital Lease Obligation
(39
)
 
(49
)
Other
(25
)
 
(11
)
Net Cash Provided by Financing Activities
123

 
752

Increase (Decrease) in Cash and Cash Equivalents
791

 
(155
)
Cash and Cash Equivalents at Beginning of Period
1,028

 
1,183

Cash and Cash Equivalents at End of Period
$
1,819

 
$
1,028

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

6



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

 
Attributable to Noble Energy
 
 
 
 
 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Non-
controlling Interests
 
Total Equity
December 31, 2015
$
5

 
$
6,360

 
$
(33
)
 
$
(688
)
 
$
4,726

 
$

 
$
10,370

Net (Loss) Income

 

 

 

 
(746
)
 
1

 
(745
)
Stock-based Compensation

 
57

 

 

 

 

 
57

Dividends (30 cents per share)

 

 

 

 
(129
)
 

 
(129
)
Issuance of Noble Midstream Common Units, Net of Offering Costs

 

 

 

 

 
299

 
299

Other

 

 
1

 
(8
)
 

 

 
(7
)
September 30, 2016
$
5

 
$
6,417

 
$
(32
)
 
$
(696
)
 
$
3,851

 
$
300

 
$
9,845

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
$
4

 
$
3,624

 
$
(90
)
 
$
(671
)
 
$
7,458

 
$

 
$
10,325

Net Loss

 

 

 

 
(413
)
 

 
(413
)
Rosetta Merger
1

 
1,528

 

 

 

 

 
1,529

Stock-based Compensation

 
69

 

 

 

 

 
69

Dividends (54 cents per share)

 

 

 

 
(214
)
 

 
(214
)
Issuance of Noble Energy Common Stock, Net of Offering Costs

 
1,112

 

 



 

 
1,112

Other

 
9

 
53

 
(20
)
 

 

 
42

September 30, 2015
$
5

 
$
6,342

 
$
(37
)
 
$
(691
)
 
$
6,831

 
$

 
$
12,450


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 September 30, 2016 and December 31, 2015 and for the three and nine months ended September 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 nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.
In third quarter 2016, Noble Midstream Partners LP (Noble Midstream), a subsidiary of Noble Energy, completed its initial public offering of common units. As a result, we will be presenting our consolidated financial statements with a noncontrolling interest section representing the public's ownership in Noble Midstream. Noble Midstream and the initial public offering of common units are further discussed in Note 3. Noble Midstream Partners LP.
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, the accounts of subsidiaries which Noble Energy wholly owns, and the accounts of Noble Midstream, which is considered a variable interest entity (VIE) for which Noble Energy is the primary beneficiary. 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.
Consolidated VIE  Noble Energy has determined that the partners with equity at risk in Noble Midstream lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Noble Midstream's economic performance; therefore, Noble Midstream is considered a VIE. Through Noble Energy's ownership interest in Noble Midstream GP LLC (the General Partner to Noble Midstream), Noble Energy has the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to Noble Midstream. Therefore, Noble Energy is considered the primary beneficiary and consolidates Noble Midstream.
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, which was $31.65, as of the grant date.
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 September 30, 2016, the fair value remeasurement had a de minimis impact on our consolidated statement of operations and balance sheet. See Note 8. Fair Value Measurements and Disclosures.

8

Noble Energy, Inc.
Notes to Consolidated Financial Statements

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 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. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
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 or 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 minimis.
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 material investments are accounted for under the equity method of accounting.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15): Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments should be presented in the statement of cash flows. Specifically, ASU 2016-15 provides additional guidance for certain cash flow items which may impact our presentation and classification within our statement of cash flows, including debt prepayments or debt extinguishment costs and distributions received from equity method investees. ASU 2016-15 will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU

9

Noble Energy, Inc.
Notes to Consolidated Financial Statements

2016-15 will have a material impact on our statement of cash flows and related disclosures as this update pertains to classification of items and is not a change in accounting principle.
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. During third quarter 2016, Noble Midstream closed on its initial public offering of common units. In accordance with ASU 2015-02, Noble Midstream is considered a VIE as Noble Energy is considered the primary beneficiary. We have adopted the provisions of ASU 2015-02, which did not have a material effect on our financial statements or related disclosures.

10

Noble Energy, Inc.
Notes to Consolidated Financial Statements

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

 
 

 
 
 
 
Lease Operating Expense
$
131

 
$
133

 
$
412

 
$
419

Production and Ad Valorem Taxes
30

 
28

 
73

 
89

Transportation and Gathering Expense (1)
113

 
86

 
335

 
207

Total
$
274

 
$
247

 
$
820

 
$
715

Other Operating (Income) Expense, Net
 

 
 

 
 
 
 
(Gain) Loss on Asset Due to Terminated Contract (2)
$
(3
)
 
$

 
$
44

 
$

Marketing and Processing Expense, Net (3)
20

 
10

 
58

 
25

Loss on Divestitures

 

 
23

 

Corporate Restructuring Expense

 
21

 

 
39

Purchase Price Allocation Adjustment (4)

 

 
(25
)
 

Gain on Extinguishment of Debt (5)

 

 
(80
)
 

Asset Impairments

 

 

 
43

Inventory Adjustment (6)
14

 

 
14

 

Building Exit Cost
4

 
18

 
8

 
18

Rosetta Merger Expenses

 
71

 

 
73

Pension Plan Expense

 
67

 

 
88

Stacked Drilling Rig Expense
3

 
13

 
8

 
20

Other, Net
7

 
(12
)
 
16

 
4

Total
$
45

 
$
188

 
$
66

 
$
310

Other Non-Operating Expense (Income), Net
 

 
 

 
 
 
 
Deferred Compensation Expense (Income) (7)
$
2

 
$
(13
)
 
$
7

 
$
(19
)
Other (Income) Expense, Net
(3
)
 
1

 
(4
)
 
(1
)
Total
$
(1
)
 
$
(12
)
 
$
3

 
$
(20
)
(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. Prior year amounts of $18 million and $37 million for the three and nine months ended September 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 9. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Exploration Program Update.
(3) 
For the three and nine months ended September 30, 2016, amount includes $12 million and $39 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.
Prior year amounts of $6 million and $15 million for the three and nine months ended September 30, 2015, were previously presented within production expense. These amounts have been reclassified to conform to the current presentation.
(4) 
Amount relates to an adjustment recorded to the purchase price allocation related to the Rosetta Merger. See Note 5. Rosetta Merger.
(5) 
Amount relates to the tendering of senior notes assumed in the Rosetta Merger. See Note 7. Debt.
(6) 
Amount relates to an adjustment of inventory to its net realizable value.
(7) 
Amounts represent decreases (increases) in the fair value of shares of our common stock held in a rabbi trust.


11

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Balance Sheet Information   Other balance sheet information is as follows:
(millions)
September 30,
2016
 
December 31,
2015
Accounts Receivable, Net
 
 
 
Commodity Sales
$
317

 
$
298

Joint Interest Billings
66

 
20

Proceeds Receivable (1)
40

 

Other
86

 
151

Allowance for Doubtful Accounts
(23
)
 
(19
)
Total
$
486

 
$
450

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
75

 
$
92

Inventories, Crude Oil
25

 
23

Assets Held for Sale (2)
214

 
67

Prepaid Expenses and Other Current Assets
38

 
34

Total
$
352

 
$
216

Other Noncurrent Assets
 

 
 

Investments in Unconsolidated Subsidiaries
$
460

 
$
453

Mutual Fund Investments
83

 
90

Commodity Derivative Assets

 
10

Other Assets
44

 
67

Total
$
587

 
$
620

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
121

 
$
166

Commodity Derivative Liabilities
27

 

Income Taxes Payable
168

 
86

Asset Retirement Obligations
128

 
128

Interest Payable
93

 
83

Current Portion of Capital Lease Obligations
61

 
53

Other
144

 
161

Total
$
742

 
$
677

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
232

 
$
217

Asset Retirement Obligations
820

 
861

Production and Ad Valorem Taxes
35

 
68

Commodity Derivative Liabilities
8

 

Other
44

 
73

Total
$
1,139

 
$
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) 
Assets held for sale at September 30, 2016 primarily include $127 million relating to our 3% working interest in the Tamar project, offshore Israel, and certain producing and undeveloped assets in the DJ Basin and Eagle Ford Shale, onshore US. Assets held for sale at December 31, 2015 include the Karish and Tanin natural gas discoveries, offshore Israel. See Note 4. Divestitures.

12

Noble Energy, Inc.
Notes to Consolidated Financial Statements


Note 3. Noble Midstream Partners LP

Noble Midstream Partners LP In December 2014, we formed Noble Midstream Partners LP, a growth-oriented Delaware master limited partnership, to own, operate, develop and acquire a wide range of domestic midstream infrastructure assets. Noble Midstream's current areas of focus are in the DJ Basin in Colorado and in the Delaware Basin within the Permian Basin in Texas.
Initial Public Offering of Noble Midstream Partners LP On September 15, 2016, Noble Midstream common units began trading on the New York Stock Exchange under the symbol "NBLX." On September 20, 2016, Noble Midstream completed its public offering of 14,375,000 common units representing limited partner interests in Noble Midstream, which included 1,875,000 common units issued pursuant to the underwriters’ exercise of their option to purchase additional common units, at a price to the public of $22.50 per common unit ($21.21 per common unit, net of underwriting discounts). 
In exchange for the contributed assets, Noble Energy received:
1,527,584 common units, representing a 4.8% limited partner interest in Noble Midstream;
15,902,584 subordinated units, representing an approximate 50.0% limited partner interest in Noble Midstream;
incentive distribution rights in Noble Midstream; and
the right to receive a cash distribution from Noble Midstream.
In addition and concurrent with the closing of the offering, the General Partner retained a non-economic general partnership interest in Noble Midstream, which is not entitled to receive cash distributions.
Noble Midstream generated net proceeds of $299 million from the issuance of common units to the public, after deducting the underwriting discount, structuring fees and estimated offering expenses of $24 million. In third quarter 2016, Noble Midstream made a distribution of $297 million to Noble Energy.
Note 4. Divestitures
Onshore US Properties During the first nine months of 2016, we entered into certain onshore transactions for which we:
entered into a purchase and sale agreement for the divestiture of certain producing and non-producing crude oil and natural gas interests covering approximately 33,100 net acres in the DJ Basin for $505 million, subject to customary closing adjustments. We have received proceeds of $486 million and expect to receive the remaining proceeds, subject to post-close adjustments, in mid-2017. Proceeds received were applied to the field's basis with no recognition of gain or loss;
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;
closed a cashless acreage exchange within the DJ Basin to receive approximately 11,700 net acres within our Wells Ranch development area of the field in exchange for approximately 13,500 net acres primarily from our Bronco area of the field. No gain or loss was recognized for the transaction; and
sold certain other non-producing interests within the DJ Basin, generating net proceeds of $20 million, and other certain smaller onshore US property packages, resulting in net proceeds of $19 million, during the first nine months of 2016. Proceeds received were applied to the respective field's basis with no recognition of gain or loss.
Subsequent to third quarter 2016, we closed the divestiture of certain Eagle Ford assets that were classified as assets held for sale of $68 million as of September 30, 2016. Total proceeds received will be applied to the field's basis with no recognition of gain or loss.
During the first nine months of 2015, we sold certain onshore US crude oil and natural gas interests in the DJ Basin, generating net proceeds of $151 million. Proceeds were applied to the field's basis with no recognition of gain or loss.
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 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 has an effective date of January 1, 2016 and is expected to close in fourth quarter 2016.
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.

Note 5. 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-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


14

Noble Energy, Inc.
Notes to Consolidated Financial Statements

(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.
The results of operations attributable to Rosetta are included in our consolidated statements of operations beginning on July 21, 2015. Revenues of $119 million and $333 million and pre-tax net loss of $4 million and $17 million were generated from Rosetta assets during the three and nine months ended September 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
September 30,
Nine Months Ended
September 30,
(in millions, except per share amounts)
2016 (1)
2015
2016 (1)
2015
Revenues
$
910

$
846

$
2,481

$
2,619

Net Loss Attributable to Noble Energy
$
(144
)
$
(202
)
$
(746
)
$
(338
)
 
 
 
 
 
Net Loss Attributable to Noble Energy Per Share of Common Stock
 
 
 
 
Basic
$
(0.33
)
$
(0.44
)
$
(1.73
)
$
(0.79
)
Diluted
$
(0.33
)
$
(0.44
)
$
(1.73
)
$
(0.79
)
(1) 
No pro forma adjustments were made for the period as the acquisition is included in the Company's historical results.
Note 6.  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 8. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.

15

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Unsettled Commodity Derivative Instruments   As of September 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 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.


16

Noble Energy, Inc.
Notes to Consolidated Financial Statements

As of September 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
Swaps
NYMEX HH
30,000
3.15

 



2017
Swaptions (3)
NYMEX HH
60,000

 


3.14

2017
Three-Way Collars
NYMEX HH
180,000

 
2.50

2.93

3.58

2017
Two-Way Collars
NYMEX HH
70,000

 

2.93

3.32

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
 
September 30,
2016
 
December 31,
2015
 
September 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
 
$
120

 
Current Assets
 
$
582

 
Current Liabilities
 
$
27

 
Current Liabilities
 
$

 
Noncurrent Assets
 

 
Noncurrent Assets
 
10

 
Noncurrent Liabilities
 
8

 
Noncurrent Liabilities
 

Total
 
 
$
120

 
 
 
$
592

 
 
 
$
35

 
 
 
$



17

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
September 30,
 
Nine Months Ended
September 30,
(millions)
2016
 
2015
 
2016
 
2015
Cash Received in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
$
(119
)
 
$
(235
)
 
$
(395
)
 
$
(578
)
  Natural Gas
(13
)
 
(42
)
 
(59
)
 
(98
)
   NGLs

 
(7
)
 

 
(7
)
Total Cash Received in Settlement of Commodity Derivative Instruments
(132
)
 
(284
)
 
(454
)
 
(683
)
Non-cash Portion of Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
80

 
4

 
441

 
301

   Natural Gas
(3
)
 
3

 
66

 
41

   NGLs

 
10

 

 
10

Total Non-cash Portion of Loss on Commodity Derivative Instruments
77

 
17

 
507

 
352

(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
(39
)
 
(231
)
 
46

 
(277
)
   Natural Gas
(16
)
 
(39
)
 
7

 
(57
)
   NGLs

 
3

 

 
3

Total Loss (Gain) on Commodity Derivative Instruments
$
(55
)
 
$
(267
)
 
$
53

 
$
(331
)

18

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 7. Debt
Debt consists of the following:
 
September 30,
2016
 
December 31,
2015
(millions, except percentages)
Debt
 
Interest Rate
 
Debt
 
Interest Rate
Revolving Credit Facility, due August 27, 2020
$

 
%
 
$

 
%
Noble Midstream Revolving Credit Facility, due September 20, 2021

 
%
 


%
Capital Lease and Other Obligations
368

 
%
 
403

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

 
1.70
%
 

 
%
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