NBL-2014.6.30-10Q
Table of Contents

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, 2014

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

For the transition period from _____to_____

Commission file number: 001-07964
NOBLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
73-0785597
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
1001 Noble Energy Way
 
 
Houston, Texas
 
77070
(Address of principal executive offices)
 
(Zip Code)
(281) 872-3100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý
 
As of June 30, 2014, there were 361,732,310 shares of the registrant’s common stock,
par value $0.01 per share, outstanding.



Table of Contents

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


2

Table of Contents

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,
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
1,338

 
$
1,112

 
$
2,665

 
$
2,196

Income from Equity Method Investees
45

 
37

 
97

 
96

Total
1,383

 
1,149

 
2,762

 
2,292

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
248

 
210

 
481

 
398

Exploration Expense
59

 
90

 
133

 
151

Depreciation, Depletion and Amortization
413

 
368

 
837

 
734

General and Administrative
127

 
104

 
266

 
216

(Gain) Loss on Divestitures
(44
)
 
4

 
(42
)
 
(12
)
Asset Impairments
34

 

 
131

 

Other Operating Expense, Net
17

 
12

 
23

 
20

Total
854

 
788

 
1,829

 
1,507

Operating Income
529

 
361

 
933

 
785

Other (Income) Expense
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
236

 
(161
)
 
311

 
(89
)
Interest, Net of Amount Capitalized
52

 
33

 
99

 
58

Other Non-Operating Expense, Net
8

 
3

 
13

 
12

Total
296

 
(125
)
 
423

 
(19
)
Income from Continuing Operations Before Income Taxes
233

 
486

 
510

 
804

Income Tax Provision
41

 
128

 
118

 
214

Income from Continuing Operations
192

 
358

 
392

 
590

Discontinued Operations, Net of Tax

 
19

 

 
49

Net Income
$
192

 
$
377

 
$
392

 
$
639

 
 
 
 
 
 
 
 
Earnings Per Share, Basic
 
 
 
 
 
 
 
Income from Continuing Operations
$
0.53

 
$
1.00

 
$
1.09

 
$
1.64

Discontinued Operations, Net of Tax

 
0.05

 

 
0.14

Net Income
$
0.53

 
$
1.05

 
$
1.09

 
$
1.78

Earnings Per Share, Diluted
 
 
 
 
 
 
 
Income from Continuing Operations
$
0.52

 
$
0.99

 
$
1.07

 
$
1.63

Discontinued Operations, Net of Tax

 
0.05

 

 
0.13

Net Income
$
0.52

 
$
1.04

 
$
1.07

 
$
1.76

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
361

 
359

 
361

 
358

   Diluted
366

 
363

 
365

 
362


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

3

Table of Contents

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

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2014
 
2013
 
2014
 
2013
Net Income
$
192

 
$
377

 
$
392

 
$
639

Other Items of Comprehensive Income
 
 
 
 
 
 
 
Net Change in Pension and Other
5

 
5

 
10

 
11

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

 
3

 
6

 
7

Comprehensive Income
$
196

 
$
380

 
$
398

 
$
646


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


4

Table of Contents

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

 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
958

 
$
1,117

Accounts Receivable, Net
1,004

 
947

Other Current Assets
312

 
547

Total Current Assets
2,274

 
2,611

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
24,088

 
22,243

Property, Plant and Equipment, Other
600

 
517

Total Property, Plant and Equipment, Gross
24,688

 
22,760

Accumulated Depreciation, Depletion and Amortization
(7,712
)
 
(7,035
)
Total Property, Plant and Equipment, Net
16,976

 
15,725

Goodwill
621

 
627

Other Noncurrent Assets
704

 
679

Total Assets
$
20,575

 
$
19,642

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 

 
 

Accounts Payable - Trade
$
1,369

 
$
1,354

Other Current Liabilities
866

 
988

Total Current Liabilities
2,235

 
2,342

Long-Term Debt
5,160

 
4,566

Deferred Income Taxes, Noncurrent
2,483

 
2,441

Other Noncurrent Liabilities
1,143

 
1,109

Total Liabilities
11,021

 
10,458

Commitments and Contingencies

 


Shareholders’ Equity
 

 
 

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

 

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

 
4

Additional Paid in Capital
3,566

 
3,463

Accumulated Other Comprehensive Loss
(111
)
 
(117
)
Treasury Stock, at Cost; 38 Million Shares
(674
)
 
(659
)
Retained Earnings
6,769

 
6,493

Total Shareholders’ Equity
9,554

 
9,184

Total Liabilities and Shareholders’ Equity
$
20,575

 
$
19,642


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


5

Table of Contents

Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Six Months Ended
June 30,
 
2014
 
2013
Cash Flows From Operating Activities
 
 
 
Net Income
$
392

 
$
639

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

 
 

Depreciation, Depletion and Amortization
837

 
736

Asset Impairments
131

 

Dry Hole Cost
2

 
23

Deferred Income Taxes
24

 
108

Income from Equity Method Investees, Net of Dividends
(3
)
 
(18
)
(Gain) Loss on Commodity Derivative Instruments
311

 
(89
)
Net Cash Received (Paid) in Settlement of Commodity Derivative Instruments
(83
)
 
9

Gain on Divestitures
(42
)
 
(67
)
Stock Based Compensation
45

 
38

Other Adjustments for Noncash Items Included in Income
38

 
33

Changes in Operating Assets and Liabilities
 
 
 

(Increase) Decrease in Accounts Receivable
55

 
(193
)
Increase in Accounts Payable
126

 
131

Decrease in Current Income Taxes Payable
(86
)
 
(81
)
Increase (Decrease) in Other Current Liabilities
25

 
(33
)
Other Operating Assets and Liabilities, Net
(15
)
 
8

Net Cash Provided by Operating Activities
1,757

 
1,244

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(2,321
)
 
(1,929
)
Additions to Equity Method Investments
(40
)
 
(23
)
Proceeds from Divestitures
146

 
114

Other

 
3

Net Cash Used in Investing Activities
(2,215
)
 
(1,835
)
Cash Flows From Financing Activities
 

 
 

Exercise of Stock Options
41

 
31

Excess Tax Benefits from Stock-Based Awards
17

 
12

Dividends Paid, Common Stock
(116
)
 
(96
)
Purchase of Treasury Stock
(15
)
 
(14
)
Proceeds from Credit Facilities
600

 

Repayment of Senior Notes
(200
)
 

Repayment of Capital Lease Obligation
(28
)
 
(23
)
Net Cash Provided by (Used in) Financing Activities
299

 
(90
)
Decrease in Cash and Cash Equivalents
(159
)
 
(681
)
Cash and Cash Equivalents at Beginning of Period
1,117

 
1,387

Cash and Cash Equivalents at End of Period
$
958

 
$
706

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


6

Table of Contents

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

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

 
$
3,463

 
$
(117
)
 
$
(659
)
 
$
6,493

 
$
9,184

Net Income

 

 

 

 
392

 
392

Stock-based Compensation

 
45

 

 

 

 
45

Exercise of Stock Options

 
41

 

 

 

 
41

Tax Benefits Related to Exercise of Stock Options

 
17

 

 

 

 
17

Dividends (32 cents per share)

 

 

 

 
(116
)
 
(116
)
Changes in Treasury Stock, Net

 

 

 
(15
)
 

 
(15
)
Net Change in Pension and Other

 

 
6

 

 

 
6

June 30, 2014
$
4

 
$
3,566

 
$
(111
)
 
$
(674
)
 
$
6,769

 
$
9,554

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
$
4

 
$
3,302

 
$
(113
)
 
$
(648
)
 
$
5,713

 
$
8,258

Net Income

 

 

 

 
639

 
639

Stock-based Compensation

 
38

 

 

 

 
38

Exercise of Stock Options

 
31

 

 

 

 
31

Tax Benefits Related to Exercise of Stock Options

 
12

 

 

 

 
12

Dividends (27 cents per share)

 

 

 

 
(96
)
 
(96
)
Changes in Treasury Stock, Net

 

 

 
(14
)
 

 
(14
)
Net Change in Pension and Other

 

 
7

 

 

 
7

June 30, 2013
$
4

 
$
3,383

 
$
(106
)
 
$
(662
)
 
$
6,256

 
$
8,875


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

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

7

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements


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

Note 2.  Basis of Presentation
Presentation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at June 30, 2014 and December 31, 2013 and for the three and six months ended June 30, 2014 and 2013 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and shareholders’ equity for such periods. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Consolidation   Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries.  In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.
Discontinued Operations In 2012, we initiated a strategy to exit the North Sea geographical area through sales of our non-operated working interests in the assets. The North Sea geographical segment was classified as held for sale and the operations were reflected as discontinued operations in 2012 and 2013.
The most significant North Sea assets were sold during 2012 and 2013. However, we have been unable to locate purchasers for the remaining assets, and a sale is no longer considered probable. Therefore, during first quarter 2014, we reclassified the remaining North Sea assets to held and used, and the North Sea geographical segment is included in continuing operations in first and second quarters 2014. In addition, we recorded impairments for the North Sea assets in both the first and second quarters of 2014. See Note 4. Asset Impairments.
North Sea revenues and operating expenses for the six months ended June 30, 2014, except for the impairments recorded in the first and second quarters 2014, were de minimis. See Note 3. Divestitures, Note 4. Asset Impairments, and Note 7. Fair Value Measurements and Disclosures.
Common Stock Split   On April 22, 2013, Noble Energy’s Board of Directors approved a 2-for-1 split of its common stock to be effected in the form of a stock dividend. The stock dividend was distributed on May 28, 2013 to shareholders of record as of May 14, 2013. Earnings per share and common shares outstanding are reported giving retrospective effect to the common stock split.
Recently Issued Accounting Standards In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08: Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU 2014-08 changes the criteria for reporting discontinued operations while enhancing disclosures in this area and is effective for annual and interim periods beginning after December 15, 2014. Early adoption is permitted for disposals or for assets classified as held for sale that have not been reported in previously issued financial statements. We elected to early adopt ASU 2014-08 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs— Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. We are

8

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial position and results of operations.
Estimates   The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Statements of Operations Information   Other statements of operations information is as follows: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2014
 
2013
 
2014
 
2013
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
154

 
$
140

 
$
299

 
$
257

Production and Ad Valorem Taxes
53

 
43

 
102

 
86

Transportation and Gathering Expense
41

 
27

 
80

 
55

Total
$
248

 
$
210

 
$
481

 
$
398

Other Non-Operating (Income) Expense, Net
 

 
 

 
 
 
 
Deferred Compensation Expense (1)
$
8

 
$
3

 
$
12

 
$
14

Other (Income) Expense, Net

 

 
1

 
(2
)
Total
$
8

 
$
3

 
$
13

 
$
12

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


9

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Balance Sheet Information   Other balance sheet information is as follows:
(millions)
June 30,
2014
 
December 31,
2013
Accounts Receivable, Net
 
 
 
Proceeds Receivable from China Asset Sale (1)
$
150

 
$

Commodity Sales
464

 
495

Joint Interest Billings
310

 
382

Other
91

 
81

Allowance for Doubtful Accounts
(11
)
 
(11
)
Total
$
1,004

 
$
947

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
94

 
$
96

Inventories, Crude Oil
23

 
25

Deferred Income Taxes, Net
63

 
62

Assets Held for Sale
74

 
292

Prepaid Expenses and Other Current Assets
58

 
72

Total
$
312

 
$
547

Other Noncurrent Assets
 

 
 

Equity Method Investments
$
484

 
$
437

Mutual Fund Investments
121

 
114

Commodity Derivative Assets
2

 
16

Other Assets
97

 
112

Total
$
704

 
$
679

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
111

 
$
103

Commodity Derivative Liabilities
199

 
65

Income Taxes Payable
77

 
156

Asset Retirement Obligations
141

 
39

Interest Payable
61

 
63

Current Portion of Long Term Debt (2)

 
200

Current Portion of Capital Lease(2)
59

 
58

Liabilities Associated with Assets Held for Sale
14

 
111

Other
204

 
193

Total
$
866

 
$
988

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
276

 
$
253

Asset Retirement Obligations
563

 
547

Accrued Benefit Costs
108

 
155

Commodity Derivative Liabilities
89

 
10

Other
107

 
144

Total
$
1,143

 
$
1,109

(1) 
The sale was completed on June 30, 2014; bank transfer of the proceeds was completed on July 2, 2014.
(2) 
See Note 6. Debt.


10

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 3. Divestitures
Onshore US Properties   During the first six months of 2014, we sold certain non-core onshore US crude oil and natural gas properties. The information regarding the assets sold is as follows:
 
Three Months Ended
June 30,
Six Months Ended
June 30,
(millions)
2014
2014
Sales Proceeds
$
18

$
110

Less
 
 
     Net Book Value of Assets Sold
(11
)
(118
)
     Goodwill Allocated to Assets Sold

(6
)
     Asset Retirement Obligations Associated with Assets Sold

20

Gain on Divestitures
$
7

$
6

China On June 30, 2014, we closed the sale of our China assets. We determined the sale of our China assets did not meet the criteria for discontinued operations presentation under ASU 2014-08. See Note 2. Basis of Presentation - Recently Issued Accounting Standards. The information regarding the China assets sold is as follows:
 
Six Months Ended
June 30,
(millions)
2014
Sales Proceeds (1)
$
186

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

(1) Proceeds included $36 million cash received prior to June 30, 2014 and $150 million cash received on July 2, 2014, which was recorded as accounts receivable at June 30, 2014.
Offshore Israel Properties Assets held for sale as of June 30, 2014, include two natural gas discoveries, offshore Israel. We expect to divest these assets pursuant to an agreement we and our partners reached with the Israeli Antitrust Authority in March 2014 on various antitrust matters. The agreement is subject to final approval of the Israeli government.
North Sea Properties   During the first six months of 2013, we sold non-operated working interests in properties located in the North Sea. The sales resulted in a $55 million gain based on net sales proceeds of $54 million. See Note 2. Basis of Presentation - Discontinued Operations.
Summarized results of discontinued operations are as follows:
 
Six Months Ended
June 30,
(millions)
2013
Oil and Gas Sales
$
21

Income Before Income Taxes
4

Income Tax Expense
10

Operating Loss, Net of Tax
(6
)
Gain on Sale, Net of Tax
55

Discontinued Operations, Net of Tax
$
49


11

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 4. Asset Impairments
Pre-tax (non-cash) asset impairment charges were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended June 30,
(millions)
2014
 
2013
 
2014
 
2013
US Properties, Primarily Shelf and Deepwater Gulf of Mexico
$
18

 
$

 
$
23

 
$

Mari-B (Offshore Israel)
14

 

 
14

 

McCulloch and Other North Sea Properties
2

 

 
94

 

Total
$
34

 
$

 
$
131

 
$

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

12

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

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

 
$

$

$

2014
Swaps
Dated Brent
13,000
103.21

 



2014
Three-Way Collars
NYMEX WTI
12,000

 
75.67

90.67

100.88

2014
Three-Way Collars
Dated Brent
8,000

 
84.38

98.25

121.56

2015
Swaps
NYMEX WTI
27,000
88.80

 



2015
Swaps
Dated Brent
9,000
100.16

 



2015
Three-Way Collars
NYMEX WTI
20,000

 
70.50

87.55

94.41

2015
Three-Way Collars
Dated Brent
13,000

 
76.92

96.00

108.49

2016
Swaps
NYMEX WTI
6,000
87.95

 



2016
Swaps
Dated Brent
9,000
97.98

 



2016
Three-Way Collars
NYMEX WTI
3,000

 
72.00

85.00

94.82

2016
Three-Way Collars
Dated Brent
6,000

 
80.00

95.00

105.87

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

 
$

$

$

2014
Three-Way Collars
NYMEX HH
230,000

 
2.83

3.75

4.98

2015
Swaps
NYMEX HH
140,000
4.30

 



2015
Three-Way Collars
NYMEX HH
150,000

 
3.59

4.25

5.06

(1) 
Henry Hub

13

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

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

 
Current Assets
 
$
1

 
Current Liabilities
 
$
199

 
Current Liabilities
 
$
65

 
Noncurrent Assets
 
2

 
Noncurrent Assets
 
16

 
Noncurrent Liabilities
 
89

 
Noncurrent Liabilities
 
10

Total
 
 
$
2

 
 
 
$
17

 
 
 
$
288

 
 
 
$
75


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)
2014
 
2013
 
2014
 
2013
(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
$
238

 
$
(118
)
 
$
292

 
$
(69
)
   Natural Gas
(2
)
 
(43
)
 
19

 
(20
)
Total (Gain) Loss on Commodity Derivative Instruments
236

 
(161
)
 
311

 
(89
)
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
46

 
6

 
73

 
14

  Natural Gas
3

 
(8
)
 
10

 
(23
)
Total Cash (Received) Paid in Settlement of Commodity Derivative Instruments
49

 
(2
)
 
83

 
(9
)
Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
192

 
(124
)
 
219

 
(83
)
   Natural Gas
(5
)
 
(35
)
 
9

 
3

Total Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
$
187

 
$
(159
)
 
$
228

 
$
(80
)
AOCL Accumulated other comprehensive loss (AOCL) at June 30, 2014 included deferred losses of $23 million, net of tax, related to interest rate derivative instruments. This amount will be reclassified to earnings as an adjustment to interest expense over the term of our senior notes due March 2041. The amount of deferred losses (net of tax) which will be reclassified to earnings during the next 12 months, and recorded as an increase in interest expense, is de minimis.

14

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 6. Debt
Debt consists of the following:
 
June 30,
2014
 
 
December 31,
2013
 
(millions, except percentages)
Debt
 
Interest Rate
 
 
Debt
 
Interest Rate
 
Credit Facility, due October 3, 2018
$
600

 
1.41
%
 
 
$

 
%
 
Capital Lease and Other Obligations
353

 

 
 
359

 

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

 
%
 
 
200

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

 
8.25
%
 
 
1,000

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

 
4.15
%
 
 
1,000

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

 
7.25
%
 
 
100

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

 
8.00
%
 
 
250

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

 
6.00
%
 
 
850

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

 
5.25
%
 
 
1,000

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

 
7.25
%
 
 
84

 
7.25
%
 
Total
5,237

 
 
 
 
4,843

 
 

 
Unamortized Discount
(18
)
 
 

 
 
(19
)
 
 

 
Total Debt, Net of Discount
5,219

 
 

 
 
4,824

 
 

 
Less Amounts Due Within One Year
 

 
 

 
 
 

 
 

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

 
 
 
 
(200
)
 
 
 
Capital Lease Obligations
(59
)
 
 

 
 
(58
)
 
 

 
Long-Term Debt Due After One Year
$
5,160

 
 

 
 
$
4,566

 
 

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

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

15

Table of Contents
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, 2014
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
121

 
$

 
$

 
$

 
$
121

Commodity Derivative Instruments

 
11

 

 
(9
)
 
2

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(297
)
 

 
9

 
(288
)
Portion of Deferred Compensation Liability Measured at Fair Value
(194
)
 

 

 

 
(194
)
December 31, 2013
 
 
 
 
 
 
 

 
 

Financial Assets
 

 
 

 
 

 
 

 
 

Mutual Fund Investments
$
114

 
$

 
$

 
$

 
$
114

Commodity Derivative Instruments

 
28

 

 
(11
)
 
17

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(86
)
 

 
11

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

 

 

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

 
$

 
$
8

 
$
42

 
$
34

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

 

 

 

 

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$
14

 
$
145

 
$
131

Six Months Ended June 30, 2013
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 

 

 

(1) Amount represents net book value at the date of assessment.

16

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

The fair value of impaired oil and gas properties was determined as of the date of the assessment using a discounted cash flow model based on management’s expectations of future crude oil and natural gas production prior to abandonment date, commodity prices based on NYMEX WTI, NYMEX Henry Hub, and Brent future price curves as of the date of the estimate, estimated operating and abandonment costs, and a risk-adjusted discount rate of 10%. First and second quarter 2014 impairments were due to increases in asset carrying values associated with increases in asset retirement obligations (ARO). ARO increases were due to higher cost and change in timing of abandonment activities. See Note 4. Asset Impairments.
Additional Fair Value Disclosures
Debt   The fair value of public, fixed-rate debt is estimated based on the published market prices for the same or similar issues. As such, we consider the fair value of our public, fixed-rate debt to be a Level 1 measurement on the fair value hierarchy. 
The carrying amount of our Credit Facility at June 30, 2014 approximates fair value because the interest rate paid on such debt is set for periods of three months or less. As such, we consider the fair values of our Credit Facility to be a Level 2 measurement on the fair value hierarchy. See Note 6. Debt.
Fair value information regarding our debt is as follows:
 
June 30,
2014
 
December 31,
2013
(millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Total Debt, Net of Unamortized Discount (1)
$
4,866

 
$
5,617

 
$
4,465

 
$
4,959

(1) 
Excludes capital lease and other obligations.

Note 8.  Capitalized Exploratory Well Costs
We capitalize exploratory well costs until a determination is made that the well has found proved reserves or is deemed noncommercial. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.
Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:
(millions)
Six Months Ended June 30, 2014
Capitalized Exploratory Well Costs, Beginning of Period
$
1,301

Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
195

Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves or to Assets Held for Sale
(80
)
Capitalized Exploratory Well Costs Charged to Expense
(2
)
Capitalized Exploratory Well Costs, End of Period
$
1,414


The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced, and the number of projects that have been capitalized for a period greater than one year: 
(millions)
June 30,
2014
 
December 31,
2013
Exploratory Well Costs Capitalized for a Period of One Year or Less
$
517

 
$
568

Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling
897

 
733

Balance at End of Period
$
1,414

 
$
1,301

Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling
13

 
13

 

17

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

The following table provides a further aging of those exploratory well costs that have been capitalized for a period greater than one year since the commencement of drilling as of June 30, 2014:
 
 
 
Suspended Since
 
 
(millions)
Total
 
2012 - 2013
 
2010 - 2011
 
2009 & Prior
 
Progress
Country/Project:
 
 
 
 
 
 
 
 
 
Offshore Equatorial Guinea
 
 
 
 
 
 
 
 
 
Diega (including Carmen)
$
111

 
$
6

 
$
52

 
$
53

 
Evaluating regional development scenarios for this 2008 crude oil discovery
Carla
149

 
137

 
12

 

 
Evaluating regional development scenarios for this 2011 crude oil discovery
Felicita
38

 
3

 
6

 
29

 
Evaluating regional development plans for this 2008 condensate and natural gas discovery
Yolanda
19

 
2

 
3

 
14

 
Evaluating regional development plans for this 2007 condensate and natural gas discovery
Offshore Cameroon
 

 
 
 
 
 
 
 
 
YoYo
46

 
3

 
9

 
34

 
Working with the government to assess commercialization of this 2007 condensate and natural gas discovery
Offshore Israel
 

 
 
 
 
 
 
 
 
Leviathan
180

 
70

 
110

 

 
Targeting to sanction initial phase of development for this 2010 natural gas discovery by early 2015
Leviathan-1 Deep
76

 
49

 
27

 

 
Well did not reach the target interval; we are developing future drilling plans to test this deep oil concept
Dalit
25

 
3

 
2

 
20

 
Submitted a development plan to the government to develop this 2009 natural gas discovery as a tie-in to existing infrastructure
Dolphin 1
24

 
2

 
22

 

 
Reviewing regional development scenarios for this 2011 natural gas discovery
Offshore Cyprus
 
 
 
 
 
 
 
 
 
Cyprus
109

 
52

 
57

 

 
Submitted an appraisal plan to the Cyprus government to develop this 2011 natural gas discovery; planning additional appraisal activities including interpretation of seismic data
Falkland Islands
 

 
 
 
 
 
 
 
 
Scotia
71

 
71

 

 

 
Analyzing recently acquired seismic data
Other
 

 
 
 
 
 
 
 
 
Projects less than $20 million
49

 
39

 
4

 
6

 
Continuing to drill and evaluate appraisal wells
Total
$
897

 
$
437

 
$
304

 
$
156

 
 
Note 9.  Asset Retirement Obligations
ARO consists primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. Changes in ARO are as follows:
 
Six Months Ended
June 30,
(millions)
2014
 
2013
Asset Retirement Obligations, Beginning Balance
$
586

 
$
402

Liabilities Incurred
22

 
2

Liabilities Settled
(43
)
 
(10
)
Revision of Estimate
120

 
7

Accretion Expense (1)
19

 
14

Asset Retirement Obligations, Ending Balance
$
704

 
$
415

(1) Accretion expense is included in DD&A expense in the consolidated statements of operations.

18

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

For the six months ended June 30, 2014
Liabilities incurred were due to new wells and facilities and included $13 million for onshore US and $9 million for Eastern Mediterranean.
Liabilities settled primarily related to onshore US property abandonments and non-core, onshore US assets sold.
Revisions were primarily due to an increase of $67 million related to a non-operated North Sea field due to an increase in costs and a change in timing recorded during the first quarter of 2014. See Note 4. Asset Impairments. Additional revisions were due to changes in cost and timing estimates and primarily included $21 million for DJ Basin, $16 million for Equatorial Guinea, $9 million for Eastern Mediterranean, and $7 million for deepwater Gulf of Mexico.
For the six months ended June 30, 2013
Liabilities incurred were due to new wells and facilities for onshore development. Liabilities settled in 2013 relate primarily to non-core onshore US properties that were sold. See Note 3. Divestitures.

Note 10.  Earnings Per Share
Basic earnings per share of common stock is computed using the weighted average number of shares of common stock outstanding during each period. The diluted earnings per share of common stock include the effect of outstanding stock options, shares of restricted stock, or shares of our common stock held in a rabbi trust (when dilutive). The following table summarizes the calculation of basic and diluted earnings per share:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions, except per share amounts)
2014
 
2013
 
2014
 
2013
Income from Continuing Operations
$
192

 
$
358

 
$
392

 
$
590

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding, Basic
361

 
359

 
361

 
358

Incremental Shares from Assumed Conversion of Dilutive Stock Options, Restricted Stock, and Shares of Common Stock in Rabbi Trust
5

 
4

 
4

 
4

Weighted Average Number of Shares Outstanding, Diluted
366

 
363

 
365

 
362

Earnings from Continuing Operations Per Share, Basic
$
0.53

 
$
1.00

 
$
1.09

 
$
1.64

Earnings from Continuing Operations Per Share, Diluted
0.52

 
0.99

 
1.07

 
1.63

Number of Antidilutive Stock Options, Shares of Restricted Stock, and Shares of Common Stock in Rabbi Trust Excluded from Calculation Above
3

 
5

 
4

 
5



19

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 11.  Income Taxes
The income tax provision relating to continuing operations consists of the following: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2014
 
2013
 
2014
 
2013
Current
$
34

 
$
71

 
$
94

 
$
108

Deferred
7

 
57

 
24

 
106

Total Income Tax Provision
$
41

 
$
128

 
$
118

 
$
214

Effective Tax Rate
17.6
%
 
26.4
%
 
23.1
%
 
26.6
%

Our effective tax rate (ETR) for the three months and six months ended June 30, 2014 decreased as compared with the three and six months ended June 30, 2013 primarily due to our ability to benefit from previously unrecognized foreign tax credits, increased earnings in our foreign jurisdictions with rates that vary from the US statutory rate and a decrease in our Israeli oil profits tax.
In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2010, Equatorial Guinea – 2008 and Israel – 2009.
See Note 3. Divestitures for income taxes associated with discontinued operations.

20

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements


Note 12.  Segment Information  
We have operations throughout the world and manage our operations by country. The following information is grouped into four components that are all in the business of crude oil and natural gas exploration, development, production, and acquisition: the United States; West Africa (Equatorial Guinea, Cameroon, and Sierra Leone); Eastern Mediterranean (Israel and Cyprus); and Other International and Corporate. Other International includes China, the North Sea, Falkland Islands, Nicaragua and new ventures. The North Sea geographical segment is included in continuing operations in 2014 and discontinued operations in 2013.
(millions)
Consolidated
 
United
States
 
West
Africa
 
Eastern
Mediterranean
 
Other Int'l &
Corporate
Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
 
Revenues from Third Parties
$
1,338

 
$
842

 
$
339

 
$
113

 
$
44

Income from Equity Method Investees
45

 

 
45

 

 

Total Revenues
1,383

 
842

 
384

 
113

 
44

DD&A
413

 
311

 
72

 
15

 
15

Gain on Divestitures
(44
)
 
(8
)
 

 

 
(36
)
Asset Impairments
34

 
18

 

 
14

 
2

Income (Loss) from Continuing Operations Before Income Taxes
233

 
199

 
204

 
44

 
(214
)
Three Months Ended June 30, 2013
 

 
 

 
 

 
 

 
 

Revenues from Third Parties
$
1,112

 
$
683

 
$
290

 
$
101

 
$
38

Income from Equity Method Investees
37

 

 
37

 

 

Total Revenues
1,149

 
683

 
327

 
101

 
38

DD&A
368