form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 
 

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

For the quarterly period ended September 30, 2011

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
Logo
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)
100 Glenborough Drive, Suite 100
   
Houston, Texas
 
77067
(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 x    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 x    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 x
 
As of October 6, 2011, there were 176,645,583 shares of the registrant’s common stock,
par value $3.33 1/3 per share, outstanding.
 


 
 

 
 
Table of Contents
 
Part I. Financial Information
3
3
3
4
5
6
  7
26
46
47
Part II. Other Information
47
47
Item 1A.  Risk Factors
47
48
48
49
49
Item 6.  Exhibits
49
49
50
 
 
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,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues
                       
Oil, Gas and NGL Sales
  $ 874     $ 704     $ 2,599     $ 2,102  
Income from Equity Method Investees
    50       34       146       85  
Other Revenues
    -       17       33       52  
Total
    924       755       2,778       2,239  
Costs and Expenses
                               
Production Expense
    153       141       449       430  
Exploration Expense
    57       35       195       167  
Depreciation, Depletion and Amortization
    225       231       681       662  
General and Administrative
    89       65       254       194  
Gain on Divestitures
    -       (114 )     (26 )     (114 )
Asset Impairments
    -       100       139       100  
Other Operating (Income) Expense, Net
    2       4       45       59  
Total
    526       462       1,737       1,498  
Operating Income
    398       293       1,041       741  
Other (Income) Expense
                               
Gain on Commodity Derivative Instruments
    (322 )     (38 )     (179 )     (280 )
Interest, Net of Amount Capitalized
    14       21       51       60  
Other Non-Operating (Income) Expense, Net
    (16 )     12       (16 )     (1 )
Total
    (324 )     (5 )     (144 )     (221 )
Income Before Income Taxes
    722       298       1,185       962  
Income Tax Provision
    281       66       436       289  
Net Income
  $ 441     $ 232     $ 749     $ 673  
                                 
Earnings Per Share, Basic
  $ 2.50     $ 1.33     $ 4.25     $ 3.86  
Earnings Per Share, Diluted
    2.39       1.31       4.12       3.80  
                                 
Weighted Average Number of Shares Outstanding, Basic
    177       175       176       175  
Weighted Average Number of Shares Outstanding, Diluted
    180       177       179       178  

The accompanying notes are an integral part of these financial statements.
 
 
Noble Energy, Inc.
Consolidated Balance Sheets
(millions)
(unaudited)
 
    September 30,     December 31,  
   
2011
   
2010
 
ASSETS            
Current Assets
           
Cash and Cash Equivalents
  $ 1,252     $ 1,081  
Accounts Receivable, Net
    546       556  
Other Current Assets
    279       201  
Total Assets, Current
    2,077       1,838  
Property, Plant and Equipment
               
Oil and Gas Properties (Successful Efforts Method of Accounting)
    17,180       14,393  
Property, Plant and Equipment, Other
    277       263  
Total Property, Plant and Equipment, Gross
    17,457       14,656  
Accumulated Depreciation, Depletion and Amortization
    (4,945 )     (4,392 )
Total Property, Plant and Equipment, Net
    12,512       10,264  
Goodwill
    696       696  
Other Noncurrent Assets
    548       484  
Total Assets
  $ 15,833     $ 13,282  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current Liabilities
               
Accounts Payable - Trade
  $ 1,132     $ 927  
Other Current Liabilities
    826       495  
Total Liabilities, Current
    1,958       1,422  
Long-Term Debt
    3,507       2,272  
Deferred Income Taxes, Noncurrent
    2,235       2,110  
Other Noncurrent Liabilities
    551       630  
Total Liabilities
    8,251       6,434  
                 
Commitments and Contingencies
               
 
               
Shareholders’ Equity
               
Preferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued
    -       -  
Common Stock - Par Value $3.33 1/3 per share; 250 Million Shares Authorized; 196 Million and 195 Million Shares Issued, Respectively
    655       651  
Additional Paid in Capital
    2,467       2,385  
Accumulated Other Comprehensive Loss
    (85 )     (104 )
Treasury Stock, at Cost; 19 Million Shares
    (640 )     (624 )
Retained Earnings
    5,185       4,540  
Total Shareholders’ Equity
    7,582       6,848  
Total Liabilities and Shareholders’ Equity
  $ 15,833     $ 13,282  

The accompanying notes are an integral part of these financial statements.
 
 
Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
   
Nine Months Ended
September 30,
 
   
2011
   
2010
 
Cash Flows From Operating Activities
           
Net Income
  $ 749     $ 673  
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
               
Depreciation, Depletion and Amortization
    681       662  
Asset Impairments
    139       100  
Dry Hole Cost
    57       57  
Deferred Income Taxes
    147       109  
Dividends (Income) from Equity Method Investees, Net
    23       6  
Unrealized Gain on Commodity Derivative Instruments
    (140 )     (215 )
Gain on Divestitures
    (26 )     (114 )
Other Adjustments for Noncash Items Included in Income
    52       40  
Changes in Operating Assets and Liabilities
               
(Increase) in Accounts Receivable
    (7 )     (63 )
(Increase) Decrease in Other Current Assets
    (17 )     18  
Increase in Accounts Payable
    131       214  
Increase  in Current Income Taxes Payable
    52       20  
(Decrease) in Other Current Liabilities
    (25 )     (17 )
Other Operating Assets and Liabilities, Net
    (31 )     (38 )
Net Cash Provided by Operating Activities
    1,785       1,452  
 
               
Cash Flows From Investing Activities
               
Additions to Property, Plant and Equipment
    (1,868 )     (1,326 )
Marcellus Shale Asset Acquisition
    (519 )     -  
Central DJ Basin Asset Acquisition
    -       (458 )
Additions to Equity Method Investments
    (73 )     -  
Proceeds from Divestitures
    77       552  
Net Cash Used in Investing Activities
    (2,383 )     (1,232 )
 
               
Cash Flows From Financing Activities
               
Exercise of Stock Options
    32       35  
Excess Tax Benefits from Stock-Based Awards
    11       19  
Dividends Paid, Common Stock
    (104 )     (95 )
Purchase of Treasury Stock
    (16 )     (12 )
Proceeds from Credit Facilities
    520       760  
Repayment of Credit Facilities
    (470 )     (792 )
Proceeds from Issuance of Senior Long-Term Debt, Net
    836       -  
Settlement of Interest Rate Derivative Instrument
    (40 )     -  
Net Cash Provided By (Used In) Financing Activities
    769       (85 )
Increase in Cash and Cash Equivalents
    171       135  
Cash and Cash Equivalents at Beginning of Period
    1,081       1,014  
Cash and Cash Equivalents at End of Period
  $ 1,252     $ 1,149  
 
The accompanying notes are an integral part of these financial statements.
 
 
Noble Energy, Inc.
Consolidated Statements of Shareholders' Equity
(millions)
(unaudited)
 
   
Common Stock
   
Additional Paid in Capital
   
Acumulated Other Comprehensive Loss
   
Treasury Stock at Cost
   
Retained Earnings
   
Total Shareholders' Equity
 
December 31, 2010
  $ 651     $ 2,385     $ (104 )   $ (624 )   $ 4,540     $ 6,848  
Net Income
    -       -       -       -       749       749  
Stock-based Compensation
    -       43       -       -       -       43  
Exercise of Stock Options
    2       30       -       -       -       32  
Tax Benefits Related to Exercise of Stock Options
    -       11       -       -       -       11  
Restricted Stock Awards, Net
    2       (2 )     -       -       -       -  
Dividends (58 cents per share)
    -       -       -       -       (104 )     (104 )
Changes in Treasury Stock, Net
    -       -       -       (16 )     -       (16 )
Interest Rate Cash Flow Hedges
                                               
Unrealized Change in Fair Value
    -       -       15       -       -       15  
Net Change in Other
    -       -       4       -       -       4  
September 30, 2011
  $ 655     $ 2,467     $ (85 )   $ (640 )   $ 5,185     $ 7,582  
                                                 
December 31, 2009
  $ 645     $ 2,260     $ (75 )   $ (615 )   $ 3,942     $ 6,157  
Net Income
    -       -       -       -       673       673  
Stock-based Compensation
    -       40       -       -       -       40  
Exercise of Stock Options
    3       32       -       -       -       35  
Tax Benefits Related to Exercise of Stock Options
    -       19       -       -       -       19  
Restricted Stock Awards, Net
    2       (2 )     -       -       -       -  
Dividends (54 cents per share)
    -       -       -       -       (95 )     (95 )
Changes in Treasury Stock, Net
    -       -       -       (12 )     -       (12 )
Oil and Gas Cash Flow Hedges
                                               
Realized Amounts Reclassified Into Earnings
    -       -       10       -       -       10  
Interest Rate Cash Flow Hedges
                                               
Unrealized Change in Fair Value
    -       -       (92 )     -       -       (92 )
Net Change in Other
    -       -       2       -       -       2  
September 30, 2010
  $ 650     $ 2,349     $ (155 )   $ (627 )   $ 4,520     $ 6,737  
 
The accompanying notes are an integral part of these financial statements.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
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 key operating areas are onshore in the US, primarily in the DJ Basin and the Marcellus shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa.
 
Note 2.  Basis of Presentation
 
Presentation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 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 nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Certain reclassifications of amounts previously reported have been made to conform to current year presentations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
Consolidation   Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries.  In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.
 
Estimates   The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.
 
Statements of Operations Information   Other statements of operations information is as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
(millions)
                       
Other Revenues
                       
Electricity Sales (1)
  $ -     $ 19     $ 32     $ 53  
Other
    -       (2 )     1       (1 )
Total
  $ -     $ 17     $ 33     $ 52  
Production Expense
                               
Lease Operating Expense
  $ 98     $ 95     $ 288     $ 283  
Production and Ad Valorem Taxes
    38       29       108       96  
Transportation Expense
    17       17       53       51  
Total
  $ 153     $ 141     $ 449     $ 430  
Other Operating (Income) Expense, Net
                               
Deepwater Gulf of Mexico Moratorium Expense (2)
  $ (1 )   $ -     $ 18     $ 27  
Electricity Generation Expense (1)
    -       9       26       26  
Loss on Involuntary Conversion (3)
    -       -       4       -  
Other, Net
    3       (5 )     (3 )     6  
Total
  $ 2     $ 4     $ 45     $ 59  
Other Non-Operating (Income) Expense, Net
                               
Deferred Compensation (Income) Expense (4)
  $ (18 )   $ 15     $ (15 )   $ 4  
Interest Income
    (2 )     (1 )     (7 )     (4 )
Other (Income) Expense, Net
    4       (2 )     6       (1 )
Total
  $ (16 )   $ 12     $ (16 )   $ (1 )
 
(1)
Electricity sales include sales from the Machala power plant located in Machala, Ecuador, through May 2011. Electricity generation expense includes all operating and non-operating expenses associated with the plant, including depreciation and changes in the allowance for doubtful accounts.  See Note 3. Acquisitions and Divestitures.
 
(2)
Amounts relate to rig stand-by expense incurred prior to receiving a permit to resume drilling activities in the deepwater Gulf of Mexico in 2011 and costs to terminate a deepwater Gulf of Mexico drilling rig contract due to the deepwater Gulf of Mexico drilling moratorium in 2010.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
(3)
The loss on involuntary conversion represents our insurance deductible related to the Leviathan-2 appraisal well control incident. We suspended operations on the Leviathan-2 well, offshore Israel, in May 2011 when we identified water flowing to the sea floor from the wellbore. The incident was a covered event under our well control insurance. At this time, we expect to recover most of the costs from insurance, subject to a deductible. The final amount to be recovered will be based on the cost to drill the Leviathan-3 replacement well down to the same depth at which the incident occurred, possible remediation activities and/or abandonment activities at the Leviathan-2 well, which have not yet been determined, and other factors. See footnote (2) below.
 
(4)
Amount represents increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.
 
Balance Sheet Information   Other balance sheet information is as follows:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
(millions)
           
Accounts Receivable, Net
           
Commodity Sales
  $ 228     $ 291  
Joint Interest Billings
    253       259  
Other
    73       33  
Allowance for Doubtful Accounts (1)
    (8 )     (27 )
Total
  $ 546     $ 556  
Other Current Assets
               
Inventories, Current
  $ 120     $ 112  
Commodity Derivative Assets, Current
    87       62  
Deferred Income Taxes, Net, Current
    15       8  
Probable Insurance Claims (2)
    25       -  
Prepaid Expenses and Other Assets, Current
    32       19  
Total
  $ 279     $ 201  
Other Noncurrent Assets
               
Equity Method Investments (3)
  $ 339     $ 285  
Mutual Fund Investments
    101       112  
Commodity Derivative Assets, Noncurrent
    44       -  
Other Assets, Noncurrent
    64       87  
Total
  $ 548     $ 484  
Other Current Liabilities
               
Production and Ad Valorem Taxes
  $ 128     $ 110  
Commodity Derivative Liabilities, Current
    6       24  
Interest Rate Derivative Liability, Current
    -       63  
Income Taxes Payable
    143       90  
Asset Retirement Obligations, Current
    45       45  
Interest Payable
    18       36  
CONSOL Installment Payment (4)
    322       -  
Current Portion of FPSO Lease Obligation
    33       -  
Other
    131       127  
Total
  $ 826     $ 495  
Other Noncurrent Liabilities
               
Deferred Compensation Liabilities, Noncurrent
  $ 210     $ 229  
Asset Retirement Obligations, Noncurrent
    215       208  
Accrued Benefit Costs, Noncurrent
    63       76  
Commodity Derivative Liabilities, Noncurrent
    -       51  
Other
    63       66  
Total
  $ 551     $ 630  
 
(1)
The decrease in the allowance for doubtful accounts from December 31, 2010 is due primarily to the transfer of assets to the Ecuadorian government. See Note 3.  Acquisitions and Divestitures.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
(2)
Amount represents the costs incurred to date of the Leviathan-2 appraisal well in excess of the insurance deductible. See footnote (3) above.
 
(3)
The increase in equity method investments from December 31, 2010 is due to our acquisition of a 50% interest in CONE Gathering LLC. See Note 3. Acquisitions and Divestitures.
 
(4)
See Note 3. Acquisitions and Divestitures and Note 5. Debt.
 
Recently Issued Accounting Standards Updates   In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-04: Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 clarifies application of fair value measurement and disclosure requirements and is effective for annual periods beginning after December 15, 2011. We are currently evaluating the provisions of ASU 2011-04 and assessing the impact, if any, it may have on our financial position and results of operations.
 
In June 2011, the FASB issued Accounting Standards Update No. 2011-05: Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 provides that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one continuous financial statement or two consecutive financial statements. ASU 2011-05 is effective for annual periods beginning after December 15, 2011. We are currently evaluating the provisions of ASU 2011-05. We do not expect ASU 2011-05 to have any impact on our financial position and results of operations as it is a change in presentation only.
 
In September 2011, the FASB issued Accounting Standards Update No. 2011-08: Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-08 is effective for annual periods beginning after December 15, 2011. We expect to adopt the provisions of ASU 2011-08 for our annual impairment test as of December 31, 2011. We do not expect ASU 2011-08 to have any impact on our financial position and results of operations as it is a change in application of the goodwill impairment test only.
 
Note 3.   Acquisitions and Divestitures
 
Marcellus Shale Joint Venture Partnership On September 30, 2011, we closed an agreement with a subsidiary of CONSOL Energy Inc. (CONSOL) for the development of Marcellus shale properties in southwest Pennsylvania and northwest West Virginia. Under the agreement, we acquired  50% interests in 628,000 net undeveloped acres, existing Marcellus production, and existing infrastructure for approximately $1.2 billion. We and CONSOL formed CONE Gathering LLC, which we will account for using the equity method, to own and operate existing and future infrastructure.
 
We paid a total of $592 million in cash at the closing of the above transaction, funded with available cash and amounts drawn under our credit facility. In addition, we will make two additional installment payments of $328 million each, which will be paid September 30, 2012 and 2013.
 
In addition, we have agreed to fund one-third of CONSOL’s 50% working interest share of future drilling and completion costs, up to approximately $2.1 billion (CONSOL Carried Cost Obligation). The CONSOL Carried Cost Obligation is expected to extend over an eight-year period. It is capped at $400 million in each calendar year and will be suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and will remain suspended until average Henry Hub natural gas prices are above $4.00 per MMBtu for three consecutive months. Therefore, specific payment dates for the funding of the CONSOL Carried Cost Obligation cannot be determined at this time. Amounts paid pursuant to the CONSOL Carried Cost Obligation will be recorded as increases in property, plant and equipment in our consolidated balance sheets and as investing activities in our consolidated statements of cash flows.
 
As a result of the transaction, we recorded the following:
 
   
September 30,
 
   
2011
 
(millions)
     
Unproved Oil and Gas Properties
  $ 790  
Proved Oil and Gas Properties
    370  
Investment in CONE Gathering LLC
    73  
Total Assets Acquired (1)
  $ 1,233  
 
(1)
Total reflects impact of discount on remaining installment payments. See Note 5. Debt.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
To estimate the fair value of the proved oil and gas properties as of the acquisition date, we used an income approach. We utilized a discounted cash flow model which took into account the following inputs to arrive at estimates of future net cash flows:
 
 
·
estimated quantities of crude oil and natural gas prepared by our qualified petroleum engineers;
 
·
management’s estimates of future commodity prices based on NYMEX Henry Hub natural gas futures prices and adjusted for estimated location and quality differentials;
 
·
estimated future production rates based on our experience with similar properties which we operate; and
 
·
estimated timing and amounts of future operating and development costs based on our experience with similar properties which we operate.
 
We discounted the resulting future net cash flows using a market-based weighted average cost of capital rate determined appropriate at the acquisition date. The fair value of the proved producing properties is considered a Level 3 fair value measurement.
 
Certain data necessary to complete the final purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed. We expect to complete the final purchase price allocation during the 12-month period following the acquisition date, during which time the preliminary allocation may be revised.
 
See Note 5. Debt and Note 7. Fair Value Measurements and Disclosures.
 
Gas Gathering Agreement with CONE Gathering LLC   On September 30, 2011, in connection with the Marcellus shale joint venture arrangement described above, we entered into a 50-year gathering and marketing agreement with CONE Gathering LLC. Under the terms of the gathering and marketing agreement, we will pay CONE Gathering LLC a minimum annual revenue commitment (MARC). The fee will be adjusted annually based on projected gathering volumes, operating expenses, capital expenditures, and other factors. We expect the MARC to total approximately $3 million in 2011 and $23 million in 2012. Amounts to be paid under the MARC for years beyond 2012 have not yet been determined.
 
We also have agreed to fund an annual work program for the construction of additional pipeline assets to receive and deliver production from future wells. Amounts to be contributed in future years to fund our proportionate share of the annual work program will be dependent upon anticipated production locations, volumes and other factors.  We will account for our 50% interest in CONE Gathering LLC using the equity method; therefore, our share of income will be reported as income from equity method investees in our consolidated statements of operations. Our investment in CONE Gathering LLC will be reported as investment in equity method investee in our consolidated balance sheets and will reflect our cash contributions to the entity.
 
Divestitures In May 2011, we transferred our assets in Ecuador to the Ecuadorian government.  We received cash proceeds of $73 million for the transfer of our offshore Amistad field assets and Block 3 production sharing contract (PSC), which was terminated by the government of Ecuador on November 25, 2010, and the assignment of the Machala Power Electricity concession and its associated assets. Our net book value for the assets had been reduced due to previous impairment charges, resulting in a gain of $26 million before tax. We did not consider the property disposition material for discontinued operations presentation.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
In August 2010, we closed the sale of certain non-core assets in the Mid-Continent and Illinois Basin areas. Information regarding the sale is as follows:
 
   
Nine Months Ended
September 30,
 
   
2010
 
(millions)
     
Cash Proceeds
  $ 552  
Less
       
Net Book Value of Assets Sold
    (394 )
Goodwill Allocated to Assets Sold
    (61 )
Asset Retirement Obligations Associated with Assets Sold
    10  
Other Closing Adjustments
    7  
Gain on Asset Sale
  $ 114  
 
Note 4.  Asset Impairments
 
Pre-tax (non-cash) asset impairment charges were as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
(millions)
                       
East Texas (Onshore US)
  $ -     $ -     $ 116     $ -  
Iron Horse (Onshore US)
    -       71       15       71  
New Albany Shale (Onshore US)
    -       19       -       19  
Other
    -       10       8       10  
Total
  $ -     $ 100     $ 139     $ 100  
 
2011   Due to field performance combined with a low natural gas price environment, we determined that the carrying amounts of certain of our onshore US developments, primarily in East Texas, were not recoverable from future cash flows and, therefore, were impaired at June 30, 2011.
 
2010   Due to declines in natural gas prices and drilling results, we determined that the carrying amounts of our Iron Horse development and certain other US properties were not recoverable from future cash flows and, therefore, were impaired at September 30, 2010. We also recorded an impairment related to non-core, New Albany shale assets which were held-for-sale at September 30, 2010.
 
Assets to be held and used were written down to their estimated fair values, which were determined using discounted cash flow models. Assets held for sale were reduced to expected sales proceeds less costs to sell. See Note 7. Fair Value Measurements and Disclosures.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Note 5. Debt
 
Our debt consists of the following:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
Debt
   
Interest Rate
   
Debt
   
Interest Rate
 
(millions, except percentages)
                       
Credit Facility, due December 9, 2012
  $ 400       0.56 %   $ 350       0.57 %
CONSOL Installment Payments, due September 30, 2012 and 2013
    656       1.76 %     -       -  
FPSO Lease Obligation
    351       -       295       -  
5¼% Senior Notes, due April 15, 2014
    200       5.25 %     200       5.25 %
8¼% Senior Notes, due March 1, 2019
    1,000       8.25 %     1,000       8.25 %
7¼% 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 %     -       -  
7¼% Senior Debentures, due August 1, 2097
    84       7.25 %     84       7.25 %
Total
    3,891               2,279          
Unamortized Discount
    (29 )             (7 )        
Total Debt, Net of Discount
    3,862               2,272          
Less Amounts Due Within One Year
                               
CONSOL Installment Payment, due September 30, 2012, net of discount
    (322 )             -          
FPSO Lease Obligation
    (33 )             -          
Long-Term Debt Due After One Year
  $ 3,507             $ 2,272          
 
CONSOL Installment Payments   On September 30, 2011, we closed an agreement with CONSOL for the development of Marcellus shale properties. In addition to the cash paid at closing, we agreed to make two installment payments of $328 million each on September 30, 2012 and 2013. The installment payments have been discounted at the prevailing market rates for similar debt instruments. The CONSOL installment loan is a non-cash financing activity.  See Note 3. Acquisitions and Divestitures and Note 7. Fair Value Measurements and Disclosures.
 
FPSO Lease Obligation   We have entered into an agreement to lease a floating production, storage and offloading vessel (FPSO) to be used in the development of the Aseng field, offshore Equatorial Guinea. The amount of the FPSO lease obligation is based on the discounted present value of future minimum lease payments and the percentage of construction activities completed as of the reporting dates, and therefore does not reflect future minimum lease payments. The increase in the FPSO lease obligation is a non-cash financing activity. Amounts due within one year equal the amount by which the FPSO lease obligation is expected to be reduced during the next 12 months as lease payments begin. We currently expect production to commence, and lease payments to begin, by year end 2011.
 
Issuance of 6% Senior Notes   On February 18, 2011, we closed an offering of $850 million senior unsecured notes receiving net proceeds of $836  million, after deducting discount and underwriting fees. The notes are due March 1, 2041, and pay interest semi-annually at 6%. Total debt issuance costs of approximately $9 million were incurred and are being amortized to expense over the term of the notes. Approximately $470 million of the net proceeds were used to repay outstanding indebtedness under our revolving credit facility and the balance of the proceeds will be used for general corporate purposes. The notes are senior unsecured debt and rank pari passu with any of our other senior unsecured indebtedness with respect to the payment of both principal and interest. See Note 6. Derivative Instruments and Hedging Activities – Interest Rate Derivative Instrument.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Annual Debt Maturities and FPSO Lease Payments    Annual maturities of outstanding debt and estimated annual FPSO lease payments are as follows:
 
   
Debt Principal Payments
   
FPSO Lease Payments
 
(millions)
           
September 30, 2011
           
2011
  $ -     $ 12  
2012
    728       72  
2013
    328       72  
2014
    200       72  
2015
    -       70  
Thereafter
    2,284       198  
Total
  $ 3,540     $ 496  
 
New Credit Facility    On October 14, 2011, we entered into a credit agreement with certain commercial lending institutions (the Credit Agreement) which provides for a new $3.0 billion unsecured five-year revolving credit facility (the New Credit Facility). The New Credit Facility replaces our $2.1 billion credit facility maturing December 9, 2012. Also on October 14, 2011, we borrowed $400 million under the New Credit Facility, which was used to repay outstanding borrowings under and to terminate the $2.1 billion credit facility.
 
The New Credit Facility (i) provides for an initial commitment of $3.0 billion with an option to increase the overall commitment amount by up to an additional $1.0 billion, subject to the consent of any increasing lenders, (ii) will mature on October 14, 2016, (iii) provides for facility fee rates that range from 12.5 basis points to 30 basis points per year depending upon our credit rating, (iv) includes sub-facilities for short-term loans and letters of credit up to an aggregate amount of $500 million under each sub-facility and (iv) 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.
 
The Credit Agreement requires that our total debt to capitalization ratio (as defined in the Credit Agreement), expressed as a percentage, not exceed 65% at any time. A violation of this covenant could result in a default under the Credit Agreement, which would permit the participating banks to restrict our ability to access the New Credit Facility and require the immediate repayment of any outstanding advances under the New Credit Facility. The Credit Agreement does not restrict the payment of dividends on our common stock, except, if after giving effect thereto, an Event of Default shall have occurred and be continuing or been caused thereby.
 
The New Credit Facility is available for general corporate purposes. Certain lenders that are a party to the Credit Agreement have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending or commercial banking services for us for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.
 
Note 6.  Derivative Instruments and Hedging Activities
 
Objective and Strategies for Using Derivative Instruments   In order to reduce commodity price uncertainty and enhance the predictability of cash flows relating to the marketing of our crude oil and natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The derivative instruments we use include variable to fixed price commodity swaps, two-way and three-way collars, and basis swaps.
 
The fixed price swap, two-way collar, and basis swap contracts entitle us (floating price payor) to receive settlement from the counterparty (fixed price payor) for each calculation period in amounts, if any, by which the settlement price for the scheduled trading days applicable for each calculation period is less than the fixed strike price or floor price. We would pay the counterparty if the settlement price for the scheduled trading days applicable for each calculation period is more than the fixed strike price or ceiling price. The amount payable by us, if the floating price is above the fixed or ceiling price, is the product of the notional quantity per calculation period and the excess of the floating price over the fixed or ceiling price in respect of each calculation period. The amount payable by the counterparty, if the floating price is below the fixed or floor price, is the product of the notional quantity per calculation period and the excess of the fixed or floor price over the floating price in respect of each calculation period.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
A three-way collar consists of a two-way collar contract combined with a put option contract sold by us with a strike price below the floor price of the two-way collar.  We receive price protection at the purchased put option floor price of the two-way collar if commodity prices are above the sold put option strike price. If commodity prices fall below the sold put option strike price, we receive the cash market price plus the delta between the two put option strike prices. This type of instrument allows us to capture more value in a rising commodity price environment, but limits our benefits in a downward commodity price environment.
 
We also enter into forward contracts or swap agreements to hedge exposure to interest rate risk.
 
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.
 
Counterparty Credit Risk   Derivative instruments expose us to counterparty credit risk. Our commodity derivative instruments are currently with a diversified group of highly rated major banks or market participants, and we monitor and manage our level of financial exposure. Our commodity derivative contracts are executed under master agreements which allow us, in the event of default, to elect early termination of all contracts with the defaulting counterparty. If we choose to elect early termination, all asset and liability positions with the defaulting counterparty would be net settled at the time of election.
 
We monitor the creditworthiness of our counterparties. However, we are not able to predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, we may be limited in our ability to mitigate an increase in counterparty credit risk. Possible actions would be to transfer our position to another counterparty or request a voluntary termination of the derivative contracts resulting in a cash settlement. Should one of these financial counterparties not perform, we may not realize the benefit of some of our derivative instruments under lower commodity prices or higher interest rates, and could incur a loss.
 
Interest Rate Derivative Instrument   In January 2010, we entered into an interest rate forward starting swap to effectively fix the cash flows related to interest payments on our anticipated debt issuance. On February 15, 2011 we settled the interest rate swap, which had a net liability position of $40 million. Approximately $26 million, net of tax, was recorded in accumulated other comprehensive loss (AOCL) and is being reclassified to interest expense over the term of the 6% senior notes. The ineffective portion of the interest rate swap was de minimis. See Note 5. Debt.
 
Unsettled Derivative Instruments As of September 30, 2011, we had entered into the following crude oil derivative instruments:  
 
                 
Swaps
   
Collars
 
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
 
Instruments Entered Into as of September 30, 2011
                         
2011
 
Swaps
 
    NYMEX WTI (1)
    5,000     $ 85.52     $ -     $ -     $ -  
2011
 
Two-Way Collars
 
 NYMEX WTI
    13,000       -       -       80.15       94.63  
2011
 
Three-Way Collars
 
 NYMEX WTI
    12,000       -       58.33       78.33       100.71  
2012
 
Swaps
 
 NYMEX WTI
    5,000       91.84       -       -       -  
2012
 
Swaps
 
Dated Brent
    8,000       89.06       -       -       -  
2012
 
Three-Way Collars
 
 NYMEX WTI
    23,000       -       61.09       83.04       101.66  
2012
 
Three-Way Collars
 
 Dated Brent
    3,000       -       70.00       95.83       105.00  
2013
 
Swaps
 
 Dated Brent
    3,000       98.03       -       -       -  
2013
 
Three-Way Collars
 
 NYMEX WTI
    5,000       -       65.00       85.00       113.63  
2013
 
Three-Way Collars
 
 Dated Brent
    5,000       -       80.00       99.71       127.32  
Instruments Entered Into During October 1-15, 2011
                                 
2013
 
Three-Way Collars
 
Dated Brent
    5,000       -       90.00       102.00       128.15  
 
(1)
West Texas Intermediate
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
As of September 30, 2011, we had entered into the following natural gas derivative instruments:
 
                 
Swaps
   
Collars
 
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
 
Instruments Entered Into as of September 30, 2011
                         
2011
 
Swaps
 
   NYMEX HH (1)
    25,000     $ 6.41     $ -     $ -     $ -  
2011
 
Two-Way Collars
 
NYMEX HH
    140,000       -       -       5.95       6.82  
2011
 
Three-Way Collars
 
NYMEX HH
    50,000       -       4.00       5.00       6.70  
2012
 
Swaps
 
NYMEX HH
    30,000       5.10       -       -       -  
2012
 
Three-Way Collars
 
NYMEX HH
    110,000       -       4.44       5.25       6.66  
2013
 
Swaps
 
NYMEX HH
    30,000       5.25       -       -       -  
2013
 
Three-Way Collars
 
NYMEX HH
    50,000       -       4.00       5.25       5.59  
 
(1)
Henry Hub
 
As of September 30, 2011, we had entered into the following natural gas basis swaps:
 
Period
Index
Index Less Differential
MMBtu Per Day
 
Weighted Average
Differential
2011
IFERC CIG (1)
 NYMEX HH
140,000
  $
(0.70)
 
2012
IFERC CIG
 NYMEX HH
150,000
   
              (0.52)
 
 
(1)
Colorado Interstate Gas – Northern System
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Fair Value Amounts and Gains and Losses on Derivative Instruments   The fair values of derivative instruments in our consolidated balance sheets were as follows:
 
Fair Value of Derivative Instruments
 
     Asset Derivative Instruments   Liability Derivative Instruments  
    September 30,   December 31,   September 30,   December 31,  
    2011   2010   2011   2010  
   
Balance
Sheet
Location
   
Fair Value
 
Balance
Sheet
Location
   
Fair Value
 
Balance
Sheet
Location
   
Fair Value
 
Balance
Sheet
Location
   
Fair Value
 
(millions)                                          
Commodity Derivative Instruments
(Not Designated as Hedging Instruments)
 
Current Assets
  $ 87  
Current Assets
  $ 62  
Current Liabilities
  $ 6  
Current Liabilities
  $ 24  
   
Noncurrent Assets
    44  
Noncurrent Assets
    -  
Noncurrent Liabilities
    -  
Noncurrent Liabilities
    51  
                                           
Interest Rate Derivative Instruments
(Designated as Hedging Instruments)
 
Current Assets
    -  
Current Assets
    -  
Current Liabilities
    -  
Current Liabilities
    63  
Total
      $ 131       $ 62       $ 6       $ 138  
 
The effect of derivative instruments on our consolidated statements of operations was as follows:
 
Commodity Derivative Instruments Not Designated as Hedging Instruments
Amount of Gain on Derivative Instruments Recognized in Income
 
   
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
(millions)
                       
Realized Mark-to-Market Gain
  $ (22 )   $ (33 )   $ (39 )   $ (65 )
Unrealized Mark-to-Market Gain
    (300 )     (5 )     (140 )     (215 )
Total Gain on Commodity Derivative Instruments
  $ (322 )   $ (38 )   $ (179 )   $ (280 )
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Derivative Instruments in Cash Flow Hedging Relationships
 
 
Amount of (Gain) Loss on Derivative Instruments Recognized in Other Comprehensive (Income) Loss
   
Amount of (Gain) Loss on Derivative Instruments Reclassified from  Accumulated Other Comprehensive Loss
 
   
2011
   
2010
   
2011
   
2010
 
(millions)
                   
Three Months Ended September 30,
           
Commodity Derivative Instruments in Previously Designated
                       
Cash Flow Hedging Relationships (1)                        
Crude Oil Derivative Instruments
  $ -     $ -     $ -     $ 5  
Natural Gas Derivative Instruments
    -       -       -       -  
                                 
Interest Rate Derivative Instruments in Cash Flow Hedging Relationships
    -       47       -       -  
Total
  $ -     $ 47     $ -     $ 5  
Nine Months Ended September 30,
               
Commodity Derivative Instruments in Previously Designated
                               
Cash Flow Hedging Relationships (1)                                
Crude Oil Derivative Instruments
  $ -     $ -     $ -     $ 14  
Natural Gas Derivative Instruments
    -       -       -       1  
                                 
Interest Rate Derivative Instruments in Cash Flow Hedging Relationships
    (23 )     141       1       -  
Total
  $ (23 )   $ 141     $ 1     $ 15  
 
(1)
Includes effect of commodity derivative instruments previously accounted for as cash flow hedges. All net derivative gains and losses that were deferred in AOCL as a result of previous cash flow hedge accounting, had been reclassified to earnings by December 31, 2010.
 
AOCL at September 30, 2011 included deferred losses of $27 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 terms of our senior notes due April 2014 and March 2041.  Approximately $2 million of deferred losses (net of tax) will be reclassified to earnings during the next 12 months and will be recorded as an increase in interest expense.
 
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 consist of variable to fixed price commodity swaps, two-way and three-way collars, and basis swaps. 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 (for three-way collars) and the contract floors and ceilings (for two-way and three-way collars) using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 6. Derivative Instruments and Hedging Activities.
 
Interest Rate Derivative Instrument   We estimated the fair value of our forward starting swap based on published interest rate yield curves as of the date of the estimate. The fair values of interest rate derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of interest rate derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. See Note 6. Derivative Instruments and Hedging Activities.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Deferred Compensation Liability   The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust. See Mutual Fund Investments above.
 
Measurement information for assets and liabilities that are measured at fair value on a recurring basis was as follows:
 
   
Fair Value Measurements Using
             
   
Quoted Prices in 
Active Markets
(Level 1) (1)
 
Significant Other
Observable Inputs
(Level 2) (2)
   
Significant
Unobservable
Inputs (Level 3) (3)
   
Adjustment (4)
   
Fair Value
Measurement
 
(millions)
                             
September 30, 2011
                             
Financial Assets
                             
Mutual Fund Investments
  $ 101     $ -     $ -     $ -     $ 101  
Commodity Derivative Instruments
    -       174       -       (43 )     131  
Financial Liabilities
                                       
Commodity Derivative Instruments
    -       (49 )     -       43       (6 )
Portion of Deferred Compensation
                                       
 Liability Measured at Fair Value
    (152 )     -       -       -       (152 )
December 31, 2010
                     
Financial Assets
                                       
Mutual Fund Investments
  $ 112     $ -     $ -     $ -     $ 112  
Commodity Derivative Instruments
    -       106       -       (44 )     62  
Financial Liabilities
                                       
Commodity Derivative Instruments
    -       (119 )     -       44       (75 )
Interest Rate Derivative Instrument
    -       (63 )     -       -       (63 )
Portion of Deferred Compensation Liability
                                       
 Measured at Fair Value
    (178 )     -       -       -       (178 )
 
(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 master netting agreements that allow us to net cash settle asset and liability positions with the same counterparty.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
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   We determined that the carrying amounts of certain onshore US assets were not recoverable from future cash flows and, therefore, were impaired.  The assets were reduced to their estimated fair values. Information about the impaired assets is as follows:
 
    Fair Value Measurements Using              
Description
  Quoted Prices in Active Markets (Level 1)     Significant Other Observable
Inputs (Level 2)
    Significant Unobservable Inputs (Level 3)     Net Book Value (1)     Total Pre-tax (Non-cash) Impairment Loss  
(millions)
                             
Three Months Ended September 30, 2011
                         
Impaired Oil and Gas Properties
  $ -     $ -     $ -     $ -     $ -  
Three Months Ended September 30, 2010
                                 
Impaired Oil and Gas Properties
    -       -       48       148       100  
Nine Months Ended September 30, 2011
                                       
Impaired Oil and Gas Properties
  $ -     -     32     171     139  
Nine Months Ended September 30, 2010
                                       
Impaired Oil and Gas Properties
    -       -       48       148       100  
 
(1)
Amount represents net book value at date of assessment.
 
The fair values of the properties were determined as of the date of the assessment using discounted cash flow models. The discounted cash flows were based on management’s expectations for the future. Inputs included estimates of future oil and gas production, commodity prices based on published forward commodity price curves as of the date of the estimate, estimated operating and development costs, and a risk-adjusted discount rate. See Note 4. Asset Impairments.

Additional Fair Value Disclosures
 
Debt   The fair value of fixed-rate debt is estimated based on the published market prices for the same or similar issues.  The carrying amounts of floating-rate debt approximate fair value because the interest rate paid on such debt was set for periods of three months or less. The carrying amounts of the CONSOL installment payments approximate fair value because they have been discounted at the prevailing market rates for similar instruments. See Note 5. Debt. Fair value information regarding our debt is as follows:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
Carrying
Amount
   
Fair
Value
   
Carrying
Amount
   
Fair
Value
 
(millions)
                       
Long-Term Debt, Net of Unamortized Discount (1)
  $ 3,511     $ 4,031     $ 1,977     $ 2,302  
 
(1)
Excludes FPSO lease obligation.
 
 
Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Note 8.  Capitalized Exploratory Well Costs
 
Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:
 
  Nine Months Ended
September 30,
 
(millions)
     
Capitalized Exploratory Well Costs, Beginning of Period
  $ 466  
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
    158  
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves (1)
    (55 )
Capitalized Exploratory Well Costs Charged to Expense
    (15 )
Capitalized Exploratory Well Costs, End of Period
  $ 554  
 
(1)  Includes $13 million related to the Flyndre project in the North Sea.

The following table provides an aging of capitalized exploratory well costs (suspended well costs) based on the date the drilling was completed and the number of projects for which exploratory well costs have been capitalized for a period greater than one year since the completion of drilling:
 
   
September 30,
   
December 31,
 
   
2011
      2010  
(millions)
             
Exploratory Well Costs Capitalized for a Period of One Year or Less
  $ 196     $ 166  
Exploratory Well Costs Capitalized for a Period Greater Than One Year After Completion of Drilling
    358       300  
Balance at End of Period
  $ 554     $ 466  
Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year After Completion of Drilling
    10       9  
 
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 completion of drilling as of September 30, 2011:
 
         
Suspended Since