Noble Energy Inc.
NOBLE ENERGY INC (Form: 10-Q, Received: 08/03/2017 17:22:46)
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, 2017

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

NBLLOGOUPDATED9302014A01A32.JPG

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ý     No  o  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  ý     No  o
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company o
Emerging growth company  o
 
 
(Do not check if a smaller reporting company)
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
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, 2017 , there were 486,545,041 shares of the registrant’s common stock, par value $0.01 per share, outstanding.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information   
 
 
Item 1.   Legal Proceedings  
 
 
Item 1A.   Risk Factors  
 
 
 
 
 
 
 
 
 
 
Item 6.   Exhibits  
 
 
 
 


2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Noble Energy, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(millions, except per share amounts)
(unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Oil, NGL and Gas Sales
$
1,017

 
$
823

 
$
2,011

 
$
1,528

Income from Equity Method Investees and Other
42

 
24

 
84

 
43

Total
1,059

 
847

 
2,095

 
1,571

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
283

 
280

 
586

 
556

Exploration Expense
30

 
89

 
72

 
252

Depreciation, Depletion and Amortization
503

 
622

 
1,031

 
1,239

Loss on Marcellus Shale Upstream Divestiture
2,322

 

 
2,322

 

General and Administrative
103

 
107

 
202

 
198

Other Operating Expense, Net
118

 
11

 
147

 
10

Total
3,359

 
1,109

 
4,360

 
2,255

Operating Loss
(2,300
)
 
(262
)
 
(2,265
)
 
(684
)
Other Expense (Income)
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
(57
)
 
151

 
(167
)
 
107

Interest, Net of Amount Capitalized
96

 
78

 
183

 
157

Other Non-Operating (Income) Expense, Net
(5
)
 
7

 
(6
)
 
3

Total
34

 
236

 
10

 
267

Loss Before Income Taxes
(2,334
)
 
(498
)
 
(2,275
)
 
(951
)
Income Tax Benefit
(836
)
 
(183
)
 
(824
)
 
(349
)
Net Loss and Comprehensive Loss Including Noncontrolling Interests
(1,498
)
 
(315
)
 
(1,451
)
 
(602
)
Less: Net Income and Comprehensive Income Attributable to Noncontrolling Interests
14

 

 
25

 

Net Loss and Comprehensive Loss Attributable to Noble Energy
$
(1,512
)
 
$
(315
)
 
$
(1,476
)
 
$
(602
)
 
 
 
 
 
 
 
 
Net Loss Attributable to Noble Energy per Common Share
 
 
 
 
 
 
 
Basic and Diluted
$
(3.20
)
 
$
(0.73
)
 
$
(3.27
)
 
$
(1.40
)
 
 
 
 
 
 
 
 
Weighted Average Number of Common Shares Outstanding
 
 
 
 
 
 
 
   Basic and Diluted
472

 
430

 
452

 
429


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

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Table of Contents

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

 
June 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
540

 
$
1,180

Accounts Receivable, Net
699

 
615

Other Current Assets
338

 
160

Total Current Assets
1,577

 
1,955

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
29,928

 
30,355

Property, Plant and Equipment, Other
911

 
909

Total Property, Plant and Equipment, Gross
30,839

 
31,264

Accumulated Depreciation, Depletion and Amortization
(12,563
)
 
(12,716
)
Total Property, Plant and Equipment, Net
18,276

 
18,548

Goodwill
1,289

 

Other Noncurrent Assets
432

 
508

Total Assets
$
21,574

 
$
21,011

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 
 
 

Accounts Payable - Trade
$
1,086

 
$
736

Other Current Liabilities
509

 
742

Total Current Liabilities
1,595

 
1,478

Long-Term Debt
7,133

 
7,011

Deferred Income Taxes
1,469

 
1,819

Other Noncurrent Liabilities
1,279

 
1,103

Total Liabilities
11,476

 
11,411

Commitments and Contingencies

 


Shareholders’ Equity
 

 
 

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

 

Common Stock - Par Value $0.01 per share; 1 Billion Shares Authorized; 529 Million and 471 Million Shares Issued, respectively
5

 
5

Additional Paid in Capital
8,399

 
6,450

Accumulated Other Comprehensive Loss
(30
)
 
(31
)
Treasury Stock, at Cost; 39 Million and 38 Million Shares, respectively
(727
)
 
(692
)
Retained Earnings
1,988

 
3,556

Noble Energy Share of Equity
9,635

 
9,288

Noncontrolling Interests
463

 
312

Total Equity
10,098

 
9,600

Total Liabilities and Equity
$
21,574

 
$
21,011


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


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Table of Contents

Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
Cash Flows From Operating Activities
 
 
 
Net Loss Including Noncontrolling Interests
$
(1,451
)
 
$
(602
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities
 
 
 
Depreciation, Depletion and Amortization
1,031

 
1,239

Loss on Marcellus Shale Upstream Divestiture
2,322

 

Deferred Income Tax Benefit
(873
)
 
(414
)
Dry Hole Cost

 
114

Gain on Extinguishment of Debt

 
(80
)
(Gain) Loss on Commodity Derivative Instruments
(167
)
 
107

Net Cash Received in Settlement of Commodity Derivative Instruments
14

 
322

Stock Based Compensation
67

 
40

Other Adjustments for Noncash Items Included in Income
33

 
95

Changes in Operating Assets and Liabilities
 
 
 
Increase in Accounts Receivable
(123
)
 
(6
)
Increase (Decrease) in Accounts Payable
120

 
(232
)
Decrease in Current Income Taxes Payable
(42
)
 
(51
)
Other Current Assets and Liabilities, Net
(42
)
 
(51
)
Other Operating Assets and Liabilities, Net
(12
)
 
(41
)
Net Cash Provided by Operating Activities
877


440

Cash Flows From Investing Activities


 


Additions to Property, Plant and Equipment
(1,215
)
 
(812
)
Proceeds from Marcellus Shale Upstream Divestiture
1,028

 

Clayton Williams Energy Acquisition
(616
)
 

Other Acquisitions
(321
)
 

Additions to Equity Method Investments
(68
)
 
(6
)
Proceeds from Divestitures and Other
101

 
767

Net Cash Used in Investing Activities
(1,091
)

(51
)
Cash Flows From Financing Activities
 
 
 
Dividends Paid, Common Stock
(92
)
 
(86
)
Proceeds from Noble Midstream Services Revolving Credit Facility
195

 

Repayment of Noble Midstream Services Revolving Credit Facility
(5
)
 

Proceeds from Term Loan Facility

 
1,400

Issuance of Noble Midstream Partners Common Units, Net of Offering Costs
138

 

Proceeds from Revolving Credit Facility
1,310

 

Repayment of Revolving Credit Facility
(1,310
)
 

Repayment of Clayton Williams Energy Long-term Debt
(595
)
 

Repayment of Senior Notes

 
(1,383
)
Other
(67
)
 
(48
)
Net Cash Used in Financing Activities
(426
)

(117
)
(Decrease) Increase in Cash and Cash Equivalents
(640
)

272

Cash and Cash Equivalents at Beginning of Period
1,180

 
1,028

Cash and Cash Equivalents at End of Period
$
540

 
$
1,300

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

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Table of Contents


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

 
Attributable to Noble Energy
 
 
 
 
 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Non-
controlling Interests
 
Total Equity
December 31, 2016
$
5

 
$
6,450

 
$
(31
)
 
$
(692
)
 
$
3,556

 
$
312

 
$
9,600

Net (Loss) Income

 

 

 

 
(1,476
)
 
25

 
(1,451
)
Clayton Williams Energy Acquisition

 
1,876

 

 
(25
)
 

 

 
1,851

Stock-based Compensation

 
65

 

 

 

 

 
65

Dividends (20 cents per share)

 

 

 

 
(92
)
 

 
(92
)
Issuance of Noble Midstream Partners Common Units, Net of Offering Costs

 

 

 

 


138

 
138

Distributions to Noncontrolling Interest Owners

 

 

 

 

 
(12
)
 
(12
)
Other

 
8

 
1

 
(10
)
 

 

 
(1
)
June 30, 2017
$
5

 
$
8,399

 
$
(30
)
 
$
(727
)
 
$
1,988

 
$
463

 
$
10,098

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
$
5

 
$
6,360

 
$
(33
)
 
$
(688
)
 
$
4,726

 
$

 
$
10,370

Net Loss

 

 

 

 
(602
)
 

 
(602
)
Stock-based Compensation

 
36

 

 

 

 

 
36

Dividends (20 cents per share)

 

 

 

 
(86
)
 

 
(86
)
Other

 
2

 
1

 
(8
)
 

 

 
(5
)
June 30, 2016
$
5

 
$
6,398

 
$
(32
)
 
$
(696
)
 
$
4,038

 
$

 
$
9,713

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

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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 historical operating areas include: US onshore, primarily the DJ Basin, Delaware Basin, Eagle Ford Shale and Marcellus Shale (until June 2017); US offshore Gulf of Mexico; Eastern Mediterranean; and West Africa. Our Midstream segment owns, operates, develops and acquires domestic midstream infrastructure assets with current focus areas being the DJ and Delaware Basins.

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, 2017 and December 31, 2016 and for the three and six months ended June 30, 2017 and 2016 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. For the periods presented, activity within other comprehensive income or loss was de minimis; therefore, net income or loss is materially consistent with comprehensive income or loss.
In  Note 11. Segment Information , we report a new Midstream segment, established second quarter 2017, and present prior period amounts on a comparable basis. Certain other prior-period amounts have been reclassified to conform to the current period presentation.
Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 .
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, 2016 .
Consolidation     Our consolidated financial statements include our accounts, the accounts of subsidiaries which Noble Energy wholly owns, and the accounts of a variable interest entity (VIE) for which Noble Energy is the primary beneficiary. In addition, we use the equity method of accounting for investments in entities that we do not control, but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.
Consolidated VIE   Noble Energy has determined that the partners with equity at risk in Noble Midstream Partners LP (NYSE: NBLX) (Noble Midstream Partners) lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Noble Midstream Partners' economic performance; therefore, Noble Midstream Partners is considered a VIE. Through Noble Energy's ownership interest in Noble Midstream GP LLC (the General Partner to Noble Midstream Partners), Noble Energy has the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to Noble Midstream Partners. Therefore, Noble Energy is considered the primary beneficiary and consolidates Noble Midstream Partners.
Goodwill As of June 30, 2017, our consolidated balance sheet includes goodwill of $1.3 billion . This goodwill resulted from the acquisition (Clayton Williams Energy Acquisition) of Clayton Williams Energy, Inc. (Clayton Williams Energy) completed on April 24, 2017 , and represents the excess of the consideration paid for Clayton Williams Energy over the net amounts assigned to identifiable assets acquired and liabilities assumed. See Note 3. Clayton Williams Energy Acquisition .
Goodwill is not amortized to earnings but is qualitatively assessed for impairment. We assess goodwill for impairment annually during the third quarter, or more frequently as circumstances require, at the reporting unit level. If, based on our qualitative procedures, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform the two-step goodwill impairment test. The two-step goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. It is possible that goodwill could become impaired in the future if commodity prices or other economic factors decline. See Recently Issued Accounting Standards – Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment, below.
If, in the future, we dispose of a reporting unit or a portion of a reporting unit that constitutes a business, we will include goodwill associated with that business in the carrying amount of the business in order to determine the gain or loss on disposal. The amount of goodwill allocated to the carrying amount of a business can significantly impact the amount of gain or loss recognized on the sale of that business. The amount of goodwill to be included in that carrying amount will be based on the relative fair value of the business to be disposed of and the portion of the reporting unit that will be retained.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



Exit Costs    We recognize the fair value of a liability for an exit cost in the period in which a liability is incurred. Our exit costs for second quarter 2017 relate primarily to estimated costs associated with a retained Marcellus Shale firm transportation contract, for which we accrued an exit liability at June 30, 2017.
The recognition and fair value estimation of a liability requires that management take into account certain estimates and assumptions such as: the determination of whether a cease-use date has occurred (defined as the date the entity ceases using the right conveyed by the contract, for example, the right to use a leased property or to receive future goods or services); the amount, if any, of economic benefit that is expected to be obtained from a contract through partial use or release; and our estimate of costs that will continue to be incurred under the contract. We record the liability at estimated fair value, based on expected future cash outflows required to satisfy the obligation, net of estimated recoveries, and discounted. After initial recording, the liability increases for the passage of time. Exit costs, and associated accretion expense, are included in operating expense in our consolidated statements of operations. See  Note 4. Acquisitions and Divestitures and Note 12. Commitments and Contingencies .
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.
Reserves Estimates Estimated quantities of crude oil, natural gas and natural gas liquids (NGL) reserves are the most significant of our estimates. There are numerous uncertainties inherent in estimating quantities of proved crude oil, natural gas and NGL reserves. The accuracy of any reserves estimate is a function of the quality of available engineering and geoscience information and also interpretation of the provided data. As a result, reserves estimates may be different from the quantities of crude oil, natural gas and NGLs that are ultimately recovered.
During second quarter 2017, we recorded the following significant changes in our proved reserves estimates:
Leviathan Field We recorded proved undeveloped reserves of 551 MMBoe, net, for the Leviathan field, offshore Israel, upon approval and sanction of the first phase of development, and are expecting to initiate natural gas production by the end of 2019.
Delaware Basin We recorded net proved reserves of approximately 86 MMBoe, of which approximately 17 MMBoe are proved developed reserves and 69 MMBoe are proved undeveloped reserves as of June 30, 2017 related to the Clayton Williams Energy Acquisition.
Marcellus Shale The Marcellus Shale upstream divestiture resulted in a decrease in net proved reserves of approximately 241 MMBoe as of June 30, 2017, of which approximately 190 MMBoe were proved developed reserves and 51 MMBoe were proved undeveloped reserves.
Recently Issued Accounting Standards
Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers . In summary, revenue recognition would occur upon 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.
The standard is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening balance sheet. We are performing an initial review of contracts for each of our revenue streams and developing accounting policies to address the provisions of the ASU. Currently, we do not have any contracts that would require a change from the entitlements method, historically used for certain domestic natural gas sales, to the sales method of accounting. We continue to evaluate the impact of ASU on our accounting policies, internal controls, and consolidated financial statements and related disclosures. While we have not concluded on the application of this standard, we do not expect a material impact, if any. We will adopt the new standard on January 1, 2018, using the modified retrospective approach with a cumulative adjustment to retained earnings as necessary.
Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (ASU 2017-09) Compensation – Stock Compensation (Topic 718). The purpose of this update is to provide clarity as to which modifications of awards require modification accounting under Topic 718, whereas previously issued guidance frequently resulted in varying interpretations and a diversity of practice. An entity should employ modification accounting unless the following are met: (1) the fair value of the award is the same immediately before and after

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



the award is modified; (2) the vesting conditions are the same under both the modified award and the original award; and (3) the classification of the modified award is the same as the original award, either equity or liability. Regardless of whether modification accounting is utilized, award disclosure requirements under Topic 718 remain unchanged. ASU 2017-09 will be effective for annual or any interim periods beginning after December 15, 2017. We do not believe adoption of ASU 2017-09 will have a material impact on our financial statements. We will adopt the new standard on the effective date of January 1, 2018.
Business Combinations: Clarifying the Definition of a Business In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01):  Business Combinations – Clarifying the Definition of a Business, that assists in determining whether certain transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment provides a screen to be applied to the fair value of an acquisition or disposal to evaluate whether the assets in question are simply assets or if they meet the requirements of a business. If the screen is not met, no further evaluation is needed. If the screen is met, certain steps are subsequently taken to make the determination. This ASU is designed to reduce the number of transactions to be accounted for as business transactions, which take more time and cost more to analyze than asset transactions. This ASU is effective for annual and interim periods beginning after December 15, 2017 and is required to be applied prospectively. Our current Clayton Williams Energy Acquisition is not impacted by this guidance and we will apply the new guidance to applicable and qualifying transactions after our adoption on January 1, 2018.
Statement of Cash Flows: Restricted Cash In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18):  Statement of Cash Flows – Restricted Cash , which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This ASU will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-18 will have a material impact on our statement of cash flows and related disclosures. We will adopt the new standard on the effective date of January 1, 2018.
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15): Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments , to clarify how eight specific cash receipt and cash payment transactions should be presented in the statement of cash flows. ASU 2016-15 will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-15 will have a material impact on our statement of cash flows and related disclosures as this update pertains to classification of items and is not a change in accounting principle. We will adopt the new standard on the effective date of January 1, 2018.
Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. This ASU also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted.
In the normal course of business, we enter into capital and operating lease agreements to support our exploration and development operations and lease assets such as drilling rigs, platforms, storage facilities, field services and well equipment, pipeline capacity, office space and other assets. At this time, we cannot reasonably estimate the financial impact this ASU will have on our financial statements; however, we believe adoption and implementation of this ASU will have a material impact on our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities. As part of our assessment to date, we have formed an implementation work team, prepared educational and training materials pertinent to this ASU and have begun contract review and documentation. We will adopt the new standard on the effective date of January 1, 2019.
Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04): Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment, to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under the new guidance, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, with an impairment charge being recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU 2017-04 and have not yet determined if we will early adopt.
Financial Instruments: Credit Losses In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13): Financial Instruments – Credit Losses , which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



more useful information about expected credit losses. The amended guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect, if any, that the guidance will have on our consolidated financial statements and related disclosures. We will adopt the new standard on the effective date of January 1, 2020.
Statements of Operations Information     Other statements of operations information is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(millions)
2017
 
2016
 
2017
 
2016
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
124

 
$
119

 
$
263

 
$
281

Production and Ad Valorem Taxes
38

 
40

 
83

 
43

Gathering, Transportation and Processing Expense (1)
121

 
121

 
240

 
232

Total
$
283

 
$
280

 
$
586

 
$
556

Loss on Marcellus Shale Upstream Divestiture (2)
 
 
 
 
 
 
 
Loss on Sale
$
2,270

 
$

 
$
2,270

 
$

Firm Transportation Commitment (3)
41

 

 
41

 

Other (4)
11

 

 
11

 

Total
$
2,322

 
$

 
$
2,322

 
$

Other Operating (Income) Expense, Net
 
 
 
 
 
 
 
Marketing Expense (5)
$
14

 
$
9

 
$
33

 
$
27

Clayton Williams Energy Acquisition Expenses (6)
90

 

 
94

 

Gain on Extinguishment of Debt (7)

 

 

 
(80
)
Loss on Asset Due to Terminated Contract (8)

 
5

 
4

 
47

Other, Net
14

 
(3
)
 
16

 
16

Total
$
118

 
$
11

 
$
147

 
$
10

(1)  
Certain of our processing expense was historically presented as a component of other operating expense, net, in our consolidated statements of operations. Beginning in 2017, we have changed our presentation to reflect processing expense as a component of production expense. These costs are now included within gathering, transportation and processing expense. For the three and six months ended June 30, 2017, these costs totaled $2 million and $5 million respectively. For the three and six months ended June 30, 2016, these costs totaled $6 million and $10 million respectively, and have been reclassified from marketing expense to conform to the current presentation.
(2)  
See Note 4. Acquisitions and Divestitures .
(3)  
Amount represents expense related to an unutilized firm transportation commitment associated with a Marcellus Shale firm transportation contract. See Note 12. Commitments and Contingencies .
(4)  
Amount includes costs for legal and advisory services and employee severance charges.
(5)  
Amounts represent expense for unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.
(6)  
See Note 3. Clayton Williams Energy Acquisition .
(7)  
Amount relates to the tendering of senior notes. See Note 6. Debt .
(8)  
Amounts relate to the termination and final settlement of a rig contract for offshore Falkland Islands as a result of a supplier's non-performance.



10

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



Balance Sheet Information    Other balance sheet information is as follows:
(millions)
June 30,
2017
 
December 31,
2016
Accounts Receivable, Net
 
 
 
Commodity Sales
$
408

 
$
403

Joint Interest Billings
198

 
106

Proceeds Receivable (1)

 
40

Other
112

 
86

Allowance for Doubtful Accounts
(19
)
 
(20
)
Total
$
699

 
$
615

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
65

 
$
71

Inventories, Crude Oil
23

 
18

Assets Held for Sale  (2)
191

 
18

Restricted Cash (3)

 
30

Prepaid Expenses and Other Current Assets
59

 
23

Total
$
338

 
$
160

Other Noncurrent Assets
 

 
 

Equity Method Investments
$
286

 
$
400

Mutual Fund Investments
67

 
71

Other Assets, Noncurrent
79

 
37

Total
$
432

 
$
508

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
113

 
$
115

Commodity Derivative Liabilities

 
102

Income Taxes Payable
11

 
53

Asset Retirement Obligations (4)
50

 
160

Interest Payable
75

 
76

Current Portion of Capital Lease Obligations
64

 
63

Other Liabilities, Current (5)
196

 
173

Total
$
509

 
$
742

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
216

 
$
218

Asset Retirement Obligations (4)
943

 
775

Marcellus Shale Firm Transportation Commitment (6)
33

 

Production and Ad Valorem Taxes
32

 
47

Other Liabilities, Noncurrent
55

 
63

Total
$
1,279

 
$
1,103

(1)  
Balance at December 31, 2016 related to the farm-out of a  35%  interest in Block 12 offshore Cyprus; proceeds were received in January 2017. See Note 4. Acquisitions and Divestitures .
(2)  
Balance at June 30, 2017 primarily includes our equity investment in CONE Gathering, LLC. See Note 4. Acquisitions and Divestitures .
(3)  
Balance at December 31, 2016 represented amount held in escrow for the purchase of certain Delaware Basin properties. The transaction closed in first quarter 2017. See Note 4. Acquisitions and Divestitures .
(4)  
Reclassification from current to noncurrent is driven primarily by a change in expected timing of abandonment activities in the Gulf of Mexico. See Note 9. Asset Retirement Obligations .
(5)  
Balance at June 30, 2017 includes $8 million associated with the current portion of the Marcellus Shale firm transportation commitment. See Note 12. Commitments and Contingencies .
(6)  
See Note 12. Commitments and Contingencies .

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



Note 3. Clayton Williams Energy Acquisition
In January 2017, we announced the Clayton Williams Energy Acquisition, which was approved by Clayton Williams Energy stockholders and closed on April 24, 2017 . Acquired assets include 71,000 highly contiguous net acres in the core of the Delaware Basin adjacent to our Reeves County holdings in Texas, and an additional 100,000 net acres in other areas of the Permian and Midland Basins. In total, the acquisition increased our Delaware Basin position to approximately 118,000 net acres.
We recorded net proved reserves of approximately 86 MMBoe, of which approximately 17 MMBoe are proved developed reserves and 69 MMBoe are proved undeveloped reserves, as of June 30, 2017. In addition, upon closing of the acquisition, approximately 64,000 net acres in Reeves County, Texas were dedicated to Noble Midstream Partners for infield crude oil, natural gas and produced water gathering.
The acquisition was effected through the issuance of approximately 56 million shares of Noble Energy common stock, with a fair value of approximately $1.9 billion , and cash consideration of $637 million , for total consideration of approximately $2.5 billion , in exchange for all outstanding Clayton Williams Energy shares, including options, restricted stock awards and warrants. The closing price of our stock on the New York Stock Exchange (NYSE) was $34.17 on April 24, 2017. In connection with the transaction, we borrowed $ 1.3 billion under our Revolving Credit Facility (defined below) to fund the cash portion of the acquisition consideration, redeem outstanding Clayton Williams Energy debt, pay associated make-whole premiums and pay related fees and expenses. See Note 6. Debt .
In connection with the Clayton Williams Energy Acquisition, we have incurred acquisition-related costs of approximately  $94 million  to date, including $60 million  of severance, consulting, investment, advisory, legal and other merger-related fees, and $34 million  of noncash share-based compensation expense, all of which were expensed and are included in other operating expense, net in our consolidated statements of operations. In addition, we received approximately 720,000 shares of common stock from Clayton Williams Energy shareholders for the payment of withholding taxes due on the vesting of their restricted shares and options pursuant to the purchase and sale agreement, resulting in a $25 million increase in our treasury stock balance.
Purchase Price Allocation The transaction has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price of Clayton Williams Energy to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. Any value assigned to goodwill is not expected to be deductible for income tax purposes.
Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-merger contingencies, final tax returns that provide the underlying tax basis of Clayton Williams Energy's assets and liabilities, and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities, including any goodwill, may be revised as appropriate.
The following table sets forth our preliminary purchase price allocation:
(millions, except per share amounts)
 
Fair Value of Common Stock Issued
$
1,876

Plus: Cash Consideration Paid to Clayton Williams Energy Stockholders
637

Total Purchase Price
$
2,513

Plus Liabilities Assumed by Noble Energy:
 
Accounts Payable
68

Other Current Liabilities
38

Long-Term Deferred Tax Liability
522

Long-Term Debt
595

Asset Retirement Obligations
59

Total Purchase Price Plus Liabilities Assumed
$
3,795



12

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



The fair value of Clayton Williams Energy's identifiable assets is as follows:
(millions)
 
Cash and Cash Equivalents
$
21

Other Current Assets
37

Oil and Gas Properties:
 
Proved Reserves
724

Undeveloped Leasehold Cost
1,581

Gathering and Processing Assets
49

Asset Retirement Costs
59

Other Property Plant and Equipment
18

Other Noncurrent Assets
17

Implied Goodwill
1,289

Total Asset Value
$
3,795

In connection with the acquisition, we assumed, and then subsequently retired, $595 million of Clayton Williams Energy long-term debt. The fair value measurements of long-term debt were estimated based on the early redemption prices and represent Level 1 inputs.
The fair value measurements of crude oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of crude oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive and may be subject to change.
The results of operations attributable to Clayton Williams Energy are included in our consolidated statements of operations beginning on April 24, 2017 . We generated revenues of  $25 million  and a de minimis loss from the Clayton Williams Energy assets during the period April 24, 2017 to June 30, 2017.
Proforma Financial Information   The following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Clayton Williams Energy and gives effect to the acquisition as if it had occurred on January 1, 2016. The below information reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) Noble Energy's common stock and equity awards issued to convert Clayton Williams Energy's outstanding shares of common stock and equity awards and conversion of warrants as of the closing date of the acquisition, (ii) depletion of Clayton Williams Energy's fair-valued proved crude oil and natural gas properties, and (iii) the estimated tax impacts of the pro forma adjustments.
Additionally, pro forma earnings for the three and six months ended June 30, 2017 were adjusted to exclude acquisition-related costs of  $90 million  and  $94 million , respectively, incurred by Noble Energy and  $26 million , incurred by Clayton Williams Energy in second quarter 2017. The pro forma results of operations do not include any cost savings or other synergies that may result from the Clayton Williams Energy Acquisition or any estimated costs that have been or will be incurred by us to integrate the Clayton Williams Energy assets. The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Clayton Williams Energy Acquisition taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(millions, except per share amounts)
2017
 
2016
 
2017
 
2016
Revenues
$
1,070

 
$
888

 
$
2,141

 
$
1,641

Net Loss and Comprehensive Loss Attributable to Noble Energy
(1,354
)
 
(316
)
 
(1,324
)
 
(649
)
 
 
 
 
 
 
 
 
Net Loss Attributable to Noble Energy per Common Share
 
 
 
 
 
 
 
Basic and Diluted
$
(2.77
)
 
$
(0.65
)
 
$
(2.71
)
 
$
(1.34
)


13

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



Note 4. Acquisitions and Divestitures
2017 Asset Transactions
During the first six months of 2017, we engaged in the following asset transactions.
Marcellus Shale Upstream Divestiture On June 28, 2017, we closed the sale of all of our Marcellus Shale upstream assets, which are primarily natural gas properties. The purchase price totaled $1.2 billion , and we received $1.0 billion of net cash proceeds, after consideration of customary adjustments, at closing. The purchase price includes additional contingent consideration of up to $100 million structured as three separate payments of  $33.3 million each.  The contingent payments are in effect should the average annual price of the Appalachia Dominion, South Point index exceed  $3.30  per MMBtu in the individual annual periods from 2018 through 2020. No amounts have been accrued related to the contingent consideration. Proceeds from the transaction were used to repay borrowings resulting from the Clayton Williams Energy Acquisition. See Note 6. Debt .
In second quarter 2017, we recognized a total loss of $2.3 billion , or $1.5 billion after-tax, on this transaction. The aggregate net book value of the properties prior to the sale was approximately $3.4 billion , which included approximately $883 million of undeveloped leasehold cost.
As part of the total loss, we recorded a charge of $41 million , discounted, relating to a retained transportation contract where the pipeline project is currently in service. We no longer have production to satisfy this commitment and do not plan to utilize this capacity in the future. As such, we recorded a charge in accordance with accounting for exit or disposal activities under ASC 420 - Exit or Disposal Cost Obligations. In addition, we have retained other Marcellus Shale firm transportation contracts, relating to pipeline projects which are not yet commercially available to us. These projects are either under construction or have not yet been approved by the Federal Energy Regulatory Commission (FERC). As these projects become commercially available to us, we will assess, based upon the facts and circumstances, the recognition of any potential exit cost liabilities. We expect to incur additional firm transportation, as well as other restructuring or personnel costs, associated with this exit activity in the future. See Note 2. Basis of Presentation and Note 12. Commitments and Contingencies .
For the three and six months ended June 30, 2017, our consolidated statements of operations include a pre-tax loss of $2.3 billion for the respective periods associated with the divested Marcellus Shale upstream assets, driven by the loss on sale. For the three and six months ended June 30, 2016, our consolidated statements of operations include a pre-tax loss of $91 million and $167 million , respectively.
During second quarter 2017, production from the Marcellus Shale upstream assets totaled 393 MMcfe/d. With the closing of the sale, we recorded a decrease in net proved reserves of approximately 241 MMBoe, of which approximately 190 MMBoe were proved developed reserves and 51 MMBoe were proved undeveloped reserves.
Marcellus Shale CONE Gathering Divestiture On May 18, 2017, we announced the signing of a definitive agreement to divest an affiliate that holds the 50% interest in CONE Gathering, LLC (CONE Gathering) and 21.7 million common and subordinated limited partnership units in CONE Midstream Partners LP (NYSE:CNNX) (CONE Midstream), for total cash consideration of  $765 million . CONE Gathering owns the general partner of CONE Midstream, and the limited partnership units represent a 33.5% ownership interest in CONE Midstream. CONE Midstream constructs, owns and operates natural gas gathering and other midstream energy assets in support of Marcellus Shale activities.
We expect closing to occur in second half 2017, subject to customary closing conditions and adjustments, and have classified these assets as held for sale at June 30, 2017. The other 50% owner of CONE Gathering is pursuing litigation in response to our sale. At this time, we expect this matter to be resolved prior to closing. Going forward, our midstream efforts are focused on Noble Midstream Partners, supporting our DJ Basin and Delaware Basin growth areas.
Assets Held for Sale At June 30, 2017, assets held for sale included $173 million related to our investment in CONE Gathering and $18 million related to other onshore properties.
Delaware Basin Acquisition In first quarter 2017, we closed a bolt-on acquisition in the Delaware Basin for $301 million , approximately $246 million of which was allocated to undeveloped leasehold cost. The acquisition included seven producing wells, of which four are operated by us.
Noble Midstream Partners
Asset Contribution On June 26, 2017, Noble Midstream Partners acquired an additional 15% limited partner interest in Blanco River DevCo LP (Blanco River DevCo), increasing its ownership to 40% of the Blanco River DevCo LP, and acquired the remaining 20% limited partner interest in Colorado River DevCo LP (Colorado River DevCo) from Noble Energy for  $270 million .

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



Blanco River DevCo holds Noble Midstream Partners’ Delaware Basin in-field gathering dedications for crude oil and produced water gathering services on approximately 111,000 net acres, with substantially all of the acreage also dedicated for natural gas gathering. Colorado River DevCo consists of gathering systems across Noble Energy’s Wells Ranch and East Pony development areas in the DJ Basin.
The  $270 million consideration consisted of  $245 million  in cash and 562,430 common units representing limited partner interests in Noble Midstream Partners. Noble Midstream Partners funded the cash consideration with approximately  $138 million  of net proceeds from a concurrent private placement of common units and  $90 million  of borrowings under the Noble Midstream Services Revolving Credit Facility (defined below) and the remainder from cash on hand.
Advantage Acquisition On April 3, 2017, Noble Midstream Partners and Plains Pipeline, L.P., a wholly owned subsidiary of Plains All American Pipeline, L.P., acquired Advantage Pipeline, L.L.C. (Advantage Pipeline) for  $133 million  through a newly formed 50 /50 joint venture (Advantage Joint Venture). Noble Midstream Partners contributed  $66.5 million of cash to the joint venture, funded by available cash on hand and the Noble Midstream Services Revolving Credit Facility. The Advantage Joint Venture is accounted for under the equity method and is included within our Midstream segment.
Noble Midstream Partners serves as the operator of the Advantage Pipeline system, which includes a 70 -mile crude oil pipeline in the Delaware Basin from Reeves County, Texas to Crane County, Texas with 150,000 barrels per day of shipping capacity (expandable to over 200,000 barrels per day) and 490,000 barrels of storage capacity.
2016 Asset Transactions
During the first six months of 2016, we engaged in the following asset transactions.
US Onshore Properties We entered into the following transactions for which we:
closed the divestiture of our Bowdoin property in northern Montana, generating proceeds of  $43 million , and recognized a  $23 million  loss on sale;
sold certain other US onshore properties, generating net proceeds of  $20 million , which were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss;
entered into a purchase and sale agreement for the divestiture of certain producing and undeveloped interests covering approximately  33,100  net acres in the DJ Basin for  $505 million , subject to customary closing adjustments. We received proceeds of  $486 million  during second quarter 2016, which were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss. We expect to close the sale of the remaining properties, which are classified as held for sale, in the second half of 2017; and
entered into an acreage exchange agreement receiving approximately  11,700  net acres within our Wells Ranch development area in exchange for approximately  13,500  net acres primarily from our Bronco area, located southwest of Wells Ranch, with no recognition of gain or loss.
Cyprus Project (Offshore Cyprus) In first quarter 2017, we received the remaining $40 million consideration for the farm-out of a 35% interest in Block 12, which includes the Aphrodite natural gas discovery. Proceeds received, including $131 million in first quarter 2016, were applied to the Cyprus project asset with no gain or loss recognized.
Offshore Israel Assets  In first quarter 2016, we closed the divestment of our  47%  interest in the Alon A and Alon C licenses, which include the Karish and Tanin fields, for a total sales price of  $73 million  ( $67 million  for asset consideration and  $6 million  for cost adjustments). Proceeds were applied to reduce field basis with no recognition of gain or loss.

Note 5. Derivative Instruments and Hedging Activities
Objective and Strategies for Using Derivative Instruments    We are exposed to fluctuations in crude oil, natural gas and NGL pricing. In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows relating to the marketing of our global crude oil and domestic natural gas, we enter into crude oil and natural gas price hedging arrangements.
While these instruments mitigate the cash flow risk of future decreases in commodity prices, they may also curtail benefits from future increases in commodity prices. See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.

15

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



Unsettled Commodity Derivative Instruments    As of June 30, 2017 , the following crude oil derivative contracts were outstanding:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
2H17 (1)
Call Option (2)
NYMEX WTI
3,000
$

 
$

$

$
60.12

2H17 (1)
Three-Way Collars
ICE Brent
5,000

 
43.00

50.00

64.00

2017
Three-Way Collars
NYMEX WTI
24,000

 
39.08

47.71

61.20

2017
Two-Way Collars
NYMEX WTI
10,837

 

40.80

52.71

2017
Swaps
NYMEX WTI
4,348
50.83

 



2017
Call Option (2)
NYMEX WTI
3,000

 


57.00

2017
Three-Way Collars
ICE Brent
2,000

 
43.00

50.00

63.15

2017
Three-Way Collars
Dated Brent
2,000

 
35.00

45.00

66.33

2018
Three-Way Collars
NYMEX WTI
10,000

 
45.50

52.50

69.09

2018
Three-Way Collars
Dated Brent
3,000

 
40.00

50.00

70.41

2018
Swaptions (3)
NYMEX WTI
3,000
56.10

 



(1)  
We have entered into contracts for portions of 2017 resulting in the difference in hedged volumes for the full year.
(2)  
We have entered into crude oil derivative enhanced swaps with strike prices that are above the market value as of trade commencement. To effect the enhanced swap structure, we sold call options to the applicable counterparty to receive the above market terms.
(3)  
We have entered into certain derivative contracts (swaptions), which give counterparties the right, but not the obligation, to enter into swap agreements with us on the option expiration dates.

Subsequent Event Subsequent to June 30, 2017, we entered into additional ICE Brent crude oil derivative contracts including:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
2018
Three-Way Collars
ICE Brent
5,000
$

 
$
43.00

$
50.00

$
59.50

2018
Two-Way Collars
ICE Brent
2,000

 

50.00

55.25

2019
Three-Way Collars
ICE Brent
3,000

 
43.00

50.00

64.07




16

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



As of June 30, 2017 , the following natural gas derivative contracts were outstanding:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
MMBtu
Per Day
Weighted
Average
Fixed
Price
 
Weighted
Average
Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
Ceiling
Price
2017
Three-Way Collars
NYMEX HH
110,000
$

 
$
2.58

$
2.93

$
3.65

2017
Two-Way Collars
NYMEX HH
70,000

 

2.93

3.32

2018
Three-Way Collars
NYMEX HH
120,000

 
2.50

2.88

3.65

2018
Swaptions (1)
NYMEX HH
30,000
3.36

 



(1)  
We have entered into certain derivative contracts (swaptions), which give counterparties the right, but not the obligation, to enter into swap agreements with us on the option expiration dates.
In second quarter 2017, we reduced our natural gas hedge portfolio as a result of the Marcellus Shale upstream divestiture and terminated certain natural gas three-way collars covering the remainder of 2017, resulting in a de minimis gain from cash received. In addition, we transfered certain natural gas swaps to the acquirer of the Marcellus Shale upstream assets, resulting in a de minimis loss.
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,
2017
 
December 31,
2016
 
June 30,
2017
 
December 31,
2016
(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
 
$
23

 
Current Assets
 
$

 
Current Liabilities
 
$

 
Current Liabilities
 
$
102

 
Noncurrent Assets
 
8

 
Noncurrent Assets
 

 
Noncurrent Liabilities
 

 
Noncurrent Liabilities
 
14

Total
 
 
$
31

 
 
 
$

 
 
 
$

 
 
 
$
116


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)
2017
 
2016
 
2017
 
2016
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
$
(11
)
 
$
(120
)
 
$
(16
)
 
$
(276
)
Natural Gas

 
(24
)
 
2

 
(46
)
Total Cash Received in Settlement of Commodity Derivative Instruments
(11
)
 
(144
)
 
(14
)
 
(322
)
Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
(28
)
 
233

 
(91
)
 
360

Natural Gas
(18
)
 
62

 
(62
)
 
69

Total Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
(46
)
 
295

 
(153
)
 
429

(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
(39
)
 
113

 
(107
)
 
84

Natural Gas
(18
)
 
38

 
(60
)
 
23

Total (Gain) Loss on Commodity Derivative Instruments
$
(57
)
 
$
151

 
$
(167
)
 
$
107


17

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



Note 6. Debt
Debt consists of the following:
 
June 30,
2017
 
December 31,
2016
(millions, except percentages)
Debt
 
Interest Rate
 
Debt
 
Interest Rate
Revolving Credit Facility, due August 27, 2020
$

 
%
 
$

 
%
Noble Midstream Services Revolving Credit Facility, due September 20, 2021
190

 
2.32
%
 

 
%
Term Loan Facility, due January 6, 2019
550

 
2.44
%
 
550

 
2.01
%
Leviathan Term Loan Facility, due February 23, 2025

 
%
 

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

 
8.25
%
 
1,000

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

 
5.625
%
 
379

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

 
4.15
%
 
1,000

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

 
5.875
%
 
18

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

 
7.25
%
 
100

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

 
5.875
%
 
8

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

 
3.90
%
 
650

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

 
8.00
%
 
250

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

 
6.00
%
 
850

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

 
5.25
%
 
1,000

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

 
5.05
%
 
850

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

 
7.25
%
 
84

 
7.25
%
Capital Lease and Other Obligations (1)  
307

 
%
 
375

 
%
Total
7,236

 
 
 
7,114

 
 
Unamortized Discount
(22
)
 
 
 
(23
)
 
 
Unamortized Premium
15

 
 
 
17

 
 
Unamortized Debt Issuance Costs
(32
)
 
 
 
(34
)
 
 
Total Debt, Net of Unamortized Discount, Premium and Debt Issuance Costs
7,197

 
 
 
7,074

 
 
Less Amounts Due Within One Year
 
 
 
 
 
 
 
Capital Lease Obligations
(64
)
 
 
 
(63
)
 
 
Long-Term Debt Due After One Year
$
7,133

 
 
 
$
7,011

 
 
(1) The reduction includes $41 million related to certain drilling commitments assumed by the acquirer of the Marcellus Shale upstream assets. See Note 4. Acquisitions and Divestitures and Note 12. Commitments and Contingencies .
Revolving Credit Facility Our Credit Agreement, as amended, provides for a $ 4 billion unsecured revolving credit facility (Revolving Credit Facility), which is available for general corporate purposes. The Revolving Credit Facility (i) provides for facility fee rates that range from 10 basis points to 25 basis points per year depending upon our credit rating, (ii) provides for interest rates that are based upon the Eurodollar rate plus a margin that ranges from 90 basis points to 150 basis points depending upon our credit rating.
On April 24, 2017, we borrowed $ 1.3 billion to fund the cash portion of the Clayton Williams Energy Acquisition consideration, redeem assumed Clayton Williams Energy long-term debt, pay associated make-whole premiums, pay related fees and expenses associated with the transaction and to fund other general corporate expenditures. We repaid all outstanding borrowings during second quarter 2017 with proceeds received from the Marcellus Shale upstream divestiture, cash on hand, and cash generated by the Noble Midstream Partners private placement of limited partner units and Noble Midstream Services borrowings. The outstanding borrowing was subject to a floating interest rate which was 2.02% on April 24, 2017.
Noble Midstream Services Revolving Credit Facility In 2016, Noble Midstream Services, LLC, a subsidiary of Noble Midstream Partners, entered into a credit agreement for a $350 million revolving credit facility (Noble Midstream Services Revolving Credit Facility) which is available to fund working capital and to finance acquisitions and other capital expenditures of Noble Midstream Partners.
Borrowings by Noble Midstream Partners under the Noble Midstream Services Revolving Credit Facility bear interest at a rate equal to an applicable margin plus, at Noble Midstream Partners' option, either (a) in the case of base rate borrowings, a rate equal to the highest of (1) the prime rate, (2) the greater of the federal funds rate or the overnight bank funding rate, plus 0.5% and (3) the LIBOR for an interest period of one month plus 1.00% ; or (b) in the case of LIBOR borrowings, the offered rate per annum for deposits of dollars for the applicable interest period.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



As of June 30, 2017, $190 million was outstanding under the Noble Midstream Services Revolving Credit Facility which was used to partially fund acquisitions. See Note 4. Acquisitions and Divestitures .
Leviathan Term Loan Agreement On February 24, 2017, Noble Energy Mediterranean Ltd. (NEML), a wholly owned subsidiary of Noble Energy, entered into a facility agreement (Leviathan Term Loan Facility) which provides for a limited recourse secured term loan facility with an aggregate principal borrowing amount of up to $1.0 billion , of which $625 million is initially committed. Any amounts borrowed under the Leviathan Term Loan Facility will be available to fund a portion of our share of costs for the initial phase of development of the Leviathan field offshore Israel.
Any amounts borrowed will be subject to repayment on a quarterly basis following production startup for the first phase of development which is targeted for the end of 2019. Repayment will be in accordance with an amortization schedule set forth in the facility agreement, with a final balloon payment of no more than 35% of the loans outstanding. The Leviathan Term Loan Facility matures on February 23, 2025 and we can prepay borrowings at any time, in whole or in part, without penalty. The Leviathan Term Loan Facility contains customary representations and warranties, affirmative and negative covenants, events of default and also includes a prepayment mechanism that reduces the final balloon amount if cash flows exceed certain defined coverage ratios.
Any amounts borrowed will accrue interest at LIBOR, plus a margin of 3.50% per annum prior to production startup, 3.25% during the period following production startup until the last two years of maturity, and 3.75% during the last two years until the maturity date. We are also required to pay a commitment fee equal to 1.00% per annum on the unused and available commitments under the Leviathan Term Loan Facility until the beginning of the repayment period.
The Leviathan Term Loan Facility is secured by a first priority security interest in substantially all of NEML's interests in the Leviathan field and its marketing subsidiary, and in assets related to the initial phase of the project. All of NEML’s revenues from the first phase of Leviathan development will be deposited in collateral accounts and we will be required to maintain a debt service reserve account for the benefit of the lenders under the Leviathan Term Loan Facility. Once servicing accounts are replenished and debt service made, all remaining cash will be available to us and our subsidiaries.
Term Loan Agreement and Completed Tender Offers In 2016, we entered into a term loan agreement (Term Loan Facility) which provides for a three -year term loan facility for a principal amount of $ 1.4 billion. The Term Loan Facility accrues interest, at our option, at either (a) a base rate equal to the highest of (i) the rate announced by Citibank, N.A., as its prime rate, (ii) the Federal Funds Rate plus 0.5% , and (iii) LIBOR plus 1.0% , plus a margin that ranges from 10 basis points to 75 basis points depending upon our credit rating, or (b) LIBOR plus a margin that ranges from 100 basis points to 175 basis points depending upon our credit rating.
Borrowings under the Term Loan Facility were used solely to fund tender offers for approximately $1.38 billion of notes assumed in our merger with Rosetta Resources Inc. in 2015. As a result, we recognized a gain of $80 million in first quarter 2016 which is reflected in other operating (income) expense, net in our consolidated statements of operations. In fourth quarter 2016, we prepaid $850 million of long-term debt outstanding under the Term Loan Facility from cash on hand. As of June 30, 2017, $ 550 million was outstanding under the facility.
See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of debt.

Note 7. Fair Value Measurements and Disclosures  
Assets and Liabilities Measured at Fair Value on a Recurring Basis  
Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values: 
Cash, Cash Equivalents, Accounts Receivable and Accounts Payable    The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments. 
Mutual Fund Investments   Our mutual fund investments consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets.
Commodity Derivative Instruments    Our commodity derivative instruments may include variable to fixed price commodity swaps, two-way collars, three-way collars, swaptions and enhanced swaps. We estimate the fair values of these instruments using published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



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 .  
Stock-Based Compensation Liability A portion of the value of the liability associated with our phantom unit plan is dependent upon the fair value of Noble Energy common stock as of the end of each reporting period.
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, 2017
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
67

 
$

 
$

 
$

 
$
67

Commodity Derivative Instruments

 
34

 

 
(3
)
 
31

Financial Liabilities
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments

 
(3
)
 

 
3

 

Portion of Deferred Compensation Liability Measured at Fair Value
(86
)
 

 

 

 
(86
)
Stock Based Compensation Liability Measured at Fair Value
(12
)
 

 

 


(12
)
December 31, 2016
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
71

 
$

 
$

 
$

 
$
71

Commodity Derivative Instruments

 
5

 
 
 
(5
)
 

Financial Liabilities
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments

 
(121
)
 

 
5

 
(116
)
Portion of Deferred Compensation Liability Measured at Fair Value
(88
)
 

 

 

 
(88
)
Stock Based Compensation Liability Measured at Fair Value
(9
)
 

 

 

 
(9
)
(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 such as inventory, oil and gas properties and assets held for sale are measured at fair value on a nonrecurring basis in our consolidated balance sheets. For the six months ended June 30, 2017 and 2016, we had no adjustments in fair value related to these items. Other items measured at fair value on a nonrecurring basis are discussed below.
Marcellus Shale Firm Transportation Liability As of June 30, 2017, we recorded a $41 million liability representing the discounted present value of our remaining obligation under a firm transportation contract. See Note 12. Commitments and Contingencies .

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



Additional Fair Value Disclosures
Debt    The fair value of fixed-rate, public 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.
Our Term Loan Facility and the Noble Midstream Services Revolving Credit Facility are variable-rate, non-public debt. The fair value is estimated based on significant other observable inputs. As such, we consider the fair value of these facilities 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, 2017
 
December 31, 2016
(millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-Term Debt, Net (1)
$
6,890

 
$
7,373

 
$
6,699

 
$
7,112

(1)  
Net of unamortized discount, premium and debt issuance costs and excludes capital lease and other obligations.

Note 8. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs
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. On a quarterly basis, we review the status of suspended exploratory well costs and assess the development of these projects. 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, 2017
Capitalized Exploratory Well Costs, December 31, 2016
$
768

Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
6

Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves (1)
(203
)
Capitalized Exploratory Well Costs, June 30, 2017
$
571

(1)  
Amount relates to the approval and sanction of the first phase of development of the Leviathan field, offshore Israel. During second quarter 2017, we recorded Leviathan field proved undeveloped reserves of 551 MMBoe, net.

The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced:
(millions)
June 30,
2017
 
December 31,
2016
Exploratory Well Costs Capitalized for a Period of One Year or Less
$
19

 
$
69

Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling (1)
552

 
699

Balance at June 30, 2017
$
571

 
$
768

(1)  
The decrease from December 31, 2016 is attributable to the reclassification of the Leviathan field to development work in process, partially offset by the capitalization of interest during the period on remaining exploratory wells.
Undeveloped Leasehold Costs
We reclassify undeveloped leasehold costs to proved property costs when proved reserves, including proved undeveloped reserves, become attributable to the property as a result of our exploration and development activities.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements



As of June 30, 2017 , we had remaining undeveloped leasehold costs, to which proved reserves had not been attributed, of $3.1 billion , primarily related to properties acquired of $1.6 billion in the Clayton Williams Energy Acquisition, and $1.2 billion and $185 million attributable to Delaware Basin and Eagle Ford Shale assets, respectively, acquired in the Rosetta Resources Inc. acquisition. Undeveloped leasehold costs were derived from allocated fair values as a result of business combinations or other purchases of unproved properties and, in that the properties are primarily held by production, they are subject to impairment testing utilizing a future cash flows analysis.
The remaining undeveloped leasehold costs as of June 30, 2017 included $86 million related to Gulf of Mexico unproved properties and $52 million related to international unproved properties. These costs are evaluated as part of our periodic impairment review. If, based upon a change in exploration plans, availability of capital and suitable rig and drilling equipment, resource potential, comparative economics, changing regulations and/or other factors, an impairment is indicated, we will record impairment expense related to the respective leases.
During the first six months of 2017, we completed a geological evaluation of certain Gulf of Mexico leases and determined that $18 million of undeveloped leasehold cost should be written-off.
Note 9. Asset Retirement Obligations
Asset retirement obligations (ARO) consist 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)
2017
 
2016
Asset Retirement Obligations, Beginning Balance
$
935

 
$
989

Liabilities Incurred
82

 
3

Liabilities Settled
(32
)
 
(38
)
Revision of Estimate
(15
)
 
4

Accretion Expense (1)
23

 
25

Asset Retirement Obligations, Ending Balance
$
993

 
$
983

(1)  
Accretion expense is included in depreciation, depletion and amortization (DD&A)   expense in the consolidated statements of   operations.
For the Six Months Ended June 30, 2017 Liabilities incurred include $59 million related to the Clayton Williams Energy Acquisition and $23 million primarily for other US onshore wells and facilities placed into service. Liabilities settled primarily related to US onshore property abandonments, as well as $12 million related to properties sold in the Marcellus Shale upstream divestiture. Revisions of estimates related to decreases in cost and timing estimates of $30 million  for US onshore and Gulf of Mexico, partially offset by an increase of $15 million for West Africa.
For the Six Months Ended June 30, 2016 Liabilities incurred were due to new wells and facilities for onshore US. Liabilities settled primarily related to onshore US property abandonments.
Note 10. Income Taxes
The income tax provision (benefit) consists of the following:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(millions)
2017
 
2016
 
2017
 
2016
Current (1)
$
37

 
$
45

 
$
49

 
$
65

Deferred
(873
)
 
(228
)
 
(873
)
 
(414
)
Total Income Tax Benefit
$
(836
)
 
$
(183
)
 
$
(824
)
 
$
(349
)
Effective Tax Rate
35.8
%
 
36.7
%
 
36.2
%
 
36.7
%
(1) Current income taxes are attributable to our operations in Israel and Equatorial Guinea.
Effective Tax Rate (ETR) At the end of each interim period, we apply a forecasted annualized effective tax rate (ETR) to current year earnings or loss before tax, which can result in significant interim ETR fluctuations. Our ETR for the three and six months ended June 30, 2017 varied as compared with the three and six months ended June 30, 2016 primarily due to a larger discrete tax benefit in the prior year driven by a tax rate change in a foreign jurisdiction. In addition, the significant increase in the deferred tax benefit for the three and six months ended June 30, 2017 is primarily due to the loss recorded for the Marcellus Shale upstream divestiture.
In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2013 , Israel – 2015 and Equatorial Guinea – 2011 .


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Noble Energy, Inc.
Notes to Consolidated Financial Statements



Note 11. Segment Information
During second quarter 2017 , as a result of the strategic changes in our US onshore portfolio, we established our Midstream business as a new reportable segment. The Midstream segment, which includes the consolidated accounts of Noble Midstream Partners, additional US onshore midstream assets and US onshore equity method investments, was previously reported within the United States reportable segment. As a result, as of June 30, 2017, we now have five reportable segments, United States (US onshore and Gulf of Mexico); Eastern Mediterranean (Israel and Cyprus); West Africa (Equatorial Guinea, Cameroon and Gabon); Other International (Falkland Islands, Suriname, Canada and New Ventures); and Midstream.
The geographical reportable segments are in the business of crude oil and natural gas exploration, development, production, and acquisition (Oil and Gas Exploration and Production). The Midstream reportable segment owns, operates, develops and acquires domestic midstream infrastructure assets with current focus areas being the DJ and Delaware Basins.
Prior period amounts are presented on a comparable basis.
 
 
 
Oil and Gas Exploration and Production
 
Midstream
 
 
(In millions)
Consolidated
 
United
States
 
Eastern
Mediter- ranean
 
West
Africa
 
Other Int'l
 
United States
 
Intersegment Eliminations and Other
 

Corporate
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crude Oil, NGL and Natural Gas Revenues from Third Parties
$
1,017

 
$
780

 
$
133

 
$
104

 
$

 
$

 
$

 
$

Income from Equity Method Investees and Other
42

 

 

 
25

 

 
17