Noble Energy Inc.
NOBLE ENERGY INC (Form: 10-Q, Received: 10/31/2017 10:28:46)
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 September 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

NBLLOGOUPDATED9302014A01A50.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 September 30, 2017 , there were 486,607,284 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 September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Oil, NGL and Gas Sales
$
907

 
$
882

 
$
2,918

 
$
2,411

Income from Equity Method Investees and Other
53

 
28

 
137

 
70

Total
960

 
910

 
3,055

 
2,481

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
280

 
282

 
866

 
839

Exploration Expense
64

 
125

 
136

 
376

Depreciation, Depletion and Amortization
523

 
621

 
1,554

 
1,859

Loss on Marcellus Shale Upstream Divestiture
4

 

 
2,326

 

General and Administrative
102

 
95

 
304

 
293

Other Operating (Income) Expense, Net
(15
)
 
37

 
132

 
127

Total
958

 
1,160

 
5,318

 
3,494

Operating Income (Loss)
2

 
(250
)
 
(2,263
)
 
(1,013
)
Other Expense
 

 
 

 
 
 
 
Loss (Gain) on Commodity Derivative Instruments
22

 
(55
)
 
(145
)
 
53

Loss (Gain) on Extinguishment of Debt
98

 

 
98

 
(80
)
Interest, Net of Amount Capitalized
88

 
86

 
271

 
242

Other Non-Operating Expense (Income), Net
2

 
(1
)
 
(4
)
 
3

Total
210

 
30

 
220

 
218

Loss Before Income Taxes
(208
)
 
(280
)
 
(2,483
)
 
(1,231
)
Income Tax Benefit
(93
)
 
(137
)
 
(917
)
 
(486
)
Net Loss and Comprehensive Loss Including Noncontrolling Interests
(115
)
 
(143
)
 
(1,566
)
 
(745
)
Less: Net Income and Comprehensive Income Attributable to Noncontrolling Interests
21

 
1

 
46

 
1

Net Loss and Comprehensive Loss Attributable to Noble Energy
$
(136
)
 
$
(144
)
 
$
(1,612
)
 
$
(746
)
 
 
 
 
 
 
 
 
Net Loss Attributable to Noble Energy per Common Share
 
 
 
 
 
 
 
Basic and Diluted
$
(0.28
)
 
$
(0.33
)
 
$
(3.47
)
 
$
(1.73
)
 
 
 
 
 
 
 
 
Weighted Average Number of Common Shares Outstanding
 
 
 
 
 
 
 
   Basic and Diluted
487

 
430

 
464

 
430


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)

 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
564

 
$
1,180

Accounts Receivable, Net
675

 
615

Other Current Assets
303

 
160

Total Current Assets
1,542

 
1,955

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
30,583

 
30,355

Property, Plant and Equipment, Other
928

 
909

Total Property, Plant and Equipment, Gross
31,511

 
31,264

Accumulated Depreciation, Depletion and Amortization
(13,115
)
 
(12,716
)
Total Property, Plant and Equipment, Net
18,396

 
18,548

Goodwill
1,295

 

Other Noncurrent Assets
416

 
508

Total Assets
$
21,649

 
$
21,011

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 

Accounts Payable - Trade
$
1,123

 
$
736

Other Current Liabilities
499

 
742

Total Current Liabilities
1,622

 
1,478

Long-Term Debt
7,487

 
7,011

Deferred Income Taxes
1,352

 
1,819

Other Noncurrent Liabilities
1,245

 
1,103

Total Liabilities
11,706

 
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
8,415

 
6,450

Accumulated Other Comprehensive Loss
(29
)
 
(31
)
Treasury Stock, at Cost; 39 Million and 38 Million Shares, respectively
(728
)
 
(692
)
Retained Earnings
1,803

 
3,556

Noble Energy Share of Equity
9,466

 
9,288

Noncontrolling Interests
477

 
312

Total Equity
9,943

 
9,600

Total Liabilities and Equity
$
21,649

 
$
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)
 
Nine Months Ended September 30,
 
2017
 
2016
Cash Flows From Operating Activities
 
 
 
Net Loss Including Noncontrolling Interests
$
(1,566
)
 
$
(745
)
Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities
 
 
 
Depreciation, Depletion and Amortization
1,554

 
1,859

Loss on Marcellus Shale Upstream Divestiture
2,326

 

Deferred Income Tax Benefit
(988
)
 
(699
)
Dry Hole Cost
2

 
105

Undeveloped Leasehold Impairment
51

 
81

Loss (Gain) on Extinguishment of Debt
98

 
(80
)
(Gain) Loss on Commodity Derivative Instruments
(145
)
 
53

Net Cash Received in Settlement of Commodity Derivative Instruments
18

 
454

Stock Based Compensation
83

 
61

Other Adjustments for Noncash Items Included in Income
12

 
136

Changes in Operating Assets and Liabilities
 
 
 
(Increase) Decrease in Accounts Receivable
(148
)
 
6

Increase (Decrease) in Accounts Payable
230

 
(124
)
(Decrease) Increase in Current Income Taxes Payable
(41
)
 
82

Other Current Assets and Liabilities, Net
(5
)
 
(72
)
Other Operating Assets and Liabilities, Net
(63
)
 
(63
)
Net Cash Provided by Operating Activities
1,418


1,054

Cash Flows From Investing Activities
 
 
 
Additions to Property, Plant and Equipment
(1,956
)
 
(1,164
)
Proceeds from Marcellus Shale Upstream Divestiture
1,028

 

Clayton Williams Energy Acquisition
(616
)
 

Other Acquisitions
(327
)
 

Additions to Equity Method Investments
(68
)
 
(8
)
Proceeds from Divestitures and Other
129

 
786

Net Cash Used in Investing Activities
(1,810
)

(386
)
Cash Flows From Financing Activities
 
 
 
Dividends Paid, Common Stock
(141
)
 
(129
)
Proceeds from Noble Midstream Services Revolving Credit Facility
245

 

Repayment of Noble Midstream Services Revolving Credit Facility
(45
)
 

Proceeds from Term Loan Facility

 
1,400

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

 
299

Proceeds from Revolving Credit Facility
1,585

 

Repayment of Revolving Credit Facility
(1,310
)
 

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

Proceeds from Issuance of Senior Notes, Net
1,086

 

Repayment of Senior Notes
(1,096
)
 
(1,383
)
Other
(91
)
 
(64
)
Net Cash (Used in) Provided by Financing Activities
(224
)

123

(Decrease) Increase in Cash and Cash Equivalents
(616
)

791

Cash and Cash Equivalents at Beginning of Period
1,180

 
1,028

Cash and Cash Equivalents at End of Period
$
564

 
$
1,819

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

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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

 

 

 

 
(1,612
)
 
46

 
(1,566
)
Clayton Williams Energy Acquisition

 
1,876

 

 
(25
)
 

 

 
1,851

Stock-based Compensation

 
80

 

 

 

 

 
80

Dividends (30 cents per share)

 

 

 

 
(141
)
 

 
(141
)
Issuance of Noble Midstream Partners Common Units, Net of Offering Costs

 

 

 

 


138

 
138

Distributions to Noncontrolling Interest Owners

 

 

 

 

 
(19
)
 
(19
)
Other

 
9

 
2

 
(11
)
 

 

 

September 30, 2017
$
5

 
$
8,415

 
$
(29
)
 
$
(728
)
 
$
1,803

 
$
477

 
$
9,943

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
$
5

 
$
6,360

 
$
(33
)
 
$
(688
)
 
$
4,726

 
$

 
$
10,370

Net (Loss) Income

 

 

 

 
(746
)
 
1

 
(745
)
Stock-based Compensation

 
57

 

 

 

 

 
57

Dividends (30 cents per share)

 

 

 

 
(129
)
 

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

 

 

 

 

 
299

 
299

Other

 

 
1

 
(8
)
 

 

 
(7
)
September 30, 2016
$
5

 
$
6,417

 
$
(32
)
 
$
(696
)
 
$
3,851

 
$
300

 
$
9,845

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 (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 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 September 30, 2017 and December 31, 2016 and for the three and nine months ended September 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 nine months ended September 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 September 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. All of our recorded goodwill is assigned to the Texas reporting unit. 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, for newly issued accounting guidance regarding future goodwill impairment testing.
We conducted a qualitative goodwill impairment assessment as of September 30, 2017 by examining relevant events and circumstances which could have a negative impact on our goodwill such as: macroeconomic conditions as pertinent to current and expected regulations, industry and market conditions, including overall global and regional supply and demand and impact of such on commodity prices; as well as microeconomic factors relevant to the enterprise such as cost factors that have a negative effect on earnings and cash flows, overall financial performance, reporting unit dispositions, acquisitions, portfolio

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Noble Energy, Inc.
Notes to Consolidated Financial Statements (Unaudited)



restructuring and other decisions / circumstances specific to the entity and the reporting unit containing goodwill. Certain negative indicators included the current commodity price environment (driven by several macroeconomic factors) coupled with onshore service cost inflation resulting in pressure on operating margins impacting our financial results associated with the Texas reporting unit and our stock price. However, we in turn also noted positive indicators such as our current and future drilling and development plans for our Texas assets, synergies we expect from the Clayton Williams Energy Acquisition driven by our unconventional expertise and position in the adjacent properties which further increase opportunities to drill longer lateral wells on our combined acreage positions, which would contribute to profitability. Furthermore, we see value creation to be derived from expected midstream build-out opportunities for the gathering, processing and servicing of future production in the Delaware basin. Having assessed the totality of such events and circumstances described above, we determined that while there exist certain negative factors, the overall qualitative assessment did not indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value. However, regardless of the outcome of the qualitative review, we decided to proceed with the conduct of Step 1 of the impairment test as part of our annual review.
As such, we performed Step 1 of the goodwill impairment test, used to identify potential impairment. The result of the Step 1 test indicated that the fair value of the Texas reporting unit exceeded its carrying value, including goodwill, by approximately 6% and therefore, the Texas reporting unit goodwill was not considered to be impaired as of September 30, 2017.
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.
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 in 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. 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 the first nine months of 2017, we recorded the following significant changes in our proved reserves estimates:
Leviathan Field In second quarter 2017, 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.
Tamar Field In third quarter 2017, we completed additional reservoir modeling reflecting integration of the Tamar 8 well results into our geologic modeling across the reservoir and, as a result, we added one Tcfe, gross, or 48 MMBoe, net, for the Tamar Field, offshore Israel, of proved developed natural gas reserves as of September 30, 2017.
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.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements (Unaudited)



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.
We continue to evaluate the impact of the ASU on our accounting policies, internal controls, and consolidated financial statements and related disclosures. We are performing a 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. The ASU also includes provisions regarding future revenues and expenses under a gross-versus-net presentation. We are evaluating the impact, if any, on the presentation of our future revenues and expenses under this gross-versus-net presentation guidance. Based upon assessments performed to date, we do not expect the ASU to have a material effect on the timing of revenue recognition or our financial position. 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 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 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.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements (Unaudited)



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 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.

10

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



Statements of Operations Information     Other statements of operations information is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(millions)
2017
 
2016
 
2017
 
2016
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
151

 
$
131

 
$
414

 
$
412

Production and Ad Valorem Taxes
36

 
30

 
119

 
73

Gathering, Transportation and Processing Expense (1)
93

 
121

 
333

 
354

Total
$
280

 
$
282

 
$
866

 
$
839

Exploration Expense
 
 
 
 
 
 
 
Leasehold Impairment and Amortization (2)
$
33

 
$
96

 
$
51

 
$
127

Dry Hole Cost (3)
2

 
5

 
2

 
105

Seismic, Geological and Geophysical
7

 
15

 
20

 
47

Staff Expense
11

 
15

 
40

 
53

Other
11

 
(6
)
 
23

 
44

Total
$
64

 
$
125

 
$
136

 
$
376

Loss on Marcellus Shale Upstream Divestiture (4)
 
 
 
 
 
 
 
Loss on Sale
$

 
$

 
$
2,270

 
$

Firm Transportation Commitment (5)

 

 
41

 

Other (6)
4

 

 
15

 

Total
$
4

 
$

 
$
2,326

 
$

Other Operating Expense, Net (7)
 
 
 
 
 
 
 
Marketing Expense (1) (8)
$
6

 
$
12

 
$
39

 
$
39

Clayton Williams Energy Acquisition Expenses (9)
4

 

 
98

 

Loss on Asset Due to Terminated Contract (10)

 

 

 
47

North Sea Remediation Project Revision (11)
(42
)
 

 
(42
)
 

Other, Net
17

 
25

 
37

 
41

Total
$
(15
)
 
$
37

 
$
132

 
$
127

(1)  
Certain of our gathering and processing expenses were historically presented as components of other operating expense, net, in our consolidated statements of operations. Beginning in 2017, we have changed our presentation to reflect these as components of production expense. These costs are now included within gathering, transportation and processing expense. For the three and nine months ended September 30, 2017 , these costs totaled $12 million and $17 million , respectively. For the three and nine months ended September 30, 2016 , these costs totaled $8 million and $19 million , respectively, and have been reclassified from marketing expense to conform to the current presentation.
(2)  
See Note 8. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs .
(3)  
For the nine months ended September 30, 2016, amount related primarily to the Silvergate exploratory well, Gulf of Mexico, and the Dolphin 1 natural gas discovery, offshore Israel.
(4)  
See Note 4. Acquisitions and Divestitures .
(5)  
Amount represents expense related to an unutilized firm transportation commitment associated with a Marcellus Shale firm transportation contract. See Note 12. Commitments and Contingencies .
(6)  
Amount includes costs for legal and advisory services and employee severance charges.
(7)  
(Gain)/Loss on debt extinguishment was historically presented as a component of other operating expense, net in our consolidated statements of operations. Beginning with third quarter 2017, we have changed our presentation to reflect these as a separate line item within other expense (income) below operating loss. The prior periods have been reclassified to conform to that presentation. 
(8)  
Amounts represent expense for unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.
(9)  
See Note 3. Clayton Williams Energy Acquisition .
(10)  
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.
(11)  
See Note 9. Asset Retirement Obligations .



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



Balance Sheet Information    Other balance sheet information is as follows:
(millions)
September 30,
2017
 
December 31,
2016
Accounts Receivable, Net
 
 
 
Commodity Sales
$
403

 
$
403

Joint Interest Billings
183

 
106

Proceeds Receivable (1)

 
40

Other
106

 
86

Allowance for Doubtful Accounts
(17
)
 
(20
)
Total
$
675

 
$
615

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
61

 
$
71

Inventories, Crude Oil
17

 
18

Assets Held for Sale  (2)
180

 
18

Restricted Cash (3)

 
30

Prepaid Expenses and Other Current Assets
45

 
23

Total
$
303

 
$
160

Other Noncurrent Assets
 

 
 

Equity Method Investments
$
286

 
$
400

Mutual Fund Investments
70

 
71

Other Assets, Noncurrent
60

 
37

Total
$
416

 
$
508

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
118

 
$
115

Commodity Derivative Liabilities
4

 
102

Income Taxes Payable
13

 
53

Asset Retirement Obligations (4)
50

 
160

Interest Payable
82

 
76

Current Portion of Capital Lease Obligations
65

 
63

Foreign Sales Tax Payable
29

 
14

Compensation and Benefits Payable
87

 
110

Theoretical Withdrawal Premium
25

 
18

Other Liabilities, Current (5)
26

 
31

Total
$
499

 
$
742

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
216

 
$
218

Asset Retirement Obligations (4)
894

 
775

Marcellus Shale Firm Transportation Commitment (6)
31

 

Production and Ad Valorem Taxes
49

 
47

Other Liabilities, Noncurrent
55

 
63

Total
$
1,245

 
$
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 September 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 .

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



(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 September 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 .


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 stock 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  $98 million  to date, including $64 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.

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



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
67

Other Current Liabilities
38

Long-Term Deferred Tax Liability
520

Long-Term Debt
595

Asset Retirement Obligations
58

Total Purchase Price Plus Liabilities Assumed
$
3,791


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

Other Current Assets
63

Oil and Gas Properties:
 
Proved Reserves
722

Undeveloped Leasehold Cost
1,571

Gathering and Processing Assets
48

Asset Retirement Costs
58

Other Noncurrent Assets
13

Implied Goodwill
1,295

Total Asset Value
$
3,791

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 expected future cash flows to a single discounted amount. Significant inputs to the valuation of crude oil and natural gas properties included estimates of: (i) proved, possible and probable reserves; (ii) production rates and related development timing; (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.
Based upon the preliminary purchase price allocation, we have recognized $1.3 billion of goodwill, all of which is assigned to the Texas reporting unit. As a result of the acquisition, we expect to realize certain synergies which may result from our control of the combined assets as well as future midstream opportunities. The oil-rich geology of these assets, coupled with our unconventional expertise and position in the adjacent properties, significantly enhances our crude oil focus and growth outlook. The acquisition provides for synergies related to administrative and capital efficiencies, and increased opportunities to drill longer lateral wells on our combined acreage positions, enhances our crude oil production base and future crude oil growth potential. It also adds to our midstream assets and provides future midstream build-out opportunities for the gathering, processing and servicing of future production in the basin.
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  $56 million  and a pre-tax loss of $14 million from the Clayton Williams Energy assets during the period April 24, 2017 to September 30, 2017.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements (Unaudited)



Pro Forma 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 information below 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 nine months ended September 30, 2017 were adjusted to exclude acquisition-related costs of  $4 million  and  $98 million , respectively, incurred by Noble Energy and  $23 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 we expect to realize 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 September 30,
 
Nine Months Ended September 30,
(millions, except per share amounts)
2017 (1)
 
2016
 
2017
 
2016
Revenues
$
960

 
$
964

 
$
3,102

 
$
2,605

Net Loss and Comprehensive Loss Attributable to Noble Energy
(133
)
 
(193
)
 
(1,561
)
 
(860
)
 
 
 
 
 
 
 
 
Net Loss Attributable to Noble Energy per Common Share
 
 
 
 
 
 
 
Basic and Diluted
$
(0.27
)
 
$
(0.40
)
 
$
(3.21
)
 
$
(1.77
)
(1)  
Adjusted for $4 million acquisition-related costs, net of 35% tax, incurred during third quarter 2017.


Note 4. Acquisitions and Divestitures
2017 Asset Transactions
During the first nine 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 sales price totaled $1.2 billion , and we received $1.0 billion of net cash proceeds, after consideration of customary adjustments, at closing. The sales 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. To date, conditions for the recognition of the contingent consideration are not probable and therefore, 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. It is likely we will incur additional firm transportation, as well as other restructuring or office closure costs, associated with this exit activity in the future. See Note 2. Basis of Presentation and Note 12. Commitments and Contingencies .
For the nine months ended September 30, 2017 , our consolidated statements of operations include a pre-tax loss of $2.3 billion associated with the divested Marcellus Shale upstream assets, driven by the loss on sale. For the three and nine months ended September 30, 2016 , our consolidated statements of operations include a pre-tax loss of $70 million and $237 million , respectively, associated with the divested Marcellus Shale upstream assets.

15

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



Production from the Marcellus Shale upstream assets averaged 393 MMcfe/d and 413 MMcfe/d for the three and six months ended June 30, 2017. 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 as of June 30, 2017.
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.
In connection with the execution of the definitive agreement to divest the affiliate noted above, the other 50% owner of CONE Gathering filed suit to enjoin the transaction. A bench trial was concluded on October 20, 2017 and we are awaiting a decision from the court. We believe that the court will decide in our favor. However, given the pendency of the matter and the possibility of appeal, our ability to close the transaction as originally contemplated is uncertain at this time.
We are committed to exiting the Marcellus Shale play, and going forward, our midstream efforts are primarily focused on Noble Midstream Partners, supporting our DJ Basin and Delaware Basin growth areas. We believe that classification of our investment in CONE Gathering as assets held for sale as of September 30, 2017 remains appropriate.
Assets Held for Sale At September 30, 2017 , assets held for sale was primarily related to $173 million for our investment in CONE Gathering.
Other US Onshore Properties We conducted the following transactions:
Onshore US Divestitures In third quarter 2017, we received proceeds of $24 million resulting from the sale of certain other onshore US properties and the remaining consideration associated with the Greeley Crescent divestiture (defined below) in the DJ Basin.
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 us for  $270 million .
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 provides services across our development areas in the DJ Basin, including crude oil and natural gas gathering and water services in the Wells Ranch area and crude oil gathering in the East Pony area.
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  $67 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.

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



2016 Asset Transactions
During the first nine months of 2016, we engaged in the following asset transactions.
US Onshore Properties We entered into the following transactions:
Bowdoin Divestiture We closed the divestiture of our Bowdoin property in northern Montana, generating proceeds of  $43 million , and recognized a  $23 million  loss on sale;
Onshore US Divestitures We 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;
Greeley Crescent Divestiture We entered into a purchase and sale agreement for the divestiture of certain producing and undeveloped interests covering approximately  33,100  net acres in the Greeley Crescent (Greeley Crescent divestiture) area of 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. In third quarter 2017, we closed the sale of the remaining properties and received proceeds of $5 million ; and
Acreage Exchange Agreement We 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.

17

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



Unsettled Commodity Derivative Instruments    As of September 30, 2017 , the following crude oil derivative contracts were outstanding:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted Average Differential
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
10,804


 

40.80

52.72

2017
Swaps
NYMEX WTI
4,293

50.84

 



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

 



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

2018
Basis Swap
(4)  
8,000
(0.78
)

 



2019
Three-Way Collars
ICE Brent
3,000


 
43.00

50.00

64.07

2019
Basis Swap
(4)  
12,000
(1.01
)

 



(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.
(4)  
We have entered into crude oil basis swap contracts in order to fix the differential between pricing in Midland, Texas, and Cushing, Oklahoma. The weighted average differential represents the amount of reduction to Cushing, Oklahoma, prices for the notional volumes covered by the basis swap contracts.




18

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



As of September 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.
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
 
September 30,
2017
 
December 31,
2016
 
September 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
 
$
7

 
Current Assets
 
$

 
Current Liabilities
 
$
4

 
Current Liabilities
 
$
102

 
Noncurrent Assets
 
5

 
Noncurrent Assets
 

 
Noncurrent Liabilities
 
2

 
Noncurrent Liabilities
 
14

Total
 
 
$
12

 
 
 
$

 
 
 
$
6

 
 
 
$
116


The effect of commodity derivative instruments on our consolidated statements of operations was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(millions)
2017
 
2016
 
2017
 
2016
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
$
(4
)
 
$
(119
)
 
$
(20
)
 
$
(395
)
Natural Gas

 
(13
)
 
2

 
(59
)
Total Cash Received in Settlement of Commodity Derivative Instruments
(4
)
 
(132
)
 
(18
)
 
(454
)
Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
27

 
80

 
(64
)
 
441

Natural Gas
(1
)
 
(3
)
 
(63
)
 
66

Total Non-cash Portion of Loss (Gain) on Commodity Derivative Instruments
26

 
77

 
(127
)
 
507

Loss (Gain) on Commodity Derivative Instruments
 
 
 
 
 
 
 
Crude Oil
23

 
(39
)
 
(84
)
 
46

Natural Gas
(1
)
 
(16
)
 
(61
)
 
7

Total Loss (Gain) on Commodity Derivative Instruments
$
22

 
$
(55
)
 
$
(145
)
 
$
53


19

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



Note 6. Debt
Debt consists of the following:
 
September 30,
2017
 
December 31,
2016
(millions, except percentages)
Debt
 
Interest Rate

 
Debt
 
Interest Rate
Revolving Credit Facility, due August 27, 2020
$
275

 
2.27
%
 
$

 
%
Noble Midstream Services Revolving Credit Facility, due September 20, 2021
200

 
2.45
%
 

 
%
Term Loan Facility, due January 6, 2019
550

 
2.45
%
 
550

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

 
%
 

 
%
Senior Notes, due March 1, 2019 (1)  

 
%
 
1,000

 
8.25
%
Senior Notes, due May 1, 2021
379

 
5.625
%
 
379

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

 
4.15
%
 
1,000

 
4.15
%
Senior Notes, due October 15, 2023
100

 
7.25
%
 
100

 
7.25
%
Senior Notes, due November 15, 2024
650

 
3.90
%
 
650

 
3.90
%
Senior Notes, due April 1, 2027
250

 
8.00
%
 
250

 
8.00
%
Senior Notes, due January 15, 2028 (1)  
600

 
3.85
%
 

 
%
Senior Notes, due March 1, 2041
850

 
6.00
%
 
850

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

 
5.25
%
 
1,000

 
5.25
%
Senior Notes, due November 15, 2044
850

 
5.05
%
 
850

 
5.05
%
Senior Notes, due August 15, 2047 (1)  
500

 
4.95
%
 

 
%
Other Senior Notes and Debentures (2)  

110

 
6.93
%
 
110

 
6.93
%
Capital Lease and Other Obligations (3)  
290

 
%
 
375

 
%
Total
7,604

 
 
 
7,114

 
 
Unamortized Discount
(25
)
 
 
 
(23
)
 
 
Unamortized Premium
14

 
 
 
17

 
 
Unamortized Debt Issuance Costs
(41
)
 
 
 
(34
)
 
 
Total Debt, Net of Unamortized Discount, Premium and Debt Issuance Costs
7,552

 
 
 
7,074

 
 
Less Amounts Due Within One Year
 
 
 
 
 
 
 
Capital Lease Obligations
(65
)
 
 
 
(63
)
 
 
Long-Term Debt Due After One Year
$
7,487

 
 
 
$
7,011

 
 
(1) In third quarter 2017, we redeemed all our Senior Notes due March 1, 2019 and issued Senior Notes due January 15, 2028 and August 15, 2047.
(2) Includes $ 18 million of Senior Notes due June 1, 2022, $8 million of Senior Notes due June 1, 2024 and $84 million of Senior Debentures due August 1, 2097. The weighted average interest rate for these instruments is 6.93% .
(3) The reduction includes $41 million related to other obligations for drilling commitments assumed by the acquirer of the Marcellus Shale upstream assets and $44 million of capital lease principal payments. 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.
During second quarter 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 of the respective outstanding borrowings associated with the transaction 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. As of September 30, 2017, $275 million was outstanding under our Revolving Credit Facility, which was utilized for general corporate purposes and for funding of our capital development program.

20

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



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.
As of September 30, 2017, $200 million was outstanding under the Noble Midstream Services Revolving Credit Facility which was used to partially fund second quarter 2017 acquisitions. See Note 4. Acquisitions and Divestitures .
Senior Notes Issuance and Completed Tender Offer On August 15, 2017, we issued $600 million of 3.85% senior unsecured notes that will mature on January 15, 2028 and $500 million of 4.95% senior unsecured notes that will mature on August 15, 2047. Interest on the 3.85% senior notes and 4.95% senior notes is payable semi-annually beginning January 15, 2018 and February 15, 2018, respectively. We may redeem some or all of the senior notes at any time at the applicable redemption price, plus accrued interest, if any. The senior notes were issued at a discount of $4 million and debt issuance costs incurred totaled $11 million , both of which are reflected as a reduction of long-term debt and are amortized over the life of the facility. Proceeds of $1.1 billion from the issuance of senior notes were used solely to fund the tender offer and the redemption of $1.0 billion of our 8.25% senior notes due March 1, 2019. As a result, we paid a premium of $96 million to the holders of the 8.25% senior notes and recognized a loss of $98 million in third quarter 2017, which is reflected in other non-operating (income) expense in our consolidated statements of operations.
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 non-operating (income) expense 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 September 30, 2017 , $ 550 million was outstanding under the facility.

21

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



See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of debt.
Annual Debt Maturities Annual maturities of outstanding debt, excluding capital lease payments and outstanding balances under the revolving credit facilities, are as follows:
(millions)
Debt
Principal
Payments
October - December 2017

$

2018

2019
550

2020

2021
1,379

Thereafter
4,910

Total
$
6,839


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, enhanced swaps and basis swaps. We estimate the fair values of these instruments using published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 5. Derivative Instruments and Hedging Activities
Deferred Compensation Liability    The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust.   See Mutual Fund Investments above .  
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.

22

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



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, 2017
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
70

 
$

 
$

 
$

 
$
70

Commodity Derivative Instruments

 
16

 

 
(4
)
 
12

Financial Liabilities
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments

 
(10
)
 

 
4

 
(6
)
Portion of Deferred Compensation Liability Measured at Fair Value
(89
)
 

 

 

 
(89
)
Stock Based Compensation Liability Measured at Fair Value
(11
)
 

 

 


(11
)
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 nine months ended September 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 September 30, 2017, we had a $39 million liability representing the discounted present value of our remaining obligation under a firm transportation contract. See Note 12. Commitments and Contingencies .
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 Revolving Credit Facility, along with 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 .

23

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



Fair value information regarding our debt is as follows:
 
September 30, 2017
 
December 31, 2016
(millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-Term Debt, Net (1)
$
7,314

 
$
7,715

 
$
6,739

 
$
7,112

(1)  
Excludes unamortized discount, premium, debt issuance costs and capital lease 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)
Nine Months Ended September 30, 2017
Capitalized Exploratory Well Costs, December 31, 2016
$
768

Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
10

Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves (1)
(203
)
Capitalized Exploratory Well Costs, September 30, 2017
$
575

(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)
September 30,
2017
 
December 31,
2016
Exploratory Well Costs Capitalized for a Period of One Year or Less
$
11