Stock-Based and Other Compensation Plans

We recognized total stock-based compensation expense as follows:



	Year Ended December 31,
(millions)	2013			2012			2011
Stock-Based Compensation Expense Included in
General and Administrative Expense	$	58		$	48		$	42
Exploration Expense and Other	22			17			16
Total Stock-Based Compensation Expense	$	80		$	65		$	58
Tax Benefit Recognized	$	(28	)	$	(23	)	$	(20	)

Stock Option and Restricted Stock Plans Our stock option and restricted stock plans are described below.

1992 Stock Option and Restricted Stock Plan Under the Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan, as amended (the 1992 Plan), the Compensation, Benefits and Stock Option Committee of the Board of Directors (the Committee) may grant stock options and award restricted stock to our officers or other employees and those of our subsidiaries. At December 31, 2013, 35,652,195 shares of our common stock were reserved for issuance, including 18,549,928 shares available for future grants and awards, under the 1992 Plan.

Stock options are issued with an exercise price equal to the market price of our common stock on the date of grant, and are subject to such other terms and conditions as may be determined by the Committee. Unless granted by the Committee for a shorter term, the options expire ten years years from the grant date. Option grants generally vest ratably over a three-year period.

Restricted stock awards made under the 1992 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Committee. During the Restricted Period, unless specifically provided otherwise in accordance with the terms of the 1992 Plan, the recipient of Restricted Stock would be the record owner of the shares and have all the rights of a stockholder with respect to the shares, including the right to vote and the right to receive dividends or other distributions made or paid with respect to the shares. Restricted stock awards with a time-vested restriction vest over a three year period (20% after year one, an additional 30% after year two and the remaining 50% after year three) or over a two year period (40% after year one and remaining 60% after year two). Restricted stock awards with a market based restriction cliff vest after a three year period if the Company achieves certain levels of total shareholder return relative to a pre-determined industry peer group.

2005 Stock Plan for Non-Employee Directors The 2005 Stock Plan for Non-Employee Directors of Noble Energy, Inc. (the 2005 Plan) provides for grants of stock options and awards of restricted stock to our non-employee directors. The 2005 Plan superseded and replaced the 1988 Nonqualified Stock Option Plan for Non-Employee Directors. The total number of shares of our common stock that may be issued under the 2005 Plan is 1,600,000. At December 31, 2013, 1,376,644 shares of our common stock were reserved for issuance, including 893,820 shares available for future grants and awards under the 2005 Plan.

The 2005 Plan provides for the granting to a non-employee director of up to a maximum of 22,400 stock options on the date of election to the Board of Directors, annual grants of 5,600 options per non-employee director on February 1 of each year, and discretionary grants by the Board of Directors (with the February 1 annual and the discretionary grants made to a non-employee director during any calendar year being limited to a combined maximum of 22,400 options). Options are issued with an exercise price equal to the market price of our common stock on the date of grant and may be exercised one year after the date of grant. The options expire ten years from the date of grant.

The 2005 Plan also provides for the awarding to a non-employee director of up to a maximum of 9,600 shares of restricted stock on the date of election to the Board of Directors, annual awards of 2,400 shares of restricted stock per non-employee director on February 1 of each year, and discretionary awards by the Board of Directors (with the February 1 annual and the discretionary awards made to a non-employee director during any calendar year being limited to a combined maximum of 9,600 shares of restricted stock). Restricted stock is restricted for a period of at least one year from the date of award.

1988 Nonqualified Stock Option Plan for Non-Employee Directors The 1988 Nonqualified Stock Option Plan for Non-Employee Directors of Noble Energy, Inc., as amended, (the 1988 Plan) provided for the issuance of stock options to our non-employee directors. Options issued under the 1988 Plan may be exercised one year after grant and expire ten years from the grant date. The 1988 Plan provided for the granting of a fixed number of stock options to each non-employee director annually (20,000 stock options for the first calendar year of service and 10,000 stock options for each year thereafter) on February 1 of each year. The 1988 Plan was terminated in 2005, and no additional options can be granted thereunder.

Stock Option Grants The fair value of each stock option granted was estimated on the date of grant using a Black-Scholes-Merton option valuation model that used the assumptions described below:

•

Expected term The expected term represents the period of time that options granted are expected to be outstanding, which is the grant date to the date of expected exercise or other expected settlement for options granted. The hypothetical midpoint scenario we use considers our actual exercise and post-vesting cancellation history and expectations for future periods, which assumes that all vested, outstanding options are settled halfway between the current date and their expiration date.

•

Expected volatility The expected volatility represents the extent to which our stock price is expected to fluctuate between the grant date and the expected term of the award. We use the historical volatility of our common stock for a period equal to the expected term of the option prior to the date of grant. We believe that historical volatility produces an estimate that is representative of our expectations about the future volatility of our common stock over the expected term.


•	Risk-free rate The risk-free rate is the implied yield available on US Treasury securities with a remaining term equal to the expected term of the option. We base our risk-free rate on a weighting of five and seven year US Treasury securities as of the date of grant.


•	Dividend yield The dividend yield represents the value of our stock’s annualized dividend as compared to our stock’s average price for the three-year period ended prior to the date of grant. It is calculated by dividing one full year of our expected dividends by our average stock price over the three-year period ended prior to the date of grant.

The assumptions used in valuing stock options granted were as follows:



	Year Ended December 31,
(weighted averages)	2013			2012			2011
Expected Term (in Years)	5.7			5.7			5.7
Expected Volatility	36.4		%	37.0		%	36.2		%
Risk-Free Rate	1.1		%	0.9		%	2.2		%
Expected Dividend Yield	1.2		%	1.2		%	1.1		%
Weighted Average Grant-Date Fair Value	$	17.08		$	15.99		$	15.09

Stock option activity was as follows:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)	(in millions)
Outstanding at December 31, 2012	12,411,572		$	35.14
Granted	2,492,855		54.64
Exercised	(1,892,962	)	27.05
Forfeited	(333,608	)	51.99
Outstanding at December 31, 2013	12,677,857		$	39.82	6.2	$	359
Exercisable at December 31, 2013	8,383,018		$	33.53	5.0	$	290

The total intrinsic value of options exercised was $64 million in 2013, $72 million in 2012, and $40 million in 2011.

As of December 31, 2013, $39 million of compensation cost related to unvested stock options granted under the Plans remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.3 years . We issue new shares of our common stock to settle option exercises. Dividends are not paid on unexercised options.

Restricted Stock Awards Awards of time-vested restricted stock (shares subject to service conditions) are valued at the price of our common stock at the date of award. The fair values of market based restricted stock awards are estimated on the date of award using a Monte Carlo valuation model that uses the assumptions in the following table. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility represents the extent to which our stock price is expected to fluctuate between now and the award’s anticipated term. We use the historical volatility of Noble Energy common stock for the three-year period ended prior to the date of award. The risk-free rate is based on a three-year period for U.S. Treasury securities as of the year ended prior to the date of award.

The assumptions used in valuing market based restricted stock awards granted were as follows:



	Year Ended December 31, 2013
Number of Simulations	500,000
Expected Volatility	30	%
Risk-Free Rate	0.4	%

Restricted stock activity was as follows:



	Subject to Time Vesting				Subject to Market Conditions
	Number of Shares		Weighted Average Award Date Fair Value		Number of Shares		Weighted Average Award Date Fair Value
			(per share)				(per share)
Outstanding at December 31, 2012	1,866,462		$	46.40	—		$	—
Awarded	485,587		54.81		891,504		28.96
Vested	(781,838	)	43.04		—		—
Forfeited	(82,342	)	50.04		(43,478	)	28.65
Outstanding at December 31, 2013	1,487,869		$	50.74	848,026		$	28.93

The total fair value of restricted stock that vested was $43 million in 2013, $47 million in 2012, and $57 million in 2011.

The weighted average award-date fair value of restricted stock awarded was $38.07 per share in 2013, $50.75 per share in 2012, and $45.16 per share in 2011.

As of December 31, 2013, $47 million of compensation cost related to all of our unvested restricted stock awarded under the Plans remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.4 years. Common stock dividends accrue on restricted stock awards and are paid upon vesting. We issue new shares of our common stock when awarding restricted stock.

Other Compensation Plans

401(k) Plan We sponsor a 401(k) savings plan. All regular employees are eligible to participate. We make contributions to match employee contributions up to the first 6% of compensation deferred into the plan, and certain profit sharing contributions for employees hired on or after May 1, 2006, based upon their ages and salaries. We made cash contributions of $21 million in 2013, $17 million in 2012, and $14 million in 2011.

As a result of the termination of the retirement and restoration plans (see below), employees who were hired prior to May 1, 2006 will become eligible to receive profit sharing contributions effective January 1, 2014. In addition, certain of these employees will also be eligible to receive transition contributions related to the termination of the plans.

Deferred Compensation Plans We have a non-qualified deferred compensation plan for which participant-directed investments are held in a rabbi trust and are available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. Participants may elect to receive distributions in either cash or shares of our common stock. Components of the rabbi trust are as follows:



	December 31,
(millions, except share amounts)	2013		2012
Rabbi Trust Assets
Mutual Fund Investments	$	88	$	84
Noble Energy Common Stock (at Fair Value)	88		76
Total Rabbi Trust Assets	176		160
Liability Under Related Deferred Compensation Plan	$	176	$	160
Number of Shares of Noble Energy Common Stock Held by Rabbi Trust	1,292,335		1,493,343

Assets of the rabbi trust, other than our common stock, are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds have published market prices and are reported at fair value. See Note 13. Fair Value Measurements and Disclosures. The mutual funds are included in the mutual fund investments account in other noncurrent assets in the consolidated balance sheets.

Shares of our common stock held by the rabbi trust are accounted for as treasury stock (recorded at cost, $16.72 per share) in the shareholders’ equity section of the consolidated balance sheets. Amounts payable to plan participants are included in other noncurrent liabilities in the consolidated balance sheets and include the market value of the shares of our common stock. Approximately 1,200,000 shares, or 93%, of our common stock held in the plan at December 31, 2013 were attributable to a member of our Board of Directors. The shares are being distributed in equal installments over the next six years. Distributions of 200,000 shares were made in each of 2013 and 2012. In addition, plan participants sold 1,008 shares of our common stock in 2013, 4,536 shares in 2012, and 200 shares in 2011. Proceeds were invested in mutual funds and/or distributed to plan participants. Distributions to plan participants were valued at $25 million in 2013, $19 million in 2012 and $17 million in 2011.

All fluctuations in market value of the deferred compensation liability have been reflected in other non-operating (income) expense, net in the consolidated statements of operations. We recognized deferred compensation expense of $26 million in 2013, $6 million in 2012 and $8 million in 2011.

We also maintain an unfunded deferred compensation plan for the benefit of certain of our employees. Deferred compensation liabilities of $77 million, $70 million and $60 million were outstanding at December 31, 2013, 2012 and 2011, respectively, under the unfunded plan.

Pension and Other Postretirement Benefit Plans We have a noncontributory, tax-qualified defined benefit pension plan covering employees who were hired prior to May 1, 2006, and an unfunded, nonqualified restoration plan that provides the pension plan formula benefits that cannot be provided by the qualified pension plan because of pay deferrals and the compensation and benefit limitations imposed on the pension plan by the Internal Revenue Code of 1986, as amended. We sponsor other plans, which include medical and life insurance benefits, for the benefit of our employees and retirees.

During the fourth quarter of 2013, we notified the Retirement Plan participants that, effective December 31, 2013: Retirement Plan benefit accruals will cease and the Retirement Plans will be frozen; and certain plan amendments were adopted related to final average earnings, age 55 subsidies and a lump sum rate change related to this notification. We will begin the process of securing approval from the Pension Benefit Guaranty Corporation and IRS to liquidate the related Retirement Trust and complete the Retirement Plan termination. The Retirement Plan participants will continue to receive benefits until the Retirement Trust is liquidated, primarily through lump-sum payments to participants, and this process could take up to two years to complete. The restoration plan will also be terminated.

As a result of the cessation of accrual of additional Retirement Plan benefits earned, a plan curtailment has been triggered. Moreover, the work force has been reduced or the accrual of benefits for some or all future services has been eliminated, and the Company will not realize all the expected future economic benefits of the plan amendments being amortized as prior service cost over the expected remaining service lives of the participants. Consequently, the unamortized prior service cost of $2 million relating to the Retirement Plan participants affected was expensed as of December 31, 2013. We reduced the pension benefit obligation by approximately $33 million to omit the impact of expected future salary increases due to the plan freeze. This reduction in the benefit obligation from the curtailment resulted in a gain, which was offset by existing unamortized net loss recorded in AOCL.

Regarding the plan amendments, we recorded an increase in the plan benefit obligation and new prior service cost of approximately $88 million. The new prior service costs included in AOCL will be amortized consistent with our amortization policy. Upon plan termination, all remaining unamortized prior service cost and net actuarial loss will be charged to expense.

The benefit obligations, plan assets and AOCL balances for the pension, restoration and other postretirement benefit plans are summarized below as of December 31:



	Retirement and Restoration Plans						Medical and Life Plans
(millions)	2013			2012			2013			2012
Pension Benefit Obligation	$	(394	)	$	(343	)	$	(36	)	$	(27	)
Fair Value of Plan Assets	265			247			—			—
Net Amount Recognized in Consolidated Balance Sheet	(129		)	(96		)	(36		)	(27		)
Noncurrent Liabilities	(123		)	(90		)	(34		)	(26		)

Net Prior Service (Cost) Credit, Before Tax	$	(88	)	$	(2	)	$	6		$	8
Net Gains (Losses), Before Tax	(56		)	(133		)	(15		)	(12		)
Accumulated Other Comprehensive Income (Loss)	$	(144	)	$	(135	)	$	(9	)	$	(4	)

At December 31, 2013, plan assets were invested primarily in cash and fixed-income securities. We expect to make additional contributions to the pension and restoration plans during the next 12 to 24 months to the extent necessary to fund remaining benefit obligations.

Net periodic benefit cost related to these plans totaled $37 million in 2013, $27 million in 2012, and $21 million in 2011.