Basis of Presentation

Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014 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. Certain prior-period amounts have been reclassified to conform to the current-period presentation. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

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, 2014.

Consolidation Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries. In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.

Pension Plan We are in the process of terminating our noncontributory, tax-qualified defined benefit pension plan. During second quarter 2015, we liquidated a portion of the associated pension obligation through lump-sum payments to participants. We expect to liquidate the remaining pension obligation through the purchase of annuities during third quarter 2015. At that time, we will reclassify all unamortized prior service cost (PSC) and actuarial loss remaining in accumulated other comprehensive loss (AOCL), totaling approximately $61 million, to earnings.

Equity Offering On March 3, 2015, we closed an underwritten public offering of 21,000,000 shares of common stock, par value $0.01 per share, at a price to the public of $47.50 per share. In addition, on March 25, 2015, we completed the issuance of an additional 3,150,000 shares of common stock, par value $0.01 per share, in connection with the exercise of the option of the underwriters to purchase additional shares of common stock. The aggregate net proceeds of the offerings were approximately $1.1 billion (after deducting underwriting discounts and commissions and offering expenses). We used approximately $150 million of the net proceeds to repay outstanding indebtedness under our revolving credit facility and the remainder will be used for general corporate purposes, including the funding of our capital investment program.

Increase in Authorized Shares On April 28, 2015, our stockholders approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of our common stock from 500 million to 1 billion.

Update on Core Area – Israel In March 2014, we and our partners reached an agreement with the Israel Antitrust Authority on various matters (Consent Decree). The Consent Decree, which was subject to final approval by the Antitrust Tribunal, granted the rights, to us and our partners, to jointly market natural gas from the Leviathan field. Also, as a result of the Consent Decree, we agreed to divest our Tanin and Karish natural gas discoveries.

However, on December 23, 2014, we and our partners in the Leviathan field were advised by the Israel Antitrust Commissioner of his decision to not submit the Consent Decree to the Antitrust Tribunal for final approval. This is a matter that we believed was resolved and we had received assurances from the Antitrust Authority that approval was forthcoming. An oral hearing with the Antitrust Authority took place on January 27, 2015.

During second quarter 2015, we continued to work to resolve regulatory matters with the Israeli government. In June 2015, the Israeli government approved a framework (Framework) to support development of offshore natural gas reserves including natural gas exports. Recently, the government conducted public hearings on the Framework and we understand the government is currently progressing toward final approval. Legal challenges may be brought against the Framework in the Israeli courts. Therefore, there can be no assurance as to when or if the Framework will be finalized or as to the terms thereof if finalized. If necessary, we are prepared to defend our legal rights to our Israel assets to the fullest extent in both domestic and international venues.

We remain prepared to implement the Consent Decree if agreed with the Antitrust Authority but in any case, expect that divestiture of Tanin and Karish will be part of a final regulatory settlement. We therefore continue to hold these assets for sale.

Recently Issued Accounting Standards In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-11 (ASU 2015-11): Simplifying the Measurement of Inventory, effective for annual and interim periods beginning after December 15, 2016. ASU 2015-11 changes the inventory measurement principle for entities using the first-in, first out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle will change from lower of cost or market to the lower of cost and net realizable value. We are currently evaluating the provisions of ASU 2015-11 and assessing the impact, if any, it may have on our financial position and results of operations.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03 (ASU 2015-03): Simplifying the Presentation of Debt Issuance Costs, effective for annual and interim periods beginning after December 15, 2015. ASU 2015-03 requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. It is effective retrospectively for all prior periods presented in the financial statements beginning in the first quarter 2016 and is only expected to impact the presentation of our consolidated balance sheet. As of June 30, 2015 and December 31, 2014, we had $47 million and $50 million of capitalized, unamortized debt issuance costs, respectively, included in other long-term assets in our consolidated balance sheet.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02): Consolidation - Amendments to the Consolidation Analysis, effective for annual and interim periods beginning after December 15, 2015. ASU 2015-02 changes the guidance as to whether an entity is a variable interest entity (VIE) or a voting interest entity and how related parties are considered in the VIE model. We are currently evaluating the provisions of ASU 2015-02 and assessing the impact, if any, it may have on our financial position and results of operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. Initially, the amendments in ASU 2014-09 were effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application was not permitted. On July 9, 2015, the FASB agreed to give companies an extra year to comply with the new standard. The standard will be effective for fiscal years that begin after December 15, 2017, for public companies. We are currently evaluating the provisions of ASU 2014-09 and awaiting implementation guidance to determine the impact, if any, it may have on our financial position and results of operations.

Estimates The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.

Statements of Operations Information Other statements of operations information is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
(millions)	2015			2014			2015			2014
Production Expense
Lease Operating Expense	$	129		$	150		$	286		$	292
Production and Ad Valorem Taxes	28			53			61			102
Transportation and Gathering Expense	56			41			112			80
Total	$	213		$	244		$	459		$	474
Other Operating (Income) Expense, Net
Midstream Gathering and Processing Expense	$	6		$	4		$	10		$	7
Corporate Restructuring Expense ⁽¹⁾	18			—			18			—
Stacked Drilling Rig Expense ⁽²⁾	7			—			7			—
Pension Plan Termination Expense⁽³⁾	21			—			21			—
Gain on Divestitures	(1		)	(44		)	—			(42		)
Other, Net	16			17			17			23
Total	$	67		$	(23	)	$	73		$	(12	)
Other Non-Operating (Income) Expense, Net
Deferred Compensation (Income) Expense ⁽⁴⁾	$	(7	)	$	8		(5		)	$	12
Other (Income) Expense, Net	(2		)	—			(4		)	1
Total	$	(9	)	$	8		$	(9	)	$	13


⁽¹⁾	Amount represents severance costs and expenses associated with the relocation of our accounting department from Ardmore, Oklahoma to Houston, Texas.


⁽²⁾	Amount represents the day rate cost associated with drilling rigs under contract, but not currently being utilized in our US onshore drilling programs.


⁽³⁾	Amount includes the reclassification of a portion of the remaining actuarial loss from AOCL, related to our defined benefit pension plan which is in the process of being terminated.


⁽⁴⁾	Amounts represent increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.

Balance Sheet Information Other balance sheet information is as follows:



(millions)	June 30, 2015			December 31, 2014
Accounts Receivable, Net
Commodity Sales	$	296		$	405
Joint Interest Billings	175			297
Other	102			171
Allowance for Doubtful Accounts	(19		)	(16		)
Total	$	554		$	857
Other Current Assets
Inventories, Materials and Supplies	$	79		$	81
Inventories, Crude Oil	20			24
Assets Held for Sale⁽¹⁾	77			180
Prepaid Expenses and Other Current Assets	68			40
Total	$	244		$	325
Other Noncurrent Assets
Investments in Unconsolidated Subsidiaries	$	400		$	325
Mutual Fund Investments	112			111
Commodity Derivative Assets	100			180
Other Assets	102			99
Total	$	714		$	715
Other Current Liabilities
Production and Ad Valorem Taxes	$	151		$	110
Income Taxes Payable	117			180
Deferred Income Taxes, Current	91			158
Accrued Benefit Costs, Current	111			125
Asset Retirement Obligations	135			81
Interest Payable	69			70
Current Portion of Capital Lease Obligations	61			68
Other	99			152
Total	$	834		$	944
Other Noncurrent Liabilities
Deferred Compensation Liabilities	$	218		$	218
Asset Retirement Obligations	717			670
Accrued Benefit Costs	19			24
Other	76			175
Total	$	1,030		$	1,087

⁽¹⁾Assets held for sale include our Tanin and Karish natural gas discoveries, offshore Israel. See Update on Core Area – Israel, above.