10-Q 1 nbl-20150630x10q.htm 10-Q NBL-2015.06.30-10Q

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

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

For the quarterly period ended June 30, 2015

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


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 or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý
 
As of June 30, 2015, there were 387,045,609 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


Part I. Financial Information
Item 1. Financial Statements
Noble Energy, Inc.
Consolidated Statements of Operations
(millions, except per share amounts)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
722

 
$
1,338

 
$
1,462

 
$
2,665

Income from Equity Method Investees
6

 
45

 
24

 
97

Other
2

 

 
4

 

Total
730

 
1,383

 
1,490

 
2,762

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
213

 
244

 
459

 
474

Exploration Expense
41

 
59

 
106

 
133

Depreciation, Depletion and Amortization
451

 
413

 
905

 
837

General and Administrative
104

 
127

 
198

 
266

Asset Impairments
15

 
34

 
43

 
131

Other Operating (Income) Expense, Net
67

 
(23
)
 
73

 
(12
)
Total
891

 
854

 
1,784

 
1,829

Operating Income (Loss)
(161
)
 
529

 
(294
)
 
933

Other (Income) Expense
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
87

 
236

 
(63
)
 
311

Interest, Net of Amount Capitalized
54

 
52

 
112

 
99

Other Non-Operating (Income) Expense, Net
(9
)
 
8

 
(9
)
 
13

Total
132

 
296

 
40

 
423

Income (Loss) Before Income Taxes
(293
)
 
233

 
(334
)
 
510

Income Tax (Benefit) Provision
(184
)
 
41

 
(203
)
 
118

Net Income (Loss)
$
(109
)
 
$
192

 
$
(131
)
 
$
392

 
 
 
 
 
 
 
 
Earnings (Loss) Per Share, Basic
$
(0.28
)
 
$
0.53

 
$
(0.35
)
 
$
1.09

Earnings (Loss) Per Share, Diluted
$
(0.28
)
 
$
0.52

 
$
(0.35
)
 
$
1.07

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
387

 
361

 
378

 
361

   Diluted
387

 
366

 
378

 
365


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

3


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

 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net Income (Loss)
$
(109
)
 
$
192

 
$
(131
)
 
$
392

Other Items of Comprehensive Income
 
 
 
 
 
 
 
Net Change in Mutual Fund Investment

 

 
(11
)
 

Less Tax Benefit

 

 
3

 

Net Change in Pension and Other
24

 
5

 
25

 
10

      Less Tax Benefit
(10
)
 
(1
)
 
(10
)
 
(4
)
Other Comprehensive Income
14

 
4

 
7

 
6

Comprehensive Income (Loss)
$
(95
)
 
$
196

 
$
(124
)
 
$
398


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


4


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

 
June 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,278

 
$
1,183

Accounts Receivable, Net
554

 
857

Commodity Derivative Assets, Current
456

 
710

Other Current Assets
244

 
325

Total Current Assets
2,532

 
3,075

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
27,138

 
25,599

Property, Plant and Equipment, Other
681

 
630

Total Property, Plant and Equipment, Gross
27,819

 
26,229

Accumulated Depreciation, Depletion and Amortization
(8,996
)
 
(8,086
)
Total Property, Plant and Equipment, Net
18,823

 
18,143

Goodwill
616

 
620

Other Noncurrent Assets
714

 
715

Total Assets
$
22,685

 
$
22,553

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 

 
 

Accounts Payable - Trade
$
1,222

 
$
1,578

Other Current Liabilities
834

 
944

Total Current Liabilities
2,056

 
2,522

Long-Term Debt
6,112

 
6,103

Deferred Income Taxes, Noncurrent
2,278

 
2,516

Other Noncurrent Liabilities
1,030

 
1,087

Total Liabilities
11,476

 
12,228

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 and 500 Million Shares Authorized, respectively; 428 Million and 402 Million Shares Issued, respectively
4

 
4

Additional Paid in Capital
4,778

 
3,624

Accumulated Other Comprehensive Loss
(83
)
 
(90
)
Treasury Stock, at Cost; 38 Million Shares
(683
)
 
(671
)
Retained Earnings
7,193

 
7,458

Total Shareholders’ Equity
11,209

 
10,325

Total Liabilities and Shareholders’ Equity
$
22,685

 
$
22,553


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


5



Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Six Months Ended
June 30,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
Net Income (Loss)
$
(131
)
 
$
392

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
 

 
 

Depreciation, Depletion and Amortization
905

 
837

Asset Impairments
43

 
131

Dry Hole Cost
19

 
2

Deferred Income Tax (Benefit) Expense
(312
)
 
24

Income (Loss) from Equity Method Investees, Net of Dividends
4

 
(3
)
(Gain) Loss on Commodity Derivative Instruments
(63
)
 
311

Net Cash Received (Paid) in Settlement of Commodity Derivative Instruments
397

 
(83
)
Gain on Divestitures
(1
)
 
(42
)
Stock Based Compensation
38

 
45

Non-cash Pension Expense
21

 

Other Adjustments for Noncash Items Included in Income
12

 
38

Changes in Operating Assets and Liabilities
 
 
 

Decrease in Accounts Receivable
304

 
55

(Decrease) Increase in Accounts Payable
(167
)
 
126

(Decrease) in Current Income Taxes Payable
(63
)
 
(86
)
Other Current Assets and Liabilities, Net
(45
)
 
25

Other Operating Assets and Liabilities, Net
5

 
(15
)
Net Cash Provided by Operating Activities
966

 
1,757

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(1,898
)
 
(2,321
)
Additions to Equity Method Investments
(65
)
 
(40
)
Proceeds from Divestitures
151

 
146

Net Cash Used in Investing Activities
(1,812
)
 
(2,215
)
Cash Flows From Financing Activities
 

 
 

Exercise of Stock Options
4

 
41

Excess Tax Benefits from Stock-Based Awards

 
17

Dividends Paid, Common Stock
(134
)
 
(116
)
Purchase of Treasury Stock
(12
)
 
(15
)
Proceeds from Issuance of Shares of Common Stock to Public, Net of Offering Costs
1,112

 

Proceeds from Credit Facility, Net

 
600

Repayment of Senior Notes

 
(200
)
Repayment of Capital Lease Obligation
(29
)
 
(28
)
Net Cash Provided by Financing Activities
941

 
299

Increase (Decrease) in Cash and Cash Equivalents
95

 
(159
)
Cash and Cash Equivalents at Beginning of Period
1,183

 
1,117

Cash and Cash Equivalents at End of Period
$
1,278

 
$
958

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


6



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

 
Common
Stock
 
Additional
Paid in
Capital
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Total
Shareholders'
Equity
December 31, 2014
$
4

 
$
3,624

 
$
(90
)
 
$
(671
)
 
$
7,458

 
$
10,325

Net Loss

 

 

 

 
(131
)
 
(131
)
Stock-based Compensation

 
38

 

 

 

 
38

Exercise of Stock Options

 
4

 

 

 

 
4

Dividends (36 cents per share)

 

 

 

 
(134
)
 
(134
)
Changes in Treasury Stock, Net

 

 

 
(12
)
 

 
(12
)
Issuance of Shares of Common Stock to Public, Net of Offering Costs

 
1,112

 

 

 

 
1,112

Net Change in Pension and Other

 

 
7

 

 

 
7

June 30, 2015
$
4

 
$
4,778

 
$
(83
)
 
$
(683
)
 
$
7,193

 
$
11,209

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
$
4

 
$
3,463

 
$
(117
)
 
$
(659
)
 
$
6,493

 
$
9,184

Net Income

 

 

 

 
392

 
392

Stock-based Compensation

 
45

 

 

 

 
45

Exercise of Stock Options

 
41

 

 

 

 
41

Tax Benefits Related to Exercise of Stock Options

 
17

 

 

 

 
17

Dividends (32 cents per share)

 

 

 

 
(116
)
 
(116
)
Changes in Treasury Stock, Net

 

 

 
(15
)
 

 
(15
)
Net Change in Pension and Other

 

 
6

 

 

 
6

June 30, 2014
$
4

 
$
3,566

 
$
(111
)
 
$
(674
)
 
$
6,769

 
$
9,554



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

7

Noble Energy, Inc.
Notes to Consolidated Financial Statements


Note 1.  Organization and Nature of Operations
Noble Energy, Inc. (Noble Energy, we or us) is a leading independent energy company engaged in worldwide crude oil and natural gas exploration and production. Our core operating areas are onshore US, primarily in the DJ Basin and Marcellus Shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa. We have recently acquired assets in the Eagle Ford Shale and Permian Basin. See Note 3. Rosetta Merger.

Note 2.  Basis of Presentation
Presentation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at June 30, 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.


8

Noble Energy, Inc.
Notes to Consolidated Financial Statements


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.

9

Noble Energy, Inc.
Notes to Consolidated Financial Statements

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.

10

Noble Energy, Inc.
Notes to Consolidated Financial Statements

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.

Note 3. Rosetta Merger
On July 20, 2015, stockholders of Rosetta Resources Inc. (Rosetta) approved the merger of Rosetta into a subsidiary of Noble Energy (Rosetta Merger). This transaction adds two premier onshore US shale plays to our portfolio: the Eagle Ford Shale and Permian Basin. Rosetta's liquids-rich asset base includes approximately 50,000 net acres in the Eagle Ford Shale and 54,000 net acres in the Permian (45,000 acres in the Delaware Basin and 9,000 acres in the Midland Basin).
The merger was effected through the issuance of approximately 41 million shares of Noble common stock in exchange for all outstanding shares of Rosetta using a ratio of 0.542 of a share of Noble common stock for each share of Rosetta common stock. The closing price of our stock on the New York Stock Exchange was $36.97 on July 20, 2015.
In addition to proved and unproved properties, we acquired commodity derivative assets and assumed Rosetta's outstanding debt. The results of Rosetta’s operations will be included in our consolidated statements of operations beginning July 21, 2015.
The transaction will be accounted for as a business combination, using the acquisition method. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, final reserve reports and operating information for the properties acquired, valuation of pre-acquisition contingencies, final tax returns that provide the underlying tax bases of Rosetta's assets and liabilities, and final appraisals of assets acquired and liabilities assumed. We expect

11

Noble Energy, Inc.
Notes to Consolidated Financial Statements

to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the allocation, including any goodwill, will be revised if necessary.
Rosetta Commodity Derivative Instruments
In connection with the Rosetta Merger, our subsidiary, NBL Texas, LLC, assumed the rights and obligations of Rosetta's commodity derivative instruments. NBL Texas, LLC currently holds the following commodity derivative instruments:
Crude Oil Derivative Instruments
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of July 20, 2015
 
 
 
 
 
 
2015
Two-Way Collars
8,000
$

 
$

$
55.00

$
84.80

2015
Swaps
12,000
89.81

 



2016
Swaps
6,000
90.28

 



(1) Includes a combination of NYMEX WTI and Argus LLS indices.
Natural Gas Derivative Instruments
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
MMBtu Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of July 20, 2015
 
 
 
 
 
 
2015
Swaps
50,000

$
4.13

 
$

$

$

2015
Two-Way Collars
50,000


 

3.60

5.04

2016
Swaps
30,000

4.04

 



2016
Two-Way Collars
30,000


 

3.50

5.60

(1) Includes a combination of HSC (Houston Ship Channel) and TENNZ0 (Tennessee Zone 0) indices.
NGL Derivative Instruments
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of July 20, 2015
 
 
 
 
 
 
2015
Swaps
NGL-Ethane
2,476

$
11.18

 
$

$

$

2015
Swaps
NGL-Propane
1,750

43.35

 



2015
Swaps
NGL-Isobutane
617

53.05

 



2015
Swaps
NGL-Normal Butane
579

52.53

 



2015
Swaps
NGL-Pentanes Plus
579

77.72

 




12

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Rosetta Debt
In connection with the Rosetta Merger, we assumed the following outstanding debt:
 
July 20, 2015
(millions, except percentages)
Debt
 
Interest Rate
Credit Facility, due April 12, 2018
$
70

 
%
5.625% Senior Notes, due May 1, 2021
700

 
5.625
%
5.875% Senior Notes, due June 1, 2022
600

 
5.875
%
5.875% Senior Notes, due June 1, 2024
500

 
5.875
%
Total
$
1,870

 
 

On July 21, 2015, we repaid the $70 million of outstanding borrowings under the Rosetta revolving credit facility.

All outstanding senior notes assumed pay interest semi-annually. On June 29, 2015, we filed a prospectus offering to exchange any and all outstanding Rosetta senior notes for Noble senior notes with the same terms. The offer to exchange expired on July 27, 2015. Approximately 99.4% of the outstanding Rosetta senior notes were tendered for exchange. Approximately $11 million aggregate principal amount of the Rosetta senior notes remained outstanding across the three series. Due to the small outstanding principal amount remaining, we called the remaining outstanding Rosetta Notes for redemption in accordance with the terms of the respective indentures governing the Rosetta notes.

Note 4. Divestitures
Onshore US Properties   During the first six months of 2015, we sold certain onshore US crude oil and natural gas properties, generating net proceeds of $151 million. Proceeds were primarily applied to the DJ Basin depletable field, with no recognition of gain or loss, other than a de minimis gain in second quarter 2015.
During the first six months of 2014, we sold certain non-core onshore US crude oil and natural gas properties. Gains from asset sales during the second quarter of 2014 were de minimis. The information regarding the assets sold is as follows:
 
Six Months Ended
June 30,
(millions)
2014
Sales Proceeds
$
110

Less
 
     Net Book Value of Assets Sold
(118
)
     Goodwill Allocated to Assets Sold
(6
)
     Asset Retirement Obligations Associated with Assets Sold
20

Gain on Divestitures
$
6

China Sale On June 30, 2014, we closed the sale of our China assets. We determined the sale of our China assets did not meet the criteria for discontinued operations presentation. The information regarding the China assets sold is as follows:
 
Six Months Ended
June 30,
(millions)
2014
Sales Proceeds (1)
$
186

Less
 
     Net Book Value of Assets Sold
(149
)
     Other Closing Adjustments
(2
)
Gain on Divestiture
$
35

(1) Includes $150 million cash received on July 2, 2014, which was recorded as accounts receivable at June 30, 2014.

13

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 5. Asset Impairments
Pre-tax (non-cash) asset impairment charges were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2015
 
2014
 
2015
 
2014
Deepwater Gulf of Mexico
$
8

 
$
18

 
$
11

 
$
23

Eastern Mediterranean
7

 
14

 
32

 
14

North Sea

 
2

 

 
94

Total
$
15

 
$
34

 
$
43

 
$
131

Impairments for 2015 were primarily related to revisions in expected field abandonment or other costs at South Raton (Deepwater Gulf of Mexico) and the Noa and Pinnacles fields (Eastern Mediterranean).
Impairments for 2014 were primarily related to an increase in expected field abandonment costs and a change in the timing of abandonment activities at the North Sea MacCulloch field.
See Note 2. Basis of Presentation, Note 8. Fair Value Measurements and Disclosures and Note 10. Asset Retirement Obligations.

14

Noble Energy, Inc.
Notes to Consolidated Financial Statements


Note 6.  Derivative Instruments and Hedging Activities
Objective and Strategies for Using Derivative Instruments   We are exposed to fluctuations in crude oil and natural gas prices on the majority of our production. 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 with respect to a portion of our expected production.
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 8. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.
Unsettled Commodity Derivative Instruments   As of June 30, 2015, we had entered into the following crude oil derivative instruments: 
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of June 30, 2015
 
 
 
 
 
 
2015
Swaps
NYMEX WTI
27,000

$
88.80

 
$

$

$

2015
Swaps
Dated Brent
8,000

100.31

 



2015
Two-Way Collars
NYMEX WTI
5,000


 

50.00

64.94

2015
Three-Way Collars
NYMEX WTI
20,000


 
70.50

87.55

94.41

2015
Three-Way Collars
Dated Brent
13,000


 
76.92

96.00

108.49

2016
Swaps
NYMEX WTI
9,000

80.30

 



2016
Swaps
Dated Brent
9,000

97.96

 



2016
Two -Way Collars
NYMEX WTI
1,000


 

60.00

70.00

2016
Three-Way Collars
NYMEX WTI
6,000


 
61.00

72.50

86.37

2016
Three-Way Collars
Dated Brent
8,000


 
72.50

86.25

101.79

As of June 30, 2015, we had entered into the following natural gas derivative instruments:
 
 
 
 
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
Instruments Entered Into as of June 30, 2015
 
 
 
 
 
 
2015
Swaps
NYMEX HH
140,000
$
4.30

 
$

$

$

2015
Three-Way Collars
NYMEX HH
150,000

 
3.58

4.25

5.04

2016
Swaps (1)
NYMEX HH
40,000
3.60

 



2016
Two-Way Collars
NYMEX HH
30,000

 

3.00

3.50

2016
Three-Way Collars
NYMEX HH
90,000

 
2.83

3.42

3.90

(1) 
We have entered into natural gas derivative contracts which give counterparties the option to extend for an additional 12-month period. Options covering a notional volume of 30,000 MMBtu/d are exercisable on December 22 and 23, 2016. If the counterparties exercise all such options, the notional volume of our existing natural gas derivative contracts will increase by 30,000 MMBtu/d at an average price of $3.50 per MMBtu for each month during the period January 1, 2017 through December 31, 2017.



15

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Fair Value Amounts and (Gain) Loss on Commodity Derivative Instruments   The fair values of commodity derivative instruments in our consolidated balance sheets were as follows:
Fair Value of Derivative Instruments
 
Asset Derivative Instruments
 
Liability Derivative Instruments
 
June 30,
2015
 
December 31,
2014
 
June 30,
2015
 
December 31,
2014
(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
 
$
456

 
Current Assets
 
$
710

 
Current Liabilities
 
$

 
Current Liabilities
 
$

 
Noncurrent Assets
 
100

 
Noncurrent Assets
 
180

 
Noncurrent Liabilities
 

 
Noncurrent Liabilities
 

Total
 
 
$
556

 
 
 
$
890

 
 
 
$

 
 
 
$


The effect of commodity derivative instruments on our consolidated statements of operations was as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2015
 
2014
 
2015
 
2014
Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
$
(157
)
 
$
46

 
$
(342
)
 
$
73

  Natural Gas
(30
)
 
3

 
(55
)
 
10

Total Cash (Received) Paid in Settlement of Commodity Derivative Instruments
(187
)
 
49

 
(397
)
 
83

Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
242

 
192

 
297

 
219

   Natural Gas
32

 
(5
)
 
37

 
9

Total Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
274

 
187

 
334

 
228

(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
85

 
238

 
(45
)
 
292

   Natural Gas
2

 
(2
)
 
(18
)
 
19

Total (Gain) Loss on Commodity Derivative Instruments
$
87

 
$
236

 
$
(63
)
 
$
311



16

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 7. Debt
Debt consists of the following:
 
June 30,
2015
 
 
December 31,
2014
 
(millions, except percentages)
Debt
 
Interest Rate
 
 
Debt
 
Interest Rate
 
Credit Facility, due October 3, 2018
$

 
%
 
 
$

 
%
 
Capital Lease Obligations
414

 
%
 
 
413

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

 
8.25
%
 
 
1,000

 
8.25
%
 
4.15% Senior Notes, due December 15, 2021
1,000

 
4.15
%
 
 
1,000

 
4.15
%
 
7.25% Senior Notes, due October 15, 2023
100

 
7.25
%
 
 
100

 
7.25
%
 
3.90% Senior Notes, due November 15, 2024
650

 
3.90
%
 
 
650

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

 
8.00
%
 
 
250

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

 
6.00
%
 
 
850

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

 
5.25
%
 
 
1,000

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

 
5.05
%
 
 
850

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

 
7.25
%
 
 
84

 
7.25
%
 
Total
6,198

 
 
 
 
6,197

 
 

 
Unamortized Discount
(25
)
 
 

 
 
(26
)
 
 

 
Total Debt, Net of Discount
6,173

 
 

 
 
6,171

 
 

 
Less Amounts Due Within One Year
 

 
 

 
 
 

 
 

 
Capital Lease Obligations
(61
)
 
 

 
 
(68
)
 
 

 
Long-Term Debt Due After One Year
$
6,112

 
 

 
 
$
6,103

 
 

 
Credit Facility Our Credit Agreement provides for a $4.0 billion unsecured revolving credit facility (Credit Facility), which is available for general corporate purposes. The Credit Facility (i) provides for facility fee rates that range from 12.5 basis points to 30 basis points per year depending upon our credit rating, (ii) includes sub-facilities for short-term loans and letters of credit up to an aggregate amount of $500 million under each sub-facility and (iii) provides for interest rates that are based upon the Eurodollar rate plus a margin that ranges from 100 basis points to 145 basis points depending upon our credit rating.
See Note 8. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of debt.

Note 8.  Fair Value Measurements and Disclosures  
Assets and Liabilities Measured at Fair Value on a Recurring Basis 
Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values: 
Cash, Cash Equivalents, Accounts Receivable and Accounts Payable   The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments. 
Mutual Fund Investments   Our mutual fund investments, which primarily include assets held in a rabbi trust, consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets. 
Commodity Derivative Instruments   Our commodity derivative instruments may include variable to fixed price commodity swaps, two-way collars, and/or three-way collars. We estimate the fair values of these instruments based on published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 6. 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. 

17

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Measurement information for assets and liabilities that are measured at fair value on a recurring basis was as follows: 
 
Fair Value Measurements Using
 
 
 
 
 
Quoted Prices in 
Active Markets
(Level 1) (1)
 
Significant Other
Observable Inputs
(Level 2) (2)
 
Significant
Unobservable
Inputs (Level 3) (3)
 
Adjustment (4)
 
Fair Value Measurement
(millions)
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
112

 
$

 
$

 
$

 
$
112

Commodity Derivative Instruments

 
559

 

 
(3
)
 
556

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(3
)
 

 
3

 

Portion of Deferred Compensation Liability Measured at Fair Value
(130
)
 

 

 

 
(130
)
December 31, 2014
 
 
 
 
 
 
 

 
 

Financial Assets
 

 
 

 
 

 
 

 
 

Mutual Fund Investments
$
111

 
$

 
$

 
$

 
$
111

Commodity Derivative Instruments

 
890

 


 

 
890

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 

 

 

 

Portion of Deferred Compensation Liability Measured at Fair Value
(134
)
 

 

 

 
(134
)
 
(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 are measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
Asset Impairments Information about impaired assets is as follows:
 
Fair Value Measurements Using
 
 
 
 
Description
Quoted Prices in 
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Net Book Value (1)
 
Total Pre-tax (Non-cash) Impairment Loss
millions
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$

 
$
15

 
$
15

Three Months Ended June 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 
8

 
42

 
34

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$

 
$
43

 
$
43

Six Months Ended June 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 
14

 
145

 
131

(1) Amount represents net book value at the date of assessment.

18

Noble Energy, Inc.
Notes to Consolidated Financial Statements

The fair value of impaired oil and gas properties was determined as of the date of the assessment using a discounted cash flow model based on management’s expectations of future crude oil and natural gas production prior to abandonment date, commodity prices based on NYMEX WTI, NYMEX Henry Hub, and Brent future price curves as of the date of the estimate, estimated operating and abandonment costs, and a risk-adjusted discount rate of 10%. Impairments for the first six months of 2015 were due primarily to increases in asset carrying values associated with increases in estimated field abandonment costs. See Note 5. Asset Impairments.
Additional Fair Value Disclosures
Debt   The fair value of public, fixed-rate 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. 
Fair value information regarding our debt is as follows:
 
June 30,
2015
 
December 31,
2014
(millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Total Debt, Net of Unamortized Discount (1)
$
5,759

 
$
6,103

 
$
5,758

 
$
6,179

(1) 
Excludes capital lease obligations.
Note 9.  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. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.
Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:
(millions)
Six Months Ended June 30, 2015
Capitalized Exploratory Well Costs, Beginning of Period
$
1,337

Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
134

Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves
(12
)
Capitalized Exploratory Well Costs Charged to Expense (1)
(17
)
Capitalized Exploratory Well Costs, End of Period
$
1,442


(1) Relates primarily to onshore US exploration activity.

The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced, and the number of projects that have been capitalized for a period greater than one year: 
(millions)
June 30,
2015
 
December 31,
2014
Exploratory Well Costs Capitalized for a Period of One Year or Less
$
262

 
$
247

Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling
1,180

 
1,090

Balance at End of Period
$
1,442

 
$
1,337

Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling
14

 
13

 

19

Noble Energy, Inc.
Notes to Consolidated Financial Statements

The following table includes exploratory well costs that have been capitalized for a period greater than one year since the commencement of drilling as of June 30, 2015:
 
 
 
 
(millions)
Total by Project
 
Progress
Country/Project:
 
 
 
Onshore US
 
 
 
Northeast Nevada
$
31

 
Analyzing results from our first four exploratory vertical wells and evaluating potential for production tests.
Deepwater Gulf of Mexico
 
 
 
Katmai
43

 
Anticipate drilling an appraisal well in 2016 to test the resource potential of this 2014 crude oil discovery.
Troubadour
48

 
Evaluating development scenarios for this 2013 natural gas discovery including subsea tieback to existing infrastructure.
Offshore Equatorial Guinea (Blocks O and I)
 

 
 
Diega/Carmen
229

 
Evaluating regional development scenarios for this 2008 crude oil discovery. We drilled subsequent appraisal wells. During 2014, we conducted additional seismic activity over Blocks O and I and are engaged in processing the newly-acquired seismic data.
Carla
166

 
Evaluating regional development scenarios for this 2011 crude oil discovery. We drilled subsequent appraisal wells. During 2014, we conducted additional seismic activity over Blocks O and I and are engaged in processing the newly-acquired seismic data.
Felicita
39

 
Evaluating regional development plans for this 2008 condensate and natural gas discovery. A natural gas development team is working with the governments of Equatorial Guinea and Cameroon to evaluate natural gas monetization options and finalize a data exchange agreement between the two countries.
Yolanda
20

 
Evaluating regional development plans for this 2007 condensate and natural gas discovery. A natural gas development team is working with the governments of Equatorial Guinea and Cameroon to evaluate natural gas monetization options and finalize a data exchange agreement between the two countries.
Offshore Cameroon
 

 
 
YoYo
48

 
Working with the government to assess commercialization of this 2007 condensate and natural gas discovery. A natural gas development team is working with the governments of Equatorial Guinea and Cameroon to evaluate natural gas monetization options and finalize a data exchange agreement between the two countries.
Offshore Israel (1)
 

 
 
Leviathan
187

 
During 2014, we received the Leviathan Development and Production Leases, submitted a development plan to the Israeli government, completed substantial engineering and procurement activities and engaged in natural gas marketing activities.

20

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Leviathan-1 Deep
80

 
Well did not reach the target interval; developing future drilling plans to test this deep oil concept, which is held by the Leviathan Development and Production Leases. We are working on potential well design and placement.
Dalit
28

 
Submitted a development plan to the Israeli government to develop this 2009 natural gas discovery as a tie-in to existing infrastructure.
Dolphin 1
25

 
Reviewing regional development scenarios for this 2011 natural gas discovery, including a potential tieback to Leviathan. We have applied to the Israeli government for a commerciality ruling.
Offshore Cyprus
 
 
 
Cyprus
208

 
Submitted a Declaration of Commerciality and a Preliminary Development Plan for Block 12 with the government of Cyprus.
Other
 

 
 
Individual Projects Less than $20 million
28

 
Continuing to drill and evaluate wells.
Total
$
1,180

 
 
(1) We are currently working to resolve antitrust and other regulatory matters with the Israeli government to enable Leviathan and other development to move forward. See Note 2. Basis of Presentation Update on Core Area Israel.

Note 10.  Asset Retirement Obligations
Asset retirement obligations (ARO) consist primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. Changes in ARO are as follows:
 
Six Months Ended
June 30,
(millions)
2015
 
2014
Asset Retirement Obligations, Beginning Balance
$
751

 
$
586

Liabilities Incurred
16

 
22

Liabilities Settled
(15
)
 
(43
)
Revision of Estimate
79

 
120

Accretion Expense (1)
21

 
19

Asset Retirement Obligations, Ending Balance
$
852

 
$
704

(1) Accretion expense is included in DD&A expense in the consolidated statements of operations.
For the six months ended June 30, 2015
Liabilities incurred were due to new wells and facilities for onshore US and deepwater Gulf of Mexico. Liabilities settled relate primarily to non-core, onshore US properties sold.
Revisions in estimate related to changes in cost estimates and included $43 million for Eastern Mediterranean and $28 million for DJ Basin.
For the six months ended June 30, 2014
Liabilities incurred were due to new wells and facilities for onshore US and Eastern Mediterranean. Liabilities settled primarily related to onshore US property abandonments and non-core, onshore US assets sold.
Revisions in estimate included $67 million for the North Sea McCulloch field due to an increase in costs and a change in timing. See Note 5. Asset Impairments. Additional revisions of $21 million for DJ Basin, $16 million for Equatorial Guinea, $9 million for Eastern Mediterranean, and $7 million for deepwater Gulf of Mexico were due to changes in cost and timing estimates.

21

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 11.  Earnings Per Share
Basic earnings per share of common stock is computed using the weighted average number of shares of common stock outstanding during each period. The diluted earnings per share of common stock include the effect of outstanding stock options, shares of restricted stock, or shares of our common stock held in a rabbi trust (when dilutive). The following table summarizes the calculation of basic and diluted earnings per share:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions, except per share amounts)
2015
 
2014
 
2015
 
2014
Net Income (Loss)
$
(109
)
 
$
192

 
$
(131
)
 
$
392

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding, Basic (1)
387

 
361

 
378

 
361

Incremental Shares from Assumed Conversion of Dilutive Stock Options, Restricted Stock, and Shares of Common Stock in Rabbi Trust (2)

 
5

 

 
4

Weighted Average Number of Shares Outstanding, Diluted
387

 
366

 
378

 
365

Earnings (Loss) Per Share, Basic
$
(0.28
)
 
$
0.53

 
$
(0.35
)
 
$
1.09

Earnings (Loss) Per Share, Diluted
(0.28
)
 
0.52

 
(0.35
)
 
1.07

Number of Antidilutive Stock Options, Shares of Restricted Stock, and Shares of Common Stock in Rabbi Trust Excluded from Calculation Above
10

 
3

 
9

 
4

(1) 
The weighted average number of shares outstanding includes the weighted average shares of common stock issued in connection with the underwritten public offering of 24,150,000 shares of common stock of the Company in first quarter 2015.
(2) 
For the three and six months ended June 30, 2015, all outstanding options and non-vested restricted shares have been excluded from the calculation of diluted EPS as the Company incurred losses. Therefore, inclusion of outstanding options and non-vested restricted shares in the calculation of diluted EPS would be anti-dilutive.


Note 12.  Income Taxes
The income tax provision relating to continuing operations consists of the following:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(millions)
2015
 
2014
 
2015
 
2014
Current
$
99

 
$
34

 
$
109

 
$
94

Deferred
(283
)
 
7

 
(312
)
 
24

Total Income Tax (Benefit) Provision
$
(184
)
 
$
41

 
$
(203
)
 
$
118

Effective Tax Rate
62.8
%
 
17.6
%
 
60.8
%
 
23.1
%

Our effective tax rate (ETR) for the six months ended June 30, 2015 increased as compared with the six months ended June 30, 2014 primarily as a result of a tax benefit divided by a pre-tax loss. In the case of a pre-tax loss, our favorable permanent differences, such as income from equity method investees and increased earnings in our foreign jurisdictions with rates that vary from the US statutory rate, have the effect of increasing the tax benefit which, in turn, increases the ETR.
In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2011, Equatorial Guinea – 2010 and Israel – 2010.

22

Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 13.  Segment Information  
We have operations throughout the world and manage our operations by country. The following information is grouped into four components that are all in the business of crude oil and natural gas exploration, development, production, and acquisition: the United States; West Africa (Equatorial Guinea, Cameroon, Gabon, and Sierra Leone); Eastern Mediterranean (Israel and Cyprus); and Other International and Corporate. Other International includes the North Sea, China (through June 30, 2014), Falkland Islands, Nicaragua (which we have exited) and new ventures.
(millions)
Consolidated
 
United
States
 
West
Africa
 
Eastern
Mediterranean
 
Other Int'l &
Corporate
Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
Revenues from Third Parties
$
722