Note 3. Acquisitions, Divestitures and Merger

Pending Acquisition of Clayton Williams Energy, Inc. On January 13, 2017 we executed a definitive agreement to acquire all of the outstanding common stock of Clayton Williams Energy, Inc. for $2.7 billion in Noble Energy stock and cash.

The transaction has been unanimously approved by the Boards of Directors of both Noble Energy and Clayton Williams Energy and is subject to approval by stockholders of Clayton Williams Energy. If approved, Clayton Williams Energy stockholders will receive 2.7874 shares of Noble Energy common stock and $34.75 in cash for each share of common stock held. In the aggregate, this totals 55 million shares of Noble Energy stock and $665 million in cash. The value of the transaction, based on Noble Energy's closing stock price as of January 13, 2017, is approximately $3.2 billion in the aggregate including the assumption of approximately $500 million in net debt. We intend to fund the cash portion of the acquisition through a draw on our Revolving Credit Facility.

Closing is expected to occur second quarter 2017 and is subject to customary regulatory approvals, approval by the holders of a majority of Clayton Williams Energy common stock, and certain other conditions.

Property Acquisition In fourth quarter 2016, we entered an agreement to purchase Permian Basis properties, including seven producing wells. The acquisition, which has a total transaction price of $295 million, will increase our contiguous acreage position in the Reeves County area. In December 2016, we paid initial consideration of $30 million into an escrow account, which is reflected as a restricted asset in our consolidated balance sheet. We paid the remaining consideration and completed the acquisition in January 2017.

Termination of Marcellus Shale JDA In fourth quarter 2016, we and CONSOL agreed to terminate our 50-50 Joint Development Agreement (JDA) in the Marcellus Shale. In connection with the terminated JDA, we executed and closed an exchange agreement whereby we and CONSOL each transferred all of our interest in a portion of co-owned properties to one another. As a result, we now hold an almost 100% operated working interest in approximately 363,000 acres, primarily located in northwest West Virginia. In addition to the acreage and production realignment between the two companies, we remitted a cash payment of approximately $213 million to CONSOL at closing. Terminating the JDA resulted in the elimination of the remaining outstanding carried cost obligation due from us. No gain or loss was recognized on the exchange. See Supplementary Data – Supplemental Oil and Gas Information (Unaudited), below, for discussion of proved reserves divested in connection with the transaction.

DJ Acreage Exchange We closed a cashless acreage exchange in the DJ Basin 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. No gain or loss was recognized.

Divestitures We maintain an ongoing portfolio management program. Accordingly, we may periodically divest assets or engage in acreage exchanges.

2016 Asset Sales During 2016, we engaged in the following sales transactions:

•

entered an agreement to divest certain producing and non-producing properties covering approximately 33,100 net acres in the DJ Basin for proceeds of $505 million. We closed the sale on a portion of the properties in 2016, receiving proceeds of $486 million. We expect to close the sale of the remaining properties, which are classified as held for sale at December 31, 2016, and receive the remaining proceeds, subject to post-close adjustments, in mid-2017. Proceeds were applied to reduce field basis with no recognition of gain or loss.


•	sold additional DJ Basin non-producing properties, certain Eagle Ford properties, our Bowdoin property in northern Montana, and certain other smaller onshore US properties, generating total net proceeds of $152 million, a net loss of $23 million on the Bowdoin sale, and no further gain or loss recognized on the remaining transactions.


•	sold our 47% interest in the Alon A and Alon C licenses, offshore Israel, which included the Karish and Tanin fields, for a total sales price of $73 million ($67 million for asset consideration and $6 million from cost adjustments). Proceeds were applied to reduce field basis with no recognition of gain or loss.

•

sold a 3.5% working interest in the Tamar field, offshore Israel, in compliance with the terms of the Israel Natural Gas Framework, which requires us to reduce our ownership interest in Tamar to 25% by year-end 2021. The sales price totaled $431 million, and we received net cash proceeds of $316 million, after consideration of timing and tax adjustments, at closing. Proceeds were ratably applied to the field's basis and resulted in the recognition of a $261 million gain.


•	received proceeds of $131 million related to a farm-out agreement for a 35% interest in Block 12, offshore Cyprus, which includes the Aphrodite natural gas discovery. We received the remaining proceeds of $40 million in January 2017. Proceeds were applied to reduce field basis with no recognition of gain or loss.

See Supplementary Data – Supplemental Oil and Gas Information (Unaudited), below, for discussion of proved reserves divested in connection with the above transactions.

2015 Asset Sales In 2015, we sold certain non-strategic onshore US properties, receiving proceeds of $151 million, with no gain or loss recorded.

2014 Asset Sales In 2014, we sold certain non-strategic onshore US properties, receiving proceeds of $135 million, and recorded a net gain of $36 million. We also sold our China assets, receiving proceeds of $186 million, and recorded a gain of $35 million.

Aggregated information regarding assets sold is as follows:



	Year Ended December 31,
(millions)	2016			2015			2014
Sales Proceeds	$	1,241		$	151		$	321
Less
Net Book Value of Assets Sold	(993		)	(156		)	(297		)
Asset Retirement Obligations Associated with Assets Sold	7			8			48
Goodwill Allocated to Assets Sold	—			(4		)	(7		)
Other Closing Adjustments	(17		)	1			8
Gain on Divestitures, Net	$	238		$	—		$	73

Rosetta Merger On July 20, 2015, Noble Energy completed the merger of Rosetta into a subsidiary of Noble Energy (Rosetta Merger). The results of Rosetta's operations since the merger date are included in our consolidated statement of operations. The merger was effected through the issuance of approximately 41 million shares of Noble Energy common stock in exchange for all outstanding shares of Rosetta using a ratio of 0.542 of a share of Noble Energy common stock for each share of Rosetta common stock and the assumption of Rosetta's liabilities, including approximately $2 billion fair value of outstanding debt.

The merger added two new onshore US shale positions to our portfolio including approximately 50,000 net acres in the Eagle Ford Shale and 54,000 net acres in the Permian Basin (45,000 acres in the Delaware Basin and 9,000 acres in the Midland Basin). In connection with the Rosetta Merger, we incurred merger-related costs of approximately $81 million, including (i) $66 million of severance, consulting, investment, advisory, legal and other merger-related fees, and (ii) $15 million of noncash share-based compensation expense, all of which were expensed and are included in Other Operating (Income) Expense, Net.

Purchase Price Allocation The merger was accounted for as a business combination, using the acquisition method. The following table represents the final allocation of the total purchase price of Rosetta to the assets acquired and the liabilities assumed based on the fair values at the merger date, with any excess of the purchase price over the estimated fair values of the identifiable net assets acquired recorded as goodwill.

The following table sets forth our final purchase price allocation:



	(in millions, except stock price)
Shares of Noble Energy common stock issued to Rosetta shareholders	41
Noble Energy common stock price on July 20, 2015	$	36.97
Fair value of common stock issued	$	1,518
Plus: fair value of Rosetta's restricted stock awards and performance awards assumed	10
Plus: Rosetta stock options assumed	1
Total purchase price	$	1,529
Plus: liabilities assumed by Noble Energy
Accounts Payable	100
Current Liabilities	37
Long-Term Debt	1,992
Other Long Term Liabilities	23
Asset Retirement Obligation	27
Total purchase price plus liabilities assumed	$	3,708

Fair Value of Rosetta Assets
Cash and Equivalents	$	61
Other Current Assets	76
Derivative Instruments	209
Oil and Gas Properties:
Proved Properties	1,613
Undeveloped Leaseholds	1,355
Gathering and Processing Assets	207
Asset Retirement Obligation	27
Other Property Plant and Equipment	5
Long Term Deferred Tax Asset	17
Implied Goodwill ⁽¹⁾	138
Total Asset Value	$	3,708

⁽¹⁾As of December 31, 2015, our preliminary purchase price allocation reflected goodwill of $163 million based on the fair value of assets acquired and liabilities assumed at the Rosetta Merger date. In conducting our goodwill impairment test as of December 31, 2015, we determined that our goodwill balance was no longer recoverable and fully impaired it, resulting in a goodwill impairment charge in fourth quarter 2015. In second quarter 2016, we finalized the purchase price allocation and recorded a $25 million gain to other operating expense, net driven by adjustments made based on the filing of the final Rosetta federal income tax return for the period ending on the Rosetta Merger date.

The fair value measurements of derivative instruments assumed were determined based on published forward commodity price curves as of the date of the merger and represent Level 2 inputs. 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. The fair value measurements of long-term debt were estimated based on published market prices and represent Level 1 inputs. The long-term debt balance includes amounts outstanding under Rosetta's credit facility which was assumed by Noble and repaid subsequent to the merger in third quarter 2015.

The fair value measurements of crude oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of crude oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive and may be subject to change.

The results of operations attributable to Rosetta are included in our consolidated statement of operations beginning on July 21, 2015. Revenues of $457 million and pre-tax net loss of $20 million, exclusive of a $25 million purchase price allocation adjustment, from Rosetta were generated for the year ended December 31, 2016. Revenues of $181 million and pre-tax net loss of $120 million, inclusive of a $163 million goodwill impairment, from Rosetta were generated from July 21, 2015 to December 31, 2015.

Pro Forma Financial Information The following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Rosetta and gives effect to the merger as if it had occurred on January 1, 2014. The below information reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) Noble Energy's common stock and equity awards issued to convert Rosetta's outstanding shares of common stock and equity awards as of the closing date of the merger, (ii) adjustments to conform Rosetta's historical policy of accounting for its oil and natural gas properties from the full cost method to the successful efforts method of accounting, (iii) depletion of Rosetta's fair-valued proved oil and gas properties, and (iv) the estimated tax impacts of the pro forma adjustments. Additionally, pro forma earnings for the year ended December 31, 2015 were adjusted to exclude $81 million of merger-related costs incurred by Noble Energy and $37 million incurred by Rosetta. The pro forma results of operations do not include any cost savings or other synergies that may result from the Rosetta Merger or any estimated costs that have been or will be incurred by us to integrate the Rosetta 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 Rosetta Merger taken place on January 1, 2014; furthermore, the financial information is not intended to be a projection of future results.



	Year Ended December 31,
(in millions, except per share amounts)	2016 ⁽¹⁾			2015			2014
Revenues	$	3,491		$	3,478		$	6,126
Net (Loss) Income Attributable to Noble Energy	(998		)	(2,393		)	1,607

Earnings (Loss) Per Share
Basic	$	(2.32	)	$	(5.64	)	$	4.01
Diluted	(2.32		)	(5.64		)	3.94

⁽¹⁾ No pro forma adjustments were made for the period as Rosetta's operations are included in our consolidated historical results.