Acquisitions, Divestitures and Merger

12 Months Ended

Dec. 31, 2017

Discontinued Operations and Disposal Groups [Abstract]

Note 3. Clayton Williams Energy Acquisition

In January 2017, we announced the Clayton Williams Energy Acquisition, which was approved by Clayton Williams Energy stockholders and closed on April 24, 2017. Acquired assets include 71,000 highly contiguous net acres in the core of the Delaware Basin adjacent to our Reeves County holdings in Texas, and an additional 100,000 net acres in other areas of the United States. In total, the acquisition increased our Delaware Basin position to approximately 117,000 net acres.

See Supplemental Oil and Gas Information (Unaudited), below for discussion of proved reserves acquired. In addition, upon closing of the acquisition, approximately 64,000 net acres in Reeves County, Texas were dedicated to Noble Midstream Partners for infield crude oil, natural gas and produced water gathering.

The acquisition was effected through the issuance of approximately 56 million shares of Noble Energy common stock with a fair value of approximately $1.9 billion and cash consideration of $637 million, for total consideration of approximately $2.5 billion, in exchange for all outstanding Clayton Williams Energy shares, including stock options, restricted stock awards and warrants. The closing price of our stock on the New York Stock Exchange (NYSE) was $34.17 on April 24, 2017. In connection with the transaction, we borrowed $1.3 billion under our Revolving Credit Facility (defined below) to fund the cash portion of the acquisition consideration, redeem outstanding Clayton Williams Energy debt, pay associated make-whole premiums and pay related fees and expenses. See Note 10. Long-Term Debt.

In connection with the Clayton Williams Energy Acquisition, we have incurred acquisition-related costs of $100 million to date, including $64 million of severance, consulting, investment, advisory, legal and other merger-related fees and $36 million of noncash share-based compensation expense, all of which were expensed and are included in other operating expense, net in our consolidated statements of operations. In addition, we received approximately 720,000 shares of common stock from Clayton Williams Energy shareholders for the payment of withholding taxes due on the vesting of their restricted stock and options pursuant to the purchase and sale agreement, resulting in a $25 million increase in our treasury stock balance.

Purchase Price Allocation The transaction has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price of Clayton Williams Energy to the assets acquired and the liabilities assumed based on the fair value at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.

Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, analysis of the underlying tax basis of Clayton Williams Energy's assets and liabilities, and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the acquisition date, during which time the value of the assets and liabilities, including any goodwill, may be revised as appropriate.

The following table sets forth our preliminary purchase price allocation:



(millions, except per share amounts)
Fair Value of Common Stock Issued	$	1,876
Plus: Cash Consideration Paid to Clayton Williams Energy Stockholders	637
Total Purchase Price	$	2,513
Plus Liabilities Assumed by Noble Energy:
Accounts Payable	99
Other Current Liabilities	38
Long-Term Deferred Tax Liability	509
Long-Term Debt	595
Asset Retirement Obligations	63
Total Purchase Price Plus Liabilities Assumed	$	3,817

The fair values of Clayton Williams Energy's identifiable assets are as follows:



(millions)
Cash and Cash Equivalents	$	21
Other Current Assets	70
Oil and Gas Properties:
Proved Reserves	722
Undeveloped Leasehold Cost	1,571
Gathering and Processing Assets	48
Asset Retirement Costs	63
Other Property Plant and Equipment	12
Implied Goodwill	1,310
Total Asset Value	$	3,817

In connection with the acquisition, we assumed, and then subsequently retired, all of Clayton Williams Energy's long-term debt at a cost to us of $595 million. The fair value measurements of long-term debt were estimated based on the early redemption prices and represent Level 1 inputs.

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

Based upon the preliminary purchase price allocation, we have recognized $1.3 billion of goodwill, all of which is assigned to the Texas reporting unit. As a result of the acquisition, we expect to realize certain synergies which may result from our control of the combined assets as well as future midstream opportunities. The oil-rich geology of these assets, coupled with our unconventional expertise and position in the adjacent properties, significantly enhances our crude oil focus and growth outlook. The acquisition provides for synergies related to administrative and capital efficiencies, and increased opportunities to drill longer lateral wells on our combined acreage positions, enhances our crude oil production base and future crude oil growth potential. It also adds to our midstream assets and provides future midstream build-out opportunities for the gathering, processing and servicing of future production in the basin.

Results of Operations The results of operations attributable to Clayton Williams Energy are included in our consolidated statements of operations beginning on April 24, 2017. We generated revenues of $99 million and a pre-tax loss of $19 million from the Clayton Williams Energy assets during the period April 24, 2017 to December 31, 2017.

Pro Forma Financial Information The following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Clayton Williams Energy and gives effect to the acquisition as if it had occurred on January 1, 2016. The information below reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) Noble Energy's common stock and equity awards issued to convert Clayton Williams Energy's outstanding shares of common stock and equity awards and conversion of warrants as of the closing date of the acquisition, (ii) depletion of Clayton Williams Energy's fair-valued proved crude oil and natural gas properties, and (iii) the estimated tax impacts of the pro forma adjustments.

Additionally, pro forma earnings for the year ended December 31, 2017 were adjusted to exclude acquisition-related costs of $100 million incurred by Noble Energy and $23 million incurred by Clayton Williams Energy. The pro forma results of operations do not include any cost savings or other synergies that we expect to realize from the Clayton Williams Energy Acquisition or any estimated costs that have been or will be incurred by us to integrate the Clayton Williams Energy assets. The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Clayton Williams Energy Acquisition taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.



	Year Ended December 31,
(millions, except per share amounts)	2017			2016
Revenues	$	4,304		$	3,651
Net Loss and Comprehensive Loss Attributable to Noble Energy	(678		)	(1,082		)

Net Loss Attributable to Noble Energy per Common Share
Basic and Diluted	$	(1.39	)	$	(2.23	)

Note 4. Acquisitions, Divestitures and Merger

We maintain an ongoing portfolio management program and have engaged in various transactions over recent years.

Year Ended December 31, 2017

Marcellus Shale Upstream Divestiture On June 28, 2017, we closed the sale of all of our Marcellus Shale upstream assets, which were primarily natural gas properties. The sales price totaled $1.2 billion, and we received $1.0 billion of net cash proceeds, after consideration of customary adjustments, at closing. The sales price includes additional contingent consideration of up to $100 million structured as three separate payments of $33.3 million each. The contingent payments are in effect should the average annual price of the Appalachia Dominion, South Point index exceed $3.30 per MMBtu in the individual annual periods from 2018 through 2020. To date, conditions for the recognition of the contingent consideration are not probable and, therefore, no amounts have been accrued related to the contingent consideration. Proceeds from the transaction were used to repay borrowings resulting from the Clayton Williams Energy Acquisition. See Note 10. Long-Term Debt.

For the year ended December 31, 2017, we recognized a total loss of $2.4 billion, or $1.5 billion after-tax, on this divestiture. The aggregate net book value of the properties sold was approximately $3.4 billion, which included approximately $883 million of undeveloped leasehold cost.

As part of the loss, we accrued non-cash exit costs of $41 million, discounted, relating to a retained transportation contract that is currently in service; however, we no longer have production to satisfy this commitment and do not plan to utilize this capacity in the future. In addition, we recorded a $52 million accrual, discounted, relating to future commitments to a third party who assumed a portion of our retained capacity relating to other pipeline projects. Both charges are included in loss on Marcellus Shale upstream divestiture in our consolidated statements of operations in accordance with accounting for exit or disposal activities under ASC 420 – Exit or Disposal Cost Obligations.

Other retained Marcellus Shale firm transportation contracts relate to pipeline projects that are not yet commercially available to us. These projects that are not yet available will undergo construction and, as these projects become commercially available to us, we will assess, based upon the facts and circumstances, the recognition of any potential exit cost liabilities. It is likely we will incur additional firm transportation costs associated with this exit activity in the future. See Note 2. Additional Financial Statement Information and Note 17. Commitments and Contingencies.

Production from the Marcellus Shale upstream assets represented 204 MMcfe/d of total consolidated sales volumes for the year ended December 31, 2017. See Supplemental Oil and Gas Information (Unaudited), below for discussion of reserves divested.

Divestiture of 7.5% Interest in Tamar and Dalit Fields The terms of the Israel Natural Gas Framework (Framework) require us to reduce our current ownership interest in the Tamar and Dalit fields from 32.5% to 25% by year-end 2021. On January 29, 2018, we signed a definitive agreement to divest a 7.5% working interest in each of the fields to Tamar Petroleum Ltd. (TASE: TMRP) (Tamar Petroleum) for cash proceeds of approximately $560 million and 38.5 million shares of Tamar Petroleum. Closing of the transaction is expected by the end of first quarter 2018, subject to satisfactory conclusion of Tamar Petroleum's debt financing and customary approvals, terms and conditions. As of December 31, 2017, the net book value of the 7.5% interest, $293 million, was included in assets held for sale.

Divestiture of Southwest Royalties In January 2018, we signed an agreement to sell our interest in Southwest Royalties, Inc. (Southwest Royalties), a subsidiary of Clayton Williams Energy, and acquired as part of Clayton Williams Energy Acquisition. We received proceeds of $60 million on sale of these assets. As of December 31, 2017, the asset value of these properties of $102 million and associated asset retirement obligation of $42 million were included in assets and liabilities held for sale.

Other US Onshore Transactions We conducted the following additional transactions in 2017:

•

US Onshore Divestitures During 2017, we received total proceeds of $671 million resulting from the sale of certain US onshore properties, including $568 million related to divestment of non-core acreage in the DJ Basin. Proceeds were applied to reduce field basis with no recognition of gain or loss. A subsequent closing for certain non-core DJ Basin operated properties, in the amount of approximately $40 million, is expected to occur in mid-2018.


•	Sale of Mineral and Royalty Assets We received $335 million and recognized a gain of $334 million on the sale of mineral and royalty assets covering approximately 140,000 net mineral acres concentrated primarily in Texas, Oklahoma and North Dakota.

•

Delaware Basin Acquisition In January 2017, we completed the acquisition of Delaware Basin properties, including seven producing wells, thus increasing our contiguous acreage position in the Reeves County area. Consideration totaled $301 million, approximately $246 million of which was allocated to undeveloped leasehold cost. Initial consideration of $30 million was paid into an escrow account in fourth quarter 2016 and reflected as a restricted asset in our consolidated balance sheet as of December 31, 2016.

Marcellus Shale CONE Gathering Divestiture In December 2017, we signed an agreement to sell our 50% interest in CONE Gathering LLC (CONE Gathering) to CNX Resources Corporation. CONE Gathering owns the general partner of CONE Midstream Partners LP (CONE Midstream), which constructs, owns and operates natural gas gathering and other midstream energy assets in the Marcellus Shale. At December 31, 2017, our total investment of $181 million in the CONE entities was included in assets held for sale. We closed the sale in January 2018, receiving proceeds of $308 million in cash and utilized proceeds to pay down borrowings under the Revolving Credit Facility. We now hold 21.7 million common units representing a 33.5% limited partner interests in CNX Midstream Partners LP (NYSE: CNXM). As of December 31, 2017, the net book value of the limited partner interests was approximately $70 million.

Noble Midstream Partners Asset Contribution On June 26, 2017, Noble Midstream Partners acquired an additional 15% limited partner interest in Blanco River DevCo LP (Blanco River DevCo), increasing its ownership to 40% of the Blanco River DevCo LP, and acquired the remaining 20% limited partner interest in Colorado River DevCo LP (Colorado River DevCo) from us for $270 million.

Blanco River DevCo holds Noble Midstream Partners’ Delaware Basin in-field gathering dedications for crude oil and produced water gathering services on approximately 111,000 net acres, with substantially all of the acreage also dedicated for natural gas gathering. Colorado River DevCo provides services across our development areas in the DJ Basin, including crude oil and natural gas gathering and water services in the Wells Ranch area and crude oil gathering in the East Pony area.

The $270 million consideration consisted of $245 million in cash and 562,430 common units representing limited partner interests in Noble Midstream Partners. Noble Midstream Partners funded the cash consideration with approximately $138 million of net proceeds from a concurrent private placement of common units and $90 million of borrowings under the Noble Midstream Services Revolving Credit Facility (defined below) and the remainder from cash on hand.

Noble Midstream Partners Advantage Joint Venture On April 3, 2017, Noble Midstream Partners and Plains Pipeline, L.P., a wholly owned subsidiary of Plains All American Pipeline, L.P., acquired Advantage Pipeline, L.L.C. (Advantage Pipeline) for $133 million through a newly formed 50/50 joint venture (Advantage Joint Venture). Noble Midstream Partners contributed approximately $67 million of cash to the Advantage Joint Venture, funded by available cash on hand and the Noble Midstream Services Revolving Credit Facility. The Advantage Joint Venture is accounted for under the equity method and is included within our Midstream segment. See Note 7. Equity Method Investments.

Noble Midstream Partners serves as operator of the Advantage Pipeline System, which includes a 70-mile crude oil pipeline in the Delaware Basin from Reeves County, Texas to Crane County, Texas with 150 MBbls per day of shipping capacity and 490 MBbls of storage capacity.

Noble Midstream Partners Black Diamond Gathering In December 2017, Noble Midstream Partners and Greenfield Midstream, LLC, a portfolio company of EnCap Flatrock Midstream Gathering, formed an entity, Black Diamond Gathering, LLC (Black Diamond Gathering). Black Diamond Gathering subsequently entered into definitive agreements to acquire Saddle Butte Rockies Midstream, LLC and affiliates (collectively, Saddle Butte). The Saddle Butte purchase closed on January 31, 2018, for total cash consideration of approximately $638.5 million. Noble Midstream Partners funded its share of the purchase price with proceeds from its December 2017 common unit offering, cash on hand and borrowings under its unsecured revolving credit facility. See Note 10. Long-Term Debt.

Noble Midstream partners received a 54.4% ownership interest in Black Diamond. Noble Midstream Partners fully consolidates the assets and liabilities of Black Diamond Gathering.

Noble Midstream Partners will serve as operator of Saddle Butte assets which include a large-scale integrated crude oil gathering system in the DJ Basin, consisting of approximately 160 miles of pipeline in operation, 300 MBbls per day of delivery capacity and approximately 210 MBbls of crude oil storage capacity. Saddle Butte has approximately 141,000 dedicated acres from six customers under fixed fee arrangements.

Subsequent Event - Gulf of Mexico Divestiture On February 15, 2018, we announced the Company signed a definitive agreement to sell its assets in the Gulf of Mexico for cash consideration of $480 million. As part of the transaction, the buyer will assume all abandonment obligations associated with the properties which we estimate to approximate $230 million as of December 31, 2017. The net book value of the Gulf of Mexico assets as of December 31, 2017 was approximately $750 million. We expect to incur a charge in early 2018, subject to customary closing adjustments. The transaction is expected to close during second quarter 2018, contingent upon the buyer’s successful implementation of its contemplated restructuring, and will be effective as of January 1, 2018.

Year Ended December 31, 2016

Termination of Marcellus Shale JDA In fourth quarter 2016, we and CONSOL Energy Inc. (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. 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.

DJ Basin 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.

2016 Divestitures 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, with the remainder of the sale closing in 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 US onshore 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, which included the Karish and Tanin fields, offshore Israel, 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 and Dalit fields, offshore Israel, in compliance with the terms of the Framework, which requires us to reduce our ownership interest in the fields 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 fields basis and resulted in the recognition of a $261 million gain; and


•	received proceeds of $131 million related to the farm-out of a 35% interest in Block 12, which includes the Aphrodite natural gas discovery, offshore Cyprus. 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.

Year Ended December 31, 2015

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

Rosetta Merger On July 20, 2015, Noble Energy completed the Rosetta Merger. 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 US onshore shale positions to our portfolio including approximately 50,000 net acres in the Eagle Ford Shale and 54,000 net acres in the Delaware 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 allocation of the total purchase price of Rosetta to the assets acquired and the liabilities assumed was based on the fair values at the merger date, with the excess of the purchase price over the fair values of the identifiable net assets acquired recorded as goodwill.

Results of Operations The results of operations attributable to Rosetta are included in our consolidated statements 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.

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