10-Q 1 form10-q.htm NOBLE ENERGY 10-Q 9-30-2010 form10-q.htm


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

FORM 10-Q
 
  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  
 
For the quarterly period ended September 30, 2010

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)
100 Glenborough Drive, Suite 100
   
Houston, Texas
 
77067
(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 x 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 x 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 x 
 
As of October 15, 2010, there were 175,094,899 shares of the registrant’s common stock,
par value $3.33 1/3 per share, outstanding.
 


 
 

 
 
   
TABLE OF CONTENTS
 
   
       
Page
   
PART I
   
Item 1.
 
Financial Statements
   
     
3
     
4
     
5
     
6
     
7
         
Item 2.
   
23
         
Item 3.
   
39
         
Item 4.
   
40
         
   
PART II
   
Item 1.
   
40
         
Item 1A.
   
40
         
Item 2.
   
41
         
Item 3.
   
41
         
Item 4.
   
41
         
Item 5.
   
41
         
Item 6.
   
41


Noble Energy, Inc. and Subsidiaries
Consolidated Statements of Operations
(millions, except per share amounts)
(unaudited)

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues
                       
Oil, Gas and NGL Sales
  $ 704     $ 573     $ 2,102     $ 1,440  
Income from Equity Method Investees
    34       25       85       52  
Other Revenues
    17       23       52       61  
Total
    755       621       2,239       1,553  
Costs and Expenses
                               
Production Expense
    141       131       430       390  
Exploration Expense
    35       27       167       102  
Depreciation, Depletion and Amortization
    231       205       662       601  
General and Administrative
    65       53       194       173  
Gain on Asset Sale
    (114 )     -       (114 )     (24 )
Asset Impairments
    100       -       100       437  
Other Operating (Income) Expense, Net
    4       34       59       46  
Total
    462       450       1,498       1,725  
Operating Income (Loss)
    293       171       741       (172 )
Other (Income) Expense
                               
(Gain) Loss on Commodity Derivative Instruments
    (38 )     28       (280 )     95  
Interest, Net of Amount Capitalized
    21       23       60       64  
Other Non-Operating (Income) Expense, Net
    12       5       (1 )     18  
Total
    (5 )     56       (221 )     177  
Income (Loss) Before Income Taxes
    298       115       962       (349 )
Income Tax Provision (Benefit)
    66       8       289       (210 )
Net Income (Loss)
  $ 232     $ 107     $ 673     $ (139 )
                                 
Earnings (Loss) Per Share, Basic
  $ 1.33     $ 0.62     $ 3.86     $ (0.80 )
Earnings (Loss) Per Share, Diluted
    1.31       0.61       3.80       (0.80 )
                                 
Weighted Average Number of Shares Outstanding, Basic
    175       173       175       173  
Weighted Average Number of Shares Outstanding, Diluted
    177       175       178       173  

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


Noble Energy, Inc.
Consolidated Balance Sheets
(millions)

   
(unaudited)
September 30,
   
December 31,
 
   
2010
   
2009
 
ASSETS
 
Current Assets
           
Cash and Cash Equivalents
  $ 1,149     $ 1,014  
Accounts Receivable, Net
    532       465  
Other Current Assets
    322       199  
Total Assets, Current
    2,003       1,678  
Property, Plant and Equipment
               
Oil and Gas Properties (Successful Efforts Method of Accounting)
    13,937       12,584  
Property, Plant and Equipment, Other
    260       240  
Total Property, Plant and Equipment, Gross
    14,197       12,824  
Accumulated Depreciation, Depletion and Amortization
    (4,286 )     (3,908 )
Total Property, Plant and Equipment, Net
    9,911       8,916  
Goodwill
    696       758  
Other Noncurrent Assets
    479       455  
Total Assets
  $ 13,089     $ 11,807  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current Liabilities
               
Accounts Payable - Trade
  $ 924     $ 548  
Other Current Liabilities
    493       442  
Total Liabilities, Current
    1,417       990  
Long-Term Debt
    2,194       2,037  
Deferred Income Taxes, Noncurrent
    2,187       2,076  
Other Noncurrent Liabilities
    554       547  
Total Liabilities
    6,352       5,650  
                 
Commitments and Contingencies
               
                 
Shareholders’ Equity
               
Preferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued
    -       -  
Common Stock - Par Value $3.33 1/3 per share; 250 Million Shares Authorized; 195 Million and 194 Million Shares Issued, Respectively
    650       645  
Additional Paid in Capital
    2,349       2,260  
Accumulated Other Comprehensive Loss
    (155 )     (75 )
Treasury Stock, at Cost; 19 Million Shares
    (627 )     (615 )
Retained Earnings
    4,520       3,942  
Total Shareholders’ Equity
    6,737       6,157  
Total Liabilities and Shareholders’ Equity
  $ 13,089     $ 11,807  

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


Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
Cash Flows From Operating Activities
           
Net Income (Loss)
  $ 673     $ (139 )
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities
               
Depreciation, Depletion and Amortization
    662       601  
Dry Hole Cost
    57       11  
Gain on Asset Sales
    (114 )     (24 )
Asset Impairments
    100       437  
Deferred Income Taxes
    109       (443 )
Dividends (Income) from Equity Method Investees, Net
    6       (15 )
Unrealized (Gain) Loss on Commodity Derivative Instruments
    (215 )     508  
Other Adjustments for Noncash Items Included in Income
    40       39  
Changes in Operating Assets and Liabilities
               
(Increase) Decrease in Accounts Receivable
    (63 )     92  
Decrease in Other Current Assets
    18       25  
Increase (Decrease) in Accounts Payable
    214       (65 )
Increase (Decrease) in Other Current Liabilities
    (17 )     10  
Other Operating Assets and Liabilities, Net
    (18 )     (51 )
Net Cash Provided by Operating Activities
    1,452       986  
                 
Cash Flows From Investing Activities
               
Additions to Property, Plant and Equipment
    (1,326 )     (1,012 )
DJ Basin Asset Acquisition
    (458 )     -  
Proceeds from Sale of Property, Plant and Equipment
    552       -  
Net Cash Used in Investing Activities
    (1,232 )     (1,012 )
                 
Cash Flows From Financing Activities
               
Exercise of Stock Options
    35       15  
Excess Tax Benefits from Stock-Based Awards
    19       3  
Dividends Paid, Common Stock
    (95 )     (94 )
Purchase of Treasury Stock
    (12 )     (1 )
Proceeds from Credit Facilities
    760       340  
Repayment of Credit Facilities
    (792 )     (1,411 )
Proceeds from Issuance of Senior Long-Term Debt
    -       989  
Repayment of Installment Note
    -       (25 )
Repurchase of Senior Debentures
    -       (4 )
Net Cash Used in Financing Activities
    (85 )     (188 )
Increase (Decrease) in Cash and Cash Equivalents
    135       (214 )
Cash and Cash Equivalents at Beginning of Period
    1,014       1,140  
Cash and Cash Equivalents at End of Period
  $ 1,149     $ 926  

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


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

   
Common Stock
   
Additional Paid in Capital
   
Acumulated Other Comprehensive Loss
   
Treasury Stock at Cost
   
Retained Earnings
   
Total Shareholders' Equity
 
December 31, 2009
  $ 645     $ 2,260     $ (75 )   $ (615 )   $ 3,942     $ 6,157  
Net Income
    -       -       -       -       673       673  
Stock-based Compensation
    -       40       -       -       -       40  
Exercise of Stock Options
    3       32       -       -       -       35  
Tax Benefits Related to Exercise of Stock Options
    -       19       -       -       -       19  
Restricted Stock Awards, Net
    2       (2 )     -       -       -       -  
Dividends (54 cents per share)
    -       -       -       -       (95 )     (95 )
Changes in Treasury Stock, Net
    -       -       -       (12 )     -       (12 )
Oil and Gas Cash Flow Hedges
                                               
Realized Amounts Reclassified Into Earnings
    -       -       10       -       -       10  
Interest Rate Cash Flow Hedges
                                               
Unrealized Change in Fair Value
    -       -       (92 )     -       -       (92 )
Net Change in Other
    -       -       2       -       -       2  
September 30, 2010
  $ 650     $ 2,349     $ (155 )   $ (627 )   $ 4,520     $ 6,737  
                                                 
December 31, 2008
  $ 641     $ 2,193     $ (110 )   $ (614 )   $ 4,199     $ 6,309  
Net Loss
    -       -       -       -       (139 )     (139 )
Stock-based Compensation
    -       37       -       -       -       37  
Exercise of Stock Options
    2       13       -       -       -       15  
Tax Benefits Related to Exercise of Stock Options
    -       3       -       -       -       3  
Restricted Stock Awards, Net
    2       (2 )     -       -       -       -  
Dividends (54 cents per share)
    -       -       -       -       (94 )     (94 )
Changes in Treasury Stock, Net
    -       -       -       (1 )     -       (1 )
Oil and Gas Cash Flow Hedges
                                               
Realized Amounts Reclassified Into Earnings
    -       -       28       -       -       28  
September 30, 2009
  $ 645     $ 2,244     $ (82 )   $ (615 )   $ 3,966     $ 6,158  

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


Noble Energy, Inc.
Notes to Consolidated Financial Statements
 (unaudited)
 
Note 1.  Organization and Nature of Operations
Noble Energy, Inc. (Noble Energy, we or us) is an independent energy company engaged in global crude oil, natural gas and NGL exploration and production. We operate primarily in the Rocky Mountains, Mid-Continent, and deepwater Gulf of Mexico areas in the US, with core international operations offshore Israel and West Africa.
 
Note 2.  Basis of Presentation
Presentation   Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US 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 generally accepted accounting principles (GAAP) for complete financial statements. The accompanying consolidated financial statements at September 30, 2010 and December 31, 2009 and for the three and nine months ended September 30, 2010 and 2009 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows for such periods. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. Certain reclassifications of amounts previously reported have been made to conform to current year presentations. 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, 2009.
 
Estimates   The preparation of consolidated financial statements in conformity with 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.
 
Statements of Operations Information   Other statements of operations information is as follows:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
(millions)
                       
Other Revenues
                       
Electricity Sales (1)
  $ 19     $ 20     $ 53     $ 51  
Other
    (2 )     3       (1 )     10  
Total
  $ 17     $ 23     $ 52     $ 61  
Production Expense
                               
Lease Operating Expense
  $ 95     $ 88     $ 283     $ 281  
Production and Ad Valorem Taxes
    29       25       96       66  
Transportation Expense
    17       18       51       43  
Total
  $ 141     $ 131     $ 430     $ 390  
Other Operating (Income) Expense, Net
                               
Rig Contract Termination Expense (2)
  $ -     $ -     $ 27     $ -  
Electricity Generation Expense (1)
    9       19       26       -  
Write-down of SemCrude L.P. Receivable
    -       12       -       12  
Miscellaneous Income
    (13 )     -       (13 )     -  
Other, Net
    8       3       19       34  
Total
  $ 4     $ 34     $ 59     $ 46  
Other Non-Operating (Income) Expense, Net
                               
Deferred Compensation (3)
  $ 15     $ 7     $ 4     $ 18  
Interest Income
    (1 )     (1 )     (4 )     (2 )
Other (Income) Expense, Net
    (2 )     (1 )     (1 )     2  
Total
  $ 12     $ 5     $ (1 )   $ 18  
 
(1)
Includes amounts related to our wholly-owned Ecuador integrated power project. The project includes the Amistad natural gas field, offshore Ecuador, which supplies natural gas to fuel the Machala power plant located in Machala, Ecuador. Electricity generation expense includes all operating and non-operating expenses associated with the plant, including depreciation, depletion and amortization expense (DD&A) and changes in the allowance for doubtful accounts. Electricity generation expense for the first nine months of 2009 includes a reduction in the allowance for doubtful accounts of $36 million.
 
(2)
See Note 5. Impact of Federal Deepwater Moratorium.
 
(3)
Amount represents increases in the fair value of our common stock held in a rabbi trust.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
 (unaudited)
 
Balance Sheet Information   Other balance sheet information is as follows:
 
   
September 30,
   
December 31,
 
 
 
2010
   
2009
 
(millions)
           
Accounts Receivable, Net
           
Commodity Sales
  $ 266     $ 205  
Joint Interest Billings
    256       140  
Refund of Deepwater Gulf of Mexico Royalties (1)
    -       97  
Other
    37       54  
Allowance for Doubtful Accounts
    (27 )     (31 )
Total
  $ 532     $ 465  
Other Current Assets
               
Inventories, Current
  $ 104     $ 89  
Commodity Derivative Assets, Current
    113       13  
Deferred Income Taxes, Net, Current
    76       32  
Assets Held-for-Sale (2)
    4       -  
Prepaid Expenses and Other Assets, Current
    25       65  
Total
  $ 322     $ 199  
Other Noncurrent Assets
               
Equity Method Investments
  $ 299     $ 303  
Mutual Fund Investments
    112       108  
Commodity Derivative Assets, Noncurrent
    23       1  
Other Assets, Noncurrent
    45       43  
Total
  $ 479     $ 455  
Accounts Payable - Trade
               
Capital Costs
  $ 605     $ 277  
Royalties Payable
    93       65  
Lease Operating Expense
    36       27  
Rig Contract Termination Expense (3)
    16       -  
Other
    174       179  
Total
  $ 924     $ 548  
Other Current Liabilities
               
Production and Ad Valorem Taxes
  $ 117     $ 103  
Commodity Derivative Liabilities, Current
    5       100  
Interest Rate Derivative Liability, Current (4)
    141       -  
Income Taxes Payable
    79       60  
Asset Retirement Obligations, Current
    33       51  
Interest Payable
    24       37  
Other
    94       91  
Total
  $ 493     $ 442  
Other Noncurrent Liabilities
               
Deferred Compensation Liabilities, Noncurrent
  $ 226     $ 213  
Asset Retirement Obligations, Noncurrent
    202       181  
Accrued Benefit Costs, Noncurrent
    68       76  
Commodity Derivative Liabilities, Noncurrent
    6       17  
Other
    52       60  
Total
  $ 554     $ 547  
 
(1)
During 2010, we received a refund, including interest thereon, attributable to royalties that we previously paid on crude oil and natural gas produced in the deepwater Gulf of Mexico from January 1, 2003 through July 31, 2009.
 
(2)
We expect to close on a sale of non-core onshore US assets in fourth quarter 2010.
 
(3)
See Note 5. Impact of Federal Deepwater Moratorium.
 
(4)
See Note 7. Derivative Instruments and Hedging Activities and Note 8. Fair Value Measurement and Disclosures for further discussion.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Recently Adopted Accounting Standards    In February 2010, the Financial Accounting Standards Board (FASB) amended its guidance on subsequent events to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. The guidance was effective upon issuance. We adopted this guidance effective first quarter 2010.
 
The FASB also issued new guidance requiring additional disclosures about fair value measurements, adding a new requirement to disclose transfers in and out of Levels 1 (quoted prices in active markets) and 2 (significant other observable inputs) measurements and gross presentation of activity within a Level 3 (significant unobservable inputs) roll forward. The guidance also clarified existing disclosure requirements regarding the level of disaggregation of fair value measurements and disclosures regarding inputs and valuation techniques. We adopted this guidance effective first quarter 2010. Adoption had no impact on our financial position or results of operations. See Note 8. Fair Value Measurements and Disclosures.
 
Note 3.  Acquisitions and Divestitures
 
Sale of Non-Core Onshore US Assets   On August 12, 2010, we closed the sale of certain non-core assets in the Mid-Continent and Illinois Basin areas.  Information regarding the sale is as follows:

   
Three Months Ended September 30,
 
   
2010
 
(millions)
     
Cash Proceeds
  $ 552  
Less
       
Net Book Value of Assets Sold
    (394 )
Goodwill Allocated to Assets Sold
    (61 )
Asset Retirement Obligations Associated with Assets Sold
    10  
Other Closing Adjustments
    7  
Gain on Asset Sale
  $ 114  
 
DJ Basin Asset Acquisition   On March 1, 2010, we acquired substantially all of the US Rocky Mountain assets of Petro-Canada Resources (USA) Inc. and Suncor Energy (Natural Gas) America Inc. The acquisition included properties located in the Greater Denver-Julesberg (DJ) Basin, one of our core onshore US operating areas. We funded the acquisition using our existing credit facility.
 
The total purchase price and allocation of the total purchase price are as follows:
 
   
September 30,
 
   
2010
 
(millions)
     
Total Purchase Price
     
Cash Paid
  $ 458  
Net Liabilities Assumed
    40  
Total
  $ 498  
         
Allocation of Total Purchase Price
       
Proved Oil and Gas Properties
  $ 352  
Unproved Oil and Gas Properties
    146  
Total
  $ 498  
 
The difference between the total purchase price and the fair values of the assets acquired was de minimis.
 
To estimate the fair values of the properties, we used an income approach as comparable market data was not available.
We utilized a discounted cash flow model which took into account the following inputs to arrive at estimates of future net cash flows:
 
 
·
estimated quantities of crude oil and natural gas prepared by our qualified petroleum engineers;
 
·
estimated future commodity prices based on NYMEX crude oil and natural gas futures prices as of the acquisition date and adjusted for estimated location and quality differentials;
 
·
estimated future production rates based on our experience with similar DJ Basin properties which we operate; and
 
·
estimated timing and amounts of future operating and development costs based on our experience with similar DJ Basin properties which we operate.
 
To estimate the fair value of proved properties, we discounted the future net cash flows using a market-based weighted average cost of capital rate determined appropriate at the acquisition date. To compensate for the inherent risk of estimating and valuing unproved properties, we reduced the discounted future net cash flows of probable and possible reserves by additional risk-weighting factors. The fair values of the proved and unproved oil and gas properties are considered Level 3 fair value measurements.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Certain data necessary to complete the final purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed. We expect to complete the final purchase price allocation during the 12-month period following the acquisition date, during which time the preliminary allocation may be revised.
 
Related transaction costs were expensed. We have not presented pro forma information for the acquired business as the impact of the acquisition was not material to our consolidated balance sheet as of September 30, 2010, or our consolidated results of operations for the three and nine months ended September 30, 2010.
 
Sale of Argentina   In February 2008, we sold our interest in Argentina. The $24 million gain on sale was deferred until second quarter 2009 when the Argentine government approved the sale.
 
Note 4.  Asset Impairments
2010   Due to recent declines in natural gas prices and recent drilling results, we determined that the carrying amounts of our Iron Horse development and certain other Gulf of Mexico US properties were not recoverable from future cash flows and, therefore, were impaired at September 30, 2010. We also recorded an impairment related to non-core, New Albany Shale assets held-for-sale at September 30, 2010.
 
2009   We determined that the carrying amount of Granite Wash, an onshore US area where we have significantly reduced investments beginning in 2007, was not recoverable from future cash flows and, therefore, was impaired.  We also impaired our Gulf of Mexico Main Pass asset. The assets were reduced to their estimated fair values.
 
Impairments related to the following properties:

   
Nine Months Ended September 30,
 
   
2010
   
2009
 
(millions)
           
Iron Horse development (onshore US)
  $ 71     $ -  
New Albany Shale held-for-sale (onshore US)
    19       -  
Granite Wash (onshore US)
    -       389  
Gulf of Mexico assets
    10       48  
Total
  $ 100     $ 437  
 
New Albany Shale assets held-for-sale were reduced to expected sales proceeds less costs to sell. We reduced the remaining properties to their fair values using a discounted cash flow method, as comparable market data was not available. The discounted cash flow models included management’s estimates of future oil and gas production, commodity prices based on forward commodity price curves as of the date of the estimate, operating and development costs, and discount rates. See Note 8. Fair Value Measurements and Disclosures.

Note 5.  Impact of Federal Deepwater Moratorium
During second quarter 2010, a six-month moratorium on drilling in the deepwater Gulf of Mexico (Federal Deepwater Moratorium or Moratorium) was enacted in response to a blowout and fire on a deepwater drilling rig, Deepwater Horizon, which was engaged in drilling operations for another operator (the Deepwater Horizon Incident or the Incident). The Incident resulted in the loss of life and a significant oil spill. As a result, all deepwater drilling activities in progress at the time the Moratorium was announced were suspended.
 
As a result of the Moratorium, we entered into an agreement to terminate our contract for the Noble Clyde Boudreaux drilling rig and recognized rig contract termination expense of $27 million during the first nine months of 2010, in accordance with GAAP for contract termination costs. The amount is included in other operating (income) expense, net in our consolidated statements of operations. The US reporting unit recorded a related liability for accrued rig contract termination expense as follows:
 
   
Nine Months Ended
 
   
September 30,
 
   
2010
 
(millions)
       
Balance, Beginning of Period
  $
-
 
Amount Incurred and Charged to Expense During Period
   
27
 
Amount Paid During Period
   
(11)
 
Balance, End of Period
  $
16
 


Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Note 6.   Debt
Our debt consists of the following:

   
September 30,
   
December 31,
 
 
 
2010
   
2009
 
 
 
Debt
   
Interest Rate
   
Debt
   
Interest Rate
 
(millions, except percentages)
                       
Credit Facility
  $ 350       0.57 %   $ 382       0.54 %
5¼% Senior Notes, due April 15, 2014
    200       5.25 %     200       5.25 %
8¼% Senior Notes, due March 1, 2019
    1,000       8.25 %     1,000       8.25 %
7¼% Notes, due October 15, 2023
    100       7.25 %     100       7.25 %
8% Senior Notes, due April 1, 2027
    250       8.00 %     250       8.00 %
7¼% Senior Debentures, due August 1, 2097
    84       7.25 %     84       7.25 %
FPSO Lease Obligation (1)
    217       -       29       -  
Total
    2,201               2,045          
Unamortized Discount
    (7 )             (8 )        
Total Debt, Net of Discount
  $ 2,194             $ 2,037          
 
(1)
Amount reported is based on percentage of floating production, storage and offloading vessel (FPSO) construction activities completed as of September 30, 2010, and therefore does not reflect future minimum lease obligations. The increase in the FPSO lease obligation is a non-cash financing activity.
 
Note 7.  Derivative Instruments and Hedging Activities
Objectives and Strategies for Using Derivative Instruments   In order to reduce commodity price uncertainty and enhance the predictability of cash flows relating to the marketing of our crude oil and natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The derivative instruments we use include variable to fixed price commodity swaps, collars and basis swaps.
 
We have also begun to use three-way collars in addition to our two-way collars.  A three-way collar consists of a two-way collar contract combined with a put option contract sold by us with a price below the floor price of the two-way collar.  We receive price protection at the purchased put option floor price of the two-way collar if commodity prices are above the sold put option floor price. If commodity prices fall below the sold put option floor price, we receive the cash market price plus the delta between the two put option floor prices. This type of instrument allows us to capture more value in a rising commodity price environment, but limits our benefits in a downward commodity price environment.
 
While these instruments mitigate the cash flow risk of future reductions in commodity prices, they may also curtail benefits from future increases in commodity prices.
 
We also use derivative instruments to manage interest rate risk by entering into forward contracts or swap agreements to minimize the impact of interest rate fluctuations associated with fixed or floating rate borrowings. We have historically designated these as cash flow hedges.
 
All derivative instruments are reflected as either assets or liabilities at fair value in our consolidated balance sheets. See Note 8. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of derivative instruments and gross amounts of derivative assets and liabilities.
 
Counterparty Credit Risk   Derivative instruments expose us to counterparty credit risk. Our commodity derivative instruments are currently with a diversified group of counterparties.  We generally execute commodity derivative instruments under master agreements which allow us, in the event of default, to elect early termination of all contracts with the defaulting counterparty.  If we choose to elect early termination, all asset and liability positions with the defaulting counterparty would be net cash settled at the time of election.
 
We monitor the creditworthiness of our counterparties. However, we are not able to predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, we may be limited in our ability to mitigate an increase in counterparty credit risk. Possible actions would be to transfer our position to another counterparty or request a voluntary termination of the derivative contracts resulting in a cash settlement. Should one of these counterparties not perform, we may not realize the benefit of some of our derivative instruments under lower commodity prices as well as incur a loss.  We include a measure of counterparty credit risk in our estimates of the fair values of derivative instruments in an asset position.
 
Accounting for Commodity Derivative Instruments   We recognize all gains and losses on commodity derivative instruments in earnings during the period in which they occur.  Prior to January 1, 2008, we elected to designate certain of our commodity derivative instruments as cash flow hedges. Net derivative gains and losses that were deferred in accumulated other comprehensive loss (AOCL) as of January 1, 2008, as a result of previous cash flow hedge accounting, are reclassified to earnings in future periods as the original hedged transactions occur.  See Derivative Instruments in Cash Flow Hedging Relationships table below.
 
Accounting for Interest Rate Derivative Instruments    Changes in fair value of interest rate swaps or interest rate “locks” used as cash flow hedges are reported in AOCL, to the extent the hedge is effective, until the forecasted transaction occurs, at which time they are recorded as adjustments to interest expense over the term of the related notes. In January 2010, in anticipation of a long-term debt issuance, we entered into an interest rate forward starting swap to effectively fix the cash flows related to interest payments on the anticipated debt issuance. We are accounting for the instrument as a cash flow hedge against the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. The swap is in the notional amount of $500 million and is based on a 30-year LIBOR swap rate.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Unsettled Derivative Instruments   As of September 30, 2010, we had entered into the following crude oil derivative instruments:  
 
   
Variable to Fixed Price Swaps
   
Two Way Collars
 
Period
 
Index
 
Bbls Per Day
   
Weighted Average Fixed Price
   
Index
   
Bbls Per Day
   
Weighted Average Floor Price
   
Weighted Average Ceiling Price
 
                                         
4th Qtr 2010
 
NYMEX WTI
    3,000     $ 83.36    
NYMEX WTI
      14,500     $ 61.48     $ 75.63  
4th Qtr 2010
 
Dated Brent
    1,000       80.05    
Dated Brent
      7,000       64.00       73.96  
2010 Average
        4,000       82.53             21,500       62.30       75.09  
                                                   
2011
 
NYMEX WTI
    5,000       85.52    
NYMEX WTI
      13,000       80.15       94.63  
                                                   
2012
 
NYMEX WTI
    5,000       91.84       -       -       -       -  
2012
 
Dated Brent
    5,000       83.09       -       -       -       -  
2012 Average
        10,000       87.47       -       -       -       -  


   
Three Way Collars
 
Period
 
Index
 
Bbls Per Day
   
Weighted Average Short Put Price
   
Weighted Average Floor Price
   
Weighted Average Ceiling Price
 
                             
2011
 
NYMEX WTI
    5,000     $ 56.00     $ 76.00     $ 101.46  
                                     
2012
 
NYMEX WTI
    12,000       60.00       81.25       101.06  
 
 
Between October 1 and October 18, 2010, we entered into additional NYMEX WTI three way collars covering 6,000 Bbls per day for calendar year 2012 with a weighted average short put price, floor price and ceiling price of $60.00, $85.00 and $100.02, respectively.
 
As of September 30, 2010, we had entered into the following natural gas derivative instruments:
 
   
Variable to Fixed Price Swaps
 
Two Way Collars
 
Period
 
Index
   
MMBtu Per Day
   
Weighted Average Fixed Price
 
Index
 
MMBtu Per Day
   
Weighted Average Floor Price
   
Weighted Average Ceiling Price
 
                                       
4th Qtr 2010
 
NYMEX HH
      40,000     $ 6.10  
NYMEX HH (1)
    210,000     $ 5.90     $ 6.73  
4th Qtr 2010
    -       -       -  
IFERC CIG (2)
    15,000       6.25       8.10  
2010 Average
            40,000       6.10         225,000       5.93       6.82  
                                                   
2011
 
NYMEX HH
      25,000       6.41  
NYMEX HH
    140,000       5.95       6.82  


   
Three Way Collars
 
Period
 
Index
 
MMBtu Per Day
   
Weighted Average Short Put Price
   
Weighted Average Floor Price
   
Weighted Average Ceiling Price
 
                             
2011
 
NYMEX HH
    50,000     $ 4.00     $ 5.00     $ 6.70  
                                     
2012
 
NYMEX HH
    50,000       4.75       5.50       7.92  
 
(1)
Henry Hub
(2)
Colorado Interstate Gas - Northern System
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
As of September 30, 2010, we had entered into the following natural gas basis swaps:
 
 
Basis Swaps
 
Period
Index
Index Less Differential
 
MMBtu Per Day
   
Weighted Average Differential
 
4th Qtr 2010
IFERC CIG
NYMEX HH
    110,000     $ (1.49 )
2011
IFERC CIG
NYMEX HH
    140,000       (0.70 )
2012
IFERC CIG
NYMEX HH
    150,000       (0.52 )
 
Fair Value Amounts and Gains and Losses on Derivative Instruments   The fair values of derivative instruments in our consolidated balance sheets were as follows:
 
Fair Value of Derivative Instruments
 
   
 
Asset Derivative Instruments
 
Liability Derivative Instruments
 
 
September 30,
 
December 31,
 
September 30,
 
December 31,
 
 
2010
 
2009
 
2010
 
2009
 
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
(millions)
                               
Commodity Derivative Instruments (Not Designated as Hedging Instruments)
Current Assets
  $ 113  
Current Assets
  $ 13  
Current Liabilities
  $ 5  
Current Liabilities
  $ 100  
Noncurrent Assets
    23  
Noncurrent Assets
    1  
Noncurrent Liabilities
    6  
Noncurrent Liabilities
    17  
                                         
Interest Rate Derivative Instruments (Designated as Hedging Instruments)
Current Assets
    -  
Current Assets
    -  
Current Liabilities
    141  
Current Liabilities
    -  
Total
    $ 136       $ 14       $ 152       $ 117  
 
The effect of derivative instruments on our consolidated statements of operations was as follows:
 
Commodity Derivative Instruments Not Designated as Hedging Instruments
 
   
Amount of (Gain) Loss on Derivative Instruments Recognized in Income
 
   
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
(millions)
                       
Realized Mark-to-Market (Gain) Loss
  $ (33 )   $ (121 )   $ (65 )   $ (413 )
Unrealized Mark-to-Market (Gain) Loss
    (5 )     149       (215 )     508  
Total (Gain) Loss on Commodity Derivative Instruments
  $ (38 )   $ 28     $ (280 )   $ 95  


Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)

Derivative Instruments in Cash Flow Hedging Relationships
 
           
 
Amount of Loss on Derivative Instruments Recognized in Other Comprehensive (Income) Loss
   
Amount of Loss on Derivative Instruments Reclassified from Accumulated Other Comprehensive Loss
 
 
 
2010
   
2009
   
2010
   
2009
 
(millions)
   
 
             
Three Months Ended September 30,
           
Commodity Derivative Instruments in Previously Designated Cash Flow Hedging Relationships (1)
                       
Crude Oil Derivative Instruments
  $ -     $ -     $ 5     $ 14  
                                 
Interest Rate Derivative Instruments in Cash Flow Hedging Relationships
    47       -       -       -  
Total
  $ 47     $ -     $ 5     $ 14  
Nine Months Ended September 30,
               
Commodity Derivative Instruments in Previously Designated Cash Flow Hedging Relationships (1)
                               
Crude Oil Derivative Instruments
  $ -     $ -     $ 14     $ 45  
Natural Gas Derivative Instruments
    -       -       1       -  
                                 
Interest Rate Derivative Instruments in Cash Flow Hedging Relationships
    141       -       -       -  
Total
  $ 141     $ -     $ 15     $ 45  
 
(1)
Includes effect of commodity derivative instruments previously accounted for as cash flow hedges. Net derivative gains and losses that were deferred in AOCL as of January 1, 2008, as a result of previous cash flow hedge accounting, are reclassified to earnings in future periods as the original hedged transactions occur. 
 
AOCL   As of September 30, 2010, the balance in AOCL included deferred losses of $3 million related to the fair value of commodity derivative instruments previously accounted for as cash flow hedges. The deferred losses are net of deferred income tax benefits of $2 million. All remaining deferred losses will be reclassified to earnings during the period October 1 through December 31, 2010, as the forecasted transactions occur, and will be recorded as a reduction in oil and gas sales of approximately $5 million before tax.
 
AOCL also included deferred losses of $93 million, net of tax, related to interest rate derivative instruments. Of this amount, $1 million, net of tax, is currently being reclassified into earnings as adjustments to interest expense over the term of our Senior Notes due April 2014. Approximately $92 million will remain in AOCL until fixed-rate debt is issued, at which time we will begin amortizing it to interest expense over the life of the related debt issuance.
 
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 consist of variable to fixed price commodity swaps, collars and basis swaps. We estimate the fair values of these instruments based on published forward commodity price curves for the underlying commodities 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 credit 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 value of the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 7. Derivative Instruments and Hedging Activities.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Interest Rate Derivative Instrument   We estimate the fair value of our forward starting swap based on published interest rate yield curves as of the date of the estimate. The fair values of interest rate derivative instruments in an asset position include a measure of counterparty credit risk, and the fair values of interest rate derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates.
 
Deferred Compensation Liability   A portion of our deferred compensation liability is measured at fair value, which is dependant upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust. See Mutual Fund Investments above.
 
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)
                             
September 30, 2010
                             
Financial Assets
                             
Mutual Fund Investments
  $ 112     $ -     $ -     $ -     $ 112  
Commodity Derivative Instruments
    -       187       -       (51 )     136  
Financial Liabilities
                                       
Commodity Derivative Instruments
    -       (62 )     -       51       (11 )
Interest Rate Derivative Instrument
    -       (141 )     -       -       (141 )
Portion of Deferred Compensation Liability Measured at Fair Value
    (177 )     -       -       -       (177 )
December 31, 2009
                     
Financial Assets
                                       
Mutual Fund Investments
  $ 108     $ -     $ -     $ -     $ 108  
Commodity Derivative Instruments
    -       42       -       (28 )     14  
Financial Liabilities
                                       
Commodity Derivative Instruments
    -       (145 )     -       28       (117 )
Portion of Deferred Compensation Liability Measured at Fair Value
    (168 )     -       -       -       (168 )
 
(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 master netting 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:
 
DJ Basin Asset Acquisition   See Note 3. Acquisitions and Divestitures.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)
 
Asset Impairments   Information about the impaired assets is as follows:
 
   
Fair Value Measurements Using
             
   
Quoted Prices in Active Markets (Level 1)
   
Significant Other Observable Inputs (Level 2)
   
Significant Unobservable Inputs (Level 3)
         
Total Pre-tax (Non-cash) Impairment Loss
 
   
Net Book Value
 
Description
(millions)
                             
Nine Months Ended September 30, 2010
                             
Impaired US Oil and Gas Properties
  $ -     $ -     $ 48     $ 148     $ 100  
Nine Months Ended September 30, 2009
                                       
Impaired US Oil and Gas Properties
    -       -       316       753       437  
 
Onshore US assets held-for-sale were written down to their expected sales proceeds less costs to sell. The fair values of the remaining properties were determined as of the date of the assessment using a discounted cash flow method, as comparable market data was not available. The discounted cash flows were based on management’s expectations for the future. Inputs included estimates of future oil and gas production, commodity prices based on published forward commodity price curves as of the date of the estimate, operating and development costs, and a risk-adjusted discount rate. See Note 4. Asset Impairments.
 
Additional Fair Value Disclosures
 
Debt   The fair value of fixed-rate debt is estimated based on the published market prices for the same or similar issues.  The carrying amount of floating-rate debt approximates fair value because the interest rate paid on such debt is set for periods of three months or less. See Note 6. Debt.
 
Fair value information regarding our debt is as follows:

   
September 30,
   
December 31,
 
 
 
2010
   
2009
 
 
 
Carrying Amount
   
Fair Value
   
Carrying Amount
   
Fair Value
 
(millions)
                       
Long-Term Debt, Net of Unamortized Discount (1)
  $ 1,977     $ 2,385     $ 2,008     $ 2,279  
 
(1)
Excludes obligation under FPSO lease.
 
Note 9.  Capitalized Exploratory Well Costs
Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:

 
 
Nine Months Ended September 30, 2010
 
(millions)
     
Capitalized Exploratory Well Costs, Beginning of Period
  $ 432  
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
    78  
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves
    (84 )
Capitalized Exploratory Well Costs Charged to Expense
    (4 )
Capitalized Exploratory Well Costs, End of Period
  $ 422  


Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)

The following table provides an aging of capitalized exploratory well costs (suspended well costs) based on the date the drilling was completed and the number of projects for which exploratory well costs have been capitalized for a period greater than one year since the completion of drilling:

   
September 30,
   
December 31,
 
   
2010
   
2009
 
(millions)
           
Exploratory Well Costs Capitalized for a Period of One Year or Less
  $ 108     $ 158  
Exploratory Well Costs Capitalized for a Period Greater Than One Year After Completion of Drilling
    314       274  
Balance at End of Period
  $ 422     $ 432  
Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year After Completion of Drilling
    9       5  
 
The following table provides a further aging of those exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling as of September 30, 2010:

         
Suspended Since
 
 
 
Total
   
2009
   
2008
   
2007 & Prior
 
(millions)
                       
Project
                       
Blocks O and I (West Africa)
  $ 189     $ 8     $ 71     $ 110  
Dalit (Israel)
    20       20       -       -  
Gunflint (Deepwater Gulf of Mexico)
    49       -       49       -  
Redrock (Deepwater Gulf of Mexico)
    17       -       -       17  
Flyndre (North Sea)
    13       -       -       13  
Selkirk (North Sea)
    20       -       -       20  
Other
    6       3       3       -  
Total Exploratory Well Costs Capitalized for a Period Greater Than One Year After Completion of Drilling
  $ 314     $ 31     $ 123     $ 160  
 
West Africa   The West Africa project includes Blocks O and I offshore Equatorial Guinea and the YoYo concession and Tilapia production sharing contract offshore Cameroon. We have evaluated the potential for additional liquids and gas projects, and determined that the next development after Aseng will be at the Alen (formerly known as Belinda) field, offshore Equatorial Guinea. We are also evaluating future oil projects at Diega and Carmen, offshore Equatorial Guinea. In Cameroon, we recently completed a 3-D seismic acquisition, and results are being processed for future drilling potential.
 
Israel   The Israel project includes Dalit, a 2009 natural gas discovery located offshore Israel. We are currently working with our partners on a cost-effective development plan.
 
Gunflint (Deepwater Gulf of Mexico)   Gunflint (Mississippi Canyon Block 948) is our largest deepwater Gulf of Mexico discovery to date. We had planned to drill one or two appraisal wells in 2010. These plans were delayed by the Federal Deepwater Moratorium. We are currently reviewing host platform options, including subsea tieback to an existing third-party host, procurement and modification of an existing platform, or new construction. If we are able to connect to an existing third-party host, the project could have an accelerated completion schedule, thereby absorbing time lost to the drilling delay caused by the Moratorium.
 
Redrock (Deepwater Gulf of Mexico)   Redrock (Mississippi Canyon Block 204) was a 2006 natural gas/condensate discovery and is currently considered a co-development candidate with Raton South (Mississippi Canyon Block 292). The anticipated development plan consists of tying Raton South back to a host platform at Viosca Knoll Block 900 for processing and then connecting Redrock into this gathering system. Tie-back of Redrock is anticipated to occur following the development of Raton South.
 
Flyndre (North Sea)   The Flyndre project is located in the UK sector of the North Sea and we successfully completed an exploratory appraisal well in 2007.  We are currently working with the project operator and other partners to finalize the field development plan and relevant operating agreements.
 
Selkirk (North Sea)   The Selkirk project is also located in the UK sector of the North Sea. Capitalized costs to date primarily consist of the cost of drilling an exploratory well. We are currently working with our partners on a cost-effective development plan, including selection of a host facility.
 
Other   Other projects consist of three onshore US wells which continue to be evaluated by various means including additional seismic work, drilling additional wells and evaluating the potential of the exploration well.
 

Noble Energy, Inc.
Notes to Consolidated Financial Statements
(unaudited)

Note 10.  Asset Retirement Obligations
Asset retirement obligations consist primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. Changes in asset retirement obligations were as follows:

 
 
Nine Months Ended September 30,
 
 
 
2010
   
2009
 
(millions)
           
Asset Retirement Obligations, Beginning Balance
  $ 232     $ 211  
Liabilities Incurred
    14       6  
Liabilities Settled
    (35 )     (23 )
Revision of Estimate
    11       23  
Accretion Expense
    13       11  
Asset Retirement Obligations, Ending Balance
  $ 235     $ 228  
 
Liabilities incurred in 2010 were primarily due to the DJ Basin asset acquisition. Liabilities settled in 2010 related to US onshore assets sold and a Gulf of Mexico shelf asset. Liabilities settled in 2009 related primarily to our Gulf of Mexico Main Pass asset and a deepwater Gulf of Mexico asset. Accretion expense is included in DD&A expense in the consolidated statements of operations.
 
Note 11.   Employee Benefit Plans
We have a noncontributory, tax-qualified defined benefit pension plan covering employees who were hired prior to May 1, 2006. We also have an unfunded, nonqualified restoration plan that provides the pension plan formula benefits that cannot be provided by the qualified pension plan because of pay deferrals and the compensation and benefit limitations imposed on the pension plan by the Internal Revenue Code of 1986, as amended. Net periodic benefit cost related to the retirement and restoration plans was as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
(millions)
                       
Service Cost
  $ 4     $ 3     $ 11     $ 9  
Interest Cost
    3       3       10       9  
Expected Return on Plan Assets
    (3 )     (3 )     (10 )     (10 )
Other
    1       -       4       1  
Net Periodic Benefit Cost
  $ 5     $ 3     $ 15     $ 9  
 
During the nine months ended September 30, 2010, we made cash contributions of $20 million to the pension plan.
 
Note 12.   Stock-Based Compensation
We recognized stock-based compensation expense as follows:

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2010