NBL-2014.9.30-10Q
Table of Contents

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

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

For the quarterly period ended September 30, 2014

OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission file number: 001-07964


NOBLE ENERGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
73-0785597
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. employer identification number)
1001 Noble Energy Way
 
 
Houston, Texas
 
77070
(Address of principal executive offices)
 
(Zip Code)
(281) 872-3100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý    No o 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý    No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No ý
 
As of September 30, 2014, there were 361,856,652 shares of the registrant’s common stock,
par value $0.01 per share, outstanding.



Table of Contents

Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Part II. Other Information  
 
 
Item 1.  Legal Proceedings 
 
 
Item 1A.  Risk Factors 
 
 
 
 
 
 
 
 
 
 
Item 6.  Exhibits 
 
 
 
 


2

Table of Contents

Part I. Financial Information
Item 1. Financial Statements
Noble Energy, Inc.
Consolidated Statements of Operations
(millions, except per share amounts)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues
 
 
 
 
 
 
 
Oil, Gas and NGL Sales
$
1,228

 
$
1,341

 
$
3,893

 
$
3,537

Income from Equity Method Investees
41

 
53

 
138

 
150

Total
1,269

 
1,394

 
4,031

 
3,687

Costs and Expenses
 

 
 

 
 
 
 
Production Expense
217

 
221

 
697

 
619

Exploration Expense
217

 
60

 
350

 
211

Depreciation, Depletion and Amortization
460

 
412

 
1,297

 
1,146

General and Administrative
132

 
109

 
399

 
324

Gain on Divestitures
(30
)
 

 
(72
)
 
(12
)
Asset Impairments
33

 
63

 
164

 
63

Other Operating Expense, Net
10

 
6

 
33

 
27

Total
1,039

 
871

 
2,868

 
2,378

Operating Income
230

 
523

 
1,163

 
1,309

Other (Income) Expense
 

 
 

 
 
 
 
(Gain) Loss on Commodity Derivative Instruments
(385
)
 
157

 
(74
)
 
69

Interest, Net of Amount Capitalized
52

 
46

 
151

 
104

Other Non-Operating (Income) Expense, Net
(13
)
 
9

 
1

 
21

Total
(346
)
 
212

 
78

 
194

Income from Continuing Operations Before Income Taxes
576

 
311

 
1,085

 
1,115

Income Tax Provision
157

 
116

 
274

 
330

Income from Continuing Operations
419

 
195

 
811

 
785

Discontinued Operations, Net of Tax

 
10

 

 
58

Net Income
$
419

 
$
205

 
$
811

 
$
843

 
 
 
 
 
 
 
 
Earnings Per Share, Basic
 
 
 
 
 
 
 
Income from Continuing Operations
$
1.16

 
$
0.54

 
$
2.25

 
$
2.19

Discontinued Operations, Net of Tax

 
0.03

 

 
0.16

Net Income
$
1.16

 
$
0.57

 
$
2.25

 
$
2.35

Earnings Per Share, Diluted
 
 
 
 
 
 
 
Income from Continuing Operations
$
1.12

 
$
0.53

 
$
2.21

 
$
2.17

Discontinued Operations, Net of Tax

 
0.03

 

 
0.16

Net Income
$
1.12

 
$
0.56

 
$
2.21

 
$
2.33

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding
 
 
 
 
 
 
 
   Basic
362

 
359

 
361

 
359

   Diluted
367

 
363

 
367

 
363


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

3

Table of Contents

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

 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Net Income
$
419

 
$
205

 
$
811

 
$
843

Other Items of Comprehensive Income
 
 
 
 
 
 
 
Net Change in Pension and Other
6

 
4

 
16

 
15

      Less Tax Benefit
(2
)
 
(1
)
 
(6
)
 
(5
)
Other Comprehensive Income
4

 
3

 
10

 
10

Comprehensive Income
$
423

 
$
208

 
$
821

 
$
853


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


4

Table of Contents

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

 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,169

 
$
1,117

Accounts Receivable, Net
740

 
947

Other Current Assets
361

 
547

Total Current Assets
2,270

 
2,611

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method of Accounting)
24,465

 
22,243

Property, Plant and Equipment, Other
618

 
517

Total Property, Plant and Equipment, Gross
25,083

 
22,760

Accumulated Depreciation, Depletion and Amortization
(7,325
)
 
(7,035
)
Total Property, Plant and Equipment, Net
17,758

 
15,725

Goodwill
620

 
627

Other Noncurrent Assets
538

 
679

Total Assets
$
21,186

 
$
19,642

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities
 

 
 

Accounts Payable - Trade
$
1,425

 
$
1,354

Other Current Liabilities
807

 
988

Total Current Liabilities
2,232

 
2,342

Long-Term Debt
5,498

 
4,566

Deferred Income Taxes, Noncurrent
2,464

 
2,441

Other Noncurrent Liabilities
1,054

 
1,109

Total Liabilities
11,248

 
10,458

Commitments and Contingencies

 


Shareholders’ Equity
 

 
 

Preferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued

 

Common Stock - Par Value $0.01 per share; 500 Million Shares Authorized; 402 Million and 400 Million Shares Issued, respectively
4

 
4

Additional Paid in Capital
3,593

 
3,463

Accumulated Other Comprehensive Loss
(107
)
 
(117
)
Treasury Stock, at Cost; 38 Million Shares
(674
)
 
(659
)
Retained Earnings
7,122

 
6,493

Total Shareholders’ Equity
9,938

 
9,184

Total Liabilities and Shareholders’ Equity
$
21,186

 
$
19,642


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


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Table of Contents

Noble Energy, Inc.
Consolidated Statements of Cash Flows
(millions)
(unaudited)
 
Nine Months Ended
September 30,
 
2014
 
2013
Cash Flows From Operating Activities
 
 
 
Net Income
$
811

 
$
843

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

 
 

Depreciation, Depletion and Amortization
1,297

 
1,148

Asset Impairments
164

 
63

Dry Hole Cost
163

 
22

Deferred Income Taxes
61

 
168

Income from Equity Method Investees, Net of Dividends
53

 
(12
)
(Gain) Loss on Commodity Derivative Instruments
(74
)
 
69

Net Cash Received (Paid) in Settlement of Commodity Derivative Instruments
(95
)
 
(2
)
Gain on Divestitures
(72
)
 
(67
)
Stock Based Compensation
67

 
59

Other Adjustments for Noncash Items Included in Income
42

 
63

Changes in Operating Assets and Liabilities
 
 
 

(Increase) Decrease in Accounts Receivable
166

 
(260
)
Increase in Accounts Payable
103

 
63

Increase (Decrease) in Current Income Taxes Payable
21

 
(48
)
Increase (Decrease) in Other Current Assets and Liabilities, Net
16

 
(7
)
Other Noncurrent Operating Assets and Liabilities, Net
(20
)
 
51

Net Cash Provided by Operating Activities
2,703

 
2,153

Cash Flows From Investing Activities
 

 
 

Additions to Property, Plant and Equipment
(3,585
)
 
(3,021
)
Additions to Equity Method Investments
(58
)
 
(30
)
Distribution from Equity Method Investee
156

 

Proceeds from Divestitures
312

 
119

Other

 
(5
)
Net Cash Used in Investing Activities
(3,175
)
 
(2,937
)
Cash Flows From Financing Activities
 

 
 

Exercise of Stock Options
45

 
39

Excess Tax Benefits from Stock-Based Awards
18

 
15

Dividends Paid, Common Stock
(182
)
 
(146
)
Purchase of Treasury Stock
(15
)
 
(14
)
Proceeds from Credit Facilities
900

 
800

Repayment of CONSOL Installment Loan

 
(328
)
Repayment of Senior Notes
(200
)
 

Repayment of Capital Lease Obligation
(42
)
 
(31
)
Net Cash Provided by Financing Activities
524

 
335

Increase (Decrease) in Cash and Cash Equivalents
52

 
(449
)
Cash and Cash Equivalents at Beginning of Period
1,117

 
1,387

Cash and Cash Equivalents at End of Period
$
1,169

 
$
938

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


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Table of Contents

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

 
Common
Stock (1)
 
Additional
Paid in
Capital (1)
 
Accumulated Other
Comprehensive
Loss
 
Treasury
Stock at
Cost
 
Retained
Earnings
 
Total
Shareholders'
Equity
December 31, 2013
$
4

 
$
3,463

 
$
(117
)
 
$
(659
)
 
$
6,493

 
$
9,184

Net Income

 


 

 

 
811

 
811

Stock-based Compensation

 
67

 

 

 

 
67

Exercise of Stock Options

 
45

 

 

 

 
45

Tax Benefits Related to Exercise of Stock Options

 
18

 

 

 

 
18

Dividends (50 cents per share)

 

 

 

 
(182
)
 
(182
)
Changes in Treasury Stock, Net

 

 

 
(15
)
 

 
(15
)
Net Change in Pension and Other

 

 
10

 

 

 
10

September 30, 2014
$
4

 
$
3,593

 
$
(107
)
 
$
(674
)
 
$
7,122

 
$
9,938

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
$
4

 
$
3,302

 
$
(113
)
 
$
(648
)
 
$
5,713

 
$
8,258

Net Income

 

 

 

 
843

 
843

Stock-based Compensation

 
59

 

 

 

 
59

Exercise of Stock Options

 
39

 

 

 

 
39

Tax Benefits Related to Exercise of Stock Options

 
15

 

 

 

 
15

Dividends (41 cents per share)

 

 

 

 
(146
)
 
(146
)
Changes in Treasury Stock, Net

 

 

 
(14
)
 

 
(14
)
Net Change in Pension and Other

 

 
10

 

 

 
10

September 30, 2013
$
4

 
$
3,415

 
$
(103
)
 
$
(662
)
 
$
6,410

 
$
9,064


(1) 
Amounts reflect impact of 2-for-1 stock split which occurred during the second quarter of 2013.

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

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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements


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

Note 2.  Basis of Presentation
Presentation   The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and shareholders’ equity for such periods. Certain prior-period amounts have been reclassified to conform to the current-period presentation. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
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, 2013.
Consolidation   Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries.  In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.
Equity Investees On September 24, 2014, our equity method investee, CONE Gathering LLC (CONE Gathering), contributed substantially all of its assets to a newly-formed master limited partnership, CONE Midstream Partners LP (CONE Midstream), concurrently with an initial public offering of limited partner units. CONE Gathering subsequently made a cash distribution of $204 million to us, which is reflected within cash flows from operating activities ($48 million) and cash flows from investing activities ($156 million) within our consolidated statement of cash flows. As a result of the transaction, we own a 32.1% interest in CONE Midstream, which we account for using the equity method of accounting.
Discontinued Operations In 2012, we initiated a strategy to exit the North Sea geographical area through sales of our non-operated working interests in the assets. The North Sea geographical segment was classified as held for sale and the operations were reflected as discontinued operations in 2012 and 2013.
The most significant North Sea assets were sold during 2012 and 2013. However, we have been unable to locate purchasers for the remaining assets, and a sale is no longer considered probable. Therefore, during first quarter 2014, we reclassified the remaining North Sea assets to held and used, and the North Sea geographical segment is included in continuing operations in the first, second, and third quarters 2014. In addition, we recorded impairments for the North Sea assets in both the first and second quarters of 2014. See Note 4. Asset Impairments.
North Sea revenues and operating expenses for the nine months ended September 30, 2014, except for the impairments recorded in the first and second quarters 2014, were de minimis. See Note 3. Divestitures, Note 4. Asset Impairments, and Note 7. Fair Value Measurements and Disclosures.
Common Stock Split   On April 22, 2013, Noble Energy’s Board of Directors approved a 2-for-1 split of its common stock to be effected in the form of a stock dividend. The stock dividend was distributed on May 28, 2013 to shareholders of record as of May 14, 2013. Earnings per share and common shares outstanding are reported giving retrospective effect to the common stock split.
Recently Issued Accounting Standards In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-08: Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). ASU 2014-08 changes the criteria for reporting discontinued operations while enhancing disclosures in this area and is effective for annual and interim periods beginning after December 15, 2014. Early adoption is permitted for disposals or for assets classified as held for sale that have not been reported in previously issued financial statements. We elected to early adopt ASU 2014-08 on a prospective basis, and the adoption did not have a material impact on our consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition,

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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

ASU 2014-09 supersedes the cost guidance in Subtopic 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. We are currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial position and results of operations.
Estimates   The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.
Statements of Operations Information   Other statements of operations information is as follows: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Production Expense
 

 
 

 
 
 
 
Lease Operating Expense
$
133

 
$
137

 
$
432

 
$
393

Production and Ad Valorem Taxes
44

 
51

 
146

 
137

Transportation and Gathering Expense
40

 
33

 
119

 
89

Total
$
217

 
$
221

 
$
697

 
$
619

Other Non-Operating (Income) Expense, Net
 

 
 

 
 
 
 
Deferred Compensation (Income) Expense (1)
$
(12
)
 
$
10

 
$

 
$
24

Other (Income) Expense, Net
(1
)
 
(1
)
 
1

 
(3
)
Total
$
(13
)
 
$
9

 
$
1

 
$
21

 
(1) 
Amounts represent increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.


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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Balance Sheet Information   Other balance sheet information is as follows:
(millions)
September 30,
2014
 
December 31,
2013
Accounts Receivable, Net
 
 
 
Commodity Sales
$
345

 
$
495

Joint Interest Billings
310

 
382

Other
101

 
81

Allowance for Doubtful Accounts
(16
)
 
(11
)
Total
$
740

 
$
947

Other Current Assets
 

 
 

Inventories, Materials and Supplies
$
95

 
$
96

Inventories, Crude Oil
28

 
25

Commodity Derivative Assets
79

 
1

Deferred Income Taxes, Net
5

 
62

Assets Held for Sale
98

 
292

Prepaid Expenses and Other Current Assets
56

 
71

Total
$
361

 
$
547

Other Noncurrent Assets
 

 
 

Equity Method Investments
$
290

 
$
437

Mutual Fund Investments
121

 
114

Commodity Derivative Assets
32

 
16

Other Assets
95

 
112

Total
$
538

 
$
679

Other Current Liabilities
 

 
 

Production and Ad Valorem Taxes
$
110

 
$
103

Commodity Derivative Liabilities

 
65

Income Taxes Payable
183

 
156

Asset Retirement Obligations
155

 
39

Interest Payable
56

 
63

Current Portion of Long Term Debt 

 
200

Current Portion of Capital Lease
67

 
58

Liabilities Associated with Assets Held for Sale
12

 
111

Other
224

 
193

Total
$
807

 
$
988

Other Noncurrent Liabilities
 

 
 

Deferred Compensation Liabilities
$
264

 
$
253

Asset Retirement Obligations
543

 
547

Accrued Benefit Costs
108

 
155

Commodity Derivative Liabilities

 
10

Other
139

 
144

Total
$
1,054

 
$
1,109




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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 3. Divestitures
Onshore US Properties   During the first nine months of 2014, we sold certain non-core onshore US crude oil and natural gas properties. The information regarding the assets sold is as follows:
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
(millions)
2014
2014
Sales Proceeds
$
16

$
126

Less
 
 
     Net Book Value of Assets Sold

(118
)
     Goodwill Allocated to Assets Sold
(1
)
(7
)
     Asset Retirement Obligations Associated with Assets Sold
14

34

     Other Closing Adjustments
1

2

Gain on Divestitures
$
30

$
37

On October 23, 2014, we closed the sale of our non-core onshore US properties in the Piceance Basin of western Colorado, with net proceeds of $9 million. These properties were reclassified as held for sale at September 30, 2014, and written down to expected proceeds less costs to sell which resulted in an impairment charge of $31 million. See Note 4. Asset Impairments and Note 7. Fair Value Measurements and Disclosures.
In October 2014, we signed a purchase and sale agreement related to certain of our properties located on the western side of the DJ Basin, outside of our core DJ Basin operating area. The sale is expected to close in late 2014, with net proceeds of approximately $145 million.
China On June 30, 2014, we closed the sale of our China assets. The information regarding the China assets sold is as follows:
 
Nine Months Ended
September 30,
(millions)
2014
Sales Proceeds
$
186

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

Offshore Israel Properties Assets held for sale as of September 30, 2014, include two natural gas discoveries, Tanin and Karish, offshore Israel. We expect to divest these assets pursuant to an agreement we and our partners reached with the Israeli Antitrust Authority in March 2014 on various antitrust matters. The agreement is subject to final approval of the Israeli government.
North Sea Properties   During the first nine months of 2013, we sold non-operated working interests in properties located in the North Sea. The sales resulted in a $55 million gain based on net sales proceeds of $54 million. See Note 2. Basis of Presentation - Discontinued Operations.
Summarized results of discontinued operations are as follows:
 
Nine Months Ended
September 30,
(millions)
2013
Oil and Gas Sales
$
32

Income Before Income Taxes
10

Income Tax Expense
7

Operating Loss, Net of Tax
3

Gain on Sale, Net of Tax
55

Discontinued Operations, Net of Tax
$
58


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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 4. Asset Impairments
Pre-tax (non-cash) asset impairment charges were as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Deepwater Gulf of Mexico (US Properties)
$
2

 
$
16

 
$
25

 
$
16

Piceance Basin (US Properties)
31

 

 
31

 

Mari-B (Offshore Israel)

 
47

 
14

 
47

McCulloch and Other North Sea Properties

 

 
94

 

Total
$
33

 
$
63

 
$
164

 
$
63

US and Offshore Israel During the third quarter of 2014, we reclassified our non-core onshore US properties in the Piceance Basin as assets held for sale. The assets were written down to expected proceeds less costs to sell.
During the first nine months of 2014, the asset carrying values of certain oil and natural gas assets in the deepwater Gulf of Mexico and offshore Israel increased when we recorded associated increases in asset retirement obligations. We determined that the recorded asset carrying values of some of these assets were not recoverable from future cash flows and recorded impairment expense. US properties included the currently-producing Raton natural gas well, as well as the Conquest and Gemini fields, which are being abandoned.
North Sea In March 2014, the operator of one of our remaining North Sea fields notified the working interest owners that expected field abandonment costs would be higher than originally projected. The operator also notified the working interest owners that it would begin working with the appropriate regulatory agency for approval of cessation of production and subsequent field abandonment sooner than anticipated.
As a result of this new information, we adjusted the asset retirement obligation to reflect the updated estimate of abandonment costs and timing. We assessed the asset for impairment and determined that it was impaired. The impairment charge was included in consolidated income from continuing operations.
See Note 2. Basis of Presentation and Note 7. Fair Value Measurements and Disclosures.

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Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 5.  Derivative Instruments and Hedging Activities
Objective and Strategies for Using Derivative Instruments   We are exposed to fluctuations in crude oil and natural gas prices on the majority of our production. In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows relating to the marketing of our global crude oil and domestic natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. We also may enter into forward contracts to hedge anticipated exposure to interest rate risk associated with public debt financing.
While these instruments mitigate the cash flow risk of future decreases in commodity prices or increases in interest rates, they may also curtail benefits from future increases in commodity prices or decreases in interest rates. See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.
Unsettled Commodity Derivative Instruments   As of September 30, 2014, we had entered into the following crude oil derivative instruments: 
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
Bbls Per
Day
Weighted
Average
Fixed
Price
 
Weighted
Average
 Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
 Ceiling
Price
Instruments Entered Into as of September 30, 2014
 
 
 
 
 
 
2014
Swaps
NYMEX WTI
37,000
$
92.67

 
$

$

$

2014
Swaps
Dated Brent
13,000
103.21

 



2014
Three-Way Collars
NYMEX WTI
12,000

 
75.67

90.67

100.88

2014
Three-Way Collars
Dated Brent
8,000

 
84.38

98.25

121.56

2015
Swaps
NYMEX WTI
27,000
88.80

 



2015
Swaps
Dated Brent
8,000
100.31

 



2015
Three-Way Collars
NYMEX WTI
20,000

 
70.50

87.55

94.41

2015
Three-Way Collars
Dated Brent
13,000

 
76.92

96.00

108.49

2016
Swaps
NYMEX WTI
6,000
87.95

 



2016
Swaps
Dated Brent
9,000
97.96

 



2016
Three-Way Collars
NYMEX WTI
3,000

 
72.00

85.00

94.82

2016
Three-Way Collars
Dated Brent
6,000

 
80.00

95.00

105.87

(1) 
West Texas Intermediate
As of September 30, 2014, we had entered into the following natural gas derivative instruments:
 
 
 
 
Swaps
 
Collars
Settlement
Period
Type of Contract
Index (1)
MMBtu
Per Day
Weighted
Average
Fixed
Price
 
Weighted
Average
Short Put
 Price
Weighted
Average
Floor
Price
Weighted
Average
Ceiling
Price
Instruments Entered Into as of September 30, 2014
 
 
 
 
 
 
2014
Swaps
NYMEX HH
60,000
$
4.24

 
$

$

$

2014
Three-Way Collars
NYMEX HH
230,000

 
2.83

3.75

4.98

2015
Swaps
NYMEX HH
140,000
4.30

 



2015
Three-Way Collars
NYMEX HH
150,000

 
3.58

4.25

5.04

(1) 
Henry Hub

13

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Fair Value Amounts and (Gain) Loss on Commodity Derivative Instruments   The fair values of commodity derivative instruments in our consolidated balance sheets were as follows:
Fair Value of Derivative Instruments
 
Asset Derivative Instruments
 
Liability Derivative Instruments
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
(millions)
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
 Value
 
Balance Sheet Location
 
Fair
Value
 
Balance Sheet Location
 
Fair
Value
Commodity Derivative Instruments
Current Assets
 
$
79

 
Current Assets
 
$
1

 
Current Liabilities
 
$

 
Current Liabilities
 
$
65

 
Noncurrent Assets
 
32

 
Noncurrent Assets
 
16

 
Noncurrent Liabilities
 

 
Noncurrent Liabilities
 
10

Total
 
 
$
111

 
 
 
$
17

 
 
 
$

 
 
 
$
75


The effect of commodity derivative instruments on our consolidated statements of operations was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
(Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
$
(360
)
 
$
167

 
$
(68
)
 
$
99

   Natural Gas
(25
)
 
(10
)
 
(6
)
 
(30
)
Total (Gain) Loss on Commodity Derivative Instruments
(385
)
 
157

 
(74
)
 
69

Cash (Received) Paid in Settlement of Commodity Derivative Instruments
 
 
 
 
 
 
 
  Crude Oil
14

 
24

 
87

 
39

  Natural Gas
(2
)
 
(14
)
 
8

 
(37
)
Total Cash (Received) Paid in Settlement of Commodity Derivative Instruments
12

 
10

 
95

 
2

Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
 
 
 
 
 
 
 
   Crude Oil
(374
)
 
143

 
(155
)
 
60

   Natural Gas
(23
)
 
4

 
(14
)
 
7

Total Non-cash Portion of (Gain) Loss on Commodity Derivative Instruments
$
(397
)
 
$
147

 
$
(169
)
 
$
67

AOCL Accumulated other comprehensive loss (AOCL) at September 30, 2014 included deferred losses of $23 million, net of tax, related to interest rate derivative instruments. This amount will be reclassified to earnings as an adjustment to interest expense over the term of our senior notes due March 2041. The amount of deferred losses (net of tax) which will be reclassified to earnings during the next 12 months, and recorded as an increase in interest expense, is de minimis.

14

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 6. Debt
Debt consists of the following:
 
September 30,
2014
 
 
December 31,
2013
 
(millions, except percentages)
Debt
 
Interest Rate
 
 
Debt
 
Interest Rate
 
Credit Facility, due October 3, 2018
$
900

 
1.43
%
 
 
$

 
%
 
Capital Lease and Other Obligations
399

 

 
 
359

 

 
5¼% Senior Notes, due April 15, 2014 (1)

 

 
 
200

 
5.25
%
 
8¼% Senior Notes, due March 1, 2019
1,000

 
8.25
%
 
 
1,000

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

 
4.15
%
 
 
1,000

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

 
7.25
%
 
 
100

 
7.25
%
 
8% Senior Notes, due April 1, 2027
250

 
8.00
%
 
 
250

 
8.00
%
 
6% Senior Notes, due March 1, 2041
850

 
6.00
%
 
 
850

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

 
5.25
%
 
 
1,000

 
5.25
%
 
7¼% Senior Debentures, due August 1, 2097
84

 
7.25
%
 
 
84

 
7.25
%
 
Total
5,583

 
 
 
 
4,843

 
 

 
Unamortized Discount
(18
)
 
 

 
 
(19
)
 
 

 
Total Debt, Net of Discount
5,565

 
 

 
 
4,824

 
 

 
Less Amounts Due Within One Year
 

 
 

 
 
 

 
 

 
5¼% Senior Notes, due April 15, 2014, net of discount (1)

 
 
 
 
(200
)
 
 
 
Capital Lease Obligations
(67
)
 
 

 
 
(58
)
 
 

 
Long-Term Debt Due After One Year
$
5,498

 
 

 
 
$
4,566

 
 

 
 
(1) 
We repaid the Senior Notes on their due date.
Credit Facility Our Credit Agreement provides for a $4.0 billion unsecured revolving credit facility (Credit Facility), which is available for general corporate purposes. The Credit Facility (i) provides for facility fee rates that range from 12.5 basis points to 30 basis points per year depending upon our credit rating, (ii) includes sub-facilities for short-term loans and letters of credit up to an aggregate amount of $500 million under each sub-facility and (iii) provides for interest rates that are based upon the Eurodollar rate plus a margin that ranges from 100 basis points to 145 basis points depending upon our credit rating.
See Note 7. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of debt.

Note 7.  Fair Value Measurements and Disclosures  
Assets and Liabilities Measured at Fair Value on a Recurring Basis 
Certain assets and liabilities are measured at fair value on a recurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values: 
Cash, Cash Equivalents, Accounts Receivable and Accounts Payable   The carrying amounts approximate fair value due to the short-term nature or maturity of the instruments. 
Mutual Fund Investments   Our mutual fund investments, which primarily include assets held in a rabbi trust, consist of various publicly-traded mutual funds that include investments ranging from equities to money market instruments. The fair values are based on quoted market prices for identical assets. 
Commodity Derivative Instruments   Our commodity derivative instruments may include: variable to fixed price commodity swaps, two-way collars, and/or three-way collars. We estimate the fair values of these instruments based on published forward commodity price curves as of the date of the estimate. The discount rate used in the discounted cash flow projections is based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The fair values of commodity derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of commodity derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. In addition, for collars, we estimate the option values of the put options sold and the contract floors and ceilings using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 5. Derivative Instruments and Hedging Activities

15

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Deferred Compensation Liability   The value is dependent upon the fair values of mutual fund investments and shares of our common stock held in a rabbi trust. See Mutual Fund Investments above. 
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, 2014
 
 
 
 
 
 
 
 
 
Financial Assets
 
 
 
 
 
 
 
 
 
Mutual Fund Investments
$
121

 
$

 
$

 
$

 
$
121

Commodity Derivative Instruments

 
117

 

 
(6
)
 
111

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(6
)
 

 
6

 

Portion of Deferred Compensation Liability Measured at Fair Value
(181
)
 

 

 

 
(181
)
December 31, 2013
 
 
 
 
 
 
 

 
 

Financial Assets
 

 
 

 
 

 
 

 
 

Mutual Fund Investments
$
114

 
$

 
$

 
$

 
$
114

Commodity Derivative Instruments

 
28

 

 
(11
)
 
17

Financial Liabilities
 

 
 

 
 

 
 

 
 

Commodity Derivative Instruments

 
(86
)
 

 
11

 
(75
)
Portion of Deferred Compensation Liability Measured at Fair Value
(176
)
 

 

 

 
(176
)
 
(1) 
Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.
(2) 
Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.
(3) 
Level 3 measurements are fair value measurements which use unobservable inputs.
(4) 
Amount represents the impact of netting provisions within our master agreements that allow us to net cash settle asset and liability positions with the same counterparty.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:
Asset Impairments Information about impaired assets is as follows:
 
Fair Value Measurements Using
 
 
 
 
Description
Quoted Prices in 
Active Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Net Book Value (1)
 
Total Pre-tax (Non-cash) Impairment Loss
millions
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$
9

 
$
42

 
$
33

Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 
75

 
138

 
63

Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties
$

 
$

 
$
23

 
$
187

 
$
164

Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Impaired Oil and Gas Properties

 

 
75

 
138

 
63

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

16

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

The fair value of impaired oil and gas properties was determined as of the date of the assessment using a discounted cash flow model based on management’s expectations of future crude oil and natural gas production prior to abandonment date, commodity prices based on NYMEX WTI, NYMEX Henry Hub, and Brent future price curves as of the date of the estimate, estimated operating and abandonment costs, and a risk-adjusted discount rate of 10%. First and second quarter 2014 impairments were due to increases in asset carrying values associated with increases in asset retirement obligations (ARO). ARO increases were due to higher cost and change in timing of abandonment activities. Third quarter 2014 impairments related primarily to our non-core onshore properties in the Piceance Basin, which were reclassified as assets held for sale. The assets were written down to expected proceeds less costs to sell. See Note 4. Asset Impairments.
Additional Fair Value Disclosures
Debt   The fair value of public, fixed-rate debt is estimated based on the published market prices for the same or similar issues. As such, we consider the fair value of our public, fixed-rate debt to be a Level 1 measurement on the fair value hierarchy. 
The carrying amount of our Credit Facility at September 30, 2014 approximates fair value because the interest rate paid on such debt is set for periods of three months or less. As such, we consider the fair values of our Credit Facility to be a Level 2 measurement on the fair value hierarchy. See Note 6. Debt.
Fair value information regarding our debt is as follows:
 
September 30,
2014
 
December 31,
2013
(millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Total Debt, Net of Unamortized Discount (1)
$
5,166

 
$
5,805

 
$
4,465

 
$
4,959

(1) 
Excludes capital lease and other obligations.
Note 8.  Capitalized Exploratory Well Costs
We capitalize exploratory well costs until a determination is made that the well has found proved reserves or is deemed noncommercial. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.
Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:
(millions)
Nine Months Ended September 30, 2014
Capitalized Exploratory Well Costs, Beginning of Period
$
1,301

Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves
274

Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves or to Assets Held for Sale
(186
)
Capitalized Exploratory Well Costs Charged to Expense (1)
(85
)
Capitalized Exploratory Well Costs, End of Period
$
1,304


(1) Capitalized exploratory wells costs charged to expense primarily represent the Scotia exploratory well, offshore Falkland Islands, which was determined to be non-commercial.

The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced, and the number of projects that have been capitalized for a period greater than one year: 
(millions)
September 30,
2014
 
December 31,
2013
Exploratory Well Costs Capitalized for a Period of One Year or Less
$
307

 
$
568

Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling
997

 
733

Balance at End of Period
$
1,304

 
$
1,301

Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling
12

 
13

 

17

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

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 commencement of drilling as of September 30, 2014:
 
 
 
Suspended Since
 
 
(millions)
Total
 
2012 - 2013
 
2010 - 2011
 
2009 & Prior
 
Progress
Country/Project:
 
 
 
 
 
 
 
 
 
Deepwater Gulf of Mexico
 
 
 
 
 
 
 
 
 
  Troubadour
$
44

 
$
44

 
$

 
$

 
Evaluating development scenarios for this 2013 natural gas discovery
Offshore Equatorial Guinea
 
 
 
 
 
 
 
 
 
Diega (including Carmen)
161

 
56

 
52

 
53

 
Evaluating regional development scenarios for this 2008 crude oil discovery
Carla
150

 
138

 
12

 

 
Evaluating regional development scenarios for this 2011 crude oil discovery
Felicita
38

 
3

 
6

 
29

 
Evaluating regional development plans for this 2008 condensate and natural gas discovery
Yolanda
19

 
2

 
3

 
14

 
Evaluating regional development plans for this 2007 condensate and natural gas discovery
Offshore Cameroon
 

 
 
 
 
 
 
 
 
YoYo
47

 
4

 
9

 
34

 
Working with the government to assess commercialization of this 2007 condensate and natural gas discovery
Offshore Israel
 

 
 
 
 
 
 
 
 
Leviathan
181

 
71

 
110

 

 
Submitted a development plan to the Israeli government; finalizing front-end engineering and design (FEED) work; continuing marketing activities with potential natural gas customers
Leviathan-1 Deep
77

 
50

 
27

 

 
Well did not reach the target interval; developing future drilling plans to test this deep oil concept
Dalit
26

 
4

 
2

 
20

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

 
3

 
22

 

 
Reviewing regional development scenarios for this 2011 natural gas discovery
Offshore Cyprus
 
 
 
 
 
 
 
 
 
Cyprus
188

 
131

 
57

 

 
Discussing monetization options with the Cyprus government for this 2011 natural gas discovery
Other
 

 
 
 
 
 
 
 
 
Projects less than $20 million
41

 
31

 
4

 
6

 
Continuing to drill and evaluate wells
Total
$
997

 
$
537

 
$
304

 
$
156

 
 

Note 9.  Asset Retirement Obligations
ARO consists primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. Changes in ARO are as follows:
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
Asset Retirement Obligations, Beginning Balance
$
586

 
$
402

Liabilities Incurred
38

 
4

Liabilities Settled
(77
)
 
(15
)
Revision of Estimate
123

 
5

Accretion Expense (1)
28

 
21

Asset Retirement Obligations, Ending Balance
$
698

 
$
417

(1) Accretion expense is included in DD&A expense in the consolidated statements of operations.

18

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

For the nine months ended September 30, 2014
Liabilities incurred were due to new wells and facilities and included $13 million for onshore US, $16 million for deepwater Gulf of Mexico, and $9 million for Eastern Mediterranean.
Liabilities settled primarily related to onshore US property abandonments and non-core, onshore US assets sold. At December 31, 2013, our non-operated North Sea fields were classified as held for sale, which included the related ARO for these fields. During 2014, we reclassified the remaining, unsold North Sea properties as held and used. The North Sea field ARO of $24 million is recorded within liabilities settled.
Revisions were primarily due to an increase of $67 million related to a non-operated North Sea field due to an increase in costs and a change in timing recorded during the first quarter of 2014. See Note 4. Asset Impairments. Additional revisions were due to changes in cost and timing estimates and primarily included $21 million for DJ Basin, $16 million for Equatorial Guinea, $9 million for Eastern Mediterranean, and $9 million for deepwater Gulf of Mexico.
For the nine months ended September 30, 2013
Liabilities incurred were due to new wells and facilities for onshore development. Liabilities settled in 2013 relate primarily to non-core onshore US properties that were sold. See Note 3. Divestitures.
Note 10.  Earnings Per Share
Basic earnings per share of common stock is computed using the weighted average number of shares of common stock outstanding during each period. The diluted earnings per share of common stock include the effect of outstanding stock options, shares of restricted stock, or shares of our common stock held in a rabbi trust (when dilutive). The following table summarizes the calculation of basic and diluted earnings per share:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions, except per share amounts)
2014
 
2013
 
2014
 
2013
Income from Continuing Operations
$
419

 
$
195

 
$
811

 
$
785

Earnings Adjustment from Assumed Conversion of Dilutive Shares of Common Stock in Rabbi Trust (1)
(8
)
 

 

 

Income from Continuing Operations Used for Diluted Earnings Per Share Calculation
$
411

 
$
195

 
$
811

 
$
785

 
 
 
 
 
 
 
 
Weighted Average Number of Shares Outstanding, Basic
362

 
359

 
361

 
359

Incremental Shares from Assumed Conversion of Dilutive Stock Options, Restricted Stock, and Shares of Common Stock in Rabbi Trust
5

 
4

 
6

 
4

Weighted Average Number of Shares Outstanding, Diluted
367

 
363

 
367

 
363

Earnings from Continuing Operations Per Share, Basic
$
1.16

 
$
0.54

 
$
2.25

 
$
2.19

Earnings from Continuing Operations Per Share, Diluted
1.12

 
0.53

 
2.21

 
2.17

Number of Antidilutive Stock Options, Shares of Restricted Stock, and Shares of Common Stock in Rabbi Trust Excluded from Calculation Above
2

 
4

 
3

 
5

(1) 
Consistent with GAAP, when dilutive, deferred compensation gains or losses, net of tax, are excluded from net income while our common shares held in the rabbi trust are included in the diluted share count. For this reason, the diluted earnings per share calculations for the three and nine months ended September 30, 2014 exclude deferred compensation (gains) losses, net of tax. The deferred compensation loss, net of tax, excluded for the calculation of diluted earnings per share for the nine months ended September 30, 2014 was de minimis.



19

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 11.  Income Taxes
The income tax provision relating to continuing operations consists of the following: 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Current
$
120

 
$
53

 
$
213

 
$
161

Deferred
37

 
63

 
61

 
169

Total Income Tax Provision
$
157

 
$
116

 
$
274

 
$
330

Effective Tax Rate
27.2
%
 
37.2
%
 
25.3
%
 
29.6
%

Our effective tax rate (ETR) for the three and nine months ended September 30, 2014 decreased as compared with the three and nine months ended September 30, 2013 primarily due to our ability to benefit from previously unrecognized foreign tax credits, increased earnings in our foreign jurisdictions with rates that vary from the US statutory rate, and a decrease in our Israeli oil profits tax. Additionally, in July 2013, the Israeli government increased the corporate income tax rate from 25% to 26.5%. The change increased the deferred tax expense for 2013, which resulted in a higher rate for the three months ended September 30, 2013 as compared to the same period of 2014.
In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2011, Equatorial Guinea – 2009 and Israel – 2009.
See Note 3. Divestitures for income taxes associated with discontinued operations.

20

Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 12.  Segment Information  
We have operations throughout the world and manage our operations by country. The following information is grouped into four components that are all in the business of crude oil and natural gas exploration, development, production, and acquisition: the United States; West Africa (Equatorial Guinea, Cameroon, Sierra Leone, and Gabon); Eastern Mediterranean (Israel and Cyprus); and Other International and Corporate. Other International includes the North Sea, China (through June 30, 2014), Falkland Islands, Nicaragua and new ventures. The North Sea geographical segment is included in continuing operations in 2014 and discontinued operations in 2013. Income (loss) from continuing operations before income taxes for the United States and West Africa includes gains and losses on commodity derivative instruments.
(millions)
Consolidated
 
United
States
 
West
Africa
 
Eastern
Mediterranean
 
Other Int'l &
Corporate
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenues from Third Parties
$
1,228

 
$
819

 
$
269

 
$
138

 
$
2

Income from Equity Method Investees
41

 

 
41

 

 

Total Revenues
1,269

 
819

 
310

 
138

 
2

DD&A
460

 
351

 
70

 
17

 
22

Gain on Divestitures
(30
)
 
(30
)
 

 

 

Asset Impairments
33

 
33

 

 

 

Income (Loss) from Continuing Operations Before Income Taxes
576

 
457

 
321

 
90

 
(292
)
Three Months Ended September 30, 2013
 

 
 

 
 

 
 

 
 

Revenues from Third Parties
$
1,341

 
$
810

 
$
372

 
$
122

 
$
37

Income from Equity Method Investees
53

 

 
53

 

 

Total Revenues
1,394

 
810

 
425

 
122

 
37

DD&A
412

 
295

 
72

 
26

 
19

Gain on Divestitures

 

 

 

 

Asset Impairments
63

 
16

 

 
47

 

Income (Loss) from Continuing Operations Before Income Taxes
311

 
183

 
223

 
34

 
(129
)
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
Revenues from Third Parties
$
3,893

 
$
2,503

 
$
931

 
$
363

 
$
96

Income from Equity Method Investees
138

 

 
138

 

 

Total Revenues
4,031

 
2,503

 
1,069

 
363

 
96

DD&A
1,297

 
970

 
218

 
46

 
63

Gain on Divestitures
(72
)
 
(36
)
 

 

 
(36
)
Asset Impairments
164

 
56

 

 
14

 
94

Income (Loss) from Continuing Operations Before Income Taxes
1,085

 
838

 
786

 
211

 
(750
)
Nine Months Ended September 30, 2013
 

 
 

 
 

 
 

 
 

Revenues from Third Parties
$
3,537

 
$
2,209

 
$
935

 
$
274

 
$
119

Income from Equity Method Investees
150

 

 
150

 

 

Total Revenues
3,687

 
2,209

 
1,085

 
274

 
119

DD&A
1,146

 
819

 
189

 
81

 
57

Gain on Divestitures
(12
)
 
(12
)
 

 

 

Asset Impairments
63

 
16

 

 
47

 

Income (Loss) from Continuing Operations Before Income Taxes
1,115

 
746

 
722

 
93

 
(446
)
September 30, 2014
 

 
 

 
 

 
 

 
 

Total Assets
$
21,186

 
$
15,069

 
$
2,930

 
$
2,855

 
$
332

December 31, 2013
 

 
 

 
 

 
 

 
 

Total Assets
19,598

 
13,094

 
3,199

 
2,753

 
552




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Table of Contents
Noble Energy, Inc.
Notes to Consolidated Financial Statements

Note 13.  Commitments and Contingencies  
CONSOL Carried Cost Obligation In accordance with our Marcellus Shale joint venture arrangement with a subsidiary of CONSOL Energy Inc. (CONSOL), we agreed to fund one-third of CONSOL's 50% working interest share of future drilling and completion costs, capped at $400 million each year, up to approximately $2.1 billion (CONSOL Carried Cost Obligation).
The CONSOL Carried Cost Obligation is suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and remain suspended until average Henry Hub natural gas prices equal or exceed $4.00 per MMBtu for three consecutive months. Due to low natural gas prices, the CONSOL Carried Cost Obligation was suspended from the end of 2011 until February 28, 2014. We began funding a portion of CONSOL's working interest share of certain drilling and completion costs as of March 1, 2014. Based on the September 30, 2014 NYMEX Henry Hub natural gas price curve and current development plans, we forecast we will incur approximately $185 million under the CONSOL Carried Cost Obligation for the year ended December 31, 2014.
Marcellus Shale Firm Transportation Agreements During 2014, we signed Precedent Agreements for Firm Transportation (the Agreements) to flow 445,000 MMBtu per day of our Marcellus Shale natural gas production to various markets. The Agreements are for transportation services on new pipeline extensions to be constructed by, and connecting to, an existing third-party system. The pipeline extensions are expected to be complete and operational in 2017 and 2018. Our financial commitment totals approximately $1.2 billion, undiscounted, over a 15-year period. Final agreements are subject to various conditions, including regulatory approval of the pipeline extension projects.
Legal Proceedings  We are involved in various legal proceedings in the ordinary course of business.  These proceedings are subject to the uncertainties inherent in any litigation.  We are defending ourselves vigorously in all such matters and we believe that the ultimate disposition of such proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.




22

Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a narrative about our business from the perspective of our management. We use common industry terms, such as thousand barrels of oil equivalent per day (MBoe/d) and million cubic feet equivalent per day (MMcfe/d), to discuss production and sales volumes. Our MD&A is presented in the following major sections:

 
The preceding consolidated financial statements, including the notes thereto, contain detailed information that should be read in conjunction with our MD&A.
 
EXECUTIVE OVERVIEW
We are a worldwide explorer and producer of crude oil, natural gas and natural gas liquids. We aim to achieve sustainable growth in value and cash flow through exploration success and the development of a high-quality, diversified, portfolio of assets with investment flexibility between: onshore unconventional developments and offshore organic exploration leading to major development projects; US and international development projects; and production mix among crude oil, natural gas, and NGLs. We currently focus our efforts in five core operating areas: the DJ Basin and Marcellus Shale (onshore US), deepwater Gulf of Mexico, offshore West Africa, and offshore Eastern Mediterranean, where we have strategic competitive advantage and which we believe generate superior returns. We also seek to enter potential new core areas, and we are currently conducting exploration activities in domestic and international locations such as Northeast Nevada, Gabon, the Falkland Islands, Cameroon, and Cyprus.
Our financial results for third quarter 2014 included:
net income of $419 million, as compared with $205 million for third quarter 2013;
gain on commodity derivative instruments of $385 million (including $397 million non-cash portion of gain) as compared with a loss on commodity derivative instruments of $157 million (including $147 million non-cash portion of loss) for third quarter 2013;
dry hole expense of $161 million, as compared with third quarter 2013, which was de minimis;
asset impairment charges of $33 million, as compared with $63 million for third quarter 2013;
diluted earnings per share of $1.12, as compared with $0.56 for third quarter 2013;
cash flow provided by operating activities of $946 million, as compared with $909 million for third quarter 2013;
ending cash balance of $1.2 billion, as compared with $1.1 billion at December 31, 2013;
capital spending, on a cash basis, of $1.1 billion, as compared with $1.1 billion for the third quarter 2013;
net increase in our unsecured revolving credit facility (Credit Facility) balance of $300 million;
cash distributions of $204 million received from CONE Gathering LLC (CONE Gathering);
total liquidity of $4.3 billion at September 30, 2014, as compared with $5.1 billion at December 31, 2013; and
ratio of debt-to-book capital of 36% at September 30, 2014, as compared with 35% at December 31, 2013
Our operating results for third quarter 2014 included:
formed a master limited partnership with CONSOL Energy Inc. (CONSOL) for our jointly owned midstream assets in the Marcellus Shale and completed the initial public offering;
announced successful final well results at the Katmai exploratory well and at the Dantzler-2 appraisal well located in the deepwater Gulf of Mexico;
signed a regional export Letter of Intent (LOI) for natural gas sales from Leviathan to National Electric Power Company of Jordan; and
entered into a new position offshore West Africa in Gabon.


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Table of Contents

Exploration Program Update
We have numerous exploration opportunities remaining in our core areas and are also engaged in new venture activity in both our US and international locations.
We were in the process of drilling and/or evaluating significant exploratory wells at September 30, 2014 (See Item 1. Financial Statements – Note 8. Capitalized Exploratory Well Costs), and expect to continue an active exploratory drilling program in the future.
A portion of our 2014 capital investment program is dedicated to exploration and associated appraisal activities, including seismic and leasehold acquisitions. However, we do not always encounter hydrocarbons through our drilling activities. In addition, we may find hydrocarbons but subsequently reach a decision, through additional analysis or appraisal drilling, that a development project is not economically or operationally viable.
In the event we conclude that one of our exploratory wells did not encounter hydrocarbons or that a discovery is not economically or operationally viable, the associated capitalized exploratory well costs would be recorded as dry hole expense. 
Additionally, we may not be able to conduct exploration activities prior to lease expirations. As a result, in a future period, dry hole cost and/or leasehold abandonment expense could be significant. See Operating Outlook – Potential for Future Asset Impairment, Dry Hole or Lease Abandonment Expense, below.
Updates on significant exploration activities are as follows:
Northeast Nevada We are currently analyzing results from our first two exploratory vertical wells and conducting a production test. In third quarter 2014, we commenced drilling a third exploratory well and plan to drill additional exploratory wells in 2015.
Deepwater Gulf of Mexico In third quarter 2014, we announced successful final well results at the Katmai exploratory well (Green Canyon Block 40, 50% operated working interest) in the deepwater Gulf of Mexico. Katmai was drilled to a total depth of 27,900 feet in 2,100 feet of water. Wireline logging data indicated a total of 154 net feet of crude oil pay discovered in multiple reservoirs, including 117 net feet in Middle Miocene and 37 net feet in Lower Miocene reservoirs. Additional exploration and appraisal drilling will be required to test the remaining resource potential.
We participated with a 50% non-operated working interest in the Bright prospect, which was drilled on Atwater Valley Block 362 to a total depth of 13,500 feet during the third quarter 2014. The exploratory well reached the targeted Upper and Middle Miocene objectives and was subsequently plugged and abandoned as we did not encounter hydrocarbons. As a result, we recorded $79 million dry hole cost in the third quarter of 2014.
In the fourth quarter 2014, we plan to drill the Madison prospect (Mississippi Canyon 479), where we have a 60% working interest.
Offshore West Africa We are currently acquiring 3D seismic data across Blocks O and I, offshore Equatorial Guinea, and reprocessing 3D seismic data over our YoYo mining concession, offshore Cameroon.
In August 2014, we expanded our exploration portfolio by signing a Production Sharing Contract (PSC) with the Government of Gabon covering Block F15. Block F15 is located in the Gabon Coastal Basin and covers over 670,000 gross acres. The PSC includes a 4-year seismic commitment and an option for exploration drilling. We have a 60% operated working interest.
Offshore Eastern Mediterranean We are processing and evaluating recently acquired 3D seismic data over offshore Israel and Cyprus and continue to study locations for potential exploratory wells, with opportunities offshore in Israel and Cyprus.
Offshore Falkland Islands We anticipate drilling operations to begin in mid-2015 at Humpback, our operated prospect located in the Fitzroy sub-basin of the Southern Area License. We are currently finalizing locations for a second exploratory well, planned for later in 2015 following results at Humpback. We operate our Southern Area licenses with a 35% working interest.
Based on the results of seismic interpretation conducted on the Scotia exploratory well which was drilled in 2012, we have concluded that the Scotia prospect is not economically viable. As a result, we recorded $73 million dry hole expense during third quarter 2014.

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Table of Contents

Major Development Project Updates
We continue to advance our major development projects, which we expect to deliver incremental production over the next several years. Updates on major development projects are as follows:
Sanctioned Ongoing Development Projects
A "sanctioned" development project is one for which a final investment decision has been made.
DJ Basin (Onshore US)   We continue to operate at an extensive level of horizontal drilling activity with continued growth from new wells brought online and expanded natural gas and crude oil infrastructure. We have accelerated our extended reach lateral well program to approximately 30% of our wells to be drilled in 2014. During the quarter, we spud 75 horizontal wells, of which 22 were extended reach lateral wells, and 68 wells initiated production. Our 2014 drilling program includes over 90 extended reach lateral wells. Currently, nine drilling rigs are active across the basin.
Marcellus Shale (Onshore US)   We continue to delineate the wet gas acreage, while our partner, CONSOL, continues to develop the dry gas acreage. During the quarter, we and our partner drilled 50 wells, and 37 wells initiated production. The joint venture is currently operating eight drilling rigs.
Due to an increase in Henry Hub natural gas prices, our funding of certain drilling and completion costs under the CONSOL Carried Cost Obligation commenced as of March 1, 2014. See Liquidity and Capital Resources – Contractual Obligations below.
On September 24, 2014, our jointly-owned equity method investee, CONE Gathering, contributed substantially all of its assets to a newly-formed master limited partnership, CONE Midstream Partners LP (CONE Midstream). CONE Gathering subsequently made a cash distribution of $204 million to each of us and CONSOL. In addition, we and CONSOL each own a 32.1% interest in CONE Midstream. CONE Midstream will own, operate, and develop our jointly-owned natural gas midstream assets in the Marcellus Shale.
Gunflint (Deepwater Gulf of Mexico)  Development is on track for the Gunflint crude oil discovery, utilizing a two-well subsea tieback to the Gulfstar 1 spar platform. Topsides equipment fabrication is underway for planned 2015 installation, and we are targeting first production for mid-2016.
Big Bend and Dantzler (Deepwater Gulf of Mexico) A co-development project is underway for the Big Bend (54% operated working interest) and Dantzler (45% operated working interest) crude oil discoveries, located in the Rio Grande area of the deepwater Gulf of Mexico.
During third quarter 2014, we announced final well results at the Dantzler-2 appraisal well, located in Mississippi Canyon 782, which encountered 122 net feet of crude oil pay in two high-quality Miocene reservoirs. The well was drilled to a total depth of 18,210 feet in 6,600 feet of water.
We recently signed a production handling agreement for tie back to the Thunder Hawk semi-submersible production facility. First production for Big Bend is targeted for fourth quarter 2015, and first production for Dantzler is targeted for first quarter 2016.
Tamar Expansion (Offshore Israel) The Tamar compression project is ongoing. De-bottlenecking of the Tamar facilities has increased current peak production deliverability at Tamar to more than 1.1 Bcf/d, gross. Additional progress was made at the Ashdod onshore terminal, which brings the project to approximately 80% complete. The expansion is targeted to increase deliverability at Tamar to 1.2 Bcf/d, gross, beginning in mid-2015.
We are continuing to work with the Israeli government to obtain regulatory approval of our development plan for the Tamar Southwest discovery, which is intended to utilize current Tamar infrastructure. Continuing delays in securing regulatory approvals have placed the project at risk of delay. We have petitioned the Israeli courts to expedite the needed approvals. Timely development of Tamar Southwest is important to maintain well capacity and reliability for our overall Tamar project.
In May 2014, we announced that we had entered into a non-binding LOI for the supply of natural gas from the Tamar field to existing natural gas liquefaction (LNG) facilities in Egypt.
Unsanctioned Development Projects (As of September 30, 2014)
Leviathan (Offshore Israel)   We have made significant progress on the development of the Leviathan field, following approval of Israel's natural gas export policy, an agreement with Israel's Anti-trust Authority, and receipt of the Development and Production Leases for Leviathan.
We have submitted the Plan of Development for the initial phase of development of Leviathan to the Ministry of Energy and Water Resources. The initial phase of development is planned to include a 1.6 Bcf/d Floating, Production, Storage, and Offloading (FPSO) vessel, with initial sales targeted to begin in early 2018 at 75% of total FPSO capacity.

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We have also entered into two non-binding LOIs for the supply of natural gas from the Leviathan field. In June 2014, we announced an LOI to supply natural gas to existing LNG facilities in Egypt. In September 2014, we announced an LOI to supply natural gas to the National Electric Power Company of Jordan. We are working towards final gas purchase and sales agreements, which will be subject to, among other conditions, the receipt of regulatory approvals. We are engaged with the governments of the US, Israel, Jordan and Egypt.
Project financing discussions are underway, and we are targeting to sanction Phase 1 in 2015.
See also Update on Israel's Natural Gas Economy, below.
Cyprus Project (Offshore Cyprus) We are currently evaluating development scenarios in Cyprus. Our application for renewal of the production sharing contract for two additional years was approved in May 2014.
Diega and Carla (Offshore Equatorial Guinea) We are currently evaluating regional development scenarios for Diega and Carla and will incorporate the results of our 3D seismic data acquisition across Blocks O and I. A natural gas sales agreement has been executed by the Block O and I partners to sell dedicated natural gas from the Alen field to the proposed Integrated Petrochemical Complex in Equatorial Guinea.
See Item 1. Financial Statements – Note 8. Capitalized Exploratory Well Costs for additional information on costs incurred related to these projects.
Non-Core Divestiture Program
We have continued our non-core asset divestiture program with the sale of our China assets as well as certain smaller onshore US property packages during the first nine months of 2014. In addition we closed the sale of our Piceance Basin properties in October 2014. Divestitures of non-core properties allow us to allocate capital and human resources to high-value and high-growth areas. See Item 1. Financial Statements – Note 3. Divestitures and Operating Outlook - Potential for Future Asset Impairment, Dry Hole or Lease Abandonment Expense, below.
We are currently winding up local business activities in countries of former operations. At this time, we do not believe that any of the activities associated with these areas will have a material effect on our financial position, results of operations or cash flows.
Update on Israel's Natural Gas Economy
Israel Antitrust Authority During 2014, we and our partners reached an agreement with the Israeli government on various antitrust matters. As a result of the agreement, we will divest two natural gas discoveries. We have initiated an active program to locate a buyer and are progressing the other actions required to complete the sale. The assets are reported within assets held for sale in our consolidated balance sheet at September 30, 2014.
The agreement also granted the rights, to us and our partners, to jointly market natural gas from the Leviathan field. As a result, we plan to further our domestic natural gas marketing activities. The agreement is subject to final approval by the Israeli government.
On March 26, 2014, the Israel Ministry of Finance (Ministry) issued a memorandum indicating its intent to amend the Petroleum Profits Law in light of the Israeli government's 2013 decision to permit the export of natural gas from Israel. The primary purpose of the proposed amendments is to regulate the method of taxing petroleum export transactions, and, in particular, exports of natural gas. As a part of the Ministry's draft recommendation, several methodologies could be used to establish the transfer price for natural gas sales, depending on various circumstances. We are currently evaluating the recommendation and proposed amendments and have submitted comments and suggestions to the Ministry.
Update on Hydraulic Fracturing
Although hydraulic fracturing is regulated primarily at the state level, governments and agencies at all levels from federal to municipal are conducting studies and considering regulations, and some have proposed rules.
A measure to ban hydraulic fracturing was on the ballot in the City of Loveland in northern Colorado in June of 2014. The oil and gas industry worked with the community to defeat that initiative. Also during 2014, we actively worked to avoid statewide ballot initiatives that would unreasonably restrict or limit crude oil and natural gas development in Colorado. On August 4, 2014, an agreement was reached with supporters of the ballot initiatives to withdraw all ballot measures relating to oil and natural gas and to support the creation of a Task Force on State and Local Regulation of Oil and Gas Operations (Task Force). Colorado Governor Hickenlooper created the Task Force by executive order and named 21 members to it, for the purpose of recommending policies and legislation by February 27, 2015. A Noble Energy representative is a member of the Task Force.
In Nevada, state regulators are in the process of promulgating rules to govern hydraulic fracturing and crude oil and natural gas development. We have actively participated in that process and do not believe it will have a material impact on our activities.

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In addition to the above, we will continue to monitor proposed and new legislation and regulations in all operating jurisdictions to assess the potential impact on our company. Concurrently, we are engaged in extensive public education and outreach efforts with the goal of engaging and educating the general public and communities about the energy, economic and environmental benefits of safe and responsible crude oil and natural gas development.
Update on West Africa Operations
An epidemic of the Ebola virus is ongoing in certain regions of West Africa and may adversely affect our business operations through travel or other restrictions which could have an impact on business continuity. We continue to monitor and prepare for potential escalation.
Regulations
On February 23, 2014, the Colorado Air Quality Control Commission (Commission) adopted a number of revisions to its oil and gas industry regulations. The revisions include the full adoption of US Environmental Protection Agency's Standards of Performance for Crude Oil and Natural Gas Production, Transmission, and Distribution (also known as NSPS Quad O) with corresponding complementary control measures. The control measures set forth requirements for identifying and repairing leaks, undertaking record keeping, and submitting reports. The revisions also include the first ever regulation of methane emissions from the industry. In collaboration with the Environmental Defense Fund and other oil and gas operators, we provided testimony and evidence to the Commission in support of the adopted revisions. The adopted revised regulations were published in the Colorado Register on March 25, 2014, Volume 37, No. 6, and are effective as of April 14, 2014. Copies of these regulations are available at http://www.sos.state.co.us/CCR. We do not currently believe costs incurred to implement these regulations will be material to our earnings or cash flows.
Sales Volumes
The execution of our strategy has delivered a diversified production growth most recently due to our Tamar natural gas field and Alen condensate project coming online in 2013 along with accelerated activity in onshore US unconventional developments. On a BOE basis, total sales volumes were 3% higher for the third quarter of 2014 as compared with the third quarter of 2013, and our mix of sales volumes was 43% global liquids, 27% international natural gas, and 30% US natural gas. Increases in onshore US sales were offset by the impacts of the DJ Basin acreage exchange in fourth quarter 2013 and recent divestments. See Results of Operations – Revenues, below.
Commodity Price Changes
Average realized crude oil prices decreased 9% in the US and 8% in Equatorial Guinea for the third quarter of 2014 as compared with the third quarter of 2013. Average realized natural gas prices decreased 5% in the US and increased 10% in Israel for third quarter of 2014 as compared with the third quarter of 2013.
In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows, we have hedged approximately 65% of our expected global crude oil production and approximately 60% of our expected domestic natural gas production for the remainder of 2014.
Recently Issued Accounting Standards
See Item 1. Financial Statements – Note 2. Basis of Presentation.
OPERATING OUTLOOK
2014 Production   Our expected crude oil, natural gas and NGL production for 2014 may be impacted by several factors including:
changes to drilling plans in the DJ Basin and the Marcellus Shale;
impact of potential pipeline and processing facility capacity constraints in the DJ Basin and Marcellus Shale;
Israeli demand for electricity, which affects demand for natural gas as fuel for power generation and industrial market growth, and which is impacted by unseasonable weather;
potential downtime at key assets including: Galapagos and Swordfish, deepwater Gulf of Mexico; Tamar, offshore Israel; and Aseng and Alen, offshore Equatorial Guinea;
natural field decline in the deepwater Gulf of Mexico and the Alba and Aseng fields offshore Equatorial Guinea; and
potential weather-related volume curtailments such as severely cold weather in the DJ Basin and Marcellus Shale, which can shut-in or reduce production.
2014 Capital Investment Program Total capital expenditures are estimated at $4.8 to $5.0 billion for 2014. We expect to invest approximately 70% of the program in onshore US development and approximately 30% of the program in global deepwater activities.

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The 2014 capital investment program is estimated to exceed operating cash flows and is expected to be funded from cash flows from operations, cash on hand, and borrowings under our Credit Facility and/or other financing. Funding may also be provided by proceeds from divestment of non-core assets or farm-out of working interests in exploration prospects. See Liquidity and Capital Resources – Financing Activities.
We will continue to evaluate the level of capital spending and remain flexible throughout the year. For further discussion, see Executive Overview – Update on Hydraulic Fracturing, above, regarding potential legislative or regulatory changes in the use of hydraulic fracturing, and Liquidity and Capital Resources – Contractual Obligations, below, regarding the CONSOL Carried Cost Obligation.
Potential for Future Asset Impairment, Dry Hole or Lease Abandonment Expense
Exploration Activities We have an active exploratory drilling program. In the event we conclude that an exploratory well did not encounter hydrocarbons or that a discovery is not economically or operationally viable, the associated capitalized exploratory well costs would be charged to expense. For example, we are in the process of conducting exploration activities in several onshore US areas, such as the Permian Basin area of West Texas. If we conclude that the prospect is not economically viable, costs incurred would be recorded as dry hole expense. The Permian Basin properties had a net book value of approximately $60 million at September 30, 2014.
During third quarter 2014, we drilled the Bright exploratory well in the deepwater Gulf of Mexico, which did not encounter hydrocarbons. Also, based on the results of recent seismic interpretation conducted on the Scotia exploratory well drilled in 2012, offshore Falkland Islands, we have concluded that the Scotia prospect is not economically viable. As such, the costs that we incurred on both Bright and Scotia prospects have been recorded as dry hole expense.
Additionally, we may not conduct exploration activities prior to lease expirations. For example, in the deepwater Gulf of Mexico, while we continue to mature our prospect portfolio, regulations have become more stringent due to the Deepwater Horizon incident in 2010. In some instances, specifically engineered blowout preventers, rigs, and completion equipment may be required for high pressure environments. Regulatory requirements or lack of readily available equipment could prevent us from engaging in future exploration activities during our current lease terms.
One particular deepwater Gulf of Mexico lease, which we acquired under regulations in effect prior to the Deepwater Gulf of Mexico Moratorium, expired on July 31, 2014. We have been working to mature this prospect by conducting various activities, including the licensing and processing of 3D seismic data and interpretation of geophysical information, which have resulted in the identification of a potential subsalt hydrocarbon-bearing formation below 25,000 feet. Our lease maturation activity of the sub-25,000 foot subsalt objective should satisfy the requirements needed to be granted an extension of the lease term for a period sufficient to complete the lease maturation and to commit to drilling a well to evaluate the prospect. Accordingly, we submitted an application to the Bureau of Safety and Environmental Enforcement (BSEE) on July 7, 2014 justifying and requesting a suspension of operations (SOO) for the lease and, at BSEE’s request, submitted additional information in September 2014. An approved SOO will allow us to continue to process the subsalt image and to initiate efforts to establish a multi-company partnership to mature the prospect and design an appropriate well to drill and evaluate the prospect with a targeted spud date in 2017. We believe we have satisfied the requirements for the SOO and expect that a favorable decision from BSEE will be forthcoming. However, there is no certainty a lease extension will be formally approved by BSEE. The lease had a net book value of approximately $41 million at September 30, 2014. If BSEE denies our application for the lease SOO and extension, we will write off the book value of the lease to exploration expense.
Producing Properties Commodity prices remain volatile. A decline in future crude oil or natural gas prices could result in impairment charges. The cash flow model that we use to assess proved properties for impairment includes numerous assumptions, such as management’s estimates of future oil and gas production along with operating and development costs, market outlook on forward commodity prices, and interest rates. All inputs to the cash flow model must be evaluated at each date of estimate. However, a decrease in forward crude oil or natural gas prices alone could result in an impairment.
Occasionally, well mechanical problems arise, which can reduce production and potentially result in reductions in proved reserves estimates. For example, our South Raton development in the deepwater Gulf of Mexico was shut-in due to mechanical issues. The well was brought back online at the end of third quarter 2014 and, as part of our remediation plan, was granted a 180 day SOO to conduct remediation activities. No impairment is currently indicated; however, we will monitor production and reserves and continue to assess the field for possible impairment. South Raton had a net book value of $123 million at September 30, 2014.
In addition, well decommissioning programs, especially in deepwater or remote locations, are often complex and expensive. It may be difficult to estimate timing of actual abandonment activities, which are subject to regulatory approval and the availability of rigs and services. It may be difficult to estimate costs as rigs and services become more expensive in periods of higher demand. Therefore, our ARO estimates may change, sometimes significantly, and could result in asset impairment.

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Divestments We are currently marketing certain non-core onshore US properties. If properties are reclassified as assets held for sale in the future, they will be valued at the lower of net book value or anticipated sales proceeds less costs to sell. Impairment expense would be recorded for any excess of net book value over anticipated sales proceeds less costs to sell. In addition, we would allocate a portion of goodwill to any non-core onshore US property held for sale that constitutes a business, which could potentially decrease any gain or increase any loss recorded on the sale.
For example, in September 2014, we signed a purchase and sale agreement related to our non-core onshore US properties in the Piceance Basin of western Colorado. These properties were reclassified as held for sale at September 30, 2014 and recorded at anticipated sales proceeds less costs to sell, which resulted in an impairment charge of $31 million. See Note 3. Divestitures, Note 4. Asset Impairments and Note 7. Fair Value Measurements and Disclosures
In addition, certain assets offshore Israel were classified as held for sale at September 30, 2014. No impairments are indicated at this time. However, failure to achieve acceptable sale terms or delays in closing sales of these properties could result in impairment and/or loss on sale.


RESULTS OF OPERATIONS
In the discussion below, the North Sea geographical segment is reflected as discontinued operations for the first nine months of 2013. During first quarter 2014, the remaining unsold North Sea assets were reclassified to held and used, and their operations are included in continuing operations for 2014. See also Discontinued Operations, below.
Revenues
Revenues were as follows:
 
 
 
 
 
Increase/(Decrease)
from Prior Year
(millions)
2014
 
2013
 
Three Months Ended September 30,
 
 
 
 
 
Oil, Gas and NGL Sales
$
1,228

 
$
1,341

 
(8
)%
Income from Equity Method Investees
41

 
53

 
(23
)%
Total
$
1,269

 
$
1,394

 
(9
)%
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
Oil, Gas and NGL Sales
$
3,893

 
$
3,537

 
10
 %
Income from Equity Method Investees
138

 
150

 
(8
)%
Total
$
4,031

 
$
3,687

 
9
 %
Changes in revenues are discussed below.
Oil, Gas and NGL Sales 
We generally sell crude oil, natural gas, and NGLs under two types of agreements, which are common in our industry. Both types of agreements may include transportation charges. One type of agreement is a netback agreement, under which we sell crude oil and natural gas at the wellhead and receive a price, net of transportation expense incurred by the purchaser. In this case, we record crude oil and natural gas revenue at the net price we received from the purchaser. In the case of NGLs, we may receive a price from the purchaser, which is net of processing costs. In this case, we record NGL revenue at the net price we receive from the purchaser. The second type of agreement is one whereby we pay transportation expense directly. In that case, transportation expense is included within production expense in our consolidated statements of operations.
In addition, commodity prices we receive may be reduced by location basis differentials, which can be significant. As a result of both netback agreements and location basis differentials, our reported sales prices may differ significantly from published commodity price benchmarks for the same period.

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Table of Contents

Average daily sales volumes and average realized sales prices were as follows:
 
Sales Volumes
 
Average Realized Sales Prices
 
Crude Oil & Condensate
(MBbl/d)
 
Natural
Gas
(MMcf/d)
 
NGLs
(MBbl/d)
 
Total
(MBoe/d) (1)
 
Crude Oil & Condensate
(Per Bbl)
 
Natural
Gas
(Per Mcf)
 
NGLs
(Per Bbl)
Three Months Ended September 30, 2014
United States
67

 
538

 
25

 
182

 
$
94.21

 
$
3.41

 
$
29.53

Equatorial Guinea (2)
29

 
233

 

 
68

 
98.63

 
0.27

 

Israel

 
262

 

 
44

 

 
5.59

 

Other International (3)

 

 

 

 

 

 

Total Consolidated Operations
96

 
1,033

 
25

 
294

 
95.55

 
3.26

 
29.53

Equity Investees (4)
2

 

 
6

 
8

 
102.02

 

 
62.24

Total Continuing Operations
98

 
1,033

 
31

 
302

 
$
95.64

 
$
3.26

 
$
35.85

Three Months Ended September 30, 2013
United States
64

 
489

 
13

 
159

 
$
103.59

 
$
3.57

 
$
31.26

Equatorial Guinea (2)
37

 
257

 

 
80

 
107.67

 
0.27

 

Israel

 
255

 

 
43

 

 
5.08

 

Other International (3)
4

 

 

 
4

 
101.58

 

 

Total Consolidated Operations
105

 
1,001

 
13

 
286

 
104.95

 
3.11

 
31.26

Equity Investees (4)
2

 

 
6

 
7

 
104.45

 

 
64.74

Total Continuing Operations
107

 
1,001

 
19

 
293

 
$
104.94

 
$
3.11

 
$
41.34

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
United States
66

 
497

 
22

 
171

 
$
96.84

 
$
4.12

 
$
35.39

Equatorial Guinea (2)
32

 
241

 

 
72

 
104.38

 
0.27

 

Israel

 
233

 

 
39

 

 
5.59

 

Other International (3)
3

 

 

 
3

 
104.47

 

 

Total Consolidated Operations
101

 
971

 
22

 
285

 
99.48

 
3.52

 
35.39

Equity Investees (4)
2

 

 
6

 
7

 
105.15

 

 
67.06

Total Continuing Operations
103

 
971


28

 
292

 
$
99.58

 
$
3.52

 
$
47.96

Nine Months Ended September 30, 2013
United States
61

 
434

 
15

 
148

 
$
98.03

 
$
3.64

 
$
33.60

Equatorial Guinea (2)
31

 
251

 

 
73

 
106.78

 
0.27

 

Israel

 
196

 

 
33

 

 
5.03

 

Other International (3)
4

 

 

 
4

 
103.00

 

 

Total Consolidated Operations
96

 
881

 
15

 
258

 
101.08

 
3.00

 
33.60

Equity Investees (4)
2

 

 
6

 
8

 
105.03

 

 
67.59

Total Continuing Operations
98

 
881

 
21

 
266

 
$
101.15

 
$
3.00

 
$
43.18

(1) 
Natural gas is converted on the basis of six Mcf of gas per one barrel of crude oil equivalent. This ratio reflects an energy content equivalency and not a price or revenue equivalency. Given commodity price disparities, the price for a barrel of crude oil equivalent for natural gas is significantly less than the price for a barrel of crude oil. The price for a barrel of NGL is also less than the price for a barrel of crude oil.

30

Table of Contents

(2) 
Natural gas from the Alba field in Equatorial Guinea is under contract for $0.25 per MMBtu to a methanol plant, an LPG plant, an LNG plant and a power generation plant. The methanol and LPG plants are owned by affiliated entities accounted for under the equity method of accounting.
(3) 
Other International includes primarily China (through June 30, 2014). North Sea sales volumes for 2014 were de minimis.
(4) 
Volumes represent sales of condensate and LPG from the Alba plant in Equatorial Guinea. See Income from Equity Method Investees, below.
An analysis of revenues from sales of crude oil, natural gas and NGLs is as follows:
 
Sales Revenues
(millions)
Crude Oil & Condensate
 
Natural
Gas
 
NGLs
 
Total
Three Months Ended September 30, 2013
$
1,017

 
$
286

 
$
38

 
$
1,341

Changes due to
 

 
 

 
 

 
 

Increase (Decrease) in Sales Volumes
(85
)
 
9

 
35

 
(41
)
Increase (Decrease) in Sales Prices
(83
)
 
15

 
(4
)
 
(72
)
Three Months Ended September 30, 2014
$
849

 
$
310

 
$
69

 
$
1,228

 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2013
$
2,683

 
$
719

 
$
135

 
$
3,537

Changes due to
 

 
 
 
 

 
 

Increase in Sales Volumes
109

 
73

 
68

 
250

Increase (Decrease) in Sales Prices
(44
)
 
140

 
10

 
106

Nine Months Ended September 30, 2014
$
2,748

 
$
932

 
$
213

 
$
3,893

Crude Oil and Condensate Sales – Revenues from crude oil and condensate sales decreased during third quarter of 2014 as compared with 2013 due to the following:
lower realized prices for crude oil and condensate in the DJ Basin, deepwater Gulf of Mexico, and West Africa;
lower sales volumes from the Aseng project, offshore Equatorial Guinea, due to natural production declines;
lower sales volumes due to the timing of liftings in offshore Equatorial Guinea; and
lower sales volumes due to the sale of our China assets at the end of second quarter 2014;
partially offset by:
higher sales volumes for crude oil and condensate in the DJ Basin and Marcellus Shale.
Revenues from crude oil and condensate sales increased during first nine months of 2014 as compared with 2013 due to the following:
higher sales volumes in the DJ Basin and Marcellus Shale attributable to our horizontal drilling program;
partially offset by:
lower realized prices for crude oil and condensate in the deepwater Gulf of Mexico; and
lower sales volumes due to the sale of our China assets at the end of the second quarter of 2014.
Natural Gas Sales – Revenues from natural gas sales increased during the third quarter and first nine months of 2014 as compared with 2013 due to the following:
higher sales volumes in the Marcellus Shale primarily attributable to our horizontal drilling program and continued ramp-up of activity;
higher sales volumes in the Eastern Mediterranean due to the start-up of the Tamar project; and
increases in total consolidated average realized prices primarily due to increased demand from cooler weather earlier in 2014 and higher-than-expected inventory withdrawals in the US, which increased the market price in our producing areas;
partially offset by:
lower sales volumes due to non-core onshore US properties divested during 2013 and the first nine months of 2014.
NGL Sales – The majority of our US NGL production is currently from the DJ Basin. Additional NGL production from the Marcellus Shale added 5 MBbl/d during third quarter 2014 and 3 MBbl/d during the first nine months of 2014 as compared with 2013, primarily due to increased production from the wet gas acreage. NGL sales in the DJ Basin increased by 7 MBbl/d during the third quarter of 2014 as compared with 2013, while recent sales of non-core onshore US properties have slightly reduced sales volumes as compared with third quarter 2013. Additionally, sales prices increased 5% for the first nine months of 2014, compared to the first nine months of 2013.

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Table of Contents

Income from Equity Method Investees  We have interests in various equity method investees that operate midstream assets onshore US and West Africa. Equity method investments are included in other noncurrent assets in our consolidated balance sheets, and our share of earnings is reported as income from equity method investees in our consolidated statements of operations. Within our consolidated statements of cash flows, activity is reflected within cash flows provided by operating activities and cash flows provided by (used in) investing activities.

Operating Costs and Expenses
Operating costs and expenses were as follows:
 
 
 
 
 
Increase (Decrease)
from Prior Year
(millions)
2014
 
2013
 
Three Months Ended September 30,
 
 
 
 
 
Production Expense
$
217

 
$
221

 
(2
)%
Exploration Expense
217

 
60

 
N/M

Depreciation, Depletion and Amortization
460

 
412

 
12
 %
General and Administrative
132

 
109

 
21
 %
Gain on Divestitures
(30
)
 

 
 %
Asset Impairments
33

 
63

 
(48
)%
Other Operating (Income) Expense, Net
10

 
6

 
67
 %
Total
$
1,039

 
$
871

 
19
 %
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
 
 
 
Production Expense
$
697

 
$
619

 
13
 %
Exploration Expense
350

 
211

 
66
 %
Depreciation, Depletion and Amortization
1,297

 
1,146

 
13
 %
General and Administrative
399

 
324

 
23
 %
Gain on Divestitures
(72
)
 
(12
)
 
N/M

Asset Impairments
164

 
63

 
N/M

Other Operating (Income) Expense, Net
33

 
27

 
23
 %
Total
$
2,868

 
$
2,378

 
21
 %
N/M – Amount is not meaningful.
Changes in operating costs and expenses are discussed below.

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Table of Contents

Production Expense   Components of production expense were as follows:
(millions, except unit rate)
Total per BOE (1)
 
Total
 
United
States
 
Equatorial Guinea
 
Israel
 
Other Int'l,
Corporate (2)
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Lease Operating Expense (3)
$
4.91

 
$
133

 
$
79

 
$
34

 
$
13

 
$
7

Production and Ad Valorem Taxes
1.64

 
44

 
44

 

 

 

Transportation and Gathering Expense
1.48

 
40

 
40

 

 

 

Total Production Expense
$
8.03

 
$
217

 
$
163

 
$
34

 
$
13

 
$
7

Three Months Ended September 30, 2013
 

 
 

 
 

 
 

 
 

 
 

Lease Operating Expense (3)
$
5.21

 
$
137

 
$
81

 
$
30

 
$
13

 
$
13

Production and Ad Valorem Taxes
1.94

 
51

 
43

 

 

 
8

Transportation and Gathering Expense
1.26

 
33

 
32

 

 

 
1

Total Production Expense
$
8.41

 
$
221

 
$
156

 
$
30

 
$
13

 
$
22

 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Lease Operating Expense (3)
$
5.55

 
$
432

 
$
255

 
$
101

 
$
39

 
$
37

Production and Ad Valorem Taxes
1.88

 
146

 
129

 

 

 
17

Transportation and Gathering Expense
1.54

 
119

 
118

 

 

 
1

Total Production Expense
$
8.97

 
$
697

 
$
502

 
$
101

 
$
39

 
$
55

Nine Months Ended September 30, 2013
 

 
 

 
 

 
 

 
 

 
 

Lease Operating Expense (3)
$
5.56

 
$
393

 
$
260

 
$
77

 
$
33

 
$
23

Production and Ad Valorem Taxes
1.94

 
137

 
112

 

 

 
25

Transportation and Gathering Expense
1.26

 
89

 
86

 

 

 
3

Total Production Expense
$
8.76

 
$
619

 
$
458

 
$
77

 
$
33

 
$
51

(1) 
Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.
(2) 
Other International includes primarily China (through June 30, 2014).
(3) 
Lease operating expense includes oil and gas operating costs (labor, fuel, repairs, replacements, saltwater disposal and other related lifting costs) and workover expense.

For the third quarter 2014, total production expense decreased as compared with 2013 due to the following:
decreased lease operating expense in the deepwater Gulf of Mexico due to lower net processing costs resulting from the Neptune spar, which we acquired in the second half 2013;
decreased lease operating expense from the sale of our China assets at the end of the second quarter 2014; and
decreased production and ad valorem taxes due to decreased revenues resulting from the sale of our China assets at the end of the second quarter 2014.
partially offset by:
increased lease operating expense in the DJ Basin due to increased development activity and higher production
For the first nine months of 2014, total production expense increased as compared with 2013 due to the following:
increased lease operating expense in the DJ Basin and Marcellus Shale due to increased development activity resulting in higher production;
increased lease operating expense offshore Equatorial Guinea primarily driven by increases in labor and FPSO expense resulting from the start up of the Alen field during the second half of 2013;
increased lease operating expense offshore Israel primarily driven by increases in labor due to the start up of the Tamar field, which began producing at the end of first quarter 2013;
increased production and ad valorem taxes in the DJ Basin and Marcellus Shale due to increased revenues resulting from higher production volumes and higher average realized prices; and
increased transportation and gathering expense in the DJ Basin and Marcellus Shale due to higher production volumes from ongoing development activities;
partially offset by:
decreased lease operating expense from sales of non-core onshore US properties in 2013;
decreased lease operating expense from the sale of our China assets at the end of the second quarter of 2014; and
decreased lease operating expense from natural field decline from the Mari-B field, offshore Israel.

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Table of Contents



Exploration Expense   Components of exploration expense were as follows:
(millions)
Total
 
United
States
 
West
  Africa (1)
 
Eastern
Mediter-
ranean (2)
 
Other Int'l,
Corporate (3)
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Dry Hole Cost
$
161

 
$
79

 
$

 
$

 
$
82

Seismic
22

 
4

 
12

 
1

 
5

Staff Expense
22

 
4

 
2

 
4

 
12

Other
12

 
12

 

 

 

Total Exploration Expense
$
217

 
$
99

 
$
14

 
$
5

 
$
99

Three Months Ended September 30, 2013
 
 

 
 

 
 

 
 

Dry Hole Cost
$
(1
)
 
$
(1
)
 
$

 
$

 
$

Seismic
16

 
7

 
1

 
7

 
1

Staff Expense
33

 
11

 
2

 
2

 
18

Other
12

 
11

 

 

 
1

Total Exploration Expense
$
60

 
$
28

 
$
3

 
$
9

 
$
20

 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
Dry Hole Cost
$
163

 
$
81

 
$

 
$

 
$
82

Seismic
54

 
19

 
12

 
3

 
20

Staff Expense
90

 
22

 
6

 
9

 
53

Other
43

 
43

 

 

 

Total Exploration Expense
$
350

 
$
165

 
$
18

 
$
12

 
$
155

Nine Months Ended September 30, 2013
 
 

 
 

 
 

 
 

Dry Hole Cost
$
22

 
$
14

 
$
8

 
$

 
$

Seismic
66

 
20

 
3

 
13

 
30

Staff Expense
91

 
23

 
6

 
3

 
59

Other
32

 
32

 

 

 

Total Exploration Expense
$
211

 
$
89

 
$
17

 
$
16

 
$
89

(1) 
West Africa includes Equatorial Guinea, Cameroon, Sierra Leone, and Gabon.
(2) 
Eastern Mediterranean includes Israel and Cyprus.
(3) 
Other International includes the Falkland Islands and Nicaragua.
Exploration expense for the third quarter and first nine months of 2014 included:
seismic expense related to 3D seismic acquisition in the deepwater Gulf of Mexico, Equatorial Guinea, and Falkland Islands;
dry hole cost related to the Bright exploratory well, deepwater Gulf of Mexico, the Scotia exploratory well, offshore Falkland Islands, and other miscellaneous charges; and
salaries and related expenses for corporate exploration and new ventures personnel.
Exploration expense for the third quarter and first nine months of 2013 included the following:
dry hole cost related primarily to the deeper exploration objective of the second Gunflint appraisal well, deepwater Gulf of Mexico, and the side track portion of the Carla I-7 appraisal well, offshore Equatorial Guinea;
seismic expense related to 3D seismic acquisition in the deepwater Gulf of Mexico, Cyprus, and Falkland Islands; and
salaries and related expenses for corporate exploration and new ventures personnel.

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Table of Contents

Depreciation, Depletion and Amortization   DD&A expense was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
DD&A Expense (millions) (1)
$
460

 
$
412

 
$
1,297

 
$
1,146

Unit Rate per BOE (2)
$
16.98

 
$
15.67

 
$
16.67

 
$
16.22

(1) 
For DD&A expense by geographical area, see Item 1. Financial Statements – Note 12. Segment Information.
(2) 
Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.
Total DD&A expense for the third quarter and first nine months of 2014 increased as compared with 2013 due to the following:
increase in the DJ Basin and the Marcellus Shale due to higher sales volumes associated with increased development activity;
increase in the deepwater Gulf of Mexico due to a new well producing at Ticonderoga and the addition of the Neptune spar at Swordfish;
increase offshore Equatorial Guinea primarily due to the start up of the Alen field in the second half of 2013; and
increase offshore Israel due to the start up of the Tamar field at the end of first quarter 2013;
partially offset by:
decrease due to sales of non-core onshore US properties in 2013; and
decrease from natural field decline at the Mari-B, Noa and Pinnacles fields, offshore Israel.
The increase in the unit rate per BOE for the third quarter and first nine months of 2014 as compared with 2013 was due primarily to the change in mix of production. Higher-cost production volumes in the deepwater Gulf of Mexico and DJ Basin were offset by lower cost volumes produced at Tamar, offshore Israel. Lower cost volumes at Tamar replaced higher cost volumes produced from the Mari-B, Noa and Pinnacles fields.
General and Administrative Expense   General and administrative expense (G&A) was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
G&A Expense (millions)
$
132

 
$
109

 
$
399

 
$
324

Unit Rate per BOE (1)
$
4.89

 
$
4.14

 
$
5.12

 
$
4.59

(1) 
Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.
G&A expense for the third quarter and first nine months of 2014 increased as compared with 2013 primarily due to additional expenses relating to personnel and office space in support of our major development projects. For example, our total number of employees increased from 2,190 at December 31, 2012, to 2,527 at December 31, 2013 and to over 2,600 at September 30, 2014.
Asset Impairment Expense Asset impairment expense was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
Asset Impairments
$
33

 
$
63

 
$
164

 
$
63

See Item 1. Financial Statements – Note 2. Basis of Presentation, Note 4. Asset Impairments and Note 7. Fair Value Measurements and Disclosures.

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Table of Contents

Other (Income) Expense
Other (income) expense was as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(millions)
2014
 
2013
 
2014
 
2013
(Gain) Loss on Commodity Derivative Instruments
$
(385
)
 
$
157

 
$
(74
)
 
$
69

Interest, Net of Amount Capitalized
52

 
46

 
151

 
104

Other Non-Operating (Income) Expense, Net
(13
)
 
9

 
1

 
21

Total
$
(346
)
 
$
212

 
$
78

 
$
194

(Gain) Loss on Commodity Derivative Instruments   (Gain) Loss on commodity derivative instruments is a result of mark-to-market accounting. Many factors impact a gain or loss on commodity derivative instruments including: increases and decreases in the commodity forward price curves compared to the terms of our executed commodity instruments; increases in notional volumes; and the mix of instruments between NYMEX WTI, Dated Brent and NYMEX Henry Hub commodities.  See Item 1. Financial Statements – Note 5. Derivative Instruments and Hedging Activities and Note 7. Fair Value Measurements and Disclosures.
Interest Expense and Capitalized Interest   Interest expense and capitalized interest were as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
(millions, except unit rate)
 
 
 
 
 
 
 
Interest Expense, Gross
$
79

 
$
68

 
$
238

 
$
204

Capitalized Interest
(27
)
 
(22
)
 
(87
)
 
(100
)
Interest Expense, Net
$
52

 
$
46

 
$
151

 
$
104

Unit Rate per BOE (1)
$
1.93

 
$
1.74

 
$
1.94

 
$
1.47

(1) Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.
The increase in interest expense, gross, for third quarter and first nine months of 2014 is due to the issuance of new senior debt in November 2013 and recent borrowings under our Credit Facility.
The increase in capitalized interest during third quarter of 2014 as compared with 2013 is primarily due to higher work in progress amounts related to major long-term projects in the deepwater Gulf of Mexico, offshore West Africa, and offshore Israel. This increase is partially offset by the completion of longer cycle time major projects, such as Alen, offshore West Africa, and Tamar, offshore Israel, and the current concentration of development activity onshore US, which has more rapid well construction time.
The decrease in capitalized interest for the nine months ended September 30, 2014 is primarily due to the completion of longer cycle time major projects in 2013, such as Alen, offshore West Africa, and Tamar, offshore Israel, and the current concentration of development activity onshore US, which has more rapid well construction time.
Income Tax Provision
See Item 1. Financial Statements – Note 11. Income Taxes for a discussion of the change in our effective tax rate for the third quarter and first nine months of 2014 as compared with 2013.

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Table of Contents

Discontinued Operations
The North Sea geographical segment is reflected as discontinued operations for the first nine months of 2013. During first quarter 2014, the remaining unsold North Sea assets were reclassified to held and used, and their operations are included in continuing operations for 2014.
Summarized results of discontinued operations were as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2013
 
 
2013
(millions)
 
 
 
 
 
Oil and Gas Sales
 
$
11

 
 
$
32

Expenses
 
4

 
 
22

Income Before Income Taxes
 
7

 
 
10

Income Tax Expense
 
(3
)
 
 
7

Operating (Income) Loss, Net of Tax
 
10

 
 
3

Gain on Sale, Net of Tax
 

 
 
55

Income From Discontinued Operations
 
$
10

 
 
$
58

 
 
 
 
 
 
Key Statistics:
 
 
 
 
 
Daily Production
 
 
 
 
 
Crude Oil & Condensate (MBbl/d)
 
1

 
 
1

Natural Gas (MMcf/d)
 
3

 
 
3

Average Realized Price
 
 
 
 
 
Crude Oil & Condensate (Per Bbl)
 
$
110.13

 
 
$
108.51

Natural Gas (Per Mcf)
 
10.49

 
 
10.59

Our long-term debt is recorded at the consolidated level and is not reflected by each component. Thus, we have not allocated interest expense to discontinued operations. See Item 1. Financial Statements – Note 3. Divestitures.

LIQUIDITY AND CAPITAL RESOURCES
Capital Structure/Financing Strategy
In seeking to effectively fund and monetize our discovered hydrocarbons, we employ a capital structure and financing strategy designed to provide sufficient liquidity throughout the volatile commodity price cycle.  Specifically, we strive to retain the ability to fund long cycle, multi-year, capital intensive development projects throughout a range of scenarios, while also funding a robust exploration program and maintaining capacity to capitalize on financially attractive periodic mergers and acquisitions activity.
We endeavor to maintain an investment grade debt rating in service of these objectives, while delivering competitive returns and a growing dividend.  We utilize a commodity price hedging program to reduce the impacts of commodity price volatility and enhance the predictability of cash flows along with a risk and insurance program to protect against disruption to our cash flows and the funding of our business.
We strive to maintain a minimum liquidity level to address volatility and risk. Traditional sources of our liquidity are cash flows from operations, cash on hand, available borrowing capacity under our Credit Facility, and proceeds from sales of non-core properties.
On September 24, 2014, our equity method investee, CONE Gathering, contributed substantially all of its assets to a newly-formed master limited partnership, CONE Midstream, concurrently with an initial public offering of limited partner units. CONE Gathering subsequently distributed $204 million of the offering proceeds to us.
We may also access the capital markets to ensure adequate liquidity exists in the form of unutilized capacity under our Credit Facility or to refinance scheduled debt maturities. During third quarter 2014, we borrowed a net $300 million under our Credit Facility. See Item 1. Financial Statements – Note 6. Debt and Credit Facility, below.
Expanded development in the DJ Basin and Marcellus Shale, investment in our recently sanctioned major development projects, and our planned exploration and appraisal drilling activities are estimated to result in near term capital expenditures exceeding cash flows from operating activities. The extent to which capital investment will exceed operating cash flows depends on our success in sanctioning future development projects, the results of our exploration activities, and new business

37

Table of Contents

opportunities as well as external factors such as commodity prices, among others. Our financial capacity, coupled with our diversified portfolio, provides us with flexibility in our investment decisions including execution of our major development projects and increased exploration activity.
To support our investment program, we expect that higher production resulting from our core onshore US development programs combined with new production from Tamar, which began producing in late first quarter 2013, and Alen, which began producing in late second quarter 2013, will result in an increase in cash flows which will be available to meet a substantial portion of future capital commitments. See Results of Operations above.
Cash on hand at September 30, 2014 totaled $1.2 billion, and includes both domestic and foreign cash. We consider repatriating foreign cash to increase our financial flexibility and fund our capital investment program to the extent such cash is not required to fund foreign investment projects and would not incur material US tax. During the first nine months of 2014, we repatriated $519 million from our UK operations and $300 million from various other foreign operations. We will not incur material US tax on these repatriations.
We also evaluate potential strategic farm-out arrangements of our working interests for reimbursement of our capital spending. In addition, our current liquidity level and balance sheet, along with our ability to access the capital markets, provide flexibility. We believe that we are well-positioned to fund our long-term growth plans.
We are currently evaluating potential development and/or financing scenarios for our significant natural gas discoveries offshore Eastern Mediterranean. The magnitude of these discoveries presents technical and financial challenges for us due to the large-scale development requirements. Each of these development options, including the development of Leviathan Phase 1, would require a multi-billion dollar investment and require a number of years to complete.
Pension Plan Termination We are in the process of terminating our defined benefit pension plan (pension plan). We expect to liquidate the associated pension obligation through lump-sum payments to participants or the purchase of annuities on their behalf.
As of December 31, 2013, the latest actuarial measurement date for the pension plan, the accumulated benefit obligation totaled $315 million, and the fair value of plan assets was $265 million. Therefore, we expect to make additional contributions to the plan of approximately $50 million during the period leading up to final termination and distribution to the extent necessary to fund the net obligation.
In addition, upon termination of the pension plan, all unamortized prior service cost and net actuarial loss remaining in AOCL will be charged to expense. This amount totaled approximately $95 million as of September 30, 2014. We expect pension plan termination to occur in the first half of 2015.
In coordination with the termination of the pension plan, we also amended our restoration plan to freeze the accrual of benefits effective December 31, 2013. Payments under the restoration plan will continue to be made in ordinary course without acceleration. Restoration plan participants who remain employed by us upon final liquidation and distribution of assets of the pension plan may elect to have the lump sum present value of their restoration plan benefits converted into an account balance under our nonqualified deferred compensation plan.
Available Liquidity    Information regarding cash and debt balances is as follows:
 
September 30,
 
December 31,
 
2014
 
2013
(millions, except percentages)
 
 
 
Cash and Cash Equivalents
$
1,169

 
$
1,117

Amount Available to be Borrowed Under Credit Facility (1)
3,100

 
4,000

Total Liquidity
$
4,269

 
$
5,117

Total Debt (2)
$
5,583

 
$
4,843

Total Shareholders' Equity
9,938

 
9,184

Ratio of Debt-to-Book Capital (3)
36
%
 
35
%
(1) 
See Credit Facility, below.
(2) 
Total debt includes capital lease and other obligations and excludes unamortized debt discount.
(3) 
We define our ratio of debt-to-book capital as total debt (which includes long-term debt excluding unamortized discount, the current portion of long-term debt, and short-term borrowings) divided by the sum of total debt plus shareholders’ equity.
Cash and Cash Equivalents   We had approximately $1.2 billion in cash and cash equivalents at September 30, 2014, primarily denominated in US dollars and invested in money market funds and short-term deposits with major financial institutions. Approximately $862 million of this cash is attributable to our foreign subsidiaries and a portion would be subject to US income taxes if repatriated.

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Credit Facility   Our Credit Facility matures on October 3, 2018. The commitment is $4.0 billion through the maturity date of the Credit Facility. As of September 30, 2014, we had drawn $900 million under the Credit Facility to fund increased development activities. The weighted average interest rate on the borrowings was 1.43% at September 30, 2014. Borrowings under our Credit Facility subject us to interest rate risk. See Item 1. Financial Statements –Note 6. Debt and Item 3. Quantitative and Qualitative Disclosures.
Commodity Derivative Instruments   We use various derivative instruments in connection with anticipated crude oil and natural gas sales to minimize the impact of product price fluctuations and ensure cash flow for future capital needs. Such instruments may include variable to fixed price commodity swaps, two-way collars, and/or three-way collars.
Current period settlements on commodity derivative instruments impact our liquidity, since we are either paying cash to, or receiving cash from, our counterparties. We net settle by counterparty based on netting provisions within the master agreements. None of our counterparty agreements contain margin requirements. 
Commodity derivative instruments are recorded at fair value in our consolidated balance sheets, and changes in fair value are recorded in earnings in the period in which the change occurs.  As of September 30, 2014, the fair value of our commodity derivative assets was $111 million and we had no derivative liabilities (after consideration of netting provisions within our master agreements).  See Item 1. Financial Statements –Note 7. Fair Value Measurements and Disclosures for a description of the methods we use to estimate the fair values of commodity derivative instruments and Credit Risk, below.
Credit Risk   We monitor the creditworthiness of our trade creditors, joint venture partners, hedging counterparties, and financial institutions on an ongoing basis. Some of these entities are not as creditworthy as we are and may experience credit downgrades or liquidity problems. Counterparty credit downgrades or liquidity problems could result in a delay in our receiving proceeds from commodity sales, reimbursement of joint venture costs, and potential delays in our major development projects. We are unable to predict sudden changes in a party's creditworthiness or ability to perform. Even if we do accurately predict such sudden changes, our ability to negate these risks may be limited and we could incur significant financial losses.
In addition, nonoperating partners often must obtain financing for their share of capital cost for development projects. A partner's inability to obtain financing could result in a delay of our joint development projects. For example, our Eastern Mediterranean partners must obtain financing for their share of significant development expenditures for Leviathan Phase 1.
Credit enhancements have been obtained from some parties in the form of parental guarantees, letters of credit or credit insurance; however, not all of our counterparty credit is protected through guarantees or credit support. Nonperformance by a trade creditor, joint venture partner, hedging counterparty or financial institution could result in significant financial losses.
Contractual Obligations
CONSOL Carried Cost Obligation  The CONSOL Carried Cost Obligation represents our agreement to fund up to approximately $2.1 billion of CONSOL’s future drilling and completion costs. The CONSOL Carried Cost Obligation is expected to extend over a multi-year period and is capped at $400 million in each calendar year. The obligation is suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and remain suspended until average Henry Hub natural gas prices equal or exceed $4.00 per MMBtu for three consecutive months. The carry terms ensure economic alignment with our partner in periods of low natural gas prices.
Due to past low natural gas prices, the CONSOL Carried Cost Obligation was suspended from the end of 2011 to February 28, 2014. We began funding a portion of CONSOL's working interest share of certain drilling and completion costs as of March 1, 2014.
Based on the September 30, 2014, NYMEX Henry Hub natural gas price curve and current development plans, we forecast we will incur approximately $185 million under the CONSOL Carried Cost Obligation for 2014. The carry will be suspended again if average Henry Hub natural gas prices remain at or below $4.00 per MMBtu in any future three consecutive month period.
Marcellus Shale Firm Transportation Agreements During 2014, we signed Precedent Agreements for Firm Transportation to move 445,000 MMBtu per day of our Marcellus Shale natural gas production to various markets. Our financial commitment is approximately $1.2 billion, undiscounted, over a 15-year period, beginning in 2017.

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Cash Flows
Cash flow information is as follows:
 
Nine Months Ended
September 30,
 
2014
 
2013
(millions)
 
 
 
Total Cash Provided By (Used in)
 
 
 
Operating Activities
$
2,703

 
$
2,153

Investing Activities
(3,175
)
 
(2,937
)
Financing Activities
524

 
335

Increase (Decrease) in Cash and Cash Equivalents
$
52

 
$
(449
)
Operating Activities   Net cash provided by operating activities for the first nine months of 2014 increased as compared with 2013. Slight increases in natural gas and natural gas liquids sales prices and an increase in crude oil and natural gas sales volumes were offset by decreases in crude oil sales prices, increases in production expenses and general and administrative expense. Working capital changes contributed $286 million of positive operating cash flow in the first nine months of 2014 as compared with a negative impact of $201 million in the first nine months of 2013.
Investing Activities   Our investing activities include capital spending on a cash basis for oil and gas properties and investments in unconsolidated subsidiaries accounted for by the equity method. These investing activities may be offset by proceeds from property sales or dispositions, including farm-in arrangements, which may result in reimbursement for capital spending that had occurred in prior periods. Capital spending for property, plant and equipment increased by $564 million during the first nine months of 2014 as compared with 2013, primarily due to increased major project development activity in our core areas. Investing activities included $156 million of the $204 million distribution from CONE Gathering, and we also invested $58 million in CONE Gathering, discussed below, during the first nine months of 2014. We received $312 million in proceeds from non-core asset divestitures during the first nine months of 2014, as compared with $119 million during the same period in 2013.
Financing Activities   Our financing activities include the issuance or repurchase of our common stock, payment of cash dividends on our common stock, the borrowing of cash and the repayment of borrowings. During the first nine months of 2014, funds were provided by cash proceeds from, and tax benefits related to, the exercise of stock options ($63 million) and net cash proceeds from our Credit Facility ($900 million). We used cash to pay dividends on our common stock ($182 million), to repay Senior Notes that were due April 15, 2014 ($200 million), make principal payments related to capital lease obligations ($42 million) and repurchase shares of our common stock ($15 million).
In comparison, during the first nine months of 2013, funds were provided by cash proceeds from, and tax benefits related to, the exercise of stock options ($54 million). We also used cash to pay dividends on our common stock ($146 million), make principal payments related to the Aseng FPSO capital lease obligation ($31 million) and repurchase shares of our common stock ($14 million).
See Item 1. Financial Statements – Consolidated Statements of Cash Flows.

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Investing Activities
Acquisition, Capital and Exploration Expenditures   Information for investing activities (on an accrual basis) is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
(millions)
 
 
 
 
 
 
 
Acquisition, Capital and Exploration Expenditures
 
 
 
 
 
 
 
Unproved Property Acquisition (1)
$
42

 
$
34

 
$
171

 
$
168

Exploration
191

 
275

 
419

 
660

Development (2)
1,056

 
795

 
2,792

 
2,169

Corporate and Other 
28

 
35

 
118

 
159

Total
$
1,317

 
$
1,139

 
$
3,500

 
$
3,156

 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
Investment in Equity Method Investee (3)
$
18

 
$
8

 
$
58

 
$
30

Increase in Capital Lease Obligations
60

 
18

 
81

 
54

(1) 
Unproved property acquisition cost for 2014 includes $55 million in the DJ Basin, $98 million in the Marcellus Shale, and $16 million in the deepwater Gulf of Mexico. Unproved property acquisition cost for 2013 were primarily related to acquisitions that strengthened our positions in the DJ Basin, Marcellus Shale, and deepwater Gulf of Mexico.
(2) 
Development expenditures for 2014 include drilling rig mobilization charges of $54 million, a portion of which is being billed to partners as the rig is utilized.
(3) 
Investment in equity method investees represents contributions to CONE Gathering which owns and operates the natural gas gathering infrastructure associated with our Marcellus Shale joint venture.

Total expenditures increased in 2014 as compared with 2013 due to accelerated activity in the DJ Basin and Marcellus Shale.
Financing Activities
Long-Term Debt   Our principal source of liquidity is our Credit Facility that matures October 3, 2018. At September 30, 2014, $900 million was outstanding under the Credit Facility, leaving $3.1 billion available for use. We expect to use the Credit Facility to fund our capital investment program, and may periodically borrow amounts for working capital purposes. See Item 1 Financial Statements – Note 6. Debt.
Our outstanding fixed-rate debt (excluding capital lease and other obligations) totaled approximately $4.3 billion at September 30, 2014. The weighted average interest rate on fixed-rate debt was 6.09%, with maturities ranging from March 2019 to August 2097. On April 15, 2014, we repaid $200 million of matured fixed rate debt.
Dividends   We paid total cash dividends of 50 cents per share of our common stock during the first nine months of 2014 and 41 cents per share during the first nine months of 2013 (as adjusted for the 2-for-1 stock split during the second quarter of 2013).
On October 21, 2014, the Board of Directors declared a quarterly cash dividend of 18 cents per common share, which will be paid on November 17, 2014 to shareholders of record on November 4, 2014. The amount of future dividends will be determined on a quarterly basis at the discretion of our Board of Directors and will depend on earnings, financial condition, capital requirements and other factors.
Exercise of Stock Options   We received cash proceeds from the exercise of stock options of $45 million during the first nine months of 2014 and $39 million during the first nine months of 2013.
Common Stock Repurchases   We receive shares of common stock from employees for the payment of withholding taxes due on the vesting of restricted shares issued under stock-based compensation plans. We received 253,094 shares with a value of $15 million during the first nine months of 2014 and 248,986 shares with a value of $14 million during the first nine months of 2013
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
Derivative Instruments Held for Non-Trading Purposes   We are exposed to market risk in the normal course of business operations, and the volatility of crude oil and natural gas prices continues to impact the oil and gas industry. Due to the volatility of crude oil and natural gas prices, we continue to use derivative instruments as a means of managing our exposure to price changes.

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At September 30, 2014, we had entered into variable to fixed price commodity swaps and three-way collars related to crude oil and natural gas sales. Changes in fair value of commodity derivative instruments are reported in earnings in the period in which they occur. Our open commodity derivative instruments were in a net asset position with a fair value of $111 million. Based on the September 30, 2014 published commodity futures price curves for the underlying commodities, a hypothetical price increase of $10.00 per Bbl for crude oil would decrease the fair value of our net commodity derivative asset by approximately $341 million. A hypothetical price increase of $0.50 per MMBtu for natural gas would decrease the fair value of our net commodity derivative asset by approximately $44 million.  Our derivative instruments are executed 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. See Item 1. Financial Statements – Note 5. Derivative Instruments and Hedging Activities.
Interest Rate Risk
Changes in interest rates affect the amount of interest we pay on borrowings under our Credit Facility and the amount of interest we earn on our short-term investments.
At September 30, 2014, we had approximately $5.2 billion (excluding capital lease and other obligations) of long-term debt outstanding. Of this amount, $4.3 billion was fixed-rate debt with a weighted average interest rate of 6.09%. Although near term changes in interest rates may affect the fair value of our fixed-rate debt, they do not expose us to the risk of earnings or cash flow loss.
The remainder of our long-term debt, $900 million at September 30, 2014, was variable-rate debt. Variable-rate debt exposes us to the risk of earnings or cash flow loss due to increases in market interest rates. We are also exposed to interest rate risk related to our interest-bearing cash and cash equivalents balances. As of September 30, 2014, our cash and cash equivalents totaled approximately $1.2 billion, approximately 66% of which was invested in money market funds and short-term investments with major financial institutions. A change in the interest rate applicable to our variable-rate debt or our short term investments would have a de minimis impact. We currently have no interest rate derivative instruments outstanding. However, we may enter into interest rate derivative instruments in the future if we determine that it is necessary to invest in such instruments in order to mitigate our interest rate risk.
Foreign Currency Risk
The US dollar is considered the functional currency for each of our international operations. Substantially all of our international crude oil, natural gas and NGL production is sold pursuant to US dollar denominated contracts. Transactions, such as operating costs and administrative expenses that are paid in a foreign currency, are remeasured into US dollars and recorded in the financial statements at prevailing currency exchange rates. Certain monetary assets and liabilities, such as taxes payable in foreign tax jurisdictions, are settled in the foreign local currency. A reduction in the value of the US dollar against currencies of other countries in which we have material operations could result in the use of additional cash to settle operating, administrative, and tax liabilities.
Net transaction gains and losses were de minimis for the third quarter and the first nine months of both 2014 and 2013.
We currently have no foreign currency derivative instruments outstanding. However, we may enter into foreign currency derivative instruments (such as forward contracts, costless collars or swap agreements) in the future if we determine that it is necessary to invest in such instruments in order to mitigate our foreign currency exchange risk.
Disclosure Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements give our current expectations or forecasts of future events. These forward-looking statements include, among others, the following:
our growth strategies;
our ability to successfully and economically explore for and develop crude oil and natural gas resources;
anticipated trends in our business;
our future results of operations;
our liquidity and ability to finance our exploration and development activities;
market conditions in the oil and gas industry;
our ability to make and integrate acquisitions;
the impact of governmental fiscal terms and/or regulation, such as those involving the protection of the environment or marketing of production, as well as other regulations; and
access to resources.
Forward-looking statements are typically identified by use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “intend,” and similar words, although some forward-looking statements may be expressed differently. These

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forward-looking statements are made based upon our current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. You should consider carefully the statements under Item 1A. Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2013, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.  Our Annual Report on Form 10-K for the year ended December 31, 2013 is available on our website at www.nobleenergyinc.com.

Item 4.     Controls and Procedures
Based on the evaluation of our disclosure controls and procedures by our principal executive officer and our principal financial officer, as of the end of the period covered by this quarterly report, each of them has concluded that our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, are effective. There were no changes in internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

43



Part II. Other Information
Item 1.    Legal Proceedings
West Virginia Matter In March 2013, we received seven Notices of Violation (NOV) and two Administrative Orders (Orders) from the West Virginia Department of Environmental Protection Office of Oil and Gas (OOG) regarding the unintentional discharge of a mixture of freshwater and produced water that occurred on or about the evening of February 22, 2013 from one of our permitted water storage facilities in Marshall County, West Virginia. In July 2014, we reached a resolution with OOG regarding the NOVs and Orders. The resolution of these proceedings did not have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A.    Risk Factors
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2013.


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds 
The following table sets forth, for the periods indicated, our share repurchase activity: 
Period
Total Number of
Shares
Purchased (1)
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
 
 
 
 
 
 
 
(in thousands)
7/1/2014 - 7/31/2014
533

 
$
71.83

 

 

8/1/2014 - 8/31/2014
1,492

 
70.03

 

 

9/1/2014 - 9/30/2014
710

 
70.99

 

 

Total
2,735

 
$
70.63

 

 

 
(1) 
Stock repurchases during the period related to common stock received by us from employees for the payment of withholding taxes due on shares of common stock issued under stock-based compensation plans.


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Item 3.    Defaults Upon Senior Securities
None.
 
Item 4.    Mine Safety Disclosures
Not applicable.
 
Item 5.    Other Information
None.

Item 6.    Exhibits
The information required by this Item 6 is set forth in the Index to Exhibits accompanying this quarterly report on Form 10-Q.

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Signatures
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
NOBLE ENERGY, INC.
 
 
 
 
(Registrant)
 
 
 
 
 
Date
 
October 28, 2014
 
/s/ Kenneth M. Fisher
 
 
 
 
Kenneth M. Fisher
Executive Vice President, Chief Financial Officer


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Index to Exhibits 

Exhibit Number
 
Exhibit
 
 
 
3.1
 
Certificate of Incorporation of the Registrant (as amended through April 23, 2013), filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.
 
 
 
3.2
 
By-Laws of Noble Energy, Inc. (as amended through April 23, 2013), filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.
 
 
 
10.1
 
Retention and Confidentiality Agreement between Noble Energy, Inc. and Charles D. Davidson dated August 14, 2014, filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K (Date of Event: August 14, 2014) filed August 18, 2014 and incorporated herein by reference. 
 
 
 
12.1
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Schema Document
 
 
 
101.CAL
 
XBRL Calculation Linkbase Document
 
 
 
101.LAB
 
XBRL Label Linkbase Document
 
 
 
101.PRE
 
XBRL Presentation Linkbase Document
 
 
 
101.DEF
 
XBRL Definition Linkbase Document
 


47