Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission file number: 001-07964

NOBLE ENERGY, INC .

(Exact name of registrant as specified in its charter)

Delaware		73-0785597
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)
100 Glenborough Drive, Suite 100
Houston, Texas		77067
(Address of principal executive offices)		(Zip Code)

(281) 872-3100 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of October 6, 2011, there were 176,645,583 shares of the registrant’s common stock,

par value $3.33 1/3 per share, outstanding.

Table of Contents

Part I. Financial Information	3
Item 1. Financial Statements	3
Consolidated Statements of Operations	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Consolidated Statements of Shareholders' Equity	6
Notes to Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	46
Item 4. Controls and Procedures	47
Part II. Other Information	47
Item 1. Legal Proceedings	47
Item 1A. Risk Factors	47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3. Defaults Upon Senior Securities	48
Item 4. (Removed and Reserved)	49
Item 5. Other Information	49
Item 6. Exhibits	49
Signatures	49
Index to Exhibits	50

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Part I. Financial Information

Item 1. Fina ncia l Statements

Noble Energy, Inc.

Consolidated St ate ments of Operations

(millions, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues
Oil, Gas and NGL Sales	$	874		$	704		$	2,599		$	2,102
Income from Equity Method Investees		50			34			146			85
Other Revenues		-			17			33			52
Total		924			755			2,778			2,239
Costs and Expenses
Production Expense		153			141			449			430
Exploration Expense		57			35			195			167
Depreciation, Depletion and Amortization		225			231			681			662
General and Administrative		89			65			254			194
Gain on Divestitures		-			(114	)		(26	)		(114	)
Asset Impairments		-			100			139			100
Other Operating (Income) Expense, Net		2			4			45			59
Total		526			462			1,737			1,498
Operating Income		398			293			1,041			741
Other (Income) Expense
Gain on Commodity Derivative Instruments		(322	)		(38	)		(179	)		(280	)
Interest, Net of Amount Capitalized		14			21			51			60
Other Non-Operating (Income) Expense, Net		(16	)		12			(16	)		(1	)
Total		(324	)		(5	)		(144	)		(221	)
Income Before Income Taxes		722			298			1,185			962
Income Tax Provision		281			66			436			289
Net Income	$	441		$	232		$	749		$	673

Earnings Per Share, Basic	$	2.50		$	1.33		$	4.25		$	3.86
Earnings Per Share, Diluted		2.39			1.31			4.12			3.80

Weighted Average Number of Shares Outstanding, Basic		177			175			176			175
Weighted Average Number of Shares Outstanding, Diluted		180			177			179			178

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

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Noble Energy, Inc.

Consolidated B al ance Sheets

(millions)

(unaudited)

	September 30,			December 31,
	2011			2010
ASSETS
Current Assets
Cash and Cash Equivalents	$	1,252		$	1,081
Accounts Receivable, Net		546			556
Other Current Assets		279			201
Total Assets, Current		2,077			1,838
Property, Plant and Equipment
Oil and Gas Properties (Successful Efforts Method of Accounting)		17,180			14,393
Property, Plant and Equipment, Other		277			263
Total Property, Plant and Equipment, Gross		17,457			14,656
Accumulated Depreciation, Depletion and Amortization		(4,945	)		(4,392	)
Total Property, Plant and Equipment, Net		12,512			10,264
Goodwill		696			696
Other Noncurrent Assets		548			484
Total Assets	$	15,833		$	13,282

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts Payable - Trade	$	1,132		$	927
Other Current Liabilities		826			495
Total Liabilities, Current		1,958			1,422
Long-Term Debt		3,507			2,272
Deferred Income Taxes, Noncurrent		2,235			2,110
Other Noncurrent Liabilities		551			630
Total Liabilities		8,251			6,434

Commitments and Contingencies

Shareholders’ Equity
Preferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued		-			-
Common Stock - Par Value $3.33 1/3 per share; 250 Million Shares Authorized; 196 Million and 195 Million Shares Issued, Respectively		655			651
Additional Paid in Capital		2,467			2,385
Accumulated Other Comprehensive Loss		(85	)		(104	)
Treasury Stock, at Cost; 19 Million Shares		(640	)		(624	)
Retained Earnings		5,185			4,540
Total Shareholders’ Equity		7,582			6,848
Total Liabilities and Shareholders’ Equity	$	15,833		$	13,282

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

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Noble Energy, Inc.

Consolidated Stat em ents of Cash Flows

(millions)

(unaudited)

	Nine Months Ended September 30,
	2011			2010
Cash Flows From Operating Activities
Net Income	$	749		$	673
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation, Depletion and Amortization		681			662
Asset Impairments		139			100
Dry Hole Cost		57			57
Deferred Income Taxes		147			109
Dividends (Income) from Equity Method Investees, Net		23			6
Unrealized Gain on Commodity Derivative Instruments		(140	)		(215	)
Gain on Divestitures		(26	)		(114	)
Other Adjustments for Noncash Items Included in Income		52			40
Changes in Operating Assets and Liabilities
(Increase) in Accounts Receivable		(7	)		(63	)
(Increase) Decrease in Other Current Assets		(17	)		18
Increase in Accounts Payable		131			214
Increase in Current Income Taxes Payable		52			20
(Decrease) in Other Current Liabilities		(25	)		(17	)
Other Operating Assets and Liabilities, Net		(31	)		(38	)
Net Cash Provided by Operating Activities		1,785			1,452

Cash Flows From Investing Activities
Additions to Property, Plant and Equipment		(1,868	)		(1,326	)
Marcellus Shale Asset Acquisition		(519	)		-
Central DJ Basin Asset Acquisition		-			(458	)
Additions to Equity Method Investments		(73	)		-
Proceeds from Divestitures		77			552
Net Cash Used in Investing Activities		(2,383	)		(1,232	)

Cash Flows From Financing Activities
Exercise of Stock Options		32			35
Excess Tax Benefits from Stock-Based Awards		11			19
Dividends Paid, Common Stock		(104	)		(95	)
Purchase of Treasury Stock		(16	)		(12	)
Proceeds from Credit Facilities		520			760
Repayment of Credit Facilities		(470	)		(792	)
Proceeds from Issuance of Senior Long-Term Debt, Net		836			-
Settlement of Interest Rate Derivative Instrument		(40	)		-
Net Cash Provided By (Used In) Financing Activities		769			(85	)
Increase in Cash and Cash Equivalents		171			135
Cash and Cash Equivalents at Beginning of Period		1,081			1,014
Cash and Cash Equivalents at End of Period	$	1,252		$	1,149

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

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Noble Energy, Inc.

Consolidated State men ts of Shareholders' Equity

(millions)

(unaudited)

	Common Stock		Additional Paid in Capital			Acumulated Other Comprehensive Loss			Treasury Stock at Cost			Retained Earnings			Total Shareholders' Equity
December 31, 2010	$	651	$	2,385		$	(104	)	$	(624	)	$	4,540		$	6,848
Net Income		-		-			-			-			749			749
Stock-based Compensation		-		43			-			-			-			43
Exercise of Stock Options		2		30			-			-			-			32
Tax Benefits Related to Exercise of Stock Options		-		11			-			-			-			11
Restricted Stock Awards, Net		2		(2	)		-			-			-			-
Dividends (58 cents per share)		-		-			-			-			(104	)		(104	)
Changes in Treasury Stock, Net		-		-			-			(16	)		-			(16	)
Interest Rate Cash Flow Hedges
Unrealized Change in Fair Value		-		-			15			-			-			15
Net Change in Other		-		-			4			-			-			4
September 30, 2011	$	655	$	2,467		$	(85	)	$	(640	)	$	5,185		$	7,582

December 31, 2009	$	645	$	2,260		$	(75	)	$	(615	)	$	3,942		$	6,157
Net Income		-		-			-			-			673			673
Stock-based Compensation		-		40			-			-			-			40
Exercise of Stock Options		3		32			-			-			-			35
Tax Benefits Related to Exercise of Stock Options		-		19			-			-			-			19
Restricted Stock Awards, Net		2		(2	)		-			-			-			-
Dividends (54 cents per share)		-		-			-			-			(95	)		(95	)
Changes in Treasury Stock, Net		-		-			-			(12	)		-			(12	)
Oil and Gas Cash Flow Hedges
Realized Amounts Reclassified Into Earnings		-		-			10			-			-			10
Interest Rate Cash Flow Hedges
Unrealized Change in Fair Value		-		-			(92	)		-			-			(92	)
Net Change in Other		-		-			2			-			-			2
September 30, 2010	$	650	$	2,349		$	(155	)	$	(627	)	$	4,520		$	6,737

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

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Noble Energy, Inc.

Notes to Con sol idated Financial Statements

(unaudited)

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 key operating areas are onshore in the US, primarily in the DJ Basin and the 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, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010 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. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Certain reclassifications of amounts previously reported have been made to conform to current year presentations. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2010.

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.

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.

Statements of Operations Information Other statements of operations information is as follows:

	Three Months Ended September 30,						Nine Months Ended S eptember 30,
	2011			2010			2011			2010
(millions)
Other Revenues
Electricity Sales (1)	$	-		$	19		$	32		$	53
Other		-			(2	)		1			(1	)
Total	$	-		$	17		$	33		$	52
Production Expense
Lease Operating Expense	$	98		$	95		$	288		$	283
Production and Ad Valorem Taxes		38			29			108			96
Transportation Expense		17			17			53			51
Total	$	153		$	141		$	449		$	430
Other Operating (Income) Expense, Net
Deepwater Gulf of Mexico Moratorium Expense (2)	$	(1	)	$	-		$	18		$	27
Electricity Generation Expense (1)		-			9			26			26
Loss on Involuntary Conversion (3)		-			-			4			-
Other, Net		3			(5	)		(3	)		6
Total	$	2		$	4		$	45		$	59
Other Non-Operating (Income) Expense, Net
Deferred Compensation (Income) Expense (4)	$	(18	)	$	15		$	(15	)	$	4
Interest Income		(2	)		(1	)		(7	)		(4	)
Other (Income) Expense, Net		4			(2	)		6			(1	)
Total	$	(16	)	$	12		$	(16	)	$	(1	)

(1)

Electricity sales include sales from the Machala power plant located in Machala, Ecuador, through May 2011. Electricity generation expense includes all operating and non-operating expenses associated with the plant, including depreciation and changes in the allowance for doubtful accounts. See Note 3. Acquisitions and Divestitures.

(2)	Amounts relate to rig stand-by expense incurred prior to receiving a permit to resume drilling activities in the deepwater Gulf of Mexico in 2011 and costs to terminate a deepwater Gulf of Mexico drilling rig contract due to the deepwater Gulf of Mexico drilling moratorium in 2010.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(3)

The loss on involuntary conversion represents our insurance deductible related to the Leviathan-2 appraisal well control incident. We suspended operations on the Leviathan-2 well, offshore Israel, in May 2011 when we identified water flowing to the sea floor from the wellbore. The incident was a covered event under our well control insurance. At this time, we expect to recover most of the costs from insurance, subject to a deductible. The final amount to be recovered will be based on the cost to drill the Leviathan-3 replacement well down to the same depth at which the incident occurred, possible remediation activities and/or abandonment activities at the Leviathan-2 well, which have not yet been determined, and other factors. See footnote (2) below.

(4)	Amount represents increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.

Balance Sheet Information Other balance sheet information is as follows:

	September 30,			December 31,
	2011			2010
(millions)
Accounts Receivable, Net
Commodity Sales	$	228		$	291
Joint Interest Billings		253			259
Other		73			33
Allowance for Doubtful Accounts (1)		(8	)		(27	)
Total	$	546		$	556
Other Current Assets
Inventories, Current	$	120		$	112
Commodity Derivative Assets, Current		87			62
Deferred Income Taxes, Net, Current		15			8
Probable Insurance Claims (2)		25			-
Prepaid Expenses and Other Assets, Current		32			19
Total	$	279		$	201
Other Noncurrent Assets
Equity Method Investments (3)	$	339		$	285
Mutual Fund Investments		101			112
Commodity Derivative Assets, Noncurrent		44			-
Other Assets, Noncurrent		64			87
Total	$	548		$	484
Other Current Liabilities
Production and Ad Valorem Taxes	$	128		$	110
Commodity Derivative Liabilities, Current		6			24
Interest Rate Derivative Liability, Current		-			63
Income Taxes Payable		143			90
Asset Retirement Obligations, Current		45			45
Interest Payable		18			36
CONSOL Installment Payment (4)		322			-
Current Portion of FPSO Lease Obligation		33			-
Other		131			127
Total	$	826		$	495
Other Noncurrent Liabilities
Deferred Compensation Liabilities, Noncurrent	$	210		$	229
Asset Retirement Obligations, Noncurrent		215			208
Accrued Benefit Costs, Noncurrent		63			76
Commodity Derivative Liabilities, Noncurrent		-			51
Other		63			66
Total	$	551		$	630

(1)	The decrease in the allowance for doubtful accounts from December 31, 2010 is due primarily to the transfer of assets to the Ecuadorian government. See Note 3. Acquisitions and Divestitures.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

(2)	Amount represents the costs incurred to date of the Leviathan-2 appraisal well in excess of the insurance deductible. See footnote (3) above.

(3)	The increase in equity method investments from December 31, 2010 is due to our acquisition of a 50% interest in CONE Gathering LLC. See Note 3. Acquisitions and Divestitures.

(4)	See Note 3. Acquisitions and Divestitures and Note 5. Debt.

Recently Issued Accounting Standards Updates In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2011-04: Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04) . ASU 2011-04 clarifies application of fair value measurement and disclosure requirements and is effective for annual periods beginning after December 15, 2011. We are currently evaluating the provisions of ASU 2011-04 and assessing the impact, if any, it may have on our financial position and results of operations.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05: Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05) . ASU 2011-05 provides that an entity that reports items of other comprehensive income has the option to present comprehensive income in either one continuous financial statement or two consecutive financial statements. ASU 2011-05 is effective for annual periods beginning after December 15, 2011. We are currently evaluating the provisions of ASU 2011-05. We do not expect ASU 2011-05 to have any impact on our financial position and results of operations as it is a change in presentation only.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08: Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment (ASU 2011-08). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. ASU 2011-08 is effective for annual periods beginning after December 15, 2011. We expect to adopt the provisions of ASU 2011-08 for our annual impairment test as of December 31, 2011. We do not expect ASU 2011-08 to have any impact on our financial position and results of operations as it is a change in application of the goodwill impairment test only.

Note 3. Acquisitions and Divestitures

Marcellus Shale Joint Venture Partnership On September 30, 2011, we closed an agreement with a subsidiary of CONSOL Energy Inc. (CONSOL) for the development of Marcellus shale properties in southwest Pennsylvania and northwest West Virginia. Under the agreement, we acquired 50% interests in 628,000 net undeveloped acres, existing Marcellus production, and existing infrastructure for approximately $1.2 billion. We and CONSOL formed CONE Gathering LLC, which we will account for using the equity method, to own and operate existing and future infrastructure.

We paid a total of $592 million in cash at the closing of the above transaction, funded with available cash and amounts drawn under our credit facility. In addition, we will make two additional installment payments of $328 million each, which will be paid September 30, 2012 and 2013.

In addition, we have agreed to fund one-third of CONSOL’s 50% working interest share of future drilling and completion costs, up to approximately $2.1 billion (CONSOL Carried Cost Obligation). The CONSOL Carried Cost Obligation is expected to extend over an eight-year period. It is capped at $400 million in each calendar year and will be suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and will remain suspended until average Henry Hub natural gas prices are above $4.00 per MMBtu for three consecutive months. Therefore, specific payment dates for the funding of the CONSOL Carried Cost Obligation cannot be determined at this time. Amounts paid pursuant to the CONSOL Carried Cost Obligation will be recorded as increases in property, plant and equipment in our consolidated balance sheets and as investing activities in our consolidated statements of cash flows.

As a result of the transaction, we recorded the following:

	September 30,
	2011
(millions)
Unproved Oil and Gas Properties	$	790
Proved Oil and Gas Properties		370
Investment in CONE Gathering LLC		73
Total Assets Acquired (1)	$	1,233

(1)	Total reflects impact of discount on remaining installment payments. See Note 5. Debt.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

To estimate the fair value of the proved oil and gas properties as of the acquisition date, we used an income approach. We utilized a discounted cash flow model which took into account the following inputs to arrive at estimates of future net cash flows:

estimated quantities of crude oil and natural gas prepared by our qualified petroleum engineers;

management’s estimates of future commodity prices based on NYMEX Henry Hub natural gas futures prices and adjusted for estimated location and quality differentials;

estimated future production rates based on our experience with similar properties which we operate; and

estimated timing and amounts of future operating and development costs based on our experience with similar properties which we operate.

We discounted the resulting future net cash flows using a market-based weighted average cost of capital rate determined appropriate at the acquisition date. The fair value of the proved producing properties is considered a Level 3 fair value measurement.

Certain data necessary to complete the final purchase price allocation is not yet available, and includes, but is not limited to, final appraisals of assets acquired and liabilities assumed. We expect to complete the final purchase price allocation during the 12-month period following the acquisition date, during which time the preliminary allocation may be revised.

See Note 5. Debt and Note 7. Fair Value Measurements and Disclosures.

Gas Gathering Agreement with CONE Gathering LLC On September 30, 2011, in connection with the Marcellus shale joint venture arrangement described above, we entered into a 50-year gathering and marketing agreement with CONE Gathering LLC. Under the terms of the gathering and marketing agreement, we will pay CONE Gathering LLC a minimum annual revenue commitment (MARC). The fee will be adjusted annually based on projected gathering volumes, operating expenses, capital expenditures, and other factors. We expect the MARC to total approximately $3 million in 2011 and $23 million in 2012. Amounts to be paid under the MARC for years beyond 2012 have not yet been determined.

We also have agreed to fund an annual work program for the construction of additional pipeline assets to receive and deliver production from future wells. Amounts to be contributed in future years to fund our proportionate share of the annual work program will be dependent upon anticipated production locations, volumes and other factors. We will account for our 50% interest in CONE Gathering LLC using the equity method; therefore, our share of income will be reported as income from equity method investees in our consolidated statements of operations. Our investment in CONE Gathering LLC will be reported as investment in equity method investee in our consolidated balance sheets and will reflect our cash contributions to the entity.

Divestitures In May 2011, we transferred our assets in Ecuador to the Ecuadorian government. We received cash proceeds of $73 million for the transfer of our offshore Amistad field assets and Block 3 production sharing contract (PSC), which was terminated by the government of Ecuador on November 25, 2010, and the assignment of the Machala Power Electricity concession and its associated assets. Our net book value for the assets had been reduced due to previous impairment charges, resulting in a gain of $26 million before tax. We did not consider the property disposition material for discontinued operations presentation.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

In August 2010, we closed the sale of certain non-core assets in the Mid-Continent and Illinois Basin areas. Information regarding the sale is as follows:

	Nine Months Ended September 30,
	2010
(millions)
Cash Proceeds	$	552
Less
Net Book Value of Assets Sold		(394	)
Goodwill Allocated to Assets Sold		(61	)
Asset Retirement Obligations Associated with Assets Sold		10
Other Closing Adjustments		7
Gain on Asset Sale	$	114

Note 4. Asset Impairments

Pre-tax (non-cash) asset impairment charges were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
(millions)
East Texas (Onshore US)	$	-	$	-	$	116	$	-
Iron Horse (Onshore US)		-		71		15		71
New Albany Shale (Onshore US)		-		19		-		19
Other		-		10		8		10
Total	$	-	$	100	$	139	$	100

2011 Due to field performance combined with a low natural gas price environment, we determined that the carrying amounts of certain of our onshore US developments, primarily in East Texas, were not recoverable from future cash flows and, therefore, were impaired at June 30, 2011.

2010 Due to declines in natural gas prices and drilling results, we determined that the carrying amounts of our Iron Horse development and certain other US properties were not recoverable from future cash flows and, therefore, were impaired at September 30, 2010. We also recorded an impairment related to non-core, New Albany shale assets which were held-for-sale at September 30, 2010.

Assets to be held and used were written down to their estimated fair values, which were determined using discounted cash flow models. Assets held for sale were reduced to expected sales proceeds less costs to sell. See Note 7. Fair Value Measurements and Disclosures.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Note 5. Debt

Our debt consists of the following:

	September 30,						December 31,
	2011						2010
	Debt			Interest Rate			Debt			Interest Rate
(millions, except percentages)
Credit Facility, due December 9, 2012	$	400			0.56	%	$	350			0.57	%
CONSOL Installment Payments, due September 30, 2012 and 2013		656			1.76	%		-			-
FPSO Lease Obligation		351			-			295			-
5¼% Senior Notes, due April 15, 2014		200			5.25	%		200			5.25	%
8¼% Senior Notes, due March 1, 2019		1,000			8.25	%		1,000			8.25	%
7¼% Notes, due October 15, 2023		100			7.25	%		100			7.25	%
8% Senior Notes, due April 1, 2027		250			8.00	%		250			8.00	%
6% Senior Notes, due March 1, 2041		850			6.00	%		-			-
7¼% Senior Debentures, due August 1, 2097		84			7.25	%		84			7.25	%
Total		3,891						2,279
Unamortized Discount		(29	)					(7	)
Total Debt, Net of Discount		3,862						2,272
Less Amounts Due Within One Year
CONSOL Installment Payment, due September 30, 2012, net of discount		(322	)					-
FPSO Lease Obligation		(33	)					-
Long-Term Debt Due After One Year	$	3,507					$	2,272

CONSOL Installment Payments On September 30, 2011, we closed an agreement with CONSOL for the development of Marcellus shale properties. In addition to the cash paid at closing, we agreed to make two installment payments of $328 million each on September 30, 2012 and 2013. The installment payments have been discounted at the prevailing market rates for similar debt instruments. The CONSOL installment loan is a non-cash financing activity. See Note 3. Acquisitions and Divestitures and Note 7. Fair Value Measurements and Disclosures.

FPSO Lease Obligation We have entered into an agreement to lease a floating production, storage and offloading vessel (FPSO) to be used in the development of the Aseng field, offshore Equatorial Guinea. The amount of the FPSO lease obligation is based on the discounted present value of future minimum lease payments and the percentage of construction activities completed as of the reporting dates, and therefore does not reflect future minimum lease payments. The increase in the FPSO lease obligation is a non-cash financing activity. Amounts due within one year equal the amount by which the FPSO lease obligation is expected to be reduced during the next 12 months as lease payments begin. We currently expect production to commence, and lease payments to begin, by year end 2011.

Issuance of 6% Senior Notes On February 18, 2011, we closed an offering of $850 million senior unsecured notes receiving net proceeds of $836 million, after deducting discount and underwriting fees. The notes are due March 1, 2041, and pay interest semi-annually at 6%. Total debt issuance costs of approximately $9 million were incurred and are being amortized to expense over the term of the notes. Approximately $470 million of the net proceeds were used to repay outstanding indebtedness under our revolving credit facility and the balance of the proceeds will be used for general corporate purposes. The notes are senior unsecured debt and rank pari passu with any of our other senior unsecured indebtedness with respect to the payment of both principal and interest. See Note 6. Derivative Instruments and Hedging Activities – Interest Rate Derivative Instrument.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Annual Debt Maturities and FPSO Lease Payments Annual maturities of outstanding debt and estimated annual FPSO lease payments are as follows:

	Debt Principal Payments		FPSO Lease Payments
(millions)
September 30, 2011
2011	$	-	$	12
2012		728		72
2013		328		72
2014		200		72
2015		-		70
Thereafter		2,284		198
Total	$	3,540	$	496

New Credit Facility On October 14, 2011, we entered into a credit agreement with certain commercial lending institutions (the Credit Agreement) which provides for a new $3.0 billion unsecured five-year revolving credit facility (the New Credit Facility). The New Credit Facility replaces our $2.1 billion credit facility maturing December 9, 2012. Also on October 14, 2011, we borrowed $400 million under the New Credit Facility, which was used to repay outstanding borrowings under and to terminate the $2.1 billion credit facility.

The New Credit Facility (i) provides for an initial commitment of $3.0 billion with an option to increase the overall commitment amount by up to an additional $1.0 billion, subject to the consent of any increasing lenders, (ii) will mature on October 14, 2016, (iii) provides for facility fee rates that range from 12.5 basis points to 30 basis points per year depending upon our credit rating, (iv) includes sub-facilities for short-term loans and letters of credit up to an aggregate amount of $500 million under each sub-facility and (iv) 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.

The Credit Agreement requires that our total debt to capitalization ratio (as defined in the Credit Agreement), expressed as a percentage, not exceed 65% at any time. A violation of this covenant could result in a default under the Credit Agreement, which would permit the participating banks to restrict our ability to access the New Credit Facility and require the immediate repayment of any outstanding advances under the New Credit Facility. The Credit Agreement does not restrict the payment of dividends on our common stock, except, if after giving effect thereto, an Event of Default shall have occurred and be continuing or been caused thereby.

The New Credit Facility is available for general corporate purposes. Certain lenders that are a party to the Credit Agreement have in the past performed, and may in the future from time to time perform, investment banking, financial advisory, lending or commercial banking services for us for which they have received, and may in the future receive, customary compensation and reimbursement of expenses.

Note 6. Derivative Instruments and Hedging Activities

Objective and Strategies for Using Derivative Instruments In order to reduce commodity price uncertainty and enhance the predictability of cash flows relating to the marketing of our crude oil and natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The derivative instruments we use include variable to fixed price commodity swaps, two-way and three-way collars, and basis swaps.

The fixed price swap, two-way collar, and basis swap contracts entitle us (floating price payor) to receive settlement from the counterparty (fixed price payor) for each calculation period in amounts, if any, by which the settlement price for the scheduled trading days applicable for each calculation period is less than the fixed strike price or floor price. We would pay the counterparty if the settlement price for the scheduled trading days applicable for each calculation period is more than the fixed strike price or ceiling price. The amount payable by us, if the floating price is above the fixed or ceiling price, is the product of the notional quantity per calculation period and the excess of the floating price over the fixed or ceiling price in respect of each calculation period. The amount payable by the counterparty, if the floating price is below the fixed or floor price, is the product of the notional quantity per calculation period and the excess of the fixed or floor price over the floating price in respect of each calculation period.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

A three-way collar consists of a two-way collar contract combined with a put option contract sold by us with a strike price below the floor price of the two-way collar. We receive price protection at the purchased put option floor price of the two-way collar if commodity prices are above the sold put option strike price. If commodity prices fall below the sold put option strike price, we receive the cash market price plus the delta between the two put option strike prices. This type of instrument allows us to capture more value in a rising commodity price environment, but limits our benefits in a downward commodity price environment.

We also enter into forward contracts or swap agreements to hedge exposure to interest rate risk.

While these instruments mitigate the cash flow risk of future reductions 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.

Counterparty Credit Risk Derivative instruments expose us to counterparty credit risk. Our commodity derivative instruments are currently with a diversified group of highly rated major banks or market participants, and we monitor and manage our level of financial exposure. Our commodity derivative contracts 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 settled at the time of election.

We monitor the creditworthiness of our counterparties. However, we are not able to predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, we may be limited in our ability to mitigate an increase in counterparty credit risk. Possible actions would be to transfer our position to another counterparty or request a voluntary termination of the derivative contracts resulting in a cash settlement. Should one of these financial counterparties not perform, we may not realize the benefit of some of our derivative instruments under lower commodity prices or higher interest rates, and could incur a loss.

Interest Rate Derivative Instrument In January 2010, we entered into an interest rate forward starting swap to effectively fix the cash flows related to interest payments on our anticipated debt issuance. On February 15, 2011 we settled the interest rate swap, which had a net liability position of $40 million. Approximately $26 million, net of tax, was recorded in accumulated other comprehensive loss (AOCL) and is being reclassified to interest expense over the term of the 6% senior notes. The ineffective portion of the interest rate swap was de minimis. See Note 5. Debt.

Unsettled Derivative Instruments As of September 30, 2011, we had entered into the following crude oil derivative instruments:

					Swaps		Collars
Period	Type of Contract	Index	Bbls Per Day		Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
Instruments Entered Into as of September 30, 2011
2011	Swaps	NYMEX WTI (1)		5,000	$	85.52	$	-	$	-	$	-
2011	Two-Way Collars	NYMEX WTI		13,000		-		-		80.15		94.63
2011	Three-Way Collars	NYMEX WTI		12,000		-		58.33		78.33		100.71
2012	Swaps	NYMEX WTI		5,000		91.84		-		-		-
2012	Swaps	Dated Brent		8,000		89.06		-		-		-
2012	Three-Way Collars	NYMEX WTI		23,000		-		61.09		83.04		101.66
2012	Three-Way Collars	Dated Brent		3,000		-		70.00		95.83		105.00
2013	Swaps	Dated Brent		3,000		98.03		-		-		-
2013	Three-Way Collars	NYMEX WTI		5,000		-		65.00		85.00		113.63
2013	Three-Way Collars	Dated Brent		5,000		-		80.00		99.71		127.32
Instruments Entered Into During October 1-15, 2011
2013	Three-Way Collars	Dated Brent		5,000		-		90.00		102.00		128.15

(1)	West Texas Intermediate

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

As of September 30, 2011, we had entered into the following natural gas derivative instruments:

					Swaps		Collars
Period	Type of Contract	Index	MMBtu Per Day		Weighted Average Fixed Price		Weighted Average Short Put Price		Weighted Average Floor Price		Weighted Average Ceiling Price
Instruments Entered Into as of September 30, 2011
2011	Swaps	NYMEX HH (1)		25,000	$	6.41	$	-	$	-	$	-
2011	Two-Way Collars	NYMEX HH		140,000		-		-		5.95		6.82
2011	Three-Way Collars	NYMEX HH		50,000		-		4.00		5.00		6.70
2012	Swaps	NYMEX HH		30,000		5.10		-		-		-
2012	Three-Way Collars	NYMEX HH		110,000		-		4.44		5.25		6.66
2013	Swaps	NYMEX HH		30,000		5.25		-		-		-
2013	Three-Way Collars	NYMEX HH		50,000		-		4.00		5.25		5.59

(1)

Henry Hub

As of September 30, 2011, we had entered into the following natural gas basis swaps:

Period	Index	Index Less Differential	MMBtu Per Day	Weighted Average Differential
2011	IFERC CIG (1)	NYMEX HH	140,000	$	(0.70)
2012	IFERC CIG	NYMEX HH	150,000		(0.52)

(1)	Colorado Interstate Gas – Northern System

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Fair Value Amounts and Gains and Losses on Derivative Instruments The fair values of derivative instruments in our consolidated balance sheets were as follows:

Fair Value of Derivative Instruments

	Asset Derivative Instruments						Liability Derivative Instruments
	September 30,			December 31,			September 30,			December 31,
	2011			2010			2011			2010
	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
(millions)
Commodity Derivative Instruments (Not Designated as Hedging Instruments)	Current Assets	$	87	Current Assets	$	62	Current Liabilities	$	6	Current Liabilities	$	24
	Noncurrent Assets		44	Noncurrent Assets		-	Noncurrent Liabilities		-	Noncurrent Liabilities		51

Interest Rate Derivative Instruments (Designated as Hedging Instruments)	Current Assets		-	Current Assets		-	Current Liabilities		-	Current Liabilities		63
Total		$	131		$	62		$	6		$	138

The effect of derivative instruments on our consolidated statements of operations was as follows:

Commodity Derivative Instruments Not Designated as Hedging Instruments

Amount of Gain on Derivative Instruments Recognized in Income

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
(millions)
Realized Mark-to-Market Gain	$	(22	)	$	(33	)	$	(39	)	$	(65	)
Unrealized Mark-to-Market Gain		(300	)		(5	)		(140	)		(215	)
Total Gain on Commodity Derivative Instruments	$	(322	)	$	(38	)	$	(179	)	$	(280	)

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Derivative Instruments in Cash Flow Hedging Relationships

	Amount of (Gain) Loss on Derivative Instruments Recognized in Other Comprehensive (Income) Loss						Amount of (Gain) Loss on Derivative Instruments Reclassified from Accumulated Other Comprehensive Loss
		2011			2010		2011		2010
(millions)
Three Months Ended September 30,
Commodity Derivative Instruments in Previously Designated
Cash Flow Hedging Relationships (1)
Crude Oil Derivative Instruments		$	-		$	-	$	-	$	5
Natural Gas Derivative Instruments			-			-		-		-

Interest Rate Derivative Instruments in Cash Flow Hedging Relationships			-			47		-		-
Total		$	-		$	47	$	-	$	5
Nine Months Ended September 30,
Commodity Derivative Instruments in Previously Designated
Cash Flow Hedging Relationships (1)
Crude Oil Derivative Instruments		$	-		$	-	$	-	$	14
Natural Gas Derivative Instruments			-			-		-		1

Interest Rate Derivative Instruments in Cash Flow Hedging Relationships			(23	)		141		1		-
Total		$	(23	)	$	141	$	1	$	15

(1)	Includes effect of commodity derivative instruments previously accounted for as cash flow hedges. All net derivative gains and losses that were deferred in AOCL as a result of previous cash flow hedge accounting, had been reclassified to earnings by December 31, 2010.

AOCL at September 30, 2011 included deferred losses of $27 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 terms of our senior notes due April 2014 and March 2041. Approximately $2 million of deferred losses (net of tax) will be reclassified to earnings during the next 12 months and will be recorded as an increase in interest expense.

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 consist of variable to fixed price commodity swaps, two-way and three-way collars, and basis swaps. 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 (for three-way collars) and the contract floors and ceilings (for two-way and three-way collars) using an option pricing model which takes into account market volatility, market prices and contract terms. See Note 6. Derivative Instruments and Hedging Activities.

Interest Rate Derivative Instrument We estimated the fair value of our forward starting swap based on published interest rate yield curves as of the date of the estimate. The fair values of interest rate derivative instruments in an asset position include a measure of counterparty nonperformance risk, and the fair values of interest rate derivative instruments in a liability position include a measure of our own nonperformance risk, each based on the current published credit default swap rates. See Note 6. Derivative Instruments and Hedging Activities.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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, 2011
Financial Assets
Mutual Fund Investments	$	101			$	-		$	-	$	-		$	101
Commodity Derivative Instruments		-				174			-		(43	)		131
Financial Liabilities
Commodity Derivative Instruments		-				(49	)		-		43			(6	)
Portion of Deferred Compensation
Liability Measured at Fair Value		(152	)			-			-		-			(152	)
December 31, 2010
Financial Assets
Mutual Fund Investments	$	112			$	-		$	-	$	-		$	112
Commodity Derivative Instruments		-				106			-		(44	)		62
Financial Liabilities
Commodity Derivative Instruments		-				(119	)		-		44			(75	)
Interest Rate Derivative Instrument		-				(63	)		-		-			(63	)
Portion of Deferred Compensation Liability
Measured at Fair Value		(178	)			-			-		-			(178	)

(1)	Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.

(2)	Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.

(3)	Level 3 measurements are fair value measurements which use unobservable inputs.

(4)	Amount represents the impact of master netting agreements that allow us to net cash settle asset and liability positions with the same counterparty.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

(unaudited)

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 We determined that the carrying amounts of certain onshore US assets were not recoverable from future cash flows and, therefore, were impaired. The assets were reduced to their estimated fair values. Information about the 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, 2011
Impaired Oil and Gas Properties	$	-	$	-	$	-	$	-	$	-
Three Months Ended September 30, 2010
Impaired Oil and Gas Properties		-		-		48		148		100
Nine Months Ended September 30, 2011