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 March 31, 2012

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 April 6, 2012, there were 177,787,421 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 Statements of Comprehensive Income	4

Consolidated Balance Sheets	5

Consolidated Statements of Cash Flows	6

Consolidated Statements of Shareholders' Equity	7

Notes to Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3. Quantitative and Qualitative Disclosures About Market Risk	35

Item 4. Controls and Procedures	36

Part II. Other Information	36

Item 1. Legal Proceedings	36

Item 1A. Risk Factors	36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3. Defaults Upon Senior Securities	37

Item 4. Mine Safety Disclosures	37

Item 5. Other Information	37

Item 6. Exhibits	37

Signatures	37

Index to Exhibits	38

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Part I. Financial Information

Item 1. Financial Statements

Noble Energy, Inc.

Consolidated Statements of Operations

(millions, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Revenues
Oil, Gas and NGL Sales	$	1,112		$	830
Income from Equity Method Investees		53			48
Other Revenues		-			21
Total		1,165			899
Costs and Expenses
Production Expense		179			142
Exploration Expense		63			70
Depreciation, Depletion and Amortization		312			221
General and Administrative		98			83
Other Operating (Income) Expense, Net		12			36
Total		664			552
Operating Income		501			347
Other (Income) Expense
Loss on Commodity Derivative Instruments		96			286
Interest, Net of Amount Capitalized		32			16
Other Non-Operating (Income) Expense, Net		(1	)		8
Total		127			310
Income Before Income Taxes		374			37
Income Tax Provision		111			23
Net Income	$	263		$	14

Earnings Per Share, Basic	$	1.48		$	0.08
Earnings Per Share, Diluted		1.47			0.08

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

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

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Noble Energy, Inc.

Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)

	Three Months Ended March 31,
	2012		2011
Net Income	$	263	$	14
Other Items of Comprehensive Income (Loss)
Interest Rate Cash Flow Hedges
Unrealized Change in Fair Value		-		23
Less Tax Provision		-		(8	)
Net Change in Other		2		2
Other Comprehensive Income		2		17
Comprehensive Income	$	265	$	31

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

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Noble Energy, Inc.

Consolidated Balance Sheets

(millions)

(unaudited)

	March 31,			December 31,
	2012			2011
ASSETS
Current Assets
Cash and Cash Equivalents	$	1,143		$	1,455
Accounts Receivable, Net		919			783
Other Current Assets		330			180
Total Current Assets		2,392			2,418
Property, Plant and Equipment
Oil and Gas Properties (Successful Efforts Method of Accounting)		18,527			17,703
Property, Plant and Equipment, Other		317			294
Total Property, Plant and Equipment, Gross		18,844			17,997
Accumulated Depreciation, Depletion and Amortization		(5,460	)		(5,215	)
Total Property, Plant and Equipment, Net		13,384			12,782
Goodwill		696			696
Other Noncurrent Assets		592			548
Total Assets	$	17,064		$	16,444

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts Payable - Trade	$	1,457		$	1,343
Other Current Liabilities		951			925
Total Current Liabilities		2,408			2,268
Long-Term Debt		4,088			4,100
Deferred Income Taxes, Noncurrent		2,216			2,059
Other Noncurrent Liabilities		819			752
Total Liabilities		9,531			9,179

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; 198 Million and 197 Million Shares Issued, Respectively		659			656
Additional Paid in Capital		2,549			2,497
Accumulated Other Comprehensive Loss		(98	)		(100	)
Treasury Stock, at Cost; 19 Million Shares		(651	)		(638	)
Retained Earnings		5,074			4,850
Total Shareholders’ Equity		7,533			7,265
Total Liabilities and Shareholders’ Equity	$	17,064		$	16,444

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

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Noble Energy, Inc.

Consolidated Statements of Cash Flows

(millions)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Cash Flows From Operating Activities
Net Income	$	263		$	14
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Depreciation, Depletion and Amortization		312			221
Dry Hole Cost		1			22
Deferred Income Taxes		32			11
Dividends (Income) from Equity Method Investees, Net		(29	)		(23	)
Unrealized Loss on Commodity Derivative Instruments		73			303
Other Adjustments for Noncash Items Included in Income		30			36
Changes in Operating Assets and Liabilities
(Increase) in Accounts Receivable		(135	)		(9	)
(Increase) in Other Current Assets		(5	)		(17	)
Increase in Accounts Payable		190			28
Increase (Decrease) in Current Income Taxes Payable		5			(71	)
(Decrease) in Other Current Liabilities		(26	)		(54	)
Other Operating Assets and Liabilities, Net		30			23
Net Cash Provided by Operating Activities		741			484

Cash Flows From Investing Activities
Additions to Property, Plant and Equipment		(1,018	)		(578	)
Additions to Equity Method Investments		(14	)		-
Proceeds from Divestitures		-			3
Net Cash Used in Investing Activities		(1,032	)		(575	)

Cash Flows From Financing Activities
Exercise of Stock Options		27			23
Excess Tax Benefits from Stock-Based Awards		12			8
Dividends Paid, Common Stock		(39	)		(32	)
Purchase of Treasury Stock		(13	)		(16	)
Proceeds from Credit Facilities		-			120
Repayment of Credit Facilities		-			(470	)
Proceeds from Issuance of Senior Long-Term Debt, Net		-			836
Settlement of Interest Rate Derivative Instrument		-			(40	)
Repayment of Capital Lease Obligation		(8	)		-
Net Cash Provided By (Used In) Financing Activities		(21	)		429
Increase (Decrease) in Cash and Cash Equivalents		(312	)		338
Cash and Cash Equivalents at Beginning of Period		1,455			1,081
Cash and Cash Equivalents at End of Period	$	1,143		$	1,419

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

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Noble Energy, Inc.

Consolidated Statements of Shareholders' Equity

(millions)

(unaudited)

	Common Stock		Additional Paid in Capital			Acumulated Other Comprehensive Loss			Treasury Stock at Cost			Retained Earnings			Total Shareholders' Equity
December 31, 2011	$	656	$	2,497		$	(100	)	$	(638	)	$	4,850		$	7,265
Net Income		-		-			-			-			263			263
Stock-based Compensation		-		16			-			-			-			16
Exercise of Stock Options		2		25			-			-			-			27
Tax Benefits Related to Exercise of Stock Options		-		12			-			-			-			12
Restricted Stock Awards, Net		1		(1	)		-			-			-			-
Dividends (22 cents per share)		-		-			-			-			(39	)		(39	)
Changes in Treasury Stock, Net		-		-			-			(13	)		-			(13	)
Net Change in Other		-		-			2			-			-			2
March 31, 2012	$	659	$	2,549		$	(98	)	$	(651	)	$	5,074		$	7,533

December 31, 2010	$	651	$	2,385		$	(104	)	$	(624	)	$	4,540		$	6,848
Net Income		-		-			-			-			14			14
Stock-based Compensation		-		14			-			-			-			14
Exercise of Stock Options		2		21			-			-			-			23
Tax Benefits Related to Exercise of Stock Options		-		8			-			-			-			8
Restricted Stock Awards, Net		1		(1	)		-			-			-			-
Dividends (18 cents per share)		-		-			-			-			(32	)		(32	)
Changes in Treasury Stock, Net		-		-			-			(16	)		-			(16	)
Interest Rate Cash Flow Hedges
Unrealized Change in Fair Value		-		-			15			-			-			15
Net Change in Other		-		-			2			-			-			2
March 31, 2011	$	654	$	2,427		$	(87	)	$	(640	)	$	4,522		$	6,876

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

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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 U.S., 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 March 31, 2012 and December 31, 2011 and for the three months ended March 31, 2012 and 2011 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 months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. 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, 2011.

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 March 31,
	2012			2011
(millions)
Other Revenues (1)	$	-		$	21
Production Expense
Lease Operating Expense	$	118		$	92
Production and Ad Valorem Taxes		38			32
Transportation and Gathering Expense		23			18
Total	$	179		$	142
Other Operating (Income) Expense, Net
Deepwater Gulf of Mexico Moratorium Expense (2)	$	-		$	18
Electricity Generation Expense (1)		-			17
Other, Net		12			1
Total	$	12		$	36
Other Non-Operating (Income) Expense, Net
Deferred Compensation Expense (3)	$	3		$	10
Interest Income		-			(3	)
Other (Income) Expense, Net		(4	)		1
Total	$	(1	)	$	8

(1)

Other revenues for first quarter 2011 consist of electricity sales from the Machala power plant located in Machala, Ecuador. Electricity generation expense includes all operating and non-operating expenses associated with the plant, including depreciation and changes in the allowance for doubtful accounts. In May 2011, we transferred our assets in Ecuador to the Ecuadorian government.

(2)	Amount relates to rig stand-by expense incurred prior to receiving a permit to resume drilling activities in the deepwater Gulf of Mexico in 2011.

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

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

Balance Sheet Information Other balance sheet information is as follows:

	March 31,			December 31,
	2012			2011
(millions)
Accounts Receivable, Net
Commodity Sales	$	467		$	356
Joint Interest Billings		344			313
Other		117			123
Allowance for Doubtful Accounts		(9	)		(9	)
Total	$	919		$	783
Other Current Assets
Inventories, Current	$	77		$	78
Commodity Derivative Assets, Current		17			10
Deferred Income Taxes, Net, Current (1)		159			41
Probable Insurance Claims (2)		22			15
Prepaid Expenses and Other Current Assets, Current		55			36
Total	$	330		$	180
Other Noncurrent Assets
Equity Method Investments	$	376		$	329
Mutual Fund Investments		108			99
Commodity Derivative Assets, Noncurrent		22			37
Other Assets, Noncurrent		86			83
Total	$	592		$	548
Other Current Liabilities
Production and Ad Valorem Taxes	$	123		$	121
Commodity Derivative Liabilities, Current		119			76
Income Taxes Payable		131			127
Asset Retirement Obligations, Current		41			33
Interest Payable		41			56
CONSOL Installment Payment (3)		325			324
Current Portion of FPSO Lease Obligation		48			45
Other		123			143
Total	$	951		$	925
Other Noncurrent Liabilities
Deferred Compensation Liabilities, Noncurrent	$	237		$	222
Asset Retirement Obligations, Noncurrent		350			344
Accrued Benefit Costs, Noncurrent		90			88
Commodity Derivative Liabilities, Noncurrent		29			7
Other		113			91
Total	$	819		$	752

(1)	Increase from December 31, 2011 is due to reclassification of deferred income tax assets from long-term to short-term as certain foreign entities are estimated to begin utilizing net operating loss carryforwards in 2012 and 2013.

(2)	Amounts represent the costs incurred to date of the Leviathan-2 appraisal well in excess of the insurance deductible and insurance proceeds received to date.

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

Changes in Shareholders’ Equity On April 24, 2012, our shareholders voted to approve an amendment to the Company’s Certificate of Incorporation to (i) increase the number of authorized shares of our common stock from 250 million to 500 million shares and (ii) reduce the par value of the Company’s common stock from $3.33 1 / 3 per share to $0.01 per share.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

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 and interim periods beginning after December 15, 2011. As of March 31, 2012, we have adopted the provisions of ASU 2011-04, which did not impact our consolidated financial statements. The only impact was to our fair value disclosures.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). ASU 2011-11 requires that an entity disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for annual periods beginning on or after January 1, 2013. We are currently evaluating the provisions of ASU 2011-11 and assessing the impact, if any, it may have on our financial position and results of operations.

Note 3. Acquisitions

Marcellus Shale Joint Venture 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 a 50% interest in approximately 628,000 net undeveloped acres, certain producing properties, and existing infrastructure, such as pipeline and gathering facilities, for approximately $1.3 billion, including post-closing adjustments. We and CONSOL also formed CONE Gathering LLC (CONE) to own and operate the existing and future infrastructure. We have paid a total of $596 million as of March 31, 2012, and, other than post-closing adjustments, the remainder will be paid in two annual installments. See Note 4. Debt.

As part of the joint venture transaction, 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), which is expected to be paid out over approximately eight years or more. 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 will remain suspended until average Henry Hub natural gas prices are above $4.00 per MMBtu for three consecutive months. The CONSOL Carried Cost Obligation is currently suspended due to low natural gas prices.

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

	March 31,
	2012
(millions)
Unproved Oil and Gas Properties	$	853
Proved Oil and Gas Properties		386
Investment in CONE Gathering LLC		69
Total Assets Acquired (1)	$	1,308

(1) Total reflects impact of $17 million imputed discount on CONSOL installment payments.

We used an income approach to estimate the fair value of the proved oil and gas properties as of the acquisition date. 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 reserves 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 for proved oil and gas properties 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.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

Note 4. Debt

Our debt consists of the following:

	March 31,						December 31,
	2012						2011
	Debt			Interest Rate			Debt			Interest Rate
(millions, except percentages)
Credit Facility, due October 14, 2016 (1)	$	-			-		$	-			-
CONSOL Installment Payments, due September 30, 2012 and 2013		656			1.76	% (2)		656			1.76	% (2)
FPSO Lease Obligation		344			-			355			-
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	%
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	%
7¼% Senior Debentures, due August 1, 2097		84			7.25	%		84			7.25	%
Total		4,484						4,495
Unamortized Discount		(23	)					(26	)
Total Debt, Net of Discount		4,461						4,469
Less Amounts Due Within One Year
CONSOL Installment Payment, due September 30, 2012, net of discount		(325	)					(324	)
FPSO Lease Obligation		(48	)					(45	)
Long-Term Debt Due After One Year	$	4,088					$	4,100

(1) Our Credit Agreement provides for a $3.0 billion unsecured five-year revolving credit facility. The Credit Facility is available for general corporate purposes.

(2) Imputed rate.

See Note 6. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our debt.

Note 5. Derivative Instruments and Hedging Activities

Objective and Strategies for Using Derivative Instruments In order to mitigate the effect of 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.

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 may enter into forward contracts to hedge anticipated exposure to interest rate risk associated with public debt financing.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

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 6. 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 March 2011 debt issuance. During first quarter 2011, the fair value of the swap increased and we recognized a gain of $23 million, net of tax, in AOCL. On February 15, 2011 we settled the interest rate swap, which had a net liability position of $40 million at the time of settlement. 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 notes. The ineffective portion of the interest rate swap was de minimis.

Unsettled Derivative Instruments As of March 31, 2012, we had entered into the following crude oil derivative instruments:

					Swaps		Collars
Settlement 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 March 31, 2012
2012	Swaps	NYMEX WTI (1)		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	Two-Way Collars	NYMEX WTI		5,000		-		-		95.00		115.00
2013	Three-Way Collars	NYMEX WTI		5,000		-		65.00		85.00		113.63
2013	Three-Way Collars	Dated Brent		26,000		-		82.88		100.86		127.32
2014	Swaps	Dated Brent		3,000		107.15		-		-		-
2014	Three-Way Collars	Dated Brent		10,000		-		85.00		98.50		129.24

(1)	West Texas Intermediate

As of March 31, 2012, we had entered into the following natural gas derivative instruments:

					Swaps		Collars
Settlement 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 March 31, 2012
2012	Swaps	NYMEX HH (1)		30,000	$	5.10	$	-	$	-	$	-
2012	Two-Way Collars	NYMEX HH		40,000		-		-		3.25		5.14
2012	Three-Way Collars	NYMEX HH		110,000		-		4.44		5.25		6.66
2013	Swaps	NYMEX HH		30,000		5.25		-		-		-
2013	Two-Way Collars	NYMEX HH		40,000		-		-		3.25		5.14
2013	Three-Way Collars	NYMEX HH		100,000		-		3.88		4.75		5.63

(1)

Henry Hub

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

As of March 31, 2012, we had entered into the following natural gas basis swaps:

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

(1)	Colorado Interstate Gas – Northern System

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
	March 31,			December 31,			March 31,			December 31,
	2012			2011			2012			2011
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
(millions)
Commodity Derivative Instruments	Current Assets	$	17	Current Assets	$	10	Current Liabilities	$	119	Current Liabilities	$	76
	Noncurrent Assets		22	Noncurrent Assets		37	Noncurrent Liabilities		29	Noncurrent Liabilities		7
Total		$	39		$	47		$	148		$	83

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

	Three Months Ended March 31,
	2012		2011
(millions)
Realized Mark-to-Market (Gain) Loss	$	23	$	(17	)
Unrealized Mark-to-Market Loss		73		303
Total Loss on Commodity Derivative Instruments	$	96	$	286

AOCL at March 31, 2012 included deferred losses of $26 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 6. 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 5. Derivative Instruments and Hedging Activities.

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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)
March 31, 2012
Financial Assets
Mutual Fund Investments	$	108		$	-		$	-	$	-		$	108
Commodity Derivative Instruments		-			105			-		(66	)		39
Financial Liabilities
Commodity Derivative Instruments		-			(214	)		-		66			(148	)
Portion of Deferred Compensation
Liability Measured at Fair Value		(172	)		-			-		-			(172	)
December 31, 2011
Financial Assets
Mutual Fund Investments	$	99		$	-		$	-	$	-		$	99
Commodity Derivative Instruments		-			99			-		(52	)		47
Financial Liabilities
Commodity Derivative Instruments		-			(135	)		-		52			(83	)
Portion of Deferred Compensation Liability
Measured at Fair Value		(162	)		-			-		-			(162	)

(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.

Additional Fair Value Disclosures

Debt The fair value of fixed-rate, public 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 amounts of floating-rate debt approximate fair value because the interest rate paid on such debt was set for periods of three months or less. The carrying amounts of the CONSOL installment payments approximate fair value because they have been discounted at the prevailing market rates for similar instruments. As such, we consider the fair value of our floating-rate debt and CONSOL installment payments to be level 2 measurements on the fair value hierarchy. See Note 4. Debt. Fair value information regarding our debt is as follows:

	March 31,				December 31,
	2012				2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
(millions)
Long-Term Debt, Net of Unamortized Discount (1)	$	4,117	$	4,606	$	4,114	$	4,733

(1)	Excludes Aseng FPSO lease obligation. No floating rate debt was outstanding at March 31, 2012 or December 31, 2011. See Note 4. Debt.

Note 7. 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 immediately charged to exploration expense.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

Changes in capitalized exploratory well costs are as follows and exclude amounts that were capitalized and subsequently expensed in the same period:

		Three Months Ended March 31, 2012
(millions)
Capitalized Exploratory Well Costs, Beginning of Period	$	696
Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves		93
Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves		-
Capitalized Exploratory Well Costs Charged to Expense		-
Capitalized Exploratory Well Costs, End of Period	$	789

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:

	March 31,		December 31,
	2012		2011
(millions)
Exploratory Well Costs Capitalized for a Period of One Year or Less	$	345	$	318
Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling		444		378
Balance at End of Period	$	789	$	696
Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling		10		9

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 March 31, 2012:

			Suspended Since
	Total		2011		2010		2009 & Prior
(millions)
Country/Project
Offshore Equatorial Guinea
Blocks O and I	$	114	$	2	$	6	$	106
Offshore Cameroon
YoYo		41		1		2		38
Offshore Israel
Leviathan		86		45		41		-
Dalit		22		-		1		21
Deepwater Gulf of Mexico
Gunflint		70		11		3		56
Deep Blue		75		2		54		19
North Sea
Selkirk		22		-		1		21
Other
3 projects of $10 million or less each		14		6		8		-
Total	$	444	$	67	$	116	$	261

Blocks O and I Blocks O and I are crude oil, natural gas and natural gas condensate discoveries. During the second quarter of 2011, we drilled the successful Diega appraisal well which encountered both crude oil and natural gas. We have drilled two sidetracks, each of which encountered hydrocarbons. We are currently finalizing our appraisal of Diega and are evaluating regional development scenarios.

YoYo YoYo is a 2007 natural gas and condensate discovery. During 2011 we acquired and processed additional 3-D seismic information and are continuing evaluations for future drilling potential.

Leviathan Leviathan is a 2010 natural gas discovery. We are continuing to evaluate the discovery with the successful drilling of the Leviathan-3 appraisal well. We will require an additional one or two appraisal wells to further define Leviathan’s natural gas areal extent in order to determine the best development option including subsea tieback to existing shallow water platform, semi-submersible platform, FPSO, or LNG.

In January 2012, we resumed drilling at the Leviathan-1 well in order to evaluate two additional intervals for the existence of crude oil. Results from these deeper tests are expected during the second quarter of 2012.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

Dalit Dalit is a 2009 natural gas discovery. We are currently working with our partners on a cost-effective development plan.

Gunflint Gunflint (Mississippi Canyon Block 948) is a 2008 crude oil discovery. We are currently drilling the first of up to three appraisal wells that we anticipate drilling to fully evaluate the extent of the reservoir. We are also reviewing host platform options including subsea tieback to an existing third-party host and construction of a new facility.

Deep Blue Deep Blue (Green Canyon Block 723) was a significant test well which began drilling in 2009. When the Deepwater Moratorium was announced in May 2010, we were required to suspend side track drilling activities. We resumed drilling activities and found additional hydrocarbons in high quality reservoirs in 2011. We have completed the analysis of the data obtained from the side track well and are working with our existing and potential new partners regarding their participation in an appraisal well.

Selkirk The Selkirk project is located in the UK sector of the North Sea. Capitalized costs to date primarily consist of the cost of drilling an exploratory well. We are currently working with our partners on a cost-effective development plan, including selection of a host facility.

Note 8. Asset Retirement Obligations

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

	Three Months Ended March 31,
	2012			2011
(millions)
Asset Retirement Obligations, Beginning Balance	$	377		$	253
Liabilities Incurred		6			1
Liabilities Settled		(2	)		(9	)
Revision of Estimate		3			4
Accretion Expense		7			5
Asset Retirement Obligations, Ending Balance	$	391		$	254

Liabilities settled in 2011 related primarily to Deepwater Gulf of Mexico and Gulf of Mexico shelf properties.

Accretion expense is included in depreciation, depletion and amortization (DD&A) expense in the consolidated statements of operations.

Note 9. Basic and Diluted 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 March 31,
	2012		2011
(millions, except per share amounts)
Net Income	$	263	$	14

Weighted Average Number of Shares Outstanding, Basic		177		176
Incremental Shares From Assumed Conversion of Dilutive Stock Options and Restricted Stock		3		2
Weighted Average Number of Shares Outstanding, Diluted		180		178
Earnings Per Share, Basic	$	1.48	$	0.08
Earnings Per Share, Diluted		1.47		0.08

Number of antidilutive stock options, shares of restricted stock and shares of common stock in rabbi trust excluded from calculation above		2		2

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

Note 10. Income Taxes

The income tax provision consists of the following:

	Three Months Ended March 31,
	2012			2011
(millions)
Current	$	79		$	12
Deferred		32			11
Total Income Tax Provision	$	111		$	23
Effective Tax Rate		30	%		62	%

Our effective tax rate decreased for the first quarter of 2012 as compared with the first quarter of 2011. During the first quarter of 2011, we increased the valuation allowance against our deferred tax asset for foreign tax credits by $11 million resulting in a corresponding increase in income tax expense, which was primarily responsible for the difference in the quarterly effective tax rates.

Years Remaining Open to Examination In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2008, Equatorial Guinea – 2007, Israel – 2008, UK – 2010, the Netherlands – 2009, and China – 2006.

Note 11. Segment Information

We have operations throughout the world and manage our operations by country. The following information is grouped into five components that are all primarily in the business of crude oil and natural gas exploration, development, and acquisition: the United States; West Africa (Equatorial Guinea, Cameroon, Senegal/Guinea-Bissau); Eastern Mediterranean (Israel and Cyprus); the North Sea (UK and the Netherlands); and Other International and Corporate. Other International includes China, Ecuador (in first quarter 2011), and new ventures.

	Consolidated		United States			West Africa		Eastern Mediter- ranean		North Sea		Other Int'l and Corporate
(millions)
Three Months Ended March 31, 2012
Revenues from Third Parties	$	1,112	$	554		$	383	$	44	$	75	$	56
Income from Equity Method Investees		53		2			51		-		-		-
Total Revenues		1,165		556			434		44		75		56
DD&A		312		198			73		5		18		18
(Gain) Loss on Commodity Derivative Instruments		96		(9	)		105		-		-		-
Income (Loss) Before Income Taxes		374		193			227		32		40		(118	)
Three Months Ended March 31, 2011
Revenues from Third Parties	$	851	$	505		$	130	$	52	$	114	$	50
Income from Equity Method Investees		48		-			48		-		-		-
Total Revenues		899		505			178		52		114		50
DD&A		221		167			10		4		28		12
Loss on Commodity Derivative Instruments		286		192			94		-		-		-
Income (Loss) Before Income Taxes		37		(37	)		74		39		68		(107	)

March 31, 2012
Goodwill	$	696	$	696		$	-	$	-	$	-	$	-
Total Assets		17,064		11,220			2,948		2,107		458		331
December 31, 2011
Goodwill		696		696			-		-		-		-
Total Assets		16,444		11,201			2,728		1,751		544		220

Note 12. Commitments and Contingencies

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.

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Noble Energy, Inc.

Notes to Consolidated Financial Statements

During 2011, we received two Notices of Alleged Violation (NOAV) from the Colorado Oil and Gas Conservation Commission (COGCC) regarding the reporting of the presence of hydrogen sulfide to the COGCC and local government designee within certain areas of our Piceance Basin and Grover field operations. At this time, the COGCC has not established a proposed penalty for either NOAV. Given the inherent uncertainty in administrative actions of this nature, we are unable to predict the ultimate outcome of this action at this time. However, we believe that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on our financial position, results of operations or cash flows.

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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. Our MD&A is presented in the following major sections:

●

Executive Overview;

●

Operating Outlook;

●

Results of Operations; and

●

Liquidity and Capital Resources.

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 leading independent energy company engaged in worldwide crude oil and natural gas exploration and production. Our strategy is to achieve growth in value and cash flows through the continued expansion of a high quality portfolio of producing assets that is balanced and diversified among US and international projects, crude oil and natural gas, and near, medium and long-term opportunities.

Our financial results for first quarter 2012 included:

●

net income of $263 million, as compared with $14 million for first quarter 2011;

●

loss on commodity derivative instruments of $96 million (including unrealized mark-to-market loss of $73 million) as compared with a loss on commodity derivative instruments of $286 million (including unrealized mark-to-market loss of $303 million) for first quarter 2011;