Document And Entity Information(USD $)
In Billions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Apr. 6, 2012
Jun. 30, 2011
Entity Registrant Name
NOBLE ENERGY INC
Entity Central Index Key
0000072207
Current Fiscal Year End Date
--12-31
Entity Well-known Seasoned Issuer
Yes
Entity Voluntary Filers
No
Entity Current Reporting Status
Yes
Entity Filer Category
Large Accelerated Filer
Entity Public Float
$15.6
Entity Common Stock, Shares Outstanding
177,787,421
Document Fiscal Year Focus
2012
Document Fiscal Period Focus
Q1
Document Type
10-Q
Amendment Flag
false
Document Period End Date
Mar. 31, 2012
Consolidated Statements of Operations (unaudited)(USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Revenues
Oil, Gas and NGL Sales
$1,112
$830
Income from Equity Method Investees
53
48
Other Revenues
01
211
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 (in dollars per share)
$1.48
$0.08
Earnings Per Share, Diluted (in dollars per share)
$1.47
$0.08
Weighted Average Number of Shares Outstanding, Basic (in shares)
177
176
Weighted Average Number of Shares Outstanding, Diluted (in shares)
180
178
Consolidated Statements of Comprehensive Income (unaudited)(USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Consolidated Statements of Comprehensive Income (unaudited) [Abstract]
Net Income
$263
$14
Unrealized Change in Fair Value
0
23
Less Tax Provision
0
(8)
Net Change in Other
2
2
Other Comprehensive Income
2
17
Comprehensive Income
$265
$31
Consolidated Balance Sheets (unaudited)(USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2012
Dec. 31, 2011
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
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
0
0
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
Consolidated Balance Sheets (unaudited) (Parenthetical)(USD $)
Mar. 31, 2012
Dec. 31, 2011
Consolidated Balance Sheets (unaudited) [Abstract]
Preferred stock, par value per share (in dollars per share)
$1.00
$1.00
Preferred stock, shares authorized (in shares)
4,000,000
4,000,000
Common stock, par value per share (in dollars per share)
$3.333
$3.333
Common stock, shares authorized (in shares)
250,000,000
250,000,000
Common stock, shares issued (in shares)
198,000,000
197,000,000
Treasury stock, shares (in shares)
19,000,000
19,000,000
Consolidated Statements of Cash Flows (unaudited)(USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 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 (Gain) 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)
0
Proceeds from Divestitures
0
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
0
120
Repayment of Credit Facilities
0
(470)
Proceeds from Issuance of Senior Long-Term Debt, Net
0
836
Settlement of Interest Rate Derivative Instrument
0
(40)
Repayment of Capital Lease Obligation
(8)
0
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
Consolidated Statements of Shareholders' Equity (unaudited)(USD $)
In Millions
Common Stock [Member]
Additional Paid in Capital [Member]
Accumulated Other Comprehensive Loss [Member]
Treasury Stock at Cost [Member]
Retained Earnings [Member]
Total
Balance at Beginning of Period at Dec. 31, 2010
$651
$2,385
$(104)
$(624)
$4,540
$6,848
Net Income
0
0
0
0
14
14
Stock-based Compensation
0
14
0
0
0
14
Exercise of Stock Options
2
21
0
0
0
23
Tax Benefits Related to Exercise of Stock Options
0
8
0
0
0
8
Restricted Stock Awards, Net
1
(1)
0
0
0
0
Dividends
0
0
0
0
(32)
(32)
Changes in Treasury Stock, Net
0
0
0
(16)
0
(16)
Unrealized Change in Fair Value
0
0
15
0
0
15
Net Change in Other
0
0
2
0
0
2
Balance at End of Period at Mar. 31, 2011
654
2,427
(87)
(640)
4,522
6,876
Balance at Beginning of Period at Dec. 31, 2011
656
2,497
(100)
(638)
4,850
7,265
Net Income
0
0
0
0
263
263
Stock-based Compensation
0
16
0
0
0
16
Exercise of Stock Options
2
25
0
0
0
27
Tax Benefits Related to Exercise of Stock Options
0
12
0
0
0
12
Restricted Stock Awards, Net
1
(1)
0
0
0
0
Dividends
0
0
0
0
(39)
(39)
Changes in Treasury Stock, Net
0
0
0
(13)
0
(13)
Net Change in Other
0
0
2
0
0
2
Balance at End of Period at Mar. 31, 2012
$659
$2,549
$(98)
$(651)
$5,074
$7,533
Consolidated Statements of Shareholders' Equity (unaudited) (Parenthetical)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Consolidated Statements of Shareholders' Equity (unaudited) (Parenthetical) [Abstract]
Cash dividends per share (in dollars per share)
$0.22
$0.18
Organization and Nature of Operations
Organization and Nature of Operations
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 in the U.S., primarily in the DJ Basin and the Marcellus Shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa.
 
Basis of Presentation
Basis of Presentation
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.
 
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.
 
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.
Acquisitions
Acquisitions
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.
 
Debt
Debt
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.
 
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
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.
 
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
 
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.
 
Fair Value Measurements and Disclosures
Fair Value Measurements and Disclosures
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.
 
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.
 
Capitalized Exploratory Well Costs
Capitalized Exploratory Well Costs
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.
 
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.
 
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.
 
Asset Retirement Obligations
Asset Retirement Obligations
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.
 
Basic and Diluted Earnings Per Share
Basic and Diluted Earnings Per Share
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 

Income Taxes
Income Taxes
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.
 
Segment Information
Segment Information
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 
 
Commitments and Contingencies
Commitments and Contingencies
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.
Basis of Presentation (Tables)
Statement of Operations Information
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.
 
Balance Sheet Information Table
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.
 
Acquisitions (Tables)
Purchase Price Allocation of Acquisition
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.
 
Debt (Tables)
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.
 
Derivative Instruments and Hedging Activities (Tables)
Unsettled Derivative Instruments
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