Note 3. Merger, Acquisitions and Divestitures

Rosetta Merger On July 20, 2015, Noble Energy completed the merger of Rosetta into a subsidiary of Noble Energy (Rosetta Merger). The results of Rosetta's operations since the merger date are included in our consolidated statement of operations. The merger was effected through the issuance of approximately 41 million shares of Noble Energy common stock in exchange for all outstanding shares of Rosetta using a ratio of 0.542 of a share of Noble Energy common stock for each share of Rosetta common stock and the assumption of Rosetta's liabilities, including approximately $2 billion fair value of outstanding debt.

The merger adds two new onshore US shale positions to our portfolio including approximately 50,000 net acres in the Eagle Ford Shale and 54,000 net acres in the Permian Basin (45,000 acres in the Delaware Basin and 9,000 acres in the Midland Basin). In connection with the Rosetta Merger, we incurred merger-related costs of approximately $81 million to date, including (i) $66 million of severance, consulting, investment, advisory, legal and other merger-related fees, and (ii) $15 million of noncash share-based compensation expense, all of which were expensed and are included in Other Operating (Income) Expense, Net.

Allocation of Purchase Price The merger has been accounted for as a business combination, using the acquisition method. The following table represents the preliminary allocation of the total purchase price of Rosetta to the assets acquired and the liabilities assumed based on the fair value at the merger date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. Certain data necessary to complete the purchase price allocation is not yet available, and includes, but is not limited to, valuation of pre-merger contingencies, final tax returns that provide the underlying tax basis of Rosetta's assets and liabilities, and final appraisals of assets acquired and liabilities assumed. We expect to complete the purchase price allocation during the 12-month period following the merger date, in line with the acquisition method of accounting, during which time the value of the assets and liabilities may be revised as appropriate.

The following table sets forth our preliminary purchase price allocation which was based on fair values of assets acquired and liabilities assumed at the merger date, July 20, 2015, with the excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill:



	(in millions, except stock price)
Shares of Noble Energy common stock issued to Rosetta shareholders	41
Noble Energy common stock price on July 20, 2015	$	36.97
Fair value of common stock issued	$	1,518
Plus: fair value of Rosetta's restricted stock awards and performance awards assumed	10
Plus: Rosetta stock options assumed	1
Total purchase price	1,529
Plus: liabilities assumed by Noble Energy
Accounts Payable	100
Current Liabilities	37
Long-Term Deferred Tax Liability	8
Long-Term Debt	1,992
Other Long Term Liabilities	23
Asset Retirement Obligation	27
Total purchase price plus liabilities assumed	$	3,716

Fair Value of Rosetta Assets
Cash and Equivalents	$	61
Other Current Assets	76
Derivative Instruments	209
Oil and Gas Properties:
Proved Properties	1,613
Undeveloped Leaseholds	1,355
Gathering and Processing Assets	207
Asset Retirement Obligation	27
Other Property Plant and Equipment	5
Implied Goodwill ⁽¹⁾	163
Total Asset Value	$	3,716

⁽¹⁾ Goodwill was fully impaired at December 31, 2015. See Note 4. Goodwill.

The fair value measurements of derivative instruments assumed were determined based on published forward commodity price curves as of the date of the merger and represent Level 2 inputs. 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. The fair value measurements of long-term debt were estimated based on published market prices and represent Level 1 inputs. The long-term debt balance includes amounts outstanding under Rosetta's credit facility which was assumed by Noble and repaid subsequent to the merger in third quarter 2015.

The fair value measurements of oil and natural gas properties and asset retirement obligations are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair values of oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties included estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital rate. These inputs required significant judgments and estimates by management at the time of the valuation and are the most sensitive and may be subject to change.

The results of operations attributable to Rosetta are included in our consolidated statement of operations beginning on July 21, 2015. Revenues of $181 million and pre-tax net loss of $120 million, inclusive of $163 million goodwill impairment, from Rosetta were generated from July 21, 2015 to December 31, 2015.

Proforma Financial Information The following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Rosetta and gives effect to the merger as if it had occurred on January 1, 2014. The below information reflects pro forma adjustments based on available information and certain assumptions that we believe are reasonable, including (i) Noble Energy's common stock and equity awards issued to convert Rosetta's outstanding shares of common stock and equity awards as of the closing date of the merger, (ii) adjustments to conform Rosetta's historical policy of accounting for its oil and natural gas properties from the full cost method to the successful efforts method of accounting, (iii) depletion of Rosetta's fair-valued proved oil and gas properties, and (iv) the estimated tax impacts of the pro forma adjustments. Additionally, pro forma earnings for the year ended December 31, 2015 were adjusted to exclude $81 million of merger-related costs incurred by Noble Energy and $37 million incurred by Rosetta. The pro forma results of operations do not include any cost savings or other synergies that may result from the Rosetta Merger or any estimated costs that have been or will be incurred by us to integrate the Rosetta assets.

The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Rosetta Merger taken place on January 1, 2014; furthermore, the financial information is not intended to be a projection of future results.



	Year Ended December 31,
(in millions, except per share amounts)	2015			2014
Revenues	$	3,428		$	6,112
Net Income (Loss)	$	(2,393	)	$	1,607

Earnings (Loss) Per Share
Basic	$	(5.64	)	$	4.01
Diluted	$	(5.64	)	$	3.94

Sale of Non-Core Onshore US Properties During the past three years, we closed the sales of non-core onshore US crude oil and natural gas properties. The information regarding the assets sold is as follows:



	Year Ended December 31,
(millions)	2015			2014			2013
Cash Proceeds	$	151		$	135		$	150
Less
Net Book Value of Assets Sold	(156		)	(150		)	(117		)
Goodwill Allocated to Assets Sold ⁽¹⁾	(4		)	(7		)	(8		)
Asset Retirement Obligations Associated with Assets Sold	8			48			8
Other Closing Adjustments	1			10			3
Gain on Divestitures	$	—		$	36		$	36

⁽¹⁾See Note 4. Goodwill.

China In June 2014, we sold our China assets. We determined the sale of our China assets did not meet the criteria for discontinued operations presentation under ASU 2014-08. The information regarding the China assets sold is as follows:



	Year Ended December 31, 2014
(millions)	2014
Sales Proceeds	$	186
Less
Net Book Value of Assets Sold	(149		)
Other Closing Adjustments	(2		)
Gain on Divestiture	$	35

Assets Held for Sale In November 2015, we executed an agreement to divest our 47% interest in the Alon A and Alon C offshore Israel licenses, which include the Karish and Tanin fields, for a total transaction value of $73 million ($67 million for asset consideration and $6 million from adjustment of costs). These assets were held for sale as of December 31, 2015, and the transaction closed in January 2016.

DJ Basin Acreage Exchange In October 2013, we closed an acreage exchange agreement with another operator related to our position in the DJ Basin. Each party exchanged approximately 50,000 net acres within the same field. The exchange consolidated our acreage into large contiguous blocks, which has provided the opportunity to optimize drilling, production, and gathering activities and add more extended-reach lateral wells to our development program. In accordance with guidance for oil and gas property conveyances, the transaction was accounted for at net book value, with no gain or loss recognized. We received $105 million in cash related to reimbursement of capital expenditures and other normal closing adjustments from the effective date of January 1, 2013 to closing date, which was recorded as a reduction in the net book value of the field.

North Sea Properties During 2013, we sold additional non-operated, North Sea properties. The 2013 sales resulted in a $65 million gain based on net sales proceeds of $56 million. During 2013, the North Sea geographical segment was presented as discontinued operations in our consolidated statements of operations. However, we were unable to locate purchasers for the remaining properties, and as of January 1, 2014, we no longer considered a sale probable. Therefore, the remaining assets were reclassified to assets held and used. See Note 5. Asset Impairments.

Summarized results of discontinued operations are as follows:



	Year Ended December 31,
(millions)	2013
Oil and Gas Sales	$	37
Income Before Income Taxes	12
Income Tax Expense	6
Operating Income, Net of Tax	6
Gain on Sale, Net of Tax	65
Discontinued Operations, Net of Tax	$	71