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 June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and shareholders’ equity for such periods. Certain prior-period amounts have been reclassified to conform to the current-period presentation. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

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, 2015.

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. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.

Issuance of Phantom Units On February 1, 2016, we issued cash-settled awards to certain employees under the Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan in lieu of a portion of restricted stock and stock options. We issued approximately one million awards (so called phantom units, the nomenclature used in accounting literature), a portion of which are subject to the achievement of specific performance goals. These phantom units, once vested, are settled in cash. The phantom units represent a hypothetical interest in the Company. The phantom unit value is the lesser of the fair market value of a share of common stock of the Company as of the vesting date or up to four times the fair market value of a share of common stock of the Company as of the grant date, which was $31.65. The Company recognizes the value of our cash-settled awards utilizing the liability method as defined under Accounting Standards Codification Topic 718, Compensation - Stock Compensation. The fair value of liability awards is remeasured at each reporting date, based on the fair market value of a share of common stock of the Company as of the reporting date, through the settlement date with the change in fair value recognized as compensation expense over that period. As of June 30, 2016, the fair value remeasurement had a de minimis impact on our consolidated statement of operations and balance sheet. See Note 7. Fair Value Measurements and Disclosures.

Recently Issued Accounting Standards In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-02 (ASU 2016-02): Leases. The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases with terms of more than 12 months. This ASU also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for annual and interim periods beginning after December 15, 2018, with earlier application permitted. We are currently evaluating the provisions of this guidance to determine the effects it will have on our consolidated financial statements and related disclosures. In the normal course of business, we enter into capital and operating lease agreements to support our exploration and development operations and lease assets such as drilling rigs, platforms, storage facilities, field services and well equipment, pipeline capacity, office space and other assets. We believe the adoption and implementation of this ASU will likely have a material impact on our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (ASU 2016-09): Compensation - Stock Compensation, to reduce complexity and enhance several aspects of accounting and disclosure for share-based payment transactions, including the accounting for income taxes, award forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU will be effective for annual and interim periods beginning after December 15, 2016, with earlier application permitted. Certain aspects of this guidance will require retrospective application while other aspects are to be applied prospectively. We are currently evaluating the effect that the guidance will have on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13): Financial Instruments - Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more useful information about expected credit losses. The amended guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the effect, if any, that the guidance will have on our consolidated financial statements and related disclosures.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11 (ASU 2015-11): Simplifying the Measurement of Inventory, effective for annual and interim periods beginning after December 15, 2016. ASU 2015-11 changes the inventory measurement principle for entities using the first-in, first out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle will change from lower of cost or market to the lower of cost and net realizable value. We follow the average cost method and do not believe adoption of ASU 2015-11 will have a material impact on our financial position and results of operations.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), which creates Topic 606, Revenue from Contracts with Customers. In summary, the core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, ASU 2014-09 requires enhanced financial statement disclosures over revenue recognition as part of the new accounting guidance. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. In March 2016, the FASB released certain implementation guidance through ASU 2016-08 to clarify principal versus agent considerations. We are continuing to evaluate the provisions of ASU 2014-09 and have not yet determined the full impact it may have on our financial position and results of operations. At a minimum, we expect we will be required to change from the entitlements method used for certain domestic natural gas sales to the sales method of accounting. We believe the impact of utilizing the sales method of accounting for our current domestic natural gas sales agreements will be de minimus.

In March 2016, the FASB issued Accounting Standards Update No. 2016-07 (ASU 2016-07): Investments - Equity Method and Joint Ventures, to eliminate retroactive application of equity method accounting when an investment becomes qualified for equity method accounting as a result of an increase in the level of ownership interest or degree of influence. The ASU will be effective for annual and interim periods beginning after December 15, 2016, with earlier application permitted. We do not believe adoption of this guidance will have a material impact on our consolidated financial statements and related disclosures as all current investments are accounted for under the equity method of accounting.

In February 2015, the FASB issued Accounting Standards Update No. 2015-02 (ASU 2015-02): Consolidation - Amendments to the Consolidation Analysis, which changes the guidance as to whether an entity is a variable interest entity (VIE) or a voting interest entity and how related parties are considered in the VIE model. As of March 31, 2016, we have adopted the provisions of ASU 2015-02, which did not impact our consolidated financial statements.

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



	Three Months Ended June 30,						Six Months Ended June 30,
(millions)	2016			2015			2016			2015
Production Expense
Lease Operating Expense	$	119		$	129		$	281		$	286
Production and Ad Valorem Taxes	40			28			43			61
Transportation and Gathering Expense ⁽¹⁾	115			61			222			122
Total	$	274		$	218		$	546		$	469
Other Operating (Income) Expense, Net
Loss on Asset Due to Terminated Contract ⁽²⁾	$	5		$	—		$	47		$	—
Marketing and Processing Expense, Net ⁽³⁾	15			12			37			22
Loss (Gain) on Divestitures	23			(1		)	23			—
Corporate Restructuring Expense	—			18			1			18
Purchase Price Allocation Adjustment ⁽⁴⁾	(25		)	—			(25		)	—
Gain on Extinguishment of Debt ⁽⁵⁾	—			—			(80		)	—
Asset Impairments	—			15			—			43
Pension Plan Expense	—			21			—			21
Stacked Drilling Rig Expense	3			7			5			7
Other, Net	(4		)	13			12			10
Total	$	17		$	85		$	20		$	121
Other Non-Operating Expense (Income), Net
Deferred Compensation Expense (Income) ⁽⁶⁾	$	5		$	(7	)	$	5		$	(5	)
Other Expense (Income), Net	2			(2		)	(2		)	(4		)
Total	$	7		$	(9	)	$	3		$	(9	)

⁽¹⁾

Certain of our revenue received from purchasers was historically presented with deductions for transportation, gathering, fractionation or processing costs. Beginning in 2016, we have changed our presentation of revenue to no longer include these expenses as deductions from revenue. These costs are now included within production expense and prior year amounts of $10 million and $19 million for the three and six months ended June 30, 2015 have been reclassified to conform to the current presentation.


⁽²⁾	Amount relates to the termination of a rig contract offshore Falkland Islands as a result of a supplier's non-performance. See Note 8. Capitalized Exploratory Well Costs and Undeveloped Leasehold and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Exploration Program Update.


⁽³⁾	For the three months and six months ended June 30, 2016, amount includes $7 million and $23 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.

For the three months and six months ended June 30, 2015, amount includes $5 million and $9 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.


⁽⁴⁾	Amount relates to an adjustment recorded to the purchase price allocation related to the Rosetta Merger. See Note 3. Rosetta Merger.


⁽⁵⁾	Amount relates to the tendering of senior notes assumed in the Rosetta Merger. See Note 6. Debt.


⁽⁶⁾	Amounts represent decreases (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:



(millions)	June 30, 2016			December 31, 2015
Accounts Receivable, Net
Commodity Sales	$	338		$	298
Joint Interest Billings	19			20
Proceeds Receivable ⁽¹⁾	40			—
Severance Tax Refund ⁽²⁾	28			—
Other	75			151
Allowance for Doubtful Accounts	(24		)	(19		)
Total	$	476		$	450
Other Current Assets
Inventories, Materials and Supplies	$	93		$	92
Inventories, Crude Oil	25			23
Assets Held for Sale⁽³⁾	18			67
Prepaid Expenses and Other Current Assets	48			34
Total	$	184		$	216
Other Noncurrent Assets
Investments in Unconsolidated Subsidiaries	$	467		$	453
Mutual Fund Investments	79			90
Commodity Derivative Assets	—			10
Other Assets	47			67
Total	$	593		$	620
Other Current Liabilities
Production and Ad Valorem Taxes	$	142		$	166
Commodity Derivative Liabilities	35			—
Income Taxes Payable	35			86
Asset Retirement Obligations	128			128
Interest Payable	75			83
Current Portion of Capital Lease Obligations	56			53
Other	124			161
Total	$	595		$	677
Other Noncurrent Liabilities
Deferred Compensation Liabilities	$	225		$	217
Asset Retirement Obligations	855			861
Production and Ad Valorem Taxes	21			68
Commodity Derivative Liabilities	31			—
Other	41			73
Total	$	1,173		$	1,219


⁽¹⁾	Amount relates to proceeds to be received from our farm-out of 35% interest in Block 12 offshore Cyprus. See Note 4. Divestitures.


⁽²⁾	Amount relates to the accrual of a $28 million onshore US severance tax receivable.


⁽³⁾	Assets held for sale at June 30, 2016 include certain producing and undeveloped crude oil and natural gas interests in the DJ Basin, while assets held for sale at December 31, 2015 include the Karish and Tanin natural gas discoveries, offshore Israel. See Note 4. Divestitures.