Basis of Presentation

Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at September 30, 2016 and December 31, 2015 and for the three and nine months ended September 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 nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

In third quarter 2016, Noble Midstream Partners LP (Noble Midstream), a subsidiary of Noble Energy, completed its initial public offering of common units. As a result, we will be presenting our consolidated financial statements with a noncontrolling interest section representing the public's ownership in Noble Midstream. Noble Midstream and the initial public offering of common units are further discussed in Note 3. Noble Midstream Partners LP.

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, the accounts of subsidiaries which Noble Energy wholly owns, and the accounts of Noble Midstream, which is considered a variable interest entity (VIE) for which Noble Energy is the primary beneficiary. 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.

Consolidated VIE Noble Energy has determined that the partners with equity at risk in Noble Midstream lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Noble Midstream's economic performance; therefore, Noble Midstream is considered a VIE. Through Noble Energy's ownership interest in Noble Midstream GP LLC (the General Partner to Noble Midstream), Noble Energy has the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to Noble Midstream. Therefore, Noble Energy is considered the primary beneficiary and consolidates Noble Midstream.

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, which was $31.65, as of the grant date.

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 September 30, 2016, the fair value remeasurement had a de minimis impact on our consolidated statement of operations and balance sheet. See Note 8. 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. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.

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 or 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 minimis.

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 material investments are accounted for under the equity method of accounting.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15): Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments should be presented in the statement of cash flows. Specifically, ASU 2016-15 provides additional guidance for certain cash flow items which may impact our presentation and classification within our statement of cash flows, including debt prepayments or debt extinguishment costs and distributions received from equity method investees. ASU 2016-15 will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-15 will have a material impact on our statement of cash flows and related disclosures as this update pertains to classification of items and is not a change in accounting principle.

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. During third quarter 2016, Noble Midstream closed on its initial public offering of common units. In accordance with ASU 2015-02, Noble Midstream is considered a VIE as Noble Energy is considered the primary beneficiary. We have adopted the provisions of ASU 2015-02, which did not have a material effect on our financial statements or related disclosures.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions)	2016			2015			2016			2015
Production Expense
Lease Operating Expense	$	131		$	133		$	412		$	419
Production and Ad Valorem Taxes	30			28			73			89
Transportation and Gathering Expense ⁽¹⁾	113			86			335			207
Total	$	274		$	247		$	820		$	715
Other Operating (Income) Expense, Net
(Gain) Loss on Asset Due to Terminated Contract ⁽²⁾	$	(3	)	$	—		$	44		$	—
Marketing and Processing Expense, Net ⁽³⁾	20			10			58			25
Loss on Divestitures	—			—			23			—
Corporate Restructuring Expense	—			21			—			39
Purchase Price Allocation Adjustment ⁽⁴⁾	—			—			(25		)	—
Gain on Extinguishment of Debt ⁽⁵⁾	—			—			(80		)	—
Asset Impairments	—			—			—			43
Inventory Adjustment ⁽⁶⁾	14			—			14			—
Building Exit Cost	4			18			8			18
Rosetta Merger Expenses	—			71			—			73
Pension Plan Expense	—			67			—			88
Stacked Drilling Rig Expense	3			13			8			20
Other, Net	7			(12		)	16			4
Total	$	45		$	188		$	66		$	310
Other Non-Operating Expense (Income), Net
Deferred Compensation Expense (Income) ⁽⁷⁾	$	2		$	(13	)	$	7		$	(19	)
Other (Income) Expense, Net	(3		)	1			(4		)	(1		)
Total	$	(1	)	$	(12	)	$	3		$	(20	)

⁽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. Prior year amounts of $18 million and $37 million for the three and nine months ended September 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 9. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs and Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Executive Overview - Exploration Program Update.


⁽³⁾	For the three and nine months ended September 30, 2016, amount includes $12 million and $39 million, respectively, of expense due to unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.

Prior year amounts of $6 million and $15 million for the three and nine months ended September 30, 2015, were previously presented within production expense. These amounts have been reclassified to conform to the current presentation.


⁽⁴⁾	Amount relates to an adjustment recorded to the purchase price allocation related to the Rosetta Merger. See Note 5. Rosetta Merger.


⁽⁵⁾	Amount relates to the tendering of senior notes assumed in the Rosetta Merger. See Note 7. Debt.


⁽⁶⁾	Amount relates to an adjustment of inventory to its net realizable value.


⁽⁷⁾	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)	September 30, 2016			December 31, 2015
Accounts Receivable, Net
Commodity Sales	$	317		$	298
Joint Interest Billings	66			20
Proceeds Receivable ⁽¹⁾	40			—
Other	86			151
Allowance for Doubtful Accounts	(23		)	(19		)
Total	$	486		$	450
Other Current Assets
Inventories, Materials and Supplies	$	75		$	92
Inventories, Crude Oil	25			23
Assets Held for Sale⁽²⁾	214			67
Prepaid Expenses and Other Current Assets	38			34
Total	$	352		$	216
Other Noncurrent Assets
Investments in Unconsolidated Subsidiaries	$	460		$	453
Mutual Fund Investments	83			90
Commodity Derivative Assets	—			10
Other Assets	44			67
Total	$	587		$	620
Other Current Liabilities
Production and Ad Valorem Taxes	$	121		$	166
Commodity Derivative Liabilities	27			—
Income Taxes Payable	168			86
Asset Retirement Obligations	128			128
Interest Payable	93			83
Current Portion of Capital Lease Obligations	61			53
Other	144			161
Total	$	742		$	677
Other Noncurrent Liabilities
Deferred Compensation Liabilities	$	232		$	217
Asset Retirement Obligations	820			861
Production and Ad Valorem Taxes	35			68
Commodity Derivative Liabilities	8			—
Other	44			73
Total	$	1,139		$	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⁾	Assets held for sale at September 30, 2016 primarily include $127 million relating to our 3% working interest in the Tamar project, offshore Israel, and certain producing and undeveloped assets in the DJ Basin and Eagle Ford Shale, onshore US. Assets held for sale at December 31, 2015 include the Karish and Tanin natural gas discoveries, offshore Israel. See Note 4. Divestitures.