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, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 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. For the periods presented, activity within other comprehensive income or loss was de minimis; therefore, net income or loss is identical to comprehensive income or loss. Certain prior-period amounts have been reclassified to conform to the current period presentation. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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, 2016.

Consolidation Our consolidated accounts include our accounts, the accounts of subsidiaries which Noble Energy wholly owns, and the accounts of Noble Midstream Partners LP (Noble Midstream Partners), 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 Partners lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Noble Midstream Partners' economic performance; therefore, Noble Midstream Partners is considered a VIE. Through Noble Energy's ownership interest in Noble Midstream GP LLC (the General Partner to Noble Midstream Partners), 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 Partners. Therefore, Noble Energy is considered the primary beneficiary and consolidates Noble Midstream Partners.

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.

Recently Issued Accounting Standards

Leases 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. 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. At this time, we can not reasonably estimate the financial impact this ASU will have on our financial statements; however, we do believe adoption and implementation of this ASU will likely materially impact our balance sheet resulting from an increase in both assets and liabilities relating to our leasing activities. As part of our assessment to date, we have formed an implementation work team, prepared educational and training materials pertinent to this ASU and have begun contract review and documentation.

Business Combinations - Clarifying the Definition of a Business In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01): Business Combinations - Clarifying the Definition of a Business, that assists in determining whether certain transactions should be accounted for as acquisitions or dispositions of assets or businesses. The amendment provides a screen to be applied to the fair value of an acquisition or disposal to evaluate whether the assets in question are simply assets or if they meet the requirements of a business. If the screen is not met, no further evaluation is needed. If the screen is met, certain steps are subsequently taken to make the determination. This ASU is designed to reduce the number of business transactions, which take more time and cost more than asset transactions. This ASU is effective for annual and interim periods beginning after December 15, 2017 and is required to be applied prospectively. Our current Clayton Williams Energy Acquisition (defined below) will not be impacted by this guidance and we will apply the new guidance to applicable and qualifying transactions after our adoption in 2018.

Financial Instruments - Credit Losses 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.

Revenue Recognition 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, revenue recognition would occur upon 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. Currently, we do not have any contracts that would require a change from the entitlements method, historically used for certain domestic natural gas sales, to the sales method of accounting. Based upon our evaluation of the ASU and our analysis to-date, we have not identified any material impact on our financial statements other than enhanced disclosures.

Statement of Cash Flows - Restricted Cash In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18): Statement of Cash Flows - Restricted Cash, which requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. This ASU will be effective for annual and interim periods beginning after December 15, 2017, with earlier application permitted. We do not believe adoption of ASU 2016-18 will have a material impact on our statement of cash flows and related disclosures.

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments 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 eight specific cash receipt and cash payment transactions should be presented in the statement of cash flows. 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.

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



	Three Months Ended March 31,
(millions)	2017			2016
Production Expense
Lease Operating Expense	$	139		$	161
Production and Ad Valorem Taxes ⁽¹⁾	45			4
Gathering, Transportation and Processing Expense ⁽²⁾	119			111
Total	$	303		$	276
Other Operating (Income) Expense, Net
Marketing Expense ⁽³⁾	$	19		$	18
Gain on Extinguishment of Debt ⁽⁴⁾	—			(80		)
Loss on Asset Due to Terminated Contract ⁽⁵⁾	4			42
Other, Net	6			19
Total	$	29		$	(1	)
Other Non-Operating Expense (Income), Net
Other Income, Net	(1		)	(4		)
Total	$	(1	)	$	(4	)


⁽¹⁾	For first quarter 2017, total production expense increased as compared with 2016 due to higher production taxes associated with higher realized commodity prices, as well as a $28 million US onshore severance tax refund recorded in first quarter 2016 and a $7 million US onshore severance tax charge recorded in first quarter 2017.

⁽²⁾

Certain of our processing expense was historically presented as a component of other operating expense, net, in our consolidated statements of operations. Beginning in 2017, we have changed our presentation to reflect processing expense as a component of production expense. These costs are now included within gathering, transportation and processing expense. For the three month period ended March 31, 2017, these costs totaled $3 million, and the prior year amount of $4 million for the three months ended March 31, 2016 has been reclassified from marketing expense to conform to the current presentation.


⁽³⁾	Amounts represent expense for unutilized firm transportation and shortfalls in delivering or transporting minimum volumes under certain commitments.


⁽⁴⁾	Amount relates to the tendering of senior notes. See Note 6. Debt.


⁽⁵⁾	Amounts relate to the termination and final settlement of a rig contract for offshore Falkland Islands as a result of a supplier's non-performance.

Balance Sheet Information Other balance sheet information is as follows:



(millions)	March 31, 2017			December 31, 2016
Accounts Receivable, Net
Commodity Sales	$	362		$	403
Joint Interest Billings	119			106
Proceeds Receivable ⁽¹⁾	—			40
Other	63			86
Allowance for Doubtful Accounts	(21		)	(20		)
Total	$	523		$	615
Other Current Assets
Inventories, Materials and Supplies	$	71		$	71
Inventories, Crude Oil	21			18
Restricted Cash ⁽²⁾	—			30
Prepaid Expenses and Other Current Assets	43			41
Total	$	135		$	160
Other Noncurrent Assets
Investments in Unconsolidated Subsidiaries	$	407		$	400
Mutual Fund Investments	74			71
Other Assets	54			37
Total	$	535		$	508
Other Current Liabilities
Production and Ad Valorem Taxes	$	116		$	115
Commodity Derivative Liabilities	23			102
Income Taxes Payable	30			53
Asset Retirement Obligations	160			160
Interest Payable	93			76
Current Portion of Capital Lease Obligations	66			63
Other	110			173
Total	$	598		$	742
Other Noncurrent Liabilities
Deferred Compensation Liabilities	$	215		$	218
Asset Retirement Obligations	772			775
Production and Ad Valorem Taxes	61			47
Other	44			63
Total	$	1,092		$	1,103


⁽¹⁾	Balance at December 31, 2016 related to the farm-out of a 35% interest in Block 12 offshore Cyprus; proceeds were received in January 2017.


⁽²⁾	Balance at December 31, 2016 represented amount held in escrow for the purchase of certain Delaware Basin properties. The transaction closed in first quarter 2017. See Note 4. Acquisitions and Divestitures.