Clayton Williams Energy Acquisition

6 Months Ended

Jun. 30, 2017

Business Combinations [Abstract]

Clayton Williams Energy Acquisition

3. Clayton Williams Energy Acquisition

In January 2017, we announced the Clayton Williams Energy Acquisition, which was approved by Clayton Williams Energy stockholders and closed on April 24, 2017. Acquired assets include 71,000 highly contiguous net acres in the core of the Delaware Basin adjacent to our Reeves County holdings in Texas, and an additional 100,000 net acres in other areas of the Permian and Midland Basins. In total, the acquisition increased our Delaware Basin position to approximately 118,000 net acres.

We recorded net proved reserves of approximately 86 MMBoe, of which approximately 17 MMBoe are proved developed reserves and 69 MMBoe are proved undeveloped reserves, as of June 30, 2017. In addition, upon closing of the acquisition, approximately 64,000 net acres in Reeves County, Texas were dedicated to Noble Midstream Partners for infield crude oil, natural gas and produced water gathering.

The acquisition was effected through the issuance of approximately 56 million shares of Noble Energy common stock, with a fair value of approximately $1.9 billion, and cash consideration of $637 million, for total consideration of approximately $2.5 billion, in exchange for all outstanding Clayton Williams Energy shares, including options, restricted stock awards and warrants. The closing price of our stock on the New York Stock Exchange (NYSE) was $34.17 on April 24, 2017. In connection with the transaction, we borrowed $1.3 billion under our Revolving Credit Facility (defined below) to fund the cash portion of the acquisition consideration, redeem outstanding Clayton Williams Energy debt, pay associated make-whole premiums and pay related fees and expenses. See Note 6. Debt.

In connection with the Clayton Williams Energy Acquisition, we have incurred acquisition-related costs of approximately $94 million to date, including $60 million of severance, consulting, investment, advisory, legal and other merger-related fees, and$34 million of noncash share-based compensation expense, all of which were expensed and are included in other operating expense, net in our consolidated statements of operations. In addition, we received approximately 720,000 shares of common stock from Clayton Williams Energy shareholders for the payment of withholding taxes due on the vesting of their restricted shares and options pursuant to the purchase and sale agreement, resulting in a $25 million increase in our treasury stock balance.

Purchase Price Allocation The transaction 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 Clayton Williams Energy to the identifiable assets acquired and the liabilities assumed based on the fair values at the acquisition date, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. Any value assigned to goodwill is not expected to be deductible for income tax purposes.

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 Clayton Williams Energy'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 acquisition date, during which time the value of the assets and liabilities, including any goodwill, may be revised as appropriate.

The following table sets forth our preliminary purchase price allocation:

(millions, except per share amounts)
Fair Value of Common Stock Issued	$	1,876
Plus: Cash Consideration Paid to Clayton Williams Energy Stockholders	637
Total Purchase Price	$	2,513
Plus Liabilities Assumed by Noble Energy:
Accounts Payable	68
Other Current Liabilities	38
Long-Term Deferred Tax Liability	522
Long-Term Debt	595
Asset Retirement Obligations	59
Total Purchase Price Plus Liabilities Assumed	$	3,795

The fair value of Clayton Williams Energy's identifiable assets is as follows:

(millions)
Cash and Cash Equivalents	$	21
Other Current Assets	37
Oil and Gas Properties:
Proved Reserves	724
Undeveloped Leasehold Cost	1,581
Gathering and Processing Assets	49
Asset Retirement Costs	59
Other Property Plant and Equipment	18
Other Noncurrent Assets	17
Implied Goodwill	1,289
Total Asset Value	$	3,795

In connection with the acquisition, we assumed, and then subsequently retired, $595 million of Clayton Williams Energy long-term debt. The fair value measurements of long-term debt were estimated based on the early redemption prices and represent Level 1 inputs.

The fair value measurements of crude 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 crude 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 crude 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 Clayton Williams Energy are included in our consolidated statements of operations beginning on April 24, 2017. We generated revenues of $25 million and a de minimis loss from the Clayton Williams Energy assets during the period April 24, 2017 to June 30, 2017.

Proforma Financial InformationThe following pro forma condensed combined financial information was derived from the historical financial statements of Noble Energy and Clayton Williams Energy and gives effect to the acquisition as if it had occurred on January 1, 2016. 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 Clayton Williams Energy's outstanding shares of common stock and equity awards and conversion of warrants as of the closing date of the acquisition, (ii) depletion of Clayton Williams Energy's fair-valued proved crude oil and natural gas properties, and (iii) the estimated tax impacts of the pro forma adjustments.

Additionally, pro forma earnings for the three and six months ended June 30, 2017 were adjusted to exclude acquisition-related costs of $90 million and $94 million, respectively, incurred by Noble Energy and $26 million, incurred by Clayton Williams Energy in second quarter 2017. The pro forma results of operations do not include any cost savings or other synergies that may result from the Clayton Williams Energy Acquisition or any estimated costs that have been or will be incurred by us to integrate the Clayton Williams Energy 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 Clayton Williams Energy Acquisition taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.

	Three Months Ended June 30,						Six Months Ended June 30,
(millions, except per share amounts)	2017			2016			2017			2016
Revenues	$	1,070		$	888		$	2,141		$	1,641
Net Loss and Comprehensive Loss Attributable to Noble Energy	(1,354		)	(316		)	(1,324		)	(649		)
Net Loss Attributable to Noble Energy per Common Share
Basic and Diluted	$	(2.77	)	$	(0.65	)	$	(2.71	)	$	(1.34	)