Note 14. Benefit Plans

Pension and Other Postretirement Benefit Plans We have a noncontributory, tax-qualified defined benefit pension plan covering employees who were hired prior to May 1, 2006. The benefits are based on an employee's years of service and average earnings for the 60 consecutive calendar months of highest compensation. Our funding policy has been to make annual contributions equal to at least the minimum required contribution, but no greater than the maximum deductible for federal income tax purposes. We also have an unfunded, nonqualified restoration plan that provides the pension plan formula benefits that cannot be provided by the qualified pension plan because of pay deferrals and the compensation and benefit limitations imposed on the pension plan by the Internal Revenue Code of 1986, as amended. We sponsor other plans for the benefit of our employees and retirees, which include medical and life insurance benefits. We use a December 31 measurement date for the plans.

Changes in the benefit obligation and plan assets of the pension, restoration and other postretirement benefit plans were as follows at December 31:

	Retirement and Restoration Plans						Medical and Life Plans
	2011			2010			2011			2010
(millions)
Change in Benefit Obligation
Benefit Obligation, Beginning Balance	$	262		$	228		$	24		$	23
Service Cost		14			14			2			2
Interest Cost		13			13			1			1
Employee Contributions		-			-			1			1
Benefits Paid		(13	)		(12	)		(2	)		(1	)
Plan Amendments (1)		-			-			(6	)		-
Actuarial Net (Gains) Losses		17			19			(2	)		(2	)
Benefit Obligation, Ending Balance		293			262			18			24
Change in Plan Assets
Fair Value of Plan Assets, Beginning Balance		206			172			-			-
Actual Return on Plan Assets		(1	)		23			-			-
Employer/Employee Contributions		27			23			2			1
Benefits Paid		(13	)		(12	)		(2	)		(1	)
Fair Value of Plan Assets, Ending Balance		219			206			-			-
Funded Status of Plan
Funded Status at End of Year		(74	)		(56	)		(18	)		(24	)
Net Amount Recognized in Consolidated Balance Sheets		(74	)		(56	)		(18	)		(24	)
Amounts Recognized in Consolidated Balance Sheets Consist of
Current Liabilities		(3	)		(3	)		(1	)		(1	)
Noncurrent Liabilities		(71	)		(53	)		(17	)		(23	)
Net Amount Recognized in Consolidated Balance Sheets		(74	)		(56	)		(18	)		(24	)
Amounts Not Yet Reflected in Net Periodic Benefit Cost and Included in AOCL
Net Prior Service (Cost) Credit, Before Tax		(2	)		(3	)		10			6
Net Gains (Losses), Before Tax		(120	)		(93	)		(6	)		(9	)
AOCL		(122	)		(96	)		4			(3	)
Cumulative Employer Contributions in Excess of Net Periodic Benefit Cost		48			40			(22	)		(21	)
Net Amount Recognized in Consolidated Balance Sheets	$	(74	)	$	(56	)	$	(18	)	$	(24	)

(1)	Plan amendments relate to an increase in the monthly retiree contributions, changes to annual deductible, co-pays and annual out-of-pocket limit and change to reflect trend on retiree contributions for the medical and life plan.

Net periodic benefit cost recognized for the pension, restoration and other postretirement benefit plans was as follows:

	Retirement and Restoration Plans									Medical and Life Plans
	Year Ended December 31,									Year Ended December 31,
	2011			2010			2009			2011			2010			2009
(millions)
Components of Net Periodic Benefit Cost
Service Cost	$	14		$	14		$	12		$	2		$	2		$	2
Interest Cost		13			13			11			1			1			1
Expected Return on Plan Assets		(15	)		(14	)		(14	)		-			-			-
Amortization of Prior Service (Credit) Cost		-			-			-			(1	)		(1	)		(1	)
Amortization of Net Loss and Other		6			5			3			1			1			1
Net Periodic Benefit Cost	$	18		$	18		$	12		$	3		$	3		$	3
Other Changes Recognized in AOCL
Prior Service Cost Arising During Period	$	-		$	-		$	-		$	(6	)	$	-		$	(2	)
Net Loss (Gain) Arising During Period		33			10			5			(2	)		(2	)		1
Amortization of Prior Service Credit		-			-			-			1			1			1
Amortization of Net Loss		(6	)		(5	)		(3	)		(1	)		(1	)		(1	)
Total Recognized in AOCL	$	27		$	5		$	2		$	(8	)	$	(2	)	$	(1	)
Expected Amortizations for Next Fiscal Year
Amortization of Net Prior Service Cost (Credit)	$	-		$	-		$	-		$	(2	)	$	(1	)	$	(1	)
Amortization of Net Losses		11			6			5			-			-			1
Weighted-Average Assumptions Used to Determine Benefit Obligations
Discount Rate (1)		4.25	%		5.50% / 5.25	%		6.00	%		4.00	%		5.00	%		5.50	%
Rate of Compensation Increase (2)		4.00% - 13.00	%		5.00	%		5.00	%		-			-			-
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Costs
Discount Rate (3)		5.50% / 5.25	%		6.00	%		6.00% / 6.25	%		5.00	%		5.50	%		6.25	%
Expected Long-Term Return on Assets		7.25	%		7.50	%		8.00	%		-			-			-
Rate of Compensation Increase		5.00	%		5.00	%		5.00	%		-			-			-

(1)	The discount rates used to determine benefit obligations at December 31, 2010 were 5.50% for the retirement plan and 5.25% for the restoration plan.

(2)	The rate of compensation increase used to determine benefit obligations at December 31, 2011 ranged from 4% to 13%. The rate of compensation increase assumption was determined using a historical age based table grouped in five year age intervals.

(3)

The discount rates used to determine net periodic benefit costs for the year ended December 31, 2011 were 5.50% for the retirement plan and 5.25% for the restoration plan. The discount rates used to determine net periodic benefit costs for the year ended December 31, 2009 were 6.00% for the retirement plan and 6.25% for the restoration plan.

Additional disclosures for the retirement and restoration plans are as follows:

	December 31,
	2011		2010
(millions)
Accumulated Benefit Obligation	$	267	$	230

Information for Pension Plans With Projected Benefit Obligations in Excess of Plan Assets
Projected Benefit Obligation		293		262
Fair Value of Plan Assets		219		206
Information for Pension Plans With Accumulated Benefit Obligations in Excess of Plan Assets
Accumulated Benefit Obligation		267		37
Fair Value of Plan Assets		219		-

In selecting the assumption for expected long-term rate of return on assets, we consider the average rate of earnings expected on the funds to be invested to provide for plan benefits. This includes considering the plan's asset allocation, historical returns on these types of assets, the current economic environment and the expected returns likely to be earned over the life of the plan. During 2011, we changed the plan's target asset allocation from 70% equity and 30% fixed income to 60% equity and 40% fixed income. The change was made to more closely align the plan's expected future payment streams with the expected duration of plan liabilities. The change was also made to reduce the plan's market risk and the degree of volatility in the plan's investments. Because a larger portion of the plans funds are now invested in fixed income, which are considered to be less risky investments, the plan's returns will likely be reduced in times of market upswings, while losses will be reduced in times of market downswings. We assume the long-term asset mix will be consistent with the target asset allocation, with a range in the acceptable degree of variation in the plan's asset allocation of plus or minus 10%. Based on these factors we assumed an average of 7.25% per annum over the life of the plan for the calculation of 2011 net periodic benefit cost. The assumption will be reduced to 6.50% for the calculation of 2012 net periodic benefit cost. No plan assets are expected to be returned to us in 2012.

In order to determine an appropriate discount rate at December 31, 2011, we performed an analysis of the Citigroup Pension Discount Curve (the CPDC) and various AA corporate bond yields as of that date for each of our plans. The CPDC uses spot rates that represent the equivalent yield on high quality, zero-coupon bonds for specific maturities. We used these rates to develop an equivalent single discount rate based on our plans' expected future benefit payment streams and duration of plan liabilities. A 1% increase in the discount rate would have resulted in a decrease in net periodic benefit cost of approximately $3 million in 2011. A 1% decrease in the discount rate would have resulted in an increase in net periodic benefit cost of approximately $2 million in 2011.

Assumed health care cost trend rates were as follows:

	December 31,
	2011			2010
Health Care Cost Trend Rate Assumed for Next Year		7.65	%		7.83	%
Ultimate Health Care Cost Trend Rate		4.50	%		4.50	%
Year Rate Reaches Ultimate Trend Rate		2030			2030

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
(millions)
Effect on Total Service and Interest Cost Components for 2011	$	-	$	-
Effect on Year-End 2011 Postretirement Benefit Obligation		2		(1	)

Weighted-average asset allocations for the tax-qualified defined benefit pension plan are as follows:

	Target Allocation			Plan Assets
	2012			2011			2010
Asset Category
Equity Securities		60	%		65	%		73	%
Fixed Income		40	%		35	%		27	%
Total		100	%		100	%		100	%

The investment policy for the tax-qualified defined benefit pension plan is determined by an employee benefits committee (the committee) with input from a third-party investment consultant. Based on a review of historical rates of return achieved by equity and fixed income investments in various combinations over multi-year holding periods and an evaluation of the probabilities of achieving acceptable real rates of return, the committee has determined the target asset allocation deemed most appropriate to meet immediate and future benefit payment requirements for the plan and to provide a diversification strategy which reduces market and interest rate risk. The fixed income allocation is expected to directionally track a portion of the plan's liabilities, thus reducing overall plan interest rate risk. A 1% increase (decrease) in the expected return on plan assets would have resulted in a (decrease) increase, respectively, in net periodic benefit cost of approximately $2 million in 2011.

We base our determination of the asset return component of pension expense on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the fair value of assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be impacted as previously deferred gains or losses are recorded. As of January 1, 2012, we had cumulative asset losses of approximately $10 million, which remain to be recognized in the calculation of the market-related value of assets.

Additional fair value disclosures about plan assets are as follows:

	Fair Value Measurements Using
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1) (1)		Significant Observable Inputs (Level 2) (1)		Significant Unobservable Inputs (Level 3) (1)		Total
(millions)
December 31, 2011
Federal Money Market Funds	$	1	$	-	$	-	$	1
Mutual Funds
Large Cap Funds		66		-		-		66
Mid Cap Funds		10		-		-		10
Blended Funds		6		-		-		6
Emerging Markets Funds		6		-		-		6
Fixed Income Funds		77		-		-		77
Common Collective Trust Funds
Large Cap Funds		-		17		-		17
Small Cap Funds		-		12		-		12
International Funds		-		24		-		24
Total	$	166	$	53	$	-	$	219
December 31, 2010
Federal Money Market Funds	$	2	$	-	$	-	$	2
Mutual Funds
Large Cap Funds		69		-		-		69
Mid Cap Funds		10		-		-		10
Blended Funds		6		-		-		6
Emerging Markets Funds		7		-		-		7
Fixed Income Funds		55		-		-		55
Common Collective Trust Funds
Large Cap Funds		-		16		-		16
Small Cap Funds		-		12		-		12
International Funds		-		29		-		29
Total	$	149	$	57	$	-	$	206

(1)	See Note 1. Summary of Significant Accounting Policies - Fair Value Measurements for a description of the fair value hierarchy.

Additional information about plan assets, including methods and assumptions used to estimate the fair values of plan assets, is as follows:

Federal Money Market Funds Investments in federal money market funds consist of portfolios of high quality fixed income securities (such as US Treasury securities) which, generally, have maturities of less than one year. The fair value of these investments is based on quoted market prices for identical assets as of the measurement date.

Mutual Funds Investments in mutual funds consist of diversified portfolios of common stocks and fixed income instruments. The common stock mutual funds are diversified by market capitalization and investment style as well as economic sector and industry. The fixed income mutual funds are diversified primarily in government bonds, mortgage backed securities, and corporate bonds, most of which are rated investment grade. The fair values of these investments are based on quoted market prices for identical assets as of the measurement date.

Common Collective Trust Funds Investments in common collective trust funds consist of common stock investments in both US and non-US equity markets. Portfolios are diversified by market capitalization and investment style as well as economic sector and industry. The investments in the non-US equity markets are used to further enhance the plan's overall equity diversification which is expected to moderate the plan's overall risk volatility. In addition to the normal risk associated with stock market investing, investments in foreign equity markets may carry additional political, regulatory, and currency risk which is taken into account by the committee in its deliberations. The fair value of these investments is based on quoted prices for similar assets in active markets. All of the investments in common collective trust funds represent exchange-traded securities with readily observable prices.

Contributions We expect to make cash contributions of approximately $13 million to the pension plan during 2012. We expect to make cash contributions of $3 million to the unfunded restoration plan and $1 million to the medical and life plans in 2012, which amounts equal expected benefit payments from those plans. (Unaudited).

Estimated Future Benefit Payments As of December 31, 2011, the following future benefit payments are expected to be paid:

	Retirement and Restoration Plans		Medical and Life Plans
(millions)
2012	$	21	$	1
2013		23		1
2014		25		1
2015		24		2
2016		26		2
Years 2017 to 2020		141		11

The estimate of expected future benefit payments is based on the same assumptions used to measure the benefit obligation at December 31, 2011 and includes estimated future employee service.

401(k) Plan We sponsor a 401(k) savings plan. All regular employees are eligible to participate. We make contributions to match employee contributions up to the first 6% of compensation deferred into the plan, and certain profit sharing contributions for employees hired on or after May 1, 2006, based upon their ages and salaries. We made cash contributions of $14 million in 2011, $11 million in 2010, and $9 million in 2009.

Deferred Compensation Plans We have a non-qualified deferred compensation plan for which participant-directed investments are held in a rabbi trust and are available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. Participants may elect to receive distributions in either cash or shares of our common stock. Components of the rabbi trust are as follows:

	December 31,
	2011		2010
(millions, except share amounts)
Rabbi Trust Assets
Mutual Fund Investments	$	82	$	96
Noble Energy Common Stock (at Fair Value)		80		82
Total Rabbi Trust Assets		162		178
Liability Under Related Deferred Compensation Plan	$	162	$	178
Number of Shares of Noble Energy Common Stock Held by Rabbi Trust		848,940		949,040

Assets of the rabbi trust, other than our common stock, are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds have published market prices and are reported at fair value. See Note 16. Fair Value Measurements and Disclosures. The mutual funds are included in the mutual fund investments account in other noncurrent assets in the consolidated balance sheets.

Shares of our common stock held by the rabbi trust are accounted for as treasury stock (recorded at cost, $33.44 per share) in the shareholders' equity section of the consolidated balance sheets. The amounts payable to the plan participants are included in other noncurrent liabilities in the consolidated balance sheets and include the market value of the shares of our common stock. Approximately 800,000 shares, or 94%, of our common stock held in the plan at December 31, 2011 were attributable to a member of our Board of Directors. The shares are being distributed in equal installments over the next eight years. Distributions of 100,000 shares were made in each of 2010 and 2011. In addition, plan participants sold 100 shares of our common stock in 2011, 100 shares in 2010, and 1,892 shares in 2009. Proceeds were invested in mutual funds and/or distributed to plan participants. Distributions to plan participants were valued at $17 million in 2011, $17 million in 2010 and were de minimis in 2009.

All fluctuations in market value of the deferred compensation liability have been reflected in other non-operating (income) expense, net in the consolidated statements of operations. We recognized deferred compensation expense of $8 million in 2011, $15 million in 2010 and $23 million in 2009.

We also maintain an unfunded deferred compensation plan for the benefit of certain of our employees. Deferred compensation liabilities of $60 million, $51 million and $45 million were outstanding at December 31, 2011, 2010 and 2009, respectively, under the unfunded plan.