UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q





x    QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
the quarterly period ended June 30, 2009





OR





 ̈   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For the
transition period from _____to_____





Commission
file number: 001-07964







NOBLE
ENERGY, INC.


(Exact
name of registrant as specified in its charter)




Delaware
            
            73-0785597(State
      or other jurisdiction of incorporation
              or
      organization)
            
            (I.R.S.
      employer identification number)100
      Glenborough Drive, Suite 100Houston,
      Texas
            
            77067(Address
      of principal executive offices)
            
            (Zip
      Code)(281)
      872-3100
              (Registrant’s
      telephone number, including area
code)





Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.     Yes [X]    No
[  ]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes [X
]    No [  ]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.


Large
      accelerated filer [X]
            Accelerated
      filer [  ]
            Non-accelerated
      filer [  ]
            Smaller
      reporting company [  ](Do
      not check if a smaller reporting
company)




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes
[  ]    No [X]





As of
July 13, 2009, there were 173,394,620 shares of the registrant’s common
stock,
 par value
$3.33 1/3 per share, outstanding.








TABLE OF CONTENTSPagePARTIItem
      1.
              Financial
      StatementsConsolidated Statements of Operations for
      the Three and Six Months Ended June 30, 2009 and 2008
              3Consolidated Balance Sheets as of June
      30, 2009 and December 31, 2008
              4Consolidated Statements of Cash Flows
      for the Six Months Ended June 30, 2009 and 2008
              5Consolidated Statements of
      Shareholders' Equity for the Six Months Ended June 30, 2009 and
      2008
              6Notes to Consolidated Financial
      Statements
              7Item
      2.
              Management's Discussion and Analysis of
      Financial Condition and Results of Operations
              25Item
      3.
              Quantitative and Qualitative Disclosures
      About Market Risk
              39Item
      4.
              Controls and
    Procedures
              40PARTIIItem
      1.
              Legal Proceedings
              41Item
      1A.
              Risk Factors
              41Item
      2.
              Unregistered Sales of Equity Securities
      and Use of Proceeds
              41Item
      3.
              Defaults Upon Senior
      Securities
              41Item
      4.
              Submission of Matters to a Vote of
      Security Holders
              41Item
      5.
              Other Information
              42Item
      6.
              Exhibits
              42











2
 Table of Contents





PART I. FINANCIAL INFORMATION


ITEM
1. FINANCIAL STATEMENTS







NOBLE
ENERGY, INC.


CONSOLIDATED STATEMENTS OF
OPERATIONS


(in
millions, except per share amounts)


(unaudited)





Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008RevenuesOil,
      Gas and NGL Sales
                      
                      
                      
                      
                      $
                      460
                      
                      
                      $
                      1,130
                      
                      
                      $
                      866
                      
                      
                      $
                      2,074Income
      from Equity Method Investees
                      
                      
                      
                      
                      
                      16
                      
                      
                      
                      56
                      
                      
                      
                      27
                      
                      
                      
                      118Other
      Revenues
                      
                      
                      
                      
                      
                      15
                      
                      
                      
                      19
                      
                      
                      
                      39
                      
                      
                      
                      38Total
      Revenues
                      
                      
                      
                      
                      
                      491
                      
                      
                      
                      1,205
                      
                      
                      
                      932
                      
                      
                      
                      2,230Costs
      and ExpensesLease
      Operating Expense
                      
                      
                      
                      
                      
                      93
                      
                      
                      
                      88
                      
                      
                      
                      193
                      
                      
                      
                      170Production
      and Ad Valorem Taxes
                      
                      
                      
                      
                      
                      23
                      
                      
                      
                      51
                      
                      
                      
                      42
                      
                      
                      
                      94Transportation
      Expense
                      
                      
                      
                      
                      
                      13
                      
                      
                      
                      16
                      
                      
                      
                      25
                      
                      
                      
                      29Exploration
      Expense
                      
                      
                      
                      
                      
                      33
                      
                      
                      
                      103
                      
                      
                      
                      75
                      
                      
                      
                      143Depreciation,
      Depletion and Amortization
                      
                      
                      
                      
                      
                      196
                      
                      
                      
                      196
                      
                      
                      
                      396
                      
                      
                      
                      399General
      and Administrative
                      
                      
                      
                      
                      
                      60
                      
                      
                      
                      61
                      
                      
                      
                      119
                      
                      
                      
                      121Asset
      Impairments
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      437
                      
                      
                      
                      -Other
      Operating (Income) Expense, Net
                      
                      
                      
                      
                      
                      (3
                      )
                      
                      
                      20
                      
                      
                      
                      (11
                      )
                      
                      
                      46Total
      Operating Expenses
                      
                      
                      
                      
                      
                      415
                      
                      
                      
                      535
                      
                      
                      
                      1,276
                      
                      
                      
                      1,002Operating
      Income (Loss)
                      
                      
                      
                      
                      
                      76
                      
                      
                      
                      670
                      
                      
                      
                      (344
                      )
                      
                      
                      1,228Other
      (Income) ExpenseLoss
      on Commodity Derivative Instruments
                      
                      
                      
                      
                      
                      139
                      
                      
                      
                      828
                      
                      
                      
                      66
                      
                      
                      
                      1,065Interest,
      Net of Amount Capitalized
                      
                      
                      
                      
                      
                      23
                      
                      
                      
                      17
                      
                      
                      
                      41
                      
                      
                      
                      34Other
      Non-Operating (Income) Expense, Net
                      
                      
                      
                      
                      
                      4
                      
                      
                      
                      23
                      
                      
                      
                      12
                      
                      
                      
                      10Total
      Non-Operating (Income) Expense
                      
                      
                      
                      
                      
                      
                      166
                      
                      
                      
                      868
                      
                      
                      
                      119
                      
                      
                      
                      1,109Income
      (Loss) Before Income Taxes
                      
                      
                      
                      
                      
                      
                      (90
                      )
                      
                      
                      (198
                      )
                      
                      
                      (463
                      )
                      
                      
                      119Income
      Tax Provision (Benefit)
                      
                      
                      
                      
                      
                      
                      (33
                      )
                      
                      
                      (54
                      )
                      
                      
                      (218
                      )
                      
                      
                      48Net
      Income (Loss)
                      
                      
                      
                      
                      
                      $
                      (57
                      )
                      
                      $
                      (144
                      )
                      
                      $
                      (245
                      )
                      
                      $
                      71Earnings
      (Loss) Per Share, Basic
                      
                      
                      
                      
                      
                      $
                      (0.33
                      )
                      
                      $
                      (0.84
                      )
                      
                      $
                      (1.42
                      )
                      
                      $
                      0.41Earnings
      (Loss) Per Share, Diluted
                      
                      
                      
                      
                      
                      
                      (0.33
                      )
                      
                      
                      (0.84
                      )
                      
                      
                      (1.42
                      )
                      
                      
                      0.41Weighted
      Average Number of Shares Outstanding, Basic
                      
                      
                      
                      
                      
                      
                      173
                      
                      
                      
                      172
                      
                      
                      
                      173
                      
                      
                      
                      172Weighted
      Average Number of Shares Outstanding, Diluted
                      
                      
                      
                      
                      
                      
                      173
                      
                      
                      
                      172
                      
                      
                      
                      173
                      
                      
                      
                      175The
      accompanying notes are an integral part of these financial
      statements.







3
 Table of Contents





NOBLE
ENERGY, INC.


CONSOLIDATED BALANCE SHEETS


(in
millions)





(unaudited)
                                  June
      30,
                                
                                
                                December
      31,2009
                                
                                
                                2008ASSETSCurrent
      AssetsCash
      and Cash Equivalents
                                
                                $
                                956
                                
                                
                                $
                                1,140Accounts
      Receivable, Net
                                
                                
                                450
                                
                                
                                
                                423Commodity
      Derivative Assets, Current
                                
                                
                                203
                                
                                
                                
                                437Other
      Current Assets
                                
                                
                                128
                                
                                
                                
                                158Total
      Assets, Current
                                
                                
                                1,737
                                
                                
                                
                                2,158Property,
      Plant and EquipmentOil
      and Gas Properties (Successful Efforts Method of
    Accounting)
                                
                                
                                12,161
                                
                                
                                
                                11,963Property,
      Plant and Equipment, Other
                                
                                
                                224
                                
                                
                                
                                175Total
      Property, Plant and Equipment, Gross
                                
                                
                                12,385
                                
                                
                                
                                12,138Accumulated
      Depreciation, Depletion and Amortization
                                
                                
                                (3,504
                                )
                                
                                
                                (3,134
                                )Total
      Property, Plant and Equipment, Net
                                
                                
                                8,881
                                
                                
                                
                                9,004Goodwill
                                
                                
                                758
                                
                                
                                
                                759Other
      Noncurrent Assets
                                
                                
                                475
                                
                                
                                
                                463Total
      Assets
                                
                                $
                                11,851
                                
                                
                                $
                                12,384LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      Payable - Trade
                                
                                $
                                493
                                
                                
                                $
                                579Income
      Taxes Payable
                                
                                
                                69
                                
                                
                                
                                130Deferred
      Income Taxes, Net, Current
                                
                                
                                25
                                
                                
                                
                                142Other
      Current Liabilities
                                
                                
                                303
                                
                                
                                
                                323Total
      Liabilities, Current
                                
                                
                                890
                                
                                
                                
                                1,174Long-Term
      Debt
                                
                                
                                2,416
                                
                                
                                
                                2,241Deferred
      Income Taxes, Noncurrent
                                
                                
                                1,947
                                
                                
                                
                                2,174Other
      Noncurrent Liabilities
                                
                                
                                539
                                
                                
                                
                                486Total
      Liabilities
                                
                                
                                5,792
                                
                                
                                
                                6,075Commitments
      and ContingenciesShareholders’
      EquityPreferred
      Stock - Par Value $1.00; 4 million Shares Authorized, None
      Issued
                                
                                
                                -
                                
                                
                                
                                -Common
      Stock - Par Value $3.33 1/3; 250 Million Shares Authorized; 193
      Million and 192 Million Shares Issued, Respectively
                                
                                
                                645
                                
                                
                                
                                641Additional
      Paid in Capital
                                
                                
                                2,229
                                
                                
                                
                                2,193Accumulated
      Other Comprehensive Loss
                                
                                
                                (91
                                )
                                
                                
                                (110
                                )Treasury
      Stock, at Cost; 19 Million Shares
                                
                                
                                (615
                                )
                                
                                
                                (614
                                )Retained
      Earnings
                                
                                
                                3,891
                                
                                
                                
                                4,199Total
      Shareholders’ Equity
                                
                                
                                6,059
                                
                                
                                
                                6,309Total
      Liabilities and Shareholders’ Equity
                                
                                $
                                11,851
                                
                                
                                $
                                12,384The
      accompanying notes are an integral part of these financial
      statements.










4
 Table of Contents





NOBLE
ENERGY, INC.


CONSOLIDATED STATEMENTS OF CASH
FLOWS


(in
millions)


(unaudited)





Six
      Months Ended
                      June
      30,2009
                    
                    
                    2008Cash
      Flows From Operating ActivitiesNet
      Income (Loss)
                    
                    $
                    (245
                    )
                    
                    $
                    71Adjustments
      to Reconcile Net Income (Loss) to Net Cash Provided by Operating
      Activities:Depreciation,
      Depletion and Amortization
                    
                    
                    396
                    
                    
                    
                    399Asset
      Impairments
                    
                    
                    437
                    
                    
                    
                    -Deferred
      Income Taxes
                    
                    
                    (359
                    )
                    
                    
                    10Income
      from Equity Method Investees
                    
                    
                    (27
                    )
                    
                    
                    (118
                    )Dividends
      from Equity Method Investees
                    
                    
                    5
                    
                    
                    
                    121Unrealized
      Loss on Commodity Derivative Instruments
                    
                    
                    358
                    
                    
                    
                    934Settlement
      of Previously Recognized Hedge Losses
                    
                    
                    -
                    
                    
                    
                    (101
                    )Allowance
      for Doubtful Accounts
                    
                    
                    (38
                    )
                    
                    
                    6Gain
      on Asset Sale
                    
                    
                    (24
                    )
                    
                    
                    -Other
      Adjustments for Noncash Items Included in Income
                    
                    
                    46
                    
                    
                    
                    122Changes
      in Operating Assets and Liabilities:(Increase)
      Decrease in Accounts Receivable
                    
                    
                    7
                    
                    
                    
                    (276
                    )(Increase)
      Decrease in Other Current Assets
                    
                    
                    17
                    
                    
                    
                    (28
                    )Increase
      in Accounts Payable
                    
                    
                    10
                    
                    
                    
                    64(Decrease)
      in Other Current Liabilities
                    
                    
                    (47
                    )
                    
                    
                    (41
                    )Other
      Assets and Liabilities, Net
                    
                    
                    (38
                    )
                    
                    
                    (9
                    )Net
      Cash Provided by Operating Activities
                    
                    
                    498
                    
                    
                    
                    1,154Cash
      Flows From Investing ActivitiesAdditions
      to Property, Plant and Equipment
                    
                    
                    (777
                    )
                    
                    
                    (932
                    )Proceeds
      from Sale of Property, Plant and Equipment
                    
                    
                    -
                    
                    
                    
                    109Net
      Cash Used in Investing Activities
                    
                    
                    (777
                    )
                    
                    
                    (823
                    )Cash
      Flows From Financing ActivitiesExercise
      of Stock Options
                    
                    
                    13
                    
                    
                    
                    24Excess
      Tax Benefits from Stock-Based Awards
                    
                    
                    3
                    
                    
                    
                    23Dividends
      Paid, Common Stock
                    
                    
                    (63
                    )
                    
                    
                    (53
                    )Purchase
      of Treasury Stock
                    
                    
                    (1
                    )
                    
                    
                    (2
                    )Proceeds
      from Credit Facilities
                    
                    
                    340
                    
                    
                    
                    450Repayment
      of Credit Facilities
                    
                    
                    (1,161
                    )
                    
                    
                    (425
                    )Net
      Proceeds from Issuance of 8 1⁄4% Senior Notes
                    
                    
                    989
                    
                    
                    
                    -Repayment
      of Installment Note
                    
                    
                    (25
                    )
                    
                    
                    (25
                    )Net
      Cash Provided by (Used in) Financing Activities
                    
                    
                    95
                    
                    
                    
                    (8
                    )Increase
      (Decrease) in Cash and Cash Equivalents
                    
                    
                    (184
                    )
                    
                    
                    323Cash
      and Cash Equivalents at Beginning of Period
                    
                    
                    1,140
                    
                    
                    
                    660Cash
      and Cash Equivalents at End of Period
                    
                    $
                    956
                    
                    
                    $
                    983The
      accompanying notes are an integral part of these financial
      statements.







5
 Table of Contents





NOBLE
ENERGY, INC.


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY


(in
millions)


(unaudited)





Six
      Months Ended
                    June
      30,2009
                  
                  
                  2008Common
      StockBalance,
      Beginning of Period
                  
                  $
                  641
                  
                  
                  $
                  636Exercise
      of Stock Options
                  
                  
                  2
                  
                  
                  
                  4Restricted
      Stock Awards, Net
                  
                  
                  2
                  
                  
                  
                  1Balance,
      End of Period
                  
                  
                  645
                  
                  
                  
                  641Capital
      in Excess of Par ValueBalance,
      Beginning of Period
                  
                  
                  2,193
                  
                  
                  
                  2,106Stock-Based
      Compensation Expense
                  
                  
                  24
                  
                  
                  
                  20Exercise
      of Stock Options
                  
                  
                  11
                  
                  
                  
                  20Tax
      Benefits Related to Exercise of Stock Options
                  
                  
                  3
                  
                  
                  
                  23Restricted
      Stock Awards, Net
                  
                  
                  (2
                  )
                  
                  
                  (1
                  )Rabbi
      Trust Shares Sold
                  
                  
                  -
                  
                  
                  
                  2Balance,
      End of Period
                  
                  
                  2,229
                  
                  
                  
                  2,170Accumulated
      Other Comprehensive LossBalance,
      Beginning of Period
                  
                  
                  (110
                  )
                  
                  
                  (284
                  )Oil
      and Gas Cash Flow Hedges:Realized
      Amounts Reclassified Into Earnings
                  
                  
                  20
                  
                  
                  
                  97Interest
      Rate Cash Flow Hedges:Unrealized
      Change in Fair Value
                  
                  
                  -
                  
                  
                  
                  (7
                  )Net
      Change in Other
                  
                  
                  (1
                  )
                  
                  
                  (1
                  )Balance,
      End of Period
                  
                  
                  (91
                  )
                  
                  
                  (195
                  )Treasury
      Stock at CostBalance,
      Beginning of Period
                  
                  
                  (614
                  )
                  
                  
                  (613
                  )Purchases
      of Treasury Stock
                  
                  
                  (1
                  )
                  
                  
                  (2
                  )Rabbi
      Trust Shares Sold
                  
                  
                  -
                  
                  
                  
                  2Balance,
      End of Period
                  
                  
                  (615
                  )
                  
                  
                  (613
                  )Retained
      EarningsBalance,
      Beginning of Period
                  
                  
                  4,199
                  
                  
                  
                  2,964Net
      Income (Loss)
                  
                  
                  (245
                  )
                  
                  
                  71Cash
      Dividends ($0.36 Per Share and $0.30 Per Share,
    Respectively)
                  
                  
                  (63
                  )
                  
                  
                  (53
                  )Balance,
      End of Period
                  
                  
                  3,891
                  
                  
                  
                  2,982Total
      Shareholders' Equity
                  
                  $
                  6,059
                  
                  
                  $
                  4,985The
      accompanying notes are an integral part of these financial
      statements.







6
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
 (unaudited)










Note 1 – Organization and
Nature of Operations


Noble
Energy, Inc. (Noble Energy, we or us) is an independent energy company
engaged in worldwide crude oil, natural gas and
natural gas liquids (NGL) acquisition, exploration and production. We
operate primarily in the Rocky Mountains, Mid-continent, and deepwater Gulf of
Mexico areas in the
US, with significant international operations offshore Israel, UK and
West Africa.




Note 2 – Basis of
Presentation


Presentation– Our
consolidated accounts include our accounts and the accounts of our wholly-owned
subsidiaries. The accompanying unaudited consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
US 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 generally accepted accounting principles
(GAAP) for complete financial statements. The accompanying consolidated
financial statements at June 30, 2009 and December 31, 2008 and for
the three months and six months ended June 30, 2009 and 2008 contain all
normally recurring adjustments considered necessary for a fair presentation of
our financial position, results of operations and cash flows for such periods.
Operating results for the three-month and six-month periods ended June 30, 2009
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2009. Certain reclassifications of amounts previously
reported have been made to conform to current year presentations. 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, 2008.




Estimates– The preparation
of consolidated financial statements in conformity with 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. Current credit market
conditions combined with volatile commodity prices have resulted in increased
uncertainty inherent in such estimates and assumptions. As future events and
their effects cannot be determined accurately, actual results could differ
significantly from our estimates.




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




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Other
      RevenuesElectricity
      Sales (1)
                        
                        $
                        11
                        
                        
                        $
                        14
                        
                        
                        $
                        32
                        
                        
                        $
                        29Gathering,
      Marketing and Processing Revenues
                        
                        
                        4
                        
                        
                        
                        5
                        
                        
                        
                        7
                        
                        
                        
                        9Total
                        
                        $
                        15
                        
                        
                        $
                        19
                        
                        
                        $
                        39
                        
                        
                        $
                        38Other
      Operating (Income) Expense, NetGain
      on Asset Sale (2)
                        
                        $
                        (24
                        )
                        
                        $
                        -
                        
                        
                        $
                        (24
                        )
                        
                        $
                        -Electricity
      Generation Expense (1)
                        
                        
                        11
                        
                        
                        
                        13
                        
                        
                        
                        (19
                        )
                        
                        
                        28Gathering,
      Marketing and Processing Expense
                        
                        
                        5
                        
                        
                        
                        4
                        
                        
                        
                        10
                        
                        
                        
                        8Settlement
      of Legal Proceedings (3)
                        
                        
                        4
                        
                        
                        
                        -
                        
                        
                        
                        9
                        
                        
                        
                        -Gain
      on Involuntary Conversion (4)
                        
                        
                        (3
                        )
                        
                        
                        -
                        
                        
                        
                        (3
                        )
                        
                        
                        -Other
      Operating (Income) Expense, Net
                        
                        
                        4
                        
                        
                        
                        3
                        
                        
                        
                        16
                        
                        
                        
                        10Total
                        
                        $
                        (3
                        )
                        
                        $
                        20
                        
                        
                        $
                        (11
                        )
                        
                        $
                        46Other
      Non-Operating (Income) Expense, NetDeferred
      Compensation Expense
                        
                        $
                        5
                        
                        
                        $
                        29
                        
                        
                        $
                        10
                        
                        
                        $
                        22Interest
      Income
                        
                        
                        (1
                        )
                        
                        
                        (6
                        )
                        
                        
                        (1
                        )
                        
                        
                        (12
                        )Other
      (Income) Expense, Net
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3
                        
                        
                        
                        -Total
                        
                        $
                        4
                        
                        
                        $
                        23
                        
                        
                        $
                        12
                        
                        
                        $
                        10




(1)
            Includes amounts
      related to our 100%-owned Ecuador integrated power project. The project
      includes the Amistad natural gas field, offshore Ecuador, which supplies
      natural gas to fuel the Machala power plant located in Machala, Ecuador.
      Electricity generation expense includes all operating and non-operating
      expenses associated with the plant, including depreciation, depletion and
      amortization expense (DD&A) and changes in the allowance for doubtful
      accounts. We recognized
      a net increase of $2 million in the allowance during second quarter 2009
      and a net decrease of $40 million in the allowance during the first six
      months of 2009. We recognized net increases of $3 million and $6 million
      in the allowance during the second quarter and first six months of 2008,
      respectively. See Allowance
      for Doubtful Accounts
  below.







7
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)







(2)
            In
      February 2008, effective July 1, 2007, we sold our interest in Argentina
      for a sales price of $117.5 million. The gain on sale was deferred until
      second quarter 2009 when the Argentine government approved the
      sale.




(3)
            Second
      quarter 2009 includes a $19 million charge on legal settlement (See Note
      14 – Commitments
      and Contingencies), offset by a $15 million gain on legal settlement
      related to reimbursement of bonuses paid for federal leases offshore
      California.




(4)
            Amount
      represents receipt of insurance claims related to Hurricane Katrina
      damage.




Balance Sheet Information
      – Other balance sheet information is as
  follows:




June
      30,
                                                
                                                December
      31,2009
                                                
                                                2008(in
      millions)Other
      Current AssetsInventories,
      Current
                                                
                                                $
                                                107
                                                
                                                $
                                                105Prepaid
      Expenses and Other Assets, Current
                                                
                                                
                                                21
                                                
                                                
                                                27Asset
      Held for Sale (1)
                                                
                                                
                                                -
                                                
                                                
                                                26Total
                                                
                                                $
                                                128
                                                
                                                $
                                                158Other
      Noncurrent AssetsEquity
      Method Investments
                                                
                                                $
                                                335
                                                
                                                $
                                                311Mutual
      Fund Investments
                                                
                                                
                                                90
                                                
                                                
                                                84Commodity
      Derivative Assets, Noncurrent
                                                
                                                
                                                7
                                                
                                                
                                                33Other
      Assets, Noncurrent
                                                
                                                
                                                43
                                                
                                                
                                                35Total
                                                
                                                $
                                                475
                                                
                                                $
                                                463Other
      Current LiabilitiesAccrued
      and Other Liabilities, Current
                                                
                                                $
                                                182
                                                
                                                $
                                                215Commodity
      Derivative Liabilities, Current
                                                
                                                
                                                39
                                                
                                                
                                                23Asset
      Retirement Obligations, Current
                                                
                                                
                                                44
                                                
                                                
                                                27Interest
      Payable
                                                
                                                
                                                38
                                                
                                                
                                                9Short-Term
      Borrowings
                                                
                                                
                                                -
                                                
                                                
                                                25Deferred
      Gain on Asset Sale, Current (2)
                                                
                                                
                                                -
                                                
                                                
                                                24Total
                                                
                                                $
                                                303
                                                
                                                $
                                                323Other
      Noncurrent LiabilitiesDeferred
      Compensation Liabilities, Noncurrent
                                                
                                                $
                                                182
                                                
                                                $
                                                159Asset
      Retirement Obligations, Noncurrent
                                                
                                                
                                                187
                                                
                                                
                                                184Accrued
      Benefit Costs, Noncurrent
                                                
                                                
                                                83
                                                
                                                
                                                81Commodity
      Derivative Liabilities, Noncurrent
                                                
                                                
                                                53
                                                
                                                
                                                2Other
      Liabilities, Noncurrent
                                                
                                                
                                                34
                                                
                                                
                                                60Total
                                                
                                                $
                                                539
                                                
                                                $
                                                486




(1)
            The
      Main Pass asset was reclassified as held-and-used and impaired during
      first quarter 2009. Estimated proved reserves attributed to this property
      were less than 1% of our total estimated proved reserves. See Note 5 – Fair Value
      Measurements




(2)
            See
      footnote (2) to Statements of Operations
      Informationabove.




Allowance for Doubtful Accounts –Through December 31, 2008, we had recorded an allowance for doubtful
accounts of $57 million related to our Ecuador power operations. The allowance
was necessary to cover potentially uncollectible balances, as certain entities
purchasing electricity in Ecuador have been slow to pay amounts due us. As a
result of pursuing various strategies to protect our interests, including
international arbitration and litigation, we reached a settlement in fourth
quarter 2008. In March and April 2009, we received total payments of $60 million
in accordance with the terms of the settlement, against which a reserve of $46
million had previously been recorded.  Accordingly, we reduced the
allowance for doubtful accounts by $46 million and included the amount as a
reduction in electricity generation expense during first quarter 2009. We
recorded additions to the allowance for doubtful accounts of $2 million and $8
million during the second quarter and first six months of 2009, respectively,
related to current period commodity and electricity
sales.







8
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)




Adoption of FSP SFAS 132(R) –
In December 2008, the FASB issued FSP SFAS 132(R), “Employers’ Disclosures About
Postretirement Benefit Plan Assets” (FSP SFAS 132(R)). FSP SFAS 132(R) requires
employers to make additional disclosures about plan assets for defined benefit
pension and other postretirement benefit plans beginning with annual periods
ending after December 15, 2009. The requirements apply to entities that are
subject to the disclosure requirements of SFAS 132(R). Disclosures are to
provide an understanding of how investment allocation decisions are made, the
major categories of plan assets, the inputs and valuation techniques used to
measure the fair value of plan assets, the effect of fair-value measurements
using significant unobservable inputs on changes in plan assets for the
period, and significant concentrations of risk within plan assets. We adopted
FSP SFAS 132(R) as of January 1, 2009. The statement provides only for enhanced
annual disclosures and does not require additional interim disclosures. Adoption
had no impact on our financial position or results of operations.




Adoption of SFAS 141(R) and SFAS 160
–In 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS
141(R)) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements” (SFAS 160). These statements require most identifiable assets,
liabilities and noncontrolling interests to be recorded at full fair value and
require noncontrolling interests to be reported as a component of equity. Both
statements are effective for periods beginning on or after December 15, 2008.
SFAS 141(R) will be applied to business combinations occurring after the
effective date and SFAS 160 will be applied prospectively to all noncontrolling
interests, including any that arose before the effective date. We adopted SFAS
141(R) and SFAS 160 as of January 1, 2009. There were no non-controlling
interests at adoption date. Adoption had no impact on our financial position or
results of operations.




Adoption of SFAS 157 – SFAS
No. 157, “Fair Value Measurements” (SFAS 157) establishes a single
authoritative definition of fair value based upon the assumptions market
participants would use when pricing an asset or liability and creates a fair
value hierarchy that prioritizes the information used to develop those
assumptions. Under the standard, additional disclosures are required, including
disclosures of fair value measurements by level within the fair value hierarchy.
As of January 1, 2008, we adopted the provisions of SFAS 157 related to our
financial assets and liabilities. As of January 1, 2009, we adopted the
provisions of SFAS 157 related to our nonfinancial assets and liabilities,
including nonfinancial assets and liabilities measured at fair value in a
business combination; impaired property, plant and equipment; goodwill
impairment assessments; and initial recognition of asset retirement obligations.
Adoption of SFAS 157 did not have a significant impact on our consolidated
financial statements. See Note 5 – Fair Value Measurements. See also Note 15 –
Recently Issued Pronouncements.




Adoption of SFAS 161 –In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (SFAS 161). SFAS 161 amends and expands the
disclosure requirements of SFAS 133, “Accounting for Derivative Instruments and
Hedging Activities” (SFAS 133), and requires qualitative disclosures about
objectives and strategies for using derivative instruments, quantitative
disclosures about fair value amounts of derivative instruments and related gains
and losses, and disclosures about credit risk-related contingent features in
derivative agreements. SFAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. We adopted
SFAS 161 as of January 1, 2009. The statement provides only for enhanced
disclosures. Therefore, adoption had no impact on our financial position or
results of operations. See Note 4 – Derivative Instruments and Hedging
Activities.




Adoption of SFAS 165 – In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS 165
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued.
In particular, SFAS 165 sets forth:




·
            The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial statements (through the date
      that the financial statements are issued or are available to be
      issued);


·
            The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; and


·
            The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.





9
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





SFAS 165
is effective for interim or annual periods ending after June 15, 2009, and is to
be applied prospectively. We adopted SFAS 165 as of June 30, 2009. We have
evaluated subsequent events after the balance sheet date of June 30, 2009
through July 30, 2009 which is the date the financial statements were
issued.




Adoption of SFAS 168 – In
June 2009, the FASB issued SFAS No. 168, “The ‘FASB Accounting Standards
Codification’ and the Hierarchy of Generally Accepted Accounting Principles”
(SFAS 168).  SFAS 168 establishes the FASB Accounting Standards
Codification (Codification), which officially commenced July 1, 2009, to become
the source of authoritative US GAAP recognized by the FASB to be applied by
nongovernmental entities.  Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative US GAAP for SEC
registrants.  The subsequent issuances of new standards will be in the
form of Accounting Standards Updates that will be included in the
Codification.  Generally, the Codification is not expected to change
US GAAP.  All other accounting literature excluded from the
Codification will be considered nonauthoritative.  SFAS 168 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.  We will adopt SFAS 168 for our quarter
ending September 30, 2009.  We are currently evaluating the effect on
our financial statement disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the
Codification.




Adoption of EITF Issue 08-06 –In November 2008, the FASB ratified the consensus reached in EITF Issue
08-06, “Equity Method Investment Accounting Considerations” (EITF 08-06). EITF
08-06 was issued to address questions that arose regarding the application of
the equity method subsequent to the issuance of SFAS 141(R). EITF 08-06
concluded that equity method investments should continue to be recognized using
a cost accumulation model, thus continuing to include transaction costs in the
carrying amount of the equity method investment. In addition, EITF 08-06
clarifies that an impairment assessment should be applied to the equity method
investment as a whole, rather than to the individual assets underlying the
investment. EITF 08-06 is effective for fiscal years beginning on or after
December 15, 2008. We adopted EITF 08-06 as of January 1, 2009. Adoption had no
impact on our financial position or results of operations.




Adoption
of Recent Staff Positions–In April 2009,
the FASB issued three related staff positions to clarify the application of SFAS
157 to fair value measurements in the current economic environment, modify the
recognition of other-than-temporary impairments of debt securities, and require
companies to disclose the fair value of financial instruments in interim
periods. The final staff positions are effective for interim and annual periods
ending after June 15, 2009.







·
              FSP SFAS 157-4 –FASB Staff Position No. 157-4, “Determining Fair Value When the
      Volume and Level of Activity for the Asset or Liability has Significantly
      Decreased and Identifying Transactions That Are Not Orderly” provides
      guidance on how to determine the fair value of assets and liabilities
      under SFAS 157 in the current economic environment and reemphasizes that
      the objective of a fair value measurement remains the price that would be
      received to sell an asset or paid to transfer a liability at the
      measurement date.·
              FSP SFAS 115-2 and SFAS 124-2– FASB Staff Position No. 115-2 and 124-2, “Recognition and
      Presentation of Other-Than-Temporary Impairments” modifies the
      requirements for recognizing other-than-temporarily impaired debt
      securities and significantly changes the existing impairment model for
      such securities. It also modifies the presentation of other-than-temporary
      impairment losses and increases the frequency of and expands already
      required disclosures about other-than-temporary impairment for debt and
      equity securities.·
              FSP
      SFAS 107-1 and APB 28-1– FASB Staff Position No. 107-1 and APB
      28-1, “Interim Disclosures about Fair Value of Financial Instruments”
      requires disclosures of the fair value of financial instruments within the
      scope of SFAS 107 in interim financial statements, adding to the current
      requirement to make those disclosures in annual financial statements. The
      staff position also requires that companies disclose the method or methods
      and significant assumptions used to estimate the fair value of financial
      instruments and a discussion of changes, if any, in the method or methods
      and significant assumptions during the
    period.







We
adopted the new staff positions for the quarter ended June 30, 2009. Adoption
had no impact on our financial position or results of operations. See Note 5 –
Fair Value Measurements for interim disclosures required by FSP SFAS 107-1 and
APB 28-1.







10
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Note 3 –
Debt


On
February 27, 2009, we closed an offering of $1 billion senior unsecured notes
receiving net proceeds of $989 million, after deducting the discount and
underwriting fees. The notes are due March 1, 2019, and pay interest
semi-annually at 81⁄4%. Debt issuance costs of approximately $2 million were
incurred and are being amortized to expense over the life of the debt issue.
Substantially all of the net proceeds from the offering were used to repay
outstanding indebtedness under our revolving credit facility maturing 2012. The
notes are senior unsecured debt and will rank pari passu with any of our
other senior unsecured indebtedness with respect to the payment of both
principal and interest.




On May
11, 2009, we made the final $25 million installment payment to the seller of
properties we purchased in 2007. Interest on the unpaid amount was due quarterly
and accrued at a LIBOR rate plus .30%. The interest rate was 1.51% at the
date of payment.




Our debt
consists of the following:




June
      30,
                                  
                                  
                                  December
      31,2009
                                  
                                  
                                  2008Debt
                                  
                                  
                                  Interest
      Rate
                                  
                                  
                                  Debt
                                  
                                  
                                  Interest
      Rate(in
      millions, except percentages)Credit
      Facility
                                  
                                  $
                                  785
                                  
                                  
                                  
                                  0.62
                                  %
                                  
                                  $
                                  1,606
                                  
                                  
                                  
                                  0.80
                                  %5
      1⁄4% Senior Notes, due April 15, 2014
                                  
                                  
                                  200
                                  
                                  
                                  
                                  5.25
                                  %
                                  
                                  
                                  200
                                  
                                  
                                  
                                  5.25
                                  %8
      1⁄4% Senior Notes, due March 1, 2019
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  8.25
                                  %
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -7
      1⁄4% Notes, due October 15, 2023
                                  
                                  
                                  100
                                  
                                  
                                  
                                  7.25
                                  %
                                  
                                  
                                  100
                                  
                                  
                                  
                                  7.25
                                  %8%
      Senior Notes, due April 1, 2027
                                  
                                  
                                  250
                                  
                                  
                                  
                                  8.00
                                  %
                                  
                                  
                                  250
                                  
                                  
                                  
                                  8.00
                                  %7
      1⁄4% Senior Debentures, due August 1, 2097
                                  
                                  
                                  89
                                  
                                  
                                  
                                  7.25
                                  %
                                  
                                  
                                  89
                                  
                                  
                                  
                                  7.25
                                  %Long-term
      Debt
                                  
                                  
                                  2,424
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,245Installment
      Payment, due May 11, 2009
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  25
                                  
                                  
                                  
                                  4.18
                                  %Total
      Debt
                                  
                                  
                                  2,424
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,270Unamortized
      Discount
                                  
                                  
                                  (8
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (4
                                  )Total
      Debt, Net of Discount
                                  
                                  $
                                  2,416
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  2,266




Note 4 – Derivative
Instruments and Hedging Activities


Objectives and Strategies for Using
Derivative Instruments– We are exposed to certain risks relating to our
ongoing business operations. The primary risk managed by using derivative
instruments is commodity price risk. We use various commodity derivative
instruments in connection with forecasted crude oil and natural gas sales to
minimize the impact of commodity price fluctuations. Such instruments include
variable to fixed price swaps, collars and basis swaps.




We may
also use derivative instruments to manage interest rate risk by entering into
forward contracts or swap agreements to minimize the impact of interest rate
fluctuations associated with fixed or floating rate borrowings. We may designate
these as cash flow hedges.




In
accordance with US GAAP for derivative instruments and hedging activities, all
of our derivative instruments are reflected as either assets or liabilities at
fair value in our consolidated balance sheets. See Note 5 – Fair Value
Measurements for a discussion of methods and assumptions used to estimate the
fair values of our commodity derivative instruments and gross amounts of
commodity derivative assets and liabilities.




Derivative
instruments expose us to counterparty credit risk. Our commodity derivative
instruments are currently with a diversified group of financial institutions, a
majority of which are lenders under our credit facility
arrangement.  Certain of these financial institutions have received
capital injections and other forms of support from government sources, and may
require additional financial assistance in the future to remain
viable.  Discontinuance of government support to these institutions
could have an adverse impact on the collectibility of our derivative
receivables. We generally execute commodity derivative instruments under master
agreements which allow us, in the event of default, to elect early termination
of all contracts with the defaulting counterparty. If we choose to elect early
termination, all asset and liability positions with the defaulting counterparty
would be net cash settled at the time of election.




We monitor the
creditworthiness of our counterparties. However, we are not able to predict
sudden changes in counterparties’ creditworthiness. In addition, even if such
changes are not sudden, we may be limited in our ability to mitigate an increase
in counterparty
credit risk. Possible actions would be to transfer our position to another
counterparty or request a voluntary termination of the derivative contracts
resulting in a cash settlement. Should one of these financial counterparties not
perform, we may not realize the benefit of some of our derivative instruments
under lower commodity prices as well as incur a loss. See also Note 5 –
Fair Value Measurements.







11
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Commodity Derivative Instruments– During 2009 and 2008 we accounted for our commodity derivative
instruments using mark-to-market accounting, and we recognize all gains and
losses on such instruments in earnings during the period in which they
occur.  Prior to January 1, 2008, we elected to designate certain of
our commodity derivative instruments as cash flow hedges. Net derivative gains
and losses that were deferred in accumulated other comprehensive loss (AOCL) as
of January 1, 2008, as a result of previous cash flow hedge accounting, are
reclassified to earnings in future periods as the original hedged transactions
occur.  See Derivatives in SFAS 133 Cash Flow Hedging Relationships
table below.




As of
June 30, 2009, we had entered into the following crude oil derivative
instruments:




Variable
      to Fixed Price Swaps
                                                                    
                                                                    CollarsWeighted
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Weighted
                                                                    
                                                                    WeightedProduction
                                                                    
                                                                    
                                                                    
                                                                    Bbls
                                                                    
                                                                    Average
                                                                    
                                                                    
                                                                    
                                                                    Bbls
                                                                    
                                                                    Average
                                                                    
                                                                    AveragePeriod
                                                                    
                                                                    Index
                                                                    
                                                                    Per
      Day
                                                                    
                                                                    Fixed
      Price
                                                                    
                                                                    Index
                                                                    
                                                                    Per
      Day
                                                                    
                                                                    Floor
      Price
                                                                    
                                                                    Ceiling
      Price2009
                                                                    
                                                                    NYMEX
      WTI
                                                                    
                                                                    
                                                                    9,000
                                                                    
                                                                    $
                                                                    88.43
                                                                    
                                                                    NYMEX
      WTI
                                                                    
                                                                    
                                                                    6,700
                                                                    
                                                                    $
                                                                    79.70
                                                                    
                                                                    $
                                                                    90.602009
                                                                    
                                                                    Dated
      Brent
                                                                    
                                                                    
                                                                    2,000
                                                                    
                                                                    
                                                                    87.98
                                                                    
                                                                    Dated
      Brent
                                                                    
                                                                    
                                                                    4,924
                                                                    
                                                                    
                                                                    71.40
                                                                    
                                                                    
                                                                    88.362009
      Average
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    11,000
                                                                    
                                                                    
                                                                    88.35
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    11,624
                                                                    
                                                                    
                                                                    76.19
                                                                    
                                                                    
                                                                    89.652010
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    NYMEX
      WTI
                                                                    
                                                                    
                                                                    14,500
                                                                    
                                                                    
                                                                    61.48
                                                                    
                                                                    
                                                                    75.632010
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    Dated
      Brent
                                                                    
                                                                    
                                                                    6,000
                                                                    
                                                                    
                                                                    63.83
                                                                    
                                                                    
                                                                    73.792010
      Average
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    20,500
                                                                    
                                                                    
                                                                    62.17
                                                                    
                                                                    
                                                                    75.10
  From July
1, 2009 to July 27,
2009, we entered into an additional Dated Brent collar covering 1,000
Bbls per day for calendar year 2010 with floor and ceiling prices of $65.00 and
$75.00, respectively.  We also entered into an additional NYMEX WTI
collar covering 1,000 Bbls per day for calendar year 2011 with floor and ceiling
prices of $70.00 and $82.40, respectively.




As of
June 30, 2009, we had entered into the following natural gas derivative
instruments:




CollarsWeighted
                                  
                                  
                                  WeightedProduction
                                  
                                  
                                  
                                  
                                  MMBtu
                                  
                                  
                                  Average
                                  
                                  
                                  AveragePeriod
                                  
                                  
                                  Index
                                  
                                  Per
      Day
                                  
                                  
                                  Floor
      Price
                                  
                                  
                                  Ceiling
      Price2009
                                  
                                  
                                  NYMEX
      HH
                                  
                                  
                                  170,000
                                  
                                  
                                  $
                                  9.15
                                  
                                  
                                  $
                                  10.812009
                                  
                                  
                                  IFERC
      CIG (1)
                                  
                                  
                                  15,000
                                  
                                  
                                  
                                  6.00
                                  
                                  
                                  
                                  9.902009
      Average
                                  
                                  
                                  
                                  
                                  
                                  185,000
                                  
                                  
                                  
                                  8.90
                                  
                                  
                                  
                                  10.732010
                                  
                                  
                                  NYMEX
      HH
                                  
                                  
                                  160,000
                                  
                                  
                                  
                                  5.88
                                  
                                  
                                  
                                  6.842010
                                  
                                  
                                  IFERC
      CIG
                                  
                                  
                                  15,000
                                  
                                  
                                  
                                  6.25
                                  
                                  
                                  
                                  8.102010
      Average
                                  
                                  
                                  
                                  
                                  
                                  175,000
                                  
                                  
                                  
                                  5.91
                                  
                                  
                                  
                                  6.952011
                                  
                                  
                                  NYMEX
      HH
                                  
                                  
                                  90,000
                                  
                                  
                                  
                                  5.92
                                  
                                  
                                  
                                  7.04




(1)    Colorado
Interstate Gas – Northern System




From July
1, 2009 to July 27,
2009, we entered into additional NYMEX HH collars covering 50,000 MMBtu
per day for calendar years 2010 and 2011 with weighted average
floor and ceiling prices of $6.00and $6.40,
respectively.







12
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





As of
June 30, 2009, we had entered into the following natural gas basis
swaps:




Basis
      SwapsWeightedProduction
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Index
      Less
                                                                  
                                                                  MMBtu
                                                                  
                                                                  AveragePeriod
                                                                  
                                                                  
                                                                  Index
                                                                  
                                                                  Differential
                                                                  
                                                                  Per
      Day
                                                                  
                                                                  Differential2009
                                                                  
                                                                  
                                                                  IFERC
      CIG
                                                                  
                                                                  NYMEX
      HH
                                                                  
                                                                  
                                                                  140,000
                                                                  
                                                                  $
                                                                  (2.49
                                                                  )2010
                                                                  
                                                                  
                                                                  IFERC
      CIG
                                                                  
                                                                  NYMEX
      HH
                                                                  
                                                                  
                                                                  90,000
                                                                  
                                                                  
                                                                  (1.68
                                                                  )




From July
1, 2009 to July 27, 2009, we entered into additional IFERC CIG for NYMEX HH
basis swaps covering 10,000 MMBtu per day for calendar year 2010, and 40,000
MMBtu per day for calendar year 2011, with weighted average differential prices
of $(0.90) and $(0.88), respectively.




InterestRate Derivative
Instruments–Changes in
fair value of interest rate swaps or interest rate “locks” designated as cash
flow hedges are reported in AOCL, to the extent the hedge is effective, until
the forecasted transaction occurs, at which time they are recorded as
adjustments to interest expense over the term of the related notes. During the
first six months of 2008, we had two interest rate swaps, or interest
rate “locks”, each in the notional amount of $500 million. The locks were based
on five and ten year US Treasury rates of 3.55% and 4.15%, respectively, and
were scheduled to expire in September 2008. The locks were designated as cash
flow hedges. The net increase in fair value of $20 million (net of tax) for
second quarter 2008 and the net decrease in fair value of $7 million (net of
tax) for the first six months of 2008 were reported in AOCL. The locks were
settled in July 2008 at a cost of $0.2 million.




Fair Value Amounts and Gains and
Losses on Derivative Instruments –The fair values of derivative
instruments in our consolidated balance sheets were as follows:




Derivative
      Instruments Not Designated as Hedging Instruments Under SFAS
      133Asset
      Derivative Instruments
                                                                                        
                                                                                        Liability
      Derivative InstrumentsJune
      30,
                                                                                        
                                                                                        
                                                                                        December
      31,
                                                                                        
                                                                                        June
      30,
                                                                                        
                                                                                        December
      31,2009
                                                                                        
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        2009
                                                                                        
                                                                                        2008(in
      millions)
                                                                                        
                                                                                        Balance
      Sheet Location
                                                                                        
                                                                                        Fair
      Value
                                                                                        
                                                                                        Balance
      Sheet Location
                                                                                        
                                                                                        Fair
      Value
                                                                                        
                                                                                        Balance
      Sheet Location
                                                                                        
                                                                                        Fair
      Value
                                                                                        Balance
      Sheet Location
                                                                                        
                                                                                        Fair
      ValueCommodity
      Derivative InstrumentsCurrent
      Assets
                                                                                        
                                                                                        $
                                                                                        203
                                                                                        
                                                                                        
                                                                                        Current
      Assets
                                                                                        
                                                                                        $
                                                                                        437
                                                                                        
                                                                                        Current
      Liabilities
                                                                                        
                                                                                        $
                                                                                        39
                                                                                        
                                                                                        Current
      Liabilities
                                                                                        
                                                                                        $
                                                                                        23Noncurrent
      Assets
                                                                                        
                                                                                        
                                                                                        7
                                                                                        
                                                                                        
                                                                                        Noncurrent
      Assets
                                                                                        
                                                                                        
                                                                                        33
                                                                                        
                                                                                        Noncurrent
      Liabilities
                                                                                        
                                                                                        
                                                                                        53
                                                                                        
                                                                                        Noncurrent
      Liabilities
                                                                                        
                                                                                        
                                                                                        2Total
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        210
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        470
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        92
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        25





















































13
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





The
effect of derivative instruments on our consolidated statements of operations
was as follows:




Derivative
      Instruments Not Designated as Hedging Instruments Under SFAS
      133Amount
      of (Gain) Loss on Derivative
                                                  Instruments
      Recognized in IncomeThree
      Months Ended
                                                  June
      30,
                                                
                                                
                                                Six
      Months Ended
                                                  June
      30,2009
                                                
                                                
                                                2008
                                                
                                                
                                                2009
                                                
                                                
                                                2008(in
      millions)Commodity Derivative
      InstrumentsRealized
      Mark-to-Market (Gain) Loss(1)
                                                
                                                $
                                                (138
                                                )
                                                
                                                $
                                                112
                                                
                                                
                                                $
                                                (292
                                                )
                                                
                                                $
                                                131Unrealized
      Mark-to-Market Loss (1)
                                                
                                                
                                                277
                                                
                                                
                                                
                                                716
                                                
                                                
                                                
                                                358
                                                
                                                
                                                
                                                934Total
      (Gain) Loss on Commodity Derivative Instruments
                                                
                                                $
                                                139
                                                
                                                
                                                $
                                                828
                                                
                                                
                                                $
                                                66
                                                
                                                
                                                $
                                                1,065




(1)
            Amounts
      are included in the line item “Loss on Commodity Derivative Instruments”
      in our consolidated statements of
operations.







Derivative
      Instruments in Previously Designated SFAS 133 Cash Flow Hedging
      RelationshipsAmount
      of (Gain) Loss on Derivative Instruments Recognized in OCI
                            
                            
                            Amount
      of (Gain) Loss on Derivative Instruments Reclassified from
      AOCL2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(in
      millions)
                            
                            
                            (in
      millions)Three
      Months Ended June 30,Commodity
      Derivative Instruments (1)Crude
      Oil(2)
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            15
                            
                            
                            $
                            93Natural
      Gas (2)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2Treasury
      Rate Locks
                            
                            
                            -
                            
                            
                            
                            (32
                            )
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            $
                            -
                            
                            
                            $
                            (32
                            )
                            
                            $
                            15
                            
                            
                            $
                            95Six
      Months Ended June 30,Commodity
      Derivative Instruments (1)Crude
      Oil(2)
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            32
                            
                            
                            $
                            190Natural
      Gas (2)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (35
                            )Treasury
      Rate Locks
                            
                            
                            -
                            
                            
                            
                            11
                            
                            
                            
                            -
                            
                            
                            
                            -Total
                            
                            $
                            -
                            
                            
                            $
                            11
                            
                            
                            $
                            32
                            
                            
                            $
                            155




(1)
            Includes
      effect of commodity derivative instruments previously accounted for as
      cash flow hedges. Net derivative gains and losses that were deferred in
      AOCL as of January 1, 2008, as a result of previous cash flow hedge
      accounting, are reclassified to earnings in future periods as the original
      hedged transactions occur.




(2)
            The
      amount of (Gain) Loss reclassified from AOCL on Derivative Instrument is
      recognized in Oil, Gas and NGL Sales within our consolidated statement of
      operations.






















14
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





AOCL –As of June 30, 2009,
the balance in AOCL included net deferred losses of $29 million
related to the fair value of commodity derivative instruments previously
accounted for as cash flow hedges. The net deferred losses are net of deferred
income tax benefits of $17 million. Approximately $22 million of deferred
losses (net of tax) related to the fair values of the commodity derivative
instruments previously designated as cash flow hedges and remaining in AOCL at
June 30, 2009 will be reclassified to earnings during the next 12 months as the
forecasted transactions occur, and will be recorded as a reduction in oil and
gas sales of approximately $36 million before tax. All forecasted transactions
currently being hedged and for which amounts remain in AOCL at June 30, 2009,
are expected to occur by December 2010.




Note 5 – Fair Value
Measurements


US GAAP
for fair value measurements establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three levels.
The fair value hierarchy gives the highest priority to quoted market prices
(unadjusted) in active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). Level 2 inputs are
inputs, other than quoted prices included within Level 1, which are
observable for the asset or liability, either directly or indirectly. We use
Level 1 inputs when available as Level 1 inputs generally provide the most
reliable evidence of fair value.




Assets
and Liabilities Measured at Fair Value on a Recurring Basis




Certain
assets and liabilities are reported at fair value on a recurring basis in our
consolidated balance sheets.  The following methods and assumptions
were used to estimate the fair values:




Cash, Cash Equivalents, Accounts
Receivable and Accounts Payable – The carrying amounts
approximate fair value due to the short-term nature or maturity of the
instruments.




Mutual Fund Investments – Our
mutual fund investments, which primarily include assets held in a rabbi trust,
consist of various publicly-traded mutual funds that include investments ranging
from equities to money market instruments. The fair values are based on quoted
market prices for identical assets.




Commodity Derivative Instruments –Our commodity derivative instruments consist of variable to fixed price
commodity swaps, collars and basis swaps. We estimate the fair values of these
instruments based on published commodity futures price strips for the underlying
commodities as of the date of the estimate. The discount rate used in the
discounted cash flow projections is based on published LIBOR rates, Eurodollar
futures rates and interest swap rates. The fair values of commodity derivative
instruments in an asset position include a measure of counterparty credit risk,
and the fair values of commodity derivative instruments in a liability position
include a measure of our own nonperformance risk, each based on the current
published credit default swap rates. In addition, for collars, we estimate the
option value of the contract floors and ceilings using an option pricing model
which takes into account market volatility, market prices and contract terms.
See Note 4 – Derivative Instruments and Hedging Activities.




Patina Deferred Compensation
Liability- The value is dependant upon the fair values of mutual fund
investments and shares of Noble Energy common stock held in a rabbi trust.See Mutual Fund Investments
above.







15
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Measurement
information for assets and liabilities that are measured at fair value on a
recurring basis was as follows:




Fair
      Value Measurements UsingQuoted
      Prices in
                                                Active
      Markets (Level 1)
                                              
                                              
                                              Significant
      Other Observable Inputs (Level 2)
                                              
                                              
                                              Significant
      Unobservable Inputs (Level 3)
                                              
                                              
                                              Adjustment
      (1)
                                              
                                              
                                              Fair
      Value Measurement(in
      millions)As
      of June 30, 2009Financial
      Assets:Mutual
      Fund Investments
                                              
                                              $
                                              90
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              90Commodity
      Derivative Instruments
                                              
                                              
                                              -
                                              
                                              
                                              
                                              245
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (35
                                              )
                                              
                                              
                                              210Financial
      Liabilities:Commodity
      Derivative Instruments
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (127
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              35
                                              
                                              
                                              
                                              (92
                                              )Patina
      Deferred Compensation Liability
                                              
                                              
                                              (139
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (139
                                              )As
      of December 31, 2008Financial
      Assets:Mutual
      Fund Investments
                                              
                                              
                                              84
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              84Commodity
      Derivative Instruments
                                              
                                              
                                              -
                                              
                                              
                                              
                                              492
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (22
                                              )
                                              
                                              
                                              470Financial
      Liabilities:Commodity
      Derivative Instruments
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (47
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              22
                                              
                                              
                                              
                                              (25
                                              )Patina
      Deferred Compensation Liability
                                              
                                              
                                              (123
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (123
                                              )




(1)
      Amount represents the impact of master netting agreements that allow us to
      net cash settle asset and liability positions with the same
      counterparty.




Assets
and Liabilities Measured at Fair Value on a Nonrecurring
Basis




Certain
assets and liabilities are reported at fair value on a nonrecurring basis in our
consolidated balance sheets.  The following methods and assumptions
were used to estimate the fair values:




Asset Impairments – In
accordance with US GAAP for the impairment or disposal of long-lived assets, we
review a proved oil and gas property for impairment when events and
circumstances indicate a possible decline in the recoverability of the carrying
value of such property. We estimate the future cash flows expected in connection
with the property and compare such future cash flows to the carrying amount of
the property to determine if the carrying amount is recoverable. If the carrying
amount of the property exceeds its estimated undiscounted future cash flows, the
carrying amount of the property is reduced to its estimated fair value. Fair
value may be estimated using comparable market data, a discounted cash flow
method, or a combination of the two. In the discounted cash flow method,
estimated future cash flows are based on management’s expectations for the
future and include estimates of future oil and gas production, commodity prices
based on published commodity futures price strips as of the date of the
estimate, operating and development costs, and a risk-adjusted discount
rate.




As a
result of a significant decline in the forward natural gas futures price strip
at March 31, 2009, we reviewed our oil and gas properties that are sensitive to
natural gas price decreases for impairment. We determined that the carrying
amount of Granite Wash, an onshore US area where we have significantly reduced
investments beginning in 2007, was not recoverable from future cash flows and,
therefore, was impaired at March 31, 2009.  We reduced Granite Wash to
its fair value, which was determined using the discounted cash flow method
described above, as comparable market data was not available.  We also
impaired the Main Pass asset which had been reclassified from held-for-sale to
held-and-used. Total pre-tax (non-cash) impairments for first quarter 2009 were
$437 million. The impaired assets, which had a total carrying amount of $753
million, were reduced to their estimated fair value of $316 million. The asset impairments were
Level 3 fair value measurements.




Asset Retirement Obligations
Incurred in Current Period – We estimate the fair values of asset
retirement obligations (AROs) based on discounted cash flow projections using
numerous estimates, assumptions and judgments regarding such factors as the
existence of a legal obligation for an ARO; estimated probabilities, amounts and
timing of settlements; the credit-adjusted risk-free rate to be used; and
inflation rates. See Note 7 – Asset Retirement Obligations for a summary of
changes in AROs. Asset retirement
obligations incurred in the current period were Level 3 fair value
measurements.







16
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)


Debt –The fair value of
fixed-rate debt is estimated based on the published market prices for the same
or similar issues.  The fair value of floating-rate debt is estimated
using the carrying amounts because the interest rates paid on such debt are set
for periods of three months or less. See Note 3 –Debt.




Additional
information regarding our debt is as follows:




June
      30,
                                
                                
                                December
      31,2009
                                
                                
                                2008Carrying
      Amount
                                
                                
                                Fair
      Value
                                
                                
                                Carrying
      Amount
                                
                                
                                Fair
      Value(in
      millions)Total
      Debt, Net of Unamortized Discount
                                
                                $
                                2,416
                                
                                
                                $
                                2,566
                                
                                
                                $
                                2,266
                                
                                
                                $
                                2,172






Note 6 – Capitalized
Exploratory Well Costs


Changes
in capitalized exploratory well costs are as follows and exclude amounts that
were capitalized and subsequently expensed in the same period:




Six
      Months Ended
                                June
      30,(in
      millions)Capitalized
      Exploratory Well Costs, Beginning of Period
                              
                              $
                              501Additions
      to Capitalized Exploratory Well Costs Pending Determination of Proved
      Reserves
                              96Reclassified
      to Property, Plant and Equipment Based on Determination of Proved
      Reserves
                              (88
                              )Capitalized
      Exploratory Well Costs Charged to Expense
                              
                              
                              (9
                              )Capitalized
      Exploratory Well Costs, End of Period
                              
                              $
                              500





The
following table provides an aging of capitalized exploratory well costs
(suspended well costs) based on the date the drilling was completed and the
number of projects for which exploratory well costs have been capitalized for a
period greater than one year since the completion of drilling:




June
      30,
                        
                        December
      31,2009
                        
                        
                        2008(in
      millions)Exploratory
      Well Costs Capitalized for a Period of One Year or Less
                        
                        $
                        225
                        
                        
                        $
                        256Exploratory
      Well Costs Capitalized for a Period Greater Than One Year After Completion
      of Drilling
                        
                        
                        275
                        
                        
                        
                        245Balance
      at End of Period
                        
                        $
                        500
                        
                        
                        $
                        501Number
      of Projects with Exploratory Well Costs That Have Been Capitalized for a
      Period Greater Than One Year After Completion of Drilling
                        
                        
                        4
                        
                        
                        
                        6







17
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





The
following table provides a further aging of those exploratory well costs that
have been capitalized for a period greater than one year since the completion of
drilling as of June 30, 2009:




Suspended
      SinceTotal
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006
      &
                            Prior(in
      millions)ProjectWest
      Africa
                          
                          $
                          221
                          
                          
                          $
                          61
                          
                          
                          $
                          140
                          
                          
                          $
                          20Redrock
      (deepwater Gulf of Mexico)
                          
                          
                          17
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          17Flyndre
      (North Sea)
                          
                          
                          15
                          
                          
                          
                          -
                          
                          
                          
                          12
                          
                          
                          
                          3Selkirk
      (North Sea)
                          
                          
                          22
                          
                          
                          
                          -
                          
                          
                          
                          22
                          
                          
                          
                          -Total
      Exploratory Well Costs Capitalized for a Period Greater Than One Year
      After Completion of Drilling
                          
                          $
                          275
                          
                          
                          $
                          61
                          
                          
                          $
                          174
                          
                          
                          $
                          40




West Africa–The West Africa project
includes Blocks O and I offshore Equatorial Guinea and the YoYo concession and
Tilapia production sharing contract offshore Cameroon. Since drilling the
initial well for this project, additional seismic work has been completed and
exploration and appraisal wells have been drilled to further evaluate our
discoveries. The West Africa development team is proceeding with a program to
further define the resources in this area such that an optimal development
program may be designed. Accordingly, a development plan for the Aseng (formerly
Benita) discovery on Block I was submitted to the Equatorial Guinean government
in December 2008, and has been approved.  In addition to the
exploratory well costs that have been capitalized for a period greater than one
year for the West Africa project, we have incurred $43 million in suspended
costs related to additional drilling activity in West Africa through June 30,
2009.




Redrock (Deepwater Gulf of Mexico)– Redrock (Mississippi Canyon Block 204) was a 2006 natural
gas/condensate discovery and is currently considered a co-development candidate
with Raton South (Mississippi Canyon Block 292). The anticipated development
plan consists of tying Raton South back to the Matterhorn facility for
processing and then connecting Redrock into this gathering system. Tie-back of
Redrock is anticipated to occur following the development of Raton South planned
in 2010.




Flyndre (North Sea)– The
Flyndre project is located in the UK sector of the North Sea and we successfully
completed an exploratory appraisal well in 2007.  We are currently
working with the project operator and other partners to finalize the field
development plan and relevant operating agreements.




Selkirk (North Sea) – The
Selkirk project is also located in the UK sector of the North Sea. Capitalized
costs to date primarily consist of the cost of drilling an appraisal well which
was then sidetracked to the original discovery well location, to ensure presence
of effective reservoir, and suspended as a future producer. We are currently
working with our partners on an alternative host and to reduce
costs.




Note 7 – Asset Retirement
Obligations


Asset
retirement obligations consist primarily of estimated costs of dismantlement,
removal, site reclamation and similar activities associated with our oil and gas
properties. See Note 5 – Fair Value Measurements for a discussion of the methods
and assumptions used to estimate the fair values of asset retirement
obligations. Changes in asset retirement obligations were as
follows:




Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008(in
      millions)Asset
      Retirement Obligations, Beginning of Period
                        
                        $
                        211
                        
                        
                        $
                        144Liabilities
      Incurred in Current Period
                        
                        
                        4
                        
                        
                        
                        14Liabilities
      Settled in Current Period
                        
                        
                        (8
                        )
                        
                        
                        (7
                        )Revisions
                        
                        
                        17
                        
                        
                        
                        6Accretion
      Expense
                        
                        
                        7
                        
                        
                        
                        4Asset
      Retirement Obligations, End of Period
                        
                        $
                        231
                        
                        
                        $
                        161







18
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Liabilities
settled and revisions in 2009 relate primarily to the Main Pass asset. Accretion
expense is included in DD&Aexpense in the
consolidated statements ofoperations.




Note 8 – Employee Benefit
Plans


We have a
noncontributory, tax-qualified defined benefit pension plan covering employees
who were hired prior to May 1, 2006. 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. Net periodic benefit cost related to the
retirement and restoration plans was as follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Service
      Cost
                        
                        $
                        3
                        
                        
                        $
                        3
                        
                        
                        $
                        6
                        
                        
                        $
                        6Interest
      Cost
                        
                        
                        3
                        
                        
                        
                        3
                        
                        
                        
                        6
                        
                        
                        
                        6Expected
      Return on Plan Assets
                        
                        
                        (3
                        )
                        
                        
                        (3
                        )
                        
                        
                        (7
                        )
                        
                        
                        (6
                        )Other
                        
                        
                        -
                        
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        1Net
      Periodic Benefit Cost
                        
                        $
                        3
                        
                        
                        $
                        4
                        
                        
                        $
                        6
                        
                        
                        $
                        7





Note
9 – Stock-Based Compensation


We
recognized stock-based compensation expense as follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Stock-Based
      Compensation Expense
                        
                        $
                        12
                        
                        
                        $
                        11
                        
                        
                        $
                        24
                        
                        
                        $
                        20Tax
      Benefit Recognized
                        
                        
                        (4
                        )
                        
                        
                        (4
                        )
                        
                        
                        (8
                        )
                        
                        
                        (8
                        )




During
the six months ended June 30, 2009, we granted 1.5 million stock options with a
weighted-average grant-date fair value of $18.76 per share and awarded 0.6
million shares of restricted stock subject to service conditions with a
weighted-average grant-date fair value of $50.33 per share. In 2009, we began
making grants of restricted stock under the Noble Energy, Inc. 1992 Stock Option
and Restricted Stock Plan that will time-vest 20% after year one, an additional
30% after year two and the remaining 50% after year three.




On
April 28, 2009, our stockholders approved an amendment to the 1992 Stock
Option and Restricted Stock Plan (the Plan) that increased the number of shares
of our common stock authorized for issuance under the Plan from 22 million to 24
million.







19
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Note
10 –
Basic and Diluted Earnings (Loss) Per Share


Basic
earnings (loss) per share of common stock is computed using the weighted average
number of shares of common stock outstanding during each period. The diluted
earnings per share of common stock may include the effect of Noble Energy shares
held in a rabbi trust, outstanding stock options or shares of restricted stock,
except in periods in which there is a net loss. The following table summarizes
the calculation of basic and diluted earnings (loss) per share:




Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Weighted
      Average Shares
                                                                                                                                                                    Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    Weighted
      Average Shares2009
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    2008(in
      millions, except per share amounts)Three
      Months Ended June 30:Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (57
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (144
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    172Basic
      Earnings (Loss) Per Share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (0.33
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (0.84
                                                                                                                                                                    )Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (57
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (144
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    172Plus
      Incremental Shares from Assumed Conversions:Dilutive
      Options, Restricted Stock and Shares of Common Stock in Rabbi
      Trust
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -Net
      Income (Loss) Available to Common Shareholders
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (57
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (144
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    172Diluted
      Earnings (Loss) Per Share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (0.33
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (0.84
                                                                                                                                                                    )Six
      Months Ended June 30:Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (245
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    71
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    172Basic
      Earnings (Loss) Per Share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.42
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.41Net
      Income (Loss)
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (245
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    71
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    172Plus
      Incremental Shares from Assumed Conversions:Dilutive
      Options, Restricted Stock and Shares of Common Stock in Rabbi
      Trust
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    -
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    3Net
      Income (Loss) Available to Common Shareholders
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (245
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    173
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    71
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    175Diluted
      Earnings (Loss) Per Share
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    (1.42
                                                                                                                                                                    )
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    
                                                                                                                                                                    $
                                                                                                                                                                    0.41




The
effect of stock options and unvested restricted stock outstanding has not been
included in the calculation of weighted average shares outstanding for diluted
earnings per share for the second quarter 2009, the first six months of 2009 and
the second quarter 2008 as their effect would have been antidilutive. Had we
recognized net income for these periods, incremental shares attributable to the
assumed exercise of outstanding options and restricted stock would have
increased diluted weighted average shares outstanding by 1.9 million shares for
the three months ended June 30, 2009, 1.8 million shares for the six months
ended June 30, 2009 and 2.5 million shares for the three months ended June 30,
2008.




A total
of 4.2 million and 4.4 million weighted average stock options, restricted shares
and common shares held in a rabbi trust were antidilutive for the second quarter
and first six months of 2009, respectively, and were excluded from the
calculation of diluted earnings per share.  A total of 1.1 million
weighted average stock options, restricted shares and common
shares  held in a rabbi trust were antidilutive for the second quarter
and first six months of 2008 and were excluded from the calculation of diluted
earnings per share.







20
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Note 11 – Income
Taxes


The
income tax provision (benefit) consists of the following:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Current
                        
                        $
                        25
                        
                        
                        $
                        (28
                        )
                        
                        $
                        141
                        
                        
                        $
                        38Deferred
                        
                        
                        (58
                        )
                        
                        
                        (26
                        )
                        
                        
                        (359
                        )
                        
                        
                        10Total
      Income Tax Provision (Benefit)
                        
                        $
                        (33
                        )
                        
                        $
                        (54
                        )
                        
                        $
                        (218
                        )
                        
                        $
                        48




The deferred tax
benefit for the six months ended June 30, 2009 was the result of the reversal of
a deferred tax liability recorded in 2008 with respect to unrealized
mark-to-market gains which were realized in 2009.  In addition, we
recorded a deferred tax asset with respect to impairment losses on our US oil
and gas properties.




Our
effective tax rate increased to 47% for the first six months of 2009 as compared
with 40% for the first six months of 2008 and is the result of a tax benefit
divided by a pre-tax loss.  In the case of a loss, our favorable
permanent differences, such as income from equity method investees, have the
effect of increasing the tax benefit which, in turn, increases the effective
rate.




During first quarter 2009,we repatriated $180 million of accumulated earnings of foreign
subsidiaries and used the proceeds for debt repayment and general corporate
purposes. The repatriation increased US tax expense by $9 million, which
was recorded in 2008. Repatriation of additional
earnings in the future could result in a decrease in our net income and cash
flows.




Unrecognized Tax Positions–We do not have
significant unrecognized tax benefits as of June 30, 2009. Our policy is to
recognize any interest and penalties related to unrecognized tax benefits in
income tax expense. We did not accrue interest or penalties at June 30, 2009,
because the jurisdiction in which we have unrecognized tax benefits does not
currently impose interest on underpayments of tax, and we believe that we are
below the minimum statutory threshold for imposition of penalties.




In our
major tax jurisdictions, the earliest years remaining open to examination are as
follows: US – 2005, Equatorial Guinea – 2007, China – 2006, Israel – 2000, UK –
2007 and the Netherlands – 2005.




Note 12 – Comprehensive
Income (Loss)


Comprehensive
income (loss) includes net income (loss) and certain items recorded directly to
shareholders’ equity and classified as AOCL. Comprehensive income (loss) was
calculated as follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Net
      Income (Loss)
                        
                        $
                        (57
                        )
                        
                        $
                        (144
                        )
                        
                        $
                        (245
                        )
                        
                        $
                        71Other
      Items of Comprehensive Income (Loss)Oil
      and Gas Cash Flow HedgesRealized
      Losses Reclassified Into Earnings
                        
                        
                        15
                        
                        
                        
                        95
                        
                        
                        
                        32
                        
                        
                        
                        155Less
      Tax Provision
                        
                        
                        (6
                        )
                        
                        
                        (36
                        )
                        
                        
                        (12
                        )
                        
                        
                        (58
                        )Interest
      Rate Cash Flow HedgesUnrealized
      Change in Fair Value (Gain / (Loss))
                        
                        
                        -
                        
                        
                        
                        32
                        
                        
                        
                        -
                        
                        
                        
                        (11
                        )Less
      Tax Provision
                        
                        
                        -
                        
                        
                        
                        (12
                        )
                        
                        
                        -
                        
                        
                        
                        4Net
      Change in Other
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1
                        )
                        
                        
                        (1
                        )Other
      Comprehensive Income
                        
                        
                        9
                        
                        
                        
                        79
                        
                        
                        
                        19
                        
                        
                        
                        89Comprehensive
      Income (Loss)
                        
                        $
                        (48
                        )
                        
                        $
                        (65
                        )
                        
                        $
                        (226
                        )
                        
                        $
                        160







21
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Note 13 – Segment
Information


We have
operations throughout the world and manage our operations by country. The
following information is grouped into five components that are all primarily in
the business of crude oil and natural gas acquisition, exploration and
production:  the United States; West Africa (Equatorial Guinea and
Cameroon); the North Sea (UK and the Netherlands); Eastern Mediterranean (Israel
and Cyprus); and Other International, Corporate and Marketing. Other International
includes primarily Argentina (through February 2008), China, Ecuador and
Suriname. The following data was prepared on the same basis as our
consolidated financial statements and excludes the effects of income
taxes.




Consolidated
                    
                    
                    United
      States
                    
                    
                    West
      Africa
                    
                    
                    North
      Sea
                    
                    
                    Eastern
      Mediter-ranean
                    
                    
                    Other
      Int'l, Corporate, Marketing(in
      millions)Three
      Months Ended June 30, 2009Revenues
      from Third Parties
                    
                    $
                    490
                    
                    
                    $
                    275
                    
                    
                    $
                    85
                    
                    
                    $
                    35
                    
                    
                    $
                    24
                    
                    
                    $
                    71Reclassification
      from AOCL (1)
                    
                    
                    (15
                    )
                    
                    
                    (8
                    )
                    
                    
                    (7
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Intersegment
      Revenue
                    
                    
                    -
                    
                    
                    
                    36
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (36
                    )Income
      from Equity Method Investees
                    
                    
                    16
                    
                    
                    
                    -
                    
                    
                    
                    16
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Revenues
                    
                    
                    491
                    
                    
                    
                    303
                    
                    
                    
                    94
                    
                    
                    
                    35
                    
                    
                    
                    24
                    
                    
                    
                    35DD&A
                    
                    
                    196
                    
                    
                    
                    164
                    
                    
                    
                    9
                    
                    
                    
                    9
                    
                    
                    
                    5
                    
                    
                    
                    9Loss
      on Commodity Derivative Instruments
                    
                    
                    139
                    
                    
                    
                    109
                    
                    
                    
                    30
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Income
      (Loss) Before Income Taxes
                    
                    
                    (90
                    )
                    
                    
                    (72
                    )
                    
                    
                    40
                    
                    
                    
                    13
                    
                    
                    
                    14
                    
                    
                    
                    (85
                    )Three
      Months Ended June 30, 2008Revenues
      from Third Parties
                    
                    $
                    1,244
                    
                    
                    $
                    752
                    
                    
                    $
                    163
                    
                    
                    $
                    99
                    
                    
                    $
                    30
                    
                    
                    $
                    200Reclassification
      from AOCL (1)
                    
                    
                    (95
                    )
                    
                    
                    (84
                    )
                    
                    
                    (11
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Intersegment
      Revenue
                    
                    
                    -
                    
                    
                    
                    144
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (144
                    )Income
      from Equity Method Investees
                    
                    
                    56
                    
                    
                    
                    -
                    
                    
                    
                    56
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Revenues
                    
                    
                    1,205
                    
                    
                    
                    812
                    
                    
                    
                    208
                    
                    
                    
                    99
                    
                    
                    
                    30
                    
                    
                    
                    56DD&A
                    
                    
                    196
                    
                    
                    
                    165
                    
                    
                    
                    9
                    
                    
                    
                    12
                    
                    
                    
                    5
                    
                    
                    
                    5Loss
      on Commodity Derivative Instruments
                    
                    
                    828
                    
                    
                    
                    677
                    
                    
                    
                    151
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Income
      (Loss) Before Income Taxes
                    
                    
                    (198
                    )
                    
                    
                    (214
                    )
                    
                    
                    38
                    
                    
                    
                    72
                    
                    
                    
                    23
                    
                    
                    
                    (117
                    )











22
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)


Consolidated
                    
                    
                    United
      States
                    
                    
                    West
      Africa
                    
                    
                    North
      Sea
                    
                    
                    Eastern
      Mediter-ranean
                    
                    
                    Other
      Int'l, Corporate, Marketing(in
      millions)Six
      Months Ended June 30, 2009Revenues
      from Third Parties
                    
                    $
                    937
                    
                    
                    $
                    511
                    
                    
                    $
                    144
                    
                    
                    $
                    69
                    
                    
                    $
                    52
                    
                    
                    $
                    161Reclassification
      from AOCL (1)
                    
                    
                    (32
                    )
                    
                    
                    (16
                    )
                    
                    
                    (16
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Intersegment
      Revenue
                    
                    
                    -
                    
                    
                    
                    88
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (88
                    )Income
      from Equity Method Investees
                    
                    
                    27
                    
                    
                    
                    -
                    
                    
                    
                    27
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Revenues
                    
                    
                    932
                    
                    
                    
                    583
                    
                    
                    
                    155
                    
                    
                    
                    69
                    
                    
                    
                    52
                    
                    
                    
                    73DD&A
                    
                    
                    396
                    
                    
                    
                    333
                    
                    
                    
                    18
                    
                    
                    
                    18
                    
                    
                    
                    10
                    
                    
                    
                    17Asset
      Impairments
                    
                    
                    437
                    
                    
                    
                    437
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Loss
      on Commodity Derivative Instruments
                    
                    
                    66
                    
                    
                    
                    42
                    
                    
                    
                    24
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Income
      (Loss) Before Income Taxes
                    
                    
                    (463
                    )
                    
                    
                    (481
                    )
                    
                    
                    82
                    
                    
                    
                    24
                    
                    
                    
                    35
                    
                    
                    
                    (123
                    )Six
      Months Ended June 30, 2008Revenues
      from Third Parties
                    
                    $
                    2,267
                    
                    
                    $
                    1,329
                    
                    
                    $
                    304
                    
                    
                    $
                    191
                    
                    
                    $
                    70
                    
                    
                    $
                    373Reclassification
      from AOCL (1)
                    
                    
                    (155
                    )
                    
                    
                    (132
                    )
                    
                    
                    (23
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Intersegment
      Revenue
                    
                    
                    -
                    
                    
                    
                    260
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (260
                    )Income
      from Equity Method Investees
                    
                    
                    118
                    
                    
                    
                    -
                    
                    
                    
                    118
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
      Revenues
                    
                    
                    2,230
                    
                    
                    
                    1,457
                    
                    
                    
                    399
                    
                    
                    
                    191
                    
                    
                    
                    70
                    
                    
                    
                    113DD&A
                    
                    
                    399
                    
                    
                    
                    329
                    
                    
                    
                    18
                    
                    
                    
                    28
                    
                    
                    
                    11
                    
                    
                    
                    13Loss
      on Commodity Derivative Instruments
                    
                    
                    1,065
                    
                    
                    
                    886
                    
                    
                    
                    179
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Income
      (Loss) Before Income Taxes
                    
                    
                    119
                    
                    
                    
                    (68
                    )
                    
                    
                    188
                    
                    
                    
                    127
                    
                    
                    
                    54
                    
                    
                    
                    (182
                    )Total
      Assets at June 30, 2009(2)
                    
                    
                    11,851
                    
                    
                    
                    8,849
                    
                    
                    
                    1,590
                    
                    
                    
                    593
                    
                    
                    
                    427
                    
                    
                    
                    392Total
      Assets at December 31, 2008 (2)
                    
                    
                    12,384
                    
                    
                    
                    9,212
                    
                    
                    
                    1,614
                    
                    
                    
                    775
                    
                    
                    
                    366
                    
                    
                    
                    417




(1)
            Revenues
      include decreases resulting from hedging activities. The decreases
      resulted from hedge gains and losses that were deferred in AOCL, as a
      result of previous cash flow hedge accounting, and subsequently
      reclassified to revenues.




(2)
            The
      US reporting unit includes goodwill of $758 million at June 30, 2009 and
      $759 million at December 31, 2008.







23
 Table of Contents
 NOBLE
ENERGY, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)





Note 14 – Commitments
      and Contingencies


Purchaser Bankruptcy–We have an exposure
from crude oil sales for the months of June and July 2008 to SemCrude, L.P.
(SemCrude), a subsidiary of SemGroup, L.P. (SemGroup).  On July 22,
2008, SemGroup, including SemCrude, filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code under Case Number
08-11525 (BLS) in the United States Bankruptcy Court for the District of
Delaware. Bankrupcty proceedings are ongoing as of June 30, 2009.




We have a
receivable of approximately $70 million from SemCrude. During 2008, we
determined that it was probable that a portion of the receivable was
uncollectible and reduced the carrying value of the SemCrude receivable by $38
million for the probable loss. We are pursuing various legal remedies to protect
our interests. We believe that ultimate disposition of this matter will not have
a material adverse affect on our financial position, results of operations,
or cash flows.




Legal Proceedings– We were named in a
lawsuit filed August 23, 2002 by Dore Energy Corporation under Docket Number
10-16202 in the 38th Judicial District Court, Cameron Parish,Louisiana. The lawsuit alleged damage to
property owned by Dore resulting from oil and gas activities. Trial began on
April 27, 2009; however, we reached a confidential settlement with Dore on May
7, 2009. The amount of the settlement did not have a material adverse effect on
our financial position or cash flows.




We are
involved in various other legal proceedings in the ordinary course of
business.  These proceedings are subject to the uncertainties inherent
in any litigation.  We are defending ourselves vigorously in all such
matters and we believe that the ultimate disposition of such proceedings will
not have a material adverse effect on our financial position, results of
operations or cash flows.




Note 15 – Recently Issued
Pronouncements


Recent SEC Rule-Making Activity– In December 2008, the SEC announced that it had approved revisions
designed to modernize the oil and gas company reserve reporting requirements.
The most significant amendments to the requirements include the
following:




·
            Commodity
      Prices – Economic producibility of reserves and discounted cash flows will
      be based on a 12-month average commodity price unless contractual
      arrangements designate the price to be
used.


·
            Disclosure
      of Unproved Reserves – Probable and possible reserves may be disclosed
      separately on a voluntary basis.


·
            Proved
      Undeveloped Reserve Guidelines – Reserves may be classified as proved
      undeveloped if there is a high degree of confidence that the quantities
      will be recovered.


·
            Reserve
      Estimation Using New Technologies – Reserves may be estimated through the
      use of reliable technology in addition to flow tests and production
      history.


·
            Reserve
      Personnel and Estimation Process – Additional disclosure is required
      regarding the qualifications of the chief technical person who oversees
      our reserves estimation process.  We will also be required to
      provide a general discussion of our internal controls used to assure the
      objectivity of the reserves
estimate.


·
            Disclosure
      by Geographic Area – Reserves in foreign countries or continents must be
      presented separately if they represent more than 15% of our total oil and
      gas proved reserves.


·
            Non-Traditional
      Resources–The
      definition of oil and gas producing activities will expand and focus on
      the marketable product rather than the method of
    extraction.




The rules
are effective for fiscal years ending on or after December 31, 2009, and early
adoption is not permitted.  We are currently evaluating the new rules
and assessing the impact they will have on our reported oil and gas
reserves.  The SEC is coordinating with the Financial Accounting
Standards Board (FASB) to obtain the revisions necessary to US GAAP concerning
financial accounting and reporting by oil and gas producing companies and
disclosures about oil and gas producing activities to provide consistency with
the new rules. The FASB expects to issue both a Proposed Accounting Standards
Update and a Final Accounting Standards Update for SEC Oil and Gas Disclosures
during third quarter 2009.







24
 Table of Contents





ITEM 2.  MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION


AND
RESULTS OF OPERATIONS





EXECUTIVE
OVERVIEW




We are an
independent energy company engaged in worldwide crude oil, natural gas and NGL
exploration and production. We operate primarily in the Rocky Mountains,
Mid-continent, and deepwater Gulf of Mexico areas in the US, with significant
international operations offshore Israel, UK and West Africa.




Our
accompanying consolidated financial statements, including the notes thereto,
contain detailed information that should be referred to in conjunction with the
following discussion.




Our
financial results for second quarter 2009 included:




·
            net
      loss of $57 million, as compared with a net loss of $144 million for
      second quarter 2008;


·
            loss
      on commodity derivative instruments of $139 million as compared with a
      loss of $828 million for second quarter
2008;


·
            gain
      of $24 million on the completed Argentina asset
  sale;


·
            diluted
      loss per share of $0.33, as compared with diluted loss per share of $0.84
      for second quarter 2008;


·
            ending
      cash and cash equivalents balance of $956 million;
  and


·
            cash
      flow provided by operating activities of $313 million, as compared with
      $648 million for second quarter
2008.




Significant
      operational highlights for second quarter 2009
  included:




·
            successful
      Tamar appraisal well offshore
Israel;


·
            successful
      flow test at the Dalit natural gas discovery offshore
    Israel;


·
            record
      Wattenberg field production of 282 MMcfepd, including liquid production of
      over 21 MBopd; and


·
            award
      of 22 of the 24 high bid lease blocks from the Central Gulf of Mexico
      lease sale 208.




Sanction of Aseng Oil Project– On July 22, 2009, we announced that the Plan of Development for the
Aseng oil project has been sanctioned by us, our partners, and the Ministry of
Mines, Industry, and Energy of the Republic of Equatorial Guinea.  We
serve as technical operator of the development with a 40% working
interest.




Formerly
known as Benita, Aseng was originally discovered in 2007 as a gas-condensate
field in Block I offshore Equatorial Guinea. Subsequently, two appraisal wells
were drilled in the structure, with the first identifying the oil resources and
the second determining downdip reservoir limits.




Initial
development of the field will include multiple subsea wells flowing to a
floating production, storage, and offloading vessel (FPSO) where the production
stream will be separated.  The oil will be stored on the vessel until
sold, while the natural gas and water will be re-injected back into the
reservoir to maintain pressure and maximize oil recoveries. The FPSO will be
designed with capacity to handle 120,000 barrels of liquids per day, including
80,000 barrels of oil per day. In addition, the vessel will be capable of
reinjecting 170 million cubic feet per day of natural gas. Storage on the vessel
will be approximately 1.5 million barrels of oil and condensate.




Total
development costs, excluding the costs related to the FPSO, are estimated at
$1.3 billion ($530 million net) with the majority of this capital to be invested
in 2010 and 2011. FPSO services are expected to be acquired through a leasing
agreement and, depending on the terms of the agreement,will likelyrequire capital lease accounting treatment. First production from
the field is estimated to commence by mid-year 2012 at 50,000 barrels of oil per
day gross (16,500 barrels per day net). The FPSO lease has not yet been
awarded.




Impact of Recession and Current
Credit and Commodity Markets– During first quarter 2009, we took
initiatives to strengthen our liquidity and lengthen our weighted average debt
maturities in response to ongoing uncertainty in the credit
markets.  In February we issued $1 billion of 81⁄4% senior notes due
2019 and used substantially all of the net proceeds to repay outstanding
indebtedness under our credit facility.  In addition, we repatriated
$180 million of accumulated earnings of foreign subsidiaries and used the
proceeds for debt repayment and general corporate purposes. See Liquidity and
Capital Resources below.









25
 Table of Contents





As noted
in our 2008 Annual Report on Form 10-K (Item 1A. Risk Factors), significant
decreases in crude oil and natural gas prices could result in a reduction of the
carrying values of our oil and gas properties.  The commodity price
decreases that began during the second half of 2008 required us to record asset
impairment charges during fourth quarter 2008.  Further declines
in natural gas prices during first quarter 2009 led us to review those
properties that, at year-end 2008, were susceptible to impairment should
commodity prices continue to decline appreciably.  As a result of this
review, we determined that additional properties were impaired as of March 31,
2009. Total pre-tax (non-cash) impairments for first quarter 2009 were $437
million and were predominately related to Granite Wash, an onshore US area in
which we have significantly reduced investments beginning in 2007. The decrease
in the natural gas futures price strip that occurred during first quarter 2009
was the primary factor that required an impairment of Granite
Wash.  There were no asset impairments during second quarter 2009.
However, further declines in commodity prices could result in additional
impairment of our oil and gas properties, other long-lived assets or goodwill.
See Item 1. Financial Statements – Note 5 – Fair Value
Measurements.




During
second quarter 2009, our operations benefited from the strengthening crude oil
market, but sustained lower commodity prices will continue to reduce our cash
flows from operations. To mitigate the impact of lower commodity prices on our
cash flows, we have entered into crude oil and natural gas commodity contracts
for 2009, 2010 and 2011. Depending on the length of the current recession,
commodity prices may stay depressed or decline further, thereby causing a
prolonged downturn, which would further reduce our cash flows from
operations.  This could cause us to alter our business plans including
reducing or delaying our exploration and development program spending and other
cost reduction initiatives.  See 2009
Budget below.




We are
closely monitoring costs and have implemented several cost savings initiatives,
including continued reduction of well costs through drilling and completion
efficiencies and comprehensive review of oil and gas operating
costs.  We are also beginning to see reductions in third party
drilling costs and operating supplies and services.




OUTLOOK




Our
expected crude oil, natural gas and NGL production for the remainder of 2009 may
be impacted by several factors including:




·
            overall
      level and timing of capital expenditures, as discussed below, which,
      dependent upon our drilling
      success, are expected to maintain our near-term production
      volumes;


·
            natural
      field decline in the deepwater Gulf of Mexico, Gulf Coast and
      Mid-continent areas of our US operations and the North
  Sea;


·
            variations
      in sales volumes of natural gas from the Alba field in Equatorial
      Guinea;


·
            potential
      hurricane-related volume curtailments in the Gulf of Mexico and Gulf Coast
      areas of our US operations as occurred with Hurricanes Gustav and Ike in
      2008;


·
            timing
      of the full restoration of pipeline and facilities necessary to increase
      our Gulf of Mexico production;


·
            potential
      winter storm-related volume curtailments in the Northern region of our US
      operations;


·
            potential
      pipeline and processing facility capacity constraints in the Rocky
      Mountains area of our US
operations;





·
              Israeli
      demand for electricity which affects demand for natural gas as fuel for
      power generation, market growth and competing deliveries of natural gas
      from Egypt;·
              potential
      downtime at the methanol, LPG and/or LNG plants in Equatorial
      Guinea;


·
            seasonal
      variations in rainfall in Ecuador that affect our natural gas-to-power
      project; and


·
            timing
      of significant project completion and initial
  production.




2009 Budget– Due to the uncertain
economic and commodity price environment, we designed a flexible capital
spending program that is responsive to conditions that develop during
2009.  Our revised capital program for 2009 accommodates an investment
level of $1.6 billion, with the ability to adjust up or down by approximately
15%. Currently we are managing towards an investment level of approximately $1.4
billion, the lower end of this range.




Approximately
40% of the 2009 budget is committed to longer-term projects that will provide
considerable production growth several years in the future. The remainder is
allocated toward maintaining and strengthening the existing property
base.  Development spending is focused on our international and
deepwater Gulf of Mexico assets as well as certain higher return opportunities
onshore in the US including the Wattenberg field.  The exploration
budget is centered on significant resource potential in Israel, West Africa and
the deepwater Gulf of Mexico.  International expenditures are
estimated to represent 30% of the total capital program.




The 2009
budget does not include the impact of possible asset purchases. We expect that
the remaining 2009 budget will be funded primarily from cash flows from
operations, cash on hand, and borrowings under our revolving credit facility. We
will evaluate the level of capital spending throughout the remainder of the year
based on drilling results, commodity prices, cash flows from operations and
property acquisitions and divestitures.







26
 Table of Contents





Recently Issued
Pronouncements–
See Item 1. Financial Statements – Note 15 – Recently Issued
Pronouncements.




RESULTS
OF OPERATIONS




Oil,
Gas and NGL Sales


Revenues
from sales of commodities were as follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Crude
      Oil and Condensate Sales
                        
                        $
                        296
                        
                        
                        $
                        674
                        
                        
                        $
                        497
                        
                        
                        $
                        1,200Natural
      Gas Sales
                        
                        
                        143
                        
                        
                        
                        399
                        
                        
                        
                        326
                        
                        
                        
                        771NGL
      Sales
                        
                        
                        21
                        
                        
                        
                        57
                        
                        
                        
                        43
                        
                        
                        
                        103Total
                        
                        $
                        460
                        
                        
                        $
                        1,130
                        
                        
                        $
                        866
                        
                        
                        $
                        2,074








27
 Table of Contents




Average
daily sales volumes and average realized sales prices were as
follows:








Sales
      Volumes
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      Average
      Realized Sales PricesCrude
      Oil & Condensate (MBopd)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      Natural
      Gas (MMcfpd)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      NGLs
      (MBpd)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      Crude
      Oil & Condensate (Per Bbl)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      Natural
      Gas (Per Mcf)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      NGLs
      (Per Bbl)Three
      Months Ended June 30, 2009United
      States (1)
      (2)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      37
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      394
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      51.85
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      3.09
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      23.94West
      Africa (3)
      (4)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      15
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      244
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      51.63
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      0.27
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -North
      Sea
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      6
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      56.57
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5.20
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Israel
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      95
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.76
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Ecuador
      (5)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      16
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Other
      International
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      48.87
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Total
      Consolidated Operations
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      63
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      754
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      52.05
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.13
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      23.94Equity
      Investees (6)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      6
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      56.12
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      30.12Total
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      65
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      754
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      16
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      52.19
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      2.13
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      26.24Three
      Months Ended June 30, 2008United
      States (1)
      (2)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      44
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      402
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      99.05
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      9.82
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      59.65West
      Africa (3)
      (4)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      14
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      222
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      112.32
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      0.27
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -North
      Sea
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      8
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      126.05
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10.81
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Israel
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      121
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.72
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Ecuador
      (5)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      22
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Other
      International
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      4
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      109.17
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Total
      Consolidated Operations
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      70
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      772
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      105.46
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5.86
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      59.65Equity
      Investees (6)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      7
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      118.95
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      69.70Total
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      72
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      772
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      17
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      105.74
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      5.86
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      63.75Six
      Months Ended June 30, 2009United
      States (1)
      (2)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      36
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      403
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      43.92
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      3.52
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      24.33West
      Africa (3)
      (4)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      14
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      243
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      46.19
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      0.27
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -North
      Sea
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      7
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      50.81
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      6.72
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Israel
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      103
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.78
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Ecuador
      (5)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      23
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Other
      International
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      4
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      43.28
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Total
      Consolidated Operations
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      61
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      777
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      45.17
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.39
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      24.33Equity
      Investees (6)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      6
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      50.38
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      28.38Total
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      63
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      777
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      16
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      45.32
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      2.39
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      25.92Six
      Months Ended June 30, 2008United
      States (1)
      (2)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      43
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      397
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      85.36
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      9.40
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      57.55West
      Africa (3)
      (4)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      15
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      221
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      100.16
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      0.27
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -North
      Sea
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      9
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      6
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      112.36
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10.18
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Israel
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      133
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2.90
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Ecuador
      (5)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      23
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Other
      International
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      87.47
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -Total
      Consolidated Operations
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      72
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      780
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      10
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      91.88
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      5.60
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      57.55Equity
      Investees (6)
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      2
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      7
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      107.01
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      65.50Total
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      74
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      780
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      17
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      92.24
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      5.60
                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                      60.80




(1)
              Average
      realized crude oil and condensate prices reflect reductions of $2.29 per
      Bbl and $20.46 per Bbl for second quarter 2009 and 2008, respectively, and
      reductions of $2.49 per Bbl and $21.13 per Bbl for the first six months of
      2009 and 2008, respectively, from hedging activities. The price reductions
      resulted from hedge gains and losses that were previously deferredin
      AOCL.





28
 Table of Contents




(2)
              Average
      realized natural gas prices reflect an increase of $0.01 per Mcf and a
      reduction of $0.06 per Mcf for second quarter 2009 and 2008, respectively,
      and an increase of $0.49 per Mcf for the first six months of 2008 from
      hedging activities.  The price increases and reduction resulted
      from hedge gains and losses that were previously deferred in AOCL. The
      average realized natural gas price for the first six months of 2009 was
      not impacted by hedging activities, as the net deferred gain reclassified
      from AOCL was de minimis.




(3)
              Average
      realized crude oil and condensate prices reflect reductions of $5.33 per
      Bbl and $8.20 per Bbl for second quarter 2009 and 2008, respectively, and
      $6.11 per Bbl and $8.42 per Bbl for the first six months of 2009 and 2008,
      respectively, from hedging activities.  The price reductions
      resulted from hedge losses that were previously deferred in
      AOCL.




(4)
              Natural
      gas from the Alba field in Equatorial Guinea is under contract for $0.25
      per MMBtu to a methanol plant, an LPG plant and an LNG plant. The methanol
      and LPG plants are owned by affiliated entities accounted for under the
      equity method of accounting.  Natural gas volumes sold to the
      LNG plant totaled 200 MMcfpd and 175 MMcfpd during second quarter 2009 and
      2008, respectively, and 194 MMcfpd and 174 MMcfpd during the first six
      months of 2009 and 2008,
respectively.




(5)
              The
      natural gas-to-power project in Ecuador is 100% owned by our subsidiaries
      and intercompany natural gas sales are eliminated for accounting purposes.
      Electricity sales are included in other revenues. See Item 1. Financial
      Statements – Note 2 – Basis of
Presentation.




(6)
              Volumes
      represent sales of condensate and LPG from the Alba plant in Equatorial
      Guinea. See Equity
      Method Investees
below.




Crude oil
and condensate sales volumes in the table above differ from actual production
volumes due to the timing of liquid hydrocarbon tanker liftings. Crude oil and
condensate production volumes were as follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(MBopd)United
      States
                        
                        
                        37
                        
                        
                        
                        44
                        
                        
                        
                        36
                        
                        
                        
                        43West
      Africa
                        
                        
                        14
                        
                        
                        
                        15
                        
                        
                        
                        14
                        
                        
                        
                        15North
      Sea
                        
                        
                        8
                        
                        
                        
                        9
                        
                        
                        
                        8
                        
                        
                        
                        10Other
      International
                        
                        
                        5
                        
                        
                        
                        4
                        
                        
                        
                        4
                        
                        
                        
                        5Total
      Consolidated Operations
                        
                        
                        64
                        
                        
                        
                        72
                        
                        
                        
                        62
                        
                        
                        
                        73Equity
      Investees
                        
                        
                        2
                        
                        
                        
                        2
                        
                        
                        
                        2
                        
                        
                        
                        2Total
                        
                        
                        66
                        
                        
                        
                        74
                        
                        
                        
                        64
                        
                        
                        
                        75







29
 Table of Contents





If the
realized gains and losses on commodity derivative instruments, which are
included in (gain) loss on commodity derivative instruments, had been included
in oil and gas revenues, the effect on average realized prices would have been
as follows:




Crude
      Oil & Condensate
                          
                          
                          Natural
      Gas
                          
                          
                          Crude
      Oil & Condensate
                          
                          
                          Natural
      Gas2009
                          
                          
                          2008(Per
      Bbl)
                          
                          
                          (Per
      Mcf)
                          
                          
                          (Per
      Bbl)
                          
                          
                          (Per
      Mcf)Commodity
      Price Increase (Decrease)Three
      Months Ended June 30,United
      States
                          
                          $
                          13.39
                          
                          
                          $
                          2.00
                          
                          
                          $
                          (13.84
                          )
                          
                          $
                          (1.09
                          )West
      Africa
                          
                          
                          15.77
                          
                          
                          
                          -
                          
                          
                          
                          (12.42
                          )
                          
                          
                          -Total
      Consolidated Operations
                          
                          
                          11.68
                          
                          
                          
                          1.07
                          
                          
                          
                          (11.19
                          )
                          
                          
                          (0.58
                          )Total
                          
                          
                          11.29
                          
                          
                          
                          1.07
                          
                          
                          
                          (10.96
                          )
                          
                          
                          (0.58
                          )Six
      Months Ended June 30,United
      States
                          
                          $
                          17.18
                          
                          
                          $
                          1.79
                          
                          
                          $
                          (7.65
                          )
                          
                          $
                          (0.72
                          )West
      Africa
                          
                          
                          19.79
                          
                          
                          
                          -
                          
                          
                          
                          (6.72
                          )
                          
                          
                          -Total
      Consolidated Operations
                          
                          
                          14.65
                          
                          
                          
                          0.95
                          
                          
                          
                          (6.01
                          )
                          
                          
                          (0.38
                          )Total
                          
                          
                          14.23
                          
                          
                          
                          0.95
                          
                          
                          
                          (5.87
                          )
                          
                          
                          (0.38
                          )




Crude Oil and Condensate Sales –Crude oil and condensate sales decreased during the second quarter and
first six months of 2009 as compared with 2008 due to the significant decrease
in average realized prices combined with lower sales
volumes.  Decreases in US sales volumes were due to the ongoing impact
of shut-ins related to Hurricane Ike in the deepwater Gulf of Mexico and natural
field decline in the deepwater Gulf of Mexico and Gulf Coast area. These
decreases were offset somewhat by increases in production in the Northern
region.




Internationally,
sales remained relatively flat, although North Sea volumes declined due to
natural field decline and the timing of liftings.




Revenues
included deferred losses of $15 million and $93 million for second quarter 2009
and 2008, respectively, and $32 million and $190 million for the first six
months of 2009 and 2008, respectively, reclassified from AOCL and related to
commodity derivative instruments previously accounted for as cash flow
hedges.




Natural Gas Sales –Natural gas sales
decreased during the second quarter and first six months of 2009 as compared
with 2008 primarily due to the significant decrease in average realized prices.
In the US, increases in natural gas production from the Wattenberg, Piceance and
Tri-state areas were partially offset by the ongoing impact of shut-ins related
to Hurricane Ike in the deepwater Gulf of Mexico and natural field decline in
the deepwater Gulf of Mexico and Gulf Coast area.




International
volumes also declined overall.  In Israel, power plant downtime, an
overall decrease in demand and competing natural gas sales from Egypt led to
decreased natural gas sales. West Africa sales volumes were higher primarily due
to increased natural gas sales to the third-party LNG facility.




Revenues
included a deferred loss of $2 million for second quarter 2008 and a deferred
gain of $35 million for the first six months of 2008 reclassified from AOCL and
related to commodity derivative instruments previously accounted for as cash
flow hedges. Revenues for the second quarter and first six months of 2009
included a de minimis amount reclassified from AOCL and related to commodity
derivative instruments previously accounted for as cash flow
hedges.




NGL Sales – Most of our US
NGL production is from the Wattenberg field and deepwater Gulf of Mexico. NGL
sales decreased during the second quarter and first six months of 2009 as
compared with 2008 due to the significant decrease in average realized NGL
prices.







30
 Table of Contents





Equity
Method Investees


Our share
of operations of equity method investees, Atlantic Methanol Production Company,
LLC (AMPCO) and Alba Plant LLC (Alba Plant), was as follows:




Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Net
      Income (in millions):AMPCO
      and Affiliates
                      
                      $
                      2
                      
                      
                      $
                      17
                      
                      
                      $
                      2
                      
                      
                      $
                      45Alba
      Plant
                      
                      
                      14
                      
                      
                      
                      39
                      
                      
                      
                      25
                      
                      
                      
                      73Distributions/Dividends
      (in millions):AMPCO
      and Affiliates
                      
                      
                      -
                      
                      
                      
                      5
                      
                      
                      
                      -
                      
                      
                      
                      39Alba
      Plant
                      
                      
                      5
                      
                      
                      
                      40
                      
                      
                      
                      5
                      
                      
                      
                      82Sales
      Volumes:Methanol
      (MMgal)
                      
                      
                      41
                      
                      
                      
                      36
                      
                      
                      
                      76
                      
                      
                      
                      70Condensate
      (MBopd)
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      2LPG
      (MBpd)
                      
                      
                      6
                      
                      
                      
                      7
                      
                      
                      
                      6
                      
                      
                      
                      7Production
      Volumes:Methanol
      (MMgal)
                      
                      
                      29
                      
                      
                      
                      31
                      
                      
                      
                      68
                      
                      
                      
                      63Condensate
      (MBopd)
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      2LPG
      (MBpd)
                      
                      
                      6
                      
                      
                      
                      6
                      
                      
                      
                      6
                      
                      
                      
                      6Average
      Realized Prices:Methanol
      (per gallon)
                      
                      $
                      0.49
                      
                      
                      $
                      1.15
                      
                      
                      $
                      0.47
                      
                      
                      $
                      1.38Condensate
      (per Bbl)
                      
                      
                      56.12
                      
                      
                      
                      118.95
                      
                      
                      
                      50.38
                      
                      
                      
                      107.01LPG
      (per Bbl)
                      
                      
                      30.12
                      
                      
                      
                      69.70
                      
                      
                      
                      28.38
                      
                      
                      
                      65.50




The
decrease in net income for each of the equity method investees for the second
quarter and first six months of 2009 as compared with 2008 was due to
significant decreases in average realized prices. In addition, during second
quarter 2009 and 2008, AMPCO experienced downtime for refractory repairs and
drew down inventory to meet customer demand. The decreases in Alba Plant
distributions during the second quarter and first six months of 2009 were due to
the decreases in net income and in anticipation of planned tax
payments.




Other
Revenues


Other
revenues include electricity sales and GMP revenues. See Item 1. Financial
Statements – Note 2 – Basis of Presentation.







31
 Table of Contents





Costs
and Expenses


Production Costs –Components
of production costs were as follows:




Total
                                          
                                          
                                          United
      States
                                          
                                          
                                          West
      Africa
                                          
                                          
                                          North
      Sea
                                          
                                          
                                          Israel
                                          
                                          Other
      Int'l, Corporate(1)(in
      millions)Three
      Months Ended June 30, 2009Oil
      and Gas Operating Costs (2)
                                          
                                          $
                                          88
                                          
                                          
                                          $
                                          60
                                          
                                          
                                          $
                                          11
                                          
                                          
                                          $
                                          9
                                          
                                          
                                          $
                                          3
                                          
                                          
                                          $
                                          5Workover
      and Repair Expense
                                          
                                          
                                          5
                                          
                                          
                                          
                                          5
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Lease
      Operating Expense
                                          
                                          
                                          93
                                          
                                          
                                          
                                          65
                                          
                                          
                                          
                                          11
                                          
                                          
                                          
                                          9
                                          
                                          
                                          
                                          3
                                          
                                          
                                          
                                          5Production
      and Ad Valorem Taxes
                                          
                                          
                                          23
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3Transportation
      Expense
                                          
                                          
                                          13
                                          
                                          
                                          
                                          11
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1Total
      Production Costs
                                          
                                          
                                          129
                                          
                                          
                                          
                                          96
                                          
                                          
                                          
                                          11
                                          
                                          
                                          
                                          10
                                          
                                          
                                          
                                          3
                                          
                                          
                                          
                                          9Three
      Months Ended June 30, 2008Oil
      and Gas Operating Costs (2)
                                          
                                          
                                          80
                                          
                                          
                                          
                                          56
                                          
                                          
                                          
                                          10
                                          
                                          
                                          
                                          9
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          3Workover
      and Repair Expense
                                          
                                          
                                          8
                                          
                                          
                                          
                                          8
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Lease
      Operating Expense
                                          
                                          
                                          88
                                          
                                          
                                          
                                          64
                                          
                                          
                                          
                                          10
                                          
                                          
                                          
                                          9
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          3Production
      and Ad Valorem Taxes
                                          
                                          
                                          51
                                          
                                          
                                          
                                          41
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          10Transportation
      Expense
                                          
                                          
                                          16
                                          
                                          
                                          
                                          14
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      Production Costs
                                          
                                          
                                          155
                                          
                                          
                                          
                                          119
                                          
                                          
                                          
                                          10
                                          
                                          
                                          
                                          11
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          13Six
      Months Ended June 30, 2009Oil
      and Gas Operating Costs (2)
                                          
                                          
                                          180
                                          
                                          
                                          
                                          131
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          17
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          8Workover
      and Repair Expense
                                          
                                          
                                          13
                                          
                                          
                                          
                                          11
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Lease
      Operating Expense
                                          
                                          
                                          193
                                          
                                          
                                          
                                          142
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          19
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          8Production
      and Ad Valorem Taxes
                                          
                                          
                                          42
                                          
                                          
                                          
                                          38
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4Transportation
      Expense
                                          
                                          
                                          25
                                          
                                          
                                          
                                          21
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2Total
      Production Costs
                                          
                                          
                                          260
                                          
                                          
                                          
                                          201
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          21
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          14Six
      Months Ended June 30, 2008Oil
      and Gas Operating Costs (2)
                                          
                                          
                                          156
                                          
                                          
                                          
                                          105
                                          
                                          
                                          
                                          19
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          8Workover
      and Repair Expense
                                          
                                          
                                          14
                                          
                                          
                                          
                                          14
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Lease
      Operating Expense
                                          
                                          
                                          170
                                          
                                          
                                          
                                          119
                                          
                                          
                                          
                                          19
                                          
                                          
                                          
                                          20
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          8Production
      and Ad Valorem Taxes
                                          
                                          
                                          94
                                          
                                          
                                          
                                          74
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          20Transportation
      Expense
                                          
                                          
                                          29
                                          
                                          
                                          
                                          25
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      Production Costs
                                          
                                          $
                                          293
                                          
                                          
                                          $
                                          218
                                          
                                          
                                          $
                                          19
                                          
                                          
                                          $
                                          24
                                          
                                          
                                          $
                                          4
                                          
                                          
                                          $
                                          28


(1)
            Other
      international includes Ecuador, China, and Argentina (through February
      2008).




(2)
            Oil
      and gas operating costs include labor, fuel, repairs, replacements,
      saltwater disposal and other related lifting
  costs.




Total
production costs for the second quarter and first six months of 2009 decreased
as compared with 2008. The largest decrease was in production and ad valorem
taxes, which declined due to reduced proceeds from production attributable to
lower commodity prices in the US and China and the cessation of production due
to the sale of our interest in Argentina. US oil and gas operating costs
increased due to an increase in well count, higher salt water disposal costs in
the Northern region and higher insurance expense.  North Sea oil and
gas operating costs decreased due to lower sales volumes (timing of
liftings).







32
 Table of Contents





Selected
expenses on a per BOE basis were as follows:




Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Oil
      and Gas Operating Costs
                      
                      $
                      4.88
                      
                      
                      $
                      4.23
                      
                      
                      $
                      4.99
                      
                      
                      $
                      4.05Workover
      and Repair Expense
                      
                      
                      0.29
                      
                      
                      
                      0.42
                      
                      
                      
                      0.35
                      
                      
                      
                      0.38Lease
      Operating Expense
                      
                      
                      5.17
                      
                      
                      
                      4.65
                      
                      
                      
                      5.34
                      
                      
                      
                      4.43Production
      and Ad Valorem Taxes
                      
                      
                      1.29
                      
                      
                      
                      2.67
                      
                      
                      
                      1.14
                      
                      
                      
                      2.45Transportation
      Expense
                      
                      
                      0.73
                      
                      
                      
                      0.81
                      
                      
                      
                      0.68
                      
                      
                      
                      0.74Total
      Production Costs (1)
      (2)
                      
                      $
                      7.19
                      
                      
                      $
                      8.13
                      
                      
                      $
                      7.16
                      
                      
                      $
                      7.62




(1)
            Consolidated
      unit rates exclude sales volumes and expenses attributable to equity
      method investees. Sales volumes include natural gas sales to an LNG plant
      in Equatorial Guinea. The inclusion of these volumes reduced the unit rate
      by $1.45 per BOE and $1.32 per BOE for second quarter 2009 and 2008,
      respectively, and $1.38 per BOE and $1.21 per BOE for the first six months
      of 2009 and 2008, respectively.




(2)
            Natural
      gas is converted on the basis of six Mcf of gas per one barrel of oil
      equivalent.




Oil and Gas Exploration Expense –Components of oil and gas exploration expense were as
follows:




Total
                      
                      
                      United
      States
                      
                      
                      West
      Africa
                      
                      
                      North
      Sea
                      
                      
                      Eastern
      Mediter-ranean
                      
                      
                      Other
      Int'l, Corporate (1)(in
      millions)Three
      Months Ended June 30, 2009Dry
      Hole Expense
                      
                      $
                      7
                      
                      
                      $
                      7
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Seismic
                      
                      
                      7
                      
                      
                      
                      5
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2
                      
                      
                      
                      -Staff
      Expense
                      
                      
                      17
                      
                      
                      
                      3
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11Other
                      
                      
                      2
                      
                      
                      
                      2
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      Exploration Expense
                      
                      
                      33
                      
                      
                      
                      17
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      2
                      
                      
                      
                      11Three
      Months Ended June 30, 2008Dry
      Hole Expense
                      
                      $
                      61
                      
                      
                      $
                      28
                      
                      
                      $
                      1
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      32Seismic
                      
                      
                      20
                      
                      
                      
                      16
                      
                      
                      
                      -
                      
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      -Staff
      Expense
                      
                      
                      16
                      
                      
                      
                      1
                      
                      
                      
                      4
                      
                      
                      
                      3
                      
                      
                      
                      -
                      
                      
                      
                      8Other
                      
                      
                      6
                      
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      Exploration Expense
                      
                      
                      103
                      
                      
                      
                      51
                      
                      
                      
                      5
                      
                      
                      
                      7
                      
                      
                      
                      -
                      
                      
                      
                      40Six
      Months Ended June 30, 2009Dry
      Hole Expense
                      
                      $
                      9
                      
                      
                      $
                      6
                      
                      
                      $
                      4
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (1
                      )Seismic
                      
                      
                      30
                      
                      
                      
                      28
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2
                      
                      
                      
                      -Staff
      Expense
                      
                      
                      32
                      
                      
                      
                      6
                      
                      
                      
                      6
                      
                      
                      
                      1
                      
                      
                      
                      -
                      
                      
                      
                      19Other
                      
                      
                      4
                      
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      Exploration Expense
                      
                      
                      75
                      
                      
                      
                      44
                      
                      
                      
                      10
                      
                      
                      
                      1
                      
                      
                      
                      2
                      
                      
                      
                      18Six
      Months Ended June 30, 2008Dry
      Hole Expense
                      
                      $
                      68
                      
                      
                      $
                      27
                      
                      
                      $
                      1
                      
                      
                      $
                      8
                      
                      
                      $
                      -
                      
                      
                      $
                      32Seismic
                      
                      
                      33
                      
                      
                      
                      29
                      
                      
                      
                      -
                      
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      -Staff
      Expense
                      
                      
                      32
                      
                      
                      
                      6
                      
                      
                      
                      4
                      
                      
                      
                      4
                      
                      
                      
                      -
                      
                      
                      
                      18Other
                      
                      
                      10
                      
                      
                      
                      10
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      Exploration Expense
                      
                      
                      143
                      
                      
                      
                      72
                      
                      
                      
                      5
                      
                      
                      
                      16
                      
                      
                      
                      -
                      
                      
                      
                      50




(1)
            Other
      international includes amounts spent in support of various international
      new ventures.




Oil and gas exploration
expense for the second quarter and first six months of 2009 decreased primarily
due to lower dry hole expense.  Dry hole expense for the second
quarter of 2009 related to an unsuccessful exploratory well drilled in the
Northern region of
our US operations. Dry hole expense for 2008 was due primarily to an exploration
well offshore Suriname and in the deepwater Gulf of Mexico which did not
encounter hydrocarbons in commercial quantities. US seismic expense for 2009 and
2008 represents seismic expense incurred in support of the annual central Gulf
of Mexico lease sales.







33
 Table of Contents




Exploration
expense also includes stock-based compensation expense of $2 million and $1
million for second quarter 2009 and 2008, respectively, and $5 million and $1
million for the first six months of 2009 and 2008, respectively.




Depreciation, Depletion and
Amortization –DD&A expense was as follows:




Three
      Months Ended
                          June
      30,
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions, except unit rate)DD&A
      Expense
                        
                        $
                        192
                        
                        
                        $
                        194
                        
                        
                        $
                        389
                        
                        
                        $
                        395Accretion
      of Discount on Asset Retirement Obligations
                        
                        
                        4
                        
                        
                        
                        2
                        
                        
                        
                        7
                        
                        
                        
                        4Total
      DD&A Expense
                        
                        $
                        196
                        
                        
                        $
                        196
                        
                        
                        $
                        396
                        
                        
                        $
                        399Unit
      Rate per BOE(1)
                        
                        $
                        10.88
                        
                        
                        $
                        10.30
                        
                        
                        $
                        10.95
                        
                        
                        $
                        10.36




(1)
            Consolidated
      unit rates exclude sales volumes and expenses attributable to equity
      method investees. Sales volumes include natural gas sales to an LNG plant
      in Equatorial Guinea. The inclusion of these volumes reduced the unit rate
      by $1.82 per BOE and $1.34 per BOE for second quarter 2009 and 2008,
      respectively, and $1.75 and $1.32 per BOE for the first six months of 2009
      and 2008, respectively.




Total
DD&A expense for the second quarter and first six months of 2009 was flat as
compared with 2008.  DD&A expense for the Wattenberg, Rocky
Mountain, and Mid-continent areas of our Northern region increased due to higher
production in the Piceance basin, higher capital spending necessary to complete
these projects, and negative reserve revisions  related to lower
year-end 2008 commodity prices. These increases were offset by decreases in
DD&A expense due to lower sales volumes in the deepwater Gulf of Mexico,
North Sea and Israel. See Oil,
Gas and NGL Sales above. DD&A expense included $4 million abandoned
asset expense during the first six months of 2009 and higher accretion expense
for the second quarter and first six months of 2009.




The unit
rate per BOE increased for both the second quarter and first six months of 2009
as compared with 2008 due to the change in mix of production, including a
reduction in Israel sales volumes (which have a lower DD&A rate), and higher
capital spending and negative reserve revisions in the Northern region, as
described above.




General and Administrative
Expense – General and administrative expense (G&A) was as
follows:




Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008G&A
      Expense (in millions)
                      
                      $
                      60
                      
                      
                      $
                      61
                      
                      
                      $
                      119
                      
                      
                      $
                      121Unit
      Rate per BOE (1)
                      
                      $
                      3.35
                      
                      
                      $
                      3.21
                      
                      
                      $
                      3.29
                      
                      
                      $
                      3.15




(1)
            Consolidated
      unit rates exclude sales volumes and expenses attributable to equity
      method investees. Sales volumes include natural gas sales to an LNG plant
      in Equatorial Guinea. The inclusion of these volumes reduced the unit rate
      by $0.68 per BOE and $0.52 per BOE for second quarter 2009 and 2008,
      respectively and $0.63 per BOE and $0.50 per BOE for the first six months
      of 2009 and 2008, respectively.




G&A
expense during the second quarter and first six months of 2009 remained
flat. It included stock-based compensation expense of $9 million and $10 million
for the second quarter of 2009 and 2008, respectively, and $17 million and $19
million for the first six months of 2009 and 2008, respectively. The unit rate
per BOE for the second quarter and first six months of 2009 increased as
compared with 2008 due to lower sales volumes.




Asset Impairments –During
first quarter 2009 we recorded total pre-tax (non-cash) impairment charges of
$437 million on certain US oil and gas properties, primarily due to lower
natural gas prices. In determining the fair values of the impaired properties,
we applied the principles of fair value measurements as defined by US GAAP.
These principles require that fair values be determined from the perspective of
a market participant considering, among other things, appropriate discount
rates, multiple valuation techniques, the most advantageous market and
assumptions around the highest and best use of the assets.







34
 Table of Contents





Due to
the absence of comparable market data for the impaired properties, we estimated
the fair values using a discounted cash flow method. Estimated future cash flows
were based on management’s expectations for the future and included management’s
estimates of future oil and gas production, commodity prices based on published
commodity futures price strips as of March 31, 2009, operating and development
costs, as well as appropriate discount rates. Due to the use of significant
unobservable inputs, the fair values of the impaired properties were classified
as Level 3 measurements in the fair value hierarchy. A change in any of the
assumptions used, such as a significant increase or decrease in estimated
commodity prices or production, could have had a significant impact on the
amount of the impairment loss recognized. There were no asset impairments during
second quarter 2009. See Item 1. Financial Statements – Note 5 – Fair Value
Measurements.




Other Operating Expense, Net –Other operating expense, net includes electricity generation expense and
GMP expense. See Item 1. Financial Statements – Note 2 – Basis of
Presentation.




Loss on Commodity Derivative
Instruments– See Item 1. Financial Statements – Note 4 – Derivative
Instruments and Hedging Activities and Note 5 – Fair Value
Measurements.




Interest Expense and Capitalized
Interest – Interest expense and capitalized interest were as
follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Interest
      Expense
                        
                        $
                        35
                        
                        
                        $
                        23
                        
                        
                        $
                        59
                        
                        
                        $
                        49Capitalized
      Interest
                        
                        
                        (12
                        )
                        
                        
                        (6
                        )
                        
                        
                        (18
                        )
                        
                        
                        (15
                        )Interest
      Expense, net
                        
                        $
                        23
                        
                        
                        $
                        17
                        
                        
                        $
                        41
                        
                        
                        $
                        34




Interest
expense increased $12 million for second quarter 2009 and $10 million for the
first six months of 2009, as compared with 2008. The increase in interest
expense primarily relates to our $1 billion 81⁄4% senior unsecured notes due
March 1, 2019, which we issued on February 27, 2009. This increase was
partially offset by a significant decrease in credit facility interest expense
due to a decline in both the average outstanding balance and the average
interest rate. See also Liquidity and Capital Resources – Financing Activities
below.




The
increases in the amount of interest capitalized are due to higher development
work in progress related to extended projects in West Africa and the Gulf of
Mexico.




Other (Income) Expense, Net –See Item 1. Financial Statements – Note 2 – Basis of
Presentation.




Income Tax Provision (Benefit) –The income tax provision (benefit) was as follows:




Three
      Months Ended
                        June
      30,
                      
                      
                      Six
      Months Ended
                        June
      30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Income
      Tax Provision (Benefit) (in millions)
                      
                      $
                      (33
                      )
                      
                      $
                      (54
                      )
                      
                      $
                      (218
                      )
                      
                      $
                      48Effective
      Rate
                      
                      
                      37
                      %
                      
                      
                      27
                      %
                      
                      
                      47
                      %
                      
                      
                      40
                      %




See Item
1. Financial Statements – Note 11 – Income Taxes for a discussion of the change
in our effective tax rate during the first six months of 2009 as compared with
2008.







35
 Table of Contents





LIQUIDITY
AND CAPITAL RESOURCES




Overview


Our
primary cash needs are to fund operating expenses and capital expenditures
related to the acquisition, exploration and development of crude oil and natural
gas properties, to repay outstanding borrowings and associated interest payments
and other contractual commitments and to pay dividends. Traditional sources of
our liquidity are cash on hand, cash flows from operations and available
borrowing capacity under credit facilities. Occasional sales of non-strategic
crude oil and natural gas properties as well as our periodic access to capital
markets may also generate cash.




The
ongoing disruption in the credit markets has had a significant adverse impact on
a number of financial institutions. We have reviewed the creditworthiness of the
banks and financial institutions with which we maintain our investments as well
as the securities underlying our investments. Thus far, our liquidity and
financial position have not been materially impacted. However, further
deterioration in the credit markets could adversely affect our results of
operations and cash flows. See Executive Overview – Impact of Recession and Current
Credit and Commodity Markets.




Cash and Cash Equivalents –
We had $956 million in cash and cash equivalents at June 30, 2009. Our cash is
denominated in US dollars and is invested in US Treasury securities and
short-term deposits with major financial institutions. In response to the credit
market crisis, we shortened the duration of our investment maturities and
increased our investments in US Treasury securities.




A
majority of this cash is attributable to our foreign subsidiaries and most would
be subject to US income taxes if repatriated. We currently intend to use our
international cash to fund international projects, including the
development of West Africa and Israel.




During
fourth quarter 2008, we performed an analysis of projected short-term working
capital needs as well as long-term capital requirements for our US and foreign
operations. As a result, we repatriated $180 million of the accumulated earnings
of foreign subsidiaries during first quarter 2009. We used the proceeds for debt
repayment and general corporate purposes. See Item 1. Financial Statements –
Note 11 – Income Taxes for a discussion of the related income tax
effects.




Commodity Derivative Instruments– We use various derivative instruments in connection with anticipated
crude oil and natural gas sales to minimize the impact of product price
fluctuations. Such instruments include variable to fixed commodity price swaps,
collars and basis swaps. Current period settlements on commodity derivative
instruments impact our liquidity, since we are either paying cash to, or
receiving cash from, our counterparties. If actual commodity prices are higher
than the fixed or ceiling prices in our derivative instruments, our cash flows
will be lower than if we had no derivative instruments. Conversely, if actual
commodity prices are lower than the fixed or floor prices in our derivative
instruments, our cash flows will be higher than if we had no derivative
instruments. Except for certain minor derivative contracts that are entered into
from time to time by our marketing subsidiary, none of our counterparty
agreements contain margin requirements.




Commodity
derivative instruments are recorded at fair value in our consolidated balance
sheets, and changes in fair value are recorded in earnings in the period in
which the change occurs. As of June 30, 2009, the fair value of our commodity
derivative assets was $210 million and the fair value of our commodity
derivative liabilities was $92 million (after consideration of netting
agreements). See Item 1. Financial Statements – Note 4 – Derivative Instruments
and Hedging Activities for a discussion of counterparty credit risk and Note 5 –
Fair Value Measurements for a description of the methods we use to estimate the
fair values of commodity derivative instruments.




Contractual
Obligations


In
February 2009, we completed an underwritten public offering of $1 billion of 81⁄4%
senior unsecured notes due March 1, 2019. See Financing Activities below.
As a result, our future debt principal payments as of June 30, 2009 consist of
the following: $785 million for 2012; and $1.6 billion for 2014 and beyond for a
total of $2.4 billion. Based on the total debt balance, scheduled maturities and
interest rates in effect at June 30, 2009, our cash payments for interest would
be $66 million for the remainder of 2009; $132 million in 2010; $132 million in
2011; $132 million in 2012; $127 million in 2013; and $1.3 billion for the
remaining years for a total of $1.9 billion. See Item 1. Financial Statements –
Note 3 – Debt.







36
 Table of Contents





Cash
Flows


Cash flow
information is as follows:




Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008(in
      millions)Total
      Cash Provided By (Used in):Operating
      Activities
                        
                        $
                        498
                        
                        
                        $
                        1,154Investing
      Activities
                        
                        
                        (777
                        )
                        
                        
                        (823
                        )Financing
      Activities
                        
                        
                        95
                        
                        
                        
                        (8
                        )Increase
      (Decrease) in Cash and Cash Equivalents
                        
                        $
                        (184
                        )
                        
                        $
                        323




Operating Activities – Net
cash provided by operating activities for the first six months of 2009 decreased
as compared with the first six months of 2008 due primarily to decreases in
commodity prices.




Investing Activities –Our
investing activities include capital spending on a cash basis for oil and gas
properties, which may be offset by proceeds from property sales. Net cash used
in investing activities decreased by $46 million during the first six months of
2009 as compared with the first six months of 2008. Activity for the first six
months of 2008 included capital spending of $932 million, which was partially
offset by net proceeds of $109 million from asset sales. See Investing
Activities – Acquisition,
Capital and Exploration Expenditures below.




Financing Activities – Our
financing activities include the issuance or repurchase of our common stock,
payment of cash dividends on our common stock, the borrowing of cash and the
repayment of borrowings. During the first six months of 2009, we received $989
million net proceeds from the issuance of our 81⁄4% senior notes, and $16 million
of funds were provided by cash proceeds from, and tax benefits related to, the
exercise of stock options. We used $821 million cash for net repayments of
amounts outstanding under our revolving credit facility and repaid $25 million
of an installment note. We also paid $63 million in cash dividends on our common
stock and used $1 million to repurchase shares of our common stock.




In
comparison, during the first six months of 2008, $47 million of funds were
provided by cash proceeds from, and tax benefits related to, the exercise of
stock options, and we paid $53 million in cash dividends on our common stock and
used $2 million to repurchase shares of our common stock. There were no net
changes in outstanding debt.




Investing
Activities


Acquisition, Capital and Exploration
Expenditures– Information for investing activities, which consist of
capital spending (including seismic expense) on an accrual basis, is as
follows:




Three
      Months Ended
                          June
      30,
                        
                        
                        Six
      Months Ended
                          June
      30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008(in
      millions)Acquisition,
      Capital and Exploration ExpendituresUnproved
      Property Acquisition
                        
                        $
                        46
                        
                        
                        $
                        87
                        
                        
                        $
                        62
                        
                        
                        $
                        263Exploration
                        
                        
                        50
                        
                        
                        
                        198
                        
                        
                        
                        145
                        
                        
                        
                        243Development
                        
                        
                        198
                        
                        
                        
                        261
                        
                        
                        
                        429
                        
                        
                        
                        506Corporate
      and Other
                        
                        
                        29
                        
                        
                        
                        15
                        
                        
                        
                        73
                        
                        
                        
                        34Total
                        
                        $
                        323
                        
                        
                        $
                        561
                        
                        
                        $
                        709
                        
                        
                        $
                        1,046




Unproved
property acquisition costs for the first six months of 2009 and 2008 include
primarily lease bonuses on deepwater lease blocks acquired in central Gulf of
Mexico lease sales.




Property Sales–In February 2008,
effective July 1, 2007, we sold our interest in Argentina for a sales price of
$117.5 million. The gain on sale was deferred until second quarter 2009 when the
Argentine government approved the sale.









37
 Table of Contents





Financing
Activities
 Long-Term
Debt –Our principal source of liquidity is an unsecured revolving credit
facility that matures December 9, 2012. The commitment is $2.1 billion until
December 9, 2011 at which time the commitment reduces to $1.8 billion. The
credit facility (i) provides for credit facility fee rates that range from 5
basis points to 15 basis points per year depending upon our credit
rating, (ii) makes available short-term loans up to an aggregate amount of $300
million and (iii) provides for interest rates that are based upon the Eurodollar
rate plus a margin that ranges from 20 basis points to 70 basis points depending
upon our credit rating and utilization of the credit facility. The credit
facility is with certain commercial lending institutions and is available for
general corporate purposes.




In order
to provide increased liquidity and lengthen our weighted average debt maturity,
on February 27, 2009 we completed an underwritten public offering of $1 billion
of 81⁄4% senior unsecured notes due March 1, 2019, receiving net proceeds of
$989 million.  We used substantially all of the net proceeds from the
offering to repay outstanding indebtedness under the revolving credit
facility.




As a
result, at June 30, 2009, borrowings outstanding under the credit facility
totaled $785 million, leaving in excess of $1.3 billion available for use. The
weighted average interest rate applicable to borrowings under the credit
facility at June 30, 2009 was 0.62%.




Our
outstanding fixed-rate debt, including the new 81⁄4% senior unsecured notes
discussed above, totaled $1.6 billion at June 30, 2009. The weighted average
interest rate on fixed-rate debt was 7.73%, with maturities ranging from 2014 to
2097.




Our ratio
of debt-to-book capital was 29% at June 30, 2009 as compared with 26% at
December 31, 2008. We define our ratio of debt-to-book capital as total debt
(which includes both long-term debt, excluding unamortized discount, and
short-term borrowings) divided by the sum of total debt plus shareholders’
equity.




Short-Term Borrowings –
In May 2009, we made the final $25 million installment payment to the seller of
properties we purchased in 2007. Interest on the unpaid amount was due quarterly
and accrued at a LIBOR rate plus .30%. The interest rate was 1.51% at the
date of payment.




Our
committed credit facility has been supplemented by short-term borrowings under
various uncommitted credit lines used for working capital purposes. Uncommitted
credit lines may be offered by certain banks from time to time at rates
negotiated at the time of borrowing. There were no amounts outstanding under
uncommitted credit lines at June 30, 2009 or December 31, 2008. Depending upon
future credit market conditions, these sources may or may not be available.
However, we are not dependent on them to fund our day-to-day
operations.




Dividends –We paid total
cash dividends of 36.0 cents per share of common stock during the first six
months of 2009 and 30.0 cents per share of common stock during the first six
months of 2008. On July 28, 2009, our Board of Directors declared a quarterly
cash dividend of
18.0 cents per common share, payable August 24, 2009 to shareholders of
record on August 10, 2009. The amount of future dividends will be determined on
a quarterly basis at the discretion of our Board of Directors and will depend on
earnings, financial condition, capital requirements and other
factors.




Exercise of Stock Options –We received cash proceeds of $13 million from the exercise of stock
options during the first six months of 2009 as compared with $24 million during
the first six months of 2008.




Common Stock Repurchases –We
receive shares of common stock from employees for the payment of withholding
taxes due on the vesting of restricted shares issued under stock-based
compensation plans. We received 17,510 shares with a value of $1 million during
the first six months of 2009 and 32,518 shares with a value of $2 million during
the first six months of 2008.







38
 Table of Contents





ITEM 3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES


ABOUT
MARKET RISK




Commodity
Price Risk


Derivative Instruments Held for
Non-Trading Purposes–We areexposed to market risk
in the normal course of business operations, and the uncertainty of crude oil
and natural gas prices continues to impact the oil and gas industry. Due to the
volatility of crude oil and natural gas prices, we continue to use derivative
instruments as a means of managing our exposure to price changes.




At June
30, 2009, we had entered into variable to fixed price commodity swaps, collars
and basis swaps related to crude oil and natural gas sales. Our open commodity
derivative instruments were in a net receivable position with a fair value of
$118 million. Based on the June 30, 2009 published commodity futures price
strips for the underlying commodities, a price increase of $1.00 per Bbl for
crude oil would decrease the fair value of our net commodity derivative
receivable by approximately $10 million. A price increase of $0.10 per MMBtu for
natural gas would decrease the fair value of our net commodity derivative
receivable by approximately $11 million.  Our derivative instruments are
executed under master agreements which allow us, in the event of default, to
elect early termination of all contracts with the defaulting counterparty. If we
choose to elect early termination, all asset and liability positions with the
defaulting counterparty would be net cash settled at the time of election. See
Item 1. Financial Statements –
Note 4 –
Derivative Instruments and Hedging Activities.




Interest
      Rate Risk


Changes
in interest rates affect the amount of interest we pay on borrowings under our
revolving credit facility and other variable-rate debt and the amount of
interest we earn on our short-term investments.




At June
30, 2009, we had $2.4 billion (excluding unamortized discount) of long-term
debt outstanding. Of this amount, $1.6 billion was fixed-rate debt with a
weighted average interest rate of 7.73%. Although near term changes in interest
rates may affect the fair value of our fixed-rate debt, they do not expose us to
the risk of earnings or cash flow loss.




The
remainder of our long-term debt, $785 million at June 30, 2009, was
variable-rate debt drawn under our credit facility.  Variable-rate
debt exposes us to the risk of earnings or cash flow loss due to increases in
market interest rates. We estimate that a hypothetical 25 basis point change in
the floating interest rates applicable to the June 30, 2009 balance of our
variable-rate debt would result in a change in annual interest expense of
approximately $2 million.




We
occasionally enter into forward contracts or swap agreements to hedge exposure
to interest rate risk. Changes in fair value of interest rate swaps or interest
rate “locks” used as cash flow hedges are reported in AOCL, to the extent the
hedge is effective, until the forecasted transaction occurs, at which time they
are recorded as adjustments to interest expense. At June 30, 2009, AOCL
included $2 million, net of tax, related to interest rate locks. This
amount is currently being reclassified into earnings as adjustments to interest
expense over the term of our 51⁄4% Senior Notes due April 2014. We currently have
no treasury locks outstanding.




We are
also exposed to interest rate risk related to our short-term investments. As of
June 30, 2009, approximately 50% of our cash was invested in US Treasury
securities. A hypothetical 25 basis point change in the floating interest rates
applicable to the June 30, 2009 short-term investment balance would result in a
change in annual interest income of approximately $1 million.




Foreign
      Currency Risk


The US
dollar is considered the functional currency for each of our international
operations. Substantially all of our international crude oil, natural gas and
NGL production is sold pursuant to US dollar denominated contracts.
Transactions, such as operating costs and administrative expenses that are paid
in a foreign currency, are remeasured into US dollars and recorded in the
financial statements at prevailing currency exchange rates. Certain monetary
assets and liabilities, such as foreign deferred tax liabilities in certain
foreign tax jurisdictions, are denominated in a foreign currency. An increase in
exchange rates between the US dollar and the currency of the foreign tax
jurisdiction in which these liabilities are located could result in the use of
additional cash to settle these liabilities. Transaction gains or losses were
not material in any of the periods presented and are included in other (income)
expense, net in the consolidated statements of operations.




In the UK
sector of our North Sea operations, significant future capital commitments and
certain operating expenses are expected to be denominated in British pounds.
Therefore, our cash flows could be impacted by future changes in the exchange
rate between the US dollar and the British pound. We currently have no foreign
currency derivative instruments outstanding. However, we may enter into foreign
currency derivative instruments (such as forward contracts, costless collars or
swap agreements)
in the future if we determined that it is necessary to invest in such
instruments in order to mitigate our foreign currency exchange
risk.







39
 Table of Contents





DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS




This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements give our
current expectations or forecasts of future events. These forward-looking
statements include, among others, the following:




·
            the
      extent and effect of any hedging activities engaged in by
    us;


·
            our
      growth strategies;


·
            our
      ability to successfully and economically explore for and develop crude oil
      and natural gas resources;


·
            anticipated
      trends in our business;


·
            our
      future results of operations;


·
            effect
      of current volatility in the credit
markets;


·
            our
      liquidity and ability to finance our exploration and development
      activities;


·
            market
      conditions in the oil and gas
industry;


·
            our
      ability to make and integrate acquisitions;
and


·
            the
      impact of governmental regulation.




Forward-looking
statements are typically identified by use of terms such as “may,” “will,”
“expect,” “anticipate,” “estimate” and similar words, although some
forward-looking statements may be expressed differently. These forward-looking
statements are made based upon our current plans, expectations, estimates,
assumptions and beliefs concerning future events impacting us and therefore
involve a number of risks and uncertainties. We caution that forward-looking
statements are not guarantees and that actual results could differ materially
from those expressed or implied in the forward-looking statements. You should
consider carefully the statements under Item 1A. Risk Factors included herein,
if any, and included in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009, and our Annual Report on Form 10-K for the year ended December
31, 2008, which describe factors that could cause our actual results to differ
from those set forth in the forward-looking statements.  Our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009, and our Annual Report
on Form 10-K for the year ended December 31, 2008 are available on our website
at www.nobleenergyinc.com.





ITEM 4.  CONTROLS AND
PROCEDURES




Based on
the evaluation of our disclosure controls and procedures by our principal
executive officer and our acting principal financial officer, as of the end of
the period covered by this quarterly report, each of them has concluded that our
disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended, are effective. There were no
changes in internal control over financial reporting that occurred during the
quarter covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.












40
 Table of Contents





PART II. OTHER INFORMATION




ITEM 1.  LEGAL
PROCEEDINGS




See Item
I. Financial Statements –Note 14 – Commitments and Contingencies.





ITEM 1A.  RISK FACTORS




There
have been no material changes from the risk factors disclosed in Item 1A. Risk
Factors of our Quarterly Report on Form 10-Q for the quarter ended March 31,
2009 or our Annual Report on Form 10-K for the year ended December 31,
2008, other than the following:




Federal
climate change regulation could increase our operating and capital
costs.




The American Clean Energy
and Security Act of 2009 (ACES), also known as the Waxman-Markey Bill, was
approved by theHouse of
Representativeson June 26, 2009. The
ACES, if passed by the Senate, would establish a variant of a “cap-and-trade” plan forgreenhouse
gases(GHG)
in order to addressclimate change.A “cap-and-trade”
plan would require businesses that emit more greenhouse gases than permitted to
acquire emission allowances from other businesses that emit greenhouse gases at
levels lower than the limits specified and then surrender these allowances as a
credit against such emissions. As a result of such a
plan, we could be requiredto purchase and surrender emission allowances
for GHG emissions resulting from our operations.




Although
it is not possible at this time to predict the final outcome of the ACES, any
new federal restrictions on GHG emissions, including a cap-and-trade-plan, that
may be imposed in areas in which we conduct business could result in increased
compliance costs or additional operating restrictions, and could have an adverse
effect on our business or demand for the crude oil and natural gas we
produce.





ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS




None.







ITEM 3. DEFAULTS UPON SENIOR
SECURITIES




None.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS




(a)
            Our
      annual stockholders meeting was held at 9:30 a.m., Central Time, on
      Tuesday, April 28, 2009 in The Woodlands,
  Texas.





(b)
            Proxies
      were solicited by our Board of Directors pursuant to Regulation 14A under
      the Securities Exchange Act of 1934. There was no solicitation in
      opposition to the Board of Directors’ nominees as listed in the proxy
      statement and all such nominees were duly
  elected.





(c)
            Out
      of a total of 173,328,806 shares of our common stock outstanding and
      entitled to vote, 158,577,955 shares were present in person or by proxy,
      representing 91.49% of the outstanding shares of common
    stock.








41
 Table of Contents





The
      stockholder voting results are as
follows:





Proposal
I.  Election of our Board of Directors to serve until the next annual
stockholders meeting.




Number
      of
                                            Shares
      Voting
                                            For
      Election As
                                            Director
                                          Number
      of
                                            SharesWithholding
                                            AuthorityTo
      Vote
                                            for
      Election As
                                            DirectorJeffrey
      L. Berenson
                                          155,834,018
                                          
                                          2,743,937Michael
      A. Cawley
                                          152,273,049
                                          
                                          6,304,906Edward
      F. Cox
                                          155,358,078
                                          
                                          3,219,877Charles
      D. Davidson
                                          155,278,394
                                          
                                          3,299,561Thomas
      J. Edelman
                                          157,425,631
                                          
                                          1,152,324Eric
      P. Grubman
                                          157,954,331
                                          
                                          623,624Kirby
      L. Hedrick
                                          155,909,611
                                          
                                          2,668,344Scott
      D. Urban
                                          157,595,343
                                          
                                          982,612William
      T. Van Kleef
                                          157,671,218
                                          
                                          906,737









Proposal II.  Ratification of
appointment of KPMG LLP as our independent auditors.


(For
      157,421,503; Against 1,082,482; Abstaining
  73,970)





Proposal
      III.  Ratification of amendment of 1992 Stock Option and
      Restricted Stock Plan to increase the number of shares of common stock
      authorized for issuance under the plan from 22,000,000 to
      24,000,000.


(For
      93,068,057; Against 54,295,631; Abstaining 97,536; Broker Non-Vote
      11,116,731)









ITEM 5.  OTHER
INFORMATION




None.





ITEM 6.  EXHIBITS




The
information required by this Item 6 is set forth in the Index to Exhibits
accompanying this quarterly report on Form 10-Q.







42
 Table of Contents








SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








NOBLE
      ENERGY, INC.(Registrant)














Date
                July
      30, 2009
                
                /s/
      Frederick B. BruningFrederick
      B. Bruning
                  Vice
      President and Chief Accounting Officer














43
 Table of Contents











INDEX TO
EXHIBITS










Exhibit
                Number
              
              Exhibit10.1
              
              Noble
      Energy, Inc. 1992 Stock Option and Restricted Stock Plan (as amended
      through April 28, 2009) (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed April 29,
  2009).




31.1
            Certification
      of the Company’s Chief Executive Officer Pursuant To Section 302 of the
      Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
  7241).





31.2
            Certification
      of the Company’s Acting Principal Financial Officer Pursuant To Section
      302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
      7241).





32.1
            Certification
      of the Company’s Chief Executive Officer Pursuant To Section 906 of the
      Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
  1350).





32.2
            Certification
      of the Company’s Acting Principal Financial Officer Pursuant To Section
      906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
      1350).





101
            The
      following materials from the Noble Energy, Inc. Quarterly Report on Form
      10-Q for the quarter ended June 30, 2009, formatted in XBRL (eXtensible
      Business Reporting Language): (i) the Consolidated Statements of
      Operations, (ii) the Consolidated Balance Sheets, (iii) the
      Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of
      Shareholders’ Equity, and (v) Notes to the Consolidated Financial
      Statements, tagged as blocks of
text.














44