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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C.  20549





FORM 10-Q





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


OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2013





OR





o 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)


Delaware73-0785597(State or other jurisdiction of incorporation or organization)(I.R.S. employer identification number)100 Glenborough Drive, Suite 100Houston, Texas77067(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 ý No o





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 ý No o





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 filerxAccelerated fileroNon-accelerated fileroSmaller reporting companyo(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 o No ý





As of July 8, 2013, there were 358,971,637 shares of the registrant’s common stock,


par value $0.01 per share, outstanding.





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Table of Contents





Part I.Financial Information3Item 1.Financial Statements3Consolidated Statements of Operations3Consolidated Statements of Comprehensive Income4Consolidated Balance Sheets5Consolidated Statements of Cash Flows6Consolidated Statements of Shareholders' Equity7Notes to Consolidated Financial Statements8Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations23Item 3.Quantitative and Qualitative Disclosures About Market Risk42Item 4.Controls and Procedures44Part II.Other Information45Item 1.Legal Proceedings45Item 1A.Risk Factors45Item 2.Unregistered Sales of Equity Securities and Use of Proceeds45Item 3.Defaults Upon Senior Securities45Item 4.Mine Safety Disclosures46Item 5.Other Information46Item 6.Exhibits46Signatures47Index to Exhibits48





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Part I. Financial Information


Item 1. Financial Statements


Noble Energy, Inc.


Consolidated Statements of Operations


(millions, except per share amounts)


(unaudited)


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012RevenuesOil, Gas and NGL Sales$1,112$934$2,196$1,970Income from Equity Method Investees37319683Total1,1499652,2922,053Costs and ExpensesProduction Expense210168398331Exploration Expense90167151227Depreciation, Depletion and Amortization368325734619General and Administrative10496216193Other Operating Expense, Net1671883Total7888271,5071,453Operating Income361138785600Other (Income) ExpenseGain on Commodity Derivative Instruments(161)(276)(89)(180)Interest, Net of Amount Capitalized33275859Other Non-Operating (Income) Expense, Net3(3)12(3)Total(125)(252)(19)(124)Income from Continuing Operations Before Income Taxes486390804724Income Tax Provision128115214200Income from Continuing Operations358275590524Discontinued Operations, Net of Tax19174932Net Income$377$292$639$556Earnings Per Share, BasicIncome from Continuing Operations$1.00$0.77$1.64$1.47Discontinued Operations, Net of Tax0.050.050.140.09Net Income$1.05$0.82$1.78$1.56Earnings Per Share, DilutedIncome from Continuing Operations$0.99$0.74$1.63$1.44Discontinued Operations, Net of Tax0.050.050.130.09Net Income$1.04$0.79$1.76$1.53Weighted Average Number of Shares OutstandingBasic359356358355Diluted363361362360





The accompanying notes are an integral part of these financial statements.


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Noble Energy, Inc.


Consolidated Statements of Comprehensive Income


(millions)


(unaudited)








Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012Net Income$377$292$639$556Other Items of Comprehensive IncomeNet Change in Pension and Other52115Less Tax Benefit(2)(1)(4)(2)Other Comprehensive Income3173Comprehensive Income$380$293$646$559





The accompanying notes are an integral part of these financial statements.





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Noble Energy, Inc.


Consolidated Balance Sheets


(millions)


(unaudited)





June 30, 2013December 31, 2012ASSETSCurrent AssetsCash and Cash Equivalents$706$1,387Accounts Receivable, Net847964Other Current Assets358420Total Current Assets1,9112,771Property, Plant and EquipmentOil and Gas Properties (Successful Efforts Method of Accounting)21,02319,496Property, Plant and Equipment, Other460344Total Property, Plant and Equipment, Gross21,48319,840Accumulated Depreciation, Depletion and Amortization(6,730)(6,289)Total Property, Plant and Equipment, Net14,75313,551Goodwill631635Other Noncurrent Assets703597Total Assets$17,998$17,554LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent LiabilitiesAccounts Payable - Trade$1,370$1,508Other Current Liabilities1,1231,024Total Current Liabilities2,4932,532Long-Term Debt3,5473,736Deferred Income Taxes, Noncurrent2,2692,218Other Noncurrent Liabilities814810Total Liabilities9,1239,296Commitments and ContingenciesShareholders’ EquityPreferred Stock - Par Value $1.00 per share; 4 Million Shares Authorized, None Issued——Common Stock - Par Value $0.01 per share; 500 Million Shares Authorized; 399 Million and 397 Million Shares Issued, respectively44Additional Paid in Capital3,3833,302Accumulated Other Comprehensive Loss(106)(113)Treasury Stock, at Cost; 38 Million Shares(662)(648)Retained Earnings6,2565,713Total Shareholders’ Equity8,8758,258Total Liabilities and Shareholders’ Equity$17,998$17,554





The accompanying notes are an integral part of these financial statements.





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Noble Energy, Inc.


Consolidated Statements of Cash Flows


(millions)


(unaudited)





Six Months EndedJune 30,20132012Cash Flows From Operating ActivitiesNet Income$639$556Adjustments to Reconcile Net Income to Net Cash Provided by Operating ActivitiesDepreciation, Depletion and Amortization736651Asset Impairments—73Dry Hole Cost23118Deferred Income Taxes10892Dividends (Income) from Equity Method Investees, Net(18)(7)Unrealized Gain on Commodity Derivative Instruments(80)(204)Gain on Divestitures(67)(9)Stock Based Compensation3833Other Adjustments for Noncash Items Included in Income338Changes in Operating Assets and LiabilitiesIncrease in Accounts Receivable(193)(58)Decrease (Increase) in Other Current Assets4(49)Increase in Accounts Payable13184Decrease in Current Income Taxes Payable(81)(13)Increase (Decrease) in Other Current Liabilities(37)14Decrease (Increase) in Other Operating Assets and Liabilities, Net8(42)Net Cash Provided by Operating Activities1,2441,247Cash Flows From Investing ActivitiesAdditions to Property, Plant and Equipment(1,929)(1,900)Additions to Equity Method Investments(23)(35)Proceeds from Divestitures11410Other3—Net Cash Used in Investing Activities(1,835)(1,925)Cash Flows From Financing ActivitiesExercise of Stock Options3126Excess Tax Benefits from Stock-Based Awards1213Dividends Paid, Common Stock(96)(79)Purchase of Treasury Stock(14)(13)Repayment of Capital Lease Obligation(23)(22)Net Cash Used In Financing Activities(90)(75)Decrease in Cash and Cash Equivalents(681)(753)Cash and Cash Equivalents at Beginning of Period1,3871,455Cash and Cash Equivalents at End of Period$706$702





The accompanying notes are an integral part of these financial statements.





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Noble Energy, Inc.


Consolidated Statements of Shareholders' Equity


(millions)


(unaudited)





CommonStock(1)AdditionalPaid inCapital(1)Accumulated OtherComprehensiveLossTreasuryStock atCostRetainedEarningsTotalShareholders'EquityDecember 31, 2012$4$3,302$(113)$(648)$5,713$8,258Net Income————639639Stock-based Compensation—38———38Exercise of Stock Options—31———31Tax Benefits Related to Exercise of Stock Options—12———12Dividends (27 cents per share)————(96)(96)Changes in Treasury Stock, Net———(14)—(14)Net Change in Pension and Other——7——7June 30, 2013$4$3,383$(106)$(662)$6,256$8,875December 31, 2011$1,312$1,841$(100)$(638)$4,850$7,265Net Income————556556Stock-based Compensation—34———34Exercise of Stock Options—26———26Tax Benefits Related to Exercise of Stock Options—13———13Dividends (22 cents per share)————(79)(79)Changes in Treasury Stock, Net———(13)(13)Change in Par Value(1,308)1,308————Net Change in Pension and Other——3——3June 30, 2012$4$3,222$(97)$(651)$5,327$7,805





|    |                                                   
|--- | --------------------------------------------------
|(1) | Amounts restated to reflect impact of stock split.




The accompanying notes are an integral part of these financial statements.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements





Note 1.  Organization and Nature of Operations


Noble Energy, Inc. (Noble Energy, we or us) is a leading independent energy company engaged in worldwide crude oil and natural gas exploration and production. Our core operating areas are onshore US, primarily in the DJ Basin and Marcellus Shale, in the deepwater Gulf of Mexico, offshore Eastern Mediterranean, and offshore West Africa.





Note 2.  Basis of Presentation


Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the US (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. The accompanying consolidated financial statements at June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and shareholders’ equity for such periods. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 . Certain reclassifications of amounts previously reported have been made to reflect the operations of our North Sea geographical segment as discontinued, as well as to conform to current year presentations. See Note 3. Divestitures .


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, 2012 .


Consolidation Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries.  In addition, we use the equity method of accounting for investments in entities that we do not control but over which we exert significant influence. All significant intercompany balances and transactions have been eliminated upon consolidation.


Common Stock Split On April 22, 2013 , Noble Energy’s Board of Directors approved a 2 -for-1 split of its common stock to be effected in the form of a stock dividend. The stock dividend was distributed on May 28, 2013 to shareholders of record as of May 14, 2013 . Earnings per share and common shares outstanding are reported giving retrospective effect to the common stock split.


Estimates The preparation of consolidated financial statements in conformity with US GAAP requires us to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.





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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


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


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Production ExpenseLease Operating Expense$140$100$257$205Production and Ad Valorem Taxes43448681Transportation and Gathering Expense27245545Total$210$168$398$331Other Operating (Income) Expense, NetGain on Divestitures(1)$—$(9)$(12)$(9)Asset Impairments(2)—73—73Other, Net1672019Total$16$71$8$83Other Non-Operating (Income) Expense, NetDeferred Compensation (Income) Expense(3)$3$(11)$14$(8)Other (Income) Expense, Net—8(2)5Total$3$(3)$12$(3)





|    |                        
|--- | -----------------------
|(1) | See Note3. Divestitures

|    |                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Amounts for 2012 related primarily to our South Raton development in the deepwater Gulf of Mexico and our Piceance development, onshore US. The assets were written down to their estimated fair values, which were determined using discounted cash flow models.

|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(3) | Amounts represent increases (decreases) in the fair value of shares of our common stock held in a rabbi trust.







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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Balance Sheet Information Other balance sheet information is as follows:


June 30, 2013December 31, 2012(millions)Accounts Receivable, NetCommodity Sales$383$349Joint Interest Billings406486Other68139Allowance for Doubtful Accounts(10)(10)Total$847$964Other Current AssetsInventories, Current$109$90Commodity Derivative Assets7263Deferred Income Taxes, Net45106Probable Insurance Claims(1)—45Assets Held for Sale(2)3745Prepaid Expenses and Other Current Assets9571Total$358$420Other Noncurrent AssetsEquity Method Investments$410$367Mutual Fund Investments110103Commodity Derivative Assets9521Other Assets88106Total$703$597Other Current LiabilitiesProduction and Ad Valorem Taxes$100$113Commodity Derivative Liabilities137Income Taxes Payable123203Asset Retirement Obligations6969Interest Payable5755Current Portion of Long Term Debt(3)527324Current Portion of FPSO and Other Capital Lease Obligations5048Liabilities Associated with Assets Held for Sale(2)4212Other142193Total$1,123$1,024Other Noncurrent LiabilitiesDeferred Compensation Liabilities$252$229Asset Retirement Obligations346333Accrued Benefit Costs119116Other97132Total$814$810





|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts represent the costs incurred to date of the Leviathan-2 appraisal well and expected well abandonment costs in excess of the insurance deductible less insurance proceeds received to date.

|    |                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Assets held for sale consist primarily of North Sea oil and gas properties. Liabilities associated with assets held for sale consist primarily of asset retirement obligations related to these assets.See Note3. Divestitures.

|    |                 
|--- | ----------------
|(3) | See Note5. Debt.




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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Note 3.  Divestitures


North Sea Properties During the first six months of 2013 , we closed two sales of non-operated working interest properties located in the UK and Netherlands sectors of the North Sea. The sales resulted in a $55 million gain based on net sales proceeds of $54 million for the fields.  We continue to market our remaining North Sea properties.


As of June 30, 2013 , all the properties remaining in our North Sea geographical segment are included in assets held for sale in our consolidated balance sheet. Our consolidated statements of operations have been reclassified for all periods presented to reflect the operations of our North Sea geographical segment as discontinued. Upon reclassification as held for sale, depreciation, depletion, and amortization (DD&A) ceased. Our long-term debt is recorded at the consolidated level; therefore no interest expense has been allocated to discontinued operations.


Summarized results of discontinued operations are as follows: Three Months Ended June 30,Six Months EndedJune 30,2013201220132012(millions)Oil and Gas Sales$12$65$21$140Income Before Income Taxes539479Income Tax Expense3221047Operating Income (Loss), Net of Tax217(6)32Gain on Sale, Net of Tax17—55—Discontinued Operations, Net of Tax$19$17$49$32


Onshore US Properties During the first six months of 2013 , we closed the sales of certain crude oil and natural gas properties in Kansas, Oklahoma and the Gulf Coast areas. The information regarding the assets sold is as follows:


Six Months EndedJune 30,2013(millions)Sales Proceeds$60LessNet Book Value of Assets Sold(53)Goodwill Allocated to Assets Sold(4)Asset Retirement Obligations Associated with Assets Sold5Other Closing Adjustments4Gain on Divestitures$12





Note 4.  Derivative Instruments and Hedging Activities


Objective and Strategies for Using Derivative Instruments We are exposed to fluctuations in crude oil and natural gas prices on the majority of our production. In order to mitigate the effect of commodity price volatility and enhance the predictability of cash flows relating to the marketing of our global crude oil and domestic natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production.  The derivative instruments we use include variable to fixed price commodity swaps, two-way and three-way collars and put options.


During the first quarter of 2013, we restructured our hedge portfolio to better align hedge benchmark prices with our realized crude oil sales prices. We terminated certain of our crude oil swaps and three way collars while entering into new hedging instruments including crude oil swaps and put options. As a result of this restructuring, we recognized a de minimis gain on hedge terminations.


We also may enter into forward contracts to hedge anticipated exposure to interest rate risk associated with public debt financing.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


While these instruments mitigate the cash flow risk of future reductions in commodity prices or increases in interest rates, they may also curtail benefits from future increases in commodity prices or decreases in interest rates. See Note  6. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of our derivative instruments.


Unsettled Derivative Instruments As of June 30, 2013 , we had entered into the following crude oil derivative instruments:


SwapsOptionsCollarsSettlementPeriodType of ContractIndexBbls PerDayWeightedAverageFixedPricePut Option PremiumWeightedAverageShort PutPriceWeightedAverageFloorPriceWeightedAverageCeilingPriceInstruments Entered Into as of June 30, 20132013SwapsNYMEX WTI(1)9,000$90.16$—$—$—$—2013SwapsDated Brent3,00098.03————2013Two-Way CollarsNYMEX WTI5,000———95.00115.002013Three-Way CollarsNYMEX WTI7,000——63.5783.57109.042013Three-Way CollarsDated Brent13,000——81.15100.75124.682013Put Options(2)NYMEX WTI11,000—5.97—97.60—2014SwapsNYMEX WTI37,00092.67————2014SwapsDated Brent10,000103.33————2014Three-Way CollarsNYMEX WTI9,000——75.8990.89100.442014Three-Way CollarsDated Brent8,000——84.3898.25121.562015SwapsNYMEX WTI10,00087.01————2015SwapsDated Brent5,00099.04————2015Three-Way CollarsNYMEX WTI10,000——68.5088.5092.872015Three-Way CollarsDated Brent5,000——75.0095.00112.53


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|--- | -----------------------
|(1) | West Texas Intermediate

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|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | For put options, we typically pay a premium to the counterparty in exchange for the sale of the instrument. If the index price is below the floor price of the put option, we receive the difference between the floor price and the index price multiplied by the contract volumes less the option premium. If the index price settles at or above the floor price of the put option, we pay only the put option premium.

As of June 30, 2013 , we had entered into the following natural gas derivative instruments:


SwapsCollarsSettlementPeriodType of ContractIndexMMBtuPer DayWeightedAverageFixedPriceWeightedAverageShort PutPriceWeightedAverageFloorPriceWeightedAverageCeilingPriceInstruments Entered Into as of June 30, 20132013SwapsNYMEX HH(1)60,000$4.58$—$—$—2013Two-Way CollarsNYMEX HH40,000——3.255.142013Three-Way CollarsNYMEX HH100,000—3.884.755.632014SwapsNYMEX HH60,0004.24———2014Three-Way CollarsNYMEX HH230,000—2.833.754.982015SwapsNYMEX HH80,0004.32———2015Three-Way CollarsNYMEX HH120,000—3.544.255.06


|    |          
|--- | ---------
|(1) | Henry Hub

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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


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


Fair Value of Derivative InstrumentsAsset Derivative InstrumentsLiability Derivative InstrumentsJune 30, 2013December 31, 2012June 30, 2013December 31, 2012BalanceSheetLocationFairValueBalance Sheet LocationFairValueBalance Sheet LocationFairValueBalance Sheet LocationFairValue(millions)Commodity DerivativeInstrumentsCurrentAssets$72Current Assets$63Current Liabilities(1)$13Current Liabilities$7Noncurrent Assets95Noncurrent Assets21Noncurrent Liabilities—Noncurrent Liabilities3Total$167$84$13$10


(1) Includes $12 million of deferred put option premium.


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


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Realized Mark-to-Market (Gain) LossCrude Oil$6$17$14$51Natural Gas(8)(16)(23)(27)Total Realized Mark-to-Market (Gain) Loss(2)1(9)24Unrealized Mark-to-Market (Gain) LossCrude Oil(124)(300)(83)(208)Natural Gas(35)2334Total Unrealized Mark-to-Market Gain(159)(277)(80)(204)Total Gain on Commodity Derivative Instruments$(161)$(276)$(89)$(180)


Accumulated other comprehensive loss (AOCL) at June 30, 2013 included deferred losses of $25 million , net of tax, related to interest rate derivative instruments. This amount will be reclassified to earnings as an adjustment to interest expense over the terms of our senior notes due April 2014 and March 2041 .  Approximately $2 million of deferred losses (net of tax) will be reclassified to earnings during the next 12 months and will be recorded as an increase in interest expense.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Note 5. Debt


Our debt consists of the following: June 30, 2013December 31, 2012DebtInterest RateDebtInterest Rate(millions, except percentages)Credit Facility, due October 14, 2016(1)$——$——CONSOL Installment Payment, due September 30, 20133281.79%(2)3281.79%(2)FPSO and Other Capital Lease Obligations324—311—51⁄4% Senior Notes, due April 15, 20142005.25%2005.25%81⁄4% Senior Notes, due March 1, 20191,0008.25%1,0008.25%4.15% Senior Notes, due December 15, 20211,0004.15%1,0004.15%71⁄4% Senior Notes, due October 15, 20231007.25%1007.25%8% Senior Notes, due April 1, 20272508.00%2508.00%6% Senior Notes, due March 1, 20418506.00%8506.00%71⁄4% Senior Debentures, due August 1, 2097847.25%847.25%Total4,1364,123Unamortized Discount(12)(15)Total Debt, Net of Discount4,1244,108Less Amounts Due Within One YearCurrent portion of CONSOL Installment Payment, net of discount(327)(324)51⁄4% Senior Notes, due April 15, 2014, net of discount(200)—FPSO and Other Capital Lease Obligations(50)(48)Long-Term Debt Due After One Year$3,547$3,736


|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our Credit Agreement provides for a$4.0 billionunsecured revolving Credit Facility. The Credit Facility is available for general corporate purposes.

|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(2) | Imputed rate based on the prevailing market rates for similar debt instruments at the date of assessment.

See Note  6. Fair Value Measurements and Disclosures for a discussion of methods and assumptions used to estimate the fair values of  debt.





Note 6.  Fair Value Measurements and Disclosures


Assets and Liabilities Measured at Fair Value on a Recurring Basis


Certain assets and liabilities are measured 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, two-way and three-way collars, and put options. We estimate the fair values of these instruments based on published forward commodity price curves 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 nonperformance 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 values of the put options sold (for three-way


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


collars) and the contract floors and ceilings (for two-way and three-way collars) using an option pricing model which takes into account market volatility, market prices and contract terms. See Note  4. Derivative Instruments and Hedging Activities .


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


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


Fair Value Measurements UsingQuoted Prices inActive Markets(Level 1)(1)Significant OtherObservable Inputs(Level 2)(2)SignificantUnobservableInputs (Level 3)(3)Adjustment(4)Fair Value Measurement(millions)June 30, 2013Financial AssetsMutual Fund Investments$110$—$—$—$110Commodity Derivative Instruments—173—(6)167Financial LiabilitiesCommodity Derivative Instruments—(19)—6(13)Portion of Deferred Compensation Liability Measured at Fair Value(178)———(178)December 31, 2012Financial AssetsMutual Fund Investments$103$—$—$—$103Commodity Derivative Instruments—113—(29)84Financial LiabilitiesCommodity Derivative Instruments—(39)—29(10)Portion of Deferred Compensation Liability Measured at Fair Value(160)———(160)





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|(1) | Level 1 measurements are fair value measurements which use quoted market prices (unadjusted) in active markets for identical assets or liabilities. We use Level 1 inputs when available as Level 1 inputs generally provide the most reliable evidence of fair value.

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|(2) | Level 2 measurements are fair value measurements which use inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly.

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|(3) | Level 3 measurements are fair value measurements which use unobservable inputs.

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|(4) | Amount represents the impact of netting clauses within our master 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 measured at fair value on a nonrecurring basis in our consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:


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 Notes to Consolidated Financial Statements


Asset Impairments We determined that the carrying amounts of certain assets were not recoverable from future cash flows and, therefore, were impaired. The assets were reduced to their estimated fair values. Information about the impaired assets is as follows:


Fair Value Measurements UsingDescriptionQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)Net Book Value(1)Total Pre-tax (Non-cash) Impairment LossmillionsThree Months Ended June 30, 2013Impaired Oil and Gas Properties$—$—$—$—$—Three Months Ended June 30, 2012Impaired Oil and Gas Properties——17224573Six Months Ended June 30, 2013Impaired Oil and Gas Properties—————Six Months Ended June 30, 2012Impaired Oil and Gas Properties——17224573


(1) Amount represents net book value at the date of assessment.


Amounts for 2012 related primarily to our South Raton development in the deepwater Gulf of Mexico and our Piceance development, onshore US.  The fair values of the properties were determined as of the date of the assessment using discounted cash flow models. The discounted cash flows were based on management’s expectations for the future. Inputs included estimates of future oil and gas production, commodity prices based on NYMEX commodity price curves as of the date of the estimate, estimated operating and development costs, and a risk-adjusted discount rate of 10% .


Additional Fair Value Disclosures


Debt The fair value of fixed-rate, public debt is estimated based on the published market prices for the same or similar issues. As such, we consider the fair value of our public fixed-rate debt to be a Level 1 measurement on the fair value hierarchy. The carrying amount of the CONSOL installment payment approximates fair value because it is discounted at the prevailing market rate for similar debt instruments. As such, we consider the fair value of our CONSOL installment payment to be a Level 2 measurement on the fair value hierarchy. See Note  5. Debt . Fair value information regarding our debt is as follows:


June 30, 2013December 31, 2012Carrying AmountFair ValueCarrying AmountFair Value(millions)Total Debt, Net of Unamortized Discount(1)$3,800$4,330$3,797$4,570





|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes FPSO and other capital lease obligations. No floating rate debt was outstanding atJune 30, 2013orDecember 31, 2012.




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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Note 7.  Capitalized Exploratory Well Costs


We capitalize exploratory well costs until a determination is made that the well has found proved reserves or is deemed noncommercial. If a well is deemed to be noncommercial, the well costs are charged to exploration expense as dry hole cost.


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, 2013(millions)Capitalized Exploratory Well Costs, Beginning of Period$900Additions to Capitalized Exploratory Well Costs Pending Determination of Proved Reserves313Reclassified to Proved Oil and Gas Properties Based on Determination of Proved Reserves(18)Capitalized Exploratory Well Costs Charged to Expense(3)Capitalized Exploratory Well Costs, End of Period$1,192





The following table provides an aging of capitalized exploratory well costs based on the date that drilling commenced, and the number of projects that have been capitalized for a period greater than one year:


June 30, 2013December 31, 2012(millions)Exploratory Well Costs Capitalized for a Period of One Year or Less$523$355Exploratory Well Costs Capitalized for a Period Greater Than One Year Since Commencement of Drilling669545Balance at End of Period$1,192$900Number of Projects with Exploratory Well Costs That Have Been Capitalized for a Period Greater Than One Year Since Commencement of Drilling1314





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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


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 commencement of drilling as of June 30, 2013 :


Suspended SinceTotal201220112010 & Prior(millions)Country/Project:Offshore Equatorial GuineaCarla$12$—$12$—Diega105—4659Felicita361233Yolanda18—117Offshore CameroonYoYo505540Offshore IsraelLeviathan128206741Leviathan-1 Deep714328—Tanin 134232—Dolphin 122—22—Dalit22——22Offshore CyprusCyprus A-165857—Deepwater Gulf of MexicoGunflint8735—52OtherProjects of $10 million or less each1910—9Total$669$124$272$273





Carla/Diega Carla is a 2011 crude oil discovery on Block O; Diega (formerly Carmen) is a 2008 condensate and crude oil discovery on Blocks O and I. We  continue reviewing drilling results of the Carla O-7 and the Carla I-7 wells.  In early July, we spud our Diega I-8 appraisal well. We are currently evaluating regional development scenarios for these two discoveries, which include possible sanctioning of a development project during 2013.


Felicita/Yolanda Felicita is a 2008 condensate and natural gas discovery on Block O. Yolanda is a 2008 condensate and natural gas discovery on Block I. We are currently evaluating regional natural gas development options for these discoveries and working with the government of Equatorial Guinea to assess longer-term natural gas commercialization across the industry.


YoYo YoYo is a 2007 natural gas and condensate discovery. During 2011 we acquired and processed additional 3D seismic information and are continuing evaluations for future drilling potential. We are also working with the government of Cameroon to assess future natural gas commercialization options.


Leviathan Leviathan is a 2010 natural gas discovery. During 2012, we continued to evaluate the discovery with the successful drilling of both the Leviathan-3 and Leviathan-4 appraisal wells. We have project and commercial teams in place and are in the process of screening multiple development concepts. In 2012, we announced that the partners in the Leviathan Project had agreed in principle on a proposal to sell a 30% working interest in the Leviathan licenses to Woodside Energy Ltd. (Woodside).


Leviathan-1 Deep In January 2012, we returned to the Leviathan-1 well and began drilling toward two deeper intervals in order to evaluate them for the existence of crude oil (Leviathan-1 Deep). We are continuing our evaluation of Leviathan-1 Deep and will integrate the data from the Leviathan-1 Deep well into our model to update our analysis and design a drilling plan specifically to test the deep oil concept. We have secured a drillship with the capabilities necessary to reach the target objective. The drillship is scheduled to arrive in the Eastern Mediterranean at the end of 2013, and we plan to begin drilling an exploratory well in 2014.


Tanin 1 Tanin 1 is a 2011 natural gas discovery located in the Alon A block, offshore Israel. We and our partners are currently reviewing alternatives for the development of reserves from this asset.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Dolphin 1 Dolphin 1 is a 2011 natural gas discovery located in the Hanna license, southwest of the Tamar gas field. We and our partners are currently reviewing alternatives for the development of reserves from this asset.


Dalit Dalit is a 2009 natural gas discovery. We and our partners are working on a development plan which would include tie-in to the Tamar platform and have submitted a development plan to the Israeli government.


Cyprus The Cyprus A-1 is a successful natural gas exploratory well drilled on Block 12 in the fourth quarter of 2011. During the second quarter of 2013, we spud the Cyprus A-2 appraisal well as we continue our appraisal program on Block 12. We are working with the Cyprus government regarding domestic development plans along with possible LNG export options.


Gunflint Gunflint (Mississippi Canyon Block 948) is a 2008 crude oil discovery. In July 2012, we drilled a successful Gunflint appraisal well. We completed drilling our second successful Gunflint appraisal well in April 2013. A deeper exploration target was also drilled; however, it did not find commercial quantities of hydrocarbons. We are proceeding towards sanctioning a development project in the second half of 2013. First production from Gunflint is targeted for late 2015 or early 2016 utilizing a subsea tieback to an existing host facility.


Note 8.  Asset Retirement Obligations


Asset retirement obligation (ARO) consists primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties. Changes in ARO are as follows: Six Months EndedJune 30,20132012(millions)Asset Retirement Obligations, Beginning Balance$402$377Liabilities Incurred223Liabilities Settled(10)(2)Revision of Estimate720Accretion Expense(1)1414Other—(89)Asset Retirement Obligations, Ending Balance$415$343


(1) Accretion expense is included in DD&A  expense in the consolidated statements of  operations.


Liabilities incurred in 2013 relate primarily to wells drilled in the DJ Basin, onshore US. Liabilities incurred in 2012 include costs to abandon the Leviathan-2 appraisal well, offshore Israel.  Liabilities settled in 2013 relate primarily to onshore US properties sold. See Note  3. Divestitures . Revisions relate primarily to our Alen development, offshore Equatorial Guinea, in 2013 and China in 2012. Other includes ARO liabilities associated with North Sea properties held for sale, which were included within liabilities associated with assets held for sale.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Note 9.  Earnings Per Share


Basic earnings 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 include the effect of outstanding stock options, shares of restricted stock, or shares of our common stock held in a rabbi trust (when dilutive). The following table summarizes the calculation of basic and diluted earnings per share:


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions, except per share amounts)Income from Continuing Operations$358$275$590$524Earnings Adjustment from Assumed Conversion of Dilutive Shares of Common Stock in Rabbi Trust(1)—(7)—(5)Income from Continuing Operations Used for Diluted Earnings Per Share Calculation$358$268$590$519Weighted Average Number of Shares Outstanding, Basic359356358355Incremental Shares From Assumed Conversion of Dilutive Stock Options, Restricted Stock and Shares of Common Stock in Rabbi Trust4545Weighted Average Number of Shares Outstanding, Diluted363361362360Earnings from Continuing Operations Per Share, Basic$1.00$0.77$1.64$1.47Earnings from Continuing Operations Per Share, Diluted0.990.741.631.44Number of antidilutive stock options, shares of restricted stock and shares of common stock in rabbi trust excluded from calculation above5555


|    |                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Consistent with GAAP, when dilutive, deferred compensation gains or losses, net of tax, are excluded from net income while our common shares held in the rabbi trust are included in the diluted share count. For this reason, the diluted earnings per share calculations for the three and six months ended June 30, 2012 exclude deferred compensation gains.







Note 10.  Income Taxes


The income tax provision relating to continuing operations consists of the following:


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Current$71$56$108$100Deferred5759106100Total Income Tax Provision$128$115$214$200Effective Tax Rate26.4%29.5%26.6%27.6%





Our effective tax rate for the first six months of 2013 decreased as compared with the first six months of 2012 . This decrease is primarily due to a tax contingency recognized during the second quarter of 2012.


In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2008 , Equatorial Guinea – 2008 , Israel – 2008 and China – 2010 .


See Note  3. Divestitures for income taxes associated with discontinued operations.


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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements





Note 11.  Segment Information


We have operations throughout the world and manage our operations by country. The following information is grouped into four components that are all in the business of crude oil and natural gas exploration, development, production, and acquisition: the United States; West Africa (Equatorial Guinea, Cameroon, and Sierra Leone; as well as Senegal/Guinea-Bissau, which we exited in the third quarter of 2012); Eastern Mediterranean (Israel and Cyprus); and Other International and Corporate. Other International includes China, Falkland Islands, Nicaragua and new ventures. As of June 30, 2013 , our remaining North Sea assets were reclassified to assets held for sale, and prior year amounts have been reclassified to exclude the North Sea geographical segment. See Note  3. Divestitures .


ConsolidatedUnitedStatesWestAfricaEasternMediterraneanOther Int'l &Corporate(millions)Three Months Ended June 30, 2013Revenues from Third Parties$1,112$683$290$101$38Income from Equity Method Investees37—37——Total Revenues1,14968332710138DD&A368258632720Gain on Commodity Derivative Instruments(1)(161)(111)(50)——Income (Loss) from Continuing Operations Before Income Taxes48632026844(146)Three Months Ended June 30, 2012Revenues from Third Parties$934$527$332$29$46Income from Equity Method Investees31—31——Total Revenues9655273632946DD&A325232621021Gain on Commodity Derivative Instruments(1)(276)(93)(183)——Income (Loss) from Continuing Operations Before Income Taxes390484555(118)Six Months Ended June 30, 2013Revenues from Third Parties$2,196$1,399$563$152$82Income from Equity Method Investees96—96——Total Revenues2,2921,39965915282DD&A7345241175538Gain on Commodity Derivative Instruments(1)(89)(62)(27)——Income (Loss) from Continuing Operations Before Income Taxes80456349959(317)Six Months Ended June 30, 2012Revenues from Third Parties$1,970$1,080$715$73$102Income from Equity Method Investees83—83——Total Revenues2,0531,08079873102DD&A6194301351539Gain on Commodity Derivative Instruments(1)(180)(102)(78)——Income (Loss) from Continuing Operations Before Income Taxes72424168237(236)June 30, 2013Total Assets$17,961$11,899$3,022$2,679$361December 31, 2012Total Assets17,50911,1993,0632,572675


(1)  See Note  4. Derivative Instruments and Hedging Activities .





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 Noble Energy, Inc.
 Notes to Consolidated Financial Statements


Note 12.  Commitments and Contingencies


Legal Proceedings We are involved in various 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.











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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations





Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a narrative about our business from the perspective of our management.  Our MD&A is presented in the following major sections:





|  |                    
|- | -------------------
|• | Executive Overview;

|  |                   
|- | ------------------
|• | Operating Outlook;

|  |                           
|- | --------------------------
|• | Results of Operations; and

|  |                                 
|- | --------------------------------
|• | Liquidity and Capital Resources.




The preceding consolidated financial statements, including the notes thereto, contain detailed information that should be read in conjunction with our MD&A.





EXECUTIVE OVERVIEW


We are a worldwide producer of crude oil and natural gas. We aim to achieve sustainable growth in value and cash flow through exploration success and the development of a high-quality, diversified, growing portfolio of assets that is balanced between US and international projects, while maintaining a strong balance sheet and ample liquidity levels. We primarily focus on organic growth from exploration and development drilling and augment that with periodic, opportunistic new business development (mergers and acquisitions) capability. We manage the portfolio for superior returns and to ensure geographic portfolio diversification, with periodic divestments of non-core assets. We focus on basins or plays where we have strategic competitive advantage and which we believe generate superior returns.


Our core operating areas are the onshore US (DJ Basin and Marcellus Shale), deepwater Gulf of Mexico, offshore West Africa and offshore Eastern Mediterranean.


Our major development projects typically offer long life, sustained cash flows after investment and attractive financial returns. We maintain a diversified portfolio between US and international assets and strive to maintain a balanced geographic and political risk profile. We also maintain a geographical diversity of production mix among crude oil, US natural gas, and international natural gas.


Our financial results for the second quarter of 2013 included:


|  |                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | net income of$377 million(including$358 millionfrom continuing operations), as compared with$292 million(including$275 millionfrom continuing operations) forsecondquarter2012;

|  |                                                                                                                                                                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | gainon commodity derivative instruments of$161 million(including unrealized mark-to-marketgainof$159 million) as compared with againon commodity derivative instruments of$276 million(including unrealized mark-to-market gain of$277 million) forsecondquarter2012;

|  |                                                                               
|- | ------------------------------------------------------------------------------
|• | diluted earnings per share of$1.04, as compared with$0.79forsecondquarter2012;

|  |                                                                                                             
|- | ------------------------------------------------------------------------------------------------------------
|• | cash flow provided by operating activities of$539 million, as compared with$506 millionforsecondquarter2012;

|  |                                                                                     
|- | ------------------------------------------------------------------------------------
|• | ending cash balance of$706 million, as compared with$1.4 billionatDecember 31, 2012;

|  |                                                                                                       
|- | ------------------------------------------------------------------------------------------------------
|• | capital spending, on a cash basis, of$1.1 billionas compared with$882 millionforsecondquarter2012; and

|  |                                                                               
|- | ------------------------------------------------------------------------------
|• | ratio of debt-to-book capital of32%, as compared with 33% atDecember 31, 2012.

Key highlights for the second quarter of 2013 included:


|  |                                              
|- | ---------------------------------------------
|• | achieving record sales volumes of 260 MBoe/d;

|  |                                                                     
|- | --------------------------------------------------------------------
|• | attaining record DJ Basin horizontal production averaging 50 MBoe/d;

|  |                                                                 
|- | ----------------------------------------------------------------
|• | reaching record exit rate of 150 MMcfe/d in the Marcellus Shale;

|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|• | confirming primary resource target with the successful Gunflint appraisal well, deepwater Gulf of Mexico;

|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|• | announcing natural gas exploration discovery at the Karish prospect, offshore Israel;

|  |                                                       
|- | ------------------------------------------------------
|• | reaching full operation at Tamar, offshore Israel; and

|  |                                                                               
|- | ------------------------------------------------------------------------------
|• | initiating first production from the Alen project, offshore Equatorial Guinea.

Tamar Update


Just over four years from discovery, the Tamar project is fully operational and delivering significant volumes of natural gas to Israel. The natural gas flows from the field through the world's longest subsea tieback, more than 90 miles to the Tamar platform and then to the Ashdod onshore terminal (AOT). Tamar is a technological and commercial milestone that significantly contributes to our production growth. In June 2013, the Israeli Petroleum Commissioner issued a final permit to operate Tamar. We are also advancing plans for a compression project to expand the AOT to facilitate the increased sales volumes from Tamar.


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Exploration Program Update


We continue to evaluate and build upon our significant exploration inventory in the onshore US, deepwater Gulf of Mexico, offshore West Africa, offshore Eastern Mediterranean and other new venture locations.


We continually evaluate our exploration inventory to provide additional growth opportunities and potential new core areas.  In addition, we believe each of our existing core areas has significant remaining exploration upside and we continue to leverage existing activities to improve our exploration programs in these core areas.


We were in the process of drilling and/or evaluating significant exploratory wells at June 30, 2013 ( See Item 1. Financial Statements –Note  7. Capitalized Exploratory Well Costs ), and expect to continue an active exploratory drilling program in the future.


We devote significant capital to our exploration program; approximately 19% of our $3.9 billion capital investment program in 2013 is dedicated to exploration and associated appraisal activities, including leasehold acquisitions. However, we do not always encounter hydrocarbons through our drilling activities. In addition, we may find hydrocarbons but subsequently reach a decision, through additional analysis or appraisal drilling, that a project is not economically or operationally viable.


As discussed below, we are currently conducting, or planning to conduct, exploratory drilling activities in previously unexplored areas as well as appraisal activities at several of our discoveries. In the event we conclude that one of our exploratory wells did not encounter hydrocarbons or that a discovery is not economically or operationally viable, the associated capitalized exploratory well costs would be charged to expense.  Additionally, we may not conduct exploration activities prior to lease expirations. For example, in the deepwater Gulf of Mexico, while we continue to mature our prospect portfolio, regulations have become more stringent due to the Deepwater Horizon incident in 2010. In some instances, specifically engineered blowout preventers, rigs, and completion equipment may be required to handle high pressure environments. Regulatory requirements or lack of readily available equipment could prevent us from engaging in future exploration activities during our current lease terms. As a result, in a future period, dry hole cost and leasehold impairment charges could be significant.


Updates of our significant exploration activities are as follows:


Deepwater Gulf of Mexico We hold significant exploration potential in the deepwater Gulf of Mexico.  During the first quarter of 2013, we participated in the Central Gulf of Mexico Lease Sale 227 and were high bidder on five deepwater blocks. In July 2013, we spud the Troubadour exploratory well (Mississippi Canyon Block 699), located adjacent to our Big Bend discovery, and plan to drill an additional exploration prospect later in 2013.


Offshore Eastern Mediterranean During the second quarter of 2013, we drilled a successful exploratory well on the Karish prospect in the Alon C license. The well was drilled to a depth of 15,783 feet, discovering hydrocarbons in the lower Miocene sands. We hold a 47% operated working interest in Karish. Additionally, during the second quarter of 2013, we spud the Cyprus A-2 appraisal well.


Offshore Nicaragua We continue to evaluate our undeveloped acreage and currently plan to spud our first exploratory well (Paraiso), targeting an oil play, in the third quarter of 2013. During the first quarter of 2013, we began hosting potential partners in our data room and expect to farm down our working interest.


Offshore Falkland Islands In March 2013, we assumed operatorship from Falkland Oil and Gas Limited of the Northern Area License and will assume operatorship of the Southern Area License no later than March 2014.  We continue to acquire and process 3D seismic over the Southern Area License and plan to acquire 3D seismic over the Northern Area License as part of the exploration program.


Major Development Project Updates


During the first six months of 2013 , we successfully brought the Tamar and Alen projects online as we continue to advance our major development projects. We expect these projects to deliver significant growth in production over the next several years. Updates on our major development projects are as follows:


Sanctioned Development Projects


Horizontal Niobrara (Onshore US) We have increased our horizontal drilling activity targeting the Niobrara formation in the Wattenberg area and our Northern Colorado acreage, resulting in a significant positive impact on our current production volumes. We expect to spud over 300 horizontal wells during 2013 and continue to move into areas of higher liquids content. We spud 131 horizontal wells thus far in 2013, including 16 extended-reach lateral wells.


Marcellus Shale (Onshore US) We continue to delineate the wet gas acreage, while our partner CONSOL Energy has reduced drilling in the dry gas area due to the current natural gas price environment. We continue to work together to enhance our


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recoveries with longer lateral wells, improved completion design and optimized well placements.  Together, we have drilled to total depth 27 wet gas wells and 21 dry gas wells thus far in 2013.


The CONSOL Carried Cost Obligation is currently suspended because average natural gas prices have remained below the contractual threshold. See Liquidity and Capital Resources - Contractual Obligations below.


Alen (Blocks O and I, Offshore Equatorial Guinea) Final commissioning continues with first production beginning late in the second quarter of 2013.  We expect production to ramp up in the third quarter of 2013.


Unsanctioned Development Projects


Gunflint (deepwater Gulf of Mexico) We completed drilling our second successful Gunflint appraisal well in April 2013. A deeper exploration target was also drilled; however, it did not find commercial quantities of hydrocarbons. We are proceeding towards sanctioning a development project in the second half of 2013. First production from Gunflint is targeted for late 2015 or early 2016 utilizing a subsea tieback to an existing host facility.


Big Bend (deepwater Gulf of Mexico) We are evaluating subsea tieback to third party host facility options and anticipate sanctioning a development plan for Big Bend during 2013, with first production targeted in late 2015 or early 2016. A discovery at the nearby Troubadour exploration prospect could provide for co-development opportunity.


Leviathan (Offshore Israel) The successful results from our recent Leviathan-4 appraisal well have enhanced our understanding of the reservoir and we continue our evaluation of multiple development concepts.


We continue working with Woodside Energy Ltd. (Woodside) towards reaching a definitive agreement to sell a 30% working interest in the Leviathan licenses. Each of the current Leviathan partners is expected to participate as a seller to Woodside. We expect to convey a 9.66% working interest, reducing our working interest to 30%, and continue as upstream operator. See Operating Outlook – Update on Israel's Natural Gas Economy, below.


Carla and Diega (Offshore Equatorial Guinea) We  continue reviewing drilling results of the Carla O-7 and the Carla I-7 wells.  In early July 2013, we spud our Diega I-8 appraisal well. We continue evaluating economic development options in this area.


See Item 1. Financial Statements –Note  7. Capitalized Exploratory Well Costs for additional information on costs incurred related to these projects.


Non-Core Divestiture Program


Our non-core divestiture program is designed to generate organizational and operational efficiencies as well as cash for use in our capital investment program. Divestitures of non-core properties allow us to allocate capital and employee resources to high-value and high-growth areas.  Further, proceeds from divestitures provide additional flexibility in the implementation of our international and deepwater Gulf of Mexico exploration and development programs and our horizontal drilling activities in the DJ Basin and Marcellus Shale.


During the first six months of 2013 , we closed two sales of non-operated working interests located in the UK and Netherlands sectors of the North Sea. The sales resulted in a $55 million gain based on total net sale proceeds of $54 million for the fields. We also closed the sale of certain crude oil and natural gas properties in Kansas, Oklahoma and the Gulf Coast areas for a $12 million gain based on total net sale proceeds of $60 million . We continue to market packages of non-core onshore US properties and our remaining North Sea properties. See Item 1. Financial Statements – Note  3. Divestitures .


On occasion we will withdraw from all operations in a country.  The reasons for withdrawing from a country vary.  It may be based on a decision to allocate resources to other projects, or result from government action such as the Ecuadorian government's termination of our Block 3 PSC in 2010.  Some exploration programs simply do not result in the discovery of a commercial quantity of reserves.  Withdrawing from a country usually involves two parallel processes: concluding exploration and production operations; and winding up local business activities. Winding up local business activities may involve completing outstanding tax audits and filing final tax returns, resolving employment related matters, settling claims and dissolving local entities such as subsidiaries or branches.


We are currently planning to withdraw from the United Kingdom and the Dutch North Sea and are winding up local business activities in Ecuador and Argentina.  At this time, we do not believe that any of the activities associated with these areas will have a material effect on our financial position, results of operations or cash flows.


Sales Volumes


On a BOE basis, total sales volumes from continuing operations were 16%  higher for the second quarter of 2013 as compared with the second quarter of 2012 , and our mix of sales volumes was 44% global liquids, 30% international natural gas, and 26% US natural gas. See Results of Operations – Revenues, below.


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Commodity Price Changes and Hedging


US average realized natural gas prices for the second quarter of 2013 almost doubled as compared with the second quarter of 2012 . Total consolidated average realized crude oil prices for the second quarter of 2013  decreased  3% as compared with the second quarter of 2012 .


We have hedged approximately 50% of our expected global crude oil production and 50% of our expected domestic natural gas production for the remainder of 2013 . See Item 1. Financial Statements – Note  4. Derivative Instruments and Hedging Activities .


OPERATING OUTLOOK


2013 Production Our expected crude oil, natural gas and NGL production for 2013 may be impacted by several factors including:


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

|  |                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | increases in and timing of production from the Tamar project, offshore Israel, the Alen project, offshore Equatorial Guinea, horizontal drilling in the Niobrara formation in the DJ Basin and the wet gas area of the Marcellus Shale;

|  |                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Israeli demand for electricity which affects demand for natural gas as fuel for power generation, industrial market growth, and production rates from Tamar, Mari-B, Noa and Pinnacles fields, offshore Israel;

|  |                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | variations in West Africa crude oil and condensate sales volumes due to potential Aseng FPSO downtime and timing of liftings, and variations in natural gas sales volumes related to potential downtime at the methanol, LPG and/or LNG plants;

|  |                                                                                                                                                                                                     
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | natural field decline in the deepwater Gulf of Mexico and non-core US onshore areas, the Mari-B, Noa and Pinnacles fields offshore Israel, and the Alba and Aseng fields offshore Equatorial Guinea;

|  |                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | potential weather-related volume curtailments due to hurricanes in the deepwater Gulf of Mexico; heat in the Rocky Mountain area of our US operations; or winter storms in the DJ Basin, Marcellus Shale and/or Rocky Mountain areas;

|  |                                                                                                                                                                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | reliability of third party facilities and/or potential pipeline and processing facility capacity constraints which may cause restrictions or interruptions in mid-stream processing in the DJ Basin, Marcellus Shale and/or Rocky Mountain areas of our US operations;

|  |                                                                                      
|- | -------------------------------------------------------------------------------------
|• | potential shut-in of US producing properties if storage capacity becomes unavailable;

|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|• | potential drilling and/or completion permit delays due to future regulatory changes; and

|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|• | potential purchases of producing properties or divestments of non-core operating assets.

2013 Capital Investment Program Our total capital investment program for 2013 is estimated at $3.9 billion . The capital investment program allocates approximately 60% to onshore US, 6% to deepwater Gulf of Mexico, 10% to the Eastern Mediterranean, 15% to West Africa and 9% to corporate and other. Exploration and appraisal activity within these geographic areas is expected to receive 19% of total capital.


The 2013 capital investment program will exceed operating cash flows and the difference is expected to be funded from cash on hand, borrowings under our revolving credit facility, and/or other financing such as an issuance of long-term debt. Funding may also be provided by proceeds from divestment of non-core assets. See Liquidity and Capital Resources – Financing Activities below.


We will evaluate the level of capital spending and remain flexible throughout the year based on the following factors, among others:


|  |                                                                                                      
|- | -----------------------------------------------------------------------------------------------------
|• | commodity prices, including price realizations on specific crude oil, natural gas and NGL production;

|  |                            
|- | ---------------------------
|• | cash flows from operations;

|  |                                                                          
|- | -------------------------------------------------------------------------
|• | operating and development costs and service contractor market conditions;

|  |                  
|- | -----------------
|• | drilling results;

|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|• | CONSOL Carried Cost Obligation (See Liquidity and Capital Resources - Contractual Obligations);

|  |                                        
|- | ---------------------------------------
|• | property acquisitions and divestitures;

|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|• | increase in exploration activities in new areas, including offshore Sierra Leone, Nicaragua and the Falkland Islands;

|  |                           
|- | --------------------------
|• | availability of financing;

|  |                                             
|- | --------------------------------------------
|• | potential legislative or regulatory changes;

|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|• | potential changes in the fiscal regimes of the US and other countries in which we operate; and

|  |                                    
|- | -----------------------------------
|• | impact of new laws and regulations.

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Potential for Asset Impairments


Commodity prices remain volatile. A decline in future crude oil or natural gas prices could result in impairment charges. The cash flow model that we use to assess proved properties for impairment includes numerous assumptions, such as management’s estimates of future oil and gas production, market outlook on forward commodity prices, operating and development costs, and interest rates. All inputs to the cash flow model must be evaluated at each date of estimate. However, a decrease in forward crude oil or natural gas prices alone could result in impairment.


We are currently marketing certain non-core onshore US properties. As of June 30, 2013, management and the Board of Directors had not committed to any specific plans to sell additional properties. If the properties are reclassified as assets held for sale in the future, they will be valued at the lower of net book value or anticipated sales proceeds less costs to sell. Impairment expense would be recorded for any excess of net book value over anticipated sales proceeds less costs to sell. In addition, a further loss on sale could occur.


Occasionally, well mechanical problems arise, which can reduce production and potentially result in reductions in proved reserves estimates. For example, our South Raton development in the deepwater Gulf of Mexico recently experienced mechanical issues that were remediated. Although the mechanical issues have been remediated at this time and production has been restored, there is no assurance that such mechanical issues would not recur in the future or that future remediation efforts would be successful. South Raton had a net book value of approximately $113 million at June 30, 2013 .


Update on Hydraulic Fracturing


The practice of hydraulic fracturing in shale formations is the subject of significant focus among some environmentalists, local, state, and federal policy makers, and the general public.


Although hydraulic fracturing is regulated primarily at the state level, local governments and the federal government are increasingly active on the matter. For example, on May 16, 2013, the US Department of the Interior issued proposed rules governing hydraulic fracturing on federal lands. The proposed rules would affect drilling operations on the 700 million acres of federally-owned minerals administered by the Bureau of Land Management, as well as 56 million acres of Native American-owned minerals. The proposed rules would require companies to:


|  |                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------
|• | disclose chemicals they inject by using an online database, with an exception for chemicals deemed to be trade  secrets;

|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|• | verify that wells are drilled properly so that toxic fluids do not contaminate groundwater; and

|  |                                                                              
|- | -----------------------------------------------------------------------------
|• | submit plans for managing drilling wastewater in lined pits or storage tanks.

The proposed rules are currently subject to public comment and could see further revision. Because oil and gas drilling and development activities, including hydraulic fracturing practices, are already regulated at the state level, compliance with federal hydraulic fracturing regulations may result in additional costs and reporting burdens.


In Nevada, the State Assembly recently adopted legislation that requires the development of a program to regulate the use of hydraulic fracturing in Nevada. State regulators will soon begin to develop a program to regulate hydraulic fracturing in the state.


In Colorado, there has been recent activity on oil and gas policy on multiple fronts.  This includes several local ballot initiatives and ordinances, regulatory efforts, litigation, and statewide legislative efforts.  For example, in 2012, residents in the City of Longmont, Colorado banned hydraulic fracturing activities within city limits via a ballot initiative.  This action is being litigated by the state and industry, as being in conflict with state law. In addition, city councils in Fort Collins and Boulder have undertaken measures related to hydraulic fracturing and there are signature campaigns in both jurisdictions which, if successful, would put the question of extended moratoria before voters in November 2013.  Additionally, there are campaigns underway to gain signatures in a number of other local jurisdictions that would put bans or restrictions on hydraulic fracturing on this year's ballot.  Because our operations are focused in Weld County, we do not have active drilling programs in any of the areas currently experiencing bans or signature initiatives.


Certain federal, state or local restrictions on hydraulic fracturing that may be imposed in areas in which we conduct business could potentially result in substantial incremental operating, capital and compliance costs as well as delay our ability to develop oil and gas reserves. We continue to monitor these voter initiatives, as well as proposed legislation and regulations, to assess the potential impact on our operations and to develop and implement strategies for managing these risks. See also Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012 - Federal or state hydraulic fracturing legislation could increase our costs or restrict our access to oil and gas reserves.


Update on Israel's Natural Gas Economy


Antitrust Authority The Israeli Antitrust Commissioner has been actively engaged to encourage competition in developing Israel's natural gas resources. The Antitrust Commissioner ruled that all domestic natural gas sales contracts are subject to


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review and approval of the Antitrust Authority and has intervened in the terms of long term contracts with certain end users. In addition, the Antitrust Commissioner has alleged that the Leviathan license acquisition agreement is a restrictive arrangement and publicly expressed concerns regarding ownership concentration in exploration blocks and development projects and its potential impacts on a competitive domestic natural gas price environment and end user electricity costs. We continue to engage with the Israeli government on this matter. Antitrust Commissioner decisions and actions to increase competition could result in a requirement to divest assets, reduce or relinquish revenue interests, and/or implement equity marketing of production.


Natural Gas Export The Israeli government is also in the process of developing a natural gas export policy. In September 2012, the Tzemach Committee issued its final recommendations on government policy for developing the natural gas economy (the Tzemach Report). See Items 1 and 2. Business and Properties - Regulations - Israeli Interministerial Committee in our Annual Report on Form 10-K for the year ended December 31, 2012.


On June 23, 2013, the Israeli Cabinet approved a plan for natural gas exports and other natural gas development related matters, which we are in the process of reviewing.


Certain members of the Knesset, the Israel parliament, have argued for limitations on exports and have demanded that natural gas policy, including exports, be addressed by the Knesset as opposed to the Cabinet.  This matter has been appealed to the Israeli High Court of Justice which is expected to rule in the coming months.


With our partners, we are continuing to study the official export and natural gas development policies and are monitoring any additional developments to assess the possible impact, positive or negative, of any resulting laws or regulations on our future development activities in Israel. Certain changes in Israel's fiscal and/or regulatory regimes occurring as a result of Antitrust Authority rulings or government policy on natural gas development and/or exports could delay or reduce the profitability of our Tamar and/or Leviathan development projects; delay closing of a farm-out agreement which we are currently negotiating with Woodside or preclude such an agreement entirely; and/or render future exploration and development projects uneconomic.  We continue to work with the Israeli government in support of establishing a stable investment climate to allow for future development of Israel's natural gas economy which will bring significant economic benefits to the state and citizens of Israel.


See also Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012 - Our international operations may be adversely affected by economic and political developments .


Update on Cyber Security


In 2013, cyber attacks against US corporations have escalated, and we believe that cyber attackers are actively looking for ways to gain access to the networks and information of US oil and gas companies, including Noble Energy. While some attacks have resulted in theft of intellectual property or financial assets, other attacks have included infiltration, denial of service efforts, business disruption, or surveillance and control of computer systems with an apparent hostile intent. For example, it was recently reported that hackers were able to gain access to control-system software that could allow manipulation of oil or gas pipeline operations. Such manipulation could include the deletion of important data or the disabling of key safety features.


Information technology and infrastructure may also be breached due to employee or contractor error or malfeasance or by other disruptions that could result in unauthorized disclosure or loss of information.


We continuously look for ways to enhance our cyber security controls and procedures, including the deployment of additional personnel and protection technologies, employee awareness and training, and application of learnings and best practices gained from other companies and government engagement.


We continue to face cyber threats, as do general industry and the oil and gas sector. Specifically, we are aware that we are at risk of cyber threats from hackers that are hostile to countries in which we operate. As these and other cyber threats evolve, we expect to expend additional financial or employee resources to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.


See also Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012 – A cyber incident could result in information theft, data corruption, operational disruption, and/or financial loss.


Update on Butler vs. Powers  On September 7, 2011, an intermediate appellate court (Superior Court) in Pennsylvania issued an opinion in Butler v. Powers regarding the interpretation of a deed. As a result, traditional views of how ownership of shale gas is determined in that state were called into question. The issue raised by the case was whether shale gas is different from other natural gas and should be considered part of mineral rights, rather than oil and gas rights, because shale gas is contained inside unconventional shale rock. An appeal of the decision was subsequently filed with the Pennsylvania Supreme Court, which decided to hear the appeal. Written and oral arguments in the case were presented.


On April 24, 2013, the Pennsylvania Supreme Court reversed the Superior Court and reinstated the trial court's order finding that a deed's reservation of mineral rights did not include natural gas. The decision reinforces long-standing Pennsylvania law that a reservation or grant of minerals does not include crude oil or natural gas unless such reservation or grant is expressly


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stated or unless clear and convincing parol evidence demonstrates the parties' intent to include crude oil or natural gas in the general reservation or grant.


Risk and Insurance Program


Our business is subject to all of the inherent and unplanned operating risks normally associated with the exploration, production, gathering, processing, transportation and marketing of crude oil and natural gas. Such risks include hurricanes, blowouts, well cratering, fire, loss of well control, pipeline disruptions, mishandling of fluids and chemicals and possible underground migration of hydrocarbons and chemicals, any of which could result in damage to, or destruction of, crude oil and natural gas wells or formations or production facilities and other property, environmental pollution, injury to persons, or loss of life. As protection against financial loss resulting from many, but not all of these operating hazards, we maintain insurance coverage, including certain physical damage, business interruption (loss of production income), employer's liability, third party liability and worker's compensation insurance. We maintain insurance at levels that we believe are appropriate and consistent with industry practice and we regularly review our potential risks of loss and the cost and availability of insurance and the company's ability to sustain uninsured losses, and revise our insurance program accordingly.  Limits and deductibles were revised for the property and business interruption programs, as well as the excess liability program, in the first half of the year.


We carry some business interruption insurance for loss of production income arising from physical damage to our major facilities. The coverage is subject to customary deductibles, waiting periods and recovery limits.


Availability of insurance coverage, subject to customary deductibles and recovery limits, for certain perils such as war or political risk is often excluded or limited within property policies.  In Israel and Equatorial Guinea, we insure against acts of war and terrorism in addition to providing insurance coverage for normal operating hazards facing our business. Additionally, as being part of critical national infrastructure, the Israel offshore and onshore assets are included in a special property coverage afforded under the Israeli government's Property Tax and Compensation Fund law.


In the Gulf of Mexico, we self-insure for windstorm related exposures. Currently, our Gulf of Mexico assets are primarily subsea operations; therefore, our direct windstorm exposure is limited. However, we do have some exposure through the use of third party production platforms. In addition, the cost of windstorm insurance continues to be very expensive and coverage amounts are limited. We believe it is more cost-effective for us to self-insure these assets for windstorm exposures.


As is customary with industry practice, crude oil and natural gas well owners generally indemnify drilling rig contractors against certain risks, such as those arising from property and environmental losses, pollution from sources such as oil spills, or contamination resulting from well blowout or fire or other uncontrolled flow of hydrocarbons. Most of our US and international drilling contracts contain such indemnification clauses. In addition, crude oil and natural gas well owners typically assume all costs of well control in the event of an uncontrolled well. We currently carry more than $800 million in insurance protection, depending on our ownership interest, for potential financial losses occurring as a result of events such as the Deepwater Horizon Incident of 2010. This protection consists of more than $600 million of well control, pollution cleanup and consequential damages coverage and more than $200 million of additional pollution cleanup and consequential damages coverage, which also covers third-party personal injury and death.


We have contracts with third-party service providers to perform hydraulic fracturing operations for us. The master service agreements signed by hydraulic fracturing contractors contain indemnification provisions similar to those noted above. Our liability insurance policies do not contain any specific exclusion for liabilities from hydraulic fracturing operations and we believe our policies would cover third party claims related to hydraulic fracturing operations and associated legal expenses in accordance with, and subject to, the terms of such policies. We do not have insurance for gradual pollution nor do we have coverage for penalties or fines that may be assessed by a governmental authority.


We expect the future availability and cost of insurance to be impacted by the various catastrophic events and large losses that insurers have incurred over the past several years. Impacts could include tighter underwriting standards, limitations on scope and amount of coverage, and higher premiums.


We have a risk assessment program that analyzes safety and environmental hazards and establishes procedures, work practices, training programs and equipment requirements, including monitoring and maintenance rules, for continuous improvement. We also use third party consultants to help us identify and quantify our risk exposures at major facilities. We have a robust prevention program and continue to manage our risks and operations such that we believe the likelihood of a significant event is remote. However, if an event occurs that is not covered by insurance, not fully protected by insured limits or our non-operating partners are not fully insured, it could have a material adverse impact on our financial condition, results of operations and cash flows.


Oil Spill Response Preparedness


We maintain membership in Clean Gulf Associates (CGA), a nonprofit association of production and pipeline companies operating in the Gulf of Mexico, for surface spill response. We are a member of  HWCG, a deepwater well containment group,


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which has contracted with Helix Energy Solutions Group (HESG) for the provision of subsea intervention, containment, capture and shut-in capacity for deepwater Gulf of Mexico wells. The system, known as the Helix Fast Response System (HFRS), at full production capacity, can contain well leaks up to 55 MBbl/d of oil, 70 MBbl/d of liquids and 95 MMcf/d of natural gas, at 10,000 pounds per square inch (psi) in water depths to 10,000 feet. Resources also include a 15,000 psi-gauge intervention capping stack designed to shut-in wells in water depths to 10,000 feet, including extremely high-pressure, deeper wells in the deepwater Gulf of Mexico.


In May, we successfully led a full-scale deployment of critical well control equipment to assess our ability to respond to a potential subsea blowout in the deepwater Gulf of Mexico. The drill was a collaborative test between the Department of the Interior's Bureau of Safety and Environmental Enforcement (BSEE), the U.S. Coast Guard, Louisiana Offshore Coordinator's Office and all 15 member companies of the HWCG consortium. Activation of the HWCG rapid response system and deployment of the HWCG capping stack to pressurization requirements met all objectives and marked the successful completion of the exercise.


RESULTS OF OPERATIONS


In the discussion below, prior year amounts have been reclassified to reflect the North Sea segment as discontinued operations. See Discontinued Operations, below.


Revenues


Revenues were as follows: Increasefrom Prior Year20132012(millions)Three Months Ended June 30,Oil, Gas and NGL Sales$1,112$93419%Income from Equity Method Investees373119%Total$1,149$96519%Six Months Ended June 30,Oil, Gas and NGL Sales$2,196$1,97011%Income from Equity Method Investees968316%Total$2,292$2,05312%


Changes in revenues are discussed below.





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Oil, Gas and NGL Sales  Average daily sales volumes and average realized sales prices were as follows: Sales VolumesAverage Realized Sales PricesCrude Oil & Condensate(MBbl/d)NaturalGas(MMcf/d)NGLs(MBbl/d)Total(MBoe/d)(1)Crude Oil & Condensate(Per Bbl)NaturalGas(Per Mcf)NGLs(Per Bbl)Three Months Ended June 30, 2013United States5840415140$94.29$4.04$30.05Equatorial Guinea(2)31252—73101.440.27—Israel(3)—220—37—4.92—China4——497.92——Total Consolidated Operations938761525496.843.1830.05Equity Investees(4)1—5699.48—62.93Total Continuing Operations9487620260$96.87$3.18$38.48Three Months Ended June 30, 2012United States4643116134$94.49$2.10$33.06Equatorial Guinea(2)34215—70104.550.27—Israel—60—10—5.44—China5——5115.41——Total Consolidated Operations857061621999.671.8233.06Equity Investees(4)1—45109.98—61.47Total Continuing Operations8670620224$99.81$1.82$38.87Six Months Ended June 30, 2013United States6040615143$95.02$3.68$34.63Equatorial Guinea(2)29249—70106.200.27—Israel(3)—166—28—5.00—China4——4103.66——Total Consolidated Operations938211524598.872.9134.63Equity Investees(4)2—68105.38—69.03Total Continuing Operations9582121253$98.98$2.91$44.02Six Months Ended June 30, 2012United States4443216132$97.70$2.36$37.46Equatorial Guinea(2)35222—72111.380.27—Israel—84—14—4.84—China5——5120.93——Total Consolidated Operations8473816223104.702.0137.46Equity Investees(4)2—57110.05—65.57Total Continuing Operations8673821230$104.80$2.01$44.50


|    |                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Natural gas is converted on the basis of six Mcf of gas per one barrel of oil equivalent. This ratio reflects an energy content equivalency and not a price or revenue equivalency. Given commodity price differentials, the price for a barrel of oil equivalent for natural gas is significantly less than the price for a barrel of oil.

|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 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.

|    |                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Israel's weighted average natural gas price for second quarter 2013 represents sales of 189 MMcf/d from the Tamar field at an average price of $5.15 per Mcf and 31 MMcf/d from the Mari-B/Noa/Pinnacles fields at an average price of $3.53 per Mcf.

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Israel's weighted average natural gas price for the six months ending June 30, 2013 represents sales of 95 MMcf/d from the Tamar field at an average price of $5.15 per Mcf and 71 MMcf/d from the Mari-B/Noa/Pinnacles fields at an average price of $4.79 per Mcf.


|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(4) | Volumes represent sales of condensate and LPG from the Alba plant in Equatorial Guinea. SeeIncome from Equity Method Investeesbelow.

An analysis of revenues from sales of crude oil, natural gas and NGLs is as follows: Sales RevenuesCrude Oil & CondensateNaturalGasNGLsTotal(millions)Three Months Ended June 30, 2012$769$117$48$934Changes due toIncrease (Decrease) in Sales Volumes7228(3)97Increase (Decrease) in Sales Prices(24)108(3)81Three Months Ended June 30, 2013$817$253$42$1,112Six Months Ended June 30, 2012$1,588$270$112$1,970Changes due toIncrease (Decrease) in Sales Volumes17828(7)199Increase (Decrease) in Sales Prices(99)134(8)27Six Months Ended June 30, 2013$1,667$432$97$2,196


Crude oil and condensate sales – Revenues from crude oil and condensate sales increased during the second quarter and first six months of 2013 as compared with 2012 due to the following:


|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|• | higher sales volumes in the DJ Basin attributable to our horizontal drilling program; and

|  |                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------
|• | the addition of sales volumes from Galapagos, deepwater Gulf of Mexico, which began production in the second quarter of 2012;

partially offset by:


|  |                                                                                 
|- | --------------------------------------------------------------------------------
|• | a reduced number of liftings at Alba, offshore Equatorial Guinea, due to timing;

|  |                                                                                                                       
|- | ----------------------------------------------------------------------------------------------------------------------
|• | decreases in average realized prices due to, among other factors, concerns over economic recovery in the Eurozone; and

|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|• | decreases in sales volumes due to sales of onshore US properties in the third quarter of 2012.

Natural gas sales – Revenues from natural gas sales increased during the second quarter and first six months of 2013 as compared with 2012 due to the following:


|  |                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | increases in total consolidated average realized prices primarily due to increased demand from expectations of cooler weather and higher-than-expected inventory withdrawals;

|  |                                                                        
|- | -----------------------------------------------------------------------
|• | higher sales volumes in Israel from a full quarter of sales from Tamar;

|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
|• | higher sales volumes in the DJ Basin and Marcellus Shale attributable to our horizontal drilling programs; and

|  |                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------
|• | the addition of sales volumes from Galapagos, deepwater Gulf of Mexico, which began production in the second quarter of 2012;

partially offset by:


|  |                                                                                               
|- | ----------------------------------------------------------------------------------------------
|• | lower sales volumes due to divestitures of onshore US properties in the third quarter of 2012.

NGL sales – The majority of our US NGL production is currently from the DJ Basin. NGL sales revenues decreased during the second quarter and first six months of 2013 as compared with 2012 due to declines in both sales volumes and prices. Sales volumes declined as a result of our recent sales of non-core onshore US properties, and high US NGL supply has exerted downward pressure on prices.


Income from Equity Method Investees  We have a 45% interest in Atlantic Methanol Production Company, LLC, which owns and operates a methanol plant and related facilities, and a 28% interest in Alba Plant LLC, which owns and operates a liquefied petroleum gas processing plant. Both plants are located onshore on Bioko Island in Equatorial Guinea.


Equity method investments are included in other noncurrent assets in our consolidated balance sheets, and our share of earnings is reported as income from equity method investees in our consolidated statements of operations. Within our consolidated


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statements of cash flows, our share of dividends is reported within cash flows from operating activities and our share of investments is reported within cash flows from investing activities.





Operating Costs and Expenses


Operating costs and expenses were as follows:


Increase(Decrease) from Prior Year20132012(millions)Three Months Ended June 30,Production Expense$210$16825%Exploration Expense90167(46)%Depreciation, Depletion and Amortization36832513%General and Administrative104968%Other Operating (Income) Expense, Net1671(77)%Total$788$827(5)%Six Months Ended June 30,Production Expense$398$33120%Exploration Expense151227(33)%Depreciation, Depletion and Amortization73461919%General and Administrative21619312%Other Operating (Income) Expense, Net883(90)%Total$1,507$1,4534%


Changes in operating costs and expenses are discussed below.


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Production Expense Components of production expense were as follows:


Total per BOE(1)TotalUnitedStatesEquatorial GuineaIsraelOther Int'l,Corporate(millions, except unit rate)Three Months Ended June 30, 2013Lease Operating Expense(2)$6.04$140$90$27$19$4Production and Ad Valorem Taxes1.874335——8Transportation and Gathering Expense1.172727———Total Production Expense$9.08$210$152$27$19$12Three Months Ended June 30, 2012Lease Operating Expense(2)$5.02$100$68$20$3$9Production and Ad Valorem Taxes2.214433——11Transportation and Gathering Expense1.222423——1Total Production Expense$8.45$168$124$20$3$21Six Months Ended June 30, 2013Lease Operating Expense(2)$5.78$257$179$47$20$11Production and Ad Valorem Taxes1.948669——17Transportation and Gathering Expense1.245554——1Total Production Expense$8.96$398$302$47$20$29Six Months Ended June 30, 2012Lease Operating Expense(2)$5.07$205$139$43$7$16Production and Ad Valorem Taxes2.018159——22Transportation and Gathering Expense1.094542——3Total Production Expense$8.17$331$240$43$7$41


|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.

|    |                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Lease operating expense includes oil and gas operating costs (labor, fuel, repairs, replacements, saltwater disposal and other related lifting costs) and workover expense.

For the second quarter and first six months of 2013 , total production expense increased as compared with 2012 due to the following:


|  |                                                                   
|- | ------------------------------------------------------------------
|• | mechanical repairs related to Swordfish, deepwater Gulf of Mexico;

|  |                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------
|• | additional operating costs at Galapagos, deepwater Gulf of Mexico, which began production in the second quarter of 2012;

|  |                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------
|• | additional operating costs related to Tamar's start-up and a full quarter of production at Tamar, offshore Israel;

|  |                                                                                                       
|- | ------------------------------------------------------------------------------------------------------
|• | a change in the US production mix as DJ Basin volumes grew while we have divested non-core properties;

|  |                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------
|• | an increase in transportation and gathering expense due to higher natural gas production in the Marcellus Shale; and

|  |                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|• | an increase in US taxes due to higher volumes from the DJ Basin and the Pennsylvania well impact fee offset by a decrease associated with divestitures.

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Exploration Expense Components of exploration expense were as follows:


TotalUnited StatesWestAfrica(1)Eastern Mediterranean(2)Other Int'l,Corporate(3)(millions)Three Months Ended June 30, 2013Dry Hole Cost$23$15$8$—$—Seismic2572610Staff Expense30263—1Other1212———Total Exploration Expense$90$60$13$6$11Three Months Ended June 30, 2012Dry Hole Cost$117$116$1$—$—Seismic1713——4Staff Expense2842121Other54——1Total Exploration Expense$167$137$3$1$26Six Months Ended June 30, 2013Dry Hole Cost$23$15$8$—$—Seismic50132629Staff Expense58334219Other2021——(1)Total Exploration Expense$151$82$14$8$47Six Months Ended June 30, 2012Dry Hole Cost$118$116$2$—$—Seismic4639——7Staff Expense5284238Other11101——Total Exploration Expense$227$173$7$2$45


|    |                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | West Africa includes Equatorial Guinea, Cameroon, and Sierra Leone; as well as Senegal/Guinea-Bissau, which we exited in the third quarter of 2012.

|    |                                                  
|--- | -------------------------------------------------
|(2) | Eastern Mediterranean includes Israel and Cyprus.

|    |                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------
|(3) | Other International includes various international new ventures such as Falkland Islands and Nicaragua.

Exploration expense for the second quarter and first six months of 2013 included the following:


|  |                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | dry hole cost related primarily to the deeper exploration objective of the second Gunflint appraisal well, deepwater Gulf of Mexico, and the side track portion of the Carla I-7 appraisal well, offshore Equatorial Guinea;

|  |                                                                               
|- | ------------------------------------------------------------------------------
|• | other international seismic related to 3D seismic in the Falkland Islands; and

|  |                                                                       
|- | ----------------------------------------------------------------------
|• | staff expense associated with new ventures and corporate expenditures.

Exploration expense for the second quarter and first six months of 2012 included the following:


|  |                                                                                              
|- | ---------------------------------------------------------------------------------------------
|• | dry hole cost related primarily to the Deep Blue exploratory well, deepwater Gulf  of Mexico;

|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|• | acquisition of seismic information for the deepwater Gulf of Mexico lease sale; and

|  |                                                                       
|- | ----------------------------------------------------------------------
|• | staff expense associated with new ventures and corporate expenditures.

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


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012DD&A Expense (millions)(1)$368$325$734$619Unit Rate per BOE(2)$15.93$16.37$16.53$15.26


|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | For DD&A expense by geographical area,see Item 1. Financial Statements –Note11. Segment Information.

|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(2) | Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.

Total DD&A expense for the second quarter and first six months of 2013 increased as compared with 2012 due to the following:


|  |                                                                                                  
|- | -------------------------------------------------------------------------------------------------
|• | higher sales volumes combined with infrastructure growth in the DJ Basin and Marcellus Shale; and

|  |                                                                                                                                                                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | additional DD&A from the start up of three offshore fields: Galapagos, deepwater Gulf of Mexico, which began production in the second quarter of 2012; Noa and Pinnacles, offshore Israel, which began production in the third quarter of 2012; and Tamar, offshore Israel, which began production in late first quarter of 2013;

partially offset by:


|  |                                                                      
|- | ---------------------------------------------------------------------
|• | the impact of divestitures of non-core onshore US properties in 2012;

|  |                                                                                  
|- | ---------------------------------------------------------------------------------
|• | lower DD&A from Raton South due to decreased book value from 2012 impairment; and

|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|• | downtime at Swordfish, deepwater Gulf of Mexico, due to mechanical repairs in 2013.

Changes in the unit rate per BOE for the second quarter 2013 as compared with 2012 was primarily due to start-up of Tamar field, offshore Israel, along with increased activity in the DJ Basin as both these areas have comparatively lower DD&A rates.


Changes in the unit rate per BOE for the first six months of 2013 as compared with 2012 were due to changes in the mix of production, primarily due to volumes from the start-up of the Noa, Pinnacles and Galapagos projects, which have comparatively higher DD&A rates.


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


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012G&A Expense (millions)$104$96$216$193Unit Rate per BOE(1)$4.48$4.84$4.86$4.77


|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(1) | Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.

G&A expense for the second quarter and first six months of 2013 increased as compared with 2012 primarily due to additional expenses relating to personnel, office, and information technology costs in support of our major development projects and increased exploration activities.


Other Operating (Income) Expense, Net


Other operating (income) expense, net was as follows: Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Gain on Divestitures$—$(9)$(12)$(9)Asset Impairment—73—73Other, Net1672019Total$16$71$8$83


See Item 1. Financial Statements – Note  2. Basis of Presentation


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Other (Income) Expense


Other (income) expense was as follows:


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Gain on Commodity Derivative Instruments$(161)$(276)$(89)$(180)Interest, Net of Amount Capitalized33275859Other Non-Operating (Income) Expense, Net3(3)12(3)Total$(125)$(252)$(19)$(124)


Gain on Commodity Derivative Instruments Gain on commodity derivative instruments is a result of mark-to-market accounting. Many factors impact our gain/loss on commodity derivative instruments including: increases and decreases in the commodity forward curves compared to our executed hedging arrangements, increases in hedged future volumes, and the mix of hedge arrangements between NYMEX WTI, Dated Brent and NYMEX HH commodities. Our gain on commodity derivatives instruments during the second quarter of 2013 was primarily related to a decrease in the forward curves of both NYMEX WTI and Dated Brent. See Item 1. Financial Statements – Note  4. Derivative Instruments and Hedging Activities and Note 6. Fair Value Measurements and Disclosures .


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


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions, except unit rate)Interest Expense$68$69$135$138Capitalized Interest(35)(42)(77)(79)Interest Expense, Net$33$27$58$59Unit Rate per BOE(1)$1.44$1.35$1.31$1.44


(1) Consolidated unit rates exclude sales volumes and expenses attributable to equity method investees.


The decrease in capitalized interest is primarily due to the completion of major projects, such as Tamar, offshore Israel, and partially offset by higher work in progress amounts related to major long-term projects in the deepwater Gulf of Mexico, offshore West Africa, and offshore Israel.


Other Non-Operating (Income) Expense, Net Other non-operating (income) expense, net includes deferred compensation (income) expense, interest income, transaction (gains) losses, and other (income) expense. See Item 1. Financial Statements – Note  2. Basis of Presentation .


Income Tax Provision


See Item 1. Financial Statements – Note  10. Income Taxes for a discussion of the change in our effective tax rate for the second quarter and first six months of 2013 as compared with 2012 .


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Discontinued Operations


Summarized results of discontinued operations were as follows:


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Oil and Gas Sales$12$65$21$140Less:Production Expense5111325DD&A Expense114232Other (Income) Expense, Net1124Income Before Income Taxes539479Income Tax Expense3221047Operating Income (Loss), Net of Tax217(6)32Gain on Sale, Net of Tax17—55—Income From Discontinued Operations$19$17$49$32Key Statistics:Daily ProductionCrude Oil & Condensate (MBbl/d)1616Natural Gas (MMcf/d)3435Average Realized PriceCrude Oil & Condensate (Per Bbl)$103.21$109.66$107.63$116.14Natural Gas (Per Mcf)11.408.8410.638.29


Our long-term debt is recorded at the consolidated level and is not reflected by each component. Thus, we have not allocated interest expense to discontinued operations. See Item 1. Financial Statements –Note  3. Divestitures .


LIQUIDITY AND CAPITAL RESOURCES


Capital Structure/Financing Strategy


In seeking to effectively fund and monetize our major development projects, we employ a capital structure and financing strategy designed to provide sufficient liquidity throughout the commodity price cycle.  Specifically, we strive to retain the ability to fund long cycle, multi-year, capital intensive development projects throughout a range of scenarios, while also maintaining the capability to execute a robust exploration program and capitalize on financially attractive periodic mergers and acquisitions activity.  We endeavor to maintain an investment grade debt rating in service of these objectives, while delivering competitive returns and a growing dividend.  We also utilize a commodity price hedging program to reduce the impacts of commodity price volatility and enhance the predictability of cash flows along with a risk and insurance program to protect against disruption to our cash flows and the funding of our business.


We strive to maintain a minimum liquidity level to address volatility and risk. Traditional sources of our liquidity are cash on hand, cash flows from operations, available borrowing capacity under our credit facility, and proceeds from sales of non-core properties, such as certain onshore US and North Sea properties in 2013 and 2012.  We may also access the capital markets to ensure adequate liquidity exists in the form of unutilized capacity under our revolving credit facility and to refinance scheduled debt maturities.  We have $528 million of scheduled current maturities due by the end of the second quarter of 2014. See Credit Facility below.


As we ramp up the development of our major projects, as well as our planned exploration and appraisal drilling activities, we recognize that over the near term our capital expenditures will exceed cash flows from operating activities. During the first six months of 2013, our cash balance decreased $681 million.


The extent to which capital investment will continue to exceed operating cash flows depends on our success in sanctioning future development projects, the results of our exploration activities, and new business opportunities as well as external factors such as commodity prices among others. Our financial capacity, coupled with our balanced and diversified portfolio, provides


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us with flexibility in our investment decisions including execution of our major development projects and increased exploration activity.


To support our investment program, we expect that higher production resulting from our horizontal Niobrara development program combined with new production from Tamar, which began producing on March 31, 2013, and Alen, which began producing late in the second quarter of 2013, will result in an increase in cash flows which will be available to meet a substantial portion of future capital commitments.


We also evaluate potential strategic farm-out arrangements of our working interests in Israel, Cyprus, Cameroon, Nicaragua and the deepwater Gulf of Mexico for reimbursement of our capital spending in these areas. In addition, our current liquidity level and balance sheet provide flexibility. We believe that we are well-positioned to fund our long-term growth plans.  See Available Liquidity , below.


We are currently evaluating potential development scenarios for our significant natural gas discoveries offshore Eastern Mediterranean, including Leviathan and Cyprus Block 12. The magnitude of these discoveries presents financial and technical challenges for us due to the large-scale development requirements. Potential development scenarios may include the construction of LNG terminals, floating LNG, FPSO, subsea pipeline or other options. Each of these development options would require a multi-billion dollar investment and a number of years to complete. We have announced a potential strategic partner for Leviathan, Woodside, who could provide midstream expertise as well as LNG project execution and marketplace expertise. We are in the process of negotiating a definitive agreement.


Available Liquidity Information regarding cash and debt balances was as follows:


June 30,December 31,20132012(millions, except percentages)Cash and Cash Equivalents$706$1,387Amount Available to be Borrowed Under Credit Facility(1)4,0004,000Total Liquidity$4,706$5,387Total Debt(2)$4,136$4,123Total Shareholders' Equity8,8758,258Ratio of Debt-to-Book Capital(3)32%33%





|    |                         
|--- | ------------------------
|(1) | SeeCredit Facilitybelow.

|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Total debt includes FPSO and other capital lease obligations and the remaining CONSOL installment payment and excludes unamortized debt discount.

|    |                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | We define our ratio of debt-to-book capital as total debt (which includes long-term debt excluding unamortized discount, the current portion of long-term debt, and short-term borrowings) divided by the sum of total debt plus shareholders’ equity.

Cash and Cash Equivalents We had approximately $706 million in cash and cash equivalents at June 30, 2013 , primarily denominated in US dollars and invested in money market funds and short-term deposits with major financial institutions. Approximately $322 million of this cash is attributable to our foreign subsidiaries and most would be subject to US income taxes if repatriated. We currently expect to use a significant amount of cash to fund international projects, including the planned developments in West Africa and the Eastern Mediterranean.


Credit Facility We have an unsecured revolving credit facility (Credit Facility) that matures on October 14, 2016. The commitment is $4.0 billion through the maturity date of the Credit Facility. On July 1, 2013, we borrowed $200 million under the the short-term loan facility provision for working capital purposes. See Financing Activities – Long-Term Debt below.


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 and ensure cash flow for future capital needs. Such instruments include variable to fixed price commodity swaps, two and three-way collars and put options. Our practice has been to hedge up to 50% of our forecasted hedgeable crude oil and natural gas production for the current year plus two additional calendar years. The limit was recently increased to up to 75% of forecasted hedgeable global crude oil production for the years 2014 and 2015.


Current period settlements on commodity derivative instruments impact our liquidity, since we are either paying cash to, or receiving cash from, our counterparties. We net settle by counterparty based on master netting agreements. The net settlements take into account deferred premiums we have agreed to pay for put options. None of our counterparty agreements contain margin requirements. We have also used 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. However, we currently have no interest rate derivative instruments.


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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, 2013 , the fair value of our commodity derivative assets was $167 million and the fair value of our commodity derivative liabilities was $13 million (after consideration of netting clauses within our master agreements). See Item 1. Financial Statements –Note  4. Derivative Instruments and Hedging Activities for a discussion of derivative counterparty credit risk and Note  6. Fair Value Measurements and Disclosures for a description of the methods we use to estimate the fair values of derivative instruments.


US Fiscal Environment The 2014 Presidential budget proposes the elimination of specific tax incentives related to oil, natural-gas and coal companies. The President remains focused on reducing tax benefits for the oil and gas industry, specifically the deferral of expensing intangible drilling and development costs (IDC). The discussions of a full tax reform continue with Congress and the Obama Administration divided over these issues. We continue to monitor these events and any potential impacts to our business.


European Debt Crisis  The fallout from the European debt crisis continues to have a negative impact on the European economy, with risks to the global financial system and overall global economy. Some countries have implemented austerity measures including raising taxes and reducing entitlements, but are still struggling to pay off their debts, and the major bailout fund, the European Stability Mechanism, has limited lending capacity. In many cases, the banking community across the region has undergone consolidation, restructuring and increased regulatory governance. Some of the European banks are counterparties in our commodity hedging program and lenders in our credit facility. If these institutions receive credit downgrades, our internal risk guidelines could preclude further hedging activities with them. At this time, we believe our current balance sheet and financial flexibility enhance our ability to react to European events as they unfold.


Counterparty Credit Risk We monitor the creditworthiness of our trade creditors, joint venture partners, hedging counterparties, and financial institutions on an ongoing basis. Some of these entities are not as creditworthy as we are and may experience credit downgrades or liquidity problems. Credit downgrades or liquidity problems could result in a delay in our receiving proceeds from commodity sales or reimbursement of joint venture costs.


The current uncertain economic and commodity price environment increases the risk of a sudden negative change in liquidity, which could impair a party's ability to perform under the terms of a contract.  We are unable to predict sudden changes in a party's creditworthiness or ability to perform. Even if we do accurately predict such sudden changes, our ability to negate these risks may be limited and we could incur significant financial losses.


In addition, nonoperating partners often must obtain financing for their share of capital cost for development projects. For example, our Eastern Mediterranean partners must obtain financing for their share of significant development expenditures at Leviathan, offshore Israel, which potentially includes an LNG project and/or major underwater pipeline. In conjunction with our negotiations with Woodside, we are assisting our current Leviathan partners to obtain appropriate financing for their share of development costs and considering providing a limited amount of financial backstop to them.  A partner's inability to obtain financing could result in a delay of one of our joint development projects.


Credit enhancements have been obtained from some parties in the form of parental guarantees or letters of credit; however, not all of our counterparty credit is protected through guarantees or credit support. Nonperformance by a trade creditor, joint venture partner, hedging counterparty or financial institution could result in significant financial losses.


Contractual Obligations


CONSOL Carried Cost Obligation The CONSOL Carried Cost Obligation represents our agreement to fund up to approximately $2.1 billion of CONSOL’s future drilling and completion costs. The CONSOL Carried Cost Obligation is capped at $400 million in each calendar year and is suspended if average Henry Hub natural gas prices fall and remain below $4.00 per MMBtu in any three consecutive month period and will remain suspended until average Henry Hub natural gas prices are above $4.00 per MMBtu for three consecutive months.  The CONSOL Carried Cost Obligation is currently suspended. Based on the June 30, 2013 NYMEX Henry Hub natural gas price curve, we forecast our CONSOL Carried Cost Obligation will remain suspended for the next 12 months.


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Cash Flows


Cash flow information is as follows: Six Months EndedJune 30,20132012(millions)Total Cash Provided By (Used in)Operating Activities$1,244$1,247Investing Activities(1,835)(1,925)Financing Activities(90)(75)Decrease in Cash and Cash Equivalents$(681)$(753)


Operating Activities Net cash provided by operating activities for the first six months of 2013 remained flat as compared with 2012 .  Higher natural gas sales prices and an increase in crude oil and natural gas sales volumes were offset by lower crude oil sales prices and increases in production expenses and general and administrative expense. See Item 1. Financial Statements – Consolidated Statements of Cash Flows .


Investing Activities Our investing activities include capital spending on a cash basis for oil and gas properties and investments in unconsolidated subsidiaries accounted for by the equity method. These investing activities may be offset by proceeds from property sales or dispositions, including farm-in arrangements, which may result in reimbursement for capital spending that had been previously incurred by us. Capital spending for property, plant and equipment increased by $29 million during the first six months of 2013 as compared with 2012 , primarily due to increased development in the DJ Basin and Marcellus Shale and corporate building improvements, partially offset by a decline in spending based on the project life cycle of major projects offshore West Africa and offshore Israel nearing completion. We received $114 million net proceeds from non-core asset divestitures during the first six months of 2013 as compared with $10 million from divestiture activity during the first six months of 2012 .


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 2013 , funds were provided by cash proceeds from, and tax benefits related to, the exercise of stock options ( $43 million ). We used cash to pay dividends on our common stock ( $96 million ), make principal payments related to the Aseng FPSO capital lease obligation ( $23 million ) and repurchase shares of our common stock ( $14 million ).


In comparison, during the first six months of 2012 , funds were provided by cash proceeds from, and tax benefits related to, the exercise of stock options ( $39 million ).  We also used cash to pay dividends on our common stock ( $79 million ), make principal payments related to the Aseng FPSO capital lease obligation ( $22 million ) and repurchase shares of our common stock ( $13 million ).


See Item 1. Financial Statements – Consolidated Statements of Cash Flows .


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Investing Activities


Acquisition, Capital and Exploration Expenditures  Information for investing activities (on an accrual basis) is as follows:


Three Months EndedJune 30,Six Months EndedJune 30,2013201220132012(millions)Acquisition, Capital and Exploration ExpendituresUnproved Property Acquisition$97$14$134$87Exploration19792385221Development7497191,3741,454Corporate and Other891312425Total$1,132$838$2,017$1,787OtherInvestment in Equity Method Investee$3$21$23$35Increase in Capital Lease Obligations31—36—


Unproved property acquisition costs for the first six months of 2013 were primarily related to acquisitions that strengthened our positions in the DJ Basin, Marcellus Shale and deepwater Gulf of Mexico.


Investment in equity method investees represents funding of our investment in CONE Gathering LLC (CONE) which owns and operates the infrastructure associated with our Marcellus Shale joint venture.


The increase in capital lease obligations represents estimated construction in progress to date on a crude oil trunkline in the DJ Basin. See Item 1. Financial Statements –Note  5. Debt .


Financing Activities


Long-Term Debt Our principal source of liquidity is an unsecured revolving Credit Facility that matures October 14, 2016. We utilized the credit facility to engage in short-term borrowing arrangements during the first six months of 2013 . We expect to utilize the Credit Facility in the second half of 2013 to engage in short-term borrowing, as well as to fund the final CONSOL installment payment ( $328 million ) due September 30, 2013.


At June 30, 2013 , there were no borrowings outstanding under the Credit Facility, leaving $4.0 billion available for use. We expect to use the Credit Facility to fund our capital investment program, and we may periodically borrow amounts for working capital purposes.  On July 1, 2013, we borrowed $200 million under the the short-term loan facility provision for working capital purposes. See Item 1 Financial Statements -Note  5. Debt .


Our outstanding fixed-rate debt (excluding FPSO and other capital lease obligations) totaled approximately $3.8 billion at June 30, 2013 . The weighted average interest rate on fixed-rate debt was 5.89% , with maturities ranging from September 2013 to August 2097. Approximately $528 million of our fixed rate debt is scheduled to mature by the end of the second quarter of 2014.


Dividends We paid total cash dividends of 27 cents per share of our common stock during the first six months of 2013 and 22 cents per share during the first six months of 2012 (as adjusted for the 2-for-1 stock split during the second quarter of 2013). 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 from the exercise of stock options of $31 million during the first six months of 2013 and $26 million during the first six months of 2012 .


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 247,985 shares with a value of $14 million during the first six months of 2013 and 264,968 shares with a value of $13 million during the first six months of 2012 .





Item 3.    Quantitative and Qualitative Disclosures About Market Risk


Commodity Price Risk


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Derivative Instruments Held for Non-Trading Purposes We are  exposed to market risk in the normal course of business operations, and the volatility 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, 2013 , we had entered into variable to fixed price commodity swaps, collars and put options related to crude oil and natural gas sales. Changes in fair value of commodity derivative instruments are reported in earnings in the period in which they occur. Our open commodity derivative instruments were in a net asset position with a fair value of $154 million . Based on the June 30, 2013 published commodity futures price curves for the underlying commodities, a hypothetical price increase of $1.00 per Bbl for crude oil would decrease the fair value of our net commodity derivative asset by approximately $34 million. A hypothetical price increase of $0.10 per MMBtu for natural gas would decrease the fair value of our net commodity derivative asset by approximately $13 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. S ee 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 the amount of interest we earn on our short-term investments.


At June 30, 2013 , we had approximately $3.8 billion (excluding FPSO and other capital lease obligations) of long-term debt outstanding. All debt outstanding was fixed-rate debt with a weighted average interest rate of 5.89% . 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.


We occasionally enter into interest rate derivative instruments such as forward contracts or swap agreements to hedge exposure to interest rate risk. Changes in fair value of interest rate derivative instruments 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, 2013 , AOCL included $25 million , net of tax, related to interest rate derivative instruments. This amount is currently being reclassified to earnings as adjustments to interest expense over the terms of our 51⁄4% senior notes due April 15, 2014 and 6% senior notes due March 1, 2041. See Item 1. Financial Statements –Note  4. Derivative Instruments and Hedging Activities .


We are also exposed to interest rate risk related to our interest-bearing cash and cash equivalents balances. As of June 30, 2013 , our cash and cash equivalents totaled approximately $706 million , approximately 68% of which was invested in money market funds and short-term investments with major financial institutions. A hypothetical 25 basis point change in the floating interest rates applicable to the amount invested as of June 30, 2013 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 taxes payable in foreign tax jurisdictions, are settled in the foreign local currency. A reduction in the value of the US dollar against currencies of other countries in which we have material operations could result in the use of additional cash to settle operating, administrative, and tax liabilities.


Net transaction gains and losses were de minimis for the second quarter and the first six months of 2013, and losses totaled $9 million and $6 million for the second quarter and the first six months of 2012, respectively. The losses were primarily related to the changes in exchange rates between the US dollar and Israeli new shekel. Transaction (gains) losses are included in other (income) expense, net in the consolidated statements of operations.


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 determine that it is necessary to invest in such instruments in order to mitigate our foreign currency exchange risk.


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:


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|  |                       
|- | ----------------------
|• | 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;

|  |                                                                                 
|- | --------------------------------------------------------------------------------
|• | 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;

|  |                                                                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|• | the impact of governmental fiscal terms and/or regulation, such as that involving the protection of the environment or marketing of production, as well as other regulations; and

|  |                     
|- | --------------------
|• | access to resources.

Forward-looking statements are typically identified by use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “intend,” 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, 2013, or our Annual Report on Form 10-K for the year ended December 31, 2012 , which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements.  Our Annual Report on Form 10-K for the year ended December 31, 2012 is 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 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.


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Part II. Other Information


Item 1.    Legal Proceedings


West Virginia Matter In March 2013, we received seven Notices of Violation (NOV) and two Administrative Orders (Orders) from the West Virginia Department of Environmental Protection Office of Oil and Gas (OOG) regarding the unintentional discharge of a mixture of freshwater and produced water that occurred on or about the evening of February 22, 2013 from one of our permitted water storage facilities in Marshall County, West Virginia.  At this time, the OOG has not established a proposed penalty for these NOVs or Orders. Given the uncertainty in administrative actions of this nature, we are unable to predict the ultimate outcome of this action at this time. However, we believe that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on our financial position, results of operations or cash flows.


Colorado Matters In April 2013, we received a proposed Early Settlement Agreement (ESA) from Colorado Department of Public Health and Environment's Air Pollution Control Division to resolve allegations of noncompliance with our 2011 Ozone and Non-Ozone season submissions pursuant to Air Quality Control Commission Regulation 7. The ESA sought payment of a reduced penalty of $112,000. On June 18, 2013, we accepted the reduced penalty and executed a Compliance Order on Consent (COC).  Under the terms and conditions of the COC, we agreed to pursue a supplemental environmental project (SEP) to mitigate $89,600 of the total penalty and submitted payment of $22,400 as an administrative penalty. The SEP's $89,600  is currently intended to assist with the development and implementation of an energy efficiency educational outreach program for students.


In July 2013, we received a proposed COC from Colorado Department of Public Health and Environment's Air Pollution Control Division to resolve allegations of noncompliance with our 2012 Ozone season submissions pursuant to Air Quality Control Commission Regulation 7. The COC, which provides for an opportunity to further discuss the offer of settlement, has not yet been executed.  At present, the COC seeks payment of a reduced penalty of $156,450 and provides the opportunity to mitigate up to $125,160 of the total reduced penalty by pursuing SEP. Given the inherent uncertainty in administrative actions of this nature, we are unable to predict the ultimate outcome of this action at this time. However, we believe that the resolution of these proceedings through settlement or adverse judgment will not have a material adverse effect on our financial position, results of operations or cash flows.





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, 2013 or Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2012 .





Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds


The following table sets forth, for the periods indicated, the Company’s share repurchase activity:


PeriodTotal Number ofSharesPurchased(1)AveragePrice PaidPer ShareTotal Number ofShares Purchasedas Part of PubliclyAnnounced Plans orProgramsApproximate DollarValue of Shares thatMay Yet BePurchased Under thePlans or Programs(in thousands)4/1/2013 - 4/30/2013978$55.12——5/1/2013 - 5/31/20131,06057.32——6/1/2013 - 6/30/201328758.87——Total2,325$56.59——





|    |                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Stock repurchases during the period related to common stock received by us from employees for the payment of withholding taxes due on shares of common stock issued under stock-based compensation plans.







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Item 3.    Defaults Upon Senior Securities


None.





Item 4.    Mine Safety Disclosures


Not applicable.





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.


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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)DateJuly 25, 2013/s/ Kenneth M. FisherKenneth M. FisherSenior Vice President, Chief Financial Officer





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Index to Exhibits


Exhibit NumberExhibit3.1Certificate of Incorporation of the Registrant (as amended through April 23, 2013), filed as Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.3.2By-Laws of Noble Energy, Inc. (as amended through April 23, 2013), filed as Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and incorporated herein by reference.10.1Retention and Confidentiality Agreement between Noble Energy, Inc. and Rodney D. Cook, Senior Vice President, dated May 1, 2013, filed herewith.10.2Retention and Confidentiality Agreement between Noble Energy, Inc. and Ted D. Brown, Senior Vice President, dated May 1, 2013, filed herewith.10.3Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan (as amended through April 26, 2011), filed herewith.12.1Calculation of ratio of earnings to fixed charges, filed herewith.31.1Certification of the Company’s Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241), filed herewith.31.2Certification of the Company’s Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 7241), filed herewith.32.1Certification of the Company’s Chief Executive Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), filed herewith.32.2Certification of the Company’s Chief Financial Officer Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), filed herewith.101.INSXBRL Instance Document101.SCHXBRL Schema Document101.CALXBRL Calculation Linkbase Document101.LABXBRL Label Linkbase Document101.PREXBRL Presentation Linkbase Document101.DEFXBRL Definition Linkbase Document








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