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Part I. Financial Information

Item 1. Financial Statements

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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 historical operating areas include: US onshore, primarily the Denver-Julesburg (DJ) Basin, Delaware Basin and Eagle Ford Shale; Eastern Mediterranean; and West Africa. Our Midstream segment develops, owns and operates domestic midstream infrastructure assets, as well as invests in other midstream projects, with current focus areas being the DJ and Delaware Basins.

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 March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 contain all normally recurring adjustments considered necessary for a fair presentation of our financial position, results of operations, cash flows and equity for such periods. Certain prior-period amounts have been reclassified to conform to the current period presentation. For the periods presented, net income or loss is materially consistent with comprehensive income or loss.

Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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, 2019.

Consolidation   Our consolidated financial statements include our accounts, the accounts of subsidiaries which Noble Energy wholly owns, and the accounts of Noble Midstream Partners LP (Noble Midstream Partners). Noble Energy has determined that the partners with equity at risk in Noble Midstream Partners lack the authority, through voting rights or similar rights, to direct the activities that most significantly impact Noble Midstream Partners' economic performance; therefore, Noble Midstream Partners is considered a variable interest entity. Through Noble Energy's ownership interest in Noble Midstream GP LLC (the General Partner to Noble Midstream Partners), Noble Energy has the authority to direct the activities that most significantly affect economic performance and the obligation to absorb losses or the right to receive benefits that could be potentially significant to Noble Midstream Partners. Therefore, Noble Energy is considered the primary beneficiary and consolidates Noble Midstream Partners.

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. Amounts recorded within equity method investments, including contributions, include capitalized interest when the primary asset is under construction. All significant intercompany balances and transactions have been eliminated upon consolidation. 

Noncontrolling Interests  Our consolidated financial statements include both noncontrolling interests and a redeemable noncontrolling interest. The noncontrolling interests represent the public's ownership in Noble Midstream Partners and third-party ownership in Noble Midstream Partners' consolidated non-wholly owned subsidiaries. Net loss attributable to noncontrolling interests for the three months ended March 31, 2020 includes goodwill impairment expense of $72 million based upon third party ownership interests in the underlying asset. See Note 4. Impairments.

The redeemable noncontrolling interest represents perpetual preferred equity with a 6.5% annual dividend rate. Noble Midstream Partners may redeem the preferred equity in whole or in part at any time for cash at a predetermined redemption price. The preferred equity partner can request redemption at a pre-determined base return on or after March 25, 2025.

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. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment.

The current commodity price, supply and demand environment coupled with the COVID-19 pandemic contributed significant uncertainty to our estimates this quarter. Actual results could differ significantly from those estimates.

Impairments During the quarter, we identified certain impairment indicators including the recent significant decrease in commodity prices as a result of the COVID-19 pandemic lowering demand for our products, as well as the supply response from the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers, factors which have caused us to

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change our development plans. Due to these impairment indicators, we conducted impairment testing of certain of our assets, as follows:

Proved Properties

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Asset Recovery Test We conducted asset recovery testing of our proved properties on a field-by-field basis, inclusive of associated Midstream assets. For each field, we developed estimates of future undiscounted cash flows expected in connection with the property and compared these estimates to the carrying amount of the property. Assumptions used in these estimates include expectations for future commodity prices, development and capital spending plans, reservoir performance and production. Additionally, these estimates include certain asset specific assumptions, such as the political and regulatory impacts on future development activity, exploration plans, our geologists' evaluation of the property and the remaining lease term of the property. An impairment is indicated if, as a result of the assessment, an asset's carrying value exceeds its future net undiscounted cash flows.

In preparing and reviewing assumptions used in the recovery test, we reassessed our historical methodology and rationale of inputs given the current industry and global environment. We concluded that our historical methodology and inputs were reasonable with the exception of estimating future commodity prices.

Historically, management has relied on future undiscounted net cash flows which included five-year strip prices for crude oil and natural gas, with prices subsequent to the fifth year held constant, unless contractual arrangements designated the price to be used. This pricing methodology has been similar to pricing assumptions used in creating management's long-range plans for asset development and capital allocation decisions. However, during first quarter 2020, forward five-year strip prices experienced considerable volatility and limited liquidity in the outer years of the forward strip. As such, we concluded that estimating future commodity prices using only five-year strip pricing would not be representative of expected market prices for certain of the years within our undiscounted cash flow models.

As such, absent contractual arrangements designating the price to be used, we aligned our future commodity price estimates used in the recovery test with those utilized in our updated long-range plans for asset development and capital allocation. This pricing reflects our analysis of market supply and demand considerations and industry cost of supply curve.

Except for our Delaware Basin proved properties, we determined that the carrying amount of each field was recoverable.

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Fair Value Determination We estimated the fair value of our Delaware Basin proved properties using a number of fair value inputs, which are Level 3 on the fair value hierarchy. We utilized a discounted cash flow model, estimating future net cash flows based on our expectations of future crude oil and natural gas production, commodity prices, and operating and development costs and discounted the cash flows using a weighted average cost of capital.

As a result of the fair value determination, we concluded that the carrying amount of our Delaware Basin proved properties was impaired and recognized impairment expense for the excess of the carrying value above the fair value of the properties. See Note 4. Impairments.

Unproved Properties Our unproved properties consist of leasehold costs and value allocated to probable and possible reserves resulting from acquisitions. During the quarter, we assessed our unproved properties for impairment by considering numerous factors including, but not limited to, current development plans, favorable or unfavorable exploration activity on the property being evaluated and/or adjacent properties, our geologists' evaluation of the property, and the remaining months in the lease term for the property.

We determined that the carrying values relating to both our Delaware Basin and Eagle Ford Shale unproved properties were impaired and recognized exploration expense. See Note 4. Impairments.

Other Property, Plant & Equipment Other property includes lease right-of-use assets such as compressors and buildings, leasehold improvements, automobiles, trucks and other fixed assets. During the quarter, we identified certain impairment indicators with regards to a corporate real estate finance lease. We performed an impairment assessment which indicated the right-of-use asset's carrying value exceeded its future net undiscounted cash flows. As such, we estimated the fair value of the asset, recognizing impairment expense for the excess of the carrying value above the fair value of the right-of-use asset. See Note 4. Impairments.

Equity Method Investments We consider our equity method investments to be essential components of our business and necessary and integral elements of our value chain in support of our upstream operations. We considered whether any facts or circumstances suggested that our equity method investments were impaired on an other-than-temporary basis and concluded that the carrying values of our equity method investments were not impaired.

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Goodwill Noble Midstream Partners recorded goodwill upon the acquisition of Saddle Butte Rockies Midstream, LLC and affiliates (collectively Saddle Butte and subsequently renamed Black Diamond). The current commodity price environment and decrease in market capitalization were indicators that the goodwill may be impaired. Noble Midstream Partners performed a qualitative assessment, concluding it was more likely than not that the fair value of the reporting unit was less than its carrying value. Noble Midstream Partners then performed a fair value assessment, taking into account changes in customer development plans. Based on these assessments, Noble Midstream Partners concluded that the goodwill was fully impaired. See Note 4. Impairments.

Deferred Taxes We record valuation allowances to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In first quarter 2020, we changed our US onshore development plans in response to significant decreases in commodity prices, excess supply and lower demand for commodities resulting from the COVID-19 pandemic, as well as expected slower global economic growth. Additionally, we recorded an impairment to our Delaware Basin proved and unproved properties and to our Eagle Ford Shale unproved properties. Together, these factors suggest that it is more likely than not that our forecasted domestic net deferred tax asset will not be realized. See Note 10. Income Taxes.

Revenue Recognition   We recognize revenue at an amount that reflects the consideration we expect to be entitled to in exchange for transferring goods or services to a customer. We routinely monitor the credit worthiness of our purchasers. While we maintain credit insurance associated with certain purchasers, we do not carry credit insurance for all purchasers.

In Israel, certain of our Tamar and Leviathan natural gas sales and purchase agreements (GSPAs) have fixed minimum sales volumes and fixed base pricing with annual index escalations. Additionally, certain of our Egyptian export contracts include provisions which trigger adjustments to either decrease, or increase, fixed minimum sales volumes in the event the arithmetic average of daily Brent crude oil prices fall below, or above, $50 per barrel for certain periods of time.

Estimated future revenues related to remaining performance obligations were as follows as of March 31, 2020:

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(millions)	Remainder of 2020				2021				2022				2023				2024				Thereafter				Total
Natural Gas Revenues (1)	$	407			$	599			$	418			$	412			$	412			$	3,695			$	5,943

(1)

Our actual future natural gas sales volumes may exceed future minimum volume commitments. Additionally, future natural gas revenues will vary due to variable consideration exceeding the contractual minimum volume or floor price provision. For example, estimates related to our Egyptian export contracts included in the table above calculate minimum fixed volume commitments assuming the arithmetic average of daily Brent crude oil prices are less than $50 per barrel for the remainder of the contract terms, which extend into 2035. Actual results could differ significantly from these estimates.

Recently Issued Accounting Standards

London Interbank Offered Rate (LIBOR) Reform In first quarter 2020, the FASB issued ASU No. 2020-04 (ASU 2020-04): Reference Rate Reform (Topic 848), which provides optional guidance for a limited period of time to ease the transition from LIBOR to an alternative reference rate. The ASU intends to address certain concerns relating to accounting for contract modifications and hedge accounting. These optional expedients and exceptions to applying GAAP, assuming certain criteria are met, are allowed through December 31, 2022. We are currently evaluating the provisions of ASU 2020-04 and have not yet determined whether we will elect the optional expedients. We do not expect the transition to an alternative rate to have a significant impact on our business, operations or liquidity.

Recently Adopted Accounting Standards

Clarifying Certain Accounting Standards Codification (ASC) Topics In first quarter 2020, the FASB issued ASU No. 2020-01: Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), to clarify the interactions between these Topics. The update provides clarifications for entities investing in equity securities accounted for under the ASC 321 measurement alternative and companies that hold certain non-derivative forward contracts and purchased options to acquire equity securities. ASU 2020-01 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We early adopted this ASU in first quarter 2020. This adoption did not have a material impact on our financial statements.

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

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	Three Months Ended March 31,
(millions)	2020				2019
Other Revenue
(Loss) Income from Equity Method Investments and Other	$	(24	)		$	17
Midstream Services Revenues – Third Party	25				24
Total	$	1			$	41
Production Expense
Lease Operating Expense	$	138			$	151
Production and Ad Valorem Taxes	39				49
Gathering, Transportation and Processing Expense	95				102
Other Royalty Expense	4				3
Total	$	276			$	305
Exploration Expense
Leasehold Impairment (1)	$	1,485			$	—
Seismic, Geological and Geophysical	4				5
Staff Expense	13				12
Other	2				7
Total	$	1,504			$	24
Other Operating Expense, Net
Finance Lease Right-of-Use Asset Impairment (2)	$	40			$	—
Firm Transportation Exit Cost	—				92
Other, Net	4				25
Total	$	44			$	117

(1)	See Note 4. Impairments and Note 6. Capitalized Exploratory Well Costs and Undeveloped Leasehold Costs.

(2)	See Note 4. Impairments.

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Balance Sheet Information   Other balance sheet information is as follows:

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(millions)	March 31, 2020				December 31, 2019
Accounts Receivable, Net
Commodity Sales	$	308			$	446
Joint Interest Billings	136				164
Other	125				128
Current Expected Credit Losses	(7		)		(8		)
Total	$	562			$	730
Other Current Assets
Commodity Derivative Assets	$	221			$	14
Inventories, Materials and Supplies	68				59
Assets Held for Sale (1)	1				14
Prepaid Expenses and Other Current Assets	63				61
Total	$	353			$	148
Other Noncurrent Assets
Equity Method Investments	$	1,249			$	1,066
Operating Lease Right-of-Use Assets, Net (2)	244				227
Customer-Related Intangible Assets, Net (3)	270				278
Goodwill (4)	—				110
Other Assets, Noncurrent	162				153
Total	$	1,925			$	1,834
Other Current Liabilities
Production and Ad Valorem Taxes	$	113			$	118
Asset Retirement Obligations	84				84
Interest Payable	80				74
Operating Lease Liabilities	95				88
Compensation and Benefits Payable	25				126
Other Liabilities, Current	254				229
Total	$	651			$	719
Other Noncurrent Liabilities
Deferred Compensation Liabilities	$	112			$	133
Asset Retirement Obligations	709				730
Operating Lease Liabilities	172				164
Firm Transportation Exit Cost Accrual (5)	114				129
Other Liabilities, Noncurrent	199				222
Total	$	1,306			$	1,378

(1)	Assets held for sale at December 31, 2019 relate to the divestiture of non-core assets in Reeves County, Texas. The assets were reclassified to held and used during first quarter 2020.

(2)	Amount at March 31, 2020 includes a five-year $28 million lease renewal for a vessel offshore West Africa.

(3)	Intangible asset balances at March 31, 2020 and December 31, 2019 are net of accumulated amortization of $70 million and $62 million, respectively.

(4)	See Note 4. Impairments.

(5)	Represents the discounted present value of our remaining obligations to third parties for permanent assignments of capacity on pipelines in the Marcellus Shale.

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Reconciliation of Total Cash We define total cash as cash, cash equivalents and restricted cash. Carrying amounts approximate fair value due to the short-term nature. The following table provides a reconciliation of total cash:

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	Three Months Ended March 31,
(millions)	2020				2019
Cash and Cash Equivalents at Beginning of Period	$	484			$	716
Restricted Cash at Beginning of Period	—				3
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period	$	484			$	719
Cash and Cash Equivalents at End of Period	$	1,397			$	528
Restricted Cash at End of Period	—				2
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	1,397			$	530

Note 3. Segment Information

We have the following reportable segments: US onshore; Eastern Mediterranean (Israel and Cyprus); West Africa (Equatorial Guinea, Cameroon and Gabon); Other International (Canada, Colombia and New Ventures); and Midstream. The Midstream segment includes the consolidated accounts of Noble Midstream Partners.

The geographical reportable segments are in the business of crude oil and natural gas acquisition and exploration, development, and production (Oil and Gas Exploration and Production). The Midstream reportable segment develops, owns and operates domestic midstream infrastructure assets, as well as invests in other midstream projects, with current focus areas being the DJ and Delaware Basins. Expenses related to debt, such as interest and other debt-related costs, headquarters depreciation, corporate general and administrative expenses, exit costs and certain costs associated with mitigating the effects of our retained Marcellus Shale transportation agreements, are recorded at the Corporate level.

The chief operating decision maker analyzes (loss) income before income taxes to assess the performance of Noble Energy's reportable segments as management believes this measure provides useful information in assessing our operating and financial performance across periods.

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					Oil and Gas Exploration and Production																Midstream
(millions)	Consolidated				United States				Eastern Mediter-ranean				West Africa				Other Int'l				United States				Intersegment Eliminations and Other(1)				Corporate
Three Months Ended March 31, 2020
Crude Oil Sales	$	578			$	492			$	1			$	85			$	—			$	—			$	—			$	—
NGL Sales	62				62				—				—				—				—				—				—
Natural Gas Sales	254				60				190				4				—				—				—				—
Total Crude Oil, NGL and Natural Gas Sales	894				614				191				89				—				—				—				—
Sales of Purchased Oil and Gas	125				25				—				—				—				83				—				17
Loss from Equity Method Investments and Other	(24		)		—				(2		)		(17		)		—				(5		)		—				—
Midstream Services Revenues – Third Party	25				—				—				—				—				25				—				—
Intersegment Revenues	—				—				—				—				—				115				(115		)		—
Total Revenues	1,020				639				189				72				—				218				(115		)		17
Lease Operating Expense	138				108				13