NOBLE ENERGY, INC.
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 management. We use common industry terms, such as thousand
barrels of oil equivalent per day (MBoe/d) and million cubic feet equivalent per
day (MMcfe/d), to discuss production and sales volumes. Our MD&A is presented in
the following sections:
• Executive Overview & Operating Outlook ;
• Results of Operations - Exploration and Production ;
• Results of Operations - Midstream ;
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• Results of Operations - Corporate ; 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. See also Item 1A. Risk Factors and Disclosure Regarding Forward-Looking Statements. EXECUTIVE OVERVIEW AND OPERATING OUTLOOK The following discussion highlights the current operating environment as well as significant operating and financial results for second quarter 2020. This discussion should be read in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2019 , which includes disclosures regarding our critical accounting policies as part of "Management's Discussion and Analysis of Financial Condition and Results of Operations." The impacts on our business of both the significant decline in commodity prices and the COVID-19 pandemic are unprecedented. While we continue actions to address the severe decline in revenues that began inMarch 2020 , including reductions in capital spending, cost controls and changes to our long-term cost structure, the impact of the reduction of development activities will have a significant negative multi-year impact on our production and cash flows and leverage levels and impair the future growth trajectory of the business. Our largely suspended US development activity levels will lead to near-term declines in production, sales volumes and cash flows from operations. This impact will carry into 2021 and, likely, until more constructive commodity prices and the commodity price outlook economically justify new investment. This situation, coupled withSEC reserves prices, will also likely result in a lower level of proved hydrocarbon reserves. Chevron Merger OnJuly 20, 2020 , we entered into a definitive merger agreement (theChevron Merger Agreement) with Chevron Corporation (NYSE: CVX) pursuant to which, and subject to the conditions of the agreement, all outstanding shares ofNoble Energy will be acquired byChevron in an all-stock transaction valued at$13 billion , including debt, or$10.38 per share. Under the terms of the agreement,Noble Energy shareholders will receive 0.1191 shares ofChevron common stock for eachNoble Energy share. The transaction was approved by the Boards of Directors of both companies and is anticipated to close in fourth quarter 2020. The transaction is subject toNoble Energy stockholder approval, regulatory approvals, and other customary closing conditions. For additional information regarding the Chevron Merger Agreement and theBoard of Director's process and rationale for the Chevron Merger, please see the proxy statement and other documents filed with theSecurities and Exchange Commission when they become available. Second Quarter 2020 Operating Highlights While the global economies have been significantly impacted from the COVID-19 pandemic, we continue actions to address the severe decline in revenues resulting from the current market conditions while progressing certain offshore projects. Reduced the 2020 Capital Program The 2020 organic capital investment program was reduced approximately 55% from the initial budget, with the reductions coming primarily from the US onshore business. Significantly Reduced Cost During the quarter, we significantly reduced our costs in response to current market conditions. We reduced capital and operating costs, with unit production costs per BOE well below 2019 levels. General and administrative (G&A) expenses were also reduced almost 40% from second quarter 2019, primarily as a result of workforce reduction initiatives and reduced travel costs. Voluntarily Curtailed US Onshore Production In May andJune 2020 , we voluntarily curtailed certain of our US onshore production, which contributed to significantly reducing costs incurred during the period. See Results of Operations, below. Progressed Capacity Increases from Leviathan and Tamar Installation of compression equipment onshore at theAshkelon metering station inIsrael progressed during second quarter 2020 and commissioning was finalized in July, enabling increased volumes from Leviathan and the start of supply from Tamar intoEgypt via the EMG Pipeline. Progressing Natural Gas Monetization Offshore WestAfrica During second quarter 2020, we progressed the Alen natural gas monetization project and we currently plan to install the offshore pipeline in third quarter 2020. During the quarter, we also entered into international natural gas hedges for a portion of our 2021 and 2022 LNG production. The project is on schedule with first production expected early 2021. 23
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Exploration Program Update InJune 2020 , we were awarded concessions on two exploration blocks offshoreEgypt , which encompass 800,000 square acres. We will hold a 27% non-operated working interest in the position and we, along with our partners, have a three-year initial phase of exploration during which we plan to conduct a seismic program targeting deepwater oil and natural gas prospects. Additionally, during the quarter we made the decision not to pursue lease renewal of our undeveloped acreage inGabon . Commodity Prices Market Conditions The COVID-19 pandemic has continued to cause unprecedented and prolonged reductions in the global demand for crude oil and natural gas. While the relaxation of certain virus containment measures in the second quarter to support the resumption of economic activity resulted in increased commodity demand and modest improvement in commodity prices, commodity demand continues to be significantly lower than levels experienced prior to the COVID-19 pandemic. Even as commodity prices began to turn inJune 2020 , additional virus outbreaks and/or a return of containment measures or further restrictions could negatively impact commodity prices moving forward. The uncertainty regarding the longevity and severity of the impacts of COVID-19 to the oil and gas industry, including the reduced demand for crude oil and natural gas commodities and its resulting impact on commodity prices, may continue until a vaccine or alternative treatment is made widely available across the globe. Contemporaneously with the COVID-19 pandemic, the oil and gas industry continues to be impacted by excess global supply.The Organization of Petroleum Exporting Countries (OPEC) and certain non-OPEC producers agreed to production cuts beginning inMay 2020 which extend through first quarter 2022. While these production cuts have proven unable to sufficiently offset the ongoing decreases in demand caused by COVID-19, production from these producers has fallen to its lowest levels in decades. These factors have caused a number of producers, including many operating in the US, to reduce capital spending levels and shut-in production at certain fields. While these shut-ins have decreased operating cash flows for producers, they have also served to lower inventory levels and thereby alleviate some of the crude oil storage constraints experienced in the beginning of second quarter 2020. In addition to the US crude oil market, the US domestic natural gas market and US natural gas liquid (NGL) market continue to be oversupplied, with the NGL market also being impacted by export capacity constraints. These factors have contributed to depressed pricing for both US domestic natural gas and US NGLs. We expect that if US development activity remains at the current lower levels, it will result in reduced crude oil and associated natural gas production, leading to the eventual adjustment of US domestic natural gas prices as supply and demand levels equalize. Reduced demand and resulting commodity price volatility driven by factors discussed above have also contributed to increased short-term competition amongst fuel alternatives to crude oil and natural gas. For example, in the Eastern Mediterranean, spot LNG prices have recently traded below prices in our long-term natural gas GSPAs leading to an increase in our customers' use of spot LNG cargoes as an alternative to our natural gas. Where applicable, we believe that in certain instances purchase of spot LNG is in breach of the relevant agreement and we are exploring all legal avenues available under our contractual arrangements and by law. Certain of our Tamar and Leviathan GSPAs have buyer-minimum take or pay volume-obligations and index prices subject to minimum-price floor supports. In addition, our Egyptian export contracts include provisions which trigger adjustments to either decrease, or increase, fixed minimum take or pay volumes in the event the arithmetic average of daily Brent crude oil prices falls below, or rises above,$50 per barrel for certain periods of time. Our GSPAs do not preclude us from selling natural gas to customers, at amounts which exceed fixed minimum sales volumes. The commodity price environment may continue to remain depressed for an extended period of time based on oversupply and/or sustained decreases in demand and global economic instability caused by COVID-19, discussed further below. 24
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Our average realized sales prices, which exclude the impacts of hedges settled in the respective periods, are as follows:
[[Image Removed: eo11salespricechartsourcekf.jpg]]
Current and Future Expected Impact to Noble Energy The sustained decline in
commodity prices adversely affected our realized prices in second quarter 2020.
Prolonged lower commodity prices would impact the amount of cash generated from
our operating activities, results of operations and our financial position. In
response to the current environment, we executed the following actions in first
half 2020:
• Reduced our 2020 organic capital investment program - In May 2020 , we
revised our planned 2020 organic capital investment program to a range of
majority of these reductions are attributed to our US onshore business,
resulting in a higher concentration of production from our international
assets. Additionally, we have deferred spending on the offshore
exploration well. We are continuing to progress the Alen natural gas
monetization project, with first production expected in early 2021.
• Voluntary production curtailments - In our US onshore business, we
voluntarily curtailed an average of 30 MBoe/d, 11 MBbl/d of which wascrude oil production. With improvements to operating costs and commodity
pricing, the majority of these curtailed volumes were brought back online
in
deliver volumes under our firm sales or processing commitments during
second quarter 2020.
• Reduced our quarterly dividend - We reduced our quarterly cash dividend to
2020, which is expected to preserve approximately $195 million in
annualized cash flow. See Liquidity and Capital Resources below.
• Assessed long-lived assets for impairment - We performed impairment
assessments in light of the current commodity price environment,
concluding our Felicita discovery, offshore
impaired. See Item 1. Financial Statements - Note 4. Impairments.
• Reduced employee headcount - In response to the current environment, we
have also reduced our employee workforce and, as a result, in second
quarter 2020 recorded $30 million of corporate restructuring expense
associated with severance, termination benefits and accelerated
stock-based compensation. We also reduced our contractor workforce to
align with operational activities. Additionally, certain employees are
still participating in the furlough and part-time work programsimplemented in first quarter 2020. We expect these actions will reduce
future G&A and operational spend.
• Lowered executive leadership salaries and director cash retainers -
Salaries for the Chief Executive Officer, Senior Officers and VicePresidents were lowered by 20%, 15% and 10%, respectively. In addition,
cash retainers for members of the Board of Directors were lowered by 25%.
These reductions continued throughout second quarter 2020 and are expected
to extend through the end of 2020.
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COVID-19
Market Conditions Continued containment measures and responsive actions to the COVID-19 pandemic, while aiding in the prevention of further outbreak, continue to result in volatile general economic activity and energy demand. As a result, the global economy has experienced a slowing of economic growth, disruption of global manufacturing supply chains, stagnation of oil and gas consumption and interference with workforce continuity. Current and Future Expected Impact to Noble Energy Although certain restrictions related to the COVID-19 pandemic have been relaxed, the virus continues to impact the global demand for commodities, a trend we expect to continue into the third quarter, and, perhaps, beyond. Additionally, the risks associated with the virus have impacted our workforce and the way we meet our business objectives. In response to this, we executed the following actions: • Remote workforce and personnel management - Due to concerns over health
and safety, the majority of our global workforce continues to work
remotely until further notice. As of
not significantly impacted our ability to maintain operations, including
use of financial reporting systems, nor has it significantly impacted our
internal control environment. In addition, certain of our employees and
contractors work in remote field locations or on offshore platforms. We
have implemented various health and safety protocols including, amongothers, reduction of certain operational workloads to critical maintenance
and personnel, mandating use of certain secure travel options, review of
critical medical supplies and procedures and implementation of other
safeguards to protect operational personnel. We have not incurred, and in
the future do not expect to incur, significant expenses related to
business continuity as employees work from home.
• Mobilized our Crisis Management Team (CMT) - Our corporate CMT is
responsible for ensuring the organization implements our corporate
Employee Health and Wellness plan elements pertaining to pandemic
response. This plan follows
(
COVID-19. The CMT implemented communication protocols should an employee
become sick, and we continue to follow
change in the future. To date, we have not experienced significant
business or operational interruption due to workforce health or safety
concerns pertaining to COVID-19.
Regarding our supply chain, the structure of the global oilfield material and services supply chain provides us flexibility in sourcing equipment and services for our international development projects. However, the global nature of our supply chains, particularly in relation to our major international construction projects, exposes us to the risk of dispersed supply chain disruptions. We have experienced some delays in deliveries, as well as international travel restrictions impacting service providers, and are monitoring the situation to mitigate impacts on development projects. In the US, while certain of our oilfield service providers and suppliers have become financially distressed and/or experienced bankruptcies, we have been able to utilize alternative suppliers without business interruptions. The COVID-19 pandemic and impact of lower commodity prices have also caused disruptions in our distribution networks, including, among other things, storage and pipeline constraints and decreased demand from downstream consumers. These have the potential to result in claims of force majeure from transportation, processing, or other downstream service providers, as well as customers and other entities with which we conduct business. Prolonged constraints to the distribution chain could lead to repeated shut-ins and/or other production curtailment from certain of our US onshore wells in the future, further preventing us from producing our proved reserves. Additionally, we will continue to evaluate the amount and duration of any future voluntary production curtailments, which could be shortened or extended depending on commodity markets. Should our US production be shut-in or curtailed for an extended period of time, we would experience declines in cash flows attributable to both our US onshore and Midstream segments. Our capital spending and development plans are flexible and we have already curtailed the majority of near-term US onshore development. As our pace of development slows, our inventory of drilled but uncompleted wells is expected to increase in theDJ Basin . Global Economic Instability Market Conditions COVID-19, coupled with the drop in commodity prices, have contributed to equity market volatility and what experts now conclude amounted to a recession in first quarter 2020. Estimated ranges of the duration of these impacts to equity markets and the global economy vary widely, especially given the continued impacts of COVID-19 are unknown. In recent months, the US government has passed a series of stimulus packages which, collectively, have provided the largest relief packages in US history. These packages include various provisions intended to provide relief to individuals and businesses in the form of tax changes, loans and grants, among others. At this time, we do not believe these stimulus measures will have a material impact onNoble Energy ; however, we do believe they could aid the economy by providing relief to certain individuals and smaller businesses. Current and Future Expected Impact to Noble Energy The decline in our stock price and the corresponding reduction in our 26
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market capitalization were sustained throughout second quarter 2020, a condition that is consistent across our sector. We do not have any debt covenants or other lending arrangements that depend upon our stock price. As ofJune 30, 2020 , we are in compliance with the financial covenant contained in our Revolving Credit Facility which provides that our total debt to capitalization ratio, as defined in the Revolving Credit Facility agreement, may not exceed 65% at any time. As ofJune 30, 2020 , this total debt to capitalization ratio was below 40%. Our consolidated financial statements include the accounts ofNoble Midstream Partners .Noble Midstream Partners is subject to financial covenants under the Noble Midstream Services Revolving Credit Facility and term loans, for which the outstanding debt is non-recourse toNoble Energy . As ofJune 30, 2020 ,Noble Midstream Partners is in compliance with these financial covenants. We receive limited partnership cash distributions fromNoble Midstream Partners . Changes inNoble Midstream Partners' covenant compliance or changes in distributions to us would not have a material impact to Noble Energy. See Item 1. Financial Statements - Note 8. Debt and Liquidity and Capital Resources . As cities, states and countries continue relaxing confinement restrictions, the risk for the resurgence and recurrence of COVID-19 remains. The reinstatement of containment measures could potentially lead to an extended period of reduced demand for crude oil and natural gas commodities, as well as assert further pressure on the global economy. Potential for Future Reserves Reductions Decreased capital expenditures for 2020 may result in reductions to our proved reserves quantities and/or delays in timing of additional proved reserves being recognized. For example, the reduction in planned capital funding in 2020 for the DJ and Delaware Basins may result in future negative revisions in proved undeveloped reserves quantities as ofDecember 31, 2020 . In addition, while we have implemented measures to reduce our cost structure, should the current low commodity price environment continue, it is likely that proved reserves quantities would decrease primarily across our US onshore asset portfolio where economic limits are negatively affected. The impact of the reduction in capital expenditures, decrease in commodity prices, and their combined effects on proved reserves will be assessed in fourth quarter 2020 consistent with our annual reserves process. We cannot predict the amounts or timing of future reserves revisions. If such revisions are significant, they could alter future depletion and result in impairment of long-lived assets that may be material. Potential for Future Impairments We performed impairment assessments as ofJune 30, 2020 , including assessments of proved and unproved properties, other long-lived assets, including property, plant and equipment and equity method investments, right-of-use assets and customer relationship intangible assets. Other than an impairment to our Felicita discovery, Block O, offshoreEquatorial Guinea , we concluded that there were no indicators of impairment for the second quarter 2020. See Item 1. Financial Statements - Note 4. Impairments. Impairment testing involves uncertainties related to key assumptions such as expectations for future commodity prices, development and capital spending plans, reservoir performance and production, among others. These assumptions are relevant to all of the Company's operating segments and a significant number of interdependent variables are derived from these key assumptions. There is a high degree of complexity in their application in determining use and value in asset recovery tests and fair value determinations. Given the inherent volatility of the current market conditions driven by the COVID-19 pandemic and crude oil and natural gas supply dynamics, there exists the potential for future conditions to deviate from our current assumptions. For example, properties that have been previously reduced to fair value, such as ourEagle Ford Shale proved properties in 2019, could become further impaired, or certain other assets, including capitalized exploratory well costs and undeveloped leasehold costs, could become impaired in a future environment. Further, it is likely additional impairments could be triggered if the COVID-19 pandemic leads to a continued and sustained reduction in global economic activity and demand for crude oil and natural gas. Additionally, our industry is subject to complex laws and regulations adopted or promulgated by international, federal, state and local authorities. These various authorities have the ability to issue or rescind various regulations which, at times, can prevent us from accessing land for which we own mineral rights, surface rights or surface leases. Recently Issued Accounting Standards See Item 1. Financial Statements - Note 2. Basis of Presentation. 27
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RESULTS OF OPERATIONS - EXPLORATION AND PRODUCTION (E&P)
US Onshore
During second quarter 2020, our US onshore E&P activities consisted of the
following:
Average
Average Wells Wells Sales
Rigs Completed Brought Volumes
Location Operated (1) Online (MBoe/d)
DJ Basin 1 4 16 144
Delaware Basin 0.5 2 6 63
Eagle Ford Shale - - - 41
Total 1.5 6 22 248
(1) Refers to the number of wells completed, regardless of when drilling was
initiated.
DJ Basin During second quarter 2020, our activities were primarily focused in
the Mustang area, where we ran one drilling rig. During the quarter, we set
record low drilling times and costs, averaging $57 per total foot drilled, a
decrease of 15% from the 2019 average.
In addition, our operational personnel performed a strategic review of our
producing wells and implemented voluntary curtailments averaging approximately
24 MBoe/d in response to commodity prices and supply and demand dynamics. The
majority of curtailed production came back online in July 2020 . Immaterial
amounts of production related to older, less economic vertical wells will be
permanently shut-in.
Delaware Basin (Permian Basin ) During second quarter 2020, our operational
personnel set a new drilling record with a spud to rig release date of
approximately 10 days. In addition, we focused on the safe and strategic ramp
down of certain activity as we reduced our capital spend and activity levels.
During second quarter 2020, we voluntarily curtailed production averaging 6
MBoe/d due to commodity prices and supply and demand dynamics. This reduced
activity and lower production did not impact our ability to meet any
transportation, processing or sales commitments and the majority of curtailed
production came back online in July 2020 .
Eagle Ford Shale During second quarter 2020, we focused on maximizing cash flows
from existing production and continued to evaluate and assess our development
plan for the area. There was no material curtailment impact during second
quarter 2020 on production from the Eagle Ford Shale .
International
In the Eastern Mediterranean, we continue to focus on reliably supplying the
region with natural gas from our Leviathan and Tamar fields. During the quarter,
we commenced commissioning of turbo expanders to bring the Leviathan platform to
maximum production capacity of 1.2 Bcf/d, with expected completion in August
2020 . We continued increasing reliability of the Leviathan platform as
commissioning continues with June uptime almost 100%. Additionally, installation
of compression equipment onshore at the Ashkelon metering station in Israel
progressed during second quarter 2020 and commissioning was finalized in July,
enabling increased volumes from Leviathan and the start of supply from Tamar
into Egypt via the EMG Pipeline.
In June 2020 , we were awarded concessions on two exploration blocks offshore the
Western Desert area of Egypt . See Exploration Program Update in Executive
Overview and Operating Outlook.
Our West Africa segment continues to benefit from reliable operations at Aseng,
Alen and Alba fields. We further progressed the Alen Gas Monetization project,
which we expect will create a regional natural gas hub able to supply a number
of markets with LNG.
Results of Operations
Second Quarter 2020 Significant E&P Highlights:
• organic capital expenditures of $95 million , compared to $596 million in
second quarter 2019;
• US onshore average sales volumes of 248 MBoe/d, reflecting curtailment of
30 MBoe/d, primarily in the DJ and Delaware Basins;
• total production expense per BOE, gross of intersegment eliminations, of
• offshore
• impairment expense of
O, offshore Equatorial Guinea .
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The following is a summarized statement of operations for our E&P business:
Three Months Ended June 30, Six Months Ended June 30,
(millions) 2020 2019 2020 2019
Oil, NGL and Gas Sales to Third Parties $ 493 $ 954 $ 1,387 $ 1,891
Sales of Purchased Oil and Gas 4 28 29 42
Income (Loss) from Equity Method Investments and Other 6 18 (13 ) 33
Total Revenues 503 1,000 1,403 1,966
Production Expense 278 298 619 649
Exploration Expense 15 33 1,519 57
Depreciation, Depletion and Amortization 290 493 752 968
Cost of Purchased Oil and Gas 4 28 32 42
Asset Impairments 51 - 2,754 -
Loss (Gain) on Commodity Derivative Instruments 158 (60 ) (231 ) 152
(Loss) Income Before Income Taxes (351 ) 179 (4,119 ) 11
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Average Oil, NGL and Gas Sales Volumes and Prices Average daily sales volumes from our share of production and average realized sales prices were as follows:
Average Sales Volumes (1) Average Realized Sales Prices (1)
Crude Oil & Crude Oil &
Condensate NGLs Natural Gas Total Condensate NGLs Natural Gas
(MBbl/d) (MBbl/d) (MMcf/d) (MBoe/d) (Per Bbl) (Per Bbl) (Per Mcf)
Three Months Ended June 30, 2020
United States 113 59 457 248 $ 22.30 $ 7.51 $ 1.16
Eastern
Mediterranean 1 - 307 52 N/M - 5.00
West Africa (2) 14 - 178 44 23.87 - 0.27
Total
Consolidated
Operations 128 59 942 344 22.36 7.51 2.24
Equity
Investments (3) 2 4 - 6 22.77 21.02 -
Total (4) 130 63 942 350 $ 22.36 $ 8.40 $ 2.24
Three Months Ended June 30, 2019
United States 117 64 495 263 $ 58.13 $ 14.54 $ 1.61
Eastern
Mediterranean - - 209 35 - - 5.53
West Africa (2) 11 - 199 45 66.61 - 0.27
Total
Consolidated
Operations 128 64 903 343 58.88 14.54 2.22
Equity
Investments (3) 2 4 - 6 65.75 31.22 -
Total (4) 130 68 903 349 $ 58.98 $ 15.47 $ 2.22
Six Months Ended June 30, 2020
United States 115 63 487 259 $ 34.40 $ 8.99 $ 1.22
Eastern
Mediterranean 1 - 348 59 N/M - 5.20
West Africa (2) 16 - 178 46 37.42 - 0.27
Total
Consolidated
Operations 132 63 1,013 364 34.68 8.99 2.43
Equity
Investments (3) 2 4 - 6 34.91 24.95 -
Total (4) 134 67 1,013 370 $ 34.68 $ 10.00 $ 2.43
Six Months Ended June 30, 2019
United States 115 62 489 258 $ 55.84 $ 16.12 $ 2.04
Eastern
Mediterranean - - 220 37 - - 5.55
West Africa (2) 11 - 184 42 63.74 - 0.27
Total
Consolidated
Operations 126 62 893 337 56.57 16.12 2.55
Equity
Investments (3) 2 4 - 6 61.02 34.11 -
Total (4) 128 66 893 343 $ 56.62 $ 17.21 $ 2.55 N/M amount is not meaningful. (1) Natural gas is converted on the basis of six Mcf of gas per one barrel of
crude oil equivalent (BOE). This ratio reflects an energy content
equivalency and not a price or revenue equivalency. Given commodity price
disparities, the prices for a barrel of crude oil equivalent for US natural
gas and NGLs are significantly less than the price for a barrel of crude
oil. In
the price is fixed, resulting in less commodity price disparity between
reporting periods.
(2) Natural gas from the Alba field is sold under contract for
to a methanol plant, an LPG plant, an LNG plant and a power generation
plant. The methanol and LPG plants are owned by affiliated entities
accounted for under the equity method.
(3) Volumes represent sales of condensate and LPG from the LPG plant in(4) Includes an immaterial amount of condensate sales from offshoreIsrael assets. 30
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An analysis of revenues from sales of crude oil, NGLs and natural gas is as follows:
Crude Oil &
(millions) Condensate NGLs Natural Gas Total
Three Months Ended June 30, 2019 $ 688 $ 84 $ 182 $ 954
Changes due to
(Decrease) Increase in Sales Volumes (9 ) (8 ) 38 21
Decrease in Sales Prices (1) (418 ) (36 ) (28 ) (482 )
Three Months Ended June 30, 2020 $ 261 $ 40 $
192
Six Months Ended
411 $ 1,891
Changes due to
Increase in Sales Volumes 52 1 122 175
Decrease in Sales Prices (1) (513 ) (79 ) (87 ) (679 )
Six Months Ended June 30, 2020 $ 839 $ 102 $
446
(1) Changes exclude gains and losses related to commodity derivative
instruments. See Item 1. Financial Statements - Note 11. Derivative
Instruments and Hedging Activities.
Crude Oil and Condensate Sales Revenues Revenues from crude oil and condensate
sales decreased second quarter 2020 as compared with second quarter 2019
primarily due to the following:
• a 61% decrease in the total consolidated average realized price (see
Executive Overview & Operating Outlook - Commodity Prices );
• voluntary curtailment of approximately 11 MBbl/d as DJ and
production was temporarily shut-in in response to the low commodity price
environment; and
• lower volumes in the
field decline;
partially offset by: • higher pre-curtailment production rates in the DJ and Delaware Basins due
to increased development activity that had occurred prior to the commodity
price decline; and
• higher
quarter 2019 and timing of liftings.
Revenues from crude oil and condensate sales decreased for the first six months
of 2020 as compared with the first six months of 2019 primarily due to the
following:
• a 38% decrease in the total consolidated average realized price (see
Executive Overview & Operating Outlook - Commodity Prices );
• voluntary curtailment of approximately 5 MBbl/d, as DJ and
production was temporarily shut-in in response to the low commodity price
environment;
• lower volumes in the
field decline;
partially offset by: • first quarter 2020 sales volume increases in the DJ and Delaware Basins
due to increased development activity; and
• higher
quarter 2019 and timing of liftings.
NGL Sales Revenues Revenues from NGL sales decreased in second quarter 2020 as
compared with second quarter 2019 primarily due to the following:
• a 48% decrease in the total consolidated average realized price (see
Executive Overview & Operating Outlook - Commodity Prices ); and
• voluntary curtailment of approximately 8 MBbl/d as DJ and Delaware Basin
production was temporarily shut-in in response to the low commodity price
environment; and
• reduced activity and natural field decline in the
partially offset by: • higher pre-curtailment production rates in the DJ and Delaware Basins due
to increased development activity that had occurred prior to the commodity
price decline.
Revenues from NGL sales decreased for the first six months of 2020 as compared with the first six months of 2019 primarily due to the following: • a 44% decrease in the total consolidated average realized price (see
Executive Overview & Operating Outlook - Commodity Prices );
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• voluntary curtailment of approximately 4 MBbl/d as DJ andDelaware Basin production was temporarily shut-in in response to the low commodity price environment; and
• lower volumes in the
field decline;
partially offset by:
• first quarter 2020 sales volume increases in the DJ and
to increased development activity.
Natural Gas Sales Revenues Revenues from natural gas sales increased in second quarter 2020 as compared with second quarter 2019 primarily due to the following: • higher sales volumes of 98 MMcf/d offshoreIsrael primarily due to the
commencement of production from the Leviathan field in late
and
• higher pre-curtailment production rates in the DJ and Delaware Basins due
to increased development activity that had occurred prior to the commodity
price decline;
partially offset by:
• a 28% decrease and a 10% decrease in US and
prices, respectively (see Executive Overview & Operating Outlook -
Commodity Prices ); and
• voluntary curtailment of approximately 70 MMcf/d as DJ and
production was temporarily shut-in in response to the low commodity price
environment; and
• lower
and natural field decline.
Revenues from natural gas sales increased for the first six months of 2020 as
compared with the first six months of 2019 primarily due to the following:
• higher sales volumes of 128 MMcf/d offshore
commencement of production from the Leviathan field in late
and
• higher sales volumes in the DJ and Delaware Basins of 26 MMcf/d for the
first six months of 2020, primarily driven by higher first quarter volumes
in both basins due to increased development activities;
partially offset by: • a 40% decrease and a 6% decrease in US andIsrael average realized prices, respectively (see Executive Overview & Operating Outlook - Commodity Prices );
• voluntary curtailment of approximately 34 MMcf/d in the DJ and
Basins; and
• lower
and natural field decline.
Sales and Cost ofPurchased Oil and Gas Sales and purchases of crude oil decreased in second quarter and the first six months of 2020 as compared with 2019 primarily due to lower prices for crude oil and reduced sales and purchase activity related to build of shipper history in theDJ Basin . Income (Loss) from Equity Method Investments and Other Income (loss) from equity method investments and other decreased in second quarter and the first six months of 2020 as compared with 2019. The decrease includes impacts of approximately$30 million from the first quarter 2020 turnaround atAtlantic Methanol Production Company, LLC (AMPCO), our methanol investment, as well as the impact of lower methanol prices. These losses were partially offset by income of$12 million for the first six months of 2020 fromAlba Plant , our LPG investment. 32
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Production Expense Components of production expense were as follows:
Total per BOE United States Eastern
(millions, except unit rate) (1)(2) Total (2) Mediterranean West Africa
Three Months Ended June 30,
2020
Lease Operating Expense (3) $ 3.70 $ 116 $ 81 $ 15 $ 20
Production and Ad Valorem Taxes 0.73 23 23 - -
Gathering, Transportation and
Processing 4.35 136 133 3 -
Other Royalty Expense 0.10 3 3 - -
Total Production Expense $ 8.88 $ 278 $ 240 $ 18 $ 20
Total Production Expense per
BOE $ 8.88 $ 10.63 $ 3.82 $ 4.98
Three Months Ended June 30,
2019
Lease Operating Expense (3) $ 4.26 $ 133 $ 114 $ 9 $ 10
Production and Ad Valorem Taxes 1.28 40 40 - -
Gathering, Transportation and
Processing 3.97 124 124 - -
Other Royalty Expense 0.03 1 1 - -
Total Production Expense $ 9.54 $ 298 $ 279 $ 9 $ 10
Total Production Expense per
BOE $ 9.54 $ 11.64 $ 2.82 $ 2.47
Six Months Ended June 30, 2020
Lease Operating Expense (3) $ 4.03 $ 267 $ 189 $ 28 $ 50
Production and Ad Valorem Taxes 0.90 60 60 - -
Gathering, Transportation and
Processing 4.30 285 279 6 -
Other Royalty Expense 0.11 7 7 - -
Total Production Expense $ 9.34 $ 619 $ 535 $ 34 $ 50
Total Production Expense per
BOE $ 9.34 $ 11.36 $ 3.19 $ 5.88
Six Months Ended June 30, 2019
Lease Operating Expense (3) $ 4.78 $ 292 $ 239 $ 19 $ 34
Production and Ad Valorem Taxes 1.42 87 87 - -
Gathering, Transportation and
Processing 4.35 266 266 - -
Other Royalty Expense 0.07 4 4 - -
Total Production Expense $ 10.62 $ 649 $ 596 $ 19 $ 34
Total Production Expense per
BOE $ 10.62 $ 12.75 $ 2.83 $ 4.44 (1) Consolidated unit rates exclude sales volumes and expenses attributable to
equity method investments.
(2) US production expense includes charges from our midstream operations that
are eliminated on a consolidated basis.
(3) Lease operating expense includes oil and gas operating costs (labor, fuel,
repairs, replacements, saltwater disposal and other related lifting costs)
and workover expense.
Production expense for second quarter and the first six months of 2020 decreased as compared with 2019, primarily due to the following: • decrease in US onshore due to production curtailments, as discussed
further above;
• decrease in US onshore lease operating expense (LOE) due to reductions in
leased assets and lower labor and workover costs based on lower activity
levels; and
• decrease in US onshore production and ad valorem taxes due to lower
commodity price realizations and assessed taxes;
partially offset by: • increase in West Africa LOE due to an increase in sales volumes and timing
of expenses;
• increase in LOE and gathering, transportation and processing expenses in
Eastern Mediterranean due to Leviathan commencing production in late
December 2019 ; and
• increase in US onshore GTP due to second quarter 2020 costs relating to
minimum processing fees not associated with minimum volume commitments in
the DJ Basin .
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The unit rate per BOE decreased for second quarter and the first six months of
2020 as compared with 2019 primarily due to the decrease in production expenses
and the total increase in sales volumes.
Exploration Expense See Item 1. Financial Statements - Note 4. Impairments.
Depreciation, Depletion and Amortization (DD&A) Expense DD&A expense was as
follows:
Eastern
(millions, except unit rate) Total United States Mediterranean West Africa Three Months EndedJune 30, 2020 DD&A Expense$ 290 $ 252 $ 16 $ 22 Unit Rate per BOE (1)$ 9.26 $ 11.16 $ 3.39$ 5.48 Three Months EndedJune 30, 2019 DD&A Expense$ 493 $ 457 $ 17 $ 19 Unit Rate per BOE (1)$ 15.80 $ 19.07 $ 5.33$ 4.69 Six Months EndedJune 30, 2020 DD&A Expense$ 752 $ 671 $ 35 $ 46 Unit Rate per BOE (1)$ 11.35 $ 14.25 $ 3.28$ 5.41 Six Months EndedJune 30, 2019 DD&A Expense$ 968 $ 896 $ 33 $ 39 Unit Rate per BOE (1)$ 15.84 $ 19.17 $ 4.92$ 5.10
(1) Consolidated unit rates exclude sales volumes and expenses attributable to
equity method investments.
DD&A expense for second quarter and the first six months of 2020 decreased as
compared with 2019, primarily due to the following:
• decreases in the
of proved properties;
• decreases in the DJ Basin primarily due to year-end 2019 reserves
additions and capital efficiencies; and
• decreases in the Eagle Ford Shale due to the fourth quarter 2019
impairment of proved properties;
partially offset by:
• increases in West Africa due to higher sales volumes.
The unit rate per BOE for second quarter and the first six months of 2020
decreased as compared with 2019, primarily due to the decrease in total DD&A
expense and an increase in total sales volumes.
Asset Impairments See Item 1. Financial Statements - Note 4. Impairments.
Loss (Gain) on Commodity Derivative Instruments We incurred a gain on commodity
derivative instruments for the first six months of 2020 as compared with a loss
on commodity derivative instruments for the first six months of 2019.
For the first six months of 2020, gain on commodity derivative instruments
included:
• net cash receipts of $314 million ; and
• net non-cash increase of $83 million in the fair value of our net
commodity derivative liability, primarily driven by changes in the forward
commodity price curves for crude oil.
For the first six month of 2019, loss on commodity derivative instruments
included:
• net cash settlement receipts of
• net non-cash decrease of
commodity derivative liability, primarily driven by changes in the forward
commodity price curves for crude oil.
See Item 1. Financial Statements - Note 11. Derivative Instruments and Hedging Activities.
RESULTS OF OPERATIONS - MIDSTREAM
Second Quarter 2020 Significant Midstream Highlights:
• total revenues of
quarter 2019;
• commenced full service on the EPIC crude oil pipeline;
• began transition to full NGL service on EPIC Y-Grade; and
• commenced crude oil service on
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The following is a summarized statement of operations for our Midstream segment:
Three Months Ended June 30, Six Months Ended June 30,
(millions) 2020 2019 2020 2019
Midstream Services Revenues - Third Party $ 26 $ 20
$ 51 $ 44
Sales of Purchased Oil and Gas 29 52 112 85
Loss from Equity Method Investments (3 ) (2 ) (8 ) -
Intersegment Revenues 92 91 207 197
Total Revenues 144 161 362 326
Operating Costs and Expenses 31 41 64 77
Depreciation, Depletion and Amortization 26 26 52 51
Cost of Purchased Oil and Gas 29 48 109 79
Goodwill Impairment - - 110 -
Total Expense 86 115 335 207
Income Before Income Taxes $ 58 $ 46 $ 27 $ 119
Midstream Revenues Midstream services revenues - third party are generated from
Noble Midstream Partners' gathering and processing and fresh water delivery
services provided to third parties. Amounts in 2020 exceed those of 2019 due to
an increase in throughput volumes from additional well connections in the DJ and
Delaware Basins.
Intersegment revenues generated by the Midstream segment depend primarily on the
volumes of crude oil, natural gas and water for which services are provided to
dedicated acreage for our E&P business. These volumes are affected by the level
of drilling and completion activity and by changes in the supply of, and demand
for, crude oil, NGLs and natural gas in the markets served directly or
indirectly by our midstream assets.
Sales and Costs of Purchased Oil and Gas Sales and costs of purchased oil for
the six months ended June 30, 2020 increased as compared with 2019 due to an
increase in throughput volumes driven by additional well connections in first
quarter 2020 as compared to 2019. Sales and costs of purchased oil for the three
months ended June 30, 2020 decreased as compared to 2019 due to the significant
drop in oil prices in second quarter 2020.
Operating Costs and Expenses Operating costs and expenses are lower in 2020 as
compared to 2019 as a result of cost reduction initiatives, particularly for the
three months ended June 30, 2020 .
Loss from Equity Method Investments Loss from equity method investments for all
periods presented are due to operating losses incurred by certain of Noble
Midstream Partners' equity method investments prior to the projects fully coming
online. These losses, which primarily relate to EPIC crude oil pipeline and EPIC
Y-Grade, are partially offset by income from the Saddlehorn Pipeline beginning
in first quarter 2020 and earnings from Advantage Pipeline for both 2020 and
2019.
Goodwill Impairment See Item 1. Financial Statements - Note 4. Impairments.
RESULTS OF OPERATIONS - CORPORATE
Expenses related to debt, such as interest and other debt-related costs,
headquarters depreciation, corporate general and administrative (G&A) expenses,
exit costs, corporate restructurings and certain costs associated with
mitigating the effects of our retained Marcellus Shale transportation
agreements, are recorded at the Corporate level.
Transportation Exit Cost Revenues and expenses associated with retained
Marcellus Shale transportation contracts were as follows:
Three Months Ended June 30, Six Months Ended June 30,
(millions) 2020 2019 2020 2019
Sales of Purchased Gas (1) $ 16 $ 23 $ 33 $ 50
Cost of Purchased Gas (1) 30 37 61 79
Firm Transportation Exit Cost (2) - - - 92
(1) Relates to third party mitigation activities we engage in to utilize a
portion of our
gas includes utilized and unutilized transportation expense. Decreases in
sales and cost of purchased gas related to lower natural gas prices in 2020
compared to 2019.
(2) Represents exit costs related to future commitments to a third party
resulting from a permanent capacity assignment.
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General and Administrative Expense G&A expense was as follows:
Three Months Ended June 30, Six Months Ended June 30,
(millions, except unit rate) 2020 2019 2020 2019
G&A Expense $ 63 $ 105 $ 148 $ 207
Unit Rate per BOE (1) $ 2.01 $ 3.36 $ 2.23 $ 3.39 (1) Consolidated unit rates exclude sales volumes and expenses attributable to
equity method investments.
The significant decrease in G&A expense in 2020 compared to 2019 primarily relates to reduced employee costs, as well as a reduction in travel, office expenses and contractor costs. The unit rate per BOE for second quarter and the first six months of 2020 also decreased as compared with 2019 due to the reduction in G&A expense and the increase in the total sales volumes. Other Operating Expense, Net Other operating expense, net includes$40 million of impairment expense for a finance lease right-of-use asset relating to a corporate real estate lease. See Item 1. Financial Statements - Note 4. Impairments. Additionally, other operating expense, net, includes$30 million of corporate restructuring costs including cash severance, termination benefits and acceleration of stock-based compensation for workforce reductions. Interest Expense and Capitalized Interest Interest expense and capitalized interest were as follows: Three Months Ended June 30, Six Months Ended June 30, (millions, except unit rate) 2020 2019 2020 2019 Interest Expense, Gross $ 90 $ 90$ 181 $ 177 Capitalized Interest (3 ) (27 ) (13 ) (48 ) Interest Expense, Net $ 87 $ 63$ 168 $ 129 Unit Rate per BOE (1)$ 2.78 $ 2.02 $ 2.54 $ 2.11
(1) Consolidated unit rates exclude sales volumes and expenses attributable to
equity method investments.
Interest expense, gross, for second quarter and the first six months of 2020 remained relatively flat as compared with 2019. See Item 1. Financial Statements - Note 8. Debt. Capitalized interest for second quarter and the first six months of 2020 decreased as compared with 2019, primarily due to lower work in progress amounts with Leviathan commencing production lateDecember 2019 . The unit rate per BOE for second quarter and the first six months of 2020 increased as compared with 2019, primarily due to the increase in net interest expense partially offset by the increase in total sales volumes. LIQUIDITY AND CAPITAL RESOURCES Impact of Commodity Price Environment and COVID-19 Recent events, as further described in Management's Discussion & Analysis - Executive Overview and Operating Outlook, have significantly impacted our financing strategy. The magnitude of lower commodity prices, combined with continued global uncertainty surrounding the COVID-19 pandemic, is unprecedented. Additionally, onJuly 20, 2020 , the Chevron Merger Agreement was announced. See Management's Discussion & Analysis - Executive Overview and Operating Outlook . Due to the current commodity price environment, the duration of which could be prolonged, we have delayed certain development projects and exploration activities in order to preserve our financial liquidity. Additionally, we have adjusted our shareholder return initiatives, including our dividend, when determining how to best allocate our capital and cash resources to maintain maximum liquidity. InApril 2020 , we announced a reduction of our quarterly dividend to$0.02 perNoble Energy common share, which is expected to preserve approximately$195 million in annualized cash flow. Our liquidity is also impacted by our credit rating which along with our competitors in the oil and gas industry is periodically reviewed by the various credit rating agencies. Given current market conditions, credit rating agencies have increased the frequency and number of negative outlooks and/or downgrades to companies in our industry. We expect the rating agencies will continue to review our credit ratings in light of the current economic environment and our indebtedness levels, and we can provide no assurance that we will not be downgraded from investment grade or other by one or more agencies in the future. A downgrade in our credit rating below investment grade could, among other things, restrict our access to the commercial paper market, increase the interest rate and fees we pay on our$4.0 billion Revolving Credit Facility, and increase the costs of future borrowings. Further, a downgrade could limit the size and availability of future borrowings and those borrowings could include much more restrictive terms than our previous borrowings, such as posting of collateral, cash or other security. A credit rating downgrade could impact the counterparties with which we can transact, including current and potential partners with which we develop long-term projects. See Item 1A. Risk Factors . 36
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Our liquidity could also be impacted by counterparty credit risk. We closely monitor the credit worthiness of all counterparties with whom we do business. When considered necessary, we obtain letters of credit or other credit enhancements to mitigate risks associated with certain counterparties. Additionally, our liquidity is impacted by the amount of distributions we receive fromNoble Midstream Partners . InMarch 2020 ,Noble Midstream Partners announced a reduction in their quarterly distribution to$0.1875 per unit which reduced cash received from distributions beginning in second quarter 2020. Our focus on liquidity is allowing us to address current volatility and risk. During the first six months of 2020, our primary sources of liquidity were cash flows from operations, cash on hand and borrowings under our Revolving Credit Facility, which does not mature until 2023. Cash flows from operations includes$314 million of cash received in the settlement of derivative instruments, which we utilize to protect liquidity, provide risk mitigation and support cash flow predictability. InMarch 2020 , we borrowed$1.0 billion , net, on our$4.0 billion Revolving Credit Facility. These borrowings were used to increase our cash on hand balance in an abundance of caution to mitigate potential future issues in the global financial system. InJune 2020 , we repaid$675 million , net, of borrowings under the Revolving Credit Facility, leaving$325 million outstanding atJune 30, 2020 . As ofJune 30, 2020 , we are in compliance with the financial covenant contained in our Revolving Credit Facility which provides that our total debt to capitalization ratio, as defined in the Revolving Credit Facility agreement, may not exceed 65% at any time. As ofJune 30, 2020 , our total debt to capitalization ratio was below 40%. A few of our commercial agreements contain the obligation to provide assurances in the event certain financial triggers are met. Potential collateral requirements could be triggered by a downgrade of our credit rating to non-investment grade or other financial triggers. We anticipate meeting any collateral obligations through bi-lateral letters of credit facilities and/or our Revolving Credit Facility. We have sufficient capacity under such facilities to meet potential collateral obligations. Posting of collateral through the use of our bilateral facilities and other instruments would not impact our available borrowing capacity under our Revolving Credit Facility, while issuance of letters of credit under our Revolving Credit Facility would reduce available borrowing capacity by an equivalent amount. Subject to certain limitations under the Chevron Merger Agreement, we will continue to consider strategic farm-out arrangements of our working interests for reimbursement of our capital spending. Additionally, we consider repatriations of foreign cash to increase our financial flexibility and fund our capital investment program. We believe these factors position us to have sufficient liquidity to address the current downturn in commodity prices. However, we are unable to predict how long commodity demand and prices will continue to be depressed, nor are we able to predict whether prices will continue to decline. Our financing strategy in future periods could include further reductions to capital spending, additional borrowings under our$4.0 billion Revolving Credit Facility, further changes to our dividend, proceeds from asset divestitures, or issuance of new debt or equity securities and/or extension of debt maturities, among others. In addition, we may from time to time seek to retire or purchase our outstanding senior notes through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual requirements and other factors. These actions to our financing strategy are subject to certain limitations under the Chevron Merger Agreement. Available Liquidity The following table summarizes our cash, debt balances and available liquidity: June 30, 2020 December 31, 2019 Noble Energy Noble Energy Excluding Excluding (millions, except Noble Midstream Noble Midstream Noble Midstream Noble Midstream percentages) Partners Partners Total Partners Partners Total Cash and Cash Equivalents $ 311 $ 13$ 324 $ 471 $ 13$ 484 Amounts Available for Borrowing (1) 3,675 - 3,675 4,000 - 4,000 Total Liquidity (1)$ 3,986 $ 13$ 3,999 $ 4,471 $ 13$ 4,484 Total Debt (2)$ 6,402 $ 1,635 $ 8,037 $ 6,089 $ 1,495 $ 7,584 Noble Energy Share of Equity$ 4,003 $ 8,410 Ratio of Debt-to-Book Capital (3) 67 % 47 %
(1) Excludes
Services Revolving Credit Facility, which is not available to
for general corporate purposes.
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(2) Excludes unamortized debt discount/premium and debt issuance costs. See
Item 1. Financial Statements - Note 8. Debt.
(3) We define our ratio of debt-to-book capital as total debt divided by the sum
of total debt plus
determining compliance with the financial covenant in our
Revolving Credit Facility. As of
the financial covenant contained in our Revolving Credit Facility which
provides that our total debt to capitalization ratio, as defined in the
Revolving Credit Facility agreement, may not exceed 65% at any time. As of
Revolving Credit Facility agreement, was below 40%. See Impact of Commodity
Price Environment and COVID-19, above.
Cash and Cash Equivalents We had approximately$324 million in cash and cash equivalents atJune 30, 2020 , primarily denominated in US dollars and invested in money market funds and short-term deposits with major financial institutions. Approximately$272 million of this cash is attributable to our foreign subsidiaries. We do not expect to incur significant US income tax expense with respect to future repatriation of foreign cash. Revolving Credit Facilities Noble Energy's$4.0 billion Revolving Credit Facility and the Noble Midstream Services Revolving Credit Facility of nearly$1.2 billion both mature in 2023. These committed facilities are used to fund capital investment programs, acquisitions and amounts for working capital purposes. AtJune 30, 2020 ,$325 million was outstanding under the Noble Energy Revolving Credit Facility, leaving$3.7 billion available for borrowing, and$735 million was outstanding under the Noble Midstream Services Revolving Credit Facility, leaving$415 million available for borrowing. See Item 1. Financial Statements - Note 8. Debt. Cash Flows The following table summarizes our total cash provided by (used in) operating, investing and financing activities: Six Months Ended June 30, (millions) 2020 2019 Operating Activities$ 400 $ 1,092 Investing Activities (965 ) (1,697 ) Financing Activities 405 488
Decrease in Cash, Cash Equivalents and Restricted Cash
$ (117 ) Operating Activities Cash provided by operating activities for the first six month of 2020 decreased$692 million as compared with 2019. The decrease was primarily driven by reductions in revenues as a result of the current commodity price environment. These impacts were partially offset by cash received for settlements of commodity derivatives of$314 million , as compared with cash receipts of$15 million in the prior year. Investing Activities Cash used in investing activities decreased approximately$732 million for the first six months of 2020 as compared with 2019, primarily due to decreases of$681 million in capital spending for property, plant and equipment due to reduced capital spend for Leviathan, which came online lateDecember 2019 , and reduced spending primarily in our US onshore business as a result of the current commodity price environment and the COVID-19 pandemic. During the first six months of 2020, cash used for additions to equity method investments was$187 million lower than in the first six months of 2019. These decreases were partially offset by reductions in proceeds from divestitures, as we had$18 million of proceeds in the first six months of 2020 as compared to$123 million in the prior year. Financing Activities Our financing activities during the first six months of 2020 primarily included net borrowings of$325 million under our$4.0 billion Revolving Credit Facility and net borrowings of$140 million on the Noble Midstream Services Revolving Credit Facility. Additionally, we received contributions from noncontrolling interest owners of$81 million , which primarily related to external funding received forNoble Midstream Partners' investment in Saddlehorn. During the first six months of 2020, we paid$68 million of cash dividends toNoble Energy shareholders. Our financing activities during the first six months of 2019 included net borrowings of$240 million under the commercial paper program, net borrowings of$310 million on the Noble Midstream Services Revolving Credit Facility and the receipt of$99 million of preferred equity, net of offering costs. In addition, we paid$111 million of cash dividends toNoble Energy shareholders. See Item 1. Financial Statements - Consolidated Statements of Cash Flows . 38
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Capital Expenditure Activities
Our capital expenditures (on an accrual basis) were as follows:
Three Months Ended June 30, Six Months Ended June 30,
(millions) 2020 2019 2020 2019
Unproved Property Acquisition (1) $ - $ 4 $ - $ 39
Proved Property Acquisition (1) 1 - 7 4
Exploration 3 4 15 18
Development 91 578 431 1,192
Midstream 5 52 48 118
Corporate 4 9 11 18
Other Exploration & Production(2) 3 4 43 13
Total $ 107 $ 651 $
555
Additions to Equity Method Investments Saddlehorn Pipeline (3) $ - $ - $ 87 $ - EPIC Y-Grade - 28 14 151 EPIC Crude Holdings - 114 33 218 Delaware Crossing - 1 17 39 Other 3 1 4 7 Total Additions to Equity Method Investments (4) $ 3$ 144 $
155
Increase in Finance Lease Obligations $ 2$ 1 $ 10$ 3 (1) Costs relate to US onshore leasehold activity.
(2) 2020 amount includes
for start-up of the EPIC crude oil and
amount is included within our US onshore segment.
(3) Represents amount contributed by
million of externally funded capital.
(4) Includes an immaterial amount of capitalized interest. See Item 1.
Financial Statements - Note 5. Acquisitions, Divestitures and Equity
Method Investments.
Development costs decreased significantly compared to 2019 due to decreased capital spend for the Leviathan project, which commenced production in lateDecember 2019 , as well as decreases in our US onshore capital spending in response to the current commodity price environment and impacts from the COVID-19 pandemic. For the six months endedJune 30, 2020 , development costs included approximately$384 million for US onshore, prior to intersegment eliminations,$41 million for Eastern Mediterranean and$34 million forWest Africa . Capital spending by our Midstream segment also decreased compared with 2019, primarily due to reduced spend in response to the commodity price environment and COVID-19 pandemic. Dividends InJuly 2020 , our Board of Directors declared a quarterly cash dividend of$0.02 perNoble Energy common share, which will be paid onAugust 24, 2020 to shareholders of record onAugust 10, 2020 . 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.
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