| NOBLE ENERGY INC Item 1A Risk Factors |
| Crude oil and natural gas prices are volatile and a substantial reduction in these prices could adversely affect our results and the price of our common stock |
| Our revenues, operating results and future rate of growth depend highly upon the prices we receive for our crude oil and natural gas production |
| Historically, the markets for crude oil and natural gas have been volatile and are likely to continue to be volatile in the future |
| The markets and prices for crude oil and natural gas depend on factors beyond our control |
| These factors include demand for crude oil and natural gas, which fluctuates with changes in market and economic conditions and other factors, including: • worldwide and domestic supplies of crude oil and natural gas; • actions taken by foreign oil and gas producing nations; • political conditions and events (including instability or armed conflict) in crude oil-producing or natural gas-producing regions; • the level of global crude oil and natural gas inventories; • the price and level of foreign imports; • the level of consumer demand; • the price and availability of alternative fuels; • the availability of pipeline capacity; • the availability of crude oil transportation and refining capacity; • weather conditions; • domestic and foreign governmental regulations and taxes; and • the overall economic environment |
| 9 _________________________________________________________________ Significant declines in crude oil and natural gas prices for an extended period may have the following effects on our business: • limiting our financial condition, liquidity, ability to finance planned capital expenditures and results of operations; • reducing the amount of crude oil and natural gas that we can produce economically; • causing us to delay or postpone some of our capital projects; • reducing our revenues, operating income and cash flow; • reducing the carrying value of our crude oil and natural gas properties; or • limiting our access to sources of capital, such as equity and long-term debt |
| Failure to fund continued capital expenditures could adversely affect our properties |
| If revenues substantially decrease as a result of lower crude oil and natural gas prices or otherwise, we may have limited ability to spend the capital necessary to replace our reserves or to maintain production at current levels, resulting in a decrease in production over time |
| We expect to continue to make capital expenditures for the acquisition, exploration and development of crude oil and natural gas reserves |
| Historically, we have financed these expenditures primarily with cash flow from operations and proceeds from debt and equity financings |
| However, if cash flow from operations is not sufficient to satisfy capital expenditure requirements, we cannot provide assurance that we will be able to obtain additional debt or equity financing or other sources of capital to meet these requirements |
| If we are not able to fund our capital expenditures, then interests in some properties might be reduced or forfeited |
| We may be unable to make attractive acquisitions or integrate acquired businesses and/or assets, and any inability to do so may disrupt our business |
| One aspect of our business strategy calls for acquisitions of businesses and assets that complement or expand our current business |
| We cannot provide assurance that we will be able to identify attractive acquisition opportunities |
| Even if we do identify attractive candidates, we cannot provide assurance that we will be able to complete the acquisition of them or do so on commercially acceptable terms |
| Additionally, if we acquire another business, we could have difficulty integrating its operations, systems, management and other personnel and technology with our own |
| These difficulties could disrupt ongoing business, distract management and employees, increase expenses and adversely affect results of operations |
| Even if these difficulties could be overcome, we cannot provide assurance that the anticipated benefits of any acquisition would be realized |
| Estimates of crude oil and natural gas reserves are not precise |
| There are numerous uncertainties inherent in estimating crude oil and natural gas reserves and their value, including many factors that are beyond our control |
| Reservoir engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot be measured in an exact manner |
| The estimates depend on a number of factors and assumptions that may vary considerably from actual results, including: • historical production from the area compared with production from other areas; • the assumed effects of regulations by governmental agencies; • assumptions concerning future crude oil and natural gas prices; • future operating costs; • severance and excise taxes; • development costs; and • workover and remedial costs |
| For these reasons, estimates of the economically recoverable quantities of crude oil and natural gas attributable to any particular group of properties, classifications of those reserves based on risk of recovery and estimates of the future net cash flows expected from them prepared by different engineers or by the 10 _________________________________________________________________ same engineers but at different times may vary substantially |
| Accordingly, reserve estimates may be subject to upward or downward adjustment, and actual production, revenue and expenditures with respect to our reserves likely will vary, possibly materially, from estimates |
| Additionally, because most of our reserve estimates are calculated using volumetric analysis, those estimates are less reliable than estimates based on a lengthy production history |
| Volumetric analysis involves estimating the volume of a reservoir based on the net feet of pay of the structure and an estimation of the area covered by the structure |
| In addition, realization or recognition of proved undeveloped reserves will depend on our development schedule and plans |
| Lack of certainty with respect to development plans for proved undeveloped reserves could cause the discontinuation of the classification of these reserves as proved |
| Exploration, development and production risks and natural disasters could result in liability exposure or the loss of production and revenues |
| Our operations are subject to hazards and risks inherent in the drilling, production and transportation of crude oil and natural gas, including: • pipeline ruptures and spills; • fires; • explosions, blowouts and cratering; • formations with abnormal pressures; • equipment malfunctions; • hurricanes; and • other natural disasters |
| Any of these can result in loss of hydrocarbons, environmental pollution and other damage to our properties or the properties of others |
| Exploration and development drilling may not result in commercially productive reserves |
| We do not always encounter commercially productive reservoirs through our drilling operations |
| The wells we drill or participate in may not be productive and we may not recover all or any portion of our investment in those wells |
| The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that crude oil or natural gas is present or may be produced economically |
| The cost of drilling, completing and operating a well is often uncertain, and cost factors can adversely affect the economics of a project |
| Our efforts will be unprofitable if we drill dry holes or wells that are productive but do not produce enough reserves to return a profit after drilling, operating and other costs |
| Further, our drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including: • unexpected drilling conditions; • title problems; • pressure or irregularities in formations; • equipment failures or accidents; • adverse weather conditions; • compliance with environmental and other governmental requirements; and • increases in the cost of, or shortages or delays in the availability of, drilling rigs and equipment |
| The unavailability or high cost of drilling rigs, equipment, supplies, personnel and other oil field services could adversely affect our ability to execute our exploration and development plans on a timely basis and within our budget |
| Our industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel |
| During these periods, the costs of rigs, equipment and supplies are substantially 11 _________________________________________________________________ greater and their availability may be limited |
| As a result of increasing levels of exploration and production in response to strong prices of crude oil and natural gas, the demand for oilfield services has risen and the costs of these services are increasing, while the quality of these services may suffer |
| Additionally, these services may not be available on commercially reasonable terms |
| We may not have enough insurance to cover all of the risks we face, which could result in significant financial exposure |
| As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses, including the loss of wells, blowouts, pipeline leakage or other damage, certain costs of pollution control and physical damages on certain assets |
| Our insurance coverage includes crude oil and natural gas properties and construction insurance, marine cargo insurance and third party and comprehensive general liability insurance |
| Except for our operations in Israel and Equatorial Guinea, we do not carry business interruption insurance |
| We may not have sufficient coverage for some of the risks we face, either because insurance is not available on commercially reasonable terms or because of single event limitations by our insurer |
| If an event occurs that is not covered, or not fully covered, by insurance, it could harm our financial condition, results of operations and cash flows |
| In addition, we cannot fully insure against pollution and environmental risks |
| We face significant competition and many of our competitors have resources in excess of our available resources |
| We operate in the highly competitive areas of crude oil and natural gas exploration, exploitation, acquisition and production |
| We face intense competition from a large number of independent, technology-driven companies as well as both major and other independent crude oil and natural gas companies in a number of areas such as: • seeking to acquire desirable producing properties or new leases for future exploration; • marketing our crude oil and natural gas production; and • seeking to acquire the equipment and expertise necessary to operate and develop properties |
| Many of our competitors have financial and other resources substantially in excess of those available to us |
| This highly competitive environment could have an adverse impact on our business |
| We are subject to various governmental regulations and environmental risks that may cause us to incur substantial costs |
| From time to time, in varying degrees, political developments and federal and state laws and regulations affect our operations |
| In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes in administrative regulations have affected and in the future could affect crude oil and natural gas production, operations and economics |
| We cannot predict how agencies or courts will interpret existing laws and regulations or the effect of these adoptions and interpretations may have on our business or financial condition |
| Our business is subject to laws and regulations promulgated by international, federal, state and local authorities, relating to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well as safety matters |
| Legal requirements are frequently changed and subject to interpretation and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations |
| We may be required to make significant expenditures to comply with governmental laws and regulations |
| Our operations are subject to complex international, federal, state and local environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, the Oil Pollution Act of 1990 and the Clean Water Act |
| Environmental laws and regulations change frequently, and the implementation of new, or the modification of existing laws or regulations could harm us |
| The discharge of natural gas, crude 12 _________________________________________________________________ oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to the government and third parties and may require us to incur substantial costs of remediation |
| Our international operations may be adversely affected by economic and political developments |
| We have significant international crude oil and natural gas operations |
| As a result, those operations may be adversely affected by political and economic developments, including war, terrorism and other instability, expropriation or nationalization, royalty and tax increases, and other laws or policies in these countries, as well as United States policies affecting trade, taxation, and investment in other countries |
| Significant capital expenditures are required to replace our reserves |
| Our exploration, development and acquisition activities require substantial capital expenditures |
| Historically, we have funded our capital expenditures through a combination of cash flows from operations, our revolving bank credit facility and debt and equity issuances |
| Future cash flows are subject to a number of variables, such as the level of production from existing wells, prices of crude oil and natural gas, and our success in developing and producing new reserves |
| If revenue were to decrease as a result of lower crude oil and natural gas prices or decreased production, and our access to capital were limited, we would have a reduced ability to replace our reserves |
| If our cash flow from operations is not sufficient to meet our obligations and fund our capital expenditure budget, we may not be able to access debt, equity or other methods of financing on an economic basis to meet these requirements |
| Our level of indebtedness may limit our financial flexibility |
| As of December 31, 2005, we had long-term indebtedness of dlra2dtta035 billion, with dlra1dtta28 billion drawn under our bank credit facility |
| Our long-term indebtedness represented 40prca of our total book capitalization at December 31, 2005 |
| Our level of indebtedness affects our operations in several ways, including the following: • a portion of our cash flows from operating activities must be used to service our indebtedness and is not available for other purposes; • we may be at a competitive disadvantage as compared to similar companies that have less debt; • the covenants contained in the agreements governing our outstanding indebtedness and future indebtedness may limit our ability to borrow additional funds, pay dividends and make certain investments and may also affect our flexibility in planning for, and reacting to, changes in the economy and in our industry; • additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may have higher costs and more restrictive covenants; • changes in the credit ratings of our debt may negatively affect the cost, terms, conditions and availability of future financing, and lower ratings will increase the interest rate and fees we pay on our revolving credit facility; and • we may be more vulnerable to general adverse economic and industry conditions |
| We may incur additional debt in order to fund our exploration and development activities |
| A higher level of indebtedness increases the risk that we may default on our debt obligations |
| Our ability to meet our debt obligations and reduce our level of indebtedness depends on future performance |
| General economic conditions, crude oil and natural gas prices and financial, business and other factors will affect our operations and our future performance |
| Many of these factors are beyond our control and we may not be able to generate sufficient cash flow to pay the interest on our debt, and future working capital, borrowings and equity financing may not be available to pay or refinance such debt |
| 13 _________________________________________________________________ Hedging transactions may limit our potential gains |
| In order to manage our exposure to price risks in the marketing of our crude oil and natural gas, we enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production |
| Our hedges, consisting of a series of contracts, are limited in duration, usually for periods of one to four years |
| However, in connection with acquisitions, sometimes our hedges are for longer periods |
| While intended to reduce the effects of volatile crude oil and natural gas prices, such transactions may limit our potential gains if crude oil and natural gas prices rise over the price established by the arrangements |
| In trying to manage our exposure to price risk, we may end up hedging too much or too little, depending upon how our crude oil or natural gas volumes and our production mix fluctuate in the future |
| In addition, hedging transactions may expose us to the risk of financial loss in certain circumstances, including instances in which our production is less than expected; there is a widening of price basis differentials between delivery points for our production and the delivery point assumed in the hedge arrangement; the counterparties to our future contracts fail to perform under the contracts; or a sudden unexpected event materially impacts crude oil or natural gas prices |
| We cannot assure you that our hedging transactions will reduce the risk or minimize the effect of any decline in crude oil or natural gas prices |
| Provisions in our Certificate of Incorporation, Stockholder Rights Plan and Delaware law may inhibit a takeover of us |
| Under our Certificate of Incorporation, our Board of Directors is authorized to issue shares of our common or preferred stock without approval of our stockholders |
| Issuance of these shares could make it more difficult to acquire us without the approval of our Board of Directors as more shares would have to be acquired to gain control |
| We also have a stockholder rights plan, commonly known as a "e poison pill, "e that entitles our stockholders to acquire additional shares of our company, or a potential acquirer of our company, at a substantial discount from market value in the event of an attempted takeover without the approval of our Board |
| Finally, Delaware law imposes restrictions on mergers and other business combinations between us and any holder of 15prca or more of our outstanding common stock |
| These provisions may deter hostile takeover attempts that could result in an acquisition of us that would have been financially beneficial to our stockholders |
| Disclosure Regarding Forward-Looking Statements This annual report on Form 10-K and the documents incorporated by reference in this report contain 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: • 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; and • the impact of governmental regulation |
| Forward-looking statements are typically identified by use of terms such as "e may, "e "e will, "e "e expect, "e "e anticipate, "e "e estimate "e and similar words, although some forward-looking statements may be expressed differently |
| These forward-looking statements are made based upon managementapstas 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- 14 _________________________________________________________________ looking statements |
| You should consider carefully the statements under Item 1A Risk Factors and other sections of this report, which describe factors that could cause our actual results to differ from those set forth in the forward-looking statements |