EOG RESOURCES, INC. Overview
EOG Resources, Inc. , together with its subsidiaries (collectively, EOG), is one of the largest independent (non-integrated) crude oil and natural gas companies inthe United States with proved reserves inthe United States ,Trinidad andChina . EOG operates under a consistent business and operational strategy that focuses predominantly on maximizing the rate of return on investment of capital by controlling operating and capital costs and maximizing reserve recoveries. Each prospective drilling location is evaluated by its estimated rate of return. This strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis, allowing EOG to deliver long-term production growth while maintaining a strong balance sheet. EOG implements its strategy primarily by emphasizing the drilling of internally generated prospects in order to find and develop low-cost reserves. Maintaining the lowest possible operating cost structure that is consistent with efficient, safe and environmentally responsible operations is also an important goal in the implementation of EOG's strategy. Recent Developments. The recent COVID-19 pandemic and the measures being taken to address and limit the spread of the virus have adversely affected the economies and financial markets of many countries, resulting in an economic downturn that has negatively impacted, and may continue to negatively impact, global demand and prices for crude oil and natural gas liquids (NGLs). See PART II, ITEM 1A, "Risk Factors" below, for further discussion. In earlyMarch 2020 , due to the failure of members of theOrganization of the Petroleum Exporting Countries andRussia to reach an agreement on individual crude oil production limits,Saudi Arabia unilaterally reduced the sales price of its crude oil and announced that it would increase its crude oil production. The combination of these actions and the effects of the COVID-19 pandemic on crude oil demand, resulted in lower commodity prices in the last month of the first quarter of 2020 that are reflected in EOG's first quarter 2020 financial and operating results. In addition, the decline in worldwide crude oil demand resulting from the growing effects of the COVID-19 pandemic and the increase in crude oil supply fromSaudi Arabia andRussia have caused these lower commodity prices to continue in the second quarter of 2020. In response to the current commodity price environment, EOG has updated its 2020 capital and operating plan to reduce activity across its operating areas and decrease its total anticipated 2020 capital expenditures. EOG has also elected to reduce its 2020 crude oil production, including delaying the startup of new wells and shutting-in or otherwise curtailing existing production. As a result, expects its full-year 2020 total crude oil production to be lower than its full-year 2019 total crude oil production. See "2020 Capital and Operating Plan" below for further discussion. Commodity Prices. As a result of the many uncertainties associated with (i) the world economic environment, (ii) the COVID-19 pandemic and its effect on the economies and financial markets of many countries and (iii) the actions ofSaudi Arabia ,Russia and other crude oil producing and exporting nations, and the effect of these uncertainties on worldwide supplies of, and demand for, crude oil and condensate, NGLs and natural gas, EOG is unable to predict what changes may occur in crude oil and condensate, NGLs, and natural gas prices in the future. However, prices for crude oil, NGLs and natural gas have historically been volatile, and this volatility is expected to continue. The market prices of crude oil and condensate, NGLs and natural gas during the remainder of 2020 will impact the amount of cash generated from EOG's operating activities, which will in turn impact EOG's financial position and results of operations. For the first three months of 2020, the averageU.S. New York Mercantile Exchange (NYMEX) crude oil and natural gas prices were$46.08 per barrel and$1.98 per million British thermal units (MMBtu), respectively, representing decreases of 16% and 37%, respectively, from the average NYMEX prices for the same period in 2019. Market prices for NGLs are influenced by the components extracted, including ethane, propane and butane and natural gasoline, among others, and the respective market pricing for each component. For the periodApril 1 through April 30, 2020 , the average NYMEX crude oil price was$16.70 per barrel, a decline of 64% from the average price for the three-month period endedMarch 31, 2020 . As previously disclosed, EOG utilizes financial commodity derivative instruments from time to time to manage its exposure to fluctuations in commodity prices. See "Capital Resources and Liquidity - Commodity Derivative Transactions" below for further discussion, including a comprehensive summary of EOG's financial commodity derivative instruments throughMay 5, 2020 . -21- --------------------------------------------------------------------------------United States . EOG's efforts to identify plays with large reserve potential have proven to be successful. EOG has placed an emphasis on applying its horizontal drilling and completion expertise to unconventional crude oil and liquids-rich reservoirs, EOG continues to drill numerous wells in large acreage plays, which in the aggregate have contributed substantially to, and are expected to continue to contribute substantially to, EOG's crude oil and liquids-rich natural gas production. During the first three months of 2020, EOG continued to focus on increasing drilling, completion and operating efficiencies gained in prior years. In addition, EOG continued to evaluate certain potential crude oil and liquids-rich natural gas exploration and development prospects and to look for opportunities to add drilling inventory through leasehold acquisitions, farm-ins, exchanges or tactical acquisitions. On a volumetric basis, as calculated using the ratio of 1.0 barrel of crude oil and condensate or NGLs to 6.0 thousand cubic feet of natural gas, crude oil and condensate and NGL production accounted for approximately 77% of EOG'sUnited States production during the first three months of both 2020 and 2019. During the first three months of 2020, EOG's drilling and completion activities occurred primarily in the Eagle Ford play,Delaware Basin play andRocky Mountain area. EOG's major producing areas inthe United States are inNew Mexico ,North Dakota ,Texas andWyoming .Trinidad . InTrinidad , EOG continues to deliver natural gas under existing supply contracts. Several fields in theSouth East Coast Consortium (SECC) Block, Modified U(a) Block, Block 4(a), Modified U(b) Block, the Banyan Field and the Sercan Area have been developed and are producing natural gas which is sold to theNational Gas Company ofTrinidad and Tobago Limited and its subsidiary, and crude oil and condensate which is sold toHeritage Petroleum Company Limited . In the first quarter of 2020, EOG drilled one net well, with an additional well in progress as ofMarch 31, 2020 . During the remainder of 2020, EOG plans to complete the well it is currently drilling and drill two additional net wells in the second half of 2020. Other International. In theSichuan Basin ,Sichuan Province ,China , EOG continues to work closely with our partner, PetroChina, under the Production Sharing Contract and other related agreements, to ensure uninterrupted production in order to reach the level allowed by pipeline capacity. All natural gas produced from the Baijaochang Field is sold under a long-term contract to PetroChina. InCanada , EOG maintains approximately 132,000 net acres with 23 net producing wells in theHorn River Basin inNortheast British Columbia . InMarch 2020 , EOG made the decision to begin the process of exiting itsCanada operations. EOG continues to evaluate other select crude oil and natural gas opportunities outsidethe United States , primarily by pursuing exploitation opportunities in countries where indigenous crude oil and natural gas reserves have been identified.
Management continues to believe EOG has one of the strongest prospect inventories in EOG's history. When it fits EOG's strategy, EOG will make acquisitions that bolster existing drilling programs or offer incremental exploration and/or production opportunities.
2020 Capital and Operating Plan. EOG has updated its full-year 2020 capital and operating plan as a result of the significant decline and increased volatility of commodity prices. Under its updated 2020 capital and operating plan, EOG's total anticipated 2020 capital expenditures are estimated to range from approximately$3.3 billion to$3.7 billion , including facilities and gathering, processing and other expenditures, and excluding acquisitions and non-cash transactions. The updated 2020 capital and operating plan represents a reduction in total anticipated capital expenditures compared to the original 2020 capital and operating plan and, as a result, EOG expects its full-year 2020 total crude oil production to be lower than its full-year 2019 total crude oil production. EOG's 2020 capital expenditures will be focused on drilling operations in its high rate-of-return plays as well as targeted infrastructure, exploration and environmental projects that support the long-term value of EOG. EOG remains flexible and will continue to evaluate its 2020 capital and operating plan. To the extent necessary or prudent, EOG will consider further reducing its 2020 capital expenditures and operating expenses and further curtailing production, including shutting-in or otherwise curtailing uneconomic wells and delaying the startup of new wells. EOG will also continue to exercise financial flexibility with a goal toward preserving liquidity while supporting its dividend. -22- -------------------------------------------------------------------------------- Capital Structure. One of management's key strategies is to maintain a strong balance sheet with a consistently below average debt-to-total capitalization ratio as compared to those in EOG's peer group. EOG's debt-to-total capitalization ratio was 20% atMarch 31, 2020 and 19% atDecember 31, 2019 . As used in this calculation, total capitalization represents the sum of total current and long-term debt and total stockholders' equity. AtMarch 31, 2020 , EOG maintained a strong financial and liquidity position, including$2.9 billion of cash and cash equivalents and$2.0 billion of availability under its senior unsecured revolving credit facility. EOG's cash and cash equivalents as ofMarch 31, 2020 included$762 million of collateral deposits from counterparties in anticipation of future settlements of financial commodity derivative contracts. OnApril 1, 2020 , EOG repaid, with cash on hand, the$500 million aggregate principal amount of its 2.45% Senior Notes due 2020 that matured on that date. Additionally, onApril 14, 2020 , EOG closed on its offering of$750 million aggregate principal amount of its 4.375% Senior Notes due 2030 and$750 million aggregate principal amount of its 4.950% Senior Notes due 2050 (together, the Notes). EOG received net proceeds of approximately$1.48 billion from the issuance of the Notes. As ofApril 30, 2020 , EOG had$3.6 billion of cash and cash equivalents and$2.0 billion of availability under its senior unsecured revolving credit facility. EOG's cash and cash equivalents as ofApril 30, 2020 included approximately$890 million of collateral deposits from counterparties in anticipation of future settlements of financial commodity derivative contracts.
EOG expects to repay at maturity, with cash on hand, the
EOG believes it has significant flexibility and availability with respect to
financing alternatives, including borrowings under its commercial paper program,
bank borrowings, borrowings under its senior unsecured revolving credit
facility, joint development agreements and similar agreements and equity and
debt offerings.
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Results of Operations The following review of operations for the three months endedMarch 31, 2020 and 2019 should be read in conjunction with the Condensed Consolidated Financial Statements of EOG and notes thereto included in this Quarterly Report on Form 10Q.
Three Months Ended
Operating Revenues. During the first quarter of 2020, operating revenues increased$659 million , or 16%, to$4,718 million from$4,059 million for the same period of 2019. Total wellhead revenues, which are revenues generated from sales of EOG's production of crude oil and condensate, NGLs and natural gas, for the first quarter of 2020 decreased$318 million , or 12%, to$2,436 million from$2,754 million for the same period of 2019. EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of$1,206 million for the first quarter of 2020 compared to net losses of$21 million for the same period of 2019. Gathering, processing and marketing revenues for the first quarter of 2020 decreased$247 million , or 19%, to$1,039 million from$1,286 million for the same period of 2019. Net gains on asset dispositions were$16 million for the first quarter of 2020 compared to net losses of$4 million for the same period of 2019. -24-
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Wellhead volume and price statistics for the three-month periods ended
Three Months Ended
March 31,
2020 2019
Crude Oil and Condensate Volumes (MBbld) (1) United States 482.7 435.1 Trinidad 0.5 0.7 Other International (2) 0.1 0.1 Total 483.3 435.9 Average Crude Oil and Condensate Prices ($/Bbl) (3) United States$ 46.97 $ 56.11 Trinidad 34.93 43.68 Other International (2) 57.51 60.13 Composite 46.96 56.09 Natural Gas Liquids Volumes (MBbld) (1) United States 161.3 119.8 Other International (2) - - Total 161.3 119.8 Average Natural Gas Liquids Prices ($/Bbl) (3) United States$ 10.94 $ 20.28 Other International (2) - - Composite 10.94 20.28 Natural Gas Volumes (MMcfd) (1) United States 1,139 1,003 Trinidad 201 267 Other International (2) 38 38 Total 1,378 1,308 Average Natural Gas Prices ($/Mcf) (3) United States$ 1.50 $ 2.77 Trinidad 2.17 2.91 Other International (2) 4.32 4.37 Composite 1.67 2.85 Crude Oil Equivalent Volumes (MBoed) (4) United States 833.8 722.0 Trinidad 34.0 45.1 Other International (2) 6.3 6.5 Total 874.1 773.6 Total MMBoe (4) 79.5 69.6
(1) Thousand barrels per day or million cubic feet per day, as applicable.
(2) Other International includes EOG's
impact of financial commodity derivative instruments (see Note 12 to the
Condensed Consolidated Financial Statements).
(4) Thousand barrels of oil equivalent per day or million barrels of oil
equivalent, as applicable; includes crude oil and condensate, NGLs and
natural gas. Crude oil equivalent volumes are determined using a ratio of
1.0 barrel of crude oil and condensate or NGLs to 6.0 thousand cubic feet of
natural gas. MMBoe is calculated by multiplying the MBoed amount by the
number of days in the period and then dividing that amount by one thousand.
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Wellhead crude oil and condensate revenues for the first quarter of 2020
decreased $135 million , or 6%, to $2,065 million from $2,200 million for the
same period of 2019. The decrease was due to a lower composite average price
($401 million ), partially offset by an increase of 47 MBbld, or 11%, in wellhead
crude oil and condensate production ($266 million ). Increased production was
primarily in the Permian Basin . EOG's composite wellhead crude oil and
condensate price for the first quarter of 2020 decreased 16% to $46.96 per
barrel compared to $56.09 per barrel for the same period of 2019.
NGL revenues for the first quarter of 2020 decreased $58 million , or 26%, to
$161 million from $219 million for the same period of 2019 due to a lower
composite average price ($137 million ), partially offset by an increase of 41
MBbld, or 35%, in production ($79 million ). Increased production was primarily
in the Permian Basin . EOG's composite NGL price for the first quarter of 2020
decreased 46% to $10.94 per barrel compared to $20.28 per barrel for the same
period of 2019.
Wellhead natural gas revenues for the first quarter of 2020 decreased $125
million , or 37%, to $210 million from $335 million for the same period of 2019.
The decrease was due to a lower average composite price ($147 million ),
partially offset by an increase in natural gas deliveries ($22 million ). Natural
gas deliveries for the first quarter of 2020 increased 70 MMcfd, or 5%, compared
to the same period of 2019 due primarily to higher deliveries in the United
States resulting from increased production of associated natural gas from the
Permian Basin and higher natural gas volumes in South Texas , partially offset by
lower volumes in Trinidad and the Marcellus Shale . EOG's composite wellhead
natural gas price for the first quarter of 2020 decreased 41% to $1.67 per Mcf
compared to $2.85 per Mcf for the same period of 2019.
During the first quarter of 2020, EOG recognized net gains on the mark-to-market
of financial commodity derivative contracts of $1,206 million compared to net
losses of $21 million for the same period of 2019. During the first quarter of
2020, net cash received from settlements of financial commodity derivative
contracts was $84 million compared to net cash received of $21 million for the
same period of 2019.
Gathering, processing and marketing revenues are revenues generated from sales
of third-party crude oil, NGLs and natural gas, as well as fees associated with
gathering third-party natural gas and revenues from sales of EOG-owned sand.
Purchases and sales of third-party crude oil and natural gas may be utilized in
order to balance firm transportation capacity with production in certain areas
and to utilize excess capacity at EOG-owned facilities. EOG sells sand in order
to balance the timing of firm purchase agreements with completion operations and
to utilize excess capacity at EOG-owned facilities. Marketing costs represent
the costs to purchase third-party crude oil, natural gas and sand and the
associated transportation costs, as well as costs associated with EOG-owned sand
sold to third parties.
Gathering, processing and marketing revenues less marketing costs for the first
quarter of 2020 decreased $86 million as compared to the same period of 2019
primarily due to lower margins on crude oil marketing activities.
Operating and Other Expenses. For the first quarter of 2020, operating expenses
of $4,660 million were $1,478 million higher than the $3,182 million incurred
during the first quarter of 2019. The following table presents the costs per
barrel of oil equivalent (Boe) for the three-month periods ended March 31, 2020
and 2019:
Three Months Ended
March 31,
2020 2019
Lease and Well $ 4.14 $ 4.83
Transportation Costs 2.62 2.54
Depreciation, Depletion and Amortization (DD&A) -
Oil and Gas Properties 12.18 12.25
Other Property, Plant and Equipment 0.39
0.38
General and Administrative (G&A) 1.44 1.53 Interest Expense, Net 0.56 0.79 Total (1) 21.33 22.32
(1) Total excludes gathering and processing costs, exploration costs, dry hole
costs, impairments, marketing costs and taxes other than income.
The primary factors impacting the cost components of per-unit rates of lease and well, transportation, DD&A, G &A and net interest expense for the three months endedMarch 31, 2020 , compared to the same period of 2019, are set forth below. See "Operating Revenues" above for a discussion of wellhead volumes. -26- -------------------------------------------------------------------------------- Lease and well expenses include expenses for EOG-operated properties, as well as expenses billed to EOG from other operators where EOG is not the operator of a property. Lease and well expenses can be divided into the following categories: costs to operate and maintain crude oil and natural gas wells, the cost of workovers and lease and well administrative expenses. Operating and maintenance costs include, among other things, pumping services, salt water disposal, equipment repair and maintenance, compression expense, lease upkeep and fuel and power. Workovers are operations to restore or maintain production from existing wells. Each of these categories of costs individually fluctuates from time to time as EOG attempts to maintain and increase production while maintaining efficient, safe and environmentally responsible operations. EOG continues to increase its operating activities by drilling new wells in existing and new areas. Operating and maintenance costs within these existing and new areas, as well as the costs of services charged to EOG by vendors, fluctuate over time. Lease and well expenses of$330 million for the first quarter of 2020 decreased$6 million from$336 million for the same prior year period primarily due to decreased workover expenditures inthe United States ($10 million ) and operating and maintenance costs inCanada ($6 million ), partially offset by increased lease and well administrative expenses inthe United States ($11 million ). Transportation costs represent costs associated with the delivery of hydrocarbon products from the lease to a downstream point of sale. Transportation costs include transportation fees, the cost of compression (the cost of compressing natural gas to meet pipeline pressure requirements), the cost of dehydration (the cost associated with removing water from natural gas to meet pipeline requirements), gathering fees and fuel costs. Transportation costs of$208 million for the first quarter 2020 increased$31 million from$177 million for the same prior year period primarily due to increased transportation costs in thePermian Basin ($35 million ),South Texas ($5 million ) andRocky Mountain area ($4 million ), partially offset by decreased transportation costs in theBarnett Shale ($9 million ). DD&A of the cost of proved oil and gas properties is calculated using the unit-of-production method. EOG's DD&A rate and expense are the composite of numerous individual DD&A group calculations. There are several factors that can impact EOG's composite DD&A rate and expense, such as field production profiles, drilling or acquisition of new wells, disposition of existing wells and reserve revisions (upward or downward) primarily related to well performance, economic factors and impairments. Changes to these factors may cause EOG's composite DD&A rate and expense to fluctuate from period to period. DD&A of the cost of other property, plant and equipment is generally calculated using the straight-line depreciation method over the useful lives of the assets. DD&A expenses for the first quarter of 2020 increased$120 million to$1,000 million from$880 million for the same prior year period. DD&A expenses associated with oil and gas properties for the first quarter of 2020 were$116 million higher than the same prior year period. The increase primarily reflects increased production inthe United States ($137 million ), partially offset by lower unit rates inthe United States ($20 million ) and decreased production inTrinidad ($5 million ). Unit rates inthe United States decreased primarily due to upward reserve revisions and reserves added at lower costs as a result of increased efficiencies. G&A expenses of$114 million for the first quarter of 2020 increased$7 million from$107 million for the same prior year period primarily due to increased professional and other services ($6 million ) and information system costs ($3 million ), partially offset by a decrease in employee-related costs ($2 million ). Interest expense, net of$45 million for the first quarter of 2020 decreased$10 million compared to the same prior year period primarily due to repayment inJune 2019 of the$900 million aggregate principal amount of 5.625% Senior Notes due 2019. Gathering and processing costs represent operating and maintenance expenses and administrative expenses associated with operating EOG's gathering and processing assets as well as natural gas processing fees and certain NGL fractionation fees paid to third parties. EOG pays third parties to process the majority of its natural gas production to extract NGLs. Gathering and processing costs increased$17 million to$128 million for the first quarter of 2020 compared to$111 million for the same prior year period primarily due to increased operating costs and fees in thePermian Basin ($10 million ), the Eagle Ford ($5 million ) and theRocky Mountain area ($4 million ).
Exploration costs of
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Impairments include: amortization of unproved oil and gas property costs as well
as impairments of proved oil and gas properties; other property, plant and
equipment; and other assets. Unproved properties with acquisition costs that are
not individually significant are aggregated, and the portion of such costs
estimated to be nonproductive is amortized over the remaining lease term.
Unproved properties with individually significant acquisition costs are reviewed
individually for impairment. When circumstances indicate that a proved property
may be impaired, EOG compares expected undiscounted future cash flows at a DD&A
group level to the unamortized capitalized cost of the asset. If the expected
undiscounted future cash flows, based on EOG's estimates of (and assumptions
regarding) future crude oil and natural gas prices, operating costs, development
expenditures, anticipated production from proved reserves and other relevant
data, are lower than the unamortized capitalized cost, the capitalized cost is
reduced to fair value. Fair value is generally calculated by using the Income
Approach described in the Fair Value Measurement Topic of the Financial
Accounting Standards Board's Accounting Standards Codification. In certain
instances, EOG utilizes accepted offers from third-party purchasers as the basis
for determining fair value.
Impairments of $1,573 million for the first quarter of 2020 were $1,501 million
higher than impairments for the same prior year period primarily due to
commodity price declines that resulted in increased impairments of proved
properties, leasehold costs and other assets, primarily related to legacy and
non-core natural gas, crude oil and combo plays in the United States ($1,432
million ) and in Canada ($60 million ) as a result of the decision to exit the
Horn River Basin . EOG recorded impairments of proved properties, other property,
plant and equipment and other assets of $1,456 million and $25 million for the
first quarters of 2020 and 2019, respectively.
Taxes other than income include severance/production taxes, ad valorem/property
taxes, payroll taxes, franchise taxes and other miscellaneous taxes.
Severance/production taxes are generally determined based on wellhead revenues,
and ad valorem/property taxes are generally determined based on the valuation of
the underlying assets.
Taxes other than income for the first quarter of 2020 decreased $36 million to
$157 million (6.5% of wellhead revenues) from $193 million (7.0% of wellhead
revenues) for the same prior year period. The decrease in taxes other than
income was primarily due to decreased ad valorem/property taxes ($19 million ),
decreased severance/production taxes ($9 million ) and an increase in credits
available to EOG in the first quarter of 2020 for state incentive severance tax
rate reductions ($9 million ), all in the United States .
Other income, net of $18 million for the first quarter of 2020 increased $12
million compared to the same prior year period primarily due to a decrease in
deferred compensation expense ($14 million ), partially offset by a decrease in
foreign currency transaction gains ($2 million ).
In response to the economic impacts of the COVID-19 pandemic, the President of
the United States signed the Coronavirus Aid, Relief, and Economic Security Act
(the CARES Act) into law on March 27, 2020 . The CARES Act provides economic
support to individuals and businesses through enhanced loan programs, expanded
unemployment benefits, and certain payroll and income tax relief, among other
provisions. The primary tax benefit of the CARES Act for EOG was the
acceleration of approximately $150 million of additional refundable alternative
minimum tax (AMT) credits into tax year 2019. These credits originated from AMT
paid by EOG in years prior to 2018 and were reflected as a deferred tax asset
and a non-current receivable as of December 31, 2019 since they had been
expected to either offset future current tax liabilities or be refunded on a
declining balance schedule through 2021. As a result of the CARES Act, EOG has
reclassified these credits from a non-current receivable in Other Assets to a
current receivable in Income Taxes Receivable on the Condensed Consolidated
Balance Sheet at March 31, 2020 .
EOG recognized an income tax provision of $21 million for the first quarter of
2020 compared to an income tax provision of $192 million for the first quarter
of 2019, primarily due to decreased pretax income. Additionally, the lower
level of pretax income has caused the effective tax rate to be more sensitive to
reconciling items; consequently, the net effective tax rate for the first
quarter of 2020 increased to 68% from 23% for the first quarter of 2019
primarily as a result of certain foreign losses for which tax benefits are not
recorded due to valuation allowances.
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--------------------------------------------------------------------------------Capital Resources and Liquidity
Cash Flow. The primary sources of cash for EOG during the three months endedMarch 31, 2020 , were funds generated from operations. The primary uses of cash were funds used in operations; exploration and development expenditures; dividend payments to stockholders; and other property, plant and equipment expenditures. During the first three months of 2020, EOG's cash balance increased$879 million to$2,907 million from$2,028 million atDecember 31, 2019 . Net cash provided by operating activities of$2,585 million for the first three months of 2020 increased$977 million compared to the same period of 2019 primarily due to a favorable change in working capital ($1,420 million ) and an increase in cash received for settlements of commodity derivative contracts ($64 million ), partially offset by a decrease in wellhead revenues ($318 million ), a decrease in gathering, processing and marketing revenues less marketing costs ($86 million ), an increase in net cash paid for income taxes ($24 million ) and an increase in cash operating expenses ($28 million ). Net cash used in investing activities of$1,531 million for the first three months of 2020 decreased by$360 million compared to the same period of 2019 due to a decrease in additions to oil and gas properties ($373 million ), a favorable change in components of working capital associated with investing activities ($38 million ) and an increase in proceeds from the sale of assets ($11 million ), partially offset by an increase in additions to other property, plant and equipment ($62 million ). Net cash used in financing activities of$175 million for the first three months of 2020 included cash dividend payments ($167 million ), purchases of treasury stock in connection with stock compensation plans ($5 million ) and repayment of finance lease liabilities ($4 million ). Net cash used in financing activities of$137 million for the first three months of 2019 included cash dividend payments ($128 million ) and purchases of treasury stock in connection with stock compensation plans ($6 million ). Total Expenditures. For the year 2020, EOG's updated budget for exploration and development and other property, plant and equipment expenditures is estimated to range from approximately$3.3 billion to$3.7 billion , excluding acquisitions and non-cash transactions. The table below sets out components of total expenditures for the three-month periods endedMarch 31, 2020 and 2019 (in millions): Three Months Ended March 31, 2020 2019 Expenditure Category Capital Exploration and Development Drilling $ 1,313$ 1,402 Facilities 179 164 Leasehold Acquisitions (1) 45 107 Property Acquisitions (2) 48 321 Capitalized Interest 9 7 Subtotal 1,594 2,001 Exploration Costs 40 36 Dry Hole Costs - - Exploration and Development Expenditures 1,634
2,037
Asset Retirement Costs 20 4 Total Exploration and Development Expenditures 1,654
2,041
Other Property, Plant and Equipment (3) 172 61 Total Expenditures $ 1,826$ 2,102
(1) Leasehold acquisitions included
three-month periods ended
non-cash property exchanges.
(2) Property acquisitions included $5 million and $18 million for the
three-month periods ended
non-cash property exchanges.
(3) Other property, plant and equipment included $49 million of non-cash
additions for the three-month period ended
with a finance lease transaction.
-29--------------------------------------------------------------------------------- Exploration and development expenditures of$1,634 million for the first three months of 2020 were$403 million lower than the same period of 2019 primarily due to decreased property acquisitions ($273 million ), decreased exploration and development drilling expenditures inthe United States ($99 million ) and Other International ($9 million ), decreased leasehold acquisitions ($62 million ), partially offset by increased exploration and development drilling expenditures inTrinidad ($20 million ) and increased facilities expenditures ($15 million ). Exploration and development expenditures for the first three months of 2020 of$1,634 million consisted of$1,465 million in development drilling and facilities,$112 million in exploration,$48 million in property acquisitions and$9 million in capitalized interest. Exploration and development expenditures for the first three months of 2019 of$2,037 million consisted of$1,555 million in development drilling and facilities,$321 million in property acquisitions,$154 million in exploration and$7 million in capitalized interest. The level of exploration and development expenditures, including acquisitions, will vary in future periods depending on energy market conditions and other economic factors. EOG believes it has significant flexibility and availability with respect to financing alternatives and the ability to adjust its exploration and development expenditure budget as circumstances warrant. While EOG has certain continuing commitments associated with expenditure plans related to its operations, such commitments are not expected to be material when considered in relation to the total financial capacity of EOG. Commodity Derivative Transactions. As more fully discussed in Note 12 to the Consolidated Financial Statements included in EOG's Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed onFebruary 27, 2020 , EOG engages in price risk management activities from time to time. These activities are intended to manage EOG's exposure to fluctuations in commodity prices for crude oil, NGLs and natural gas. EOG utilizes financial commodity derivative instruments, primarily price swap, option, swaption, collar and basis swap contracts, as a means to manage this price risk. EOG has not designated any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as Gains (Losses) on Mark-to-Market Commodity Derivative Contracts on the Condensed Consolidated Statements of Income and Comprehensive Income. The related cash flow impact is reflected in Cash Flows from Operating Activities on the Condensed Consolidated Statements of Cash Flows. The total fair value of EOG's commodity derivative contracts was reflected on the Condensed Consolidated Balance Sheets atMarch 31, 2020 , as a net asset of$933 million . Crude Oil Derivative Contracts. Prices received by EOG for its crude oil production generally vary from NYMEX WTI prices due to adjustments for delivery location (basis) and other factors. EOG has entered into crude oil basis swap contracts in order to fix the differential between Intercontinental Exchange (ICE) Brent pricing and pricing inCushing, Oklahoma (ICE Brent Differential). Presented below is a comprehensive summary of EOG's ICE Brent Differential basis swap contracts throughMay 5, 2020 . The weighted average price differential expressed in dollars per barrel ($/Bbl) represents the amount of addition toCushing, Oklahoma , prices for the notional volumes expressed in barrels per day (Bbld) covered by the basis swap contracts. ICE Brent Differential Basis Swap Contracts Weighted Average Volume Price Differential (Bbld) ($/Bbl) 2020 May 2020 10,000 $ 4.92 EOG has also entered into crude oil basis swap contracts in order to fix the differential between pricing inHouston, Texas , andCushing, Oklahoma (Houston Differential). Presented below is a comprehensive summary of EOG'sHouston Differential basis swap contracts throughMay 5, 2020 . The weighted average price differential expressed in $/Bbl represents the amount of addition toCushing, Oklahoma , prices for the notional volumes expressed in Bbld covered by the basis swap contracts. Houston Differential Basis Swap Contracts Weighted Average Price Differential Volume (Bbld) ($/Bbl) 2020 May 2020 (closed) 10,000 $ 1.55 -30-
-------------------------------------------------------------------------------- EOG has also entered into crude oil swaps to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (Roll Differential). Presented below is a comprehensive summary of EOG's Roll Differential swap contracts throughMay 5, 2020 . The weighted average price differential expressed in $/Bbl represents the amount of net addition (reduction) to delivery month prices for the notional volumes expressed in Bbld covered by the swap contracts. Roll Differential Swap Contracts Weighted Average Price Volume Differential (Bbld) ($/Bbl) 2020 February 1, 2020 through May 31, 2020 (closed) 10,000 $ 0.70 June 2020 10,000 0.70 July 1, 2020 through September 30, 2020 110,000 (1.16 ) October 1, 2020 through December 31, 2020 93,000 (1.16 ) InMay 2020 , EOG entered into crude oil Roll Differential contracts for the period fromOctober 1, 2020 throughDecember 31, 2020 , with notional volumes of 17,000 Bbld at a weighted average price differential of$(1.01) per Bbl. These contracts partially offset certain outstanding Roll Differential contracts for the same time period with notional volumes of 17,000 Bbld at a weighted average price differential of$(1.16) per Bbl. EOG expects to pay net cash of$0.2 million for the settlement of these contracts. The offsetting contracts were excluded from the above table. Presented below is a comprehensive summary of EOG's crude oil NYMEX WTI price swap contracts throughMay 5, 2020 , with notional volumes expressed in Bbld and prices expressed in $/Bbl. Crude Oil NYMEX WTI Price Swap Contracts Volume Weighted Average (Bbld) Price ($/Bbl) 2020 January 1, 2020 through March 31, 2020 (closed) 200,000
$ 59.33
April 2020 (closed) 265,000
51.36
May 1, 2020 throughJune 30, 2020 265,000
51.36
July 2020 254,000
42.36
August 1, 2020 throughSeptember 30, 2020 154,000
50.42
In April andMay 2020 , EOG entered into crude oil NYMEX WTI price swap contracts for the period fromOctober 1, 2020 throughDecember 31, 2020 , with notional volumes of 47,000 Bbld at a weighted average price of$30.04 per Bbl. These contracts offset the remaining NYMEX WTI price swap contracts for the same time period with notional volumes of 47,000 Bbld at a weighted average price of$31.00 per Bbl. EOG expects to receive net cash of$4.1 million for the settlement of these contracts. The offsetting contracts were excluded from the above table. Presented below is a comprehensive summary of EOG's crude oil ICE Brent price swap contracts throughMay 5, 2020 , with notional volumes expressed in Bbld and prices expressed in $/Bbl. Crude Oil ICE Brent Price Swap Contracts Volume (Bbld) Weighted Average Price ($/Bbl) 2020 April 2020 (closed) 75,000 $ 25.66 May 2020 35,000 26.53 -31-
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NGLs Derivative Contracts. Presented below is a comprehensive summary of EOG's
Mont Belvieu Propane Price Swap Contracts
Volume Weighted Average
(Bbld) Price ($/Bbl)
2020
January 1, 2020 through February 29, 2020 (closed) 4,000 $ 21.34
March 1, 2020 throughApril 30, 2020 (closed) 25,000
17.92
May 1, 2020 throughDecember 31, 2020 7,000
17.92
In April andMay 2020 , EOG entered into Mont Belvieu Propane Price Swap Contracts for the period fromMay 1, 2020 throughDecember 31, 2020 , with notional volumes of 18,000 Bbld at a weighted average price of$15.68 per Bbl. These contracts partially offset certain outstanding Mont Belvieu Propane Price Swap Contracts for the same time period with notional volumes of 18,000 Bbld at a weighted average price of$17.92 per Bbl. EOG expects to receive net cash of$9.9 million for the settlement of these contracts. The offsetting contracts were excluded from the above table. Natural Gas Derivative Contracts. Presented below is a comprehensive summary of EOG's natural gas price swap contracts throughMay 5, 2020 , with notional volumes expressed in million British thermal units (MMBtu) per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu). Natural Gas Price Swap Contracts Volume Weighted Average (MMBtud) Price ($/MMBtu) 2021 January 1, 2021 through December 31, 2021 50,000 $ 2.75 EOG has entered into natural gas collar contracts, which establish ceiling and floor prices for the sale of notional volumes of natural gas as specified in the collar contracts. The collars require that EOG pay the difference between the ceiling price and the NYMEX Henry Hub natural gas price for the contract month (Henry Hub Index Price) in the event the Henry Hub Index Price is above the ceiling price. The collars grant EOG the right to receive the difference between the floor price and the Henry Hub Index Price in the event the Henry Hub Index Price is below the floor price. OnMarch 24, 2020 , EOG executed the early termination provision granting EOG the right to terminate certain 2020 natural gas collar contracts with notional volumes of 250,000 MMBtud at a weighted average ceiling price of$2.50 per MMBtu and a weighted average floor price of$2.00 per MMBtu for the period fromApril 1, 2020 throughJuly 31, 2020 . The net cash EOG received for settling these contracts was$7.8 million . Presented below is a comprehensive summary of EOG's natural gas collar contracts throughMay 5, 2020 , with notional volumes expressed in MMBtud and prices expressed in $/MMBtu. Natural Gas Collar Contracts
Weighted Average Price ($/MMBtu)
Volume (MMBtud) Ceiling Price Floor Price
2020 April 1, 2020 through July 31, 2020 (closed) 250,000 $ 2.50 $ 2.00 OnApril 14, 2020 , EOG entered into natural gas collar contracts for the period fromAugust 1, 2020 throughOctober 31, 2020 , with notional volumes of 250,000 MMBtud at a ceiling price of$2.50 per MMBtu and a floor price of$2.00 per MMBtu. These contracts offset the remaining natural gas collar contracts for the same time period with notional volumes of 250,000 MMBtud at a ceiling price of$2.50 per MMBtu and a floor price of$2.00 per MMBtu. EOG expects to receive net cash of$1.1 million for the settlement of these contracts. The offsetting contracts were excluded from the above table. -32- -------------------------------------------------------------------------------- Prices received by EOG for its natural gas production generally vary from NYMEXHenry Hub prices due to adjustments for delivery location (basis) and other factors. EOG has entered into natural gas basis swap contracts in order to fix the differential between pricing in theRocky Mountain area and NYMEX Henry Hub prices (Rockies Differential). Presented below is a comprehensive summary of EOG's Rockies Differential basis swap contracts throughMay 5, 2020 . The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts. Rockies Differential Basis Swap Contracts Weighted Average Volume Price Differential (MMBtud) ($/MMBtu) 2020 January 1, 2020 through May 31, 2020 (closed) 30,000 $ 0.55 June 1, 2020 through December 31, 2020 30,000 0.55 EOG has also entered into natural gas basis swap contracts in order to fix the differential between pricing at the Houston Ship Channel (HSC) and NYMEX Henry Hub prices (HSC Differential). OnMarch 27, 2020 , EOG executed the early termination provision granting EOG the right to terminate certain 2020 HSC Differential basis swaps with notional volumes of 60,000 MMBtud at a weighted average price differential of$0.05 per MMBtu for the period fromApril 1, 2020 throughDecember 31, 2020 . The net cash EOG paid for settling these contracts was$0.4 million . Presented below is a comprehensive summary of EOG's HSC Differential basis swap contracts throughMay 5, 2020 . The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts. HSC Differential Basis Swap Contracts Weighted Average Volume Price Differential (MMBtud) ($/MMBtu) 2020 January 1, 2020 through December 31, 2020 (closed) 60,000 $ 0.05 EOG has also entered into natural gas basis swap contracts in order to fix the differential between pricing at the Waha Hub inWest Texas and NYMEX Henry Hub prices (Waha Differential). Presented below is a comprehensive summary of EOG's Waha Differential basis swap contracts throughMay 5, 2020 . The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts. Waha Differential Basis Swap Contracts Weighted Average Volume Price Differential (MMBtud) ($/MMBtu) 2020 January 1, 2020 through April 30, 2020 (closed) 50,000 $ 1.40 InApril 2020 , EOG entered into Waha Differential basis swap contracts for the period fromMay 1, 2020 throughDecember 31, 2020 , with notional volumes of 50,000 MMBtud at a weighted average price differential of$0.43 per MMBtu. These contracts offset the remaining Waha Differential basis swap contracts for the same time period with notional volumes of 50,000 MMBtud at a weighted average price differential of$1.40 MMBtu. EOG expects to pay net cash of$11.9 million for the settlement of these contracts. The offsetting contracts were excluded from the above table. -33- --------------------------------------------------------------------------------
Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production, capital expenditures, costs and asset sales, statements regarding future commodity prices and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements. EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," "aims," "goal," "may," "will," "should" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements. In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production, generate returns, replace or increase drilling locations, reduce or otherwise control operating costs and capital expenditures, generate cash flows, pay down or refinance indebtedness or pay and/or increase dividends are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, EOG's forward-looking statements may be affected by known, unknown or currently unforeseen risks, events or circumstances that may be outside EOG's control. Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others:
• the timing, extent and duration of changes in prices for, supplies of,
and demand for, crude oil and condensate, natural gas liquids, natural
gas and related commodities;
• the extent to which EOG is successful in its efforts to acquire or
discover additional reserves;
• the extent to which EOG is successful in its efforts to (i)economically develop its acreage in, (ii) produce reserves and achieve
anticipated production levels and rates of return from, (iii) decrease
or otherwise control its drilling, completion, operating and capital
costs related to, and (iv) maximize reserve recovery from, its existing
and future crude oil and natural gas exploration and development
projects and associated potential and existing drilling locations;
• the extent to which EOG is successful in its efforts to market its
crude oil and condensate, natural gas liquids, natural gas and related
commodity production;
• security threats, including cybersecurity threats and disruptions to
our business and operations from breaches of our information technology
systems, physical breaches of our facilities and other infrastructure
or breaches of the information technology systems, facilities and
infrastructure of third parties with which we transact business;
• the availability, proximity and capacity of, and costs associated with,
appropriate gathering, processing, compression, storage, transportation
and refining facilities;
• the availability, cost, terms and timing of issuance or execution of,
and competition for, mineral licenses and leases and governmental and
other permits and rights-of-way, and EOG's ability to retain mineral
licenses and leases;
• the impact of, and changes in, government policies, laws and
regulations, including tax laws and regulations; climate change andother environmental, health and safety laws and regulations relating to
air emissions, disposal of produced water, drilling fluids and other
wastes, hydraulic fracturing and access to and use of water; laws and
regulations imposing conditions or restrictions on drilling and
completion operations and on the transportation of crude oil and
natural gas; laws and regulations with respect to derivatives andhedging activities; and laws and regulations with respect to the import
and export of crude oil, natural gas and related commodities;
• EOG's ability to effectively integrate acquired crude oil and natural
gas properties into its operations, fully identify existing and
potential problems with respect to such properties and accurately
estimate reserves, production and drilling, completing and operating
costs with respect to such properties;
• the extent to which EOG's third-party-operated crude oil and natural
gas properties are operated successfully and economically;
• competition in the oil and gas exploration and production industry for
the acquisition of licenses, leases and properties, employees and other
personnel, facilities, equipment, materials and services;
• the availability and cost of employees and other personnel, facilities,
equipment, materials (such as water and tubulars) and services;
• the accuracy of reserve estimates, which by their nature involve the
exercise of professional judgment and may therefore be imprecise;
• weather, including its impact on crude oil and natural gas demand, and
weather-related delays in drilling and in the installation and
operation (by EOG or third parties) of production, gathering,
processing, refining, compression, storage and transportation
facilities;
• the ability of EOG's customers and other contractual counterparties to
satisfy their obligations to EOG and, related thereto, to access the
credit and capital markets to obtain financing needed to satisfy their
obligations to EOG;
-34---------------------------------------------------------------------------------
• EOG's ability to access the commercial paper market and other credit
and capital markets to obtain financing on terms it deems acceptable,
if at all, and to otherwise satisfy its capital expenditure
requirements;
• the extent to which EOG is successful in its completion of planned
asset dispositions;
• the extent and effect of any hedging activities engaged in by EOG;
• the timing and extent of changes in foreign currency exchange rates,
interest rates, inflation rates, global and domestic financial market
conditions and global and domestic general economic conditions;
• the duration and economic and financial impact of epidemics, pandemics
or other public health issues, including the COVID-19 pandemic;
• geopolitical factors and political conditions and developments aroundthe world (such as the imposition of tariffs or trade or other economic
sanctions, political instability and armed conflict), including in the
areas in which EOG operates;
• the use of competing energy sources and the development of alternative
energy sources;
• the extent to which EOG incurs uninsured losses and liabilities or
losses and liabilities in excess of its insurance coverage;
• acts of war and terrorism and responses to these acts; and
• the other factors described under ITEM 1A, Risk Factors, on pages 13
through 23 of EOG's Annual Report on Form 10-K for the fiscal year
ended
Quarterly Report on Form 10-Q, and any updates to those factors set
forth in EOG's subsequent Quarterly Reports on Form 10-Q or Current
Reports on Form 8-K.
In light of these risks, uncertainties and assumptions, the events anticipated
by EOG's forward-looking statements may not occur, and, if any of such events
do, we may not have anticipated the timing of their occurrence or the duration
or extent of their impact on our actual results. Accordingly, you should not
place any undue reliance on any of EOG's forward-looking statements. EOG's
forward-looking statements speak only as of the date made, and EOG undertakes no
obligation, other than as required by applicable law, to update or revise its
forward-looking statements, whether as a result of new information, subsequent
events, anticipated or unanticipated circumstances or otherwise.
-35-
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PART I. FINANCIAL INFORMATION© Edgar Online, source
