EOG Resources, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited interim results. EOG is an independent oil and natural gas producer, operating primarily in the United States and also in Trinidad.
Financial performance
Amounts below are in millions of dollars, except per-share data, volumes, prices and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenues and other | $7,407 | $4,139 | $11,390 | $7,833 |
| Operating income | $2,903 | $1,171 | $3,449 | $2,103 |
| Net income | $2,238 | $907 | $2,628 | $1,584 |
| Diluted EPS | $3.81 | $1.55 | $4.48 | $2.72 |
| Operating margin (calculated) | 39.2% | 28.3% | 30.3% | 26.9% |
| Net margin (calculated) | 30.2% | 21.9% | 23.1% | 20.2% |
Q2 revenues rose 79% and net income rose 147% year over year; first-half revenues rose 45% and net income rose 66%. Higher realized commodity prices were the primary driver. Q2 composite wellhead prices were $111.25 per barrel for crude oil and condensate, $42.28 per barrel for NGLs and $7.19 per Mcf for natural gas. Q2 total production was 920.7 thousand barrels of oil equivalent per day, up from 828.0 thousand.
Q2 operating expenses were $4,504 million, including $2,127 million of marketing costs and $472 million of taxes other than income. First-half taxes other than income were $862 million, up from $454 million, primarily reflecting higher production and property taxes. First-half DD&A was $1,758 million, down from $1,814 million; DD&A per Boe also declined, which management attributed in part to higher reserve estimates and efficiency gains.
Cash flow, debt and liquidity
- First-half operating cash flow was $2,876 million, down from $3,429 million. Investing cash use was $2,443 million, including $2,288 million of oil and gas property additions and $145 million of other property and equipment additions. Operating cash flow less those additions was approximately $443 million.
- First-half financing cash use was $2,569 million, including $2,509 million of dividends. Cash declined $2,136 million from year-end to $3,073 million at June 30.
- Debt totaled $5,091 million at June 30: $1,282 million current and $3,809 million long-term. The balance sheet classified $1,250 million of 2.625% notes due 2023 as current. Management reported a 19% debt-to-total-capitalization ratio, unchanged from year-end.
- EOG reported $3.1 billion of cash and $2.0 billion available under its revolving credit facility, with no revolver borrowings or letters of credit outstanding. It was in compliance with the facility’s debt-to-capitalization covenant.
Material changes, outlook and notable items
- Commodity price increases lifted wellhead revenues, while mark-to-market derivative losses also increased substantially: $1,377 million in Q2 and $4,197 million in the first half, versus $427 million and $794 million, respectively, in the prior-year periods.
- First-half cash settlements of commodity derivatives were $2,410 million. EOG paid $1,328 million to terminate certain crude oil and natural gas swaps early. It reported $1,906 million of collateral posted at June 30 and $1,529 million at August 3; collateral needs can change with forward prices. The filing says derivative liabilities, net of associated collateral, were $123 million at quarter-end.
- Management’s 2022 capital expenditure estimate was $4.3 billion to $4.7 billion, excluding acquisitions, non-cash transactions and exploration costs. EOG expected full-year production to return to pre-pandemic levels and planned to focus investment on its Delaware Basin, Eagle Ford, Rocky Mountain and Dorado areas. It cited inflation, supply-chain disruption, labor shortages and higher input costs as operating challenges.
- In May, EOG added a commitment to return at least 60% of annual operating cash flow before certain balance-sheet changes, less capital expenditures, to stockholders through dividends and repurchases. It declared quarterly dividends of $0.75 per share and special dividends of $1.00 and $1.80 per share during the period; on August 4 it declared a further $1.50 special dividend.
- EOG said it was progressing platform and facility work for a Trinidad discovery and expected installation and further drilling in the second half of 2022. An exploratory well drilled in Trinidad in the first half was unsuccessful. An Australian exploration well was expected to commence in 2023.
- Management described commodity prices as volatile and identified risks including commodity-price and demand shifts, cost inflation, supply and service availability, infrastructure constraints, regulatory and climate-related changes, geopolitical events, operational and reserve-estimation uncertainty, and derivative collateral requirements. Ordinary-course legal claims were disclosed; management did not expect their resolution to materially adversely affect the company. No environmental proceedings above the stated disclosure threshold were reported.
Important facts for investors to verify
- Whether production, realized prices and the $4.3–$4.7 billion capital plan develop as expected, including the impact of inflation and supply constraints.
- The size, settlement profile and cash-flow effects of derivative positions, including collateral requirements and the effect of any subsequent commodity-price changes.
- The 2023 notes maturity, total debt, cash balance and available revolver capacity.
- How the 60% cash-return commitment is calculated and delivered, and the sustainability of special dividends through commodity cycles.
- Whether the Trinidad and Australia projects advance on schedule and within expected costs; the filing provides no quantified project returns in the text presented.