EOG Resources, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in millions of dollars unless otherwise noted. EOG is an independent oil and natural gas producer, primarily operating in the United States, with operations in Trinidad and other international areas. Interim financial statements are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Operating revenues and other | $4,139 | $1,103 | $7,833 | $5,821 |
| Operating income (loss) | $1,171 | $(1,087) | $2,103 | $(1,029) |
| Net income (loss) | $907 | $(910) | $1,584 | $(900) |
| Diluted earnings (loss) per share | $1.55 | $(1.57) | $2.72 | $(1.55) |
| Net cash provided by operating activities | Not presented separately | Not presented separately | $3,429 | $2,673 |
| Capital expenditures, as defined in MD&A | Not presented separately | Not presented separately | $2,156 | $2,360 |
Q2 operating margin was approximately 28% of reported revenue, versus an operating loss in the prior-year quarter. First-half operating margin was approximately 27%, also reversing the prior-year loss. These comparisons include material mark-to-market derivative results and other items.
- Revenue drivers: Q2 wellhead revenue was $3,470, up 309%; higher realized prices and increased production contributed. Q2 crude oil and condensate revenue was $2,699, NGL revenue $367, and natural gas revenue $404. Gathering, processing and marketing revenue was $1,022.
- Production: Q2 total production was 828.0 thousand barrels of oil equivalent per day, up from 623.4 thousand. First-half production was 803.6 thousand barrels of oil equivalent per day, versus 748.8 thousand.
- Derivative impact: EOG recorded mark-to-market commodity derivative losses of $427 in Q2 and $794 in the first half, compared with losses of $127 and gains of $1,079, respectively, in 2020. Cash settlements were net payments of $193 in Q2 and $223 in the first half.
- Costs and impairments: First-half operating expenses were $5,730 versus $6,850, chiefly reflecting substantially lower impairments. Impairments were $88 in the first half of 2021 versus $1,878 in 2020; the prior-year charges included substantial proved-property and other-asset write-downs. First-half DD&A was $1,814, up from $1,707.
Cash, debt and liquidity
- At June 30, 2021, cash and cash equivalents were $3,880, compared with $3,329 at year-end 2020. Current assets were $6,935 and current liabilities $4,002.
- Debt totaled $5,125, comprising $39 current and $5,086 long-term, versus $5,816 at December 31, 2020. EOG repaid $750 of notes at maturity in February. Management reported a 20% debt-to-total-capitalization ratio, down from 22% at year-end.
- EOG reported $2.0 billion of availability under its unsecured revolving credit facility and no borrowings or letters of credit outstanding under it. The facility matures in 2024, subject to extension options; EOG was compliant with its financial covenant.
- First-half operating cash flow of $3,429 funded $1,649 of net investing outflow and $1,229 of net financing outflow. Cash increased $551. Cash generation included material working-capital movements and derivative settlements.
- First-half dividends paid were $458. EOG raised its quarterly dividend to $0.4125 per share and declared an additional special dividend of $1.00 per share, both payable July 30, 2021. The balance sheet included $820 of dividends payable at June 30.
Changes, outlook and risks
- Revenue recovery reflected sharply higher commodity prices versus the 2020 downturn, as well as higher production. Management cited average first-half NYMEX prices up 68% for crude oil and 49% for natural gas year over year. Winter Storm Uri disrupted sales and affected costs in Q1; the storm also produced unusually high prices for some gas deliveries.
- Management estimated 2021 capital expenditures of $3.7 billion to $4.1 billion, excluding acquisitions and non-cash transactions. EOG expected full-year crude oil production to remain at Q4 2020 levels and planned to focus investment on U.S. Delaware Basin, Eagle Ford and Rocky Mountain areas. These are expectations, not guarantees.
- EOG sold its China operations in May 2021; related asset-sale proceeds contributed to first-half investing cash flows. It also described exploration activity and prospective wells in Trinidad and Oman, and a pending agreement to acquire an offshore Australian block, subject to customary closing conditions.
- Commodity prices, demand and supply remain volatile. Other stated risks include COVID-19 and variants, OPEC+ supply decisions, weather, operating and transportation capacity, costs and execution, regulation and environmental requirements, cybersecurity, counterparties, and access to financing. EOG cautioned that results may differ materially from forward-looking statements.
- Outstanding commodity derivatives were a net liability of $410 at June 30, and EOG had posted $107 of collateral. Derivative terms may require collateral or early settlement under specified circumstances.
- Various ordinary-course lawsuits and claims are pending; management did not expect their resolution to have a material adverse effect. No environmental proceedings meeting the filing’s stated disclosure threshold were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of the earnings and cash-flow improvement reflects commodity prices and production versus derivative marks, settlements, working capital and asset dispositions.
- Whether production, unit costs and the $3.7–$4.1 billion capital budget remain consistent with management’s stated plan and production outlook.
- The volume, pricing and timing of outstanding derivative positions, their effect on realized prices and cash, and potential collateral requirements.
- Debt maturities, liquidity and the implications of the planned special and quarterly dividends for cash balances and capital allocation.
- Progress, costs and results of exploration and international projects, including the pending Australian acquisition, and any material changes in legal, regulatory or environmental exposures.