EOG

Business Context and Reporting Period

This summary covers the Form 10-Q filed by Enron Oil & Gas Company for the quarterly period ended September 30, 1996. The registrant is an exploration and production company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids. The filing includes unaudited consolidated financial statements and management's discussion and analysis.

Key Financial Metrics

Note: The filing text does not provide a specific "profit margin" percentage; however, Net Income for the nine-month period was approximately 20% of Net Operating Revenues.

Material Changes vs. Prior Period

• Revenue Growth: Net operating revenues increased 11% to $170.2 million in Q3 1996 compared to $153.0 million in Q3 1995. For the nine-month period, revenues rose 7% to $526.3 million from $492.3 million.
• Price vs. Volume: The revenue increase was driven primarily by higher commodity prices. Average wellhead natural gas prices rose 33% in Q3 and 31% for the nine months. Conversely, crude oil/condensate volumes decreased 12% in Q3 due to reduced production in Trinidad, though nine-month volumes increased 4%.
• Net Income Decline: Despite higher revenues, Net Income decreased slightly to $31.4 million in Q3 1996 from $33.0 million in Q3 1995. For the nine months, Net Income fell to $104.9 million from $110.7 million. This was largely due to a $10 million tax benefit recognized in Q3 1995 from prior year audit settlements that did not recur in 1996.
• Operating Expenses: Total operating expenses increased 8% in Q3 and 11% for the nine months, driven by higher exploration expenses, dry hole costs, and depreciation, depletion, and amortization (DD&A) due to increased production volumes.
• Trading Gains: Gains on sales of reserves and related assets dropped significantly to $20.3 million for the nine months of 1996 compared to $62.5 million in 1995. Additionally, gains from commodity price hedging activities were lower in 1996 compared to the prior year.

Outlook, Risks, and Management Commentary

• Liquidity and Capital: Management believes net operating cash flow and available financing alternatives are sufficient to fund requirements for the remainder of 1996. The company replaced its revolving credit agreement in June 1996 with a new facility allowing up to $200 million (expandable to $600 million), with no advances outstanding as of September 30, 1996.
• Acquisitions: Effective October 1, 1996, the company acquired South Texas Lobo Trend properties from Amoco Production Company, adding 25 million cubic feet equivalent per day of natural gas production.
• Forward-Looking Risks: The filing highlights risks related to commodity price volatility (crude oil, natural gas), interest rate fluctuations, success in acquiring properties, and political developments in international operations (Trinidad, India).
• Legal Proceedings: The company is named as a potentially responsible party in certain environmental proceedings under CERCLA, though management does not expect a material adverse effect on financial condition.

Investor Verification Checklist

• Commodity Price Sensitivity: Verify current market prices for natural gas and crude oil against the 1996 averages ($1.60/Mcf and $20.67/Bbl) to assess future revenue stability.
• Debt Structure: Confirm the status of the new $200 million revolving credit facility and the $30 million advance received in October 1996.
• Production Volumes: Monitor the impact of the reduced Trinidad crude oil volumes (down 24% in Q3) on future production targets.
• Tax Benefits: Note that the 1995 results included significant one-time tax benefits from audit settlements; future tax provisions may be higher without similar events.
• Acquisition Integration: Track the production ramp-up and financial impact of the Amoco South Texas Lobo Trend acquisition effective October 1, 1996.