EOG Resources, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; filed November 3, 2022. Unaudited results compare the third quarter and first nine months of 2022 with the corresponding 2021 periods. EOG is an independent oil and natural gas producer, principally operating in the United States and Trinidad.
Key financial and operating results
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue and other | $7.593 billion | $4.765 billion | +59% |
| Operating income | $3.664 billion | $1.471 billion | +149% |
| Net income | $2.854 billion | $1.095 billion | +161% |
| Diluted EPS | $4.86 | $1.88 | +159% |
| Operating margin | 48.3% | 30.9% | +17.4 percentage points |
| Net margin | 37.6% | 23.0% | +14.6 percentage points |
| Production | 919.2 thousand Boe/day | 844.4 thousand Boe/day | +9% |
Higher realized prices were a major driver: composite crude oil price rose 36% to $96.04 per barrel, while composite natural gas price more than doubled to $9.14 per Mcf. NGL price declined 5% to $36.02 per barrel. Production growth included higher Permian Basin volumes.
For the first nine months, revenue was $18.983 billion versus $12.598 billion; operating income was $7.113 billion versus $3.574 billion; net income was $5.482 billion versus $2.679 billion; and diluted EPS was $9.34 versus $4.59. Total production increased 11% to 907.9 thousand Boe/day.
Cash flow, capital, debt, and liquidity
- Nine-month operating cash flow was $7.649 billion, up from $5.625 billion. Investing cash outflow was $3.659 billion and financing cash outflow was $3.926 billion.
- Cash and cash equivalents were $5.272 billion at September 30, 2022, compared with $5.209 billion at year-end 2021. EOG reported $2.0 billion available under its revolving credit facility, with no borrowings or letters of credit outstanding.
- Total debt was approximately $5.084 billion, including $1.282 billion classified as current. EOG reported an 18% debt-to-total-capitalization ratio, versus 19% at December 31, 2021, and compliance with its credit agreement covenant.
- Nine-month capital expenditures and other listed expenditures totaled $4.075 billion. The 2022 capital budget was estimated at $4.5–$4.7 billion, excluding acquisitions, non-cash transactions, and exploration costs.
- Nine-month dividends paid were $3.821 billion. The filing reports quarterly and special dividends declared during 2022; after quarter-end, the Board raised the quarterly dividend to $0.825 per share beginning in January 2023 and declared a further $1.50-per-share special dividend.
Material changes and unusual items
- Commodity derivative activity materially affected reported results and cash: nine-month mark-to-market losses were $4.215 billion, compared with $1.288 billion in 2021. Cash settlements were $3.257 billion, including $1.391 billion of early-termination payments. EOG said it paid $735 million to terminate certain gas swaps and $593 million to terminate certain crude oil swaps in the second quarter, plus $63 million for crude oil contracts in the third quarter.
- At September 30, derivative liabilities, net of associated collateral, were reflected as a $642 million net liability. EOG had $686 million of collateral posted at quarter-end and $623 million posted at November 2; collateral requirements can change with commodity prices and contract terms.
- Operating costs increased in dollar terms amid greater activity and inflation. Management said inflationary pressures on fuel, steel, labor, and services were expected to continue into 2023, but estimated 2022 well costs would rise less than 10% from 2021 and did not expect that increase to materially affect full-year 2022 results.
- Asset disposition gains were $101 million for the first nine months, primarily from sales of legacy natural gas assets, leasehold, and producing properties. The company also paid $392 million for U.S. property acquisitions.
Outlook, risks, and contingencies
- Management expected full-year 2022 oil, NGL, and natural gas production to return to pre-pandemic levels, with drilling concentrated in the Delaware Basin, Eagle Ford, Rocky Mountain area, and Dorado gas play.
- EOG announced 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 share repurchases.
- Management cited commodity-price volatility, inflation, supply-chain and labor availability, and geopolitical developments as risks. The filing also identifies regulatory and climate-related changes, operational and infrastructure constraints, cybersecurity, and counterparty and financing risks.
- Various ordinary-course lawsuits and claims were pending; management believed their resolution would not have a material adverse effect. No environmental proceedings meeting the filing’s stated $1 million disclosure threshold were reported for the quarter.
- The company’s exploratory well in Trinidad’s Northern Area was unsuccessful. A Trinidad development platform and facilities were expected to be completed in Q4 2022, with development drilling to follow; an offshore Australia exploration well was expected to commence in 2023, subject to approvals.
Important facts for investors to verify
- How much of the earnings and cash-flow improvement reflects commodity prices and production growth, versus derivative accounting, settlements, and contract terminations.
- Whether production, the $4.5–$4.7 billion capital budget, and the stated inflation-cost assumptions are achieved.
- Future derivative exposure, collateral needs, and the effect of commodity-price movements on cash available for investment and shareholder returns.
- Dividend sustainability and execution of the 60% cash-return commitment under changing prices, costs, and capital requirements.
- The repayment or refinancing plan for the $1.25 billion of 2.625% notes due in 2023 and the company’s ongoing liquidity and debt levels.