EOG Resources, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results. Unless otherwise noted, financial amounts are in millions of dollars. EOG is an independent oil and gas producer operating primarily in the United States, with operations in Trinidad and exploration activity elsewhere.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue and other | $6,212 | $7,593 | $17,829 | $18,983 |
| Operating income | $2,557 | $3,664 | $7,099 | $7,113 |
| Net income | $2,030 | $2,854 | $5,606 | $5,482 |
| Diluted earnings per share | $3.48 | $4.86 | $9.60 | $9.34 |
| Operating margin, based on reported revenue | 41.2% | 48.3% | 39.8% | 37.5% |
| Cash provided by operating activities | Not presented separately for quarter | Not presented separately for quarter | $8,236 | $7,649 |
- Q3 revenue and earnings: Revenue fell 18% and net income fell 29% year over year. Lower realized commodity prices drove the decline, partly offset by higher production and improved derivative results.
- Production: Q3 total production averaged 998.5 thousand barrels of oil equivalent per day, up 9% from 919.2 thousand a year earlier. Crude oil and condensate volumes rose 4%, NGL volumes 10%, and natural gas volumes 16%.
- Prices: Q3 composite realized prices, excluding derivatives, were $83.60 per barrel for crude oil and condensate, $23.56 per barrel for NGLs, and $2.66 per Mcf for natural gas, down 13%, 35%, and 71%, respectively, from Q3 2022.
- Cash flow and investment: Nine-month operating cash flow was $8,236. Investing activities used $4,841, including $4,025 of oil and gas property additions and $638 of other property and equipment additions. Financing activities used $4,041, including $2,041 of dividends, $1,250 of debt repayments, and $728 of treasury-stock purchases.
- Liquidity and debt: Cash was $5,326 at September 30, 2023, versus $5,972 at year-end 2022. Current and long-term debt totaled $3,806, down from $5,078; cash exceeded debt by about $1.52 billion. EOG reported $1.9 billion available under its revolving credit facility, with no borrowings outstanding. Its debt-to-total-capitalization ratio was 12%, compared with 17% at year-end 2022.
Material changes versus the prior comparable period
- Q3 wellhead revenue declined 23%; higher volumes did not offset lower commodity prices. Natural gas revenue declined 66%, NGL revenue 28%, and crude oil and condensate revenue 10%.
- Q3 reported revenue included a $43 gain from derivative mark-to-market accounting, compared with an $18 loss a year earlier. For the nine months, EOG recorded $520 of such gains versus $4,215 of losses in 2022. Derivatives are not designated as accounting hedges, so reported earnings can fluctuate with fair-value changes.
- Nine-month net income increased 2% despite lower revenue, in part reflecting the large year-over-year swing in derivative mark-to-market results, lower cash derivative settlement payments, lower income taxes paid, and higher interest income. Operating income was nearly unchanged.
- Capital expenditures and other property investment increased: total expenditures were $5,184 for the first nine months, versus $4,075 a year earlier. Cash dividends paid were lower, while debt repayment and share repurchases were higher.
- EOG repaid $1.25 billion of 2.625% senior notes at maturity in March and replaced its $2.0 billion revolver with a $1.9 billion facility maturing in 2028, with extension options.
Guidance, management commentary, risks and unusual items
- 2023 outlook: EOG estimated full-year capital expenditures of approximately $5.9–$6.1 billion, excluding acquisitions, non-cash transactions, and exploration costs; it expected full-year production to increase modestly versus 2022. Management said inflationary pressures had eased from earlier in 2023 and expected 2023 well costs to rise no more than 10% versus 2022, with no material impact expected on full-year cash flow.
- Capital allocation: On November 2, 2023, after quarter-end, EOG raised its minimum cash-return commitment from 60% to 70% of annual operating cash flow before specified balance-sheet changes, less capital expenditures, effective for fiscal 2024. It also increased the quarterly dividend to $0.91 per share beginning in January 2024 and declared a $1.50-per-share special dividend payable in December 2023.
- Hedging and exposure: At September 30, derivative contracts represented a net liability of $277. EOG reported no collateral posted or held at quarter-end. Commodity price volatility remains a major driver of cash generation and earnings.
- Operations and investment: EOG focused drilling in the Delaware Basin, Eagle Ford, Rocky Mountain area, and Dorado gas play. It began drilling from a new Trinidad platform and expected additional development and exploratory wells in late 2023 and early 2024. An Australia exploration well was planned for 2024, subject to approvals and equipment availability.
- Other items and risks: Nine-month asset retirement obligations rose to $1.5 billion, including $166 of revisions. EOG recorded $123 of impairment charges in the first nine months. Management said ordinary-course lawsuits and claims were not expected to have a material adverse effect; no environmental proceedings meeting the filing’s $1 million disclosure threshold were reported. Risks include commodity prices, cost and service availability, permitting and regulation, climate-related policy, operational execution, geopolitical events, and counterparty and cybersecurity risks.
Important facts for investors to verify
- Whether production growth and the stated modest full-year increase were achieved within the $5.9–$6.1 billion capital budget.
- How commodity prices and realized differentials affect revenue and cash flow, particularly given the substantial natural gas price decline and derivative accounting volatility.
- Whether the 2024 minimum 70% cash-return commitment and announced dividends are supported by operating cash flow after capital spending.
- Developments in drilling costs, inflation, service availability, and the execution of the Trinidad and Australia projects.
- Changes in debt, cash balances, derivative liabilities and collateral requirements, and asset retirement obligations.