EOG Resources, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. EOG is an independent oil and natural gas producer, operating primarily in the United States, with production in Trinidad. Financial statements are unaudited; amounts below are in USD millions except per-share data, prices, and production volumes.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenues and other | $5,573 | $7,407 | $11,617 | $11,390 |
| Operating income | $1,970 | $2,903 | $4,542 | $3,449 |
| Net income | $1,553 | $2,238 | $3,576 | $2,628 |
| Diluted EPS | $2.66 | $3.81 | $6.10 | $4.48 |
| Operating cash flow | Not separately presented | Not separately presented | $5,532 | $2,876 |
| Capital expenditures and other expenditures | Not separately presented | Not separately presented | $3,381 | $2,665 |
Q2 revenue fell 25%, net income fell 31%, and diluted EPS fell 30% year over year. For the first half, revenue increased 2%, net income increased 36%, and diluted EPS increased 36%. The filing reports no quarterly cash-flow statement. Operating income was approximately 35% of revenue in Q2 versus 39% a year earlier, and 39% for the first half versus 30% a year earlier.
Q2 revenue reflected lower realized commodity prices: composite crude oil and condensate price was $74.97/bbl versus $111.25; NGL price was $20.85/bbl versus $42.28; and natural gas price was $2.20/Mcf versus $7.19. Production volumes increased: total oil-equivalent production was 970.3 thousand Boe/day versus 920.7 thousand, with U.S. oil-equivalent production up and Trinidad production down. The first-half revenue and earnings comparison was materially affected by mark-to-market derivative gains of $477 versus losses of $4,197 in 2022.
Cash, debt, and capital returns
- Cash and cash equivalents were $4,764 at June 30, down from $5,972 at year-end 2022. First-half operating cash flow of $5,532 was offset by $3,309 of investing outflows and $3,431 of financing outflows; cash declined by $1,208.
- Total debt was $3,814 at June 30, including $34 current and $3,780 long-term, compared with $5,078 at year-end. EOG repaid $1,250 of notes at maturity in March. Debt-to-total capitalization was 13%, down from 17% at year-end.
- A new $1.9 billion unsecured revolving facility was entered into in June, maturing in 2028, with no borrowings or letters of credit outstanding at quarter-end. EOG reported compliance with its 65% maximum debt-to-capitalization covenant and $1.9 billion of facility availability.
- First-half cash distributions included $1,547 of dividends and $619 of treasury-share purchases. EOG repurchased 5.7 million shares for approximately $610 under its $5 billion authorization; approximately $4.4 billion remained available at June 30. Quarterly dividend was $0.825 per share; a $1.00 special dividend was paid in March.
Outlook, commentary, and risks
- Management estimated 2023 capital expenditures at approximately $5.8–$6.2 billion, excluding acquisitions, non-cash transactions, and exploration costs. Full-year oil, NGL, and natural gas production was expected to increase modestly versus 2022. Planned U.S. activity emphasized the Delaware Basin, Eagle Ford, Rocky Mountain area, and Dorado gas play.
- EOG expected 2023 well costs to be approximately 10% higher than in 2022, while noting that inflationary pressures had diminished in Q2 and that efficiency initiatives were expected to mitigate cost impacts. Management did not expect this well-cost increase to materially affect full-year 2023 cash flows.
- EOG’s cash-return framework commits to return at least 60% of annual operating cash flow before certain balance-sheet changes, less capital expenditures, through dividends and repurchases. Actual returns remain subject to business and market conditions.
- Commodity-price volatility is a principal risk. EOG uses financial commodity derivatives, which are marked to market and are not designated as accounting hedges. At June 30, derivative contracts represented a net liability of $296; first-half settlements used $153 of cash. Derivative collateral requirements can change with prices and credit ratings.
- Management cited continued uncertainty around commodity prices, inflation and availability of labor, materials and services, regulations including climate-related rules, permitting, transportation capacity, geopolitical conditions, cybersecurity, and execution of drilling and production plans. Ordinary-course lawsuits and claims were not expected by management to have a material adverse effect; no environmental proceedings meeting the company’s stated $1 million disclosure threshold were reported.
- EOG expected to begin drilling from a completed Trinidad platform in Q3 2023 and to advance construction of Mento Area facilities in the second half. An Australia exploration well was expected in 2024, subject to approvals and equipment availability.
Important facts for investors to verify
- How much of first-half operating cash flow and earnings reflects derivative accounting, derivative settlements, collateral changes, and working-capital movements rather than recurring operating performance.
- Whether production growth and realized prices support the modest full-year production growth outlook amid lower commodity prices.
- Progress against the $5.8–$6.2 billion capital budget and the expected 10% year-over-year well-cost increase.
- Future dividends and repurchases relative to the 60% cash-return framework, liquidity needs, and commodity-market conditions.
- Changes in derivative exposure, cash collateral requirements, debt balances, and the terms or availability of the revolving credit facility.