EOG Resources, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Although the request references 2022 Q4, this filing reports full-year results; the provided filing text does not give a standalone fourth-quarter financial summary.
Business context
EOG explores, develops, produces and markets crude oil, natural gas liquids (NGLs) and natural gas, primarily in the United States, with producing operations in Trinidad. Its strategy emphasizes returns on invested capital, cost control, reserve recovery and a strong balance sheet. Approximately 99% of year-end proved reserves were in the United States.
Key financial and operating results
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Operating revenues and other | $25.702 billion | $18.642 billion | Up 38% |
| Net income | $7.759 billion | $4.664 billion | Up 66% |
| Diluted earnings per share | $13.22 | $7.99 | Up |
| Net cash provided by operating activities | $11.093 billion | $8.791 billion | Up $2.302 billion |
| Cash and cash equivalents at year-end | $5.972 billion | $5.209 billion | Up |
| Debt-to-total capitalization | 17% | 19% | Down |
- Reported operating income was $9.966 billion, versus $6.102 billion in 2021. Based on reported operating revenues and other, operating margin was approximately 38.8% and net margin approximately 30.2%; the revenue line includes substantial derivative mark-to-market losses and gross marketing activity.
- Production averaged 908.2 thousand barrels of oil equivalent per day, up about 10% from 828.9 thousand in 2021. Crude oil and condensate production rose 4%, NGL production 37% and natural gas deliveries 4%.
- Composite realized wellhead prices, excluding derivative effects, increased to $97.21 per barrel for crude oil and condensate, $36.70 per barrel for NGLs and $6.93 per Mcf for natural gas. Year-over-year increases were 42%, 7% and 49%, respectively.
- Operating cash flow exceeded net cash used in investing activities of $5.056 billion and financing activities of $5.273 billion; cash increased $763 million during the year. Total expenditures were $5.610 billion, including $5.229 billion of exploration and development expenditures and asset-retirement costs.
- Year-end balance-sheet current assets were $10.475 billion and current liabilities $5.513 billion. These imply a current ratio of about 1.9. EOG had $4.890 billion of senior notes outstanding, plus finance-lease obligations; the $2.0 billion revolving credit facility had no borrowings outstanding.
- Net proved reserves increased by 491 million Boe to 4.238 billion Boe. The standardized measure of discounted future net cash flows was $74.572 billion, up from $46.186 billion; the filing cautions this measure is not current value and depends on prescribed price and cost assumptions.
Material changes versus 2021
- Higher realized commodity prices and increased production drove wellhead revenues up 48% to $22.796 billion. Crude oil and condensate revenue increased 47%, NGL revenue 46% and natural gas revenue 55%.
- Derivative mark-to-market losses widened to $3.982 billion from $1.152 billion. EOG also paid $3.501 billion net for derivative settlements, compared with $638 million in 2021. The filing identifies early termination settlements of $593 million on certain crude oil swaps and $735 million on certain natural gas swaps.
- Cash operating costs and taxes increased with activity, prices and inflation. Operating expenses rose to $15.736 billion from $12.540 billion; taxes other than income rose to $1.585 billion from $1.047 billion. Impairments were broadly similar at $382 million versus $376 million, far below the $2.100 billion recorded in 2020.
- Capital expenditures and development activity increased, while debt-to-capitalization declined. Cash dividends paid rose to $5.148 billion from $2.684 billion in 2021.
Outlook, risks and other notable items
- For 2023, EOG forecast capital expenditures of approximately $5.8 billion to $6.2 billion, excluding acquisitions, non-cash transactions and exploration costs. It expected crude oil and total oil-equivalent production to increase from 2022 levels, with most spending directed to U.S. operations.
- EOG expected 2023 well costs to be approximately 10% higher than in 2022 because of inflation, but said efficiency initiatives and its multi-basin portfolio had largely offset prior cost pressures and that the expected increase was not anticipated to materially affect full-year results.
- Under its cash-return framework, EOG committed to return at least 60% of annual operating cash flow before certain balance-sheet changes, less total capital expenditures, through dividends and share repurchases. The Board raised the quarterly dividend to $0.825 per share and declared a $1.00-per-share special dividend in February 2023. Dividends remain discretionary.
- As of February 16, 2023, EOG cited average 2023 NYMEX prices of $75.99 per barrel for crude oil and $3.05 per MMBtu for natural gas, below 2022 average NYMEX prices. Commodity-price volatility, hedging outcomes, inflation, service availability and access to transport infrastructure remain key sensitivities.
- EOG planned to repay $1.25 billion of senior notes maturing in 2023 with cash on hand. It disclosed $1.832 billion of anticipated 2023 cash requirements under specified lease, transportation, storage, purchase and service commitments.
- Key operational and regulatory risks include drilling and reserve-estimation uncertainty, hydraulic-fracturing and water access restrictions, weather and safety incidents, cybersecurity, changing climate and emissions rules, and international political and contractual risks. EOG said expected methane-emissions charges under the Inflation Reduction Act were not currently expected to have a material impact, while noting that relevant regulations were pending.
- Management said ordinary-course legal claims were not expected to have a material adverse effect; no reportable environmental proceedings above the company’s $1 million disclosure threshold were identified. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting, which was assessed as effective.
Most important facts for investors to verify
- How much of 2022 earnings and cash flow reflects durable production and realized pricing versus mark-to-market accounting and cash settlements on derivatives.
- Whether 2023 production growth, capital spending and roughly 10% higher well costs align with actual results and returns.
- Reserve additions, revisions and conversion of proved undeveloped reserves, including assumptions about prices, well performance and development timing.
- Cash returned to shareholders relative to the stated 60% framework, and the sustainability of regular and special dividends under lower commodity prices.
- Liquidity and debt repayment after the 2023 note maturity, alongside contractual commitments and potential collateral needs related to derivatives.
- Exposure to commodity-price declines, inflation, regulatory changes, water and infrastructure constraints, and the execution risks in Trinidad and planned Australia exploration.