EOG Resources, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
EOG is an independent oil and natural gas producer, with operations primarily in the United States and Trinidad. This unaudited filing covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Unless otherwise noted, amounts are in U.S. dollars.
Financial and operating results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total operating revenues and other | $4.765B | $2.246B | $12.598B | $8.067B |
| Operating income (loss) | $1.471B | ($3M) | $3.574B | ($1.032B) |
| Net income (loss) | $1.095B | ($42M) | $2.679B | ($942M) |
| Diluted earnings (loss) per share | $1.88 | ($0.07) | $4.59 | ($1.63) |
| Net cash from operating activities | Not separately provided | Not separately provided | $5.625B | $3.887B |
Q3 crude oil and condensate, NGL, and natural gas production averaged 844.4 thousand barrels of oil equivalent per day (MBoed), up from 716.0 MBoed. For the first nine months, production averaged 817.3 MBoed versus 737.8 MBoed. Higher realized prices were the main revenue driver: Q3 composite prices were $70.85 per barrel for crude oil, $37.72 per barrel for NGLs, and $4.34 per Mcf for natural gas.
Operating revenues include mark-to-market derivative losses of $494 million in Q3 and $1.288 billion for the nine-month period; the comparable 2020 periods recorded losses of $4 million and gains of $1.075 billion, respectively. Derivative settlement cash paid was $293 million in Q3 and $516 million over nine months in 2021. Reported revenue also includes gathering, processing, and marketing activity.
For the nine months, operating expenses were $9.024 billion, down from $9.099 billion, largely because impairment charges fell to $170 million from $1.957 billion. Income tax expense was $755 million, compared with a $225 million benefit in 2020. The nine-month effective tax rate was 22% versus 19%.
Cash, debt, and liquidity
- Cash and cash equivalents were $4.293 billion at September 30, 2021, up from $3.329 billion at December 31, 2020.
- Long-term debt was $5.079 billion and the current portion was $38 million. EOG reported a 19% debt-to-total-capitalization ratio, down from 22% at year-end 2020. It repaid $750 million of notes at maturity in February 2021.
- EOG had no borrowings or letters of credit under its $2.0 billion revolving credit facility, leaving $2.0 billion available. It was in compliance with the facility’s financial covenant.
- Nine-month investing cash outflow was $2.582 billion and financing cash outflow was $2.079 billion. Financing included $1.278 billion of dividends paid and $750 million of debt repayments.
- The balance sheet showed a net derivative liability of $301 million. EOG had posted $308 million of collateral at quarter-end.
Material changes and management commentary
Compared with 2020, results improved substantially as commodity prices and production rose and impairment charges declined. Nine-month wellhead revenue increased 112%; production growth also contributed, but the filing attributes most of the revenue increase to higher prices. EOG said Winter Storm Uri disrupted sales and increased certain operating costs in Q1 2021.
EOG reported continued focus on cost control, operating efficiency, and investment in higher-return U.S. areas, particularly the Delaware Basin, Eagle Ford, and Rocky Mountain area. It sold its China operations in May 2021, generating most of the nine-month asset-sale proceeds. EOG also reported exploratory activity in Oman and plans for an exploratory well offshore Trinidad in the first half of 2022.
Outlook, risks, and unusual items
- For full-year 2021, EOG estimated capital expenditures of approximately $3.8 billion to $4.0 billion, excluding acquisitions and non-cash transactions. It expected crude oil production to remain at Q4 2020 levels.
- On November 4, 2021, the Board announced a $2.00-per-share special dividend, raised the quarterly dividend to $0.75 per share beginning in 2022, and authorized up to $5 billion of share repurchases. These are post-quarter announcements; no shares had been repurchased under the new authorization as of the filing date.
- Management cited commodity-price and demand volatility, COVID-19 impacts, OPEC+ supply decisions, weather, costs and availability of services and transportation, regulation, geopolitical conditions, and execution and reserve-estimation risks. EOG uses derivatives to manage some commodity exposure, but they are not designated as accounting hedges, so fair-value changes affect reported earnings.
- Various ordinary-course lawsuits and claims were pending; management believed their resolution would not have a material adverse effect. The filing reported no environmental proceedings meeting its stated disclosure threshold. Asset retirement obligations totaled $1.215 billion at September 30, 2021.
Important facts for investors to verify
- How much of future revenue and earnings depends on commodity prices versus production growth, and how the outstanding derivatives may affect results and cash settlements.
- Whether production and the $3.8–$4.0 billion capital plan remain consistent with management’s 2021 outlook.
- The cash-flow and balance-sheet implications of the announced special dividend, higher regular dividend, and $5 billion repurchase authorization.
- Debt maturities, revolver availability and covenant compliance, as well as derivative collateral requirements.
- Progress and potential costs or outcomes of international exploration, the Trinidad development plans, and remaining asset retirement and legal obligations.