EOG Resources, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. EOG is an independent oil and gas producer, with operations primarily in the United States and Trinidad. Financial amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Operating revenues and other | $6,044 | $3,983; up 52% |
| Operating income | $2,572 | $546 |
| Net income | $2,023 | $390 |
| Diluted EPS | $3.45 | $0.67 |
| Net cash from operating activities | $3,255 | $828 |
| Net cash used in investing activities | $1,567 | $956 |
| Net cash used in financing activities | $2,642 | $1,072 |
Reported operating margin was approximately 42.5% versus 13.7%; net margin was approximately 33.5% versus 9.8%. These comparisons were materially affected by derivative mark-to-market results: EOG recorded a $376 gain in Q1 2023 versus a $2,820 loss in Q1 2022. Excluding that accounting swing, reported revenue and profit comparisons are not indicative of production economics alone.
Wellhead revenues fell 21% to $4,189 as lower realized commodity prices outweighed higher volumes. Total oil-equivalent production increased about 7% to 943,000 Boe per day. Composite realized prices were down year over year for crude oil and condensate (20%), NGLs (35%) and natural gas (36%).
Cash and cash equivalents were $5,018 at March 31, down from $5,972 at year-end. Total debt was approximately $3,820, including $33 current and $3,787 long-term, versus approximately $5,078 at year-end. EOG repaid $1,250 of notes at maturity; debt-to-total capitalization was 13%, compared with 17% at year-end. The $2.0 billion revolving credit facility was undrawn, and EOG reported compliance with its debt covenant.
Operating cash flow included a $2,599 favorable year-over-year change in cash collateral related to commodity derivatives. Capital expenditures and other expenditures totaled $1,717, compared with $1,144 in Q1 2022. Dividends paid were $1,067 and treasury stock purchases were $317.
Material changes versus prior year
- Revenue and earnings increased sharply, principally because derivative mark-to-market results swung from a large loss to a gain—notwithstanding lower wellhead revenues and weaker commodity prices.
- Production growth partially offset lower prices: crude oil and condensate volumes rose about 2%, NGL volumes 12%, and natural gas volumes 12%.
- Operating expenses were broadly stable at $3,472 versus $3,437. DD&A declined to $798 from $847; lease and well costs and G&A increased.
- Operating cash flow rose, but the comparison was significantly influenced by derivative collateral movements and working-capital changes.
- Debt declined following the $1,250 note repayment. EOG repurchased approximately 2.9 million shares for $310 under its $5 billion authorization; approximately $4.7 billion remained available at quarter-end.
Outlook, risks and contingencies
- 2023 outlook: Capital expenditures are estimated at $5.8 billion to $6.2 billion, excluding acquisitions, non-cash transactions and exploration costs. Full-year oil, NGL and natural gas production is expected to increase modestly versus 2022.
- Costs: Management expects 2023 well costs to be approximately 10% higher than in 2022 due to inflation, but does not currently expect this increase to materially affect full-year cash flow. EOG cites efficiency initiatives as mitigation; their success is not assured.
- Shareholder returns: EOG’s framework targets returning at least 60% of annual operating cash flow before certain balance-sheet changes, less capital expenditures, to shareholders. The board declared a quarterly dividend of $0.825 per share for payment in July 2023.
- Derivatives: EOG uses commodity derivatives, which are not designated as accounting hedges; fair-value changes affect reported earnings. The net derivative liability was $407 at March 31. Commodity prices and related collateral requirements can affect cash flows.
- Principal risks: Volatile oil and gas prices; inflation and availability of labor, materials and services; regulatory and climate-related changes; operational, permitting, transportation, weather, geopolitical, cybersecurity and counterparty risks; and uncertainty in reserves and project economics.
- Legal matters: EOG reported ordinary-course lawsuits and claims and stated that their resolution is not expected to have a material adverse effect. No environmental proceedings meeting the company’s $1 million disclosure threshold were reported for the quarter.
Investor facts to verify
- How much of the reported earnings and operating cash flow improvement reflects derivative accounting and collateral movements versus underlying operations.
- Whether production growth and realized pricing support the modest full-year production outlook and the $5.8–$6.2 billion capital plan.
- Whether expected cost inflation is offset by efficiency gains, and how capital spending affects cash available for dividends and repurchases.
- The size, timing and cash-flow consequences of outstanding commodity derivative positions and potential collateral calls.
- Future debt levels and liquidity after the note repayment, including the revolving facility’s scheduled June 2024 maturity and extension options.