EOG Resources, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. This is an annual filing, with unaudited fourth-quarter results also included. EOG explores, develops, produces and markets crude oil, NGLs and natural gas, primarily in the United States. Approximately 98% of proved reserves were U.S.-based at year-end.
Financial and operating results
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenues and other | $11.03 billion | $17.38 billion |
| Operating income (loss) | $(544) million | $3.70 billion |
| Net income (loss) | $(605) million | $2.73 billion |
| Diluted earnings (loss) per share | $(1.04) | $4.71 |
| Cash from operating activities | $5.01 billion | $8.16 billion |
| Cash and cash equivalents at year-end | $3.33 billion | $2.03 billion |
| Total debt | $5.82 billion | $5.18 billion |
- Revenue fell 37%. Annual production averaged 753.8 thousand barrels of oil equivalent per day, down 8% from 818.0 thousand. Composite realized prices declined to $38.63 per barrel for crude oil and condensate (from $57.72), $13.41 per barrel for NGLs (from $16.03), and $1.83 per Mcf for natural gas (from $2.38).
- Operating margin, calculated as operating income divided by revenue, was approximately negative 4.9%, versus positive 21.3% in 2019. Net margin was approximately negative 5.5%, versus positive 15.7%.
- Net cash used in investing was $3.35 billion; net cash used in financing was $359 million. Total expenditures were $4.11 billion, including $3.60 billion of exploration and development expenditures. Cash dividends paid were $821 million; dividends declared were $1.50 per share for the year.
- At December 31, current assets were $5.86 billion and current liabilities were $3.46 billion. The resulting current ratio was approximately 1.69. EOG also had a $2.0 billion revolving credit facility with no borrowings outstanding at year-end.
- Debt-to-total capitalization increased to 22% from 19%. EOG issued $1.5 billion of senior notes in 2020 and repaid $1.0 billion of debt. It repaid the $750 million notes due 2021 on February 1, 2021.
- Fourth-quarter revenue was $2.97 billion and net income was $337 million, compared with fourth-quarter 2019 revenue of $4.32 billion and net income of $637 million.
Material changes and unusual items
- The COVID-19 demand shock and crude oil oversupply drove major price declines in the first half of 2020. EOG curtailed production and reduced activity; operations and prices partially recovered later in the year.
- Impairment expense totaled $2.10 billion, compared with $518 million in 2019. This included $1.27 billion on proved properties, $472 million on unproved properties, $300 million on other assets and $60 million on firm commitments. Impairments included legacy and non-core properties and sand and crude-by-rail assets.
- Proved reserves decreased to 3.220 billion Boe from 3.329 billion Boe. Additions were 564 million Boe, while revisions were negative 367 million Boe, including a 278 million Boe downward revision primarily attributed to lower commodity prices. Reserve estimates and their assumptions were a critical audit matter.
- Mark-to-market commodity derivative gains were $1.145 billion, including $1.071 billion of net cash received on settlements; 2019 gains were $180 million, including $231 million of settlement cash. These gains materially affected reported results and cash flows.
- EOG began exiting Canada, disposed of Marcellus assets, and acquired exploration rights in Oman. The company reported no environmental proceedings meeting its disclosed $1 million threshold; management said pending ordinary-course claims were not expected to have a material adverse effect.
Outlook, commentary and risks
- Management forecast 2021 capital expenditures of approximately $3.7 billion to $4.1 billion, excluding acquisitions and non-cash transactions, focused mainly on U.S. crude oil drilling. It expected 2021 crude oil production to remain at fourth-quarter 2020 levels; no earnings guidance was provided.
- At February 18, 2021, EOG cited average 2021 NYMEX prices of $57.51 per barrel for crude oil and $2.98 per MMBtu for natural gas. Management emphasized that commodity prices remain volatile and that capital allocation and production plans may be adjusted as conditions change.
- Key risks include commodity-price volatility, pandemic-related demand or operating disruption, reserve-estimation uncertainty, access to transport and processing infrastructure, customer and derivative-counterparty credit risk, and operational, environmental and cybersecurity events.
- Management highlighted possible changes to federal leasing and permitting, hydraulic-fracturing rules, emissions regulation, royalties and taxes under the new U.S. administration. The potential effects and costs were uncertain. The quarterly dividend was raised after year-end, from $0.375 to $0.4125 per share effective with the April 2021 payment.
Most important facts for investors to verify
- How much of 2020 earnings and operating cash flow depended on derivative settlements and mark-to-market gains, and the extent and terms of remaining 2021 hedges.
- Whether commodity prices, production and operating costs support the $3.7–$4.1 billion 2021 capital plan and the stated production outlook.
- The drivers and recoverability implications of the $2.10 billion impairment charge and the downward reserve revisions; reserve estimates depend on price, cost and development assumptions.
- Debt maturities, lease and transportation commitments, and liquidity after the February 2021 note repayment; total contractual obligations were $17.24 billion at year-end.
- Potential effects of federal policy changes on EOG’s acreage, permits, operating costs and dividend capacity.