EOG Resources, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. EOG is an independent oil and natural gas producer operating principally in the United States, with operations in Trinidad.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenues and other | $3.983 billion | $3.694 billion |
| Operating income | $546 million | $932 million |
| Net income | $390 million | $677 million |
| Diluted EPS | $0.67 | $1.16 |
| Operating cash flow | $828 million | $1.870 billion |
| Capital additions to oil and gas properties and other PP&E | $1.009 billion | $917 million |
| Cash and cash equivalents, at period end | $4.009 billion | $5.209 billion at Dec. 31, 2021 |
Oil, NGL and gas production totaled 883.3 thousand barrels of oil equivalent per day, up from 778.9 thousand, while total wellhead revenues rose 66% to $5.286 billion. Composite realized prices, excluding derivatives, increased to $96.00 per barrel for crude oil, $39.77 per barrel for NGLs and $5.46 per Mcf for natural gas. Operating income margin was approximately 13.7%, versus 25.2% a year earlier; reported revenue and earnings were significantly affected by derivative accounting.
Operating expenses totaled $3.437 billion, up from $2.762 billion. Costs per Boe for selected operating items, DD&A and interest were $21.49, compared with $23.79; this measure excludes exploration, dry-hole costs, impairments, marketing costs and taxes other than income. Net cash used in investing activities was $956 million and net cash used in financing was $1.072 billion, including $1.023 billion of dividends paid. Cash declined by $1.200 billion during the quarter.
Balance sheet and liquidity
At March 31, cash was $4.009 billion and total debt carrying value was approximately $5.099 billion, including $1.283 billion classified as current. EOG reported a 19% debt-to-total-capitalization ratio, $2.0 billion available under its revolving credit facility, no revolver borrowings, and compliance with its debt covenant. The $1.250 billion principal amount of 2.625% senior notes due 2023 was classified as current. The facility matures in June 2024, subject to extension options.
Material changes and unusual items
- Q1 operating revenues rose 8%, but net income fell 42%. Wellhead revenues increased $2.096 billion, while mark-to-market derivative losses widened to $2.820 billion from $367 million. EOG does not designate these contracts as accounting hedges, so fair-value changes are recorded in current earnings.
- Derivative settlement cash payments were $296 million, versus $30 million in Q1 2021. EOG also used $2.275 billion of operating cash for collateral posted on derivatives. Collateral posted totaled $2.415 billion at March 31 and $2.900 billion at May 4; derivative liabilities net of collateral were $370 million at March 31.
- Operating cash flow fell $1.042 billion year over year, despite higher production revenues, primarily reflecting derivative collateral, working-capital and other balance-sheet changes, settlement payments and higher cash operating expenses.
- Taxes other than income increased to $390 million from $215 million, mainly because higher production revenues raised severance and property taxes. DD&A declined $53 million, mainly due to lower U.S. unit rates. Asset-disposition gains were $25 million, primarily from sales of legacy Rocky Mountain natural gas assets.
Outlook, capital returns and risks
Management estimated 2022 capital expenditures at approximately $4.3–$4.7 billion, excluding acquisitions, non-cash transactions and exploration costs. EOG expected full-year crude oil, NGL and natural gas production to return to prepandemic levels and planned to focus U.S. activity on the Delaware Basin, Eagle Ford, Rocky Mountain area and Dorado gas play. Management cited efficiency gains as a means to address inflation in costs such as fuel and tubulars.
The Board declared a $0.75-per-share quarterly dividend and a $1.00-per-share special dividend in February. On May 5, after quarter-end, it declared another $0.75 quarterly dividend and a $1.80 special dividend. EOG also announced a commitment to return at least 60% of annual free cash flow to stockholders through dividends and share repurchases. These are forward-looking plans, not guarantees.
Management described commodity prices as volatile and identified risks including commodity supply and demand, inflation and service availability, transportation and processing capacity, regulation and climate-related policy, operational and permitting conditions, counterparties, geopolitical events and the effectiveness or cash-collateral demands of derivatives. Ordinary-course lawsuits and claims were pending; management did not expect their resolution to have a material adverse effect. The filing reported no environmental proceedings meeting its $1 million disclosure threshold for the quarter.
Most important facts for investors to verify
- How derivative losses, contract prices and future collateral requirements may affect realized cash flows and liquidity as market prices change.
- Whether production, cost-control and $4.3–$4.7 billion capital-spending expectations are achieved amid inflation and service constraints.
- The timing and funding of the $1.250 billion notes due 2023, and the sustainability of dividends and the stated 60% free-cash-flow return commitment.
- That Q1 cash flow was materially affected by collateral and working-capital movements; operating cash flow should not be read as production economics alone.