EOG Resources, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 24, 2022. This is an annual report, not a standalone fourth-quarter report, and the filing does not provide a clear standalone Q4 income statement.
Business context and reporting period
EOG explores for, develops, produces and markets crude oil, natural gas liquids (NGLs) and natural gas, principally in the United States and Trinidad. Its strategy emphasizes returns on capital, cost control and internally generated drilling prospects. At year-end, approximately 99% of proved reserves were in the United States.
Financial and operating metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Operating revenues and other | $18.642 billion | $11.032 billion |
| Operating income (loss) | $6.102 billion | $(544) million |
| Net income (loss) | $4.664 billion | $(605) million |
| Diluted earnings (loss) per share | $7.99 | $(1.04) |
| Net cash provided by operating activities | $8.791 billion | $5.008 billion |
| Total expenditures | $4.255 billion | $4.113 billion |
| Cash and cash equivalents at year-end | $5.209 billion | $3.329 billion |
| Debt-to-total-capitalization ratio | 19% | 22% |
- Revenue increased 69%; net income recovered from a loss. Operating margin was approximately 32.7% and net margin approximately 25.0%, calculated from reported totals.
- Total wellhead revenue rose 111% to $15.381 billion. Average realized prices increased to $68.50 per barrel for crude oil and condensate, $34.35 per barrel for NGLs and $4.66 per Mcf for natural gas.
- Production averaged 828.9 thousand barrels of oil equivalent per day, up from 753.8 thousand in 2020. Total annual production was 302.5 MMBoe versus 275.9 MMBoe.
- Operating cash flow increased by $3.783 billion. The change reflected higher wellhead revenue, partly offset by $638 million of net cash paid on derivative settlements, higher income-tax payments and an unfavorable working-capital swing.
- Year-end current assets were $8.584 billion and current liabilities $4.042 billion. EOG reported no year-end borrowing under its $2.0 billion revolving credit facility, which supports its commercial paper program.
- Senior notes totaled $4.890 billion principal at year-end; total balance-sheet debt, including finance leases and current portions, was approximately $5.109 billion. Senior notes carried fixed interest rates. EOG repaid $750 million of notes at maturity in February 2021.
- Net proved reserves rose 527 MMBoe to 3,747 MMBoe. EOG added 952 MMBoe through extensions, discoveries and other additions, while production was 309 MMBoe.
Material changes versus the prior comparable period
- Commodity prices rebounded from 2020: U.S. realized crude oil prices increased 77%, NGL prices 156% and natural gas prices 203%. Production also increased, supporting the recovery in revenue and earnings.
- Derivative mark-to-market results reversed from a $1.145 billion gain in 2020 to a $1.152 billion loss in 2021; 2021 settlements resulted in $638 million of net cash payments, versus $1.071 billion received in 2020.
- Impairments fell to $376 million from $2.100 billion, including much lower proved-property impairments than in 2020. 2021 impairment charges included $38 million related to the Oman exit decision.
- Capital spending was below 2020’s peak but total expenditures increased to $4.255 billion from $4.113 billion. Dividends paid rose to $2.684 billion from $821 million.
- Reserve growth was led by U.S. natural gas additions. EOG sold its China operations in May 2021 and decided to exit Oman’s Blocks 36 and 49; the Block 49 exploratory well was dry, and the Block 36 gas discovery did not meet return expectations.
Outlook, commentary and risks
- Management expected 2022 capital expenditures of approximately $4.3–$4.7 billion, excluding acquisitions and non-cash transactions, focused mainly on U.S. drilling. It planned approximately 520 net well completions across U.S. operating areas.
- EOG expected 2022 production to return to pre-pandemic levels and planned to pursue efficiency gains to offset cost inflation. These are forward-looking expectations, not guarantees.
- The Board increased the quarterly dividend to $0.75 per share beginning in January 2022 and authorized up to $5 billion of share repurchases; none had been made under the new authorization by year-end. A $2.00-per-share special dividend was paid in December 2021; after year-end, the Board declared a further $1.00-per-share special dividend.
- Commodity prices remain a key sensitivity. Management estimated that each $1-per-barrel change in wellhead crude oil price, combined with the estimated NGL price effect and derivatives, would change 2022 net income by about $107 million; each $0.10-per-Mcf natural gas price change would affect net income by about $15 million.
- After year-end, EOG reported $1.4 billion of collateral posted on commodity derivatives as of February 18, 2022, in the context of higher market prices. Derivative exposure can affect cash requirements and results.
- Key risks include volatile commodity prices, reserve-estimation uncertainty, drilling and operating hazards, access to water and transportation infrastructure, customer and counterparty credit risk, cybersecurity, COVID-19-related disruption, and changing climate, emissions, permitting, hydraulic-fracturing and tax rules. Winter Storm Uri disrupted sales in some markets and raised certain costs in Q1 2021.
- Management said ordinary-course lawsuits and claims were not expected to have a material adverse effect. The filing reported no environmental proceedings meeting its $1 million disclosure threshold for the year.
Most important facts for investors to verify
- Whether higher realized prices and production can be sustained, and how much of future cash flow remains exposed to commodity-price changes after hedging.
- Whether the 2022 capital budget and planned production levels can be achieved amid inflation, service availability and operational constraints.
- Reserve additions, revisions and development timing, particularly the large natural-gas additions and the PUD schedule; reserve estimates rely on technical and economic assumptions.
- Cash available for dividends and repurchases after capital spending, contractual commitments and derivative collateral requirements.
- Progress and costs associated with exiting Oman, the Australia exploration program, and asset dispositions; verify whether subsequent results differ from the expectations described in this filing.