0000821189-01-500030.txt : 20011031
0000821189-01-500030.hdr.sgml : 20011031
ACCESSION NUMBER: 0000821189-01-500030
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011029
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EOG RESOURCES INC
CENTRAL INDEX KEY: 0000821189
STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311]
IRS NUMBER: 470684736
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09743
FILM NUMBER: 1768764
BUSINESS ADDRESS:
STREET 1: 333 CLAY SUITE 4200
CITY: HOUSTON
STATE: TX
ZIP: 77002-7361
BUSINESS PHONE: 7136517000
MAIL ADDRESS:
STREET 1: 1200 SMITH STREET
CITY: HOUSTON
STATE: TX
ZIP: 77002-7361
FORMER COMPANY:
FORMER CONFORMED NAME: ENRON OIL & GAS CO
DATE OF NAME CHANGE: 19920703
10-Q
1
eog3q10q.txt
EOG 3RD QUARTER FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------
Form 10-Q
-----------
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-9743
EOG RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0684736
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
333 Clay Street, Suite 4200, Houston, Texas 77002-7361
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 713-651-7000
----------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
[x] No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of October 22, 2001.
Title of each class Number of shares
------------------- ----------------
Common Stock, $.01 par value 115,483,474
2
EOG RESOURCES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
--------
ITEM 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
September 30, 2001 and 2000 And Nine Months Ended
September 30, 2001 and 2000 ................................. 3
Consolidated Balance Sheets - September 30, 2001 and
December 31, 2000 ........................................... 4
Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 2001 and 2000 ................................. 5
Notes to Consolidated Financial Statements .................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ..................................... 15
ITEM 6. Exhibits and Reports on Form 8-K ...................... 15
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2001 2000 2001 2000
--------- --------- ---------- ---------
NET OPERATING REVENUES
Natural Gas $ 229,653 $ 309,668 $1,108,667 $ 740,271
Crude Oil, Condensate and Natural Gas Liquids 65,324 88,434 213,661 238,841
Mark-to-market Gains (Losses) on Commodity Contracts 58,750 (3,623) 95,033 (3,623)
Gains on Sales of Reserves and Related Assets and Other, Net 445 7,672 112 9,285
-------- -------- --------- --------
TOTAL 354,172 402,151 1,417,473 984,774
OPERATING EXPENSES
Lease and Well 43,640 35,304 129,462 101,266
Exploration Costs 12,408 14,898 50,419 41,047
Dry Hole Costs 10,617 5,627 39,272 14,678
Impairments 20,597 9,786 52,628 28,311
Depreciation, Depletion and Amortization 103,351 91,577 294,782 263,665
General and Administrative 20,925 17,053 57,609 49,367
Taxes Other Than Income 18,687 24,248 81,091 63,337
-------- -------- --------- --------
TOTAL 230,225 198,493 705,263 561,671
-------- -------- --------- --------
OPERATING INCOME 123,947 203,658 712,210 423,103
OTHER INCOME, NET 1,272 35 1,883 815
-------- -------- --------- --------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 125,219 203,693 714,093 423,918
INTEREST EXPENSE, NET 10,242 14,750 34,155 44,899
-------- -------- --------- --------
INCOME BEFORE INCOME TAXES 114,977 188,943 679,938 379,019
INCOME TAX PROVISION 43,014 72,466 256,525 143,535
-------- -------- --------- --------
NET INCOME 71,963 116,477 423,413 235,484
PREFERRED STOCK DIVIDENDS 2,759 2,755 8,237 8,269
-------- -------- --------- --------
NET INCOME AVAILABLE TO COMMON $ 69,204 $ 113,722 $ 415,176 $ 227,215
======== ======== ========= ========
NET INCOME PER SHARE AVAILABLE TO COMMON
Basic $ 0.60 $ 0.98 $ 3.58 $ 1.94
======== ======== ========= ========
Diluted $ 0.59 $ 0.95 $ 3.51 $ 1.91
======== ======== ========= ========
AVERAGE NUMBER OF COMMON SHARES
Basic 115,692 116,559 115,982 117,018
======== ======== ========= ========
Diluted 117,141 119,262 118,159 118,932
======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 11,344 $ 20,152
Accounts Receivable 206,270 342,579
Inventories 21,576 16,623
Assets from Price Risk Management Activities 63,229 438
Other 33,773 15,073
---------- ----------
TOTAL 336,192 394,865
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 5,851,142 5,122,728
Less: Accumulated Depreciation, Depletion and Amortization (2,889,907) (2,597,721)
---------- ----------
Net Oil and Gas Properties 2,961,235 2,525,007
OTHER ASSETS 88,935 81,381
---------- ----------
TOTAL ASSETS $ 3,386,362 $ 3,001,253
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 257,681 $ 246,468
Accrued Taxes Payable 75,928 78,838
Dividends Payable 5,047 4,525
Other 43,842 40,285
---------- ----------
TOTAL 382,498 370,116
LONG-TERM DEBT 701,022 859,000
OTHER LIABILITIES 56,167 51,133
DEFERRED INCOME TAXES 557,185 340,079
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 Shares Authorized:
Series B, 100,000 Shares Issued, Cumulative,
$100,000,000 Liquidation Preference 98,056 97,879
Series D, 500 Shares Issued, Cumulative,
$50,000,000 Liquidation Preference 49,421 49,285
Common Stock, $.01 Par, 320,000,000 Shares Authorized and
124,730,000 Shares Issued 201,247 201,247
Additional Paid in Capital 4,603 4,221
Unearned Compensation (15,985) (3,756)
Accumulated Other Comprehensive Income (51,619) (31,756)
Retained Earnings 1,702,339 1,301,067
Common Stock Held in Treasury, 9,132,405 shares at
September 30, 2001 and 7,825,708 shares at December 31, 2000 (298,572) (237,262)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,689,490 1,380,925
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,386,362 $ 3,001,253
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
5
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 423,413 $ 235,484
Items Not Requiring Cash
Depreciation, Depletion and Amortization 294,782 263,665
Impairments 52,628 28,311
Deferred Income Taxes 170,315 81,603
Other, Net 9,483 3,587
Exploration Costs 50,419 41,047
Dry Hole Costs 39,272 14,678
Mark-to-market Commodity Contracts
Total (Gains) Losses (95,033) 3,623
Realized Gains (Losses) 27,798 (430)
(Gains) Losses on Sales of Reserves and Related Assets 1,028 (5,137)
Tax Benefits from Stock Options Exercised 6,133 23,400
Other, Net (2,748) (8,706)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 138,819 (115,659)
Inventories (4,953) 2,356
Accounts Payable 4,026 56,682
Accrued Taxes Payable (17,300) 10,280
Other Liabilities (1,067) 5,274
Other, Net (46) (5,975)
Changes in Components of Working Capital Associated with Investing
and Financing Activities (43,527) (21,780)
--------- ---------
NET OPERATING CASH INFLOWS 1,053,442 612,303
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (754,035) (414,866)
Exploration Costs (50,419) (41,047)
Dry Hole Costs (39,272) (14,678)
Proceeds from Sales of Reserves and Related Assets 7,380 25,588
Changes in Components of Working Capital Associated with Investing
Activities 41,218 20,517
Other, Net (8,642) (24,026)
--------- ---------
NET INVESTING CASH OUTFLOWS (803,770) (448,512)
FINANCING CASH FLOWS
Long-Term Debt (157,978) (45,139)
Dividends Paid (21,306) (19,263)
Treasury Stock Purchased (103,008) (196,867)
Proceeds from Sales of Treasury Stock 20,631 91,783
Other, Net 3,181 (2,434)
--------- ---------
NET FINANCING CASH OUTFLOWS (258,480) (171,920)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (8,808) (8,129)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,152 24,836
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,344 $ 16,707
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
6
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of EOG Resources, Inc. and
subsidiaries ("EOG") included herein have been prepared by management
without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, they reflect all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods. Certain
information and notes normally included in financial statements prepared
in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and
regulations. However, management believes that the disclosures are
adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in
EOG's 2000 Annual Report to Shareholders.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period financial
statements to conform with the current presentation. Beginning first
quarter of 2001, the "Impairment of Unproved Oil and Gas Properties"
caption on the Consolidated Statements of Income was renamed
"Impairments" to include the impairment loss of long-lived assets as
described in Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of" ("SFAS 121 Impairments"). As a
result, EOG reclassified all prior periods to reflect such SFAS 121
Impairments in Impairments, instead of Depreciation, Depletion and
Amortization ("DD&A") as previously reported. SFAS 121 Impairments
reclassified from DD&A to Impairments were $0.5 million and $3.1
million for the three-month and nine-month periods ended
September 30, 2000.
2. As more fully discussed in Notes 1 and 12 to the consolidated
financial statements included in EOG's 2000 Annual Report to
Shareholders, EOG engages in price risk management activities from time
to time. Derivative financial instruments (primarily price swaps and
costless collars) are utilized selectively to hedge the impact of market
fluctuations on natural gas and crude oil market prices. EOG adopted on
January 1, 2001 Statement of Financial Accounting Standards ("SFAS") No.
133 - "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137 and 138 ("SFAS 133"). SFAS 133 requires that
changes in the derivative's fair value be recognized currently in
earnings using the mark-to-market accounting method unless specific
hedge accounting criteria are met. The adoption of SFAS 133 did not
have a material impact on EOG's financial statements. During the first
nine months of 2001, EOG elected not to designate any of its price risk
management activities as accounting hedges under SFAS 133, and
accordingly, accounted for them using the mark-to-market accounting
method. Under this accounting method, the changes in the market value of
outstanding financial instruments are recognized as gains or losses in
the period of change. The gains or losses are recorded in Mark-to-
market Gains (Losses) on Commodity Contracts in the Net Operating
Revenues section of the Consolidated Statements of Income. The related
cash flow impact is reflected as cash flows from operating activities in
the Consolidated Statements of Cash Flows.
For the three-month and nine-month periods ended September 30, 2001,
mark-to-market gains on commodity contracts were respectively $58.8
million and $95.0 million, of which $27.3 million and $27.8 million
were realized gains for the respective periods.
Following is a summary of EOG's open futures positions at September 30,
2001:
o Crude Oil and Condensate Price Swaps - EOG had outstanding price
swaps covering notional volumes of approximately 0.9 million barrels of
crude oil and condensate for the period October 2001 to May 2002 at an
average price of $27.11 per barrel. At September 30, 2001, the fair
value of these oil price swaps was $3.1 million.
o Natural Gas Price Collars - EOG had outstanding price collars that
set a floor price of $4.40 per MMBtu and ceiling prices that average
$6.15 per MMBtu covering notional volumes of 200,000 million British
thermal units of natural gas per day ("MMBtu/d") for October 2001 and
November 2001 at an average premium of $0.15 per MMBtu. At September
30, 2001, the fair value of these natural gas price collars was $28.5
million.
7
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Natural Gas Price Swaps - EOG had outstanding price swaps covering
notional volumes of 115,000 MMBtu/d for October 2001 and November 2001
at an average price of $3.40 per MMBtu, notional volumes of 200,000
MMBtu/d for December 2001 at an average price of $3.62 per MMBtu, and
notional volumes of 100,000 MMBtu/d for the period January 2002 to
December 2002 at an average price of $3.46 per MMBtu. At September 30,
2001, the fair value of these natural gas price swaps was $36.0 million.
As of September 30, 2001, $63.2 million of the derivatives has been
recorded on the balance sheet in Current Assets - Assets from Price
Risk Management Activities. The remaining $4.4 million has been
recorded as a long-term asset on the balance sheet in Other Assets.
3. The following table sets forth the computation of basic and diluted
earnings from net income available to common (in thousands, except per
share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ----------------------
2001 2000 2001 2000
-------- --------- --------- ----------
Numerator for basic and diluted earnings per share -
Net income available to common $ 69,204 $ 113,722 $ 415,176 $ 227,215
======= ======== ======== ========
Denominator for basic earnings per share -
Weighted average shares 115,692 116,559 115,982 117,018
Potential dilutive common shares -
Stock options 1,385 2,570 1,911 1,797
Restricted stock and units 64 133 266 117
------- ------- ------- --------
Denominator for diluted earnings per share -
Adjusted weighted average shares 117,141 119,262 118,159 118,932
======= ======== ======== ========
Net income per share of common stock
Basic $ 0.60 $ 0.98 $ 3.58 $ 1.94
======= ======== ======== ========
Diluted $ 0.59 $ 0.95 $ 3.51 $ 1.91
======= ======== ======== ========
--------------------------------------------------------------------------------------------------------
4. The following table presents the components of EOG's comprehensive
income for the three-month and nine-month periods ended September 30,
2001 and 2000 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Income $ 71,963 $ 116,477 $ 423,413 $ 235,484
Other Comprehensive Income
Unrealized Gain (Loss) on Available-for-sale
Security, net of tax (517) 115 (1,062) 115
Foreign Currency Translation Adjustments (13,943) (5,259) (18,801) (12,790)
------- -------- -------- --------
Comprehensive Income $ 57,503 $ 111,333 $ 403,550 $ 222,809
======= ======== ======== ========
--------------------------------------------------------------------------------------------------------
8
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Concluded)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Selected financial information about operating segments is reported
below for the three-month and nine-month periods ended September 30,
2001 and 2000 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2001 2000 2001 2000
--------- ---------- ---------- ---------
NET OPERATING REVENUES
United States $ 304,188 $ 334,125 $1,206,388 $ 803,365
Canada 32,897 46,443 158,606 120,049
Trinidad 17,071 21,566 52,413 61,324
Other 16 17 66 36
-------- -------- --------- --------
TOTAL $ 354,172 $ 402,151 $1,417,473 $ 984,774
======== ======== ========= ========
OPERATING INCOME (LOSS)
United States $ 101,409 $ 163,622 $ 593,073 $ 334,293
Canada 12,966 27,979 99,088 61,420
Trinidad 9,865 12,749 26,354 30,181
Other (293) (692) (6,305) (2,791)
-------- -------- --------- --------
TOTAL 123,947 203,658 712,210 423,103
RECONCILING ITEMS
Other Income, Net 1,272 35 1,883 815
Interest Expense, Net 10,242 14,750 34,155 44,899
-------- -------- --------- --------
INCOME BEFORE INCOME TAXES $ 114,977 $ 188,943 $ 679,938 $ 379,019
======== ======== ========= ========
------------------------------------------------------------------------------------
6. As reported in EOG's 2000 Annual Report to Shareholders, two
stockholders of EOG filed separate lawsuits purportedly on behalf of EOG
against Enron Corp. and directors of EOG, alleging that Enron Corp. and
directors of EOG breached their fiduciary duties of good faith and
loyalty in approving the Share Exchange described in EOG's Quarterly
Report on Form 10-Q for the third quarter of 1999. The lawsuits have
been consolidated and seek to temporarily and permanently enjoin the
Share Exchange transaction and seek to rescind the transaction or to
receive monetary damages and costs and expenses, including reasonable
attorneys' and experts' fees. EOG, Enron Corp. and directors of EOG
believe the lawsuits are without merit and intend to vigorously contest
them.
There are various other suits and claims against EOG that have arisen
in the ordinary course of business. However, management does not
believe these suits and claims will individually or in the aggregate
have a material adverse effect on the financial condition or results
of operations of EOG. EOG has been named as a potentially
responsible party in certain Comprehensive Environmental Response
Compensation and Liability Act proceedings. However, management does
not believe that any potential assessments resulting from such
proceedings will individually or in the aggregate have a material
adverse effect on the financial condition or results of operations of
EOG.
7. During the first nine months of 2001, EOG repurchased 2.6 million
shares of common stock, primarily to reduce the number of shares of
stock outstanding and to limit the dilution resulting from shares issued
or anticipated to be issued under EOG's employee stock plans. To
supplement its share repurchase program, EOG entered into a series of
equity derivative transactions in the second quarter. During the second
quarter of 2001, EOG sold put options obligating EOG to purchase up to
0.6 million shares of its common stock, with such options expiring in
December 2001 at an average price of $33.42. These transactions are
accounted for as equity transactions with premiums received recorded to
Additional Paid In Capital in the Consolidated Balance Sheets.
Settlement alternatives under all circumstances are at the option of EOG
and include physical share, net share and net cash settlement. EOG will
assess the status of its share repurchase program at the time these
options expire and will determine at that time whether to settle these
options in shares or in cash.
9
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOG RESOURCES, INC.
The following review of operations for the three-month periods ended
September 30, 2001 and 2000 should be read in conjunction with the
consolidated financial statements of EOG Resources, Inc. and
subsidiaries ("EOG") and Notes thereto.
Results of Operations
---------------------
Three Months Ended September 30, 2001 vs. Three Months Ended September 30,
2000
EOG generated third quarter net income available to common of $69
million compared to $114 million for the third quarter of 2000. Net
operating revenues were $354 million compared to $402 million for the
third quarter of 2000. Following is an explanation of the variances
causing this decrease.
Wellhead volume and price statistics are summarized below:
----------------------------------------------------------------------
2001 2000
----------------------------------------------------------------------
Natural Gas Volumes (MMcf per day)(1)
United States 681 652
Canada 124 125
----- -----
North America 805 777
Trinidad 116 132
----- -----
TOTAL 921 909
===== =====
Average Natural Gas Prices ($/Mcf)(2)
United States $ 2.91 $ 4.22
Canada 2.48 3.44
North America Composite 2.84 4.09
Trinidad 1.21 1.17
COMPOSITE 2.64 3.67
Crude Oil/Condensate Volumes (MBbl per day)(1)
United States 21.9 23.8
Canada 1.8 2.1
----- -----
North America 23.7 25.9
Trinidad 1.9 2.5
----- -----
TOTAL 25.6 28.4
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)(2)
United States $25.60 $31.48
Canada 23.97 28.83
North America Composite 25.48 31.27
Trinidad 23.12 31.87
COMPOSITE 25.30 31.32
Natural Gas Liquids Volumes (MBbl per day)(1)
United States 3.6 4.2
Canada 0.6 0.7
----- -----
TOTAL 4.2 4.9
===== =====
Average Natural Gas Liquids Prices ($/Bbl) (2)
United States $15.46 $20.12
Canada 12.10 18.16
COMPOSITE 14.99 19.84
Natural Gas Equivalent Volumes (MMcfe per day)(3)
United States 834 820
Canada 138 142
----- -----
North America 972 962
Trinidad 128 147
----- -----
TOTAL 1,100 1,109
===== =====
Total Bcfe(3)Deliveries 101 102
------------------------------------------------------------------------
(1) Million cubic feet per day or thousand barrels per day, as
applicable.
(2) Dollars per thousand cubic feet or per barrel, as applicable.
(3) Million cubic feet equivalent per day or billion cubic feet
equivalent, as applicable.
10
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Wellhead revenues decreased 27% to $289 million in the third quarter
of 2001 compared to $398 million in the third quarter of 2000,
primarily due to lower average North America wellhead natural gas
prices and lower crude oil and condensate prices worldwide.
Average wellhead natural gas prices were down by 28%, decreasing net
operating revenues by $87 million. Average wellhead crude oil and
condensate prices were 19% lower than the comparable period in 2000,
decreasing net operating revenues by $14 million. Third quarter 2001
North America wellhead natural gas deliveries were approximately 4%
higher than the comparable period in 2000. The increase in volumes was
primarily due to increased production in the Midland, Offshore,
Pittsburgh and Tyler divisions, partially offset by decreased
production in the Corpus Christi division. Combined with reduced
production in Trinidad, due to takes above the take or pay contracted
volume by the Trinidadian government in the third quarter of 2000, the
overall natural gas production was 1% higher than the comparable period
in 2000, increasing net operating revenues by $4 million. Wellhead
crude oil and condensate deliveries were 10% lower than the prior year
period, decreasing net operating revenues by $8 million. The decrease
was primarily due to decreased crude oil production in the Midland,
Canada and International divisions. Revenues from natural gas liquids
decreased by $3 million primarily due to a decrease in prices of 24%
and a decrease in deliveries of 14%.
During the third quarter of 2001, EOG recognized mark-to-market gains
on commodity contracts of $58.8 million, of which $27.3 million were
realized gains.
Operating expenses of $230 million for the third quarter of 2001 were
approximately $32 million higher than the third quarter of 2000. Taxes
other than income were $6 million lower due to decreased wellhead
revenues. Depreciation, depletion and amortization ("DD&A") increased
$12 million primarily due to increased production volumes and increased
per unit DD&A rates in North America. Lease and well expenses were $8
million higher than the comparable period in 2000 primarily due to an
industry-wide increase in costs and increased North America production
activities. Exploration expenses of $12 million decreased $2 million
primarily due to decreased geological and geophysical expenses. Dry
hole expenses of $11 million were $5 million higher than the comparable
period in 2000. Impairments increased $11 million to $21 million in
the third quarter of 2001 due primarily to increased reduction of
carrying values of certain long-lived assets as a result of future cash
flow analysis.
The per unit operating costs of EOG for lease and well, DD&A, general
and administrative ("G&A") expenses, interest expense, and taxes other
than income averaged $1.95 per Mcfe during the third quarter of 2001
compared to $1.79 per Mcfe during the third quarter of 2000. The
increase was primarily due to a higher per unit rate of DD&A, lease and
well, and G&A expense partially offset by a lower per unit rate of
taxes other than income and interest expense.
Income tax provision for the third quarter of 2001 was $43 million
(effective tax rate of 37%) compared to $72 million (effective tax rate
of 38%) for the comparable period of 2000. The reduction was primarily
due to lower pre-tax income.
11
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Results of Operations
---------------------
Nine Months Ended September 30, 2001 vs. Nine Months Ended September 30,
2000
In the first nine months of 2001, EOG generated net income available
to common of $415 million compared to $227 million for the comparable
period of 2000. Net operating revenues for the first nine months of
2001 were $1,417 million as compared to $985 million for the comparable
period of 2000.
Wellhead volume and price statistics are summarized below:
-----------------------------------------------------------------------
2001 2000
-----------------------------------------------------------------------
Natural Gas Volumes (MMcf per day)
United States 696 647
Canada 121 130
----- -----
North America 817 777
Trinidad 114 124
----- -----
TOTAL 931 901
===== =====
Average Natural Gas Prices ($/Mcf)
United States $ 4.83 $ 3.40
Canada 4.35 2.83
North America Composite 4.76 3.30
Trinidad 1.21 1.17
COMPOSITE 4.33 3.01
Crude Oil/Condensate Volumes (MBbl per day)
United States 22.8 22.5
Canada 1.7 2.2
----- -----
North America 24.5 24.7
Trinidad 2.0 2.6
----- -----
TOTAL 26.5 27.3
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)
United States $26.84 $29.41
Canada 24.73 27.07
North America Composite 26.69 29.20
Trinidad 26.94 29.36
COMPOSITE 26.71 29.21
Natural Gas Liquids Volumes (MBbl per day)
United States 3.5 4.3
Canada 0.5 0.7
----- -----
TOTAL 4.0 5.0
===== =====
Average Natural Gas Liquids Prices ($/Bbl)
United States $18.69 $19.80
Canada 17.23 15.61
COMPOSITE 18.50 19.18
Natural Gas Equivalent Volumes (MMcfe per day)
United States 854 807
Canada 135 148
----- -----
North America 989 955
Trinidad 125 140
----- -----
TOTAL 1,114 1,095
===== =====
Total Bcfe Deliveries 304 300
------------------------------------------------------------------------
12
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Wellhead revenues increased approximately 33% to $1,314 million in
the first nine months of 2001 compared to $988 million in the first
nine months of 2000.
Average wellhead natural gas prices for the first nine months of
2001 were approximately 44% higher than the comparable period of
2000 increasing net operating revenues by approximately $336
million. Average wellhead crude oil and condensate prices were down
by 9%, decreasing net operating revenues by $18 million. During the
first nine months of 2001 wellhead natural gas deliveries were 3%
higher than the comparable period in 2000, increasing net operating
revenues by $22 million. The increase in volumes was primarily due
to increased production in the Midland, Offshore and Tyler divisions
and higher than normal prior period adjustments, partially offset by
reduced production from the Canada and International divisions.
Wellhead crude oil and condensate deliveries were 3% lower than the
prior year period, decreasing net operating revenues by $7 million.
The decrease was primarily due to decreased crude oil and condensate
production in certain U.S. divisions along with the Canada and
International divisions. Revenues from natural gas liquids
decreased by $6 million primarily due to a decrease in deliveries of
20% and a decrease in prices of 4%.
During the first nine months of 2001, EOG recognized mark-to-
market gains on commodity contracts of $95.0 million, of which $27.8
million were realized gains.
Operating expenses of $705 million for the first nine months of
2001 were approximately $144 million higher than the comparable
period in 2000. Taxes other than income were $18 million higher
primarily due to increased wellhead revenues in the U.S. Lease and
well expenses were $28 million higher than the prior year period
primarily due to an industry-wide increase in costs and increased
North America production activities to maximize the volumes
delivered at higher product prices. Exploration expenses and dry
hole expenses were respectively $9 million and $25 million higher
than the comparable period a year ago due primarily to increased
North America and International exploratory activities. DD&A
increased $31 million compared to the prior year period primarily
due to increased production volumes in North America and increased
per unit DD&A rates in certain North America locations. Impairments
increased $24 million to $53 million due primarily to increased
amortization of unproved leases and the reduction of carrying values
of certain long-lived assets as a result of future cash flow
analysis.
The per unit operating costs of EOG for lease and well, DD&A, G&A,
interest expense and taxes other than income averaged $1.96 per Mcfe
during the first nine months of 2001 compared to $1.74 per Mcfe in
2000. This increase was primarily due to a higher per unit rate of
DD&A, taxes other than income, lease and well, and G&A expense,
partially offset by a lower per unit rate of interest expense.
13
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Capital Resources and Liquidity
-------------------------------
EOG's primary sources of cash during the nine months ended
September 30, 2001 included funds generated from operations,
proceeds from sales of reserves and related assets and proceeds from
sales of treasury stock. Primary cash outflows included funds used
in operations, exploration and development expenditures, repayments
of debt, dividends and common stock repurchases.
Net operating cash flows of $1,053 million for the first nine
months of 2001 increased approximately $441 million as compared to
the first nine months of 2000 primarily reflecting higher operating
revenues, partially offset by higher cash operating expenses.
Net investing cash outflows of approximately $804 million for the
first nine months of 2001 increased by $355 million versus the
comparable prior year period due primarily to higher exploration and
development expenditures and lower proceeds from sales of reserves
and related assets. Changes in Components of Working Capital
Associated with Investing Activities included changes in accounts
payable associated with the accrual of exploration and development
expenditures and changes in inventories which represent materials
and equipment used in drilling and related activities.
Exploration and development expenditures for the first nine months
of 2001 and 2000 are as follows (in millions):
2001 2000
---------------------------- ----------------------------
Drilling Acquisition Total Drilling Acquisition Total
-------- ----------- ----- -------- ----------- -----
United States $ 558 $ 96 $ 654 $ 317 $ 84 $ 401
Canada 71 72 143 44 1 45
---- ---- ---- ---- ---- ----
North America 629 168 797 361 85 446
Trinidad 39 - 39 22 - 22
Other 8 - 8 3 - 3
---- ---- ---- ---- ---- ----
TOTAL $ 676 $ 168 $ 844 $ 386 $ 85 $ 471
==== ==== ==== ==== ==== ====
Exploration and development expenditures of $844 million for the
first nine months of 2001 were $373 million higher than the prior
year period due primarily to increased acquisition and development
and exploratory activities.
The level of exploration and development expenditures will vary in
future periods depending on energy market conditions and other
related economic factors. EOG has significant flexibility with
respect to financing alternatives and the ability to adjust its
exploration and development expenditure budget as circumstances
warrant. There are no material continuing commitments associated
with expenditure plans.
Cash used by financing activities was $258 million for the first
nine months of 2001 versus $172 million for the comparable prior
year period. Financing activities for 2001 included repayment of
debt of $158 million, repurchases of EOG's common stock of $103
million, proceeds from sales of treasury stock of $21 million and
cash dividend payments of $21 million.
On February 13, 2001, EOG announced a 14% increase in the annual
dividend rate from $.14 per share to $.16 per share beginning with
dividends payable after April 19, 2001.
During the first nine months of 2001, EOG repurchased 2.6 million
shares of common stock, primarily to reduce the number of shares of
stock outstanding and to limit the dilution resulting from shares
issued or anticipated to be issued under EOG's employee stock plans.
To supplement its share repurchase program, EOG entered into a
series of equity derivative transactions in the second quarter.
During the second quarter of 2001, EOG sold put options obligating
EOG to purchase up to 0.6 million shares of its common stock, with
such options expiring in December 2001 at an average price of
$33.42. These transactions are accounted for as equity transactions
with premiums received recorded to Additional Paid In Capital in the
Consolidated Balance Sheets. Settlement alternatives under all
circumstances are at the option of EOG and include physical share,
net share and net cash settlement. EOG will assess the status of
its share repurchase program at the time these options expire and
will determine at that time whether to settle these options in
shares or in cash.
14
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
EOG RESOURCES, INC.
Based upon existing economic and market conditions, management
believes net operating cash flow and available financing
alternatives will be sufficient to fund net investing and other cash
requirements of EOG for the foreseeable future.
During the first nine months of 2001, EOG engaged in certain price
risk management activities and elected not to designate any of these
activities as accounting hedges under SFAS 133. Accordingly, EOG
accounted for them using the mark-to-market accounting method.
Following is a summary of EOG's open futures positions at September
30, 2001:
o Crude Oil and Condensate Price Swaps - EOG had outstanding
price swaps covering notional volumes of approximately 0.9 million
barrels of crude oil and condensate for the period October 2001 to
May 2002 at an average price of $27.11 per barrel. At September 30,
2001, the fair value of these oil price swaps was $3.1 million.
o Natural Gas Price Collars - EOG had outstanding price collars
that set a floor price of $4.40 per MMBtu and ceiling prices that
average $6.15 per MMBtu covering notional volumes of 200,000 million
British thermal units of natural gas per day ("MMBtu/d") for October
2001 and November 2001 at an average premium of $0.15 per MMBtu. At
September 30, 2001, the fair value of these natural gas price
collars was $28.5 million.
o Natural Gas Price Swaps - EOG had outstanding price swaps
covering notional volumes of 115,000 MMBtu/d for October 2001 and
November 2001 at an average price of $3.40 per MMBtu, notional
volumes of 200,000 MMBtu/d for December 2001 at an average price of
$3.62 per MMBtu, and notional volumes of 100,000 MMBtu/d for the
period January 2002 to December 2002 at an average price of $3.46
per MMBtu. At September 30, 2001, the fair value of these natural
gas price swaps was $36.0 million.
As of September 30, 2001, $63.2 million of the derivatives has been
recorded on the balance sheet in Current Assets - Assets from Price
Risk Management Activties. The remaining $4.4 million has been
recorded as a long-term asset on the balance sheet in Other Assets.
Information Regarding Forward-Looking Statements
------------------------------------------------
This Quarterly Report on Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements other than statements of historical facts, including,
among others, statements regarding EOG's future financial position,
business strategy, budgets, reserve information, projected levels of
production, projected costs and plans and objectives of management
for future operations, are forward-looking statements. EOG
typically uses words such as "expect," "anticipate," "estimate,"
"strategy," "intend," "plan," "target" and "believe" or the negative
of those terms or other variations of them or by comparable
terminology to identify its forward-looking statements. In
particular, statements, express or implied, concerning future
operating results, the ability to increase reserves or production,
or the ability to generate income or cash flows are forward-looking
statements. Forward-looking statements are not guarantees of
performance. Although EOG believes its expectations reflected in
forward-looking statements are based on reasonable assumptions, no
assurance can be given that these expectations will be achieved.
Important factors that could cause actual results to differ
materially from the expectations reflected in the forward-looking
statements include, among others: the timing and extent of changes
in commodity prices for crude oil, natural gas and related products
and interest rates; the extent and effect of any hedging activities
engaged in by EOG; the extent of EOG's success in discovering,
developing, marketing and producing reserves and in acquiring oil
and gas properties; the accuracy of reserve estimates, which by
their nature involve the exercise of professional judgement and may
therefore be imprecise; political developments around the world,
including terrorist activities and responses to terrorist activities
and financial market conditions. In light of these risks,
uncertainties and assumptions, the events anticipated by EOG's
forward-looking statements might not occur. EOG undertakes no
obligations to update or revise its forward-looking statements,
whether as a result of new information, future events or otherwise.
15
PART II. OTHER INFORMATION
EOG RESOURCES, INC.
ITEM 1. Legal Proceedings
See Part 1, Item 1, Note 6 to Consolidated Financial
Statements, which is incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 - Computation of Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Dividends
(b) Reports on Form 8-K
Current Report on Form 8-K filed on July 31, 2001, to
provide estimate for the third and fourth quarters and full
year 2001 in Item 9 - Regulation FD Disclosure.
Current Report on Form 8-K filed on August 27, 2001, to
report certain natural gas price swap, collar, and physical
contracts in Item 5 - Other Events.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
EOG RESOURCES, INC.
(Registrant)
Date: October 29, 2001 By /S/ T. K. DRIGGERS
----------------------------
T. K. Driggers
Vice President, Accounting
and Land Administration
(Principal Accounting Officer)
17
Exhibit 12
EOG RESOURCES, INC.
Computation of Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Dividends
(In Thousands)
(Unaudited)
Year Ended December 31
Nine Months Ended ------------------------------------------------------
September 30, 2001 2000 1999 1998 1997 1996
-------------------------------------------------------------------------
EARNINGS AVAILABLE FOR
FIXED CHARGES:
Net Income $423,413 $396,931 $569,094 $ 56,171 $121,970 $140,008
Less: Capitalized Interest Expense (6,390) (6,708) (10,594) (12,711) (13,706) (9,136)
Add: Fixed Charges 45,589 72,833 77,837 66,982 47,108 27,114
Income Tax Provision (Benefit) 256,525 236,626 (1,382) 4,111 41,500 50,954
------- ------- ------- ------- ------- -------
EARNINGS AVAILABLE $719,137 $699,682 $634,955 $114,553 $196,872 $208,940
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest Expense $ 34,155 $ 61,006 $ 61,819 $ 48,463 $ 27,369 $ 12,370
Capitalized Interest 6,390 6,708 10,594 12,711 13,706 9,136
Rental Expense Representative of Interest Factor 5,044 5,119 5,424 5,808 6,033 5,608
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES 45,589 72,833 77,837 66,982 47,108 27,114
Preferred Dividends on a Pre-tax Basis 13,227 17,602 660 - - -
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES AND
PREFERRED DIVIDENDS $58,816 $ 90,435 $ 78,497 $ 66,982 $ 47,108 $ 27,114
====== ======= ======= ======= ======= =======
RATIO OF EARNINGS TO
FIXED CHARGES 15.77 9.61 8.16 1.71 4.18 7.71
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED DIVIDENDS 12.23 7.74 8.09 1.71 4.18 7.71