Risk Management Activities

6 Months Ended

Jun. 30, 2012

Risk Management Activities [Abstract]

Risk Management Activities [Text Block]

12.  Risk Management Activities

Commodity Price Risk.  As more fully discussed in Note 11 to the Consolidated Financial Statements included in EOG's 2011 Annual Report, EOG engages in price risk management activities from time to time.  These activities are intended to manage EOG's exposure to fluctuations in commodity prices for crude oil and natural gas.  EOG utilizes financial commodity derivative instruments, primarily price swap, collar, option and basis swap contracts, as a means to manage this price risk.  In addition to financial transactions, from time to time EOG is a party to various physical commodity contracts for the sale of hydrocarbons that cover varying periods of time and have varying pricing provisions.  These physical commodity contracts qualify for the normal purchases and normal sales exception and, therefore, are not subject to hedge accounting or mark-to-market accounting.  The financial impact of physical commodity contracts is included in revenues at the time of settlement, which in turn affects average realized hydrocarbon prices.

Commodity Derivative Contracts.  Presented below is a comprehensive summary of EOG's crude oil derivative contracts at June 30, 2012, with notional volumes expressed in barrels per day (Bbld) and prices expressed in dollars per barrel ($/Bbl).

Crude Oil Derivative Contracts
			Weighted
	Volume		Average Price
	(Bbld)		($/Bbl)
2012(1)
January 1, 2012 through February 29, 2012 (closed)		34,000	$	104.95
March 1, 2012 through June 30, 2012 (closed)		52,000		105.80
July 1, 2012 through August 31, 2012		50,000		106.90
September 1, 2012 through December 31, 2012		32,000		106.61

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(1) EOG has entered into crude oil derivative contracts which give counterparties the option to extend certain current derivative contracts for an additional six-month period.  Options covering a notional volume of 18,000 Bbld are exercisable on August 31, 2012.  If the counterparties exercise all such options, the notional volume of EOG's existing crude oil derivative contracts will increase by 18,000 Bbld at an average price of $107.42 per barrel for the period September 1, 2012 through February 28, 2013.  Options covering a notional volume of 15,000 Bbld are exercisable on December 31, 2012.  If the counterparties exercise all such options, the notional volume of EOG's existing crude oil derivative contracts will increase by 15,000 Bbld at an average price of $110.03 per barrel for the period from January 1, 2013 through June 30, 2013.

EOG RESOURCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)(Unaudited)

Presented below is a comprehensive summary of EOG's natural gas derivative contracts at June 30, 2012, with notional volumes expressed in million British thermal units (MMBtu) per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu).

Natural Gas Derivative Contracts
	Volume (MMBtud)		Weighted Average Price ($/MMBtu)
2012(1)
January 2012 through July 31, 2012 (closed)		525,000	$	5.44
August 1, 2012 through December 31, 2012		525,000	$	5.44
2013(2)
January 1, 2013 through December 31, 2013		150,000	$	4.79
2014(2)
January 1, 2014 through December 31, 2014		150,000	$	4.79

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(1) EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas derivative contracts will increase by 425,000 MMBtud at an average price of $5.44 per MMBtu for the period from August 1, 2012 through December 31, 2012.

(2) EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas derivative contracts will increase by 150,000 MMBtud at an average price of $4.79 per MMBtu for each month of 2013 and 2014.

Subsequent to June 30, 2012, EOG settled its natural gas financial price swap contracts for the period January 1, 2014 through December 31, 2014 and received proceeds of $36.6 million.  Options associated with the settled 2014 price swap contracts remain in place.  An updated summary of EOG's natural gas financial price swap contracts as of August 2, 2012 is presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Commodity Derivative Transactions."

Foreign Currency Exchange Rate Derivative.  EOG is party to a foreign currency aggregate swap with multiple banks to eliminate any exchange rate impacts that may result from the $150 million principal amount of notes issued by one of EOG's Canadian subsidiaries.  EOG accounts for the foreign currency swap using the hedge accounting method.  Changes in the fair value of the foreign currency swap do not impact Net Income.  The after-tax net impact from the foreign currency swap resulted in a reduction in Other Comprehensive Income (OCI) of $1 million for both the three months ended June 30, 2012 and 2011, respectively, and an increase of $1 million and a reduction of $0.1 million for the six months ended June 30, 2012 and 2011, respectively.

Interest Rate Derivative.  EOG is a party to an interest rate swap with a counterparty bank.  The interest rate swap was entered into in order to mitigate EOG's exposure to volatility in interest rates related to EOG's $350 million principal amount of Floating Rate Senior Notes due 2014.  The interest rate swap has a notional amount of $350 million.  EOG accounts for the interest rate swap using the hedge accounting method.  Changes in the fair value of the interest rate swap do not impact Net Income.  The after-tax net impact from the interest rate swap resulted in an increase in OCI of $0.1 million and a reduction of $4 million for the three months ended June 30, 2012 and 2011, respectively, and a reduction of $0.2 million and $3 million for the six months ended June 30, 2012 and 2011, respectively.

EOG RESOURCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)(Unaudited)

The following table sets forth the amounts, on a gross basis, and classification of EOG's outstanding financial derivative instruments at June 30, 2012 and December 31, 2011.  Certain amounts may be presented on a net basis in the consolidated financial statements when such amounts are with the same counterparty and subject to a master netting arrangement (in millions):

		Fair Value at
		June 30,		December 31,
Description	Location on Balance Sheet	2012		2011
Asset Derivatives
Crude oil and natural gas derivative     contracts -
Current portion	Assets from Price Risk     Management Activities	$	410	$	451
Noncurrent portion	Other Assets	$	54	$	35
Liability Derivatives
Foreign currency swap - Noncurrent      portion	Other Liabilities	$	51	$	52
Interest rate swap - Noncurrent portion	Other Liabilities	$	4	$	3

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Credit Risk.  Notional contract amounts are used to express the magnitude of commodity price, foreign currency and interest rate swap agreements.  The amounts potentially subject to credit risk, in the event of nonperformance by the counterparties, are equal to the fair value of such contracts (see Note 11).  EOG evaluates its exposure to significant counterparties on an ongoing basis, including those arising from physical and financial transactions.  In some instances, EOG requires collateral, parent guarantees or letters of credit to minimize credit risk.

All of EOG's outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements (ISDAs) with counterparties.  The ISDAs may contain provisions that require EOG, if it is the party in a net liability position, to post collateral when the amount of the net liability exceeds the threshold level specified for EOG's then-current credit ratings.  In addition, the ISDAs may also provide that as a result of certain circumstances, including certain events that cause EOG's credit rating to become materially weaker than its then-current ratings, the counterparty may require all outstanding derivatives under the ISDAs to be settled immediately.  See Note 11 for the aggregate fair value of all derivative instruments that are in a net liability position at June 30, 2012 and December 31, 2011.  EOG had no collateral posted at either June 30, 2012 or December 31, 2011 and held collateral of $100 million and $67 million at June 30, 2012 and December 31, 2011, respectively.