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 June 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 (I.R.S.
jurisdiction Employer
of incorporation or Identification No.)
organization)
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 July 19, 2001.
Title of each class Number of shares
------------------- ----------------
Common Stock, $.01 par value 116,141,271
2
EOG RESOURCES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION No.
----
ITEM 1. Financial Statements
Consolidated Statements of Income - Three Months Ended June 30, 2001
and 2000 and Six Months Ended June 30, 2001 and 2000................ 3
Consolidated Balance Sheets - June 30, 2001 and December 31, 2000..... 4
Consolidated Statements of Cash Flows - Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders............ 15
ITEM 5. Other Information.............................................. 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 Six Months Ended
June 30, June 30,
- -----------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
NET OPERATING REVENUES
Natural Gas $357,536 $244,403 $ 879,013 $430,603
Crude Oil, Condensate and Natural Gas Liquids 73,143 77,340 148,337 150,407
Mark-to-market Gains on Commodity Contracts 36,849 - 36,283 -
Gains (Losses) on Sales of Reserves and Related Assets and Other, Net (1,480) 984 (332) 1,613
------- ------- --------- -------
TOTAL 466,048 322,727 1,063,301 582,623
OPERATING EXPENSES
Lease and Well 43,248 32,223 85,822 65,962
Exploration Costs 17,746 13,204 38,011 26,149
Dry Hole Costs 12,971 3,290 28,655 9,051
Impairments 16,267 10,123 32,031 18,525
Depreciation, Depletion and Amortization 97,470 87,951 191,431 172,088
General and Administrative 18,735 16,027 36,684 32,314
Taxes Other Than Income 25,372 20,674 62,404 39,089
------- ------- --------- -------
TOTAL 231,809 183,492 475,038 363,178
------- ------- --------- -------
OPERATING INCOME 234,239 139,235 588,263 219,445
OTHER INCOME, NET 1,250 763 611 780
------- ------- --------- -------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 235,489 139,998 588,874 220,225
INTEREST EXPENSE, NET 10,624 15,581 23,913 30,149
------- ------- --------- -------
INCOME BEFORE INCOME TAXES 224,865 124,417 564,961 190,076
INCOME TAX PROVISION 88,662 46,900 213,511 71,069
------- ------- --------- -------
NET INCOME 136,203 77,517 351,450 119,007
PREFERRED STOCK DIVIDENDS (2,757) (2,860) (5,478) (5,514)
------- ------- --------- -------
NET INCOME AVAILABLE TO COMMON $133,446 $ 74,657 $ 345,972 $113,493
======= ======= ========= =======
NET INCOME PER SHARE OF COMMON STOCK
Basic $ 1.15 $ 0.64 $ 2.98 $ 0.97
======= ======= ========= =======
Diluted $ 1.13 $ 0.63 $ 2.92 $ 0.96
======= ======= ========= =======
AVERAGE NUMBER OF COMMON SHARES
Basic 115,870 116,666 116,127 117,247
======= ======= ========= =======
Diluted 118,047 119,177 118,551 118,757
======= ======= ========= =======
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)
June 30, December 31,
2001 2000
- ---------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
<s> <c> <c>
CURRENT ASSETS
Cash and Cash Equivalents $ 68,294 $ 20,152
Accounts Receivable 244,202 342,579
Inventories 20,424 16,623
Assets from Price Risk Management Activities 38,036 438
Other 13,621 15,073
---------- ----------
TOTAL 384,577 394,865
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 5,529,871 5,122,728
Less: Accumulated Depreciation, Depletion and Amortization (2,785,341) (2,597,721)
---------- ----------
Net Oil and Gas Properties 2,744,530 2,525,007
OTHER ASSETS 81,614 81,381
---------- ----------
TOTAL ASSETS $ 3,210,721 $ 3,001,253
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 227,040 $ 246,468
Accrued Taxes Payable 134,124 78,838
Dividends Payable 5,069 4,525
Other 29,685 40,285
---------- ----------
TOTAL 395,918 370,116
LONG-TERM DEBT 640,822 859,000
OTHER LIABILITIES 59,956 51,133
DEFERRED INCOME TAXES 455,439 340,079
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 Shares Authorized:
Series B, 100,000 Shares Issued, Cumulative,
$100,000,000 Liquidation Preference 97,998 97,879
Series D, 500 Shares Issued, Cumulative,
$50,000,000 Liquidation Preference 49,375 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 10,563 4,221
Unearned Compensation (15,078) (3,756)
Accumulated Other Comprehensive Income (37,159) (31,756)
Retained Earnings 1,637,758 1,301,067
Common Stock Held in Treasury, 8,663,165 shares at
June 30, 2001 and 7,825,708 shares at December 31, 2000 (286,118) (237,262)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,658,586 1,380,925
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,210,721 $ 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)
Six Months Ended
June 30,
- ------------------------------------------------------------------------------------------------------
2001 2000
- ------------------------------------------------------------------------------------------------------
<s> <c> <c>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 351,450 $ 119,007
Items Not Requiring Cash
Depreciation, Depletion and Amortization 191,431 172,088
Impairments 32,031 18,525
Deferred Income Taxes 87,807 40,714
Other, Net 7,128 2,459
Exploration Costs 38,011 26,149
Dry Hole Costs 28,655 9,051
Net Assets from Price Risk Management Activities (35,805) -
Losses on Sales of Reserves and Related Assets 1,128 1,650
Tax Benefits from Stock Options Exercised 8,039 11,593
Other, Net (1,232) (5,336)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable 100,205 (77,406)
Inventories (3,801) 1,452
Accounts Payable (24,530) 5,624
Accrued Taxes Payable 55,579 (2,901)
Other Liabilities 4,144 5,570
Other, Net (10,651) (6,279)
Changes in Components of Working Capital Associated with Investing and
Financing Activities (8,797) 5,633
-------- --------
NET OPERATING CASH INFLOWS 820,792 327,593
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (419,926) (175,416)
Exploration Costs (38,011) (26,149)
Dry Hole Costs (28,655) (9,051)
Proceeds from Sales of Reserves and Related Assets 5,317 21,961
Changes in Components of Working Capital Associated with Investing Activities 6,860 (6,180)
Other, Net (4,912) (15,866)
-------- --------
NET INVESTING CASH OUTFLOWS (479,327) (210,701)
FINANCING CASH FLOWS
Long-Term Debt (218,178) (40,756)
Dividends Paid (14,006) (12,517)
Treasury Stock Purchased (80,125) (134,348)
Proceeds from Sales of Treasury Stock 16,055 56,801
Other, Net 2,931 807
-------- --------
NET FINANCING CASH OUTFLOWS (293,323) (130,013)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 48,142 (13,121)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20,152 24,836
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 68,294 $ 11,715
======== ========
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 $2.2 million and $2.6
million for the three-month and six-month periods ended June 30,
2000, respectively.
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
six 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 six-month periods ended June 30, 2001, mark-
to-market gains on commodity contracts were respectively $36.8
million and $36.3 million, of which $0.8 million and $0.5 million
were realized gains for the respective periods.
Following is a summary of EOG's derivative activities:
- At June 30, 2001, EOG had outstanding swap contracts covering
notional volumes of approximately 1.6 million barrels of crude oil and
condensate for the period July 2001 to May 2002 at an average price of
$27.36 per barrel. EOG elected not to designate these crude oil swap
contracts as an accounting hedge of its crude oil production, and
accordingly, is accounting for these swap contracts under mark-to-market
accounting. At June 30, 2001, the fair value of these oil price swap
contracts was $2.1 million.
- During the period of April 30, 2001 to May 2, 2001, EOG entered
into 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 the
period July 2001 to November 2001 at an average premium of $0.15 per
MMBtu. EOG accounts for these collars under mark-to-market accounting.
At June 30, 2001, the fair value of these price collars was $35.8
million.
7
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- On June 29, 2001, EOG entered into price swap contracts covering
notional volumes of 115,000 MMBtu/d for the period August 2001 to
December 2001 at an average price of $3.38 per MMBtu and 50,000 MMBtu/d
for the period January 2002 to December 2002 at an average price of
$3.56 per MMBtu. EOG accounts for these swap contracts under mark-to-
market accounting. At June 30, 2001, the fair value of these price swap
contracts was negative $0.1 million.
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 Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Numerator for basic and diluted earnings per share -
Net income available to common $133,446 $ 74,657 $345,972 $113,493
======= ======= ======= =======
Denominator for basic earnings per share -
Weighted average shares 115,870 116,666 116,127 117,247
Potential dilutive common shares -
Stock options 1,996 2,397 2,175 1,413
Restricted stock and units 181 114 249 97
------- ------- ------- -------
Denominator for diluted earnings per share -
Adjusted weighted average shares 118,047 119,177 118,551 118,757
======= ======= ======= =======
Net income per share of common stock
Basic $ 1.15 $ 0.64 $ 2.98 $ 0.97
======= ======= ======= =======
Diluted $ 1.13 $ 0.63 $ 2.92 $ 0.96
======= ======= ======= =======
-------------------------------------------------------------------------------------------------------
4. The following table presents the components of EOG's comprehensive
income for the three-month and six-month periods ended June 30, 2001 and
2000 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Net Income $136,203 $ 77,517 $351,450 $119,007
Other Comprehensive Income
Unrealized Loss on Available-for-sale Security, net of tax (879) - (545) -
Foreign Currency Translation Adjustments 12,097 (5,432) (4,858) (7,531)
------- ------- ------- -------
Comprehensive Income $147,421 $ 72,085 $346,047 $111,476
======= ======= ======= =======
-------------------------------------------------------------------------------------------------------
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 six-month periods ended June 30, 2001 and
2000 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
NET OPERATING REVENUES
United States $ 398,211 $ 262,991 $ 902,200 $ 469,240
Canada 51,179 40,851 125,709 73,606
Trinidad 16,634 18,875 35,342 39,758
Other 24 10 50 19
--------- --------- --------- ---------
TOTAL $ 466,048 $ 322,727 $1,063,301 $ 582,623
========= ========= ========= =========
OPERATING INCOME (LOSS)
United States $ 190,817 $ 110,878 $ 491,664 $ 170,671
Canada 33,217 19,315 86,122 33,441
Trinidad 10,504 10,401 16,489 17,432
Other (299) (1,359) (6,012) (2,099)
--------- --------- --------- ---------
TOTAL 234,239 139,235 588,263 219,445
--------- --------- --------- ---------
RECONCILING ITEMS
Other Income, Net 1,250 763 611 780
Interest Expense, Net 10,624 15,581 23,913 30,149
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES $ 224,865 $ 124,417 $ 564,961 $ 190,076
========= ========= ========= =========
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 materially
adverse effect on the financial condition or results of operations of
EOG.
7. During the first half of 2001, EOG repurchased 1.8 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
June 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 June 30, 2001 vs. Three Months Ended June 30, 2000
EOG generated second quarter net income available to common of $133
million compared to $75 million for the second quarter of 2000. Net
operating revenues were $466 million compared to $323 million for the
second quarter of 2000. Following is an explanation of the variances
causing this increase.
Wellhead volume and price statistics are summarized below:
- -----------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------
Natural Gas Volumes (MMcf per day)(1)
United States 703 633
Canada 123 131
----- -----
North America 826 764
Trinidad 105 116
----- -----
TOTAL 931 880
===== =====
Average Natural Gas Prices ($/Mcf)(2)
United States $ 4.61 $ 3.44
Canada 4.14 2.89
North America Composite 4.54 3.35
Trinidad 1.22 1.17
COMPOSITE 4.16 3.06
Crude Oil/Condensate Volumes (MBbl per day)(1)
United States 23.5 22.8
Canada 1.7 2.3
----- -----
North America 25.2 25.1
Trinidad 1.9 2.5
----- -----
TOTAL 27.1 27.6
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)(2)
United States $26.82 $28.37
Canada 24.99 25.66
North America Composite 26.69 28.12
Trinidad 28.73 28.54
COMPOSITE 26.84 28.16
Natural Gas Liquids Volumes (MBbl per day)(1)
United States 3.8 4.3
Canada 0.5 0.8
----- -----
TOTAL 4.3 5.1
Average Natural Gas Liquids Prices ($/Bbl) (2)
United States $17.60 $18.64
Canada 17.71 15.24
COMPOSITE 17.61 18.13
Natural Gas Equivalent Volumes (MMcfe per day)(3)
United States 867 795
Canada 136 150
----- -----
North America 1,003 945
Trinidad 117 131
----- -----
TOTAL 1,120 1,076
===== =====
Total Bcfe(3) Deliveries 102 98
- -----------------------------------------------------------------------
(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 increased 31% to $426 million in the second quarter
of 2001 compared to $324 million in the second quarter of 2000,
primarily due to higher average wellhead natural gas prices worldwide
and higher U.S. wellhead natural gas deliveries.
Average wellhead natural gas prices were up by 36%, increasing net
operating revenues by $93 million. Average wellhead crude oil and
condensate prices were 5% lower than the comparable period in 2000,
decreasing net operating revenues by $3 million. Second quarter 2001
U.S. wellhead natural gas deliveries were approximately 11% higher than
the comparable period in 2000. The increase in volumes was primarily
due to increased production in the Midland, Offshore and Tyler
divisions and higher than normal prior period adjustments. Combined
with reduced production in Trinidad, due to takes above the take or pay
contracted volume by the Trinidadian government in the second quarter of
2000, and decreased production in the Canada division, the overall
natural gas production was 6% higher than the comparable period in 2000,
increasing net operating revenues by $14 million. Wellhead crude oil
and condensate deliveries were 2% lower than the prior year period,
decreasing net operating revenues by $1 million. The decrease was
primarily due to decreased crude oil production in the Canada and
International divisions. Natural gas liquids decreased net operating
revenues by $2 million primarily due to a decrease in prices of 3% and
a decrease in deliveries of 16%.
During the second quarter, EOG recognized mark-to-market gains on
commodity contracts of $36.8 million.
Operating expenses of $232 million for the second quarter of 2001
were approximately $48 million higher than the second quarter of 2000.
Taxes other than income were $5 million higher due to increased
wellhead revenues in the U.S. Depreciation, depletion and amortization
("DD&A") increased $10 million primarily due to increased production
volumes and increased per unit DD&A rates in certain North America
locations. Lease and well expenses were $11 million higher than the
comparable period in 2000 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 of
$18 million and dry hole expenses of $13 million increased $5 million
and $10 million, respectively, primarily due to increased North America
exploratory drilling activities. Impairments increased $6 million to
$16 million in the second quarter of 2001 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, general
and administrative ("G&A") expenses, interest expense, and taxes other
than income averaged $1.92 per Mcfe during the second quarter of 2001
compared to $1.76 per Mcfe during the second quarter of 2000. The
increase was primarily due to a higher per unit rate of DD&A, lease and
well, G&A expense and taxes other than income partially offset by a
lower per unit rate of interest expense.
Income tax provision for the second quarter of 2001 was $89 million
(effective tax rate of 39.4%) compared to $47 million (effective tax
rate of 37.8%) for the comparable period of 2000, primarily due to
higher 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
- ---------------------
Six Months Ended June 30, 2001 vs. Six Months Ended June 30, 2000
In the first half of 2001, EOG generated net income available to
common of $346 million compared to $113 million for the first half of
2000. Net operating revenues for the first half of 2001 were $1,063
million as compared to $583 million for the first half of 2000.
Wellhead volume and price statistics are summarized below:
- -----------------------------------------------------------------------
2001 2000
- -----------------------------------------------------------------------
Natural Gas Volumes (MMcf per day)
United States 704 644
Canada 120 132
----- -----
North America 824 776
Trinidad 112 122
----- -----
TOTAL 936 898
===== =====
Average Natural Gas Prices ($/Mcf)
United States $ 5.78 $ 2.98
Canada 5.33 2.53
North America Composite 5.72 2.90
Trinidad 1.22 1.17
COMPOSITE 5.18 2.67
Crude Oil/Condensate Volumes (MBbl per day)
United States 23.2 21.7
Canada 1.8 2.3
----- -----
North America 25.0 24.0
Trinidad 2.0 2.8
----- -----
TOTAL 27.0 26.8
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)
United States $27.44 $28.26
Canada 25.12 26.24
North America Composite 27.28 28.07
Trinidad 28.79 28.17
COMPOSITE 27.40 28.08
Natural Gas Liquids Volumes (MBbl per day)
United States 3.4 4.3
Canada 0.5 0.8
----- -----
TOTAL 3.9 5.1
Average Natural Gas Liquids Prices ($/Bbl)
United States $20.41 $19.64
Canada 20.39 14.44
COMPOSITE 20.41 18.85
Natural Gas Equivalent Volumes (MMcfe per day)
United States 864 801
Canada 133 150
----- -----
North America 997 951
Trinidad 124 138
----- -----
TOTAL 1,121 1,089
===== =====
Total Bcfe Deliveries 203 198
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 74% to $1,025 million in
the first half of 2001 compared to $590 million in the first half of
2000.
Average wellhead natural gas prices for the first half of 2001
were approximately 94% higher than the comparable period of 2000
increasing net operating revenues by approximately $425 million.
Average wellhead crude oil and condensate prices were down by 2%,
decreasing net operating revenues by $3 million. First half 2001
wellhead natural gas deliveries were 4% higher than the comparable
period in 2000, increasing net operating revenues by $16 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 1% higher than the prior year
period, increasing net operating revenues by $1 million. The increase
was primarily due to increased crude oil and condensate production in
the U.S., partially offset by decreased crude oil production from
the Canada and International divisions. Natural gas liquids
decreased net operating revenues by $3 million primarily due to a
decrease in deliveries of 24%, partially offset by an increase in
prices of 8%.
Other marketing activities associated with sales and purchases of
natural gas, and closed natural gas and crude oil price hedging and
trading transactions increased net operating revenues by $2 million
compared to a decrease of $9 million in the first half of 2000.
This increase in 2001 was primarily due to a revenue increase from
natural gas marketing activities. The $9 million revenue decrease
in 2000 primarily related to natural gas marketing activities and
hedging contracts closed in prior periods.
During the first six months of 2001, EOG recognized mark-to-market
gains on commodity contracts of $36.3 million.
Operating expenses of $475 million for the first half of 2001 were
approximately $112 million higher than the comparable period in
2000. Taxes other than income were $23 million higher primarily due
to increased wellhead revenues in the U.S. Lease and well expenses
were $20 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 $12 million and $20 million higher than the comparable
period a year ago due primarily to increased North America and
International exploratory activities. DD&A increased $19 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 $14
million to $32 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 $1.97 per Mcfe
during the first half of 2001 compared to $1.71 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 six months ended June 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 $821 million for the first six months
of 2001 increased approximately $493 million as compared to the
first six months of 2000 primarily reflecting higher operating
revenues, partially offset by higher cash operating expenses.
Net investing cash outflows of approximately $479 million for the
first six months of 2001 increased by $269 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 six months
of 2001 and 2000 are as follows (in millions):
2001 2000
------------------------------ ------------------------------
Drilling Acquisition Total Drilling Acquisition Total
-------- ----------- ----- -------- ----------- -----
<s> <c> <c> <c> <c> <c> <c>
United States $ 356 $ 3 $ 359 $ 175 $ 2 $ 177
Canada 28 71 99 21 - 21
------ ------ ---- ------ ----- ----
North America 384 74 458 196 2 198
Trinidad 21 - 21 10 - 10
Other 8 - 8 3 - 3
------ ------ ---- ------ ----- ----
TOTAL $ 413 $ 74 $ 487 $ 209 $ 2 $ 211
====== ====== ==== ====== ===== ====
Exploration and development expenditures of $487 million for the
first six months of 2001 were $276 million higher than the prior
year period due primarily to increased 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 $293 million for the first
six months of 2001 versus $130 million for the comparable prior year
period. Financing activities for 2001 included repayment of debt of
$218 million, repurchases of EOG's common stock of $80 million,
proceeds from sales of treasury stock of $16 million and cash
dividend payments of $14 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 half of 2001, EOG repurchased 1.8 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 the Company 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.
At June 30, 2001, EOG had outstanding swap contracts covering
notional volumes of approximately 1.6 million barrels of crude oil
and condensate for the period July 2001 to May 2002 at an average
price of $27.36 per barrel. EOG elected not to designate these
crude oil swap contracts as an accounting hedge of its crude oil
production, and accordingly, is accounting for these swap contracts
under mark-to-market accounting. At June 30, 2001, the fair value
of these oil price swap contracts was $2.1 million.
During the period of April 30, 2001 to May 2, 2001, EOG entered
into 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 the period July 2001 to November 2001 at an
average premium of $0.15 per MMBtu. EOG accounts for these collars
under mark-to-market accounting. At June 30, 2001, the fair value
of these price collars was $31.2 million.
On June 29, 2001, EOG entered into price swap contracts covering
notional volumes of 115,000 MMBtu/d for the period August 2001 to
December 2001 at an average price of $3.38 per MMBtu and 50,000
MMBtu/d for the period January 2002 to December 2002 at an average
price of $3.56 per MMBtu. EOG accounts for these swap contracts
under mark-to-market accounting. At June 30, 2001, the fair value
of these price swap contracts was negative $0.1 million.
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 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;
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 5 to Consolidated Financial
Statements, which is incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of EOG Resources, Inc.
was held on May 8, 2001, in Houston, Texas, for the purpose of
electing a board of directors, ratifying the appointment of
auditors, approving an employee stock purchase plan and
approving an executive officer annual bonus plan. Proxies for
the meeting were solicited pursuant to Section 14(a) of the
Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's solicitations.
(a) Each of the directors nominated by the Board and
listed in the proxy statement was elected with votes as
follows:
Shares Shares
Nominee For Withheld
------------------- ---------- ---------
Fred C. Ackman 97,424,456 704,163
George A. Alcorn 97,436,997 691,622
Mark G. Papa 95,319,451 2,809,168
Edward Randall, III 97,414,660 713,959
Edmund P. Segner, III 95,336,518 2,792,101
Donald F. Textor 97,442,531 686,088
Frank G. Wisner 97,415,363 713,256
(b) The appointment of Arthur Andersen LLP, independent public
accountants, as auditors for the year ending December 31, 2001
was approved by the following vote: 97,505,818 shares for;
290,379 shares against; and 332,422 shares abstaining.
(c) EOG's Employee Stock Purchase Plan was approved by the
following vote: 97,117,244 shares for; 598,136 shares against;
and 413,239 shares abstaining.
(d) EOG's Executive Officer Annual Bonus Plan was approved by the
following vote: 90,707,503 shares for; 6,928,976 shares against;
and 492,140 shares abstaining.
ITEM 5. Other Information
Fred C. Ackman, a director since 1989, when EOG first went
public, passed away on July 8, 2001. He was an active member of
each of the working Board Committees and was Chairman of the Audit
Committee for many years. In addition, Mr. Ackman served as
Chairman of the Independent Committee that was formed to evaluate
and recommend to the Board of Directors the Share Exchange Agreement
between EOG and Enron Corp. in 1999.
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 April 20, 2001, to
provide estimate for the second quarter and full year 2001
in Item 9 - Regulation FD Disclosure.
Current Report on Form 8-K filed on May 5, 2001, to
report certain natural gas price swap and collar contracts
in Item 5 - Other Events.
Current Report on Form 8-K filed on June 29, 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: July 31, 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
Six Months Ended -------------------------------------------------
June 30, 2001 2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
EARNINGS AVAILABLE FOR
FIXED CHARGES:
Net Income $351,450 $396,931 $569,094 $ 56,171 $121,970 $140,008
Less: Capitalized Interest Expense (4,187) (6,708) (10,594) (12,711) (13,706) (9,136)
Add: Fixed Charges 31,544 72,833 77,837 66,982 47,108 27,114
Income Tax Provision (Benefit) 213,511 236,626 (1,382) 4,111 41,500 50,954
------- ------- ------- ------- ------- -------
EARNINGS AVAILABLE $592,318 $699,682 $634,955 $114,553 $196,872 $208,940
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest Expense $ 23,913 $ 61,006 $ 61,819 $ 48,463 $ 27,369 $ 12,370
Capitalized Interest 4,187 6,708 10,594 12,711 13,706 9,136
Rental Expense Representative of Interest Factor 3,444 5,119 5,424 5,808 6,033 5,608
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES 31,544 72,833 77,837 66,982 47,108 27,114
Preferred Dividends on a Pre-tax Basis 8,806 17,602 660 - - -
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES AND PREFERRED DIVIDENDS $ 40,350 $ 90,435 $ 78,497 $ 66,982 $ 47,108 $ 27,114
======= ======= ======= ======= ======= =======
RATIO OF EARNINGS TO
FIXED CHARGES 18.78 9.61 8.16 1.71 4.18 7.71
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED DIVIDENDS 14.68 7.74 8.09 1.71 4.18 7.71