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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, 2002
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. Employer
jurisdiction Identification No.)
of incorporation or
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 26, 2002.
Title of each class Number of shares
Common Stock, $.01 par value 116,168,001
EOG RESOURCES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements
Consolidated Statements of Income - Three Months Ended
June 30, 2002 and 2001 And Six Months Ended June 30,
2002 and 2001 3
Consolidated Balance Sheets - June 30, 2002 and
December 31, 2001 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
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,
2002 2001 2002 2001
NET OPERATING REVENUES
Natural Gas $231,272 $357,536 $407,856 $ 879,013
Crude Oil, Condensate and Natural Gas Liquids 56,635 73,143 103,410 148,337
Gains (Losses) on Mark-to-market Commodity
Derivative Contracts 693 36,849 (33,602) 36,283
Gains (Losses) on Sales of Reserves and
Related Assets and Other, Net 1,903 (1,480) (658) (332)
TOTAL 290,503 466,048 477,006 1,063,301
OPERATING EXPENSES
Lease and Well 43,638 43,248 84,229 85,822
Exploration Costs 15,754 17,746 28,690 38,011
Dry Hole Costs 12,836 12,971 23,242 28,655
Impairments 10,683 16,267 22,746 32,031
Depreciation, Depletion and Amortization 97,956 97,470 192,416 191,431
General and Administrative 21,988 18,735 42,701 36,684
Taxes Other Than Income 18,008 25,372 34,048 62,404
TOTAL 220,863 231,809 428,072 475,038
OPERATING INCOME 69,640 234,239 48,934 588,263
OTHER INCOME (EXPENSE), NET 97 1,250 (3,006) 611
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 69,737 235,489 45,928 588,874
INTEREST EXPENSE, NET 14,182 10,624 26,233 23,913
INCOME BEFORE INCOME TAXES 55,555 224,865 19,695 564,961
INCOME TAX PROVISION 17,447 88,662 5,828 213,511
NET INCOME 38,108 136,203 13,867 351,450
PREFERRED STOCK DIVIDENDS 2,758 2,757 5,516 5,478
NET INCOME AVAILABLE TO COMMON $ 35,350 $133,446 $ 8,351 $ 345,972
NET INCOME PER SHARE OF COMMON STOCK
Basic $ 0.31 $ 1.15 $ 0.07 $ 2.98
Diluted $ 0.30 $ 1.13 $ 0.07 $ 2.92
AVERAGE NUMBER OF COMMON SHARES
Basic 115,737 115,870 115,553 116,127
Diluted 117,689 118,047 117,397 118,551
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
2002 2001
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 9,206 $ 2,512
Accounts Receivable, net 204,342 194,624
Inventories 17,058 18,871
Assets from Price Risk Management Activities - 19,161
Other 45,382 37,253
TOTAL 275,988 272,421
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 6,438,142 6,065,603
Less: Accumulated Depreciation, Depletion
and Amortization (3,210,854) (3,009,693)
Net Oil and Gas Properties 3,227,288 3,055,910
OTHER ASSETS 86,322 85,713
TOTAL ASSETS $3,589,598 $3,414,044
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 167,921 $ 219,561
Accrued Taxes Payable 31,703 40,219
Dividends Payable 5,058 5,045
Liabilities from Price Risk Management Activities 5,413 -
Other 23,639 46,022
TOTAL 233,734 310,847
LONG-TERM DEBT 1,035,843 855,969
OTHER LIABILITIES 52,018 53,522
DEFERRED INCOME TAXES 582,348 551,020
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 Shares Authorized:
Series B, 100,000 Shares Issued, Cumulative,
$100,000,000 Liquidation Preference 98,234 98,116
Series D, 500 Shares Issued, Cumulative,
$50,000,000 Liquidation Preference 49,556 49,466
Common Stock, $.01 Par, 320,000,000 Shares Authorized
and 124,730,000 Shares Issued 201,247 201,247
Unearned Compensation (17,140) (14,953)
Accumulated Other Comprehensive Income (30,673) (55,118)
Retained Earnings 1,665,936 1,668,708
Common Stock Held in Treasury, 8,569,954 shares at
June 30, 2002 and 9,278,382 shares at December 31, 2001 (281,505) (304,780)
TOTAL SHAREHOLDERS' EQUITY 1,685,655 1,642,686
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,589,598 $3,414,044
The accompanying notes are an integral part of these consolidated financial
statements.
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,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating
Cash Inflows:
Net Income $ 13,867 $ 351,450
Items Not Requiring Cash
Depreciation, Depletion and Amortization 192,416 191,431
Impairments 22,746 32,031
Deferred Income Taxes 3,724 87,807
Other, Net 6,386 7,128
Exploration Costs 28,690 38,011
Dry Hole Costs 23,242 28,655
Mark-to-market Commodity Derivative Contracts
Total (Gains) Losses 33,602 (36,283)
Realized Gains (Losses) (8,828) 478
Losses on Sales of Reserves and Related Assets
and Other, Net 4 1,128
Tax Benefits from Stock Options Exercised 2,403 8,039
Other, Net 1,010 (1,232)
Changes in Components of Working Capital and
Other Liabilities
Accounts Receivable (9,722) 100,205
Inventories 1,813 (3,801)
Accounts Payable (50,786) (24,530)
Accrued Taxes Payable (3,591) 55,579
Other Liabilities (1,455) 4,144
Other, Net (25,927) (10,651)
Changes in Components of Working Capital
Associated with Investing and Financing Activities 44,497 (8,797)
NET OPERATING CASH INFLOWS 274,091 820,792
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (351,761) (419,926)
Exploration Costs (28,690) (38,011)
Dry Hole Costs (23,242) (28,655)
Proceeds from Sales of Reserves and Related Assets 4,620 5,317
Changes in Components of Working Capital Associated
with Investing Activities (45,050) 6,860
Other, Net 212 (4,912)
NET INVESTING CASH OUTFLOWS (443,911) (479,327)
FINANCING CASH FLOWS
Long-Term Debt Borrowings (Repayments) 179,874 (218,178)
Dividends Paid (14,577) (14,006)
Treasury Stock Purchased - (80,125)
Proceeds from Sales of Treasury Stock 13,073 16,055
Other, Net (1,856) 2,931
NET FINANCING CASH INFLOWS (OUTFLOWS) 176,514 (293,323)
INCREASE IN CASH AND CASH EQUIVALENTS 6,694 48,142
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,512 20,152
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,206 $ 68,294
The accompanying notes are an integral part of these consolidated
financial statements.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 of America 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 Annual Report on Form 10-K for the year ended
December 31, 2001 ("EOG's 2001 Annual Report").
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
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.
As more fully discussed in Note 12 to the consolidated financial
statements included in EOG's 2001 Annual Report, 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 prices. During the first half of 2002 and 2001, EOG
elected not to designate any of its price risk management activities
as accounting hedges, and accordingly, accounted for them using the
mark-to-market accounting method.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 143 -
"Accounting for Asset Retirement Obligations" effective for fiscal
years beginning after June 15, 2002. SFAS No. 143 requires entities
to record the fair value of a liability for legal obligations
associated with the retirement of tangible long-lived assets. The
fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated
over the life of the asset. If the obligation is settled for other
than the carrying amount of the liability, a gain or loss is
recognized on settlement. This statement will impact how EOG
accounts for its abandonment liabilities related to its oil and gas
properties. EOG is currently evaluating the effect of adopting SFAS
No. 143 on its financial statements and will adopt the statement on
January 1, 2003.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. 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,
2002 2001 2002 2001
Numerator for basic and diluted earnings
per share -
Net income available to common $ 35,350 $133,446 $ 8,351 $345,972
Denominator for basic earnings per share -
Weighted average shares 115,737 115,870 115,553 116,127
Potential dilutive common shares -
Stock options 1,719 1,996 1,609 2,175
Restricted stock and units 233 181 235 249
Denominator for diluted earnings per share -
Adjusted weighted average shares 117,689 118,047 117,397 118,551
Net income per share of common stock
Basic $ 0.31 $ 1.15 $ 0.07 $ 2.98
Diluted $ 0.30 $ 1.13 $ 0.07 $ 2.92
3. The following table presents the components of EOG's comprehensive
income for the three-month and six-month periods ended June 30, 2002 and
2001 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Net Income $38,108 $136,203 $13,867 $351,450
Other Comprehensive Income
Unrealized Loss on Available-for-sale
Security, net of tax - (879) - (545)
Reclassification of Nontemporary
Decline in Fair Value of Available-for-sale
Security to Earnings - - 926 -
Foreign Currency Translation Adjustments 23,413 12,097 23,519 (4,858)
Comprehensive Income $61,521 $147,421 $38,312 $346,047
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Selected financial information about operating segments is reported
below for the three-month and six-month periods ended June 30, 2002 and
2001 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
NET OPERATING REVENUES
United States $227,942 $398,211 $368,811 $ 902,200
Canada 45,373 51,179 75,720 125,709
Trinidad 17,175 16,634 32,452 35,342
Other 13 24 23 50
TOTAL $290,503 $466,048 $477,006 $1,063,301
OPERATING INCOME (LOSS)
United States $ 52,562 $190,817 $ 21,783 $ 491,664
Canada 8,812 33,217 10,028 86,122
Trinidad 10,613 10,504 19,490 16,489
Other (2,347) (299) (2,367) (6,012)
TOTAL 69,640 234,239 48,934 588,263
RECONCILING ITEMS
Other Income (Expense), Net 97 1,250 (3,006) 611
Interest Expense, Net 14,182 10,624 26,233 23,913
INCOME BEFORE INCOME TAXES $ 55,555 $224,865 $ 19,695 $ 564,961
5. EOG and numerous other companies in the natural gas industry are
named as defendants in various lawsuits alleging violations of the Civil
False Claims Act. These lawsuits have been consolidated for pre-trial
proceedings in the United States District Court for the District of
Wyoming. The plaintiffs contend that defendants have underpaid royalties
on natural gas and natural gas liquids produced on federal and Indian
lands through the use of below-market prices, improper deductions,
improper measurement techniques and transactions with affiliated
companies. Plaintiffs allege that the royalties paid by defendants were
lower than the royalties required to be paid under federal regulations
and that the forms filed by defendants with the Minerals Management
Service reporting these royalty payments were false, thereby violating
the Civil False Claims Act. The United States has intervened in certain
of the cases as to some of the defendants, but has not intervened as to
EOG. Based on EOG's present understanding of these cases, EOG believes
that it has substantial defenses to these claims and intends to
vigorously assert these defenses. However, if EOG is found to have
violated the Civil False Claims Act, EOG could be subject to a variety
of sanctions, including treble damages and substantial monetary fines.
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.
6. From time to time, EOG repurchases shares of its common stock for
purposes of reducing the number of shares of common stock outstanding
and limiting the dilution resulting from common shares issued or
anticipated to be issued under EOG's employee stock and stock option
plans. For the first half of 2002, EOG did not repurchase any shares of
its common stock. For the first half of 2001, EOG repurchased 1.8
million shares of its common stock. To supplement its share repurchase
program, EOG entered into a series of equity derivative transactions in
the second quarter of 2001. 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 were accounted for as equity
transactions with premiums received recorded to Additional Paid In
Capital in the Consolidated Balance Sheets. These options expired
unexercised in December 2001.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Concluded)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. EOG Company of Canada ("EOG Canada") completed a sale via a private
placement on April 2, 2002 of $100 million of 7.00% Senior Notes due
2011. The notes constitute a further issuance of EOG Canada's 7.00%
Senior Notes due 2011, first issued on December 5, 2001, and form a
single series with those notes. Proceeds of the offering before the
payment of expenses were approximately $100.5 million, including accrued
interest.
8. In July 2002, the $300 million credit facility that was scheduled
to expire was renewed at the same commitment level for a period of one
year, which is the same period as the last renewal of this facility.
This facility commits the banks to advance funds for a period up to and
including July 23, 2003, with any outstanding balances under this
facility maturing July 23, 2004. EOG has never drawn any funds under
this facility.
9. As discussed in more detail in Item 1 of EOG's Form 10-K for the
fiscal year ended December 31, 1999, under the heading "Relationship
Between the Company and Enron Corp.", following the closing on August
16, 1999, of the Share Exchange between EOG and Enron Corp. ("Enron"),
Enron issued to investors promissory notes that are mandatorily
exchangeable at maturity into a maximum of 11.5 million shares of EOG
common stock, which constituted all of Enron's remaining shares in EOG
on the date the notes were issued. According to the prospectus for the
notes, the notes are unsecured general corporate obligations of Enron.
The maturity date for the notes was July 31, 2002. In light of Enron's
bankruptcy, EOG believes it is unlikely that the notes will be exchanged
for EOG common stock.
According to filings with the Securities and Exchange Commission, the
11.5 million shares of EOG common stock formerly held by Enron are
currently held by an affiliate of Enron. By an order entered on June
21, 2002, the bankruptcy judge in the Enron bankruptcy case
authorized the sale of the 11.5 million shares of EOG common stock in
a manner specified in the judge's order, with the proceeds to be
placed into escrow. The timing of the sale is to be determined by a
committee of interested parties that does not include EOG. The
entire 11.5 million shares have been included in EOG's outstanding
common shares.
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, 2002 and 2001 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, 2002 vs. Three Months Ended June 30, 2001
EOG generated second quarter net income available to common of $35
million compared to $133 million for the second quarter of 2001. Net
operating revenues were $291 million compared to $466 million for the
second quarter of 2001. Following is an explanation of the variances
causing this decrease.
Wellhead volume and price statistics are summarized below:
2002 2001
Natural Gas Volumes (MMcf per day)(1)
United States 628 703
Canada 159 123
North America 787 826
Trinidad 111 105
TOTAL 898 931
Average Natural Gas Prices ($/Mcf)(2)
United States $3.05 $4.61
Canada 2.76 4.14
North America Composite 2.99 4.54
Trinidad 1.27 1.22
COMPOSITE 2.77 4.16
Crude Oil/Condensate Volumes (MBbl per day)(1)
United States 19.2 23.5
Canada 2.0 1.7
North America 21.2 25.2
Trinidad 1.9 1.9
TOTAL 23.1 27.1
Average Crude Oil/Condensate Prices ($/Bbl)(2)
United States $24.86 $26.82
Canada 23.93 24.99
North America Composite 24.77 26.69
Trinidad 24.46 28.73
COMPOSITE 24.74 26.84
Natural Gas Liquids Volumes (MBbl per day)(1)
United States 2.9 3.8
Canada 0.7 0.5
TOTAL 3.6 4.3
Average Natural Gas Liquids Prices ($/Bbl) (2)
United States $14.86 $17.60
Canada 10.53 17.71
COMPOSITE 13.95 17.61
Natural Gas Equivalent Volumes (MMcfe per day)(3)
United States 760 867
Canada 175 136
North America 935 1,003
Trinidad 124 117
TOTAL 1,059 1,120
Total Bcfe(3)Deliveries 96 102
(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.
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 33% to $283 million in the second quarter
of 2002 compared to $426 million in the second quarter of 2001,
primarily due to lower North America average wellhead natural gas
prices and lower United States wellhead natural gas deliveries.
Average wellhead natural gas prices were down by 33%, decreasing net
operating revenues by $114 million. Average wellhead crude oil and
condensate prices were 8% lower than the comparable period in 2001,
decreasing net operating revenues by $4 million. Second quarter 2002
wellhead natural gas deliveries were approximately 4% lower than the
comparable period in 2001, decreasing net operating revenues by $12
million. The decrease in volumes was primarily due to decreased
natural gas production in the Midland, Offshore, Tyler and Oklahoma
City divisions, partially offset by increased production in the Corpus
Christi, Pittsburgh, International and Canada divisions. Wellhead
crude oil and condensate deliveries were 15% lower than the prior year
period, decreasing net operating revenues by $10 million. The decrease
was primarily due to decreased crude oil production in the Midland,
Offshore, Tyler and Oklahoma City divisions. Natural gas liquids
revenues were $2 million lower than a year ago primarily due to a
decrease in prices and deliveries of 21% and 16%, respectively.
During the second quarter of 2002, EOG recognized a gain from
outstanding mark-to-market commodity price swaps of $0.7 million
compared to a gain of $36.8 million for the prior year period. During
the same period, net cash outflows from mark-to-market commodity price
swaps were $19.8 million compared to net cash inflows of $0.7 million
for the comparable period in 2001.
Operating expenses of $221 million for the second quarter of 2002
were approximately $11 million lower than the second quarter of 2001.
Taxes other than income of $18 million were $7 million lower for the
second quarter of 2002 compared to the same period a year ago due to
decreased wellhead revenues in North America. Impairments decreased $6
million to $11 million in the second quarter of 2002 compared to a year
ago due primarily to decreased amortization of unproved leases and
decreased impairments of certain long-lived assets as a result of
future cash flow analysis. General and administrative ("G&A") expenses
were $3 million higher compared to a year ago due primarily to the
settlement of litigation. Exploration costs of $16 million decreased
$2 million from the prior year period primarily due to decreased United
States exploratory drilling activities. Depreciation, depletion and
amortization ("DD&A"), dry hole costs and lease and well expenses
remained essentially flat compared to the same period a year ago.
The per unit operating costs of EOG for lease and well, DD&A, G&A,
interest expense, and taxes other than income averaged $2.03 per Mcfe
during the second quarter of 2002 compared to $1.92 per Mcfe during the
second quarter of 2001. The increase was primarily due to a higher per
unit rate of DD&A, lease and well, G&A and interest expense partially
offset by a lower per unit rate for taxes other than income.
During the second quarter of 2002, the increase in interest expense
of $4 million compared to the same period a year ago reflects a higher
level of debt outstanding, partially offset by a decrease in interest
rates.
Income tax provision for the second quarter of 2002 was $17 million
compared to $89 million for the comparable period of 2001, primarily
due to a lower pre-tax income and a lower effective tax rate.
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, 2002 vs. Six Months Ended June 30, 2001
In the first half of 2002, EOG generated net income available to
common of $8 million compared to $346 million for the first half of
2001. Net operating revenues for the first half of 2002 were $477
million compared to $1,063 million for the first half of 2001.
Wellhead volume and price statistics are summarized below:
2002 2001
Natural Gas Volumes (MMcf per day)
United States 631 704
Canada 152 120
North America 783 824
Trinidad 110 112
TOTAL 893 936
Average Natural Gas Prices ($/Mcf)
United States $2.65 $5.78
Canada 2.54 5.33
North America Composite 2.63 5.72
Trinidad 1.27 1.22
COMPOSITE 2.46 5.18
Crude Oil/Condensate Volumes (MBbl per day)
United States 19.6 23.2
Canada 1.9 1.8
North America 21.5 25.0
Trinidad 1.9 2.0
TOTAL 23.4 27.0
Average Crude Oil/Condensate Prices ($/Bbl)
United States $22.42 $27.44
Canada 21.66 25.12
North America Composite 22.36 27.28
Trinidad 21.11 28.79
COMPOSITE 22.26 27.40
Natural Gas Liquids Volumes (MBbl per day)
United States 3.4 3.4
Canada 0.7 0.5
TOTAL 4.1 3.9
Average Natural Gas Liquids Prices ($/Bbl)
United States $12.83 $20.41
Canada 9.51 20.39
COMPOSITE 12.21 20.41
Natural Gas Equivalent Volumes (MMcfe per day)
United States 769 864
Canada 168 133
North America 937 997
Trinidad 121 124
TOTAL 1,058 1,121
Total Bcfe Deliveries 192 203
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 approximately 51% to $501 million in
the first half of 2002 compared to $1,025 million in the first half
of 2001.
Average wellhead natural gas prices for the first half of 2002
were approximately 53% lower than the comparable period of 2001
decreasing net operating revenues by approximately $439 million.
Average wellhead crude oil and condensate prices were down by 19%
decreasing net operating revenues by $22 million. First half 2002
wellhead natural gas deliveries were 5% lower than the comparable
period in 2001, decreasing net operating revenues by $40 million.
The decrease in volumes was primarily due to decreased natural gas
production in the Midland, Offshore, Tyler and Oklahoma City
divisions, partially offset by increased production from the
Pittsburgh and Canada divisions. Wellhead crude oil and condensate
deliveries were 13% lower than the prior year period, decreasing net
operating revenues by $18 million. The decrease was primarily due
to decreased crude oil and condensate production in the Midland,
Oklahoma City, Offshore and Tyler divisions, partially offset by
increased crude oil production in the Denver division. Natural gas
liquids revenues were $5 million lower than a year ago primarily due
to a decrease in prices of 40%, partially offset by an increase in
deliveries of 5%.
During the first six months of 2002, EOG recognized a loss from
outstanding mark-to-market commodity price swaps of $33.6 million
compared to a gain of $36.3 million for the prior year period.
During the same period, net cash outflows from mark-to-market
commodity price swaps were $8.8 million compared to net cash inflows
of $0.5 million for the comparable period in 2001.
Operating expenses of $428 million for the first half of 2002 were
approximately $47 million lower than the comparable period in 2001.
Taxes other than income were $28 million lower for the first half of
2002 compared to a year ago primarily due to decreased wellhead
revenues in North America. Exploration costs and dry hole costs
were respectively $9 million and $5 million lower than the
comparable period a year ago due primarily to decreased North
America and International exploratory activities. Impairments
decreased $9 million to $23 million compared to the same period a
year ago due primarily to decreased amortization of unproved leases
and decreased impairments of certain long-lived assets as a result
of future cash flow analysis. G&A expenses increased $6 million to
$43 million, compared to the first six months of 2001, due primarily
to the settlement of litigation in the second quarter and expanding
operations. DD&A expense remained essentially flat compared to the
same period a year ago.
The per unit operating costs of EOG for lease and well, DD&A, G&A,
interest expense and taxes other than income averaged $1.98 per Mcfe
for the first half of 2002 compared to $1.97 per Mcfe for the
comparable period a year ago. The increase in the per unit rates
for lease and well, DD&A, interest expense and G&A was offset by a
lower per unit rate for taxes other than income.
For the first half of 2002, interest expense was $2 million higher
compared to the first half of 2001 due to a higher level of debt
outstanding during the second quarter of 2002, partially offset by a
decrease in interest rates.
Income tax provision for the first half of 2002 was $6 million
compared to $214 million for the comparable period of 2001 primarily
due to lower pre-tax income and a lower effective tax rate.
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,
2002 included funds generated from operations, proceeds from sales
of reserves and related assets, proceeds from new borrowings and
proceeds from sales of treasury stock. Primary cash outflows
included funds used in operations, exploration and development
expenditures and dividends.
Net operating cash flows of $274 million for the first six months
of 2002 decreased approximately $547 million as compared to the
first six months of 2001 primarily reflecting lower operating
revenues, partially offset by lower cash operating expenses.
Net investing cash outflows of approximately $444 million for the
first six months of 2002 decreased by $35 million versus the
comparable prior year period due primarily to lower exploration and
development expenditures partially offset by increased uses of
working capital related to investing activities. 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.
Total exploration and development expenditures for the first six
months of 2002 and 2001 are as follows (in millions):
2002 2001
United States $267 $359
Canada 106 99
North America 373 458
Trinidad 31 21
Other - 8
Subtotal 404 487
Deferred Income Taxes 11 28
TOTAL $415 $515
Total exploration and development expenditures of $415 million for
the first six months of 2002 were $100 million lower than the prior
year period due primarily to decreased United States development and
exploratory activities partially offset by increased Canadian and
International 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 provided by financing activities was $177 million for the
first six months of 2002 versus cash used of $293 million for the
comparable prior year period. Financing activities for 2002
included new borrowings of $180 million, proceeds from sales of
treasury stock of $13 million and cash dividend payments of $15
million. Financing activities for 2001 included repayments 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.
In July 2002, the $300 million credit facility that was scheduled
to expire was renewed at the same commitment level for a period of
one year, which is the same period as the last renewal of this
facility. This facility commits the banks to advance funds for a
period up to and including July 23, 2003, with any outstanding
balances under this facility maturing July 23, 2004. EOG has never
drawn any funds under this facility.
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.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
EOG RESOURCES, INC.
At June 30, 2002, EOG had outstanding swap contracts covering
notional volumes of 368 thousand barrels of crude oil and condensate
for the period July 2002 to December 2002 at a price of $21.50 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, 2002, the fair value of these oil price
swap contracts was a negative $1.8 million.
At June 30, 2002, EOG had outstanding swap contracts covering
notional volumes of 100,000 million British thermal units of natural
gas per day ("MMBtu/d") for the period of July 2002 to October 2002
at an average price of $3.21 per million British thermal units
("MMBtu") and 75,000 MMBtu/d for the months of November 2002 and
December 2002 at an average price of $3.35 per MMBtu. EOG elected
not to designate these natural gas swap contracts as an accounting
hedge of its natural gas production, and accordingly, is accounting
for these swap contracts under mark-to-market accounting. At June
30, 2002, the fair value of these natural gas price swap contracts
was a negative $3.6 million.
As discussed in more detail in Item 1 of EOG's Form 10-K for the
fiscal year ended December 31, 1999, under the heading "Relationship
Between the Company and Enron Corp.", following the closing on
August 16, 1999, of the Share Exchange between EOG and Enron Corp.
("Enron"), Enron issued to investors promissory notes that are
mandatorily exchangeable at maturity into a maximum of 11.5 million
shares of EOG common stock, which constituted all of Enron's
remaining shares in EOG on the date the notes were issued.
According to the prospectus for the notes, the notes are unsecured
general corporate obligations of Enron. The maturity date for the
notes was July 31, 2002. In light of Enron's bankruptcy, EOG
believes it is unlikely that the notes will be exchanged for EOG
common stock.
According to filings with the Securities and Exchange Commission,
the 11.5 million shares of EOG common stock formerly held by Enron
are currently held by an affiliate of Enron. By an order entered on
June 21, 2002, the bankruptcy judge in the Enron bankruptcy case
authorized the sale of the 11.5 million shares of EOG common stock
in a manner specified in the judge's order, with the proceeds to be
placed into escrow. The timing of the sale is to be determined by a
committee of interested parties that does not include EOG. The
entire 11.5 million shares have been included in EOG's outstanding
common shares.
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 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 judgment and may therefore be imprecise;
political developments around the world, including terrorist
activities and responses to such 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.
PART II. OTHER INFORMATION
EOG RESOURCES, INC.
ITEM 1. Legal Proceedings
See Part I, 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 7, 2002, in Houston, Texas, for the purpose of
electing a board of directors, ratifying the appointment of
auditors and approving a nonemployee directors stock option
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
George A. Alcorn 101,454,143 780,196
Charles R. Crisp 101,490,679 743,660
Mark G. Papa 101,473,915 760,424
Edward Randall, III 101,389,362 844,977
Edmund P. Segner, III 101,496,056 738,283
Donald F. Textor 101,469,960 764,379
Frank G. Wisner 101,426,258 808,081
(b) The appointment of Deloitte & Touche LLP, independent public
accountants, as auditors for the year ending December 31, 2002 was
approved by the following vote: 101,852,582 shares for; 316,329
shares against; and 65,429 shares abstaining.
(c) EOG's Amended and Restated 1993 Nonemployee Directors Stock
Option Plan was approved by the following vote: 97,958,619 shares
for; 3,986,664 shares against; and 287,054 shares abstaining.
ITEM 5. Other Information
On August 7, 2002, the Audit Committee preapproved the
retention of Deloitte & Touche LLP to provide the following
services:
(a) the audit of EOG's financial statements for the year ending
December 31, 2002;
(b) advice and research during calendar year 2002 regarding the
accounting and tax treatment of matters arising in the ordinary
course of business and in connection with potential acquisitions or
dispositions of businesses or assets;
(c) comfort letters during calendar year 2002 in connection with
(i) securities offerings under EOG's Registration Statement on Form
S-3, filed with the Securities and Exchange Commission ("SEC") on
September 28, 2000, or any other Registration Statement filed by EOG
or any of its subsidiaries and declared effective by the SEC, and
(ii) securities offerings exempt from registration under the
Securities Act of 1933, as amended; and
(d) any other services that are customarily provided or necessary
in connection with the foregoing.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 - Certification of Periodic Report of Chief
Executive Officer.
Exhibit 99.2 - Certification of Periodic Report of the
Principal Financial Officer.
(b) Reports on Form 8-K
During the second quarter of 2002, EOG filed the following
Current Reports on Form 8-K:
- On April 5, 2002, to report the anticipated mark-to-market loss
in the first quarter in Item 9 - Regulation FD Disclosure.
PART II. OTHER INFORMATION (Concluded)
EOG RESOURCES, INC.
- On April 12, 2002, to report the EOG Share Agreement with
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. and Royal Bank
of Canada in Item 5 - Other Events.
- On April 29, 2002, to provide estimate for the second quarter
and full year 2002 in Item 9 - Regulation FD Disclosure.
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: August 13, 2002 By: /S/ TIMOTHY K. DRIGGERS
Timothy K. Driggers
Vice President,
Accounting and Land Administration
(Principal Accounting Officer)