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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 March 31, 2003
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 by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Act). Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of April 22, 2003.
Title of each class Number of shares
Common Stock, $.01 par value 114,580,393
EOG RESOURCES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements
Consolidated Statements of Income - Three Months Ended March 31,
2003 and 2002 3
Consolidated Balance Sheets - March 31, 2003 and December 31,
2002 4
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
ITEM 4. Controls and Procedures 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
CERTIFICATIONS 19
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
March 31,
2003 2002
NET OPERATING REVENUES
Natural Gas $434,091 $176,584
Crude Oil, Condensate and Natural Gas Liquids 75,508 46,775
Losses on Mark-to-market Commodity Derivative Contracts (45,221) (34,295)
Other, Net 291 (2,501)
TOTAL 464,669 186,563
OPERATING EXPENSES
Lease and Well 48,339 40,591
Exploration Costs 17,458 12,936
Dry Hole Costs 6,620 10,406
Impairments 11,956 12,063
Depreciation, Depletion and Amortization 103,553 94,460
General and Administrative 20,421 20,713
Taxes Other Than Income 30,193 16,040
TOTAL 238,540 207,209
OPERATING INCOME (LOSS) 226,129 (20,646)
OTHER INCOME (EXPENSE), NET 152 (3,163)
INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES 226,281 (23,809)
INTEREST EXPENSE, NET 15,318 12,051
INCOME (LOSS) BEFORE INCOME TAXES 210,963 (35,860)
INCOME TAX PROVISION (BENEFIT) 74,407 (11,619)
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 136,556 (24,241)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX (7,131) -
NET INCOME (LOSS) 129,425 (24,241)
PREFERRED STOCK DIVIDENDS 2,758 2,758
NET INCOME (LOSS) AVAILABLE TO COMMON $126,667 $(26,999)
NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON
Basic
Net Income (Loss) Available to Common Before
Cumulative Effect of Change in Accounting Principle $ 1.17 $ (0.23)
Cumulative Effect of Change in Accounting Principle,
net of tax (0.06) -
Net Income (Loss) Available to Common $ 1.11 $ (0.23)
Diluted
Net Income (Loss) Available to Common Before
Cumulative Effect of Change in Accounting Principle $ 1.15 $ (0.23)
Cumulative Effect of Change in Accounting Principle,
net of tax (0.06) -
Net Income (Loss) Available to Common $ 1.09 $ (0.23)
AVERAGE NUMBER OF COMMON SHARES
Basic 114,427 115,485
Diluted 116,224 115,485
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, Except Share Data)
March 31, December 31,
2003 2002
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 6,833 $ 9,848
Accounts Receivable, Net 370,384 259,308
Inventories 18,282 18,928
Other 99,713 106,708
TOTAL 495,212 394,792
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 7,020,859 6,750,095
Less: Accumulated Depreciation, Depletion
and Amortization (3,538,849) (3,428,547)
Net Oil and Gas Properties 3,482,010 3,321,548
OTHER ASSETS 93,433 97,666
TOTAL ASSETS $4,070,655 $3,814,006
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 222,756 $ 201,931
Accrued Taxes Payable 35,145 23,170
Dividends Payable 5,004 5,007
Liabilities from Price Risk Management Activities 23,076 5,939
Other 45,309 40,304
TOTAL 331,290 276,351
LONG-TERM DEBT 1,044,208 1,145,132
OTHER LIABILITIES 150,890 59,180
DEFERRED INCOME TAXES 721,315 660,948
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 Shares Authorized:
Series B, 100,000 Shares Issued, Cumulative,
$100,000,000 Liquidation Preference 98,412 98,352
Series D, 500 Shares Issued, Cumulative,
$50,000,000 Liquidation Preference 49,691 49,647
Common Stock, $.01 Par, 320,000,000 Shares Authorized
and 124,730,000 Shares Issued 201,247 201,247
Additional Paid in Capital 1,396 -
Unearned Compensation (18,802) (15,033)
Accumulated Other Comprehensive Loss (10,621) (49,877)
Retained Earnings 1,846,031 1,723,948
Common Stock Held in Treasury, 10,151,036 shares at
March 31, 2003 and 10,009,740 shares at December 31, 2002 (344,402) (335,889)
TOTAL SHAREHOLDERS' EQUITY 1,822,952 1,672,395
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,070,655 $3,814,006
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)
Three Months Ended
March 31,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating
Cash Inflows:
Net Income (Loss) $ 129,425 $ (24,241)
Items Not Requiring (Providing) Cash
Depreciation, Depletion and Amortization 103,553 94,460
Impairments 11,956 12,063
Deferred Income Taxes 50,441 (9,844)
Cumulative Effect of Change in Accounting Principle 7,131 -
Other, Net 2,611 4,025
Exploration Costs 17,458 12,936
Dry Hole Costs 6,620 10,406
Mark-to-market Commodity Derivative Contracts
Total Losses 45,221 34,295
Realized Gains (Losses) (27,929) 11,014
Tax Benefits from Stock Options Exercised 2,959 1,538
Losses on Sales of Reserves and Related Assets and
Other, Net 69 216
Changes in Components of Working Capital and
Other Liabilities
Accounts Receivable (111,034) 9,105
Inventories 646 569
Accounts Payable 20,670 (52,818)
Accrued Taxes Payable 23,434 (12,032)
Other Liabilities (1,532) 1,330
Other, Net (3,969) (13,916)
Changes in Components of Working Capital Associated
with Investing and Financing Activities 8,832 42,338
NET OPERATING CASH INFLOWS 286,562 121,444
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (140,213) (172,444)
Exploration Costs (17,458) (12,936)
Dry Hole Costs (6,620) (10,406)
Proceeds from Sales of Assets 7,320 1,772
Changes in Components of Working Capital Associated
with Investing Activities (8,860) (42,226)
Other, Net (1,770) (4,667)
NET INVESTING CASH OUTFLOWS (167,601) (240,907)
FINANCING CASH FLOWS
Long-Term Debt Borrowings (Repayments) (100,924) 119,693
Dividends Paid (7,241) (7,282)
Treasury Stock Purchased (21,295) -
Proceeds from Sales of Treasury Stock 7,456 9,960
Other, Net 28 (17)
NET FINANCING CASH INFLOWS (OUTFLOWS) (121,976) 122,354
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,015) 2,891
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,848 2,512
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,833 $ 5,403
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
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 normal recurring 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,
2002 ("EOG's 2002 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 11 to the consolidated financial
statements included in EOG's 2002 Annual Report, EOG engages in
price risk management activities from time to time. Derivative
financial instruments (primarily price swaps and collars) are
utilized selectively to hedge the impact of market fluctuations on
natural gas and crude oil market prices. During the first quarter
of 2003 and 2002, 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 ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
143 - "Accounting for Asset Retirement Obligations" effective for
fiscal years beginning after June 15, 2002. As more fully
discussed in Note 1 to the consolidated financial statements
included in EOG's 2002 Annual Report, SFAS No. 143 essentially
requires entities to record the fair value of a liability for
legal obligations associated with the retirement of tangible long-
lived assets and the associated asset retirement costs. EOG
adopted the statement on January 1, 2003. The adoption of SFAS
No. 143 did not have a material effect on the financial condition
or results of operations of EOG (see Note 6).
In December 2002, the FASB issued SFAS No. 148 - "Accounting for
Stock-Based Compensation-Transition and Disclosure - an amendment
of FASB Statement No. 123." This statement provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation,
along with the requirement of disclosure in both annual and
interim financial statements about the method used and effect on
reported results (see Note 8). Subsequently, at the April 22,
2003 FASB meeting, the FASB decided to require all companies to
expense the value of employee stock options. Companies will be
required to measure the cost according to the fair value of the
options. EOG continues to monitor the developments in this area
as details of the implementation of the decision emerge.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. The following table sets forth the computation of basic and
diluted earnings per share from net income (loss) available to
common (in thousands, except per share amounts). For the first
quarter of 2002, the same number of shares was used in the
calculation of both basic and diluted earnings per share as a result
of the net loss available to common.
Three Months Ended
March 31,
2003 2002
Numerator for Basic and Diluted Earnings Per Share -
Net Income (Loss) Available To Common $126,667 $(26,999)
Denominator for Basic Earnings Per Share -
Weighted Average Shares 114,427 115,485
Potential Dilutive Common Shares -
Stock Options 1,555 -
Restricted Stock and Units 242 -
Denominator for Diluted Earnings Per Share -
Adjusted Weighted Average Shares 116,224 115,485
Net Income (Loss) Per Share of Common Stock
Basic $ 1.11 $ (0.23)
Diluted $ 1.09 $ (0.23)
3. The following table presents the components of EOG's
comprehensive income (loss):
Three Months Ended
March 31,
2003 2002
(In Thousands)
Net Income (Loss) $129,425 $(24,241)
Other Comprehensive Income
Foreign Currency Translation Adjustment 39,256 106
Available-for-Sale Security Transactions - 926
Comprehensive Income (Loss) $168,681 $(23,209)
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Selected financial information about operating segments is
reported below for the three-month periods ended March 31, 2003 and
2002:
Three Months Ended
March 31,
2003 2002
(In Thousands)
NET OPERATING REVENUES
United States $358,505 $140,869
Canada 80,689 30,407
Trinidad 25,464 15,277
Other 11 10
TOTAL $464,669 $186,563
OPERATING INCOME (LOSS)
United States $162,117 $(30,779)
Canada 51,390 1,276
Trinidad 16,971 8,877
Other (4,349) (20)
TOTAL 226,129 (20,646)
RECONCILING ITEMS
Other Income (Expense), Net 152 (3,163)
Interest Expense, Net 15,318 12,051
INCOME (LOSS) BEFORE INCOME TAXES $210,963 $(35,860)
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. The
plaintiffs in one of the two lawsuits in which EOG is involved
dismissed EOG from that case without prejudice. 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.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EOG adopted the SFAS No. 143 - "Accounting for Asset Retirement
Obligations" on January 1, 2003. The impact of adopting the
statement resulted in an after-tax loss of $7.1 million, which is
reported as cumulative effect of change in accounting principle.
The following table presents the reconciliation of the beginning
and ending aggregate carrying amount of short-term and long-term
legal obligations associated with the retirements of oil and gas
properties pursuant to SFAS No. 143 for the quarter ended March
31, 2003 (in thousands):
Asset Retirement Obligations
Short-Term Long-Term Total
Balance at December 31, 2002 $ - $ - $ -
Carrying Amount at Adoption 6,384 92,097 98,481
Liabilities Incurred - 1,036 1,036
Liabilities Settled (329) (82) (411)
Accretion 31 1,081 1,112
Foreign Currency Translation 43 697 740
Balance at March 31, 2003 $6,129 $94,829 $100,958
Pro forma net income and earnings per share are not presented for
the three months ended March 31, 2002 because the pro forma
application of SFAS No. 143 to the prior period would not result
in pro forma net income and earnings per share materially
different from the actual amounts reported for the period in the
accompanying Consolidated Statements of Income.
7. EOG, through certain wholly-owned subsidiaries, owns equity
interests in two Trinidadian companies: Caribbean Nitrogen
Company Limited ("CNCL") and Nitrogen (2000) Unlimited ("N2000").
During the first quarter of 2003, EOG completed separate share
purchase agreements whereby a portion of the EOG subsidiaries'
shareholdings in CNCL and N2000 was sold to a third party energy
company. The sale left EOG with equity interests of approximately
12% in CNCL and 27% in N2000 and did not result in any gain or
loss.
During the first quarter of 2003, N2000 received a revised
certificate of environmental clearance from the Environmental
Management Authority of Trinidad and Tobago and confirmation from
the lender of N2000's long-term debt that the lender is satisfied
with the revisions. As a result, the long-term debt is now non-
recourse to the N2000 shareholders.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Concluded)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EOG has various stock plans ("the Plans") under which employees
and non-employee members of the Board of Directors of EOG and its
subsidiaries have been or may be granted certain equity
compensation.
Stock Options. EOG has in place compensatory stock option plans
whereby participants have been or may be granted rights to
purchase shares of common stock of EOG at a price not less than
the market price of the stock as of the date of grant.
EOG's pro forma net income (loss) and net income (loss) per share
of common stock for the three-month periods ended March 31, 2003
and 2002, had compensation costs been recorded using the fair
value method in accordance with SFAS No. 123 - "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148 -
"Accounting for Stock-Based Compensation-Transition and Disclosure -
an amendment of FASB Statement No. 123," are presented below
pursuant to the disclosure requirement of SFAS No. 148 (in
millions except per share data):
Three Months Ended
March 31,
2003 2002
Net Income (Loss) Available to Common - As Reported $126.7 $(27.0)
Deduct: Total stock-based employee compensation expense (3.3) (4.2)
Net Income (Loss) Available to Common - Pro Forma $123.4 $(31.2)
Net Income (Loss) per Share Available to Common
Basic - As Reported $ 1.11 $(0.23)
Basic - Pro Forma $ 1.08 $(0.27)
Diluted - As Reported $ 1.09 $(0.23)
Diluted - Pro Forma $ 1.06 $(0.27)
The effects of applying SFAS No. 123, as amended, should not be
interpreted as being indicative of future effects. The statement
does not apply to awards prior to 1995, and the extent and timing
of additional future awards cannot be predicted.
Restricted Stock and Units. Under the Plans, employees may be
granted restricted stock and/or units without cost to them.
Related compensation expense for the three-month periods ended
March 31, 2003 and 2002 was $1.3 million and $1.1 million,
respectively.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOG RESOURCES, INC.
The following review of operations for the three-month periods ended
March 31, 2003 and 2002 should be read in conjunction with the
consolidated financial statements of EOG Resources, Inc. and
subsidiaries (EOG) and Notes thereto.
Results of Operations
Three Months Ended March 31, 2003 vs. Three Months Ended March 31, 2002
Net Operating Revenues. Wellhead volume and price statistics for
the specified quarters were as follows:
Three Months Ended
March 31,
2003 2002
Natural Gas Volumes (MMcf per day)(1)
United States 642 635
Canada 158 145
North America 800 780
Trinidad 154 108
TOTAL 954 888
Average Natural Gas Prices ($/Mcf)(2)
United States $5.92 $2.25
Canada 5.18 2.29
North America Composite 5.77 2.26
Trinidad 1.32 1.27
COMPOSITE 5.05 2.14
Crude Oil/Condensate Volumes (MBbl per day)(1)
United States 18.4 20.0
Canada 2.1 1.8
North America 20.5 21.8
Trinidad 2.3 1.9
TOTAL 22.8 23.7
Average Crude Oil/Condensate Prices ($/Bbl)(2)
United States $32.96 $20.07
Canada 31.78 19.10
North America Composite 32.84 19.99
Trinidad 33.27 17.68
COMPOSITE 32.89 19.80
Natural Gas Liquids Volumes (MBbl per day)(1)
United States 3.1 3.9
Canada 0.7 0.7
TOTAL 3.8 4.6
Average Natural Gas Liquids Prices ($/Bbl)(2)
United States $23.24 $11.30
Canada 22.09 8.48
COMPOSITE 23.04 10.84
Natural Gas Equivalent Volumes (MMcfe per day)(3)
United States 771 778
Canada 174 161
North America 945 939
Trinidad 169 119
TOTAL 1,114 1,058
Total Bcfe(3)Deliveries 100 95
(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.
During the first quarter of 2003, net operating revenues increased
$278 million to $465 million. Total wellhead revenues of $509
million increased by $291 million, or 133%, as compared to a year
ago.
Wellhead natural gas revenues for the first quarter of 2003
increased $263 million, or 153%, as a result of higher average
wellhead natural gas prices and increased natural gas deliveries
primarily in Trinidad, Canada and the Corpus Christi and Oklahoma
City Divisions. The composite average wellhead natural gas price
increased 136% to $5.05 per Mcf for the first quarter of 2003
compared to $2.14 per Mcf for the same quarter of 2002.
Natural gas deliveries increased to 954 MMcf per day for the first
quarter of 2003 compared to 888 MMcf per day a year ago. The
increase in natural gas deliveries was primarily due to the
production from the U(a) Block in Trinidad whose production
commencement was not until the second quarter of 2002, an active
drilling program and strategic property acquisitions beginning mid
2002 in Canada, and increased production in the Corpus Christi and
Oklahoma City Divisions, partially offset by a general decline in
production in the Tyler Division.
Wellhead crude oil and condensate revenues increased approximately
$25 million to $68 million for the first quarter of 2003, primarily
due to an increase in the average wellhead crude oil and condensate
prices, offset slightly by the decrease in crude oil and condensate
deliveries. The average wellhead price for crude oil and condensate
increased 66% to $32.89 per barrel compared to $19.80 per barrel for
the same quarter of 2002.
Crude oil and condensate deliveries decreased 4% to 22.8 MBbl per
day for the first quarter of 2003 compared to 23.7 MBbl per day a
year ago. The decrease in volumes was primarily due to a natural
decline in crude oil and condensate production in the United States,
partially offset by increased production in Trinidad and Canada.
Natural gas liquids revenues of $8 million were approximately $3
million higher than a year ago primarily due to an increase in
prices of 113% and partially offset by a decrease in deliveries of
17%.
During the first quarter of 2003, EOG recognized a loss on mark-to-
market commodity derivative contracts of $45 million compared to a
loss of $34 million for the prior year period. During the first
quarter of 2003, net cash outflows related to settled natural gas
and crude oil financial price swap contracts and settled natural gas
financial collar contracts were $28 million compared to a net cash
inflow of $11 million for the comparable period in 2002.
Operating Expenses. For the first quarter of 2003, operating
expenses of $239 million were approximately $32 million higher than
that of the first three months of 2002.
Taxes other than income of $30 million were $14 million higher in
the first quarter of 2003 compared to a year ago due to increased
wellhead revenue in the United States resulting primarily from
increased average wellhead natural gas prices along with increased
natural gas production.
Depreciation, depletion and amortization ("DD&A") expenses of $104
million increased $9 million from the prior year period primarily
due to higher DD&A in Canada and the Midland, Offshore and Corpus
Christi Divisions. First quarter 2003 DD&A also included $1 million
of accretion expense related to SFAS No. 143 - "Accounting for Asset
Retirement Obligations" which was adopted on January 1, 2003.
Lease and well expenses of $48 million were $8 million higher than
the prior year period primarily due to expanding operations, higher
production costs from certain properties, and increased activity
resulting from higher production in Canada and the Corpus Christi
Division along with an increase in transportation related costs in
the Denver Division.
Exploration costs of $18 million were $5 million higher than the
same period a year ago due primarily to increased exploratory
activities in the United States.
Dry hole costs of $7 million decreased $4 million in the first
quarter of 2003 compared to the same period a year ago.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Interest Expense, Net. For the first quarter of 2003, interest
expense increased approximately $3 million compared to the first
quarter of 2002. The increase was due primarily to a higher average
debt balance during the first quarter of 2003 and a $1 million
interest charge related to a completed sales tax audit.
Per-Unit Costs. The following table presents the costs per Mcfe
for the three-month periods ended March 31, 2003 and 2002:
Three Months Ended March 31,
2003 2002
Lease and Well $0.48 $0.43
DD&A 1.03 0.99
General and Administrative 0.21 0.22
Taxes Other than Income 0.30 0.17
Interest Expense 0.15 0.13
Total Per-Unit Costs $2.17 $1.94
The higher per-unit rates of taxes other than income, lease and
well, and interest expense for the three-month period ended March
31, 2003 compared to the same period in 2002 were due primarily to
the reasons delineated in the above discussion.
The higher per-unit DD&A rate for the three-month period ended
March 31, 2003 compared to the same period in 2002 was due primarily
to increased production from higher cost properties in the Corpus
Christi and Midland Divisions, and in Canada. The rate was also
affected by the reduced reserve estimate for a certain offshore
property. Accretion expense from the adoption of SFAS No. 143
increased the DD&A rate by $0.01 in the first quarter of 2003.
Income Tax Provision. For the first quarter of 2003, income tax
provision increased $86 million to $74 million compared to the first
quarter of 2002 due to increases of both the pre-tax income and the
net effective tax rate. The increase in the net effective tax rate
for the first quarter of 2003 to 35% from 32% for the same period of
2002 was due primarily to the expiration of the Section 29 Credit
provision in the Internal Revenue Code as of December 31, 2002 and
increases in the overall foreign effective tax rate.
Capital Resources and Liquidity
EOG's primary sources of cash during the three months ended March
31, 2003 included funds generated from operations, proceeds from
sales of partial interests in certain equity investments, proceeds
from stock options exercised and proceeds from the sales of selected
oil and gas reserves and related assets. Primary cash outflows
included funds used in operations, exploration and development
expenditures, repayments of debt, common stock repurchases and
dividends paid to EOG shareholders.
Net operating cash inflows of $287 million for the first three
months of 2003 increased from $121 million as compared to the first
three months of 2002 due to higher net operating revenues resulting
from higher natural gas and crude oil and condensate prices and
natural gas production, net of increased cash operating expenses and
current income taxes, along with higher tax benefits on stock
options exercised.
Net investing cash outflows of approximately $168 million for the
first three months of 2003 decreased from $241 million versus the
comparable prior year period due primarily to lower exploration and
development expenditures and decreased 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.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Exploration and development expenditures for the first three
months of 2003 and 2002 were as follows (in millions):
Three Months Ended
March 31,
2003 2002
United States $130 $130
Canada 24 46
North America 154 176
Trinidad 1 20
Other 9 -
Subtotal 164 196
Deferred Income Tax Gross Up - 3
TOTAL $164 $199
Total exploration and development expenditures of $164 million for
the first three months of 2003 were $35 million lower than the
comparable prior year period due primarily to decreased exploratory
and development activities in Trinidad and Canada. Included in the
2003 expenditures are $102 million in development, $51 million for
exploration, $9 million in property acquisitions, and $2 million in
capitalized interest.
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 $122 million for the first
three months of 2003 versus cash provided of $122 million for the
comparable prior year period. Financing activities for 2003
included the reduction of the outstanding balance on commercial
paper borrowings and the uncommitted line of credit of $93 and $8
million, respectively, common stock repurchases of $21 million, cash
dividend payments to EOG shareholders of $7 million, and proceeds
from sales of treasury stock attributable to employee stock option
exercises of $7 million.
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.
As more fully discussed in Note 11 to the consolidated financial
statements included in EOG's 2002 Annual Report, EOG engages in
price risk management activities from time to time. Derivative
financial instruments (primarily price swaps and collars) are
utilized selectively to hedge the impact of market fluctuations on
natural gas and crude oil prices. During the first three months of
2003 and 2002, 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.
At March 31, 2003, EOG had outstanding natural gas financial
collar contracts that set floor prices that averaged $3.81 per
million British thermal units ("MMBtu") and ceiling prices that
averaged $5.32 per MMBtu covering notional volumes of 125,000
million British thermal units per day ("MMBtud") of natural gas for
the period April 2003 through December 2003. At March 31, 2003, the
fair value of these natural gas financial collar contracts was a
negative $13 million.
At March 31, 2003, EOG had outstanding natural gas financial price
swap contracts covering notional volumes of 100,000 MMBtud of
natural gas for the period April 2003 through October 2003 at an
average price of $4.80 per MMBtu. At March 31, 2003, the fair value
of these natural gas financial price swap contracts was a negative
$7 million.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
EOG RESOURCES, INC.
At March 31, 2003, EOG had outstanding crude oil financial price
swap contracts covering notional volumes of three thousand barrels
per day ("MBbld") of crude oil for April and May 2003 at an average
price of $27.40 per barrel and five MBbld of crude oil for the
period June 2003 through December 2003 at an average price of $25.30
per barrel. At March 31, 2003, the fair value of these crude oil
financial price swap contracts was a negative $3 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 replace or increase reserves or to
increase production, or the ability to generate income or cash flows
are forward-looking statements. Forward-looking statements are not
guarantees of performance. Although EOG believes its expectations
reflected in forward-looking statements are based on reasonable
assumptions, no assurance can be given that these expectations will
be achieved. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-
looking statements include, among others: the timing and extent of
changes in commodity prices for crude oil, natural gas and related
products and interest rates; the extent and effect of any hedging
activities engaged in by EOG; the extent of EOG's success in
discovering, developing, marketing and producing reserves and in
acquiring oil and gas properties; the accuracy of reserve estimates,
which by their nature involve the exercise of professional judgment
and may therefore be imprecise; political developments around the
world, including terrorist activities and responses to such
activities; acts of war; 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 I. FINANCIAL INFORMATION (Concluded)
ITEM 4. CONTROLS AND PROCEDURES
EOG RESOURCES, INC.
Based on an evaluation of the disclosure controls and procedures
conducted within 90 days prior to the filing date of this report on
Form 10-Q, the Chairman of the Board and Chief Executive Officer,
Mark G. Papa, and the President and Chief of Staff, and Principal
Financial Officer, Edmund P. Segner, III, have concluded that the
disclosure controls and procedures (as defined in Rules 13a-14(c)
and 15d-14(c) promulgated under the Securities Exchange Act of 1934)
are effective. There were no significant changes in the internal
controls or in other factors that could significantly affect those
controls subsequent to the date of the evaluation thereof.
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 6. Exhibits and Current 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 Principal
Financial Officer.
(b) Current Reports on Form 8-K
During the first quarter of 2003, EOG filed the following
Current Reports on Form 8-K:
- On January 13, 2003, to provide estimates for the fourth
quarter 2002, to present summaries of the full year 2003
natural gas and crude oil financial price swap and natural
gas financial collar contracts and to report anticipated
financial results of the price risk management activities
for the fourth quarter of 2002 in Item 9 - Regulation FD
Disclosure.
- On February 3, 2003, to provide updated summaries of the full
year 2003 natural gas and crude oil financial price swap and
natural gas financial collar contracts in Item 9 - Regulation
FD Disclosure.
- On February 20, 2003, to present management's discussion and
analysis of financial condition and results of operations for
2002, financial statements for 2002, and related exhibits in
Item 7 - Financial Statements and Exhibits.
- On February 28, 2003, to provide estimates for the first
quarter and full year 2003 and to present summaries of the
full year 2003 natural gas and crude oil financial price swap
and natural gas financial collar contracts 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: May 6, 2003 By: /s/ T. K. DRIGGERS
T. K. Driggers
Vice President, Accounting
and Land Administration
(Principal Accounting Officer)
CERTIFICATIONS
I, Mark G. Papa, the Principal Executive Officer of EOG Resources,
Inc., a Delaware corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EOG
Resources, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: May 6, 2003
/S/ MARK G. PAPA
Mark G. Papa
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATIONS (Concluded)
I, Edmund P. Segner, III, the Principal Financial Officer of EOG
Resources, Inc., a Delaware corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EOG
Resources, Inc.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: May 6, 2003
/S/ EDMUND P. SEGNER, III
Edmund P. Segner, III
President and Chief of Staff
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit
Number Description
*99.1 -- Certification of Periodic Report of Chief Executive Officer
*99.2 -- Certification of Periodic Report of Principal Financial Officer
*Exhibits filed herewith