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EOG Resources Second Quarter 2020 Results

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   |    Friday,August 07,2020

EOG Resources, Inc. reported its Q2 2020 results.

EOG reported a second quarter 2020 net loss of $909 million, or $1.57 per share, compared with second quarter 2019 net income of $848 million, or $1.46 per share.

Adjusted non-GAAP net loss for the second quarter 2020 was $131 million, or $0.23 per share, compared with adjusted non-GAAP net income of $762 million, or $1.31 per share, for the same prior year period.

Second Quarter 2020 Review

Earnings in the second quarter 2020 were lower than the same prior year period due to lower commodity prices and production volumes, partially offset by reduced operating costs. EOG adjusted quickly to the decline in commodity prices - a result of COVID-19's impact on demand - by slowing drilling activity and lowering both capital expenditures and operating costs. EOG also deferred production by delaying initial production from most new wells and shutting in production from lower-margin, existing wells across multiple basins. Deferring production volumes into higher-priced time periods is a return-based decision designed to maximize net present value.

As a result of EOG's actions to address the rapid change in market conditions, total company crude oil volumes were 331,100 barrels of oil per day (Bopd), 27 percent below the second quarter 2019. Natural gas liquids production was 23 percent lower and natural gas volumes were 15 percent lower, contributing to 23 percent lower total company daily production.

Net crude oil volumes associated with the shut-in of existing wells peaked at approximately 107,000 Bopd in May, with an average of approximately 73,000 Bopd shut in during the second quarter. The company estimates that approximately 25,000 Bopd will remain shut-in on average during the third quarter 2020. EOG began to return shut-in volumes to production in June, and expects nearly all shut-in wells to begin production before the end of the third quarter. EOG also deferred initial production from most new wells until late June, with ten net new wells contributing less than 1,000 Bopd of production in the second quarter. EOG continues to closely monitor market conditions and retains flexibility to adjust its plans in response to changes in commodity prices.

During the second quarter, EOG received net cash from settlements of financial commodity derivative contracts of $639 million. The company also elected to sell a portion of its crude oil production in May and June under fixed-price agreements to further limit its exposure to commodity price volatility. This contributed to lower average crude oil prices compared with the prior year period and reduced revenues from gathering, processing and marketing relative to marketing costs.

Net cash provided by operating activities was $88 million. Changes in working capital and other assets and liabilities generated a net cash outflow of $1.0 billion in the second quarter 2020 and a net cash inflow of $0.2 billion in the first six months of 2020. Excluding changes in working capital and certain other items, EOG generated $672 million of discretionary cash flow in the second quarter 2020. The company incurred total expenditures of $534 million, including $478 million of capital expenditures before acquisitions, non-cash transactions and asset retirement costs, resulting in $194 million of free cash flow. Please refer to the attached tables for the reconciliation of non-GAAP measures to GAAP measures.

William R. "Bill" Thomas, Chairman and Chief Executive Officer, said: "EOG generated positive free cash flow in the second quarter, made possible by our ability to quickly reduce activity and cut operating costs in all of our operating areas in response to historically low oil prices. This is a testament to EOG's unique culture and the flexibility provided by a decentralized organizational structure. In addition, our focus on safety, innovation, technical advancements and continuous improvement has not wavered. Our talented employees quickly and safely adapted to these volatile conditions, and I want to thank them for their dedication and commitment to EOG.

"Going forward, we will remain flexible and ready to respond to changes in market conditions with the goal of maximizing long-term shareholder value. Our priorities are unchanged: generate high returns on any capital invested and generate free cash flow to fund the dividend and protect our strong balance sheet. The sustainable improvements we are making across the company will support improved capital efficiency in the future, enabling EOG to maintain production at lower oil prices. We are confident EOG will emerge from the downturn an even better company."

Trinidad Exploration - Discoveries

EOG announced significant discoveries from its drilling campaign in Trinidad that have estimated gross resource potential of up to 1.0 trillion cubic feet of natural gas, or 500 billion cubic feet, net to EOG. The discoveries are based on results from four wells drilled in the past year located on three different blocks in shallow water off the southeast coast of Trinidad. The discoveries will support the installation of two new production platforms and development programs for the next three to five years. EOG plans to drill two additional wells over the remainder of 2020. Additional resource potential could be confirmed through further evaluation of the discovery wells and subsequent development. The exploration success supports EOG's long-term strategy in Trinidad of generating high returns and strong free cash flow through low-cost operations and targeted exploration.

Total Expenditures

In millions of USD (Unaudited)

                 
                   
 

2Q 2020

 

2Q 2019

 

FY 2019

 

FY 2018

 

FY 2017

                   

Exploration and Development Drilling

381

   

1,290

   

4,951

   

4,935

   

3,132

 

Facilities

31

   

174

   

629

   

625

   

575

 

Leasehold Acquisitions

30

   

38

   

276

   

488

   

427

 

Property Acquisitions

3

   

1

   

380

   

124

   

73

 

Capitalized Interest

8

   

11

   

38

   

24

   

27

 

Subtotal

453

   

1,514

   

6,274

   

6,196

   

4,234

 

Exploration Costs

27

   

33

   

140

   

149

   

145

 

Dry Hole Costs

   

4

   

28

   

5

   

5

 

Exploration and Development Expenditures

480

   

1,551

   

6,442

   

6,350

   

4,384

 

Asset Retirement Costs

5

   

56

   

186

   

70

   

56

 

Total Exploration and Development Expenditures

485

   

1,607

   

6,628

   

6,420

   

4,440

 

Other Property, Plant and Equipment

49

   

56

   

272

   

286

   

173

 

Total Expenditures

534

   

1,663

   

6,900

   

6,706

   

4,613

 

Production and Prices

(Unaudited)

 

2Q 2020

 

2Q 2019

 

% Change

 

YTD 2020

 

YTD 2019

 

% Change

                       

Crude Oil and Condensate Volumes (MBbld) (A)

                 

United States

330.9

   

454.9

   

-27

%

 

406.8

   

445.1

   

-9

%

Trinidad

0.1

   

0.6

   

-83

%

 

0.3

   

0.7

   

-57

%

Other International (B)

0.1

   

0.2

   

-50

%

 

0.1

   

     

Total

331.1

   

455.7

   

-27

%

 

407.2

   

445.8

   

-9

%

                       

Average Crude Oil and Condensate Prices ($/Bbl) (C)

                     

United States

20.40

   

61.01

   

-67

%

 

36.17

   

58.63

   

-38

%

Trinidad

0.60

   

49.56

   

-99

%

 

27.75

   

46.62

   

-40

%

Other International (B)

48.78

   

55.07

   

-11

%

 

53.41

   

57.78

   

-8

%

Composite

20.40

   

60.99

   

-67

%

 

36.16

   

58.61

   

-38

%

                       

Natural Gas Liquids Volumes (MBbld) (A)

                     

United States

101.2

   

131.1

   

-23

%

 

131.2

   

125.4

   

5

%

Other International (B)

   

       

   

     

Total

101.2

   

131.1

   

-23

%

 

131.2

   

125.4

   

5

%

                       

Average Natural Gas Liquids Prices ($/Bbl) (C)

                     

United States

10.20

   

15.63

   

-35

%

 

10.65

   

17.84

   

-40

%

Other International (B)

   

       

   

     

Composite

10.20

   

15.63

   

-35

%

 

10.65

   

17.84

   

-40

%

                       

Natural Gas Volumes (MMcfd) (A)

                     

United States

939

   

1,047

   

-10

%

 

1,039

   

1,025

   

1

%

Trinidad

174

   

273

   

-36

%

 

188

   

270

   

-30

%

Other International (B)

34

   

36

   

-6

%

 

35

   

37

   

-5

%

Total

1,147

   

1,356

   

-15

%

 

1,262

   

1,332

   

-5

%

                       

Average Natural Gas Prices ($/Mcf) (C)

                     

United States

1.11

   

1.98

   

-44

%

 

1.32

   

2.37

   

-44

%

Trinidad

2.13

   

2.69

   

-21

%

 

2.15

   

2.80

   

-23

%

Other International (B)

4.36

   

4.25

   

2

%

 

4.34

   

4.31

   

1

%

Composite

1.36

   

2.19

   

-38

%

 

1.53

   

2.51

   

-39

%

                       

Crude Oil Equivalent Volumes (MBoed) (D)

                     

United States

588.5

   

760.4

   

-23

%

 

711.1

   

741.3

   

-4

%

Trinidad

29.2

   

46.1

   

-37

%

 

31.6

   

45.6

   

-31

%

Other International (B)

5.7

   

6.3

   

-10

%

 

6.1

   

6.4

   

-5

%

Total

623.4

   

812.8

   

-23

%

 

748.8

   

793.3

   

-6

%

                       

Total MMBoe (D)

56.7

   

74.0

   

-23

%

 

136.3

   

143.6

   

-5

%

                       

(A)

Thousand barrels per day or million cubic feet per day, as applicable.

(B)

Other International includes EOG's China and Canada operations.

(C)  

Dollars per barrel or per thousand cubic feet, as applicable.  Excludes the impact of financial commodity derivative instruments (see Note 12 to the Condensed Consolidated Financial Statements in EOG's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020).

(D)

Thousand barrels of oil equivalent per day or million barrels of oil equivalent, as applicable; includes crude oil and condensate, NGLs and natural gas.  Crude oil equivalent volumes are determined using a ratio of 1.0 barrel of crude oil and condensate or NGLs to 6.0 thousand cubic feet of natural gas.  MMBoe is calculated by multiplying the MBoed amount by the number of days in the period and then dividing that amount by one thousand.

 

 

Full Year Guidance / Forecast

Estimated Ranges for Third  Quarter and Full Year 2020

 

3Q 2020

   

FY 2020

                               

Daily Sales Volumes

                     

Crude Oil and Condensate Volumes (MBbld)

                     

United States

 

363.0

 

-

 

373.0

     

402.0

 

-

 

408.0

 

Trinidad

 

0.6

 

-

 

1.0

     

0.6

 

-

 

1.0

 

Other International

 

 

-

 

0.2

     

 

-

 

0.2

 

Total

 

363.6

 

-

 

374.2

     

402.6

 

-

 

409.2

 

Natural Gas Liquids Volumes (MBbld)

                     

Total

 

125.0

 

-

 

135.0

     

130.0

 

-

 

140.0

 

Natural Gas Volumes (MMcfd)

                     

United States

 

940

 

-

 

1,000

     

985

 

-

 

1,075

 

Trinidad

 

165

 

-

 

185

     

180

 

-

 

195

 

Other International

 

20

 

-

 

30

     

20

 

-

 

30

 

Total

 

1,125

 

-

 

1,215

     

1,185

 

-

 

1,300

 

Crude Oil Equivalent Volumes (MBoed)

                     

United States

 

644.7

 

-

 

674.7

     

696.2

 

-

 

727.2

 

Trinidad

 

28.1

 

-

 

31.8

     

30.6

 

-

 

33.5

 

Other International

 

3.3

 

-

 

5.2

     

3.3

 

-

 

5.2

 

Total

 

676.1

 

-

 

711.7

     

730.1

 

-

 

765.9

 
                                       

 

Financial Review

EOG retains exceptional financial flexibility, with strong investment-grade credit ratings, low leverage ratios and ample liquidity. At June 30, 2020, total debt outstanding was $5.7 billion for a debt-to-total capitalization ratio of 22 percent. Considering $2.4 billion of cash on the balance sheet at the end of the second quarter, EOG's net debt was $3.3 billion for a net debt-to-total capitalization ratio of 14 percent. EOG's liquidity is further enhanced by $2.0 billion of availability under its senior unsecured revolving credit agreement as of June 30, 2020. For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables.

On April 1, 2020, EOG repaid, with cash on hand, the $500 million aggregate principal amount of its 2.45% Senior Notes due 2020 that matured on that date. In addition, on April 14, 2020, EOG closed its offering of $750 million aggregate principal amount of its 4.375% Senior Notes due 2030 and $750 million aggregate principal amount of its 4.950% Senior Notes due 2050. EOG received aggregate net proceeds from the sale, after deducting underwriting discounts and offering expenses, of approximately $1.48 billion. On June 1, 2020, EOG repaid, with cash on hand, the $500 million aggregate principal amount of its 4.40% Senior Notes due 2020 that matured on that date.

During the second quarter, EOG entered into offsetting contracts to lock-in the value of outstanding crude oil NYMEX WTI price swap contracts and other financial commodity derivative contracts effective from June through December 2020. As of June 30, EOG expects to receive net cash payments of $360 million from the settlement of these contracts over the remainder of 2020.


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