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EOG Resources 10-Q 2011
eog2qtr10-q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q
 
(Mark One)

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

o           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 jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1111 Bagby, Sky Lobby 2, Houston, Texas 77002
(Address of principal executive offices)       (Zip Code)

713-651-7000
(Registrant's telephone number, including area code)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x    Accelerated filer o    Non-accelerated filer o   Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Title of each class
Number of shares
Common Stock, par value $0.01 per share
268,629,256 (as of July 29, 2011)


 

 



EOG RESOURCES, INC.

TABLE OF CONTENTS



PART I.
FINANCIAL INFORMATION
Page No.
     
 
ITEM 1.
Financial Statements (Unaudited)
 
       
   
 
3
       
   
4
       
   
 
5
       
   
6
       
 
ITEM 2.
19
       
 
ITEM 3.
36
       
 
ITEM 4.
36
       
PART II.
OTHER INFORMATION
 
       
 
ITEM 1.
37
       
 
ITEM 2.
37
       
 
ITEM 6.
38
       
 
39
       
 
40


 
-2-

 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
                         
Net Operating Revenues
                       
Crude Oil and Condensate
  $ 938,518     $ 455,808     $ 1,695,880     $ 861,970  
Natural Gas Liquids
    183,805       104,241       332,532       207,268  
Natural Gas
    599,993       553,354       1,183,912       1,230,336  
Gains on Mark-to-Market Commodity Derivative Contracts
    189,621       37,015       122,875       44,818  
Gathering, Processing and Marketing
    487,698       195,876       883,281       367,819  
Gains on Asset Dispositions, Net
    163,771       8,307       235,513       7,632  
Other, Net
    6,844       3,367       13,363       8,818  
Total
    2,570,250       1,357,968       4,467,356       2,728,661  
                                 
Operating Expenses
                               
Lease and Well
    216,695       160,734       431,784       326,726  
Transportation Costs
    101,965       94,345       199,598       183,056  
Gathering and Processing Costs
    17,716       13,220       36,912       28,881  
Exploration Costs
    41,238       50,131       92,147       101,328  
Dry Hole Costs
    1,676       19,318       24,627       42,395  
Impairments
    358,654       80,362       447,982       149,957  
Marketing Costs
    469,437       191,213       854,846       359,977  
Depreciation, Depletion and Amortization
    602,944       465,343       1,171,170       897,249  
General and Administrative
    67,406       64,737       137,443       125,160  
Taxes Other Than Income
    104,266       78,064       210,143       153,529  
Total
    1,981,997       1,217,467       3,606,652       2,368,258  
                                 
Operating Income
    588,253       140,501       860,704       360,403  
Other Income (Expense), Net
    6,224       (545 )     9,828       2,138  
Income Before Interest Expense and Income Taxes
    594,477       139,956       870,532       362,541  
Interest Expense, Net
    51,253       29,897       101,586       55,325  
Income Before Income Taxes
    543,224       110,059       768,946       307,216  
Income Tax Provision
    247,650       50,187       339,399       129,329  
Net Income
  $ 295,574     $ 59,872     $ 429,547     $ 177,887  
                                 
Net Income Per Share
                               
Basic
  $ 1.11     $ 0.24     $ 1.65     $ 0.71  
Diluted
  $ 1.10     $ 0.24     $ 1.63     $ 0.70  
                                 
Dividends Declared per Common Share
  $ 0.160     $ 0.155     $ 0.320     $ 0.310  
                                 
Average Number of Common Shares
                               
Basic
    265,830       250,825       259,766       250,596  
Diluted
    269,332       254,503       263,363       254,206  
                                 

The accompanying notes are an integral part of these consolidated financial statements.

 
-3-

 

EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)

   
June 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
 
Current Assets
           
Cash and Cash Equivalents
  $ 1,577,438     $ 788,853  
Accounts Receivable, Net
    1,279,740       1,113,279  
Inventories
    540,094       415,792  
Assets from Price Risk Management Activities
    109,225       48,153  
Income Taxes Receivable
    27,694       54,916  
Deferred Income Taxes
    -       9,260  
Other
    103,759       97,193  
      Total
    3,637,950       2,527,446  
                 
Property, Plant and Equipment
               
Oil and Gas Properties (Successful Efforts Method)
    31,588,860       29,263,809  
   Other Property, Plant and Equipment
    1,871,497       1,733,073  
      Total Property, Plant and Equipment
    33,460,357       30,996,882  
   Less:  Accumulated Depreciation, Depletion and Amortization
    (13,463,534 )     (12,315,982 )
      Total Property, Plant and Equipment, Net
    19,996,823       18,680,900  
Other Assets
    324,606       415,887  
Total Assets
  $ 23,959,379     $ 21,624,233  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
               
   Accounts Payable
  $ 1,870,172     $ 1,664,944  
   Accrued Taxes Payable
    148,645       82,168  
   Dividends Payable
    42,976       38,962  
   Liabilities from Price Risk Management Activities
    12,393       28,339  
   Deferred Income Taxes
    50,180       41,703  
   Current Portion of Long-Term Debt
    220,000       220,000  
   Other
    131,872       143,983  
      Total
    2,476,238       2,220,099  
                 
Long-Term Debt
    5,006,251       5,003,341  
Other Liabilities
    718,696       667,455  
Deferred Income Taxes
    3,681,009       3,501,706  
Commitments and Contingencies (Note 9)
               
                 
Stockholders' Equity
               
Common Stock, $0.01 Par, 640,000,000 Shares Authorized and 268,698,963 Shares Issued at June 30, 2011 and 254,223,521 Shares Issued at December 31, 2010
    202,687       202,542  
Additional Paid in Capital
    2,181,157       729,992  
Accumulated Other Comprehensive Income
    492,880       440,071  
Retained Earnings
    9,213,356       8,870,179  
Common Stock Held in Treasury, 143,309 Shares at June 30, 2011 and 146,186 Shares at December 31, 2010
    (12,895 )     (11,152 )
      Total Stockholders' Equity
    12,077,185       10,231,632  
Total Liabilities and Stockholders' Equity
  $ 23,959,379     $ 21,624,233  
                 

The accompanying notes are an integral part of these consolidated financial statements.


 
-4-

 

EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
Cash Flows from Operating Activities
           
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
           
Net Income
  $ 429,547     $ 177,887  
Items Not Requiring (Providing) Cash
               
Depreciation, Depletion and Amortization
    1,171,170       897,249  
Impairments
    447,982       149,957  
Stock-Based Compensation Expenses
    53,427       44,953  
Deferred Income Taxes
    206,130       24,493  
Gains on Asset Dispositions, Net
    (235,513 )     (7,632 )
Other, Net
    (834 )     (1,252 )
Dry Hole Costs
    24,627       42,395  
Mark-to-Market Commodity Derivative Contracts
               
Total Gains
    (122,875 )     (44,818 )
Realized Gains
    31,285       38,827  
Other, Net
    13,268       8,454  
Changes in Components of Working Capital and Other Assets and Liabilities
               
Accounts Receivable
    (165,300 )     (39,275 )
Inventories
    (127,062 )     (67,363 )
Accounts Payable
    189,250       254,878  
Accrued Taxes Payable
    94,311       (6,011 )
Other Assets
    (4,796 )     (24,499 )
Other Liabilities
    (12,017 )     (10,930 )
Changes in Components of Working Capital Associated with Investing and Financing Activities
    76,640       (135,973 )
Net Cash Provided by Operating Activities
    2,069,240       1,301,340  
                 
Investing Cash Flows
               
Additions to Oil and Gas Properties
    (3,122,567 )     (2,288,270 )
Additions to Other Property, Plant and Equipment
    (340,140 )     (115,661 )
Proceeds from Sales of Assets
    944,481       41,939  
Changes in Components of Working Capital Associated with Investing Activities
    (76,852 )     135,693  
Other, Net
    -       (4,157 )
Net Cash Used in Investing Activities
    (2,595,078 )     (2,230,456 )
                 
Financing Cash Flows
               
Common Stock Sold
    1,388,270       -  
Long-Term Debt Borrowings
    -       991,395  
Long-Term Debt Repayments
    -       (37,000 )
Dividends Paid
    (81,562 )     (75,179 )
Treasury Stock Purchased
    (16,736 )     (7,307 )
Proceeds from Stock Options Exercised and Employee Stock Purchase Plan
    24,619       21,023  
Debt Issuance Costs
    -       (1,194 )
Other, Net
    212       280  
Net Cash Provided by Financing Activities
    1,314,803       892,018  
                 
Effect of Exchange Rate Changes on Cash
    (380 )     1,461  
                 
Increase (Decrease) in Cash and Cash Equivalents
    788,585       (35,637 )
Cash and Cash Equivalents at Beginning of Period
    788,853       685,751  
Cash and Cash Equivalents at End of Period
  $ 1,577,438     $ 650,114  
                 
The accompanying notes are an integral part of these consolidated financial statements.

 
-5-

 

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


1.      Summary of Significant Accounting Policies

General.>  The consolidated financial statements of EOG Resources, Inc., together with its subsidiaries (collectively, EOG), included herein have been prepared by management without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC).  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 presented.  Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations.  However, management believes that the disclosures included either on the face of the financial statements or in these notes are sufficient to make the interim 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, 2010, filed on February 24, 2011 (EOG's 2010 Annual Report).

The preparation of financial statements in conformity with U.S. GAAP 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.  The operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.

Recently Issued Accounting Standards and Developments.>  In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2011-05 "Comprehensive Income (Topic 220): Presentation of Comprehensive Income."  ASU No. 2011-05 is intended to increase the prominence of comprehensive income in the financial statements by requiring that an entity that reports items of comprehensive income do so in either one or two consecutive financial statements.  A single statement should include total net income, the components of other comprehensive income, total other comprehensive income and total comprehensive income.  In a two-statement approach, an entity will present total net income in the first statement and, in a statement immediately following the first, information about the components of total other comprehensive income and total comprehensive income.  The provisions of ASU No. 2011-05 are effective for quarterly and annual fiscal periods beginning after December 15, 2011.  Retroactive application is required.



 
-6-

 

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



2.      Stock-Based Compensation

As more fully discussed in Note 6 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG maintains various stock-based compensation plans.  Stock-based compensation expense is included in the Consolidated Statements of Income based upon the job function of the employee receiving the grants as follows (in millions):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Lease and Well
  $ 7.2     $ 6.0     $ 14.9     $ 12.3  
Gathering and Processing Costs
    0.2       0.3       0.4       0.3  
Exploration Costs
    5.5       5.3       11.6       10.8  
General and Administrative
    13.1       10.9       26.5       21.6  
   Total
  $ 26.0     $ 22.5     $ 53.4     $ 45.0  

 
The EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan, as amended (2008 Plan), provides for grants of stock options, stock-settled stock appreciation rights (SARs), restricted stock, restricted stock units and other stock-based awards.  At June 30, 2011, approximately 6.8 million common shares remained available for grant under the 2008 Plan.  EOG's policy is to issue shares related to the 2008 Plan from previously authorized unissued shares.

Stock Options and Stock-Settled Stock Appreciation Rights and Employee Stock Purchase Plan>.  The fair value of all Employee Stock Purchase Plan (ESPP) grants is estimated using the Black-Scholes-Merton model.  The fair value of stock option and SAR grants is estimated using the Hull-White II binomial option pricing model.  Stock-based compensation expense related to stock option, SAR and ESPP grants totaled $10.5 million and $9.3 million during the three months ended June 30, 2011 and 2010, respectively, and $19.9 million and $17.8 million during the six months ended June 30, 2011 and 2010, respectively.

Weighted average fair values and valuation assumptions used to value stock option, SAR and ESPP grants during the six-month periods ended June 30, 2011 and 2010 are as follows:

   
Stock Options/SARs
   
ESPP
 
   
Six Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Weighted Average Fair Value of Grants
  $ 36.57     $ 33.38     $ 21.55     $ 24.66  
Expected Volatility
    37.13 %     38.05 %     30.26 %     34.78 %
Risk-Free Interest Rate
    1.12 %     1.21 %     0.18 %     0.15 %
Dividend Yield
    0.6 %     0.6 %     0.6 %     0.7 %
Expected Life
 
5.4 yrs
   
5.0 yrs
   
0.5 yrs
   
0.5 yrs
 


Expected volatility is based on an equal weighting of historical volatility and implied volatility from traded options in EOG's common stock.  The risk-free interest rate is based upon United States Treasury yields in effect at the time of grant.  The expected life is based upon historical experience and contractual terms of stock option, SAR and ESPP grants.


 
-7-

 

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



The following table sets forth stock option and SAR transactions for the six-month periods ended June 30, 2011 and 2010 (stock options and SARs in thousands):
 
 
   
Six Months Ended
   
Six Months Ended
 
   
June 30, 2011
   
June 30, 2010
 
         
Weighted
         
Weighted
 
   
Number of
   
Average
   
Number of
   
Average
 
   
Stock
   
Grant
   
Stock
   
Grant
 
   
Options/SARs
   
Price
   
Options/SARs
   
Price
 
                         
Outstanding at January 1
    8,445     $ 64.49       8,335     $ 57.08  
Granted
    80       110.36       91       103.36  
Exercised (1)
    (1,016 )     51.11       (724 )     40.72  
Forfeited
    (99 )     87.22       (56 )     79.22  
Outstanding at June 30 (2)
    7,410     $ 66.51       7,646     $ 59.02  
                                 
Vested or Expected to Vest (3)
    7,183     $ 65.84       7,414     $ 58.32  
                                 
Exercisable at June 30 (4)
    4,510     $ 52.53       4,750     $ 45.71  

(1)
The total intrinsic value of stock options/SARs exercised for the six months ended June 30, 2011 and 2010 was $59.9 million and $45.2 million, respectively.  The intrinsic value is based upon the difference between the market price of EOG's common stock on the date of exercise and the grant price of the stock options/SARs.
(2)
The total intrinsic value of stock options/SARs outstanding at June 30, 2011 and 2010 was $283.6 million and $302.7 million, respectively.  At June 30, 2011 and 2010, the weighted average remaining contractual life was 3.6 years and 3.8 years, respectively.
(3)
The total intrinsic value of stock options/SARs vested or expected to vest at June 30, 2011 and 2010 was $279.8 million and $298.7 million, respectively.  At June 30, 2011 and 2010, the weighted average remaining contractual life was 3.5 years and 3.8 years, respectively.
(4)
The total intrinsic value of stock options/SARs exercisable at June 30, 2011 and 2010 was $235.5 million and $251.0 million, respectively.  At June 30, 2011 and 2010, the weighted average remaining contractual life was 2.4 years and 2.9 years, respectively.

At June 30, 2011, unrecognized compensation expense related to non-vested stock option and SAR grants totaled $70.9 million.  This unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.4 years.

Restricted Stock and Restricted Stock Units.> Employees may be granted restricted (non-vested) stock and/or restricted stock units without cost to them.  Stock-based compensation expense related to restricted stock and restricted stock units totaled $15.5 million and $13.2 million for the three months ended June 30, 2011 and 2010, respectively, and $33.5 million and $27.2 million for the six months ended June 30, 2011 and 2010, respectively.
 

 

 
-8-

 

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



The following table sets forth the restricted stock and restricted stock units transactions for the six-month periods ended June 30, 2011 and 2010 (shares and units in thousands):

 
   
Six Months Ended
   
Six Months Ended
 
   
June 30, 2011
   
June 30, 2010
 
         
Weighted
         
Weighted
 
   
Number of
   
Average
   
Number of
   
Average
 
   
Shares and
   
Grant Date
   
Shares and
   
Grant Date
 
   
Units
   
Fair Value
   
Units
   
Fair Value
 
                         
Outstanding at January 1
    4,009     $ 79.13       3,636     $ 73.69  
Granted
    292       106.14       251       95.95  
Released (1)
    (213 )     69.29       (206 )     49.46  
Forfeited
    (97 )     80.09       (44 )     76.23  
Outstanding at June 30 (2)
    3,991     $ 81.61       3,637     $ 76.57  

(1)
The total intrinsic value of restricted stock and restricted stock units released for the six months ended June 30, 2011 and 2010 was $22.6 million and $20.4 million, respectively.  The intrinsic value is based upon the closing price of EOG's common stock on the date restricted stock and restricted stock units are released.
(2)
The total intrinsic value of restricted stock and restricted stock units outstanding at June 30, 2011 and 2010 was $417.3 million and $357.7 million, respectively.

At June 30, 2011, unrecognized compensation expense related to restricted stock and restricted stock units totaled $136.2 million.  Such unrecognized expense will be recognized on a straight-line basis over a weighted average period of 2.5 years.

3.      Net Income Per Share

The following table sets forth the computation of Net Income Per Share for the three-month and six-month periods ended June 30, 2011 and 2010 (in thousands, except per share data):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Numerator for Basic and Diluted Earnings Per Share -
                       
Net Income
  $ 295,574     $ 59,872     $ 429,547     $ 177,887  
                                 
Denominator for Basic Earnings Per Share -
                               
Weighted Average Shares
    265,830       250,825       259,766       250,596  
Potential Dilutive Common Shares -
                               
Stock Options/SARs
    1,807       2,181       1,891       2,139  
Restricted Stock and Restricted Stock Units
    1,695       1,497       1,706       1,471  
Denominator for Diluted Earnings Per Share -
                               
Adjusted Diluted Weighted Average Shares
    269,332       254,503       263,363       254,206  
                                 
Net Income Per Share
                               
Basic
  $ 1.11     $ 0.24     $ 1.65     $ 0.71  
Diluted
  $ 1.10     $ 0.24     $ 1.63     $ 0.70  



 
-9-

 

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



The diluted earnings per share calculation excludes stock options and SARs that were anti-dilutive.  The excluded stock options and SARs totaled 0.2 million and 0.1 million shares for the three months ended June 30, 2011 and 2010, respectively, and 0.2 million and 0.1 million shares for the six months ended June 30, 2011 and 2010, respectively.

4.      Supplemental Cash Flow Information

Net cash paid for interest and income taxes was as follows for the six-month periods ended June 30, 2011 and 2010 (in thousands):

   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
             
Interest (1)
  $ 81,557     $ 60,918  
Income Taxes, Net of Refunds Received
  $ 83,818     $ 129,850  

(1)  
Net of capitalized interest of $30 million and $37 million for the six months ended June 30, 2011 and 2010, respectively.

EOG’s accrued capital expenditures at June 30, 2011 and 2010 were $763 million and $527 million, respectively.

5.      Comprehensive Income (Loss)

The following table presents the components of EOG's comprehensive income (loss) for the three-month and six-month periods ended June 30, 2011 and 2010 (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Comprehensive Income (Loss)
                       
   Net Income
  $ 295,574     $ 59,872     $ 429,547     $ 177,887  
   Other Comprehensive Income (Loss)
                               
   Foreign Currency Translation Adjustments
    11,673       (91,256 )     55,515       (29,088 )
   Foreign Currency Swap
    (843 )     842       (184 )     5,390  
   Income Tax Related to Foreign Currency Swap
    216       (215 )     52       (1,443 )
   Interest Rate Swap Transaction
    (5,713 )     -       (4,109 )     -  
   Income Tax Related to Interest Rate Swap Transaction
    2,055       -       1,477       -  
   Other
    28       26       58       52  
 Total
  $ 302,990     $ (30,731 )   $ 482,356     $ 152,798  



 
-10-

 

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



6.      Segment Information

Selected financial information by reportable segment is presented below for the three-month and six-month periods ended June 30, 2011 and 2010 (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net Operating Revenues
                       
United States
  $ 2,281,055     $ 1,123,161     $ 3,908,653     $ 2,243,862  
Canada
    140,575       113,560       256,538       253,599  
Trinidad
    141,454       114,782       287,342       217,996  
Other International (1)
    7,166       6,465       14,823       13,204  
Total
  $ 2,570,250     $ 1,357,968     $ 4,467,356     $ 2,728,661  
                                 
Operating Income (Loss)
                               
United States
  $ 804,653     $ 118,453     $ 1,014,539     $ 309,323  
Canada
    (299,980 )     (42,778 )     (319,416 )     (55,220 )
Trinidad
    91,909       74,942       183,109       146,969  
Other International (1)
    (8,329 )     (10,116 )     (17,528 )     (40,669 )
Total
    588,253       140,501       860,704       360,403  
                                 
Reconciling Items
                               
Other Income (Expense), Net
    6,224       (545 )     9,828       2,138  
Interest Expense, Net
    51,253       29,897       101,586       55,325  
Income Before Income Taxes
  $ 543,224     $ 110,059     $ 768,946     $ 307,216  
 
(1)      Other International includes EOG's United Kingdom and China operations.

Total assets by reportable segment are presented below at June 30, 2011 and December 31, 2010 (in thousands):

   
At
   
At
 
   
June 30,
   
December 31,
 
   
2011
   
2010
 
Total Assets
           
United States
  $ 20,309,529     $ 17,762,533  
Canada
    2,292,034       2,598,412  
Trinidad
    1,058,853       954,391  
Other International (1)
    298,963       308,897  
Total
  $ 23,959,379     $ 21,624,233  
 
(1)      Other International includes EOG's United Kingdom and China operations.


 
-11-

 

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



7.      Asset Retirement Obligations

The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of short-term and long-term legal obligations associated with the retirement of property, plant and equipment for the six-month periods ended June 30, 2011 and 2010 (in thousands):

   
Six Months Ended
 
   
June 30,
 
   
2011
   
2010
 
             
Carrying Amount at Beginning of Period
  $ 498,288     $ 456,484  
Liabilities Incurred
    12,973       10,601  
Liabilities Settled (1)
    (38,748 )     (8,168 )
Accretion
    12,268       12,086  
Revisions
    618       46  
Foreign Currency Translations
    2,834       (902 )
Carrying Amount at End of Period
  $ 488,233     $ 470,147  
                 
Current Portion
  $ 22,959     $ 29,473  
Noncurrent Portion
  $ 465,274     $ 440,674  

(1)   Includes settlements related to asset sales.

The current and noncurrent portions of EOG's asset retirement obligations are included in Current Liabilities - Other and Other Liabilities, respectively, on the Consolidated Balance Sheets.

8.      Exploratory Well Costs

EOG's net changes in capitalized exploratory well costs for the six-month period ended June 30, 2011 are presented below (in thousands):

   
Six Months Ended
 
   
June 30, 2011
 
       
Balance at December 31, 2010
  $ 99,801  
Additions Pending the Determination of Proved Reserves
    21,923  
Reclassifications to Proved Properties
    (28,294 )
Charged to Dry Hole Costs
    (19,444 )
Foreign Currency Translations
    1,245  
Balance at June 30, 2011
  $ 75,231  



 
-12-

 

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



The following table provides an aging of capitalized exploratory well costs at June 30, 2011 (in thousands, except well count):

   
At
       
   
June 30,
       
   
2011
       
             
Capitalized exploratory well costs that have been capitalized for a period less than one year
  $ 10,945        
Capitalized exploratory well costs that have been capitalized for a period greater than one year
    64,286  (1)        
Total
  $ 75,231          
Number of exploratory wells that have been capitalized for a period greater than one year
    4          

(1)
Consists of costs related to a project in the Sichuan Basin, Sichuan Province, China ($27 million), an outside operated, offshore Central North Sea project in the United Kingdom (U.K.) ($22 million), an East Irish Sea project in the U.K. ($9 million), and a shale project in British Columbia, Canada (B.C.) ($6 million).  The evaluation of the Sichuan Basin project is expected to be completed in early 2012.  In the Central North Sea project, the operator and partners are currently negotiating processing and transportation terms with export infrastructure owners.  The operator submitted a revised field development plan to the U.K. Department of Energy and Climate Change (DECC) and anticipates receiving approval of this plan during the first quarter of 2012.  In the East Irish Sea project, EOG submitted its field development plan to the DECC during the first quarter of 2011 with regulatory approval expected by the end of 2011.  In addition, EOG is in the process of designing and constructing the infrastructure for the project in anticipation of final regulatory approval.  In the B.C. shale project, EOG drilled four additional wells during the first six months of 2011 to further evaluate the project.  The related well completion activities are expected to commence in 2013.

9.      Commitments and Contingencies

There are currently various suits and claims pending against EOG that have arisen in the ordinary course of EOG's business, including contract disputes, personal injury and property damage claims and title disputes.  While the ultimate outcome and impact on EOG cannot be predicted, management believes that the resolution of these suits and claims will not, individually or in the aggregate, have a material adverse effect on EOG's consolidated financial position, results of operations or cash flow.  EOG records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.

10.      Pension and Postretirement Benefits

EOG has a non-contributory defined contribution pension plan and a matched defined contribution savings plan in place for most of its employees in the United States, Canada, Trinidad and the United Kingdom, in addition to defined benefit pension plans covering certain employees of its Canadian and Trinidadian subsidiaries.  For the six months ended June 30, 2011 and 2010, EOG's total costs recognized for these pension plans were $14 million and $13 million, respectively.  EOG also has postretirement medical and dental plans in place for eligible employees in the United States and Trinidad, the costs of which are not material.

11.      Long-Term Debt and Common Stock

Long-Term Debt.  > EOG utilizes commercial paper and short-term borrowings from uncommitted credit facilities, bearing market interest rates, for various corporate financing purposes.  EOG had no outstanding borrowings from commercial paper issuances or uncommitted credit facilities at June 30, 2011.  The average borrowings outstanding under the commercial paper program were $3 million during the six months ended June 30, 2011.  The weighted average interest rate for commercial paper borrowings for the six months ended June 30, 2011 was 0.32%.


 
-13-

 

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



EOG currently has two $1.0 billion unsecured Revolving Credit Agreements with domestic and foreign lenders.  At June 30, 2011, there were no borrowings or letters of credit outstanding under either of these agreements.  The first $1.0 billion unsecured Revolving Credit Agreement (2005 Agreement) matures on June 28, 2012.  Advances under the 2005 Agreement accrue interest based, at EOG's option, on either the London Interbank Offering Rate plus an applicable margin (Eurodollar rate) or the base rate (as defined in the 2005 Agreement).  At June 30, 2011, the Eurodollar rate and applicable base rate, had there been any amounts borrowed under the 2005 Agreement, would have been 0.38% and 3.25%, respectively.

The second $1.0 billion unsecured Revolving Credit Agreement (2010 Agreement) matures on September 10, 2013 (subject to EOG's option to extend, on up to two occasions, the term for successive one-year periods).  Advances under the 2010 Agreement accrue interest based, at EOG's option, on either the Eurodollar rate or the base rate (as defined in the 2010 Agreement) plus an applicable margin.  At June 30, 2011, the Eurodollar rate and applicable base rate, had there been any amounts borrowed under the 2010 Agreement, would have been 1.76% and 3.83%, respectively.

Fair Value of Debt.>   At both June 30, 2011 and December 31, 2010, EOG had outstanding $5,260 million aggregate principal amount of debt, which had estimated fair values of approximately $5,628 million and $5,602 million, respectively.  The estimated fair value of debt was based upon quoted market prices and, where such prices were not available, upon interest rates available to EOG at the end of each respective period.

Common Stock.>  On March 7, 2011, EOG completed the sale of 13,570,000 shares of EOG common stock, par value $0.01 per share (Common Stock), at the public offering price of $105.50 per share.  Net proceeds from the sale of the Common Stock were approximately $1,388 million after deducting the underwriting discount and offering expenses.  Proceeds from the sale were used for general corporate purposes, including funding capital expenditures.

On February 17, 2011, the EOG Board of Directors increased the quarterly cash dividend on the Common Stock from the previous $0.155 per share to $0.16 per share effective with the dividend paid on April 29, 2011 to stockholders of record as of April 15, 2011.


 
-14-

 

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



12.      Fair Value Measurements

As more fully discussed in Note 12 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, certain of EOG's financial and nonfinancial assets and liabilities are reported at fair value on the Consolidated Balance Sheets.  The following table provides fair value measurement information within the fair value hierarchy for certain of EOG's financial assets and liabilities carried at fair value on a recurring basis at June 30, 2011 and December 31, 2010 (in millions):

   
Fair Value Measurements Using:
 
   
Quoted Prices in Active Markets (Level 1)
   
Significant Other Observable Inputs (Level 2)
             
   
Significant Unobservable Inputs (Level 3)
       
       
       
   
Total
 
At June 30, 2011
                       
Financial Assets:
                       
Crude Oil and Natural Gas Price Swaps
  $ -     $ 73     $ -     $ 73  
Natural Gas Swaptions
    -       57       -       57  
                                 
Financial Liabilities:
                               
Foreign Currency Rate Swap
  $ -     $ 62     $ -     $ 62  
Interest Rate Swap
    -       2       -       2  
                                 
At December 31, 2010
                               
Financial Assets:
                               
Natural Gas Price Swaps
  $ -     $ 62     $ -     $ 62  
Natural Gas Swaptions
    -       6       -       6  
Interest Rate Swap
    -       2       -       2  
                                 
Financial Liabilities:
                               
Crude Oil Price Swaps and Natural Gas Basis Swaps
  $ -     $ 29     $ -     $ 29  
Foreign Currency Rate Swap
    -       55       -       55  


The estimated fair value of crude oil financial price swap contracts, natural gas financial price swap and basis swap contracts, natural gas swaption contracts and interest rate swap contracts was based upon forward commodity price and interest rate curves based on quoted market prices.  The estimated fair value of the foreign currency rate swap was based upon forward currency rates.

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on estimates of future retirement costs associated with oil and gas properties.  Significant Level 3 inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives.  A reconciliation of EOG's asset retirement obligations is presented in Note 7.

Proved oil and gas properties with a carrying amount of $534 million were written down to their fair value of $174 million, resulting in a pretax impairment charge of $360 million for the six months ended June 30, 2011.  Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the impairment analysis include EOG's estimate of future natural gas and crude oil prices, production costs, development expenditures, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data.  In connection with certain first quarter 2011 impairments of proved oil and gas properties and other property, plant and equipment, EOG utilized an accepted offer from a third-party buyer.

 
-15-

 

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



13.      Risk Management Activities

Commodity Price Risk>.  As more fully discussed in Note 11 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG engages in price risk management activities from time to time.  These activities are intended to manage EOG's exposure to fluctuations in commodity prices for crude oil and natural gas.  EOG utilizes financial commodity derivative instruments, primarily price swap, collar and basis swap contracts, as a means to manage this price risk.  In addition to financial transactions, EOG is a party to various physical commodity contracts for the sale of hydrocarbons that cover varying periods of time and have varying pricing provisions.  The financial impact of physical commodity contracts is included in revenues at the time of settlement, which in turn affects average realized hydrocarbon prices.  EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $190 million and $37 million for the three months ended June 30, 2011 and 2010, respectively, and $123 million and $45 million for the six months ended June 30, 2011 and 2010, respectively.

Financial Price Swap Contracts.  Presented below is a comprehensive summary of EOG's crude oil and natural gas financial price swap contracts at June 30, 2011, with notional volumes expressed in barrels per day (Bbld) and in million British thermal units per day (MMBtud) and prices expressed in dollars per barrel ($/Bbl) and in dollars per million British thermal units ($/MMBtu), as applicable.

Financial Price Swap Contracts
 
   
Crude Oil
   
Natural Gas
 
   
Volume (Bbld)
   
Weighted Average Price ($/Bbl)
   
Volume (MMBtud)
   
Weighted Average Price ($/MMBtu)
 
2011 (1)
                       
January 2011 (closed)
    17,000     $ 90.44       275,000     $ 5.19  
February 2011 (closed)
    18,000       90.69       425,000       5.09  
March 2011 (closed)
    20,000       91.82       425,000       5.09  
April 2011 (closed)
    24,000       93.61       475,000       5.03  
May 2011 (closed)
    24,000       93.61       650,000       4.90  
June 2011 (closed)
    30,000       97.02       650,000       4.90  
July 1, 2011 through December 31, 2011 (2)
    30,000       97.02       650,000       4.90  
                                 
2012 (3)
                               
January 1, 2012 through December 31, 2012
    9,000     $ 107.12       525,000     $ 5.44  

(1)
EOG has entered into natural gas financial price swap contracts which give counterparties the option of entering into price swap contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas financial price swap contracts will increase by 500,000 MMBtud at an average price of $4.73 per million British thermal units (MMBtu) for the period from August 1, 2011 through December 31, 2011.
(2)
The crude oil contracts for July 2011 close on July 31, 2011.  The natural gas contracts for July 2011 are closed.
(3)
EOG has entered into natural gas financial price swap contracts which give counterparties the option of entering into price swap contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas financial price swap contracts will increase by 425,000 MMBtud at an average price of $5.44 per MMBtu for each month of 2012.

Subsequent to June 30, 2011, EOG entered into an additional crude oil financial price swap contract for the year 2012.  See Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Commodity Derivative Transactions.

 
-16-

 

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



Foreign Currency Exchange Rate Risk.  >As more fully described in Note 2 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG is party to a foreign currency swap transaction with multiple banks to eliminate any exchange rate impacts that may result from the $150 million principal amount of notes issued by one of EOG's Canadian subsidiaries.  EOG accounts for the foreign currency swap transaction using the hedge accounting method.  Changes in the fair value of the foreign currency swap do not impact Net Income.  The after-tax net impact from the foreign currency swap transaction was a reduction in Other Comprehensive Income (OCI) of $1 million and an increase in OCI of $1 million for the three months ended June 30, 2011 and 2010, respectively, and a reduction in OCI of $0.1 million and an increase in OCI of $4 million for the six months ended June 30, 2011 and 2010, respectively.

Interest Rate Derivatives.>  As more fully discussed in Note 2 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG is a party to an interest rate swap transaction to mitigate its exposure to volatility in interest rates related to EOG's $350 million principal amount of Floating Rate Senior Notes due 2014 issued on November 23, 2010.  The interest rate swap has a notional amount of $350 million and a fair value at June 30, 2011 of $(2) million.  EOG accounts for the interest rate swap transaction using the hedge accounting method.  The after-tax net impact from the interest rate swap transaction was a decrease in OCI of $4 million and $3 million for the three and six months ended June 30, 2011, respectively.

The following table sets forth the amounts, on a gross basis, and classification of EOG's outstanding financial derivative financial instruments at June 30, 2011 and December 31, 2010.  Certain amounts may be presented on a net basis in the consolidated financial statements when such amounts are with the same counterparty and subject to a master netting arrangement (in millions):

     
Fair Value at
 
     
June 30,
   
December 31,
 
Description
Location on Balance Sheet
 
2011
   
2010
 
               
Asset Derivatives
             
Crude oil and natural gas price swaps and natural gas swaptions -
             
Current Portion
Assets from Price Risk Management Activities
  $ 109     $ 51  
 
Noncurrent Portion
Other Assets
  $ 35     $ 18  
                   
Liability Derivatives
                 
Crude oil price swaps, natural gas price and basis swaps and natural gas swaptions -
                 
Current Portion
Liabilities from Price Risk Management Activities
  $ 12     $ 30  
 
Noncurrent Portion
Other Liabilities
  $ 2     $ -  
                   
 Foreign currency and interest rate swap -                  
     Noncurrent Portion
Other Liabilities
  $ 64     $ 53  


Credit Risk.>  Notional contract amounts are used to express the magnitude of commodity price, foreign currency and interest rate swap agreements.  The amounts potentially subject to credit risk, in the event of nonperformance by the counterparties, are equal to the fair value of such contracts (see Note 12).  EOG evaluates its exposure to significant counterparties on an ongoing basis, including those arising from physical and financial transactions.  In some instances, EOG requires collateral, parent guarantees or letters of credit to minimize credit risk.


 
-17-

 

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



All of EOG's outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements (ISDA) with counterparties.  The ISDAs may contain provisions that require EOG, if it is the party in a net liability position, to post collateral when the amount of the net liability exceeds the threshold level specified for EOG's then-current credit ratings.  In addition, the ISDAs may also provide that as a result of certain circumstances, including certain events that cause EOG's credit rating to become materially weaker than its then-current ratings, the counterparty may require all outstanding derivatives under the ISDAs to be settled immediately.  See Note 12 for the aggregate fair value of all outstanding derivative instruments with credit-risk-related contingent features that are in a net liability position at June 30, 2011 and December 31, 2010.  EOG had no collateral posted at either June 30, 2011 or December 31, 2010.