SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1200 Smith Street, Suite 300, Houston, Texas 77002-7361
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 713-651-7000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
x No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 1, 2000.
Title of each class Number of shares
Common Stock, $.01 par value 116,226,059
<PAGE>
EOG RESOURCES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
ITEM 1. Financial Statements
Consolidated Statements of Income - Three Months Ended June 30,
2000 and 1999 And Six Months Ended June 30, 2000 and 1999.......... 3
Consolidated Balance Sheets - June 30, 2000 and December 31, 1999..... 4
Consolidated Statements of Cash Flows - Six Months Ended June 30,
2000 and 1999...................................................... 5
Notes to Consolidated Financial Statements............................ 6
ITEM 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations......................................... 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 16
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 16
ITEM 6. Exhibits and Reports on Form 8-K............................. 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET OPERATING REVENUES
Natural Gas $238,260 $155,759 $417,543 $285,869
Crude Oil, Condensate and Natural Gas Liquids 76,898 36,963 149,428 64,516
Gains (Losses) on Sales of Reserves and Related Assets and Other, Net 984 (5,527) 1,613 (4,236)
------- ------- ------- -------
TOTAL 316,142 187,195 568,584 346,149
OPERATING EXPENSES
Lease and Well 25,638 23,538 51,923 47,607
Exploration Costs 13,204 10,302 26,149 27,091
Dry Hole Costs 3,290 2,130 9,051 2,475
Impairment of Unproved Oil and Gas Properties 7,925 7,984 15,882 15,987
Depreciation, Depletion and Amortization 90,149 88,781 174,731 170,803
General and Administrative 16,027 26,384 32,314 50,019
Taxes Other Than Income 20,674 12,381 39,089 26,076
------- ------- ------- -------
TOTAL 176,907 171,500 349,139 340,058
------- ------- ------- -------
OTHER INCOME, NET 763 31,352 780 58,290
------- ------- ------- -------
INCOME BEFORE INTEREST EXPENSE AND INCOME TAXES 139,998 47,047 220,225 64,381
INTEREST EXPENSE, NET 15,581 14,774 30,149 29,041
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 124,417 32,273 190,076 35,340
INCOME TAX PROVISION 46,900 11,635 71,069 9,636
------- ------- ------- -------
NET INCOME 77,517 20,638 119,007 25,704
PREFERRED STOCK DIVIDENDS (2,860) - (5,514) -
------- ------- ------- -------
NET INCOME AVAILABLE TO COMMON $ 74,657 $ 20,638 $113,493 $ 25,704
======= ======= ======= =======
NET INCOME PER SHARE OF COMMON STOCK
Basic $ 0.64 $ 0.13 $ 0.97 $ 0.17
======= ======= ======= =======
Diluted $ 0.63 $ 0.13 $ 0.96 $ 0.17
======= ======= ======= =======
AVERAGE NUMBER OF COMMON SHARES
Basic 116,666 153,485 117,247 153,439
======= ======= ======= =======
Diluted 119,177 154,131 118,757 153,880
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 11,714 $ 24,836
Accounts Receivable 225,598 148,189
Inventories 17,364 18,816
Other 11,073 8,660
---------- ----------
TOTAL 265,749 200,501
OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 4,709,569 4,602,740
Less: Accumulated Depreciation, Depletion and Amortization (2,417,656) (2,267,812)
---------- ----------
Net Oil and Gas Properties 2,291,913 2,334,928
OTHER ASSETS 94,082 75,364
---------- ----------
TOTAL ASSETS $ 2,651,744 $ 2,610,793
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 167,040 $ 172,780
Accrued Taxes Payable 16,747 19,648
Dividends Payable 4,616 4,227
Other 18,097 21,963
---------- ----------
TOTAL 206,500 218,618
LONG-TERM DEBT 949,550 990,306
OTHER LIABILITIES 66,616 46,306
DEFERRED INCOME TAXES 265,923 225,952
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 Par, 10,000,000 Shares Authorized:
Series A, 100,000 Shares Issued, Cumulatve,
$100,000,000 Liquidation Preference 97,874 97,909
Series C, 500 Shares Issued, Cumulative,
$50,000,000 Liquidation Preference 49,291 49,281
Common Stock, $.01 Par, 320,000,000 Shares Authorized;
124,730,000 Shares Issued 201,247 201,247
Additional Paid in Capital 3,800 -
Unearned Compensation (4,338) (1,618)
Cumulative Foreign Currency Translation Adjustment (27,341) (19,810)
Retained Earnings 1,036,745 930,938
Common Stock Held in Treasury, 8,117,853 shares at
June 30, 2000 and 5,625,446 shares at December 31, 1999 (194,123) (128,336)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,163,155 1,129,611
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,651,744 $ 2,610,793
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
Six Months Ended
June 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of Net Income to Net Operating Cash Inflows:
Net Income $ 119,007 $ 25,704
Items Not Requiring Cash
Depreciation, Depletion and Amortization 174,731 170,803
Impairment of Unproved Oil and Gas Properties 15,882 15,987
Deferred Income Taxes 40,714 4,317
Other, Net 2,459 410
Exploration Costs 26,149 27,091
Dry Hole Costs 9,051 2,475
Losses on Sales of Reserves and Related Assets and Other, Net 1,650 6,723
Gains on Sales of Other Assets - (59,647)
Tax Benefits from Stock Options Exercised 11,593 238
Other, Net (5,336) (13,322)
Changes in Components of Working Capital and Other Liabilities
Accounts Receivable (77,406) 19,226
Inventories 1,452 4,406
Accounts Payable 5,624 (46,285)
Accrued Taxes Payable (2,901) (3,622)
Other Liabilities 5,570 (3,909)
Other, Net (6,279) (11,234)
Changes in Components of Working Capital Associated with Investing and Financing Activities 5,633 16,019
-------- --------
NET OPERATING CASH INFLOWS 327,593 155,380
INVESTING CASH FLOWS
Additions to Oil and Gas Properties (179,613) (179,749)
Exploration Costs (26,149) (27,091)
Dry Hole Costs (9,051) (2,475)
Proceeds from Sales of Reserves and Related Assets 21,961 2,756
Proceeds from Sale of Other Assets - 83,015
Changes in Components of Working Capital Associated with Investing Activities (6,180) (15,811)
Other, Net (11,669) (1,201)
-------- --------
NET INVESTING CASH OUTFLOWS (210,701) (140,556)
FINANCING CASH FLOWS
Long-Term Debt
Trade (40,756) 131,104
Affiliate - (134,000)
Dividends Paid (12,517) (9,203)
Treasury Stock Purchased (134,348) -
Proceeds from Sales of Treasury Stock 56,800 2,711
Other, Net 807 (328)
-------- --------
NET FINANCING CASH OUTFLOWS (130,014) (9,716)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,122) 5,108
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,836 6,303
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,714 $ 11,411
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
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 (the "Company") included herein have been prepared by
management without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial results for the interim periods.
Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles
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 the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior period financial
statements to conform with the current presentation.
As more fully discussed in Notes 1 and 14 to the consolidated
financial statements included in the Company's 1999 Annual Report on
Form 10-K, the Company engages in price risk management activities
from time to time primarily for non-trading and to a lesser extent
for trading purposes. Derivative financial instruments (primarily
price swaps and costless collars) are utilized selectively for non-
trading purposes to hedge the impact of market fluctuations on
natural gas and crude oil market prices. Hedge accounting is
utilized in non-trading activities when there is a high degree of
correlation between price movements in the derivative and the item
designated as being hedged. Gains and losses on derivative financial
instruments used for hedging purposes are recognized as revenue in
the same period as the hedged item. The gains or losses are recorded
in Net Operating Revenues for Natural Gas and Crude Oil, Condensate
and Natural Gas Liquids. Gains and losses on hedging instruments
that are closed prior to maturity are deferred in the consolidated
balance sheets and amortized over the original hedge period. In
instances where the anticipated correlation of price movements does
not occur, hedge accounting is terminated and future changes in the
value of the derivative are recognized as gains or losses using the
mark-to-market method of accounting. Derivative and other financial
instruments utilized in connection with trading activities, primarily
price swaps and call options, are accounted for using the mark-to-
market method, under which changes in the market value of outstanding
financial instruments are recognized as gains or losses in the period
of change. The cash flow impact of derivative and other financial
instruments used for non-trading and trading purposes is reflected as
cash flows from operating activities in the consolidated statements
of cash flows.
2. On August 16, 1999, the Company and Enron Corp. completed the Share
Exchange whereby the Company received 62,270,000 shares of the Company's
common stock out of 82,270,000 shares owned by Enron Corp. in exchange
for all the stock of the Company's subsidiary, EOGI-India, Inc. (See
Note 7 to the Consolidated Financial Statements in the Company's 1999
Annual Report on Form 10-K).
3. Natural gas revenues for the three-month and six-month periods
ended June 30, 2000 and 1999, are net of costs of natural gas purchased
for sale related to natural gas marketing activities of $11.6 million,
$12.8 million, $24.1 million and $34.3 million, respectively.
4. The income tax provisions for the three-month and six-month periods
ended June 30, 2000 were calculated using the annual effective rate
method. The income tax provision for the six-month period ended June
30, 1999 was calculated using the annual effective rate method. The
income tax provision for the three-month period ended June 30, 1999 was
calculated as the difference between the six-month period ended June 30,
1999 provision and the three-month period ended March 31, 1999
provision, which was calculated using the actual effective rate for that
period.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. The following table sets forth the computation of basic and diluted
earnings from net income available to common (in thousands, except per
share amounts):
Quarter Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Numerator for basic and diluted earnings per share -
Net income available to common $ 74,657 $ 20,638 $113,493 $ 25,704
======= ======= ======= =======
Denominator for basic earnings per share -
Weighted average shares 116,666 153,485 117,247 153,439
Potential dilutive common shares -
Stock options 2,397 521 1,413 317
Restricted stock 55 111 52 108
Phantom stock 59 14 45 16
------- ------- ------- -------
Denominator for diluted earnings per share -
Adjusted weighted average shares 119,177 154,131 118,757 153,880
======= ======= ======= =======
Net income per share of common stock
Basic $ 0.64 $ 0.13 $ 0.97 $ 0.17
======= ======= ======= =======
Diluted $ 0.63 $ 0.13 $ 0.96 $ 0.17
======= ======= ======= =======
6. The Company's total comprehensive income was $72.1 million, $26.9
million, $111.5 million and $35.4 million for the three-month and six-
month periods ended June 30, 2000 and 1999, respectively. The only
adjustment made to net income in the periods was for a foreign currency
translation loss of $5.4 million, gain of $6.3 million, loss of $7.5
million and gain of $9.7 million for the three-month and six-month
periods ended June 30, 2000 and 1999, respectively.
7. During the first quarter of 2000, the Company completed a property
exchange with Burlington Resources Oil & Gas Company. The acquired
properties were assigned the net book value of the properties
transferred of approximately $45 million, resulting in no gain or loss.
8. During the first and second quarters of 1999, the Company sold its
3.2 million options to purchase common stock of Enron Corp. having a
strike price of $39.1875 per share. In the first quarter of 1999, the
Company sold 1.6 million options at an average price of $24.81 ($64.00
Enron Corp. stock price equivalent), realizing net proceeds of $40
million and a gain of $28 million pre-tax ($18 million after-tax).
Early in the second quarter of 1999, the Company sold the remaining 1.6
million options at an average price of $27.07 ($66.26 Enron Corp. stock
price equivalent), realizing net proceeds of $43 million and a gain of
$32 million pre-tax ($21 million after-tax).
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Selected financial information about operating segments is reported
below for the three-month and six-month periods ended June 30, 2000 and
1999 (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
2000 1999 2000 1999
-------- -------- -------- --------
NET OPERATING REVENUES
United States $257,610 $135,377 $457,519 $242,269
Canada 39,647 21,086 71,288 37,310
Trinidad 18,875 15,690 39,758 32,689
India (1) - 21,432 - 40,265
China (1) - 2 - 4
Other 10 (6,392) 19 (6,388)
------- ------- ------- -------
TOTAL $316,142 $187,195 $568,584 $346,149
======= ======= ======= =======
OPERATING INCOME (LOSS)
United States $110,879 $ 1,904 $170,671 $(16,610)
Canada 19,315 6,505 33,441 8,847
Trinidad 10,401 9,506 17,432 19,637
India (1) - 12,324 - 15,830
China (1) - (2,631) - (4,998)
Other (1,360) (11,913) (2,099) (16,615)
------- ------- ------- -------
TOTAL 139,235 15,695 219,445 6,091
RECONCILING ITEMS
Other Income, Net 763 31,352 780 58,290
Interest Expense, Net 15,581 14,774 30,149 29,041
------- ------- ------- -------
INCOME BEFORE INCOME TAXES $124,417 $ 32,273 $190,076 $ 35,340
======= ======= ======= =======
(1) See Note 2.
10. As reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, two stockholders of the Company filed
separate lawsuits purportedly on behalf of the Company against Enron
Corp. and directors of the Company, alleging that Enron Corp. and
directors of the Company breached their fiduciary duties of good faith
and loyalty in approving the Share Exchange described in Note 2 above.
The lawsuits have been consolidated and seek to rescind the Share
Exchange or to receive monetary damages and costs and expenses,
including reasonable attorneys' and experts' fees. The Company, Enron
Corp. and directors of the Company believe the lawsuits are without
merit and intend to vigorously contest them.
There are various other suits and claims against the Company 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 the Company. The Company 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 the Company.
11. In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133 -
"Accounting for Derivative Instruments and Hedging Activities" effective
for fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137, which delays the effective date of SFAS No. 133 for
one year, to fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued SFAS No. 138, which amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and certain
hedging activities. SFAS No. 133, as amended by SFAS No. 137 and No.
138, cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded
in hybrid contracts that were issued, acquired or substantively modified
after a transition date to be selected by the Company of either December
31, 1997 or December 31, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Concluded)
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The statement establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the statements of income and requires a company to formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting treatment.
The Company has not yet quantified the impacts of adopting SFAS No.
133 on its financial statements and has not determined the timing of
adoption. Based on the Company's current level of derivative and
hedging activities, the Company does not expect the impact of
adoption to be material.
12. During the first half of 2000, the Company repurchased 5.6 million
shares of common stock, primarily to reduce the number of shares of
stock outstanding and to manage the dilution resulting from shares
issued or anticipated to be issued under the Company's employee stock
plans. To supplement its share repurchase program, the Company entered
into a series of equity derivative transactions in the second quarter.
As of June 30, the Company had purchased the right, but not the
obligation, to buy up to 1 million shares of the Company's stock at a
price of $20.00 per share in April 2001. Also, as of June 30, 2000 the
Company had sold put options obligating the Company to purchase up to
1.5 million shares of its common stock, with such options expiring from
September 2000 to April 2001 at prices ranging from $15.00 to $18.00.
Additionally, the Company has sold to a counterparty the right to
purchase up to 2 million shares of EOG's common stock at a price of
$29.60 per share, which right expires in April 2001. Settlement
alternatives under all circumstances are at the option of the Company
and include physical share, net share and net cash settlement. These
transactions are accounted for as equity transactions with premiums
received recorded to Additional Paid In Capital in the consolidated
balance sheets. The Company will assess the status of its share
repurchase program at the time these various options expire and will
determine at that time whether to settle these options in shares or in
cash.
<PAGE>
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 and six-month
periods ended June 30, 2000 and 1999 should be read in conjunction with
the consolidated financial statements of EOG Resources, Inc. (the
"Company") and Notes thereto.
Results of Operations
Three Months Ended June 30, 2000 vs. Three Months Ended June 30, 1999
The Company generated second quarter net income available to common of
$75 million compared to $21 million for the second quarter of 1999. Net
operating revenues were $316 million compared to $187 million for the
second quarter of 1999. Following is an explanation of the variances
causing this increase.
Wellhead volume and price statistics are summarized below:
2000 1999
------ ------
Natural Gas Volumes (MMcf per day)(1)
United States 633 642
Canada 131 112
----- -----
North America 764 754
Trinidad 116 130
India (2) - 75
----- -----
TOTAL 880 959
===== =====
Average Natural Gas Prices ($/Mcf)(3)
United States $ 3.39 $ 1.99
Canada 2.79 1.63
North America Composite 3.29 1.93
Trinidad 1.17 1.07
India (2) - 1.95
COMPOSITE 3.01 1.82
Crude Oil/Condensate Volumes (MBbl per day)(1)
United States 22.8 13.1
Canada 2.3 2.7
----- -----
North America 25.1 15.8
Trinidad 2.5 2.3
India (2) - 6.4
----- -----
TOTAL 27.6 24.5
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)(3)
United States $28.29 $16.48
Canada 25.66 14.26
North America Composite 28.05 16.10
Trinidad 28.54 14.46
India (2) - 14.03
COMPOSITE 28.09 15.41
Natural Gas Liquids Volumes (MBbl per day)(1)
United States 4.3 2.8
Canada 0.8 1.0
----- -----
TOTAL 5.1 3.8
Average Natural Gas Liquids Prices ($/Bbl) (3)
United States $17.96 $ 8.57
Canada 15.24 6.15
COMPOSITE 17.56 7.95
Natural Gas Equivalent Volumes (MMcfe per day)(4)
United States 795 737
Canada 150 135
----- -----
North America 945 872
Trinidad 131 144
India (2) - 113
----- -----
TOTAL 1,076 1,129
===== =====
Total Bcfe(4)Deliveries 98 103
(1) Million cubic feet per day or thousand barrels per day, as applicable.
(2) See Note 2 to the Consolidated Financial Statements.
(3) Dollars per thousand cubic feet or per barrel, as applicable.
(4) Million cubic feet equivalent per day or billion cubic feet equivalent,
as applicable.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Wellhead revenues increased 63% to $320 million in the second quarter
of 2000 compared to $196 million in the second quarter of 1999.
Average wellhead natural gas prices were up by 65%, increasing net
operating revenues by $95 million. Average wellhead crude oil and
condensate prices were approximately 82% higher than the comparable
period in 1999, increasing net operating revenues by $32 million.
Second quarter 2000 wellhead natural gas deliveries were approximately
8% lower than the comparable period in 1999, decreasing net operating
revenues by $13 million. The decrease in volumes is primarily due to
the transfer of producing properties in the Share Exchange and
decreased deliveries in Trinidad, partially offset by increased
deliveries in North America. (See Note 2 in the Notes to the
Consolidated Financial Statements for a discussion of the Share
Exchange.) Wellhead crude oil and condensate deliveries were 13%
higher than the prior year period increasing net operating revenues by
$4 million. The increase is primarily due to increased North American
crude oil production from the East Texas, South Texas, West Texas and
Wyoming areas, partially offset by the transfer of producing properties
in the Share Exchange. Natural gas liquids prices and deliveries were
121% and 34% higher than the comparable period in 1999, increasing net
operating revenues by $4 million and $1 million, respectively.
Gain (losses) on sales of reserves and related assets and other, net
totaled a $1 million gain in the second quarter of 2000 compared to a
$6 million loss in the comparable period of 1999. Included in 1999 was
a $6 million loss related to the anticipated disposition of certain
international assets.
Operating expenses of $177 million for the second quarter of 2000
were approximately $5 million higher than the second quarter of 1999.
Taxes other than income were $8 million higher primarily due to
increased wellhead revenues in North America and Trinidad. Lease and
well expenses were $2 million higher than the prior year period
primarily due to the increase in natural gas and crude oil and
condensate deliveries in North America, partially offset by the
transfer of certain properties in the Share Exchange. Exploration and
dry hole costs were $4 million higher than the second quarter of 1999
primarily due to increased exploratory drilling and other exploration
activities. General and administrative expense ("G&A") decreased
approximately $10 million compared to the prior year period primarily
due to the effects of the Share Exchange, costs incurred related to the
potential sale of the Company and personnel expenses in the prior year.
The per unit operating costs of the Company for lease and well,
depreciation, depletion & amortization ("DD&A"), G&A, interest expense,
and taxes other than income averaged $1.71 per Mcfe during the second
quarter of 2000 compared to $1.61 per Mcfe during the second quarter of
1999. The increase is primarily due to a higher per unit rate of DD&A,
lease and well, interest expense and taxes other than income partially
offset by a lower per unit rate of G&A.
Other income, net for the second quarter of 1999 included a $32
million pretax gain on the sale of 1.6 million options owned by the
Company to purchase Enron Corp. common stock.
Income tax provision for the second quarter of 2000 increased $35
million as compared to the comparable period of 1999 primarily due to
higher pre-tax income.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOG RESOURCES, INC.
Results of Operations
Six Months Ended June 30, 2000 vs. Six Months Ended June 30, 1999
In the first half of 2000, the Company generated net income
available to common of $113 million compared to $26 million for the
first half of 1999. Net operating revenues for the first half of 2000
were $569 million as compared to $346 million for the first half of
1999.
Wellhead volume and price statistics are summarized below:
2000 1999
------ ------
Natural Gas Volumes (MMcf per day)
United States 644 659
Canada 132 108
----- -----
North America 776 767
Trinidad 122 141
India (1) - 74
----- -----
TOTAL 898 982
===== =====
Average Natural Gas Prices ($/Mcf)
United States $ 2.92 $ 1.80
Canada 2.43 1.51
North America Composite 2.84 1.76
Trinidad 1.17 1.07
India (1) - 1.95
COMPOSITE 2.61 1.67
Crude Oil/Condensate Volumes (MBbl per day)
United States 21.7 13.1
Canada 2.3 2.7
----- -----
North America 24.0 15.8
Trinidad 2.8 2.6
India (1) - 6.7
----- -----
TOTAL 26.8 25.1
===== =====
Average Crude Oil/Condensate Prices ($/Bbl)
United States $28.16 $13.91
Canada 26.24 13.03
North America Composite 27.98 13.76
Trinidad 28.17 11.83
India (1) - 11.80
COMPOSITE 28.00 13.04
Natural Gas Liquids Volumes (MBbl per day)
United States 4.3 2.7
Canada 0.8 0.7
----- -----
TOTAL 5.1 3.4
Average Natural Gas Liquids Prices ($/Bbl)
United States $18.90 $ 8.15
Canada 14.44 5.83
COMPOSITE 18.23 7.68
Natural Gas Equivalent Volumes (MMcfe per day)
United States 801 754
Canada 150 129
----- -----
North America 951 883
Trinidad 138 156
India (1) - 114
----- -----
TOTAL 1,089 1,153
===== =====
Total Bcfe Deliveries 198 209
(1) See Note 2 to the Consolidated Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Wellhead revenues increased approximately 61% to $580 million in
the first half of 2000 compared to $361 million in the first half of
1999.
Average wellhead natural gas prices for the first half of 2000
were approximately 56% higher than the comparable period of 1999
increasing net operating revenues by approximately $154 million.
Average wellhead crude oil and condensate prices were up by 115%,
increasing net operating revenues by $73 million. First half 2000
wellhead natural gas deliveries were approximately 9% lower than the
comparable period in 1999 decreasing net operating revenues by $24
million. The decrease in volumes is primarily due to the transfer of
producing properties in the Share Exchange and decreased deliveries
in Trinidad, partially offset by increased deliveries in North
America. Wellhead crude oil and condensate deliveries were 7% higher
than the prior year period increasing net operating revenues by $4
million. The increase is primarily due to increased North America
crude oil production from the East Texas, South Texas, West Texas
and Wyoming areas, partially offset by the transfer of producing
properties in the Share Exchange. Natural gas liquids prices and
deliveries were 137% and 50% higher than the comparable period in
1999, increasing net operating revenues by $10 million and $2
million, respectively.
Other marketing activities associated with sales and purchases of
natural gas, and natural gas and crude oil price hedging and trading
transactions decreased net operating revenues by $13 million
compared to a decrease of $11 million in the first half of 1999.
This decrease in 2000 was primarily due to a $9 million revenue
decrease from natural gas marketing activities and hedging contracts
closed in prior periods and a $4 million revenue decrease from crude
oil hedging contracts. The $11 million revenue decrease in 1999
primarily related to natural gas marketing activities and hedging
contracts closed in prior periods.
Gains (losses) on sales of reserves and related assets and other,
net totaled a gain of $2 million in the first half of 2000 compared
to a net loss of $4 million in the comparable prior year period.
The difference is due primarily to a $6 million loss related to the
anticipated disposition of certain international assets in the first
half of 1999.
Operating expenses of $349 million for the first half of 2000 were
approximately $9 million higher than the comparable period in 1999.
Taxes other than income were $13 million higher primarily due to
increased wellhead revenues in North America and Trinidad. Lease
and well expenses were $4 million higher than the prior year period
primarily due to the increase in natural gas, crude oil and
condensate deliveries in North America, partially offset by the
effects of the Share Exchange. Dry hole costs were $7 million
higher than the first half of 1999. DD&A increased approximately $4
million compared to the prior year period primarily due to increased
production volumes in North America, impairment in the Canada
operating segment in the second quarter of 2000 and the Company's
decision to defer the development of the Big Piney Madison deep
Paleozoic formation methane reserves in Wyoming in the fourth
quarter of 1999; partially offset by a charge recorded in second
quarter of 1999 pursuant to a change in strategy related to the
pursuit of certain offshore operations and the effects of the Share
Exchange. G&A was $18 million lower than the prior year period
primarily due to the effects of the Share Exchange, costs incurred
related to the potential sale of the Company and personnel expenses
in the prior year.
The per unit operating costs of the Company for lease and well,
DD&A, G&A, interest expense and taxes other than income averaged
$1.66 per Mcfe during the first half of 2000 compared to $1.55 per
Mcfe in 1999. This increase is primarily due to a higher per unit
rate of DD&A, taxes other than income, lease and well, and interest,
partially offset by a lower per unit rate of G&A expense.
Other income, net for the first half of 1999 included a $59.6
million pre-tax gain on the sale of 3.2 million options owned by the
Company to purchase Enron Corp. common stock (see Note 8 to the
Consolidated Financial Statements).
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
EOG RESOURCES, INC.
Capital Resources and Liquidity
The Company's primary sources of cash during the six months ended
June 30, 2000 included funds generated from operations, proceeds
from sales of treasury stock and proceeds from sales of reserves and
related assets. Primary cash outflows included funds used in
operations, exploration and development expenditures, repayments of
debt, dividends paid to Company shareholders, and common stock
repurchases.
Net operating cash flows of $328 million for the first six months
of 2000 increased approximately $172 million as compared to the
first six months of 1999 primarily reflecting higher operating
revenues, partially offset by higher cash operating expenses.
Net investing cash outflows of approximately $211 million for the
first six months of 2000 increased by $70 million versus the
comparable prior year period due primarily to increased exploration
and development expenditures and equity investments in the first six
months of 2000 and the non-recurrence of proceeds from sales of
Enron Corp. options in the first half of 1999, partially offset by
increased proceeds from sales of reserves and related assets.
Changes in Components of Working Capital Associated with Investing
Activities included changes in accounts payable associated with the
accrual of exploration and development expenditures and changes in
inventories which represent materials and equipment used in drilling
and related activities.
Exploration and development expenditures for the first six months
of 2000 and 1999 are as follows (in millions):
2000 1999
------ ------
United States $ 185 $ 160
Canada 19 19
---- ----
North America 204 179
Trinidad 18 2
India (1) - 19
China (1) - 6
Other 2 3
---- ----
TOTAL $ 224 $ 209
==== ====
(1) See Note 2 to the Consolidated Financial Statements.
Exploration and development expenditures of $224 million for the
first six months of 2000 were $15 million higher than the prior year
period due primarily to increased exploration and development
activities in the United States and Trinidad and equity investments
in the CNC ammonia plant in Trinidad, partially offset by the Share
Exchange and the acquisition of producing properties in the Big
Piney area in the first quarter of 1999.
The level of exploration and development expenditures will vary in
future periods depending on energy market conditions and other
related economic factors. The Company 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 $130 million for the first
six months of 2000 versus $10 million for the comparable prior year
period. Financing activities for 2000 included repayment of debt of
$41 million, repurchases of the Company's common stock of $134
million, proceeds from sales of treasury stock of $57 million and
cash dividend payments of $13 million.
On April 18, 2000, the Company announced a 17% increase in the
annual dividend rate from $.12 per share to $.14 per share beginning
with dividends payable after April 28, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded)
EOG RESOURCES, INC.
During the first half of 2000, the Company repurchased 5.6 million
shares of common stock, primarily to reduce the number of shares of
stock outstanding and to manage the dilution resulting from shares
issued or anticipated to be issued under the Company's employee
stock plans. To supplement its share repurchase program, the
Company entered into a series of equity derivative transactions in
the second quarter. As of June 30, the Company had purchased the
right, but not the obligation, to buy up to 1 million shares of the
Company's stock at a price of $20.00 per share in April 2001. Also,
as of June 30, 2000 the Company had sold put options obligating the
Company to purchase up to 1.5 million shares of its common stock,
with such options expiring from September 2000 to April 2001 at
prices ranging from $15.00 to $18.00. Additionally, the Company has
sold to a counterparty the right to purchase up to 2 million shares
of EOG's common stock at a price of $29.60 per share, which right
expires in April 2001. Settlement alternatives under all
circumstances are at the option of the Company and include physical
share, net share and net cash settlement. These transactions are
accounted for as equity transactions with premiums received recorded
to Additional Paid In Capital in the consolidated balance sheets.
The Company will assess the status of its share repurchase program
at the time these various options expire and will determine at that
time whether to settle these options in shares or in cash.
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 the Company for the foreseeable future.
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 the Company'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.
The Company typically uses words such as "expect," "anticipate,"
"estimate," "strategy," "intend," "plan" 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 or the ability to generate income or cash flows
are forward-looking statements. Although the Company 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: timing and
extent of changes in commodity prices for crude oil, natural gas and
related products and interest rates; extent of the Company's success
in discovering, developing, marketing and producing reserves and in
acquiring oil and gas properties; political developments around the
world; and financial market conditions.
In light of these risks, uncertainties and assumptions, the events
anticipated by the Company's forward-looking statements might not
occur. The Company undertakes no obligations to update or revise
its forward-looking statements, whether as a result of new
information, future events or otherwise.
<PAGE>
PART II. OTHER INFORMATION
EOG RESOURCES, INC.
ITEM 1. Legal Proceedings
See Part 1, Item 1, Note 10 to Consolidated Financial
Statements, which is incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of EOG Resources, Inc.
was held on May 9, 2000, in Houston, Texas, for the purpose of
electing a board of directors and ratifying the appointment of
auditors. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934, and
there was no solicitation in opposition to management's
solicitations.
(a) Each of the directors nominated by the Board and
listed in the proxy statement was elected with votes as
follows:
Shares Shares
Nominee For Withheld
--------------------- ----------- ---------
Fred C. Ackman 104,577,697 2,860,673
Mark G. Papa 104,586,207 2,852,163
Edward Randall, III 104,577,155 2,861,215
Edmund P. Segner, III 104,569,498 2,868,872
Frank G. Wisner 104,582,634 2,855,736
(b) The appointment of Arthur Andersen LLP, independent
public accountants, as auditors for the year ending
December 31, 2000 was approved by the following vote:
107,344,777 shares for; 42,459 shares against; and 51,134
shares abstaining.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the period
ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
EOG RESOURCES, INC.
(Registrant)
Date: August 8, 2000 By /S/ T. K. DRIGGERS
---------------------------
T. K. Driggers
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 12
EOG RESOURCES, INC.
Computation of Ratio of Earnings to Fixed Charges and Preferred
Dividends
(In Thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended
June 30, Year Ended December 31,
-----------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR
FIXED CHARGES:
Net Income $119,007 $569,094 $ 56,171 $121,970 $140,008 $142,118
Less: Capitalized Interest Expense (3,405) (10,594) (12,711) (13,706) (9,136) (6,490)
Add: Fixed Charges 33,554 72,413 61,290 41,423 21,997 18,414
Income Tax Provision (Benefit) 71,069 (1,382) 4,111 41,500 50,954 41,936
------- ------- ------- ------- ------- -------
EARNINGS AVAILABLE $220,225 $629,531 $108,861 $191,187 $203,823 $195,978
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest Expense $ 30,149 $ 61,819 $ 48,463 $ 27,369 $ 12,370 $ 11,310
Capitalized Interest 3,405 10,594 12,711 13,706 9,136 6,490
Rental Expense Representative of Interest Factor - - 116 348 491 614
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES 33,554 72,413 61,290 41,423 21,997 18,414
Preferred Dividends 8,807 660 - - - -
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES AND
PREFERRED DIVIDENDS $ 42,361 $ 73,073 $ 61,290 $ 41,423 $ 21,997 $ 18,414
======= ======= ======= ======= ======= =======
RATIO OF EARNINGS TO
FIXED CHARGES 6.56 8.69 1.78 4.62 9.27 10.64
RATIO OF EARNINGS TO
FIXED CHARGES AND
PREFERRED DIVIDENDS 5.20 8.62 1.78 4.62 9.27 10.64
</TABLE>
