Item 7.01 Regulation FD Disclosure.
I. Price Matters Update.
Based on the tax position of EOG Resources, Inc. (EOG), EOG's price sensitivity (exclusive of basis swaps) as of July 21, 2020, for each $1.00 per barrel (Bbl) increase or decrease in wellhead crude oil and condensate price, combined with the estimated change in natural gas liquids (NGLs) price, is approximately $86 million for net income and $112 million for pretax cash flows from operating activities, in each case for the full-year 2020.
Based on EOG's tax position and the portion of EOG's anticipated natural gas volumes for which prices have not (as of July 21, 2020) been determined under long-term marketing contracts, EOG's price sensitivity (exclusive of basis swaps) as of July 21, 2020, for each $0.10 per thousand cubic feet increase or decrease in wellhead natural gas price is approximately $26 million for net income and $34 million for pretax cash flows from operating activities, in each case for the full-year 2020.
See below for a summary of EOG's financial commodity derivative contracts as of July 21, 2020. For a summary of EOG's financial commodity derivative contracts for the three months ended March 31, 2020, see Note 12 to the Condensed Consolidated Financial Statements included in EOG's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed on May 7, 2020 (Quarterly Report on Form 10-Q).
II. Price Risk Management
With the objective of enhancing the certainty of future revenues, from time to time EOG enters into U.S. New York Mercantile Exchange (NYMEX) or Intercontinental Exchange (ICE) related financial price swap, option, swaption, collar and basis swap contracts. EOG accounts for financial commodity derivative contracts using the mark-to-market accounting method.
For the second quarter of 2020, EOG anticipates a net loss of $126 million on the mark-to-market of its financial commodity derivative contracts. During the second quarter of 2020, the net cash received for settlements of financial commodity derivative contracts was $639 million.
For the quarter ended June 30, 2020, NYMEX West Texas Intermediate (WTI) crude oil averaged $27.85 per Bbl, and NYMEX natural gas at Henry Hub averaged $1.73 per million British thermal units (MMBtu). EOG's actual realizations for crude oil and natural gas for the quarter ended June 30, 2020, differ from these NYMEX prices due to delivery location (basis), quality and appropriate revenue adjustments. Market prices for NGLs are influenced by the components extracted, including ethane, propane, butane and natural gasoline, among others, and the respective market pricing for each component.
III. Crude Oil Derivative Contracts
Since filing its Quarterly Report on Form 10-Q, EOG has entered into additional crude oil derivative contracts.
As noted above, prices received by EOG for its crude oil production generally vary from NYMEX WTI prices due to adjustments for delivery location (basis) and other factors. EOG has entered into crude oil basis swap contracts in order to fix the differential between ICE Brent pricing and pricing in Cushing, Oklahoma (ICE Brent Differential). Presented below is a comprehensive summary of EOG's ICE Brent Differential basis swap contracts through July 21, 2020. The weighted average price differential expressed in dollars per barrel ($/Bbl) represents the amount of addition to Cushing, Oklahoma, prices for the notional volumes expressed in barrels per day (Bbld) covered by the basis swap contracts.
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ICE Brent Differential Basis Swap Contracts
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Volume (Bbld)
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Weighted Average Price Differential
($/Bbl)
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2020
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May 2020 (closed)
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10,000
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$
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4.92
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EOG has also entered into crude oil basis swap contracts in order to fix the differential between pricing in Houston, Texas, and Cushing, Oklahoma (Houston Differential). Presented below is a comprehensive summary of EOG's Houston Differential basis swap contracts through July 21, 2020. The weighted average price differential expressed in $/Bbl represents the amount of addition to Cushing, Oklahoma, prices for the notional volumes expressed in Bbld covered by the basis swap contracts.
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Houston Differential Basis Swap Contracts
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Volume (Bbld)
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Weighted Average Price Differential
($/Bbl)
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2020
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May 2020 (closed)
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10,000
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$
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1.55
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EOG has also entered into crude oil swaps to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (Roll Differential). Presented below is a comprehensive summary of EOG's Roll Differential swap contracts through July 21, 2020. The weighted average price differential expressed in $/Bbl represents the amount of net addition (reduction) to delivery month prices for the notional volumes expressed in Bbld covered by the swap contracts.
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Roll Differential Swap Contracts
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Volume (Bbld)
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Weighted Average Price Differential
($/Bbl)
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2020
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February 1, 2020 through June 30, 2020 (closed)
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10,000
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$
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0.70
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July 1, 2020 through August 31, 2020 (closed)
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88,000
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(1.16)
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September 2020
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88,000
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(1.16)
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October 1, 2020 through December 31, 2020
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66,000
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(1.16)
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In May 2020, EOG entered into crude oil Roll Differential swap contracts for the period from July 1, 2020 through September 30, 2020, with notional volumes of 22,000 Bbld at a weighted average price differential of $(0.43) per Bbl, and for the period from October 1, 2020 through December 31, 2020, with notional volumes of 44,000 Bbld at a weighted average price differential of $(0.73) per Bbl. These contracts partially offset certain outstanding Roll Differential swap contracts for the same time periods and volumes at a weighted average price differential of $(1.16) per Bbl. EOG expects to pay net cash of $3.2 million for the settlement of these contracts. The offsetting contracts were excluded from the above table.
Presented below is a comprehensive summary of EOG's crude oil NYMEX WTI price swap contracts through July 21, 2020, with notional volumes expressed in Bbld and prices expressed in $/Bbl.
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Crude Oil NYMEX WTI Price Swap Contracts
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Volume (Bbld)
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Weighted Average Price ($/Bbl)
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2020
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January 1, 2020 through March 31, 2020 (closed)
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200,000
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$
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59.33
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April 1, 2020 through May 31, 2020 (closed)
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265,000
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51.36
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In April and May 2020, EOG entered into crude oil NYMEX WTI price swap contracts for the period from June 1, 2020 through June 30, 2020, with notional volumes of 265,000 Bbld at a weighted average price of $33.80 per Bbl, for the period from July 1, 2020 through July 31, 2020, with notional volumes of 254,000 Bbld at a weighted average price of $33.75 per Bbl, for the period from August 1, 2020 through September 30, 2020, with notional volumes of 154,000 Bbld at a weighted average price of $34.18 per Bbl and for the period from October 1, 2020 through December 31, 2020, with notional volumes of 47,000 Bbld at a weighted average price of $30.04 per Bbl. These contracts offset the remaining NYMEX WTI price swap contracts for the same time periods and volumes at a weighted average price of $51.36 per Bbl for the period from June 1, 2020 through June 30, 2020, $42.36 per Bbl for the period from July 1, 2020 through July 31, 2020, $50.42 per Bbl for the period from August 1, 2020 through September 30, 2020 and $31.00 per Bbl for the period from October 1, 2020 through December 31, 2020. EOG expects to receive net cash of $364.0 million for the settlement of these contracts. The offsetting contracts were excluded from the above table.
Presented below is a comprehensive summary of EOG's crude oil ICE Brent price swap contracts through July 21, 2020, with notional volumes expressed in Bbld and prices expressed in $/Bbl.
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Crude Oil ICE Brent Price Swap Contracts
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Volume (Bbld)
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Weighted Average Price ($/Bbl)
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2020
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April 2020 (closed)
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75,000
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$
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25.66
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May 2020 (closed)
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35,000
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26.53
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IV. Natural Gas Liquids Derivative Contracts
Since filing its Form 10-Q, EOG has entered into additional NGL derivative contracts for propane.
Presented below is a comprehensive summary of EOG's Mont Belvieu propane (non-TET) financial price swap contracts (Mont Belvieu Propane Price Swap Contracts) through July 21, 2020, with notional volumes expressed in Bbld and prices expressed in $/Bbl.
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Mont Belvieu Propane Price Swap Contracts
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Volume (Bbld)
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Weighted Average Price ($/Bbl)
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2020
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January 1, 2020 through February 29, 2020 (closed)
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4,000
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$
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21.34
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March 1, 2020 through April 30, 2020 (closed)
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25,000
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17.92
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In April and May 2020, EOG entered into Mont Belvieu Propane Price Swap Contracts for the period from May 1, 2020 through December 31, 2020, with notional volumes of 25,000 Bbld at a weighted average price of $16.41 per Bbl. These contracts offset the remaining Mont Belvieu Propane Price Swap Contracts for the same time period with notional volumes of 25,000 Bbld at a weighted average price of $17.92 per Bbl. EOG expects to receive net cash of $9.2 million for the settlement of these contracts. The offsetting contracts were excluded from the above table.
V. Natural Gas Derivative Contracts
Since filing its Form 10-Q, EOG has not entered into additional natural gas derivative contracts.
Presented below is a comprehensive summary of EOG's natural gas price swap contracts through July 21, 2020, with notional volumes expressed in MMBtu per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu).
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Natural Gas Price Swap Contracts
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Volume (MMBtud)
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Weighted Average Price ($/MMBtu)
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2021
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January 1, 2021 through December 31, 2021
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50,000
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$
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2.75
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EOG has entered into natural gas collar contracts, which establish ceiling and floor prices for the sale of notional volumes of natural gas as specified in the collar contracts. The collars require that EOG pay the difference between the ceiling price and the NYMEX Henry Hub natural gas price for the contract month (Henry Hub Index Price) in the event the Henry Hub Index Price is above the ceiling price. The collars grant EOG the right to receive the difference between the floor price and the Henry Hub Index Price in the event the Henry Hub Index Price is below the floor price. In March 2020, EOG executed the early termination provision granting EOG the right to terminate certain 2020 natural gas collar contracts with notional volumes of 250,000 MMBtud at a weighted average ceiling price of $2.50 per MMBtu and a weighted average floor price of $2.00 per MMBtu for the period from April 1, 2020 through July 31, 2020. The net cash EOG received for settling these contracts was $7.8 million. Presented below is a comprehensive summary of EOG's natural gas collar contracts through July 21, 2020, with notional volumes expressed in MMBtud and prices expressed in $/MMBtu.
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Natural Gas Collar Contracts
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Weighted Average Price ($/MMBtu)
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Volume (MMBtud)
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Ceiling Price
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Floor Price
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2020
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April 1, 2020 through July 31, 2020 (closed)
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250,000
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$
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2.50
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$
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2.00
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In April 2020, EOG entered into natural gas collar contracts for the period from August 1, 2020 through October 31, 2020, with notional volumes of 250,000 MMBtud at a ceiling price of $2.50 per MMBtu and a floor price of $2.00 per MMBtu. These contracts offset the remaining natural gas collar contracts for the same time period with notional volumes of 250,000 MMBtud at a ceiling price of $2.50 per MMBtu and a floor price of $2.00 per MMBtu. EOG expects to receive net cash of $1.1 million for the settlement of these contracts. The offsetting contracts were excluded from the above table.
Prices received by EOG for its natural gas production generally vary from NYMEX Henry Hub prices due to adjustments for delivery location (basis) and other factors. EOG has entered into natural gas basis swap contracts in order to fix the differential between pricing in the Rocky Mountain area and NYMEX Henry Hub prices (Rockies Differential). Presented below is a comprehensive summary of EOG's Rockies Differential basis swap contracts through July 21, 2020. The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts.
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Rockies Differential Basis Swap Contracts
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Volume (MMBtud)
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Weighted Average Price Differential
($/MMBtu)
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2020
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January 1, 2020 through July 31, 2020 (closed)
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30,000
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$
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0.55
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August 1, 2020 through December 31, 2020
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30,000
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0.55
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EOG has also entered into natural gas basis swap contracts in order to fix the differential between pricing at the Houston Ship Channel (HSC) and NYMEX Henry Hub prices (HSC Differential). In March 2020, EOG executed the early termination provision granting EOG the right to terminate certain 2020 HSC Differential basis swaps with notional volumes of 60,000 MMBtud at a weighted average price differential of $0.05 per MMBtu for the period from April 1, 2020 through December 31, 2020. The net cash EOG paid for settling these contracts was $0.4 million. Presented below is a comprehensive summary of EOG's HSC Differential basis swap contracts through July 21, 2020. The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts.
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HSC Differential Basis Swap Contracts
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Volume (MMBtud)
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Weighted Average Price Differential
($/MMBtu)
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2020
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January 1, 2020 through December 31, 2020 (closed)
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60,000
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$
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0.05
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EOG has also entered into natural gas basis swap contracts in order to fix the differential between pricing at the Waha Hub in West Texas and NYMEX Henry Hub prices (Waha Differential). Presented below is a comprehensive summary of EOG's Waha Differential basis swap contracts through July 21, 2020. The weighted average price differential expressed in $/MMBtu represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtud covered by the basis swap contracts.
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Waha Differential Basis Swap Contracts
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Volume (MMBtud)
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Weighted Average Price Differential
($/MMBtu)
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2020
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January 1, 2020 through April 30, 2020 (closed)
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50,000
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$
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1.40
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In April 2020, EOG entered into Waha Differential basis swap contracts for the period from May 1, 2020 through December 31, 2020, with notional volumes of 50,000 MMBtud at a weighted average price differential of $0.43 per MMBtu. These contracts offset the remaining Waha Differential basis swap contracts for the same time period with notional volumes of 50,000 MMBtud at a weighted average price differential of $1.40 MMBtu. EOG expects to pay net cash of $11.9 million for the settlement of these contracts. The offsetting contracts were excluded from the above table.
VI. Forward Looking Statements
Information Regarding Forward-Looking Statements
This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, including, among others, statements and projections regarding EOG's future financial position, operations, performance, business strategy, returns, budgets, reserves, levels of production, capital expenditures, costs and asset sales, statements regarding future commodity prices and statements regarding the plans and objectives of EOG's management for future operations, are forward-looking statements. EOG typically uses words such as "expect," "anticipate," "estimate," "project," "strategy," "intend," "plan," "target," “aims,” "goal," "may," "will," "should" and "believe" or the negative of those terms or other variations or comparable terminology to identify its forward-looking statements. In particular, statements, express or implied, concerning EOG's future operating results and returns or EOG's ability to replace or increase reserves, increase production, generate returns, replace or increase drilling locations, reduce or otherwise control operating costs and capital expenditures, generate cash flows, pay down or refinance indebtedness or pay and/or increase dividends are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (in full or at all) or will prove to have been correct. Moreover, EOG's forward-looking statements may be affected by known, unknown or currently unforeseen risks, events or circumstances that may be outside EOG's control. Important factors that could cause EOG's actual results to differ materially from the expectations reflected in EOG's forward-looking statements include, among others:
•the timing, extent and duration of changes in prices for, supplies of, and demand for, crude oil and condensate, natural gas liquids, natural gas and related commodities;
•the extent to which EOG is successful in its efforts to acquire or discover additional reserves;
•the extent to which EOG is successful in its efforts to (i) economically develop its acreage in, (ii) produce reserves and achieve anticipated production levels and rates of return from, (iii) decrease or otherwise control its drilling, completion, operating and capital costs related to, and (iv) maximize reserve recovery from, its existing and future crude oil and natural gas exploration and development projects and associated potential and existing drilling locations;
•the extent to which EOG is successful in its efforts to market its crude oil and condensate, natural gas liquids, natural gas and related commodity production;
•security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, physical breaches of our facilities and other infrastructure or breaches of the information technology systems, facilities and infrastructure of third parties with which we transact business;
•the availability, proximity and capacity of, and costs associated with, appropriate gathering, processing, compression, storage, transportation and refining facilities;
•the availability, cost, terms and timing of issuance or execution of, and competition for, mineral licenses and leases and governmental and other permits and rights-of-way, and EOG’s ability to retain mineral licenses and leases;
•the impact of, and changes in, government policies, laws and regulations, including tax laws and regulations; climate change and other environmental, health and safety laws and regulations relating to air emissions, disposal of produced water, drilling fluids and other wastes, hydraulic fracturing and access to and use of water; laws and regulations imposing conditions or restrictions on drilling and completion operations and on the transportation of crude oil and natural gas; laws and regulations with respect to derivatives and hedging activities; and laws and regulations with respect to the import and export of crude oil, natural gas and related commodities;
•EOG's ability to effectively integrate acquired crude oil and natural gas properties into its operations, fully identify existing and potential problems with respect to such properties and accurately estimate reserves, production and drilling, completing and operating costs with respect to such properties;
•the extent to which EOG's third-party-operated crude oil and natural gas properties are operated successfully and economically;
•competition in the oil and gas exploration and production industry for the acquisition of licenses, leases and properties, employees and other personnel, facilities, equipment, materials and services;
•the availability and cost of employees and other personnel, facilities, equipment, materials (such as water and tubulars) and services;
•the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise;
•weather, including its impact on crude oil and natural gas demand, and weather-related delays in drilling and in the installation and operation (by EOG or third parties) of production, gathering, processing, refining, compression, storage and transportation facilities;
•the ability of EOG's customers and other contractual counterparties to satisfy their obligations to EOG and, related thereto, to access the credit and capital markets to obtain financing needed to satisfy their obligations to EOG;
•EOG's ability to access the commercial paper market and other credit and capital markets to obtain financing on terms it deems acceptable, if at all, and to otherwise satisfy its capital expenditure requirements;
•the extent to which EOG is successful in its completion of planned asset dispositions;
•the extent and effect of any hedging activities engaged in by EOG;
•the timing and extent of changes in foreign currency exchange rates, interest rates, inflation rates, global and domestic financial market conditions and global and domestic general economic conditions;
•the duration and economic and financial impact of epidemics, pandemics or other public health issues, including the COVID-19 pandemic;
•geopolitical factors and political conditions and developments around the world (such as the imposition of tariffs or trade or other economic sanctions, political instability and armed conflict), including in the areas in which EOG operates;
•the use of competing energy sources and the development of alternative energy sources;
•the extent to which EOG incurs uninsured losses and liabilities or losses and liabilities in excess of its insurance coverage;
•acts of war and terrorism and responses to these acts; and
•the other factors described under ITEM 1A, Risk Factors, on pages 13 through 23 of EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and any updates to those factors set forth in EOG's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements may not occur, and, if any of such events do, we may not have anticipated the timing of their occurrence or the duration or extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of EOG's forward-looking statements. EOG's forward-looking statements speak only as of the date made, and EOG undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.