How strong was the company's profitability and earnings growth in 1993?

Net income was $138.0 million, or $1.73 per share, up from $97.6 million, or $1.26 per share, in 1992. Operating income was roughly flat at $102.2 million, so most of the earnings gain came from lower interest expense (down to $9.9 million from $22.3 million), higher other income, and a larger income tax benefit. Investors should note that the tax benefit of about $25.8 million was largely driven by tight gas sand federal tax credits, which are expected to decline as the qualifying production base shrinks.

What is the company's exposure to natural gas prices?

The company is primarily a natural gas producer, so it is more sensitive to gas prices than to oil prices. Management estimates that a $0.10 per Mcf change in average wellhead gas prices would change net income and cash flow by about $7 million. About two-thirds of expected 1994 wellhead gas volumes were hedged or sold under long-term contracts. Gas prices have been volatile, and the filing notes that natural gas has been priced well below crude oil on an energy-equivalent basis.

How does Enron Corp.'s 80% ownership affect minority shareholders?

Enron Corp. can elect all directors and so controls the company's management, acquisitions and disposals, equity issuances, dividends, and exploration and development budgets. If Enron sold a substantial block of its shares, the share price could fall and the company's ability to raise equity could be hurt, and the company would leave Enron's consolidated tax return. The company also does business with Enron affiliates, including gas sales, a production payment, and corporate services, and says these terms are at least as favorable as third-party terms.

What is the company's debt position and liquidity?

Long-term debt was $153 million at year-end 1993, plus $30 million of current maturities, and the long-term debt-to-total-capital ratio was 14%, down from 15%. Shareholders' equity was $933 million, and total assets were $1.81 billion. The company had $103 million of cash, mostly invested in a 7% promissory note with Enron. It also has a $100 million revolving credit agreement (expandable to $300 million), and management believes internal cash flow and financing alternatives will fund its 1994 investing needs.

What are the main legal and regulatory risks disclosed?

The most significant legal matter is the TransAmerican Natural Gas lawsuit, which alleges breach of contract, trade secret misappropriation, and antitrust violations and seeks $100 million in actual damages plus $300 million in exemplary damages. Management believes the claims are without merit and that the outcome will not materially harm the company. On regulation, FERC Order No. 636 is restructuring interstate pipelines and is still subject to court challenge, and the company's gathering operations could face rate regulation in the future. Canadian gas imports could also compete with the company's Big Piney gas in the Pacific Northwest.

EOG 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 23, 1994. Cited figures are marked; the original filing is the authoritative source.

This 10-K covers fiscal 1993 for Enron Oil & Gas Company (the name under which EOG Resources operated before its later rename; the filing itself uses the Enron name).

The company is primarily a natural gas producer, with 1,772 Bcf of net proved natural gas reserves and 20.9 MMBbl of liquids at year-end 1993. About 78%^a of reserves were in the U.S., 16% in Canada, and 6% in Trinidad. Core areas include Big Piney (Wyoming), South Texas (Lobo Trend), the Matagorda Trend offshore Texas, and the Canyon Trend in West Texas.

Enron Corp. owns 80% of the common stock and controls the company's management, capital spending plans, and dividends. Financial performance improved sharply in 1993. Net operating revenues rose about 25% to $567.7 million^b from $453.0 million, and net income rose 41% to $138.0 million, or $1.73 per share, compared with $1.26 in 1992.

Results were helped by a $65 million^c benefit from tight gas sand federal income tax credits, a $12 million deferred tax reduction, a $50 million federal tax refund, and higher wellhead gas prices, which rose about 22%. Net operating cash inflows were $479.7 million, and discretionary cash flow was about $487 million. Long-term debt was $153 million, and the long-term debt-to-total-capital ratio was 14%.

The main risks are natural gas price exposure, since management estimates that each $0.10^d per Mcf change in wellhead prices moves net income by about $7 million. The tax credit benefit is expected to fall to about $40 million in 1994.

Other risks include the $100 million actual damages (plus $300 million exemplary damages) sought in the TransAmerican lawsuit, which management says is without merit and has set for trial in September 1994, and the parent's ability to influence the company's strategy and capital allocation. Management plans about $450 million of exploration and development spending in 1994, mostly funded from internal cash flow.

02—Key points

Key Highlights

Net operating revenues increased about 25% to $567.7 million in 1993, up from $453.0 million in 1992, driven by higher wellhead gas volumes (up about 26%) and gas prices (up about 22%).
Net income rose 41% to $138.0 million ($1.73 per share) from $97.6 million ($1.26 per share), aided by a $65 million tight gas sand tax credit benefit and a $50 million federal tax refund.
Proved reserves at year-end 1993 totaled 1,772 Bcf of natural gas and 20.9 MMBbl of crude oil, condensate, and NGLs, with about 95% of domestic reserves in natural gas.
Net operating cash inflows were $479.7 million and discretionary cash flow was about $487 million, giving the company substantial internal funding for its capital program.
Total exploration and development expenditures were $438.3 million in 1993, and the 1994 budget is about $450 million, weighted toward the core U.S. areas, Canada, and Trinidad.
Enron Corp. owns 80% of the common stock, giving it control over management and major decisions, and the company has related-party transactions and a services agreement with Enron.
Pending litigation with TransAmerican Natural Gas seeks $100 million in actual damages plus $300 million in exemplary damages; trial is scheduled for September 1994, and management considers the claims without merit.

03—Questions

Frequently Asked Questions

How strong was the company's profitability and earnings growth in 1993?
Net income was $138.0 million, or $1.73 per share, up from $97.6 million, or $1.26 per share, in 1992. Operating income was roughly flat at $102.2 million, so most of the earnings gain came from lower interest expense (down to $9.9 million from $22.3 million), higher other income, and a larger income tax benefit. Investors should note that the tax benefit of about $25.8 million was largely driven by tight gas sand federal tax credits, which are expected to decline as the qualifying production base shrinks.
What is the company's exposure to natural gas prices?
The company is primarily a natural gas producer, so it is more sensitive to gas prices than to oil prices. Management estimates that a $0.10 per Mcf change in average wellhead gas prices would change net income and cash flow by about $7 million. About two-thirds of expected 1994 wellhead gas volumes were hedged or sold under long-term contracts. Gas prices have been volatile, and the filing notes that natural gas has been priced well below crude oil on an energy-equivalent basis.
How does Enron Corp.'s 80% ownership affect minority shareholders?
Enron Corp. can elect all directors and so controls the company's management, acquisitions and disposals, equity issuances, dividends, and exploration and development budgets. If Enron sold a substantial block of its shares, the share price could fall and the company's ability to raise equity could be hurt, and the company would leave Enron's consolidated tax return. The company also does business with Enron affiliates, including gas sales, a production payment, and corporate services, and says these terms are at least as favorable as third-party terms.
What is the company's debt position and liquidity?
Long-term debt was $153 million at year-end 1993, plus $30 million of current maturities, and the long-term debt-to-total-capital ratio was 14%, down from 15%. Shareholders' equity was $933 million, and total assets were $1.81 billion. The company had $103 million of cash, mostly invested in a 7% promissory note with Enron. It also has a $100 million revolving credit agreement (expandable to $300 million), and management believes internal cash flow and financing alternatives will fund its 1994 investing needs.
What are the main legal and regulatory risks disclosed?
The most significant legal matter is the TransAmerican Natural Gas lawsuit, which alleges breach of contract, trade secret misappropriation, and antitrust violations and seeks $100 million in actual damages plus $300 million in exemplary damages. Management believes the claims are without merit and that the outcome will not materially harm the company. On regulation, FERC Order No. 636 is restructuring interstate pipelines and is still subject to court challenge, and the company's gathering operations could face rate regulation in the future. Canadian gas imports could also compete with the company's Big Piney gas in the Pacific Northwest.

04—Continue

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