Summary
This 8-K filing by EOG Resources, Inc. (EOG) on July 16, 2018, primarily provides updates on the company's financial derivative contracts related to commodity price risk management for the second quarter of 2018 and forward. EOG anticipates a non-cash net loss of $185.9 million from the mark-to-market accounting of its financial commodity derivative contracts for Q2 2018, with $66.4 million in net cash paid from settlements during the quarter. The filing details specific crude oil and natural gas derivative contracts, including swap and option contracts, that EOG has entered into to manage price differentials and establish price floors/ceilings for its production through 2019. For investors, the key takeaway is EOG's proactive approach to hedging against commodity price volatility. The company is using various derivative instruments to lock in prices and price differentials for a significant portion of its production. While the mark-to-market accounting results in a non-cash loss for the quarter, the underlying intent of these contracts is to provide revenue certainty. Investors should pay attention to the notional volumes and weighted average prices in these contracts to understand EOG's exposure and protection against future price movements.
Key Highlights
- 1EOG Resources anticipates a non-cash net loss of $185.9 million for Q2 2018 due to mark-to-market adjustments on financial commodity derivative contracts.
- 2The company made net cash payments of $66.4 million from settlements of these derivative contracts during Q2 2018.
- 3EOG has entered into additional crude oil basis swap contracts to fix the differential between Midland, Texas, and Cushing, Oklahoma (Midland Differential) through 2019.
- 4Crude oil price swap contracts are in place to hedge prices at a weighted average of $60.04/Bbl for the second half of 2018.
- 5Natural gas price swap contracts are in place to hedge prices at a weighted average of $3.00/MMBtu for August through November 2018.
- 6EOG has also entered into natural gas call options sold and put options purchased to establish price ceilings and floors, respectively, for certain periods in 2018.