8-KRegulation FD

EOG RESOURCES INC 8-K Report, Regulation FD Disclosure (Oct 14, 2020)

Filed October 14, 2020For Securities:EOG

Summary

EOG Resources Inc. (EOG) filed an 8-K on October 14, 2020, primarily to provide updates on commodity price sensitivity and its derivative contracts portfolio as of October 14, 2020. The company highlighted that for every $1.00 per barrel increase/decrease in crude oil and condensate prices, combined with NGL price changes, it would impact net income by approximately $33 million and pretax cash flows by $43 million for Q4 2020. For natural gas, a $0.10 per thousand cubic feet change would affect net income by $7 million and pretax cash flows by $9 million for the same period. The filing also detailed EOG's extensive use of financial commodity derivative contracts to manage price risk. The company provided a summary of its crude oil, NGL, and natural gas derivative positions, including swap and collar contracts. Notably, EOG anticipated a net loss of $4 million on the mark-to-market of its financial commodity derivative contracts for Q3 2020, while receiving $275 million in net cash settlements during that quarter. This information is crucial for investors to understand EOG's exposure to commodity price volatility and the strategies employed to mitigate it.

Key Highlights

  • 1For Q4 2020, EOG's net income is sensitive to crude oil/condensate prices, with a $1/Bbl change impacting net income by ~$33 million and pretax cash flows by ~$43 million.
  • 2For Q4 2020, EOG's net income is sensitive to natural gas prices, with a $0.10/Mcf change impacting net income by ~$7 million and pretax cash flows by ~$9 million.
  • 3EOG uses a variety of financial commodity derivative contracts (swaps, options, collars, basis swaps) to manage price risk.
  • 4For Q3 2020, EOG anticipated a net loss of $4 million on mark-to-market of derivative contracts but received $275 million in net cash settlements.
  • 5No new crude oil or NGL derivative contracts were entered into since the last 10-Q filing.
  • 6Significant natural gas derivative contracts include swap contracts for 300,000 MMBtud in 2021 at $2.93/MMBtu and various collar and basis swap agreements for 2020.
  • 7The filing provides detailed breakdowns of various basis swap contracts, such as ICE Brent Differential, Houston Differential, Roll Differential, Rockies Differential, HSC Differential, and Waha Differential.

Frequently Asked Questions

As of October 14, 2020, for every $1.00 per barrel increase or decrease in wellhead crude oil and condensate prices (combined with estimated NGL price changes), EOG's net income is expected to change by approximately $33 million, and its pretax cash flows from operating activities by approximately $43 million for the fourth quarter of 2020.

Since filing its Form 10-Q, EOG has not entered into any additional crude oil or NGL derivative contracts. However, it has entered into additional natural gas derivative contracts, including swap contracts for 2021 and various collar and basis swap agreements for 2020.

For the third quarter of 2020, EOG anticipated a net loss of $4 million on the mark-to-market of its financial commodity derivative contracts. However, the company received $275 million in net cash for settlements of these contracts during the same period.

EOG enters into basis swap contracts to manage price risk associated with the differential between its physical delivery locations and benchmark prices like NYMEX or ICE. Examples include contracts to fix the differential between ICE Brent and Cushing, Oklahoma, or between Houston and Cushing, among others.