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 March 31, 2002 [ ] 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.) 333 Clay Street, Suite 4200, 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 April 22, 2002. Title of each class Number of shares ---------------------------- ---------------- Common Stock, $.01 par value 116,041,352
2 EOG RESOURCES, INC. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page No. ITEM 1. Financial Statements Consolidated Statements of Income - Three Months Ended March 31, 2002 and 2001...................................................... 3 Consolidated Balance Sheets - March 31, 2002 and December 31, 2001... 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2002 and 2001...................................................... 5 Notes to Consolidated Financial Statements........................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 9 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings........................................... 13 ITEM 6. Exhibits and Reports on Form 8-K............................ 13
3 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 March 31, - ------------------------------------------------------------------------------------------------ 2002 2001 - ------------------------------------------------------------------------------------------------ <s> <c> <c> NET OPERATING REVENUES Natural Gas $176,584 $521,477 Crude Oil, Condensate and Natural Gas Liquids 46,775 75,194 Losses on Mark-to-market Commodity Derivative Contracts (34,295) (565) Gains (Losses) on Sales of Reserves and Related Assets and Other, Net (2,561) 1,147 -------- -------- TOTAL 186,503 597,253 OPERATING EXPENSES Lease and Well 40,591 42,574 Exploration Costs 12,936 20,265 Dry Hole Costs 10,406 15,684 Impairments 12,063 15,764 Depreciation, Depletion and Amortization 94,460 93,961 General and Administrative 20,713 17,949 Taxes Other Than Income 16,040 37,032 -------- -------- TOTAL 207,209 243,229 -------- -------- OPERATING INCOME (LOSS) (20,706) 354,024 OTHER EXPENSE, NET (3,103) (639) -------- -------- INCOME (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES (23,809) 353,385 INTEREST EXPENSE, NET 12,051 13,289 -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (35,860) 340,096 INCOME TAX PROVISION (BENEFIT) (11,619) 124,849 -------- -------- NET INCOME (LOSS) (24,241) 215,247 PREFERRED STOCK DIVIDENDS 2,758 2,721 -------- -------- NET INCOME (LOSS) AVAILABLE TO COMMON $(26,999) $212,526 ======== ======== NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON Basic $ (0.23) $ 1.83 ======== ======== Diluted $ (0.23) $ 1.79 ======== ======== AVERAGE NUMBER OF COMMON SHARES Basic 115,485 116,384 ======== ======== Diluted 115,485 118,952 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. </TABLE>
4 PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) EOG RESOURCES, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) <TABLE> March 31, December 31, 2002 2001 ------------- ------------ (Unaudited) ASSETS <s> <c> <c> CURRENT ASSETS Cash and Cash Equivalents $ 5,403 $ 2,512 Accounts Receivable, net 185,518 194,624 Inventories 18,302 18,871 Assets from Price Risk Management Activities - 19,161 Other 56,995 37,253 ----------- ----------- TOTAL 266,218 272,421 OIL AND GAS PROPERTIES (SUCCESSFUL EFFORTS METHOD) 6,223,989 6,065,603 Less: Accumulated Depreciation, Depletion and Amortization (3,098,899) (3,009,693) ----------- ----------- Net Oil and Gas Properties 3,125,090 3,055,910 OTHER ASSETS 88,215 85,713 ----------- ----------- TOTAL ASSETS $ 3,479,523 $ 3,414,044 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 166,958 $ 219,561 Accrued Taxes Payable 28,983 40,219 Dividends Payable 5,058 5,045 Liabilities from Price Risk Management Activities 25,933 - Other 34,708 46,022 ----------- ----------- TOTAL 261,640 310,847 LONG-TERM DEBT 975,662 855,969 OTHER LIABILITIES 53,760 53,522 DEFERRED INCOME TAXES 563,347 551,020 SHAREHOLDERS' EQUITY Preferred Stock, $.01 Par, 10,000,000 Shares Authorized: Series B, 100,000 Shares Issued, Cumulative, $100,000,000 Liquidation Preference 98,175 98,116 Series D, 500 Shares Issued, Cumulative, $50,000,000 Liquidation Preference 49,511 49,466 Common Stock, $.01 Par, 320,000,000 Shares Authorized and 124,730,000 Shares Issued 201,247 201,247 Unearned Compensation (18,456) (14,953) Accumulated Other Comprehensive Income (54,086) (55,118) Retained Earnings 1,636,121 1,668,708 Common Stock Held in Treasury, 8,749,239 shares at March 31, 2002 and 9,278,382 shares at December 31, 2001 (287,398) (304,780) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 1,625,114 1,642,686 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,479,523 $ 3,414,044 =========== =========== The accompanying notes are an integral part of these consolidated financial statements. </TABLE>
5 PART I. FINANCIAL INFORMATION - (Continued) ITEM 1. FINANCIAL STATEMENTS - (Continued) EOG RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> Three Months Ended March 31, ---------------------- 2002 2001 ---------- ---------- <s> <c> <c> CASH FLOWS FROM OPERATING ACTIVITIES Reconciliation of Net Income to Net Operating Cash Inflows: Net Income (Loss) $ (24,241) $ 215,247 Items Not Requiring Cash Depreciation, Depletion and Amortization 94,460 93,961 Impairments 12,063 15,764 Deferred Income Taxes (9,844) 34,452 Other, Net 4,025 5,393 Exploration Costs 12,936 20,265 Dry Hole Costs 10,406 15,684 Mark-to-market Commodity Derivative Contracts Total Losses 34,295 565 Realized Gains (Losses) 11,014 (243) Losses on Sales of Reserves and Related Assets and Other, Net 60 316 Tax Benefits from Stock Options Exercised 1,538 5,246 Other, Net 156 (3,233) Changes in Components of Working Capital and Other Liabilities Accounts Receivable 9,105 55,940 Inventories 569 (3,684) Accounts Payable (52,818) (5,335) Accrued Taxes Payable (12,032) 49,533 Other Liabilities 1,330 2,135 Other, Net (13,916) (14,966) Changes in Components of Working Capital Associated with Investing and Financing Activities 42,338 (7,833) --------- --------- NET OPERATING CASH INFLOWS 121,444 479,207 INVESTING CASH FLOWS Additions to Oil and Gas Properties (172,444) (169,443) Exploration Costs (12,936) (20,265) Dry Hole Costs (10,406) (15,684) Proceeds from Sale of Reserves and Related Assets 1,772 1,419 Changes in Components of Working Capital Associated with Investing Activities (42,226) 7,813 Other, Net (4,667) (5,873) --------- --------- NET INVESTING CASH OUTFLOWS (240,907) (202,033) FINANCING CASH FLOWS Long-Term Debt 119,693 (214,129) Dividends Paid (7,282) (6,701) Treasury Stock Purchased - (55,590) Proceeds from Sales of Treasury Stock 9,960 9,987 Other, Net (17) (44) --------- --------- NET FINANCING CASH INFLOWS (OUTFLOWS) 122,354 (266,477) --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 2,891 10,697 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,512 20,152 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,403 $ 30,849 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. </TABLE>
6 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 ("EOG") 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 accounting principles generally accepted in the United States of America 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 EOG's Annual Report on Form 10-K for the year ended December 31, 2001 ("EOG's 2001 Annual Report"). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 Note 12 to the consolidated financial statements included in EOG's 2001 Annual Report, EOG engages in price risk management activities from time to time. Derivative financial instruments (primarily price swaps and costless collars) are utilized selectively to hedge the impact of market fluctuations on natural gas and crude oil market prices. During the first quarter of 2002 and 2001, EOG elected not to designate any of its price risk management activities as accounting hedges, and accordingly, accounted for them using the mark-to-market accounting method. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 143 - "Accounting for Asset Retirement Obligations" effective for fiscal years beginning after June 15, 2002. SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with the retirement of tangible long-lived assets. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement. This statement will impact how EOG accounts for its abandonment liability related to its oil and gas wells. EOG is currently evaluating the effect of adopting SFAS No. 143 on its financial statements and has not yet determined the timing of adoption. 2. The following table sets forth the computation of basic and diluted earnings per share from net income (loss) available to common (in thousands, except per share amounts). For the first quarter of 2002, the same number of shares is used in the calculation of both basic and diluted earnings per share as a result of the net loss available to common. <TABLE> Quarter Ended March 31, ----------------------------------------------------------------------------- 2002 2001 ----------------------------------------------------------------------------- <s> <c> <c> Numerator for basic and diluted earnings per share - Net income (loss) available to common $ (26,999) $212,526 ========= ======== Denominator for basic earnings per share - Weighted average shares 115,485 116,384 Potential dilutive common shares - Stock options - 2,342 Restricted stock and units - 226 --------- -------- Denominator for diluted earnings per share - Adjusted weighted average shares 115,485 118,952 ========= ======== Net income (loss) per share of common stock Basic $ (0.23) $ 1.83 ========= ======== Diluted $ (0.23) $ 1.79 ========= ======== </TABLE>
7 PART I. FINANCIAL INFORMATION (Continued) ITEM 1. FINANCIAL STATEMENTS (Continued) EOG RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. The following table presents the components of EOG's comprehensive income: <TABLE> Three Months Ended March 31, -------------------------------------------------------------------------------- 2002 2001 -------------------------------------------------------------------------------- (In Thousands) <s> <c> <c> Net Income (Loss) $ (24,241) $215,247 Other Comprehensive Income Unrealized Gain on Available-for-sale Security, Net of tax - 334 Reclassification of Nontemporary Decline in Fair Value of Available-for-sale Security to Earnings 926 - Foreign Currency Translation Adjustment 106 (16,955) --------- -------- Comprehensive Income (Loss) $ (23,209) $198,626 ========= ======== --------------------------------------------------------------------------------- </TABLE> 4. Selected financial information about operating segments is reported below for the three-month periods ended March 31, 2002 and 2001: <TABLE> Three Months Ended March 31, -------------------------------------------------------------------------------- 2002 2001 -------------------------------------------------------------------------------- (In Thousands) <s> <c> <c> NET OPERATING REVENUES United States $140,869 $503,989 Canada 30,347 74,530 Trinidad 15,277 18,708 Other 10 26 -------- -------- TOTAL $186,503 $597,253 ======== ======== OPERATING INCOME (LOSS) United States $(30,779) $300,847 Canada 1,216 52,905 Trinidad 8,877 5,985 Other (20) (5,713) -------- -------- TOTAL (20,706) 354,024 RECONCILING ITEMS Other Expense, Net (3,103) (639) Interest Expense, Net 12,051 13,289 -------- -------- INCOME (LOSS) BEFORE INCOME TAXES $(35,860) $340,096 ======== ======== --------------------------------------------------------------------------------- </TABLE> 5. EOG and numerous other companies in the natural gas industry are named as defendants in various lawsuits alleging violations of the Civil False Claims Act. These lawsuits have been consolidated for pre-trial proceedings in the United States District Court for the District of Wyoming. The plaintiffs contend that defendants have underpaid royalties on natural gas and natural gas liquids produced on federal and Indian lands through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies. Plaintiffs allege that the royalties paid by defendants were lower than the royalties required to be paid under federal regulations and that the forms filed by defendants with the Minerals Management Service reporting these royalty payments were false, thereby violating the Civil False Claims Act. The United States has intervened in certain of the cases as to some of the defendants, but has not intervened as to EOG. Based on EOG's present understanding of these cases, EOG believes that it has substantial defenses to these claims and intends to vigorously assert these defenses. However, if EOG is found to have violated the Civil False Claims Act, EOG could be subject to a variety of sanctions, including treble damages and substantial monetary fines.
8 PART I. FINANCIAL INFORMATION (Continued) ITEM 1. FINANCIAL STATEMENTS (Concluded) EOG RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS There are various other suits and claims against EOG 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 EOG. EOG 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 EOG. 6. Subsequent to the first quarter of 2002, EOG Company of Canada ("EOG Canada") completed a sale via a private placement on April 2, 2002 of $100 million of 7.00% Senior Notes due 2011. The notes constitute a further issuance of EOG Canada's 7.00% Senior Notes due 2011 first issued on December 5, 2001 and form a single series with those notes. Proceeds of the offering, before the payment of expenses, were approximately $100.5 million, including accrued interest.
9 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 periods ended March 31, 2002 and 2001 should be read in conjunction with the consolidated financial statements of EOG Resources, Inc. and subsidiaries ("EOG") and Notes thereto. Results of Operations - --------------------- Three Months Ended March 31, 2002 vs. Three Months Ended March 31, 2001 EOG generated first quarter net loss available to common of $27 million compared to net income available to common of $213 million for the first quarter of 2001. Net operating revenues were $187 million compared to $597 million for the first quarter of 2001. Following is an explanation of the variances causing this increase. Wellhead volume and price statistics are summarized below: - ------------------------------------------------------------------------ 2002 2001 - ------------------------------------------------------------------------ Natural Gas Volumes (MMcf per day)(1) United States 635 704 Canada 145 117 ------- ------- North America 780 821 Trinidad 108 120 ------- ------- TOTAL 888 941 ======= ======= Average Natural Gas Prices ($/Mcf)(2) United States $ 2.25 $ 6.97 Canada 2.29 6.60 North America Composite 2.26 6.91 Trinidad 1.27 1.22 COMPOSITE 2.14 6.19 Crude Oil/Condensate Volumes (MBbl per day)(1) United States 20.0 23.0 Canada 1.8 1.7 ------- ------- North America 21.8 24.7 Trinidad 1.9 2.2 ------- ------- TOTAL 23.7 26.9 ======= ======= Average Crude Oil/Condensate Prices ($/Bbl)(2) United States $ 20.07 $ 28.09 Canada 19.10 25.25 North America Composite 19.99 27.89 Trinidad 17.68 28.84 COMPOSITE 19.80 27.97 Natural Gas Liquids Volumes (MBbl per day)(1) United States 3.9 3.0 Canada 0.7 0.5 ------- ------- TOTAL 4.6 3.5 ======= ======= Average Natural Gas Liquids Prices ($/Bbl) (2) United States $ 11.30 $ 23.95 Canada 8.48 23.46 COMPOSITE 10.84 23.88 Natural Gas Equivalent Volumes (MMcfe per day)(3) United States 778 860 Canada 161 131 ------- ------- North America 939 991 Trinidad 119 132 ------- ------- TOTAL 1,058 1,123 ======= ======= Total Bcfe(3)Deliveries 95 101 - --------------------------------------------------------------------------- (1) Million cubic feet per day or thousand barrels per day, as applicable. (2) Dollars per thousand cubic feet or per barrel, as applicable. (3) Million cubic feet equivalent per day or billion cubic feet equivalent, as applicable.
10 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 decreased 64% to $218 million in the first quarter of 2002 compared to $599 million in the first quarter of 2001, primarily due to lower average wellhead prices in North America for natural gas, crude oil and condensate, and natural gas liquids. Average wellhead natural gas prices were down by 65%, decreasing net operating revenues by $324 million. Average wellhead crude oil and condensate prices were approximately 29% lower, decreasing net operating revenues by $17 million. First quarter 2002, wellhead natural gas deliveries were approximately 6% lower than the comparable period in 2001, decreasing net operating revenues by $30 million. The decrease in volumes was primarily due to decreased production in the Midland, Offshore and Oklahoma City and International divisions, partially offset by increased production in the Canada division. Wellhead crude oil and condensate deliveries were approximately 12% lower than the prior year period, decreasing net operating revenues by $8 million. The decrease was primarily due to decreased crude oil production in the Midland, Corpus Christi, Offshore and Tyler divisions. Net operating revenues from the sale of natural gas liquids decreased by $3 million primarily due to a decrease in prices of 55%, partially offset by an increase in deliveries of 31% compared to a year ago. During the first quarter of 2002, EOG recognized a loss from outstanding mark-to-market commodity price swaps of $34.3 million compared to a loss of $0.6 million for the prior year period. During the same period, net cash inflows from mark-to-market commodity price swaps was $11.0 million compared to net cash outflows of $0.2 million for the comparable period in 2001. Operating expenses of $207 million for the first quarter of 2002 were approximately $36 million lower than the first quarter of 2001. Taxes other than income of $16 million were $21 million lower due to decreased wellhead revenues in North America compared to a year ago. Depreciation, depletion and amortization ("DD&A") remained essentially flat compared to a year ago. Lease and well expenses were $2 million lower than the comparable period in 2001. Exploration costs of $13 million decreased $7 million primarily due to decreased North America and international exploratory drilling activities. Dry Hole expenses of $10 million decreased $5 million compared to a year ago. Impairments, which includes writedowns of unproved leases and losses from reduction of carrying values of certain long-lived assets as a result of future cash flow analysis, decreased $4 million compared to the comparable period in 2001. General and Administrative ("G&A") expenses of $21 million increased $3 million compared to a year ago as a result of expanding operations. The per unit operating costs of EOG for lease and well, DD&A, G&A expenses, interest expense, and taxes other than income averaged $1.94 per Mcfe during the first quarter of 2002 compared to $2.03 per Mcfe during the first quarter of 2001. The decrease was primarily due to a lower per unit rate of taxes other than income partially offset by higher per unit rates of DD&A, lease and well, and G&A expenses. Income tax benefit for the first quarter of 2002 was $12 million compared to an income tax provision of $125 million for the comparable period of 2001, primarily due to lower operating revenues.
11 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 - ------------------------------- EOG's primary sources of cash during the three months ended March 31, 2002 included funds generated from operations, proceeds from sales of reserves and related assets, proceeds from new borrowings and proceeds from sales of treasury stock. Primary cash outflows included funds used in operations, exploration and development expenditures, and dividends. Net operating cash flows of $121 million for the first three months of 2002 decreased approximately $358 million as compared to the first three months of 2001 primarily reflecting lower operating revenues, partially offset by lower cash operating expenses. Net investing cash outflows of approximately $241 million for the first three months of 2002 increased by $39 million versus the comparable prior year period due primarily to increased payments in working capital related to investing activities. 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. Total exploration and development expenditures for the first three months of 2002 and 2001 are as follows (in millions): -------------------------------------------------------------- 2002 2001 -------------------------------------------------------------- United States $130 $173 Canada 46 12 ---- ---- North America 176 185 Trinidad 20 14 Other - 6 ---- ---- Subtotal 196 205 Deferred Income Taxes 3 - ---- ---- TOTAL $199 $205 ==== ==== Total exploration and development expenditures of $199 million for the first three months of 2002 were $6 million lower than the prior year period due primarily to decreased U.S. development and exploratory activities partially offset by increased Canadian development and exploration activities. The level of exploration and development expenditures will vary in future periods depending on energy market conditions and other related economic factors. EOG 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 provided by financing activities was $122 million for the first three months of 2002 compared to cash used of $266 million for the comparable prior year period. Financing activities for 2002 included cash dividend payments of $7 million, proceeds from new borrowings of $119 million and proceeds from sales of treasury stock of $10 million. 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 EOG for the foreseeable future. At March 31, 2002, EOG had net outstanding swap contracts covering notional volumes of approximately 550 thousand barrels of crude oil and condensate for the period April 2002 to December 2002 at an average price of $21.50 per barrel. EOG elected not to designate these crude oil swap contracts as a hedge of its crude oil production, and accordingly, is accounting for these swap contracts under mark-to-market accounting. At March 31, 2002, the fair value of these oil price swap contracts was negative $2.6 million.
12 PART I. FINANCIAL INFORMATION - (Concluded) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Concluded) EOG RESOURCES, INC. At March 31, 2002, EOG also had outstanding swap contracts covering notional volumes of approximately 51.2 trillion British thermal units of natural gas for the period of April 2002 to December 2002 at an average price of $2.94 per million British thermal unit. EOG is accounting for these swap contracts under mark- to-market accounting. At March 31, 2002, the fair value of these natural gas price swap contracts was negative $23.3 million. EOG currently anticipates a net cash outflow from its outstanding natural gas and crude oil price swap contracts for the second quarter of 2002. 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 EOG'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. EOG typically uses words such as "expect," "anticipate," "estimate," "strategy," "intend," "plan," "target" 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, the ability to increase reserves, or the ability to generate income or cash flows are forward-looking statements. Forward-looking statements are not guarantees of performance. Although EOG 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: the timing and extent of changes in commodity prices for crude oil, natural gas and related products and interest rates; the extent and effect of any hedging activities engaged in by EOG; the extent of EOG's success in discovering, developing, marketing and producing reserves and in acquiring oil and gas properties; the accuracy of reserve estimates, which by their nature involve the exercise of professional judgment and may therefore be imprecise; political developments around the world, including terrorist activities and responses to such activities; and financial market conditions. In light of these risks, uncertainties and assumptions, the events anticipated by EOG's forward-looking statements might not occur. EOG undertakes no obligations to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.
13 PART II. OTHER INFORMATION EOG RESOURCES, INC. ITEM 1. Legal Proceedings See Part 1, Item 1, Note 5 to Consolidated Financial Statements, which is incorporated herein by reference. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends (b) Reports on Form 8-K During the first quarter of 2002, EOG filed the following Current Reports on Form 8-K: - On January 16, 2002, to report outstanding open natural gas price swap positions and natural gas physical contracts for 2002, along with EOG's exposure to Enron Corp. in Item 9 - Regulation FD Disclosure. - On January 29, 2002, to provide estimate for the first quarter and full year 2002 In Item 9 - Regulation FD Disclosure. - On February 20, 2002, to report outstanding open natural gas and crude oil price swap positions and natural gas physical contracts for 2002 in Item 5 - Other Events. - On February 28, 2002, to present management's discussion and analysis of financial condition and results of operations for 2001, financial statements for 2001, and related exhibits in Item 7 - Financial Statements and Exhibits. - On March 1, 2002, to report a change of EOG's independent accountants in Item 4 - Changes in Registrant's Certifying Accountant and Item 7 - Exhibits. - On March 19, 2002, to report outstanding open natural gas and crude oil price swap positions and natural gas physical contracts for 2002 in Item 5 - Other Events.
14 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: May 7, 2002 By /s/ T. K. DRIGGERS ----------------------------- T. K. Driggers Vice President, Accounting and Land Administration (Principal Accounting Officer)
15 <TABLE> Exhibit 12 EOG RESOURCES, INC. Computation of Ratio of Earnings to Fixed Charges and Combined Fixed Charges and Preferred Dividends (In Thousands) (Unaudited) Year Ended December 31, Three Months Ended ------------------------------------------------- March 31, 2002 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- <s> <c> <c> <c> <c> <c> <c> EARNINGS AVAILABLE FOR FIXED CHARGES: Net Income (Loss) $(24,241) $398,616 $396,931 $569,094 $ 56,171 $121,970 Less: Capitalized Interest Expense (2,502) (8,646) (6,708) (10,594) (12,711) (13,706) Add: Fixed Charges 16,046 60,468 72,833 77,837 66,982 47,108 Income Tax Provision (Benefit) (11,619) 232,829 236,626 (1,382) 4,111 41,500 -------- -------- -------- -------- -------- -------- EARNINGS AVAILABLE $(22,316) $683,267 $699,682 $634,955 $114,553 $196,872 ======== ======== ======== ======== ======== ======== FIXED CHARGES: Interest Expense $ 12,051 $ 45,110 $ 61,006 $ 61,819 $ 48,463 $ 27,369 Capitalized Interest 2,502 8,646 6,708 10,594 12,711 13,706 Rental Expense Representative of Interest Factor 1,493 6,712 5,119 5,424 5,808 6,033 -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES 16,046 60,468 72,833 77,837 66,982 47,108 Preferred Dividends on a Pre-tax Basis 4,080 17,416 17,602 660 - - -------- -------- -------- -------- -------- -------- TOTAL FIXED CHARGES AND PREFERRED DIVIDENDS $ 20,126 $ 77,884 $ 90,435 $ 78,497 $ 66,982 $ 47,108 ======== ======== ======== ======== ======== ======== RATIO OF EARNINGS TO FIXED CHARGES * 11.30 9.61 8.16 1.71 4.18 RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS ** 8.77 7.74 8.09 1.71 4.18 * Earnings were inadequate to cover fixed charges by $38.4 million for first quarter of 2002. ** Earnings were inadequate to cover combined fixed charges and preferred dividends by $42.4 million for the first quarter of 2002. </TABLE>