ITEM 1. Business
General
EOG Resources, Inc., a Delaware corporation organized in 1985, together with its subsidiaries (collectively, EOG), explores for, develops, produces and markets crude oil and natural gas primarily in major producing basins in the United States of America (United States or U.S.), Canada, The Republic of Trinidad and Tobago (Trinidad), the United Kingdom (U.K.), The People's Republic of China (China) and, from time to time, select other international areas. EOG's principal producing areas are further described in "Exploration and Production" below. EOG's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are made available, free of charge, through EOG's website, as soon as reasonably practicable after such reports have been filed with the United States Securities and Exchange Commission (SEC). EOG's website address is www.eogresources.com.
At December 31, 2014, EOG's total estimated net proved reserves were 2,497 million barrels of oil equivalent (MMBoe), of which 1,140 million barrels (MMBbl) were crude oil and condensate reserves, 467 MMBbl were natural gas liquids (NGL) reserves and 5,343 billion cubic feet, or 890 MMBoe, were natural gas reserves (see Supplemental Information to Consolidated Financial Statements). At such date, approximately 97% of EOG's net proved reserves, on a crude oil equivalent basis, were located in the United States and 3% in Trinidad. Crude oil equivalent volumes are determined using the ratio of 1.0 barrel of crude oil and condensate or NGL to 6.0 thousand cubic feet (Mcf) of natural gas.
As of December 31, 2014, EOG employed approximately 3,000 persons, including foreign national employees.
EOG's business strategy is to maximize the rate of return on investment of capital by controlling operating and capital costs and maximizing reserve recoveries. This strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis. EOG is focused on cost-effective utilization of advanced technology associated with three-dimensional seismic and microseismic data, the development of reservoir simulation models, the use of improved drill bits, mud motors and mud additives for horizontal drilling, formation evaluation and horizontal completion methods. These advanced technologies are used, as appropriate, throughout EOG to reduce the risks associated with all aspects of oil and gas exploration, development and exploitation. EOG implements its strategy by emphasizing the drilling of internally generated prospects in order to find and develop low-cost reserves. Maintaining the lowest possible operating cost structure that is consistent with prudent and safe operations is also an important goal in the implementation of EOG's strategy.
With respect to information on EOG's working interest in wells or acreage, "net" oil and gas wells or acreage are determined by multiplying "gross" oil and gas wells or acreage by EOG's working interest in the wells or acreage.
Business Segments
EOG's operations are all crude oil and natural gas exploration and production related. For financial information about our reportable segments (including financial information by segment geographic area), see Note 11 to Consolidated Financial Statements. For information regarding the risks associated with EOG's foreign operations, see ITEM 1A.
ITEM 1A. Risk Factors
Our business and operations are subject to many risks. The risks described below may not be the only risks we face, as our business and operations may also be subject to risks that we do not yet know of, or that we currently believe are immaterial. If any of the events or circumstances described below actually occurs, our business, financial condition, results of operations or cash flows could be materially and adversely affected and the trading price of our common stock could decline. The following risk factors should be read in conjunction with the other information contained herein, including the consolidated financial statements and the related notes. Unless the context requires otherwise, "we," "us," "our" and "EOG" refer to EOG Resources, Inc. and its subsidiaries.
A substantial or extended decline in crude oil and/or natural gas prices could have a material and adverse effect on us.
Prices for crude oil and natural gas (including prices for natural gas liquids (NGL) and condensate) fluctuate widely. Among the factors that can or could cause these price fluctuations are:
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the level of consumer demand;
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domestic and worldwide supplies of crude oil, NGL and natural gas;
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the price and quantity of imported and exported crude oil, NGL and natural gas;
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domestic and international drilling activity;
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the actions of other crude oil exporting nations, including the Organization of Petroleum Exporting Countries;
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weather conditions and changes in weather patterns;
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the availability, proximity and capacity of appropriate transportation facilities, gathering, processing and compression facilities and refining facilities;
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worldwide economic and political conditions, including political instability or armed conflict in oil and gas producing regions;
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the price and availability of, and demand for, competing energy sources, including alternative energy sources;
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the nature and extent of governmental regulation, including environmental regulation, regulation of derivatives transactions and hedging activities, tax laws and regulations and laws and regulations with respect to the import and export of crude oil, natural gas and related commodities;
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the level and effect of trading in commodity futures markets, including trading by commodity price speculators and others; and
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the effect of worldwide energy conservation measures.
Our cash flows and results of operations depend to a great extent on the prevailing prices for crude oil and natural gas. Prolonged or substantial declines in crude oil and/or natural gas prices may materially and adversely affect our liquidity, the amount of cash flows we have available for our capital expenditures and other operating expenses, our ability to access the credit and capital markets and our results of operations.
Lower crude oil and/or natural gas prices may also reduce the amount of crude oil and/or natural gas that we can produce economically. Substantial declines in crude oil and/or natural gas prices may render uneconomic a significant portion of our exploration, development and exploitation projects, which may result in our having to make significant downward adjustments to our estimated proved reserves. As a result, a prolonged or substantial decline in crude oil and/or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity and ability to finance capital expenditures and, in turn, the trading price of our common stock.
In addition, if we expect or experience significant sustained decreases in crude oil and natural gas prices such that the expected future cash flows from our crude oil and natural gas properties falls below the net book value of our properties, we may be required to write down the value of our crude oil and natural gas properties. Any such asset impairments could materially and adversely affect our results of operations and, in turn, the trading price of our common stock.
Drilling crude oil and natural gas wells is a high-risk activity and subjects us to a variety of risks that we cannot control.
Drilling crude oil and natural gas wells, including development wells, involves numerous risks, including the risk that we may not encounter commercially productive crude oil and natural gas reserves (including "dry holes"). As a result, we may not recover all or any portion of our investment in new wells.
Specifically, we often are uncertain as to the future cost or timing of drilling, completing and operating wells, and our drilling operations and those of our third-party operators may be curtailed, delayed or canceled, the cost of such operations may increase and/or our results of operations and cash flows from such operations may be impacted, as a result of a variety of factors, including:
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unexpected drilling conditions;
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title problems;
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pressure or irregularities in formations;
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equipment failures or accidents;
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adverse weather conditions, such as winter storms, flooding and hurricanes, and changes in weather patterns;
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compliance with, or changes in, environmental, health and safety laws and regulations relating to air emissions, hydraulic fracturing, access to and use of water, and disposal of produced water, drilling fluids and other wastes, laws and regulations imposing conditions or restrictions on drilling and completion operations and on the transportation of crude oil and natural gas, and other laws and regulations, such as tax laws and regulations;
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the availability and timely issuance of required federal, state, tribal and other permits and licenses, which may be affected by (among other things) government shutdowns or other suspensions of, or delays in, government services;
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the availability of, costs associated with and terms of contractual arrangements for properties, including mineral licenses and leases, pipelines, rail cars, crude oil hauling trucks and qualified drivers and facilities and equipment to gather, process, compress, transport and market crude oil, natural gas and related commodities; and
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the costs of, or shortages or delays in the availability of, drilling rigs, hydraulic fracturing services, pressure pumping equipment and supplies, tubular materials, water, sand, disposal facilities, qualified personnel and other necessary facilities, equipment, materials, supplies and services.
Our failure to recover our investment in wells, increases in the costs of our drilling operations or those of our third-party operators, and/or curtailments, delays or cancellations of our drilling operations or those of our third-party operators in each case due to any of the above factors or other factors, may materially and adversely affect our business, financial condition and results of operations. For related discussion of the risks and potential losses and liabilities inherent in our crude oil and natural gas operations generally, see the immediately following risk factor.
Our crude oil and natural gas operations and supporting activities and operations involve many risks and expose us to potential losses and liabilities, and insurance may not fully protect us against these risks and potential losses and liabilities.
Our crude oil and natural gas operations and supporting activities and operations are subject to all of the risks associated with exploring and drilling for, and producing, gathering, processing, compressing and transporting, crude oil and natural gas, including the risks of:
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well blowouts and cratering;
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loss of well control;
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crude oil spills, natural gas leaks and pipeline ruptures;
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pipe failures and casing collapses;
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uncontrollable flows of crude oil, natural gas, formation water or drilling fluids;
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releases of chemicals, wastes or pollutants;
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adverse weather conditions, such as winter storms, flooding and hurricanes, and other natural disasters;
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fires and explosions;
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terrorism, vandalism and physical, electronic and cyber security breaches;
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formations with abnormal or unexpected pressures;
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leaks or spills in connection with, or associated with, the gathering, processing, compression and transportation of crude oil and natural gas; and
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malfunctions of, or damage to, gathering, processing, compression and transportation facilities and equipment and other facilities and equipment utilized in support of our crude oil and natural gas operations.
If any of these events occur, we could incur losses, liabilities and other additional costs as a result of:
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injury or loss of life;
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damage to, or destruction of, property, facilities, equipment and crude oil and natural gas reservoirs;
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pollution or other environmental damage;
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regulatory investigations and penalties as well as clean-up and remediation responsibilities and costs;
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suspension or interruption of our operations, including due to injunction;
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repairs necessary to resume operations; and
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compliance with laws and regulations enacted as a result of such events.
We maintain insurance against many, but not all, such losses and liabilities in accordance with what we believe are customary industry practices and in amounts and at costs that we believe to be prudent and commercially practicable. The occurrence of any of these events and any losses or liabilities incurred as a result of such events, if uninsured or in excess of our insurance coverage, would reduce the funds available to us for our onshore and offshore operations and could, in turn, have a material adverse effect on our business, financial condition and results of operations.
Our ability to sell and deliver our crude oil and natural gas production could be materially and adversely affected if adequate gathering, processing, compression and transportation facilities and equipment are unavailable.
The sale of our crude oil and natural gas production depends on a number of factors beyond our control, including the availability, proximity and capacity of, and costs associated with, gathering, processing, compression and transportation facilities and equipment owned by third parties. These facilities may be temporarily unavailable to us due to market conditions, regulatory reasons, mechanical reasons or other factors or conditions, and may not be available to us in the future on terms we consider acceptable, if at all. In particular, in certain newer plays, the capacity of gathering, processing, compression and transportation facilities and equipment may not be sufficient to accommodate potential production from existing and new wells. In addition, lack of financing, construction and permitting delays, permitting costs and regulatory or other constraints could limit or delay the construction, manufacture or other acquisition of new gathering, processing, compression and transportation facilities and equipment by third parties or us, and we may experience delays or increased costs in accessing the pipelines, gathering systems or rail systems necessary to transport our production to points of sale or delivery.
Any significant change in market or other conditions affecting gathering, processing, compression or transportation facilities and equipment or the availability of these facilities, including due to our failure or inability to obtain access to these facilities and equipment on terms acceptable to us or at all, could materially and adversely affect our business and, in turn, our financial condition and results of operations.
If we fail to acquire or find sufficient additional reserves over time, our reserves and production will decline from their current levels.
The rate of production from crude oil and natural gas properties generally declines as reserves are produced. Except to the extent that we conduct successful exploration, exploitation and development activities, acquire additional properties containing reserves or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our reserves will decline as they are produced. Maintaining our production of crude oil and natural gas at, or increasing our production from, current levels, is, therefore, highly dependent upon our level of success in acquiring or finding additional reserves. To the extent we are unsuccessful in acquiring or finding additional reserves, our future cash flows and results of operations and, in turn, the trading price of our common stock could be materially and adversely affected.
We incur certain costs to comply with government regulations, particularly regulations relating to environmental protection and safety, and could incur even greater costs in the future.
Our crude oil and natural gas operations and supporting activities are regulated extensively by federal, state, tribal and local governments and regulatory agencies, both domestically and in the foreign countries in which we do business, and are subject to interruption or termination by governmental and regulatory authorities based on environmental, health, safety or other considerations. Moreover, we have incurred and will continue to incur costs in our efforts to comply with the requirements of environmental, health, safety and other regulations. Further, the regulatory environment could change in ways that we cannot predict and that might substantially increase our costs of compliance and, in turn, materially and adversely affect our business, results of operations and financial condition.
Specifically, as a current or past owner or lessee and operator of crude oil and natural gas properties, we are subject to various federal, state, tribal, local and foreign regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution cleanup resulting from current or past operations, subject us to liability for pollution damages and require suspension or cessation of operations in affected areas. Moreover, we are subject to the United States (U.S.) Environmental Protection Agency's (U.S. EPA) rule requiring annual reporting of greenhouse gas (GHG) emissions. Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially and adversely affect our business, results of operations and financial condition.
Local, state, national and international regulatory bodies have been increasingly focused on GHG emissions and climate change issues in recent years. EOG is unable to predict the timing, scope and effect of any currently proposed or future laws,
regulations or treaties regarding climate change and GHG emissions, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect EOG's operations, financial condition and results of operations.
In addition, there have been various proposals to regulate hydraulic fracturing in the U.S. at the federal level. Currently, the regulation of hydraulic fracturing in the U.S. is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements and in additional operating restrictions. Moreover, some state and local governments have imposed or have considered imposing various conditions and restrictions on drilling and completion operations. Any such federal or state requirements, restrictions or conditions could lead to operational delays and increased operating and compliance costs and, moreover, could delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing. Accordingly, our production of crude oil and natural gas could be materially and adversely affected. For additional discussion regarding climate change regulation and hydraulic fracturing regulation, see Climate Change - United States and Hydraulic Fracturing - United States under ITEM 1. Business - Regulation.
We will continue to monitor and assess any proposed or new policies, legislation, regulations and treaties in the areas where we operate to determine the impact on our operations and take appropriate actions, where necessary. We are unable to predict the timing, scope and effect of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect our business, results of operations and financial condition. For related discussion, see the risk factor below regarding the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act with respect to regulation of derivatives transactions and entities (such as EOG) that participate in such transactions.
Certain U.S. federal income tax deductions currently available with respect to crude oil and natural gas exploration and production may be eliminated as a result of future legislation.
Legislation may be proposed that would, if enacted into law, make significant changes to U.S. tax laws, including the elimination of certain U.S. federal income tax incentives currently available to crude oil and natural gas exploration and production companies. Such changes may include, but not be limited to, the elimination of current deductions for intangible drilling and development costs. It is unclear whether such changes or similar changes will be proposed and, if enacted, how soon any such changes would become effective. The enactment of such changes or any other similar changes in U.S. federal income tax laws could materially and adversely affect our cash flows, results of operations and financial condition.
A portion of our crude oil and natural gas production may be subject to interruptions that could have a material and adverse effect on us.
A portion of our crude oil and natural gas production may be interrupted, or shut in, from time to time for various reasons, including, but not limited to, as a result of accidents, weather conditions, the unavailability of gathering, processing, compression, transportation or refining facilities or equipment or field labor issues, or intentionally as a result of market conditions such as crude oil or natural gas prices that we deem uneconomic. If a substantial amount of our production is interrupted or shut in, our cash flows and, in turn, our financial condition and results of operations could be materially and adversely affected.
We have limited control over the activities on properties we do not operate.
Some of the properties in which we have an interest are operated by other companies and involve third-party working interest owners. As a result, we have limited ability to influence or control the operation or future development of such properties, including compliance with environmental, safety and other regulations, or the amount of capital expenditures that we will be required to fund with respect to such properties. Moreover, we are dependent on the other working interest owners of such projects to fund their contractual share of the capital expenditures of such projects. In addition, a third-party operator could also decide to shut-in or curtail production from wells, or plug and abandon marginal wells, on properties owned by that operator during periods of lower crude oil or natural gas prices. These limitations and our dependence on the operator and third-party working interest owners for these projects could cause us to incur unexpected future costs, lower production and materially and adversely affect our financial condition and results of operations.
If we acquire crude oil and natural gas properties, our failure to fully identify existing and potential problems, to accurately estimate reserves, production rates or costs, or to effectively integrate the acquired properties into our operations could materially and adversely affect our business, financial condition and results of operations.
From time to time, we seek to acquire crude oil and natural gas properties. Although we perform reviews of properties to be acquired in a manner that we believe is duly diligent and consistent with industry practices, reviews of records and properties
may not necessarily reveal existing or potential problems (such as title or environmental issues), nor may they permit us to become sufficiently familiar with the properties in order to assess fully their deficiencies and potential. Even when problems with a property are identified, we often may assume environmental and other risks and liabilities in connection with acquired properties pursuant to the acquisition agreements. In addition, there are numerous uncertainties inherent in estimating quantities of crude oil and natural gas reserves (as discussed further below), actual future production rates and associated costs with respect to acquired properties. Actual reserves, production rates and costs may vary substantially from those assumed in our estimates. In addition, an acquisition may have a material and adverse effect on our business and results of operations, particularly during the periods in which the operations of the acquired properties are being integrated into our ongoing operations or if we are unable to effectively integrate the acquired properties into our ongoing operations.
We have substantial capital requirements, and we may be unable to obtain needed financing on satisfactory terms, if at all.
We make, and will continue to make, substantial capital expenditures for the acquisition, exploration, development, production and transportation of crude oil and natural gas reserves. We intend to finance our capital expenditures primarily through our cash flows from operations, commercial paper borrowings, sales of non-core assets and borrowings under other uncommitted credit facilities and, to a lesser extent and if and as necessary, bank borrowings, borrowings under our revolving credit facility and public and private equity and debt offerings.
Lower crude oil and natural gas prices, however, reduce our cash flows. Further, if the condition of the credit and capital markets materially declines, we might not be able to obtain financing on terms we consider acceptable, if at all. In addition, weakness and/or volatility in domestic and global financial markets or economic conditions may increase the interest rates that lenders and commercial paper investors require us to pay and adversely affect our ability to finance our capital expenditures through equity or debt offerings or other borrowings. A reduction in our cash flows (for example, as a result of lower crude oil and natural gas prices or unanticipated well shut-ins) and the corresponding adverse effect on our financial condition and results of operations may also increase the interest rates that lenders and commercial paper investors require us to pay. In addition, a substantial increase in interest rates would decrease our net cash flows available for reinvestment. Any of these factors could have a material and adverse effect on our business, financial condition and results of operations.
The inability of our customers and other contractual counterparties to satisfy their obligations to us may have a material and adverse effect on us.
We have various customers for the crude oil, natural gas and related commodities that we produce as well as various other contractual counterparties, including several financial institutions and affiliates of financial institutions. Domestic and global economic conditions, including the financial condition of financial institutions generally, while weakened in recent years, have improved somewhat. However, there continues to be weakness and volatility in domestic and global financial markets, and there is the possibility that lenders may react by tightening credit. These conditions and factors may adversely affect the ability of our customers and other contractual counterparties to pay amounts owed to us from time to time and to otherwise satisfy their contractual obligations to us, as well as their ability to access the credit and capital markets for such purposes.
Moreover, our customers and other contractual counterparties may be unable to satisfy their contractual obligations to us for reasons unrelated to these conditions and factors, such as the unavailability of required facilities or equipment due to mechanical failure or market conditions. Furthermore, if a customer is unable to satisfy its contractual obligation to purchase crude oil, natural gas or related commodities from us, we may be unable to sell such production to another customer on terms we consider acceptable, if at all, due to the geographic location of such production, the availability, proximity or capacity of gathering, processing, compression and transportation facilities or market or other factors and conditions.
The inability of our customers and other contractual counterparties to pay amounts owed to us and to otherwise satisfy their contractual obligations to us may materially and adversely affect our business, financial condition, results of operations and cash flows.
Competition in the oil and gas exploration and production industry is intense, and many of our competitors have greater resources than we have.
We compete with major integrated oil and gas companies, government-affiliated oil and gas companies and other independent oil and gas companies for the acquisition of licenses and leases, properties and reserves and access to the facilities, equipment, materials, services and employees and other contract personnel (including geologists, geophysicists, engineers and other specialists) necessary to explore for, develop, produce, market and transport crude oil and natural gas. In addition, many of our competitors have financial and other resources substantially greater than those we possess and have established strategic long-term positions and strong governmental relationships in countries in which we may seek new or expanded entry. As a consequence,
we may be at a competitive disadvantage in certain respects, such as in bidding for drilling rights or in accessing necessary services, facilities, equipment, materials and personnel. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for crude oil and natural gas, such as changing worldwide prices and levels of production and the cost and availability of alternative fuels. We also face competition, to a lesser extent, from competing energy sources, such as alternative energy sources.
Reserve estimates depend on many interpretations and assumptions that may turn out to be inaccurate. Any significant inaccuracies in these interpretations and assumptions could cause the reported quantities of our reserves to be materially misstated.
Estimating quantities of crude oil, NGL and natural gas reserves and future net cash flows from such reserves is a complex, inexact process. It requires interpretations of available technical data and various assumptions, including assumptions relating to economic factors, made by our management and our independent petroleum consultants. Any significant inaccuracies in these interpretations or assumptions could cause the reported quantities of our reserves and future net cash flows from such reserves to be overstated or understated. Also, the data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions.
To prepare estimates of our economically recoverable crude oil, NGL and natural gas reserves and future net cash flows from our reserves, we analyze many variable factors, such as historical production from the area compared with production rates from other producing areas. We also analyze available geological, geophysical, production and engineering data, and the extent, quality and reliability of this data can vary. The process also involves economic assumptions relating to commodity prices, production costs, gathering, processing, compression and transportation costs, severance, ad valorem and other applicable taxes, capital expenditures and workover and remedial costs, many of which factors are or may be beyond our control. Our actual reserves and future net cash flows from such reserves most likely will vary from our estimates. Any significant variance, including any significant revisions or "write-downs" to our existing reserve estimates, could materially and adversely affect our business, financial condition and results of operations and, in turn, the trading price of our common stock. For related discussion, see ITEM 2. Properties - Oil and Gas Exploration and Production - Properties and Reserves and Supplemental Information to Consolidated Financial Statements.
Weather and climate may have a significant and adverse impact on us.
Demand for crude oil and natural gas is, to a significant degree, dependent on weather and climate, which impacts, among other things, the price we receive for the commodities we produce and, in turn, our cash flows and results of operations. For example, relatively warm temperatures during a winter season generally result in relatively lower demand for natural gas (as less natural gas is used to heat residences and businesses) and, as a result, lower prices for natural gas production.
In addition, our exploration, exploitation and development activities and equipment can be adversely affected by extreme weather conditions, such as winter storms, flooding and hurricanes in the Gulf of Mexico, which may cause a loss of production from temporary cessation of activity or lost or damaged facilities and equipment. Such extreme weather conditions could also impact other areas of our operations, including access to our drilling and production facilities for routine operations, maintenance and repairs, the installation and operation of gathering, processing, compression and transportation facilities and the availability of, and our access to, necessary third-party services, such as gathering, processing, compression and transportation services. Such extreme weather conditions and changes in weather patterns may materially and adversely affect our business and, in turn, our financial condition and results of operations.
Our hedging activities may prevent us from benefiting fully from increases in crude oil and natural gas prices and may expose us to other risks, including counterparty risk.
We use derivative instruments (primarily financial price swaps, options, swaptions and collar and basis swap contracts) to hedge the impact of fluctuations in crude oil and natural gas prices on our results of operations and cash flows. To the extent that we engage in hedging activities to protect ourselves against commodity price declines, we may be prevented from fully realizing the benefits of increases in crude oil and natural gas prices above the prices established by our hedging contracts. In addition, our hedging activities may expose us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging contracts fail to perform under the contracts.
Federal legislation and related regulations regarding derivatives transactions could have a material and adverse impact on our hedging activities.
As discussed in the risk factor immediately above, we use derivative instruments to hedge the impact of fluctuations in crude oil and natural gas prices on our results of operations and cash flows. In 2010, Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which, among other matters, provides for federal oversight of the over-the-counter derivatives market and entities that participate in that market and mandates that the Commodity Futures Trading Commission (CFTC) adopt rules or regulations implementing the Dodd-Frank Act and providing definitions of terms used in the Dodd-Frank Act. The Dodd-Frank Act establishes margin requirements and requires clearing and trade execution practices for certain categories of swaps and may result in certain market participants needing to curtail their derivatives activities. Although some of the rules necessary to implement the Dodd-Frank Act are yet to be adopted, the CFTC has issued numerous rules to implement the Dodd-Frank Act, including a rule establishing an "end-user" exception to mandatory clearing (End-User Exception), a proposed rule regarding margin for uncleared swaps (Margin Rule) and a proposed rule imposing position limits (Position Limits Rule).
We qualify as a “non-financial entity” for purposes of the End-User Exception and, as such, we are eligible for, and expect to utilize, such exception. As a result, our hedging activities will not be subject to mandatory clearing or the margin requirements imposed in connection with mandatory clearing. We also qualify as a “non-financial entity” for purposes of the Margin Rule; therefore, if such rule is adopted, our uncleared swaps will not be subject to regulatory margin requirements. Finally, we believe our hedging activities would constitute bona fide hedging under the Position Limits Rule and would not be subject to limitation under such rule if it is enacted. However, many of our hedge counterparties and many other market participants may not be eligible for the End-User Exception, may be subject to mandatory clearing or the Margin Rule for swaps with some or all of their other swap counterparties, and/or may be subject to the Position Limits Rule.
The Dodd-Frank Act and the rules adopted thereunder could increase the cost of derivative contracts, alter the terms of derivative contracts, reduce the availability of derivatives to protect against the price risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If our use of derivatives is reduced as a result of the Dodd-Frank Act and related regulations, our results of operations may become more volatile, and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund our capital expenditure requirements. Any of these consequences could have a material and adverse effect on our business, financial condition and results of operations.
Our business and prospects for future success depend to a significant extent upon the continued service and performance of our management team.
Our business and prospects for future success, including the successful implementation of our strategies and handling of issues integral to our future success, depend to a significant extent upon the continued service and performance of our management team. The loss of any member of our management team, and our inability to attract, motivate and retain substitute management personnel with comparable experience and skills, could materially and adversely affect our business, financial condition and results of operations.
We operate in other countries and, as a result, are subject to certain political, economic and other risks.
Our operations in jurisdictions outside the U.S. are subject to various risks inherent in foreign operations. These risks include, among other risks:
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increases in taxes and governmental royalties;
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changes in laws and policies governing operations of foreign-based companies;
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loss of revenue, loss of or damage to equipment, property and other assets and interruption of operations as a result of expropriation, nationalization, acts of terrorism, war, civil unrest and other political risks;
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unilateral or forced renegotiation, modification or nullification of existing contracts with governmental entities;
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difficulties enforcing our rights against a governmental agency because of the doctrine of sovereign immunity and foreign sovereignty over international operations; and
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currency restrictions and exchange rate fluctuations.
Our international operations may also be adversely affected by U.S. laws and policies affecting foreign trade and taxation. The realization of any of these factors could materially and adversely affect our business, financial condition and results of operations.
Unfavorable currency exchange rate fluctuations could adversely affect our results of operations.
The reporting currency for our financial statements is the U.S. dollar. However, certain of our subsidiaries are located in countries other than the U.S. and have functional currencies other than the U.S. dollar. The assets, liabilities, revenues and expenses of certain of these foreign subsidiaries are denominated in currencies other than the U.S. dollar. To prepare our consolidated financial statements, we must translate those assets, liabilities, revenues and expenses into U.S. dollars at then-applicable exchange rates. Consequently, increases and decreases in the value of the U.S. dollar versus other currencies will affect the amount of these items in our consolidated financial statements, even if the amount has not changed in the original currency. These translations could result in changes to our results of operations from period to period. For the fiscal year ended December 31, 2014, approximately 4% of our net operating revenues related to operations of our foreign subsidiaries whose functional currency was not the U.S. dollar.
Our business could be adversely affected by security threats, including cybersecurity threats.
As a producer of crude oil and natural gas, we face various security threats, including cybersecurity threats to gain unauthorized access to our sensitive information or to render our information or systems unusable, and threats to the security of our facilities and infrastructure or third-party facilities and infrastructure, such as gathering and processing facilities, refineries, rail facilities and pipelines. The potential for such security threats subjects our operations to increased risks that could have a material adverse effect on our business, financial condition and results of operations. For example, unauthorized access to our seismic data, reserves information or other proprietary information could lead to data corruption, communication interruptions, or other disruptions to our operations.
Our implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for our information, systems, facilities and infrastructure may result in increased capital and operating costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to our business and operations, as well as data corruption, communication interruptions or other disruptions to our operations, which, in turn, could have a material adverse effect on our business, financial position and results of operations.
Terrorist activities and military and other actions could materially and adversely affect us.
Terrorist attacks and the threat of terrorist attacks, whether domestic or foreign, as well as military or other actions taken in response to these acts, could cause instability in the global financial and energy markets. The U.S. government has at times issued public warnings that indicate that energy assets might be specific targets of terrorist organizations. Any such actions and the threat of such actions could materially and adversely affect us in unpredictable ways, including the disruption of energy supplies and markets, increased volatility in crude oil and natural gas prices or the possibility that the infrastructure on which we rely could be a direct target or an indirect casualty of an act of terrorism, and, in turn, could materially and adversely affect our business, financial condition and results of operations.
ITEM 1B.
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2.
ITEM 2. Properties
Oil and Gas Exploration and Production - Properties and Reserves
Reserve Information. For estimates of EOG's net proved and proved developed reserves of crude oil and condensate, natural gas liquids (NGL) and natural gas, as well as discussion of EOG's proved undeveloped reserves, the qualifications of the preparers of EOG's reserve estimates, EOG's independent petroleum consultants and EOG's processes and controls with respect to its reserve estimates, see "Supplemental Information to Consolidated Financial Statements."
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the producer. The reserve data set forth in "Supplemental Information to Consolidated Financial Statements" represent only estimates. Reserve engineering is a subjective process of estimating underground accumulations of crude oil and condensate, NGL and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the amount and quality of available data and of engineering and geological interpretation and judgment. As a result, estimates by different engineers normally vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of such estimate (upward or
downward). Accordingly, reserve estimates are often different from the quantities ultimately recovered. The meaningfulness of such estimates is highly dependent upon the accuracy of the assumptions upon which they were based. For related discussion, see ITEM 1A. Risk Factors and "Supplemental Information to Consolidated Financial Statements."
In general, the rate of production from crude oil and natural gas properties declines as reserves are produced. Except to the extent EOG acquires additional properties containing proved reserves, conducts successful exploration, exploitation and development activities or, through engineering studies, identifies additional behind-pipe zones or secondary recovery reserves, the proved reserves of EOG will decline as reserves are produced. The volumes to be generated from future activities of EOG are therefore highly dependent upon the level of success in finding or acquiring additional reserves. For related discussion, see ITEM 1A. Risk Factors. EOG's estimates of reserves filed with other federal agencies agree with the information set forth in "Supplemental Information to Consolidated Financial Statements."
Acreage. The following table summarizes EOG's developed and undeveloped acreage at December 31, 2014. Excluded is acreage in which EOG's interest is limited to owned royalty, overriding royalty and other similar interests.
Most of our undeveloped oil and gas leases, particularly in the United States, are subject to lease expiration if initial wells are not drilled within a specified period, generally between three and five years. Approximately 0.6 million net acres will expire in 2015, 0.4 million net acres will expire in 2016 and 0.2 million net acres will expire in 2017 if production is not established or we take no other action to extend the terms of the leases or concessions. In the ordinary course of business, based on our evaluations of certain geologic trends and prospective economics, we have allowed certain lease acreage to expire and may allow additional acreage to expire in the future.
Producing Well Summary. EOG operated 9,678 gross and 8,357 net producing crude oil and natural gas wells at December 31, 2014. Gross crude oil and natural gas wells include 201 wells with multiple completions.
Drilling and Acquisition Activities. During the years ended December 31, 2014, 2013 and 2012, EOG expended $7.9 billion, $7.0 billion and $7.1 billion, respectively, for exploratory and development drilling and acquisition of leases and producing properties, including asset retirement obligations of $196 million, $134 million and $127 million, respectively. The following tables set forth the results of the gross crude oil and natural gas wells drilled and completed for the years ended December 31, 2014, 2013 and 2012:
The following tables set forth the results of the net crude oil and natural gas wells drilled and completed for the years ended December 31, 2014, 2013 and 2012:
EOG participated in the drilling of wells that were in progress at the end of the period as set out in the table below for the years ended December 31, 2014, 2013 and 2012:
EOG acquired wells, which includes the acquisition of additional interests in certain wells in which EOG previously owned an interest, as set out in the tables below for the years ended December 31, 2014, 2013 and 2012:
All of EOG's drilling activities are conducted on a contractual basis with independent drilling contractors and other third-party service contractors. EOG's other property, plant and equipment primarily includes gathering, transportation and processing infrastructure assets, crude-by-rail assets, and sand mine and sand processing assets which support EOG's exploration and production activities. EOG does not own drilling rigs or rail cars.
ITEM 3.
ITEM 3. Legal Proceedings
The information required by this Item is set forth under the "Contingencies" caption in Note 8 of the Notes to Consolidated Financial Statements and is incorporated by reference herein.
ITEM 4.
ITEM 4. Mine Safety Disclosures
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this report.
PART II
ITEM 5.
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
EOG's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol "EOG." The following table sets forth, for the periods indicated, the high and low sales price per share for EOG's common stock, as reported by the NYSE, and the amount of the cash dividend declared per share. The quarterly cash dividend on EOG's common stock has historically been declared in the quarter immediately preceding the quarter of payment and paid on January 31, April 30, July 31 and October 31 of each year (or, if such day is not a business day, the immediately preceding business day). On February 24, 2014, EOG's Board of Directors (Board) approved a two-for-one stock split in the form of a stock dividend, paid on March 31, 2014, to stockholders of record as of March 17, 2014. The information below has been adjusted for the stock split.
On February 24, 2014, the Board increased the quarterly cash dividend on the common stock by 33% from $0.0938 per share to $0.125 per share, effective beginning with the dividend paid on April 30, 2014, to stockholders of record as of April 16, 2014. On August 5, 2014, the Board increased the quarterly cash dividend on the common stock by 34% from $0.125 per share to $0.1675 per share, effective beginning with the dividend paid on October 31, 2014, to stockholders of record as of October 17, 2014.
As of February 10, 2015, there were approximately 2,000 record holders and approximately 365,000 beneficial owners of EOG's common stock.
EOG currently intends to continue to pay quarterly cash dividends on its outstanding shares of common stock in the future. However, the determination of the amount of future cash dividends, if any, to be declared and paid will depend upon, among other factors, the financial condition, cash flow, level of exploration and development expenditure opportunities and future business prospects of EOG.
The following table sets forth, for the periods indicated, EOG's share repurchase activity:
(1)
The 133,848 total shares for the quarter ended December 31, 2014, and the 1,209,247 shares for the full year 2014, consist solely of shares that were withheld by or returned to EOG (i) in satisfaction of tax withholding obligations that arose upon the exercise of stock-settled stock appreciation rights or the vesting of restricted stock or restricted stock unit grants or (ii) in payment of the exercise price of employee stock options. These shares do not count against the 10 million aggregate share repurchase authorization of EOG's Board discussed below.
(2)
In September 2001, the Board authorized the repurchase of up to 10,000,000 shares of EOG's common stock. During 2014, EOG did not repurchase any shares under the Board-authorized repurchase program.
Comparative Stock Performance
The following performance graph and related information shall not be deemed "soliciting material" or to be "filed" with the United States Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended, except to the extent that EOG specifically requests that such information be treated as "soliciting material" or specifically incorporates such information by reference into such a filing.
The performance graph shown below compares the cumulative five-year total return to stockholders on EOG's common stock as compared to the cumulative five-year total returns on the Standard and Poor's 500 Index (S&P 500) and the Standard and Poor's 500 Oil & Gas Exploration & Production Index (S&P O&G E&P). The comparison was prepared based upon the following assumptions:
1.
$100 was invested on December 31, 2009 in each of the following: common stock of EOG, the S&P 500 and the S&P O&G E&P.
2.
Dividends are reinvested.
Comparison of Five-Year Cumulative Total Returns
EOG, S&P 500 and S&P O&G E&P
(Performance Results Through December 31, 2014)
ITEM 6.
ITEM 6. Selected Financial Data
(In Thousands, Except Per Share Data)
(1)
All share and per share amounts have been restated to reflect the two-for-one stock split effective March 31, 2014.
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
EOG Resources, Inc., together with its subsidiaries (collectively, EOG), is one of the largest independent (non-integrated) crude oil and natural gas companies in the United States with proved reserves in the United States, Canada, Trinidad, the United Kingdom and China. EOG operates under a consistent business and operational strategy that focuses predominantly on maximizing the rate of return on investment of capital by controlling operating and capital costs and maximizing reserve recoveries. This strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis, allowing EOG to deliver long-term production growth while maintaining a strong balance sheet. EOG implements its strategy by emphasizing the drilling of internally generated prospects in order to find and develop low-cost reserves. Maintaining the lowest possible operating cost structure that is consistent with prudent and safe operations is also an important goal in the implementation of EOG's strategy.
Net income for 2014 totaled $2,915 million as compared to $2,197 million for 2013. At December 31, 2014, EOG's total estimated net proved reserves were 2,497 million barrels of oil equivalent (MMBoe), an increase of 378 MMBoe from December 31, 2013. During 2014, net proved crude oil and condensate and natural gas liquids (NGL) reserves increased by 329 million barrels (MMBbl), and net proved natural gas reserves increased by 298 billion cubic feet or 50 MMBoe.
Operations
Several important developments have occurred since January 1, 2014.
United States and Canada. EOG's efforts to identify plays with large reserve potential have proven to be successful. EOG continues to drill numerous wells in large acreage plays, which in the aggregate have contributed substantially to, and are expected to continue to contribute substantially to, EOG's crude oil and liquids-rich natural gas production. EOG has placed an emphasis on applying its horizontal drilling and completion expertise to unconventional crude oil and liquids-rich reservoirs. In 2014, EOG remained focused on developing its existing North American crude oil and liquids-rich acreage. In addition, increasing drilling and completion efficiencies and testing methods to improve the recovery factor of oil-in-place remained areas of emphasis in 2014. EOG continues to evaluate certain potential crude oil and liquids-rich natural gas exploration and development prospects. On a volumetric basis, as calculated using the ratio of 1.0 barrel of crude oil and condensate or NGL to 6.0 thousand cubic feet of natural gas, crude oil and condensate and NGL production accounted for approximately 69% of total North American production during 2014 compared to 63% in 2013. This liquids growth primarily reflects increased production from the South Texas Eagle Ford, the North Dakota Bakken and the Permian Basin. In 2014, EOG's net Eagle Ford production averaged 202.7 thousand barrels per day (MBbld) of crude oil and condensate and NGL as compared to 140.9 MBbld in 2013. EOG's major producing areas are in New Mexico, North Dakota, Texas, Utah and Wyoming.
EOG continues to deliver its crude oil to various markets in the United States, including sales points on the Gulf Coast where sales are based upon the Light Louisiana Sweet crude oil index. EOG's crude-by-rail facilities provide EOG the flexibility to direct its crude oil shipments via rail car to the most favorable markets, including the Gulf Coast, Cushing, Oklahoma, and other markets.
During the fourth quarter of 2014, EOG completed the divestiture of all its assets in Manitoba, Canada and the majority of its assets in Alberta, Canada in two separate transactions. Proceeds from the divestitures were approximately 400 million United States dollars, net of customary transaction adjustments. As a result of these transactions, approximately 150 million United States dollars of restricted cash related to future abandonment liabilities was released. The proceeds and cash were utilized for general corporate purposes. Production from the divested assets totaled approximately 7,050 barrels of crude oil per day, 580 barrels of NGL per day and 43.5 million cubic feet of natural gas per day. Net proved reserves divested are estimated to be 7.7 million barrels of oil, 0.8 million barrels of NGL and 78.7 billion cubic feet of natural gas. EOG divested 1.3 million gross acres (1.1 million net acres), 97 percent of which were in Alberta, and approximately 5,800 producing wells of which 5,155 were natural gas. EOG reclassified approximately $383 million of accumulated translation adjustments from Accumulated Other Comprehensive Income to Net Income as the divestitures represented a substantially complete liquidation of EOG's Canadian operations. See Note 17 to the Consolidated Financial Statements.
International. In Trinidad, EOG continued to deliver natural gas under existing supply contracts. Several fields in the South East Coast Consortium (SECC) Block, Modified U(a) Block, Block 4(a) and Modified U(b) Block and the EMZ Area have been developed and are producing natural gas which is sold to the National Gas Company of Trinidad and Tobago and its subsidiary and crude oil and condensate which is sold to the Petroleum Company of Trinidad and Tobago Limited. In the fourth quarter of
2014, EOG initiated a three-net well drilling program in the SECC and Modified U(b) Blocks, completing one well in 2014. In 2015, EOG expects to drill and complete the remaining two net wells in this program.
In the United Kingdom, EOG continues to make progress in the development of its 100% working interest East Irish Sea Conwy crude oil discovery. Modifications to the nearby third-party owned Douglas platform, which will be used to process Conwy production, began in 2013 and continued throughout 2014. First production from the Conwy field is anticipated in the third quarter of 2015. In the fourth quarter of 2014, EOG recognized a $351 million impairment of the Conwy project as a result of crude oil price declines.
In the Sichuan Basin, Sichuan Province, China, in 2014, EOG drilled two wells and completed two wells, one of which was originally drilled in 2013. In 2015, EOG expects to complete the second well that was drilled in 2014 and drill and complete four additional wells.
EOG's activity in Argentina is focused on the Vaca Muerta oil shale formation in the Neuquén Basin in Neuquén Province. In 2014, EOG completed a vertical well in the Cerro Avispa Block that was drilled in late 2013 and determined the well to be a dry hole. Also during 2014, EOG participated in the drilling of two wells in the Bajo del Toro Block, both of which were determined to be dry holes. In the fourth quarter of 2014, EOG recognized an impairment charge of $44 million for the balance of its investment in Argentina. Management is currently evaluating options for its investment.
EOG continues to evaluate other select crude oil and natural gas opportunities outside the United States and Canada primarily by pursuing exploitation opportunities in countries where indigenous crude oil and natural gas reserves have been identified.
Capital Structure
One of management's key strategies is to maintain a strong balance sheet with a consistently below average debt-to-total capitalization ratio as compared to those in EOG's peer group. EOG's debt-to-total capitalization ratio was 25% at December 31, 2014 and 28% at December 31, 2013. As used in this calculation, total capitalization represents the sum of total current and long-term debt and total stockholders' equity. At December 31, 2014, $500 million aggregate principal amount of its 2.95% Senior Notes due 2015 were reclassified as long-term debt based upon EOG's intent and ability to ultimately replace such amount with other long-term debt.
On March 21, 2014, EOG closed its sale of the $500 million aggregate principal amount of its 2.45% Senior Notes due 2020 (Notes). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2014. Net proceeds from the Notes offering of approximately $496 million were used for general corporate purposes.
On March 17, 2014, EOG repaid upon maturity the $150 million aggregate principal amount of its 4.75% Subsidiary Debt due 2014 (Subsidiary Debt) and settled the foreign currency swap entered into contemporaneously with the issuance of the Subsidiary Debt for $32 million.
On February 3, 2014, EOG repaid upon maturity the $350 million aggregate principal amount of its Floating Rate Senior Notes due 2014 (Floating Rate Notes). On the same date, EOG settled the interest rate swap entered into contemporaneously with the issuance of the Floating Rate Notes for $0.8 million.
During 2014, EOG funded $8.4 billion in exploration and development and other property, plant and equipment expenditures (excluding asset retirement obligations), repaid at maturity $500 million aggregate principal amount of long-term debt, paid $280 million in dividends to common stockholders and purchased $127 million of treasury stock in connection with stock compensation plans, primarily by utilizing cash provided from its operating activities, net proceeds of $569 million from the sale of assets, net proceds from the sale of the Notes and $99 million of excess tax benefits from stock compensation.
Total anticipated 2015 capital expenditures are estimated to range from approximately $4.9 billion to $5.1 billion, excluding acquisitions. The majority of 2015 expenditures will be focused on United States crude oil drilling activities. EOG has significant flexibility with respect to financing alternatives, including borrowings under its commercial paper program and other uncommitted credit facilities, bank borrowings, borrowings under its $2.0 billion senior unsecured Revolving Credit Agreement and equity and debt offerings.
When it fits EOG's strategy, EOG will make acquisitions that bolster existing drilling programs or offer EOG incremental exploration and/or production opportunities. Management continues to believe EOG has one of the strongest prospect inventories in EOG's history.
Results of Operations
The following review of operations for each of the three years in the period ended December 31, 2014, should be read in conjunction with the consolidated financial statements of EOG and notes thereto beginning on page.
Net Operating Revenues
During 2014, net operating revenues increased $3,548 million, or 24%, to $18,035 million from $14,487 million in 2013. Total wellhead revenues, which are revenues generated from sales of EOG's production of crude oil and condensate, NGL and natural gas, increased $1,837 million, or 17%, to $12,593 million in 2014 from $10,756 million in 2013. Revenues from the sales of crude oil and condensate and NGL in 2014 were approximately 85% of total wellhead revenues compared to 84% in 2013. During 2014, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $834 million compared to net losses of $166 million in 2013. Gathering, processing and marketing revenues, which are revenues generated from sales of third-party crude oil and condensate, NGL and natural gas as well as gathering fees associated with gathering third-party natural gas, increased $402 million during 2014, to $4,046 million from $3,644 million in 2013. Gains on asset dispositions, net, totaled $508 million and $198 million in 2014 and 2013, respectively.
Wellhead volume and price statistics for the years ended December 31, 2014, 2013 and 2012 were as follows:
(1)
Thousand barrels per day or million cubic feet per day, as applicable.
(2)
Other International includes EOG's United Kingdom, China and Argentina operations.
(3)
Dollars per barrel or per thousand cubic feet, as applicable. Excludes the impact of financial commodity derivative instruments (see Note 12 to Consolidated Financial Statements).
(4)
Thousand barrels of oil equivalent per day or million barrels of oil equivalent, as applicable; includes crude oil and condensate, NGL and natural gas. Crude oil equivalents are determined using the ratio of 1.0 barrel of crude oil and condensate or NGL to 6.0 thousand cubic feet of natural gas. MMBoe is calculated by multiplying the MBoed amount by the number of days in the period and then dividing that amount by one thousand.
2014 compared to 2013. Wellhead crude oil and condensate revenues in 2014 increased $1,441 million, or 17%, to $9,742 million from $8,301 million in 2013, due to an increase of 68.5 MBbld, or 31%, in wellhead crude oil and condensate deliveries ($2,558 million), partially offset by a lower composite average wellhead crude oil and condensate price ($1,117 million). The increase in deliveries primarily reflects increased production in the Eagle Ford, the North Dakota Bakken and the Permian Basin. EOG's composite wellhead crude oil and condensate price for 2014 decreased 10% to $92.58 per barrel compared to $103.20 per barrel in 2013.
NGL revenues in 2014 increased $160 million, or 21%, to $934 million from $774 million in 2013, due to an increase of 15 MBbld, or 23%, in NGL deliveries ($179 million), partially offset by a lower composite average price ($19 million). The increase in deliveries primarily reflects increased volumes in the Eagle Ford and the Permian Basin. EOG's composite NGL price in 2014 decreased 2% to $31.91 per barrel compared to $32.55 per barrel in 2013.
Wellhead natural gas revenues in 2014 increased $235 million, or 14%, to $1,916 million from $1,681 million in 2013, primarily due to a higher composite wellhead natural gas price. EOG's composite average wellhead natural gas price increased 13% to $3.88 per Mcf in 2014 compared to $3.42 per Mcf in 2013. Natural gas deliveries in 2014 increased less than 1% to 1,353 MMcfd as compared to 1,347 MMcfd in 2013. Increased production in the United States (12 MMcfd) and Trinidad (8 MMcfd) was offset by lower production in Canada (15 MMcfd). In the United States, increased production of associated natural gas in the Eagle Ford and Permian Basin areas was partially offset by lower production in the Upper Gulf Coast and Fort Worth Basin Barnett Shale areas.
During 2014, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $834 million, which included net cash received from settlements of crude oil and natural gas financial derivative contracts of $34 million. During 2013, EOG recognized net losses on the mark-to-market of financial commodity derivative contracts of $166 million, which included net cash received from settlements of crude oil and natural gas financial derivative contracts of $116 million.
Gathering, processing and marketing revenues were primarily related to sales of third-party crude oil and natural gas. Purchases and sales of third-party crude oil and natural gas are utilized in order to balance firm transportation capacity with production in certain areas and to utilize excess capacity at EOG-owned facilities. Marketing costs represent the costs of purchasing third-party crude oil and natural gas and the associated transportation costs.
Gathering, processing and marketing revenues less marketing costs in 2014 declined $75 million compared to 2013, primarily due to lower margins on crude oil marketing activities.
2013 compared to 2012. Wellhead crude oil and condensate revenues in 2013 increased $2,642 million, or 47%, to $8,301 million from $5,659 million in 2012, due to an increase of 63 MBbld, or 40%, in wellhead crude oil and condensate deliveries ($2,205 million) and a higher composite average wellhead crude oil and condensate price ($437 million). The increase in deliveries primarily reflects increased production in the Eagle Ford, the North Dakota Bakken and the Permian Basin. EOG's composite average wellhead crude oil and condensate price for 2013 increased 6% to $103.20 per barrel compared to $97.77 per barrel in 2012.
NGL revenues in 2013 increased $47 million, or 6%, to $774 million from $727 million in 2012, due to an increase of 9 MBbld, or 17%, in NGL deliveries ($118 million), partially offset by a lower composite average price ($71 million). The increase in deliveries primarily reflects increased volumes in the Eagle Ford. EOG's composite average NGL price in 2013 decreased 8% to $32.55 per barrel compared to $35.54 per barrel in 2012.
Wellhead natural gas revenues in 2013 increased $109 million, or 7%, to $1,681 million from $1,572 million in 2012. The increase was due to a higher composite average wellhead natural gas price ($288 million), partially offset by decreased natural gas deliveries ($179 million). EOG's composite average wellhead natural gas price increased 21% to $3.42 per Mcf in 2013 compared to $2.83 per Mcf in 2012. Natural gas deliveries in 2013 decreased 169 MMcfd, or 11%, primarily due to decreased production in the United States (126 MMcfd), Trinidad (23 MMcfd) and Canada (19 MMcfd). The decrease in the United States was attributable to asset sales and reduced natural gas drilling activity. The decrease in Trinidad was primarily attributable to higher contractual deliveries in 2012.
During 2013, EOG recognized net losses on the mark-to-market of financial commodity derivative contracts of $166 million, which included net cash received from settlements of commodity derivative contracts of $116 million. During 2012, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $394 million, which included net cash received from settlements of commodity derivative contracts of $711 million.
During 2013, gathering, processing and marketing revenues and marketing costs increased, compared to 2012, primarily as a result of increased crude oil marketing activities. Gathering, processing and marketing revenues less marketing costs in 2013 decreased $66 million, compared to 2012, due primarily to lower margins on crude oil marketing activities.
Operating and Other Expenses
2014 compared to 2013. During 2014, operating expenses of $12,794 million were $1,982 million higher than the $10,812 million incurred during 2013. The following table presents the costs per barrel of oil equivalent (Boe) for the years ended December 31, 2014 and 2013:
(1)
Total excludes gathering and processing costs, exploration costs, dry hole costs, impairments, marketing costs and taxes other than income.
The primary factors impacting the cost components of per-unit rates of lease and well, transportation costs, DD&A, G&A and net interest expense for 2014 compared to 2013 are set forth below. See "Net Operating Revenues" above for a discussion of production volumes.
Lease and well expenses include expenses for EOG-operated properties, as well as expenses billed to EOG from other operators where EOG is not the operator of a property. Lease and well expenses can be divided into the following categories: costs to operate and maintain crude oil and natural gas wells, the cost of workovers and lease and well administrative expenses. Operating and maintenance costs include, among other things, pumping services, salt water disposal, equipment repair and maintenance, compression expense, lease upkeep and fuel and power. Workovers are operations to restore or maintain production from existing wells.
Each of these categories of costs individually fluctuates from time to time as EOG attempts to maintain and increase production while maintaining efficient, safe and environmentally responsible operations. EOG continues to increase its operating activities by drilling new wells in existing and new areas. Operating and maintenance costs within these existing and new areas, as well as the costs of services charged to EOG by vendors, fluctuate over time.
Lease and well expenses of $1,416 million in 2014 increased $310 million from $1,106 million in 2013 primarily due to higher operating and maintenance costs ($209 million), increased workover expenditures ($69 million) and increased lease and well administrative expenses ($32 million), all in the United States.
Transportation costs represent costs associated with the delivery of hydrocarbon products from the lease to a downstream point of sale. Transportation costs include transportation fees, costs associated with crude-by-rail operations, the cost of compression (the cost of compressing natural gas to meet pipeline pressure requirements), dehydration (the cost associated with removing water from natural gas to meet pipeline requirements), gathering fees and fuel costs.
Transportation costs of $972 million in 2014 increased $119 million from $853 million in 2013 primarily due to increased transportation costs related to production from the Eagle Ford ($99 million) and the Rocky Mountain area ($15 million).
DD&A of the cost of proved oil and gas properties is calculated using the unit-of-production method. EOG's DD&A rate and expense are the composite of numerous individual DD&A group calculations. There are several factors that can impact EOG's composite DD&A rate and expense, such as field production profiles, drilling or acquisition of new wells, disposition of existing wells and reserve revisions (upward or downward) primarily related to well performance, economic factors and
impairments. Changes to these factors may cause EOG's composite DD&A rate and expense to fluctuate from period to period. DD&A of the cost of other property, plant and equipment is generally calculated using the straight-line depreciation method over the useful lives of the assets.
DD&A expenses in 2014 increased $396 million to $3,997 million from $3,601 million in 2013. DD&A expenses associated with oil and gas properties in 2014 were $384 million higher than in 2013 primarily due to increased production in the United States ($630 million), partially offset by lower unit rates in the United States ($191 million) and Canada ($37 million) and a decrease in production in Canada ($31 million). Unit rates in the United States decreased primarily due to upward reserve revisions and reserves added at lower costs as a result of increased efficiencies.
G&A expenses of $402 million in 2014 were $54 million higher than 2013 primarily due to higher costs associated with supporting expanding operations.
Net interest expense of $201 million in 2014 was $34 million lower than 2013 primarily due to repayment of the $400 million aggregate principal amount of the 6.125% Senior Notes due 2013, the Subsidiary Debt and the Floating Rate Notes ($31 million), as well as an increase in capitalized interest across the company ($8 million). This was partially offset by interest expense on the Notes issued in March 2014 ($10 million).
Gathering and processing costs represent operating and maintenance expenses and administrative expenses associated with operating EOG's gathering and processing assets.
Gathering and processing costs increased $38 million to $146 million in 2014 compared to $108 million in 2013 primarily due to increased activities in the Eagle Ford.
Exploration costs of $184 million in 2014 increased $23 million from $161 million in 2013 primarily due to increased geological and geophysical expenditures in the United States.
Impairments include amortization of unproved oil and gas property costs; as well as impairments of proved oil and gas properties; other property, plant and equipment; and other assets. Unproved properties with acquisition costs that are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term. When circumstances indicate that a proved property may be impaired, EOG compares expected undiscounted future cash flows at a DD&A group level to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally calculated by using the Income Approach described in the Fair Value Measurement Topic of the Financial Accounting Standards Board's Accounting Standards Codification (ASC). In certain instances, EOG utilizes accepted bids as the basis for determining fair value.
Impairments of $744 million in 2014 increased $457 million from $287 million in 2013 primarily due to increased impairments of proved properties in the United Kingdom ($351 million), the United States ($145 million) and Argentina ($39 million); and increased amortization of unproved property costs in the United States ($54 million); partially offset by decreased impairments of proved properties in Canada ($67 million) and Trinidad ($14 million); and lower impairments of other assets in the United States ($46 million). EOG recorded impairments of proved properties; other property, plant and equipment; and other assets of $575 million and $172 million in 2014 and 2013, respectively. The 2014 and 2013 amounts include impairments of $503 million and $7 million, respectively, related to certain assets as a result of declining commodity prices and using accepted bids for determining fair value.
Taxes other than income include severance/production taxes, ad valorem/property taxes, payroll taxes, franchise taxes and other miscellaneous taxes. Severance/production taxes are generally determined based on wellhead revenues, and ad valorem/property taxes are generally determined based on the valuation of the underlying assets.
Taxes other than income in 2014 increased $134 million to $758 million (6.0% of wellhead revenues) from $624 million (5.8% of wellhead revenues) in 2013. The increase in taxes other than income was primarily due to increases in severance/production taxes ($112 million) primarily as a result of increased wellhead revenues and higher ad valorem/property taxes ($34 million) in the United States, partially offset by an increase in credits available to EOG in 2014 for Texas high-cost gas severance tax rate reductions ($11 million).
Other expense, net, was $45 million in 2014 compared to $3 million in 2013. The increase of $42 million was primarily due to net foreign currency transaction losses.
Income tax provision of $2,080 million in 2014 increased $840 million from $1,240 million in 2013 due primarily to higher pretax income. The net effective tax rate for 2014 increased to 42% from 36% in the prior year. The net effective tax rate for 2014 exceeded the United States statutory tax rate (35%) due primarily to valuation allowances in the United Kingdom and deferred tax in the United States related to EOG's undistributed foreign earnings. EOG no longer asserts that foreign earnings will remain permanently reinvested abroad and therefore recorded deferred tax of $250 million on the accumulated balance of such earnings in the fourth quarter of 2014.
2013 compared to 2012. During 2013, operating expenses of $10,812 million were $609 million higher than the $10,203 million incurred during 2012. The following table presents the costs per Boe for the years ended December 31, 2013 and 2012:
(1)
Total excludes gathering and processing costs, exploration costs, dry hole costs, impairments, marketing costs and taxes other than income.
The primary factors impacting the cost components of per-unit rates of lease and well, transportation costs, DD&A, G&A and net interest expense for 2013 compared to 2012 are set forth below. See "Net Operating Revenues" above for a discussion of production volumes.
Lease and well expenses of $1,106 million in 2013 increased $106 million from $1,000 million in 2012 primarily due to higher operating and maintenance expenses in the United States ($48 million) and Canada ($13 million) and increased workover expenditures in the United States ($38 million).
Transportation costs of $853 million in 2013 increased $252 million from $601 million in 2012 primarily due to increased transportation costs related to production from the Eagle Ford ($136 million), the Rocky Mountain area ($84 million) and the Fort Worth Basin Barnett Shale area ($27 million).
DD&A expenses in 2013 increased $431 million to $3,601 million from $3,170 million in 2012. DD&A expenses associated with oil and gas properties in 2013 were $473 million higher than in 2012 primarily due to increased production in the United States ($347 million) and higher unit rates in the United States ($133 million) and Trinidad ($44 million), partially offset by a decrease in production in Canada ($29 million) and Trinidad ($10 million) and lower unit rates in Canada ($12 million). DD&A unit rates in the United States increased due primarily to downward revisions of natural gas reserves at December 31, 2012, and a proportional increase in production from higher cost properties.
DD&A expenses associated with other property, plant and equipment were $42 million lower in 2013 than in 2012 primarily in the Fort Worth Basin Barnett Shale area ($32 million), the Eagle Ford ($7 million) and the Rocky Mountain area ($7 million).
G&A expenses of $348 million in 2013 were $17 million higher than 2012 due primarily to higher costs associated with supporting expanding operations.
Net interest expense of $235 million in 2013 was $22 million higher than 2012 due primarily to interest expense on the $1,250 million principal amount of 2.625% Senior Notes due 2023 issued in September 2012 ($23 million). This was partially offset by a reduction in interest expense on the 6.125% Senior Notes, which were repaid at maturity in October 2013 ($6 million).
Gathering and processing costs increased $10 million to $108 million in 2013 compared to $98 million in 2012. The increase primarily reflects increased activities in the Eagle Ford ($22 million), partially offset by decreased costs in Canada ($9 million).
Exploration costs of $161 million in 2013 decreased $25 million from $186 million in 2012 primarily due to decreased geological and geophysical expenditures in the United States.
Impairments of $287 million in 2013 decreased $984 million from $1,271 million in 2012 primarily due to decreased impairments of proved and unproved properties in Canada ($881 million), decreased impairments of proved properties and other assets in the United States ($98 million) and decreased amortization of unproved property costs in the United States ($17 million). EOG recorded impairments of proved and unproved properties; other property, plant and equipment; and other assets of $172 million and $1,133 million in 2013 and 2012, respectively. The 2013 and 2012 amounts include impairments of $7 million and $1,022 million, respectively, related to certain North American assets as a result of declining commodity prices and using accepted bids for determining fair value.
Taxes other than income in 2013 increased $129 million to $624 million (5.8% of wellhead revenues) from $495 million (6.2% of wellhead revenues) in 2012. The increase in taxes other than income was primarily due to increased severance/production taxes in the United States ($122 million) primarily as a result of increased wellhead revenues and higher ad valorem/property taxes in the United States ($15 million), partially offset by decreased severance/production taxes in Canada ($9 million).
Other expense, net, was $3 million in 2013 compared to other income, net, of $14 million in 2012. The decrease of $17 million was primarily due to losses on warehouse stock sales and adjustments.
Income tax provision of $1,240 million in 2013 increased $530 million from $710 million in 2012 primarily due to higher pretax income. The net effective tax rate for 2013 decreased to 36% from 55% in 2012 due primarily to the absence of certain 2012 Canadian losses (26% statutory tax rate).
Capital Resources and Liquidity
Cash Flow
The primary sources of cash for EOG during the three-year period ended December 31, 2014, were funds generated from operations, proceeds from asset sales, net proceeds from issuances of long-term debt, excess tax benefits from stock-based compensation, net commercial paper borrowings and borrowings under other uncommitted credit facilities and revolving credit facilities. The primary uses of cash were funds used in operations; exploration and development expenditures; other property, plant and equipment expenditures; repayments of debt; dividend payments to stockholders; and purchases of treasury stock in connection with stock compensation plans.
2014 compared to 2013. Net cash provided by operating activities of $8,649 million in 2014 increased $1,320 million from $7,329 million in 2013 primarily reflecting an increase in wellhead revenues ($1,837 million), favorable changes in working capital and other assets and liabilities ($391 million) and a decrease in net cash paid for interest expense ($38 million), partially offset by an increase in cash operating expenses ($662 million), an unfavorable change in the net cash received from the settlement of financial commodity derivative contracts ($82 million) and an increase in net cash paid for income taxes ($48 million).
Net cash used in investing activities of $7,514 million in 2014 increased by $1,199 million from $6,315 million in 2013 primarily due to an increase in additions to oil and gas properties ($823 million); an increase in additions to other property, plant and equipment ($364 million); and a decrease in proceeds from sales of assets ($191 million); partially offset by the release of restricted cash ($126 million) and favorable changes in working capital associated with investing activities ($52 million).
Net cash used in financing activities of $328 million during 2014 included repayments of long-term debt ($500 million), cash dividend payments ($280 million), purchases of treasury stock in connection with stock compensation plans ($127 million) and the settlement of a foreign currency swap ($32 million). Cash provided by financing activities in 2014 included net proceeds from the issuance of the Notes ($496 million), excess tax benefits from stock-based compensation ($99 million) and proceeds from stock options exercised and employee stock purchase plan activity ($22 million).
2013 compared to 2012. Net cash provided by operating activities of $7,329 million in 2013 increased $2,092 million from $5,237 million in 2012 primarily reflecting an increase in wellhead revenues ($2,798 million), favorable changes in working capital and other assets and liabilities ($405 million) and a decrease in net cash paid for income taxes ($65 million), partially offset by an unfavorable change in the net cash received from the settlement of financial commodity derivative contracts ($595 million), an increase in cash operating expenses ($478 million) and an increase in net cash paid for interest expense ($39 million).
Net cash used in investing activities of $6,315 million in 2013 increased by $196 million from $6,119 million for the same period of 2012 due primarily to a decrease in proceeds from sales of assets ($549 million); and an increase in restricted cash ($66 million); partially offset by a decrease in additions to other property, plant and equipment ($256 million); favorable changes in working capital associated with investing activities ($125 million); and a decrease in additions to oil and gas properties ($38 million).
Net cash used in financing activities of $574 million during 2013 included the repayment of long-term debt ($400 million), cash dividend payments ($199 million) and treasury stock purchases in connection with stock compensation plans ($64 million). Cash provided by financing activities in 2013 included excess tax benefits from stock-based compensation ($56 million) and proceeds from stock options exercised and employee stock purchase plan activity ($39 million).
Total Expenditures
The table below sets out components of total expenditures for the years ended December 31, 2014, 2013 and 2012 (in millions):
(1)
Leasehold acquisitions included $5 million in both 2014 and 2013 and $20 million in 2012 related to non-cash property exchanges.
(2)
In 2012, other property, plant and equipment included non-cash additions of $66 million in connection with a capital lease transaction in the Eagle Ford.
Exploration and development expenditures of $7,709 million for 2014 were $846 million higher than the prior year primarily due to increased drilling and facilities expenditures in the United States ($1,019 million) and China ($12 million); and increased property acquisitions ($19 million), increased exploration geological and geophysical expenditures ($18 million), and increased capitalized interest ($8 million), all in the United States. These increases were partially offset by decreased drilling and facilities expenditures in Canada ($82 million), Trinidad ($57 million), the United Kingdom ($40 million) and Argentina ($14 million); and decreased leasehold acquisition expenditures in the United States ($46 million). The 2014 exploration and development expenditures of $7,709 million included $6,804 million in development, $709 million in exploration, $139 million in property acquisitions and $57 million in capitalized interest. The 2013 exploration and development expenditures of $6,863 million included $5,952 million in development, $742 million in exploration, $120 million in property acquisitions and $49 million in capitalized interest. The 2012 exploration and development expenditures of $6,941 million included $5,989 million in development, $901 million in exploration and $50 million in capitalized interest.
The level of exploration and development expenditures, including acquisitions, 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. While EOG has certain continuing commitments associated with expenditure plans related to its operations, such commitments are not expected to be material when considered in relation to the total financial capacity of EOG.
Derivative Transactions
Commodity Derivative Contracts. The total fair value of EOG's crude oil and natural gas derivative contracts is reflected on the Consolidated Balance Sheets at December 31, 2014, as a net asset of $465 million. Presented below is a comprehensive summary of EOG's crude oil derivative contracts at February 16, 2015, with notional volumes expressed in barrels per day (Bbld) and prices expressed in dollars per barrel ($/Bbl).
(1)
EOG has entered into crude oil derivative contracts which give counterparties the option to extend certain current derivative contracts for additional six-month periods. Options covering a notional volume of 37,000 Bbld are exercisable on June 30, 2015. If the counterparties exercise all such options, the notional volume of EOG's existing crude oil derivative contracts will increase by 37,000 Bbld at an average price of $91.56 per barrel for each month during the period July 1, 2015 through December 31, 2015.
Presented below is a comprehensive summary of EOG's natural gas derivative contracts at February 16, 2015, with notional volumes expressed in million British thermal units (MMBtu) per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu).
(1)
EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative contracts at future dates. All such options are exercisable monthly up until the settlement date of each monthly contract. If the counterparties exercise all such options, the notional volume of EOG's existing natural gas derivative contracts will increase by 175,000 MMBtud at an average price of $4.51 per MMBtu for each month during the period March 1, 2015 through December 31, 2015.
Financing
EOG's debt-to-total capitalization ratio was 25% at December 31, 2014, compared to 28% at December 31, 2013. As used in this calculation, total capitalization represents the sum of total current and long-term debt and total stockholders' equity.
The principal amount of debt outstanding totaled $5,890 million at both December 31, 2014 and 2013. The estimated fair value of EOG's debt at December 31, 2014 and 2013 was $6,242 million and $6,222 million, respectively. The estimated fair value of debt was based upon quoted market prices and, where such prices were not available, other observable inputs regarding
interest rates available to EOG at year-end. EOG's debt is at fixed interest rates. While changes in interest rates affect the fair value of EOG's debt, such changes do not expose EOG to material fluctuations in earnings or cash flow.
During 2014, EOG funded its capital program primarily by utilizing cash provided by operating activities, proceeds from asset sales and cash provided by borrowings from its commercial paper program. While EOG maintains a $2.0 billion commercial paper program, the maximum outstanding at any time during 2014 was $345 million, and the amount outstanding at year-end was zero. The maximum amount outstanding under uncommitted credit facilities during 2014 was $31 million with zero outstanding at year-end. The average borrowings outstanding under the commercial paper program and the uncommitted credit facilities were $12 million and $0.1 million, respectively, during the year 2014. EOG considers this excess availability, which is backed by its $2.0 billion senior unsecured Revolving Credit Agreement (Credit Agreement) described in Note 2 to Consolidated Financial Statements, to be ample to meet its ongoing operating needs.
Contractual Obligations
The following table summarizes EOG's contractual obligations at December 31, 2014, (in thousands):
(1)
This table does not include the liability for unrecognized tax benefits, EOG's pension or postretirement benefit obligations or liability for dismantlement, abandonment and asset retirement obligations (see Notes 6, 7 and 15, respectively, to Consolidated Financial Statements).
(2)
Amounts shown are based on current transportation and storage rates and the foreign currency exchange rates used to convert Canadian dollars and British pounds into United States dollars at December 31, 2014. Management does not believe that any future changes in these rates before the expiration dates of these commitments will have a material adverse effect on the financial condition or results of operations of EOG.
(3)
Amounts shown represent minimum future expenditures for drilling rig services. EOG's expenditures for drilling rig services will exceed such minimum amounts to the extent EOG utilizes the drilling rigs subject to a particular contractual commitment for a period greater than the period set forth in the governing contract or if EOG utilizes drilling rigs in addition to the drilling rigs subject to the particular contractual commitment (for example, pursuant to the exercise of an option to utilize additional drilling rigs provided for in the governing contract).
Off-Balance Sheet Arrangements
EOG does not participate in financial transactions that generate relationships with unconsolidated entities or financial partnerships. Such entities or partnerships, often referred to as variable interest entities (VIE) or special purpose entities (SPE), are generally established for the purpose of facilitating off-balance sheet arrangements or other limited purposes. EOG was not involved in any unconsolidated VIE or SPE financial transactions or any other "off-balance sheet arrangement" (as defined in Item 303(a)(4)(ii) of Regulation S-K) during any of the periods covered by this report and currently has no intention of participating in any such transaction or arrangement in the foreseeable future.
Foreign Currency Exchange Rate Risk
During 2014, EOG was exposed to foreign currency exchange rate risk inherent in its operations in foreign countries, including Canada, Trinidad, the United Kingdom, China and Argentina. The foreign currency most significant to EOG's operations during 2014 was the Canadian dollar. The fluctuation of the Canadian dollar in 2014 impacted both the revenues and expenses of EOG's Canadian subsidiaries. However, since Canadian commodity prices are largely correlated to United States prices, the changes in the Canadian currency exchange rate have less of an impact on the Canadian revenues than the Canadian expenses. As previously discussed, during the fourth quarter of 2014, EOG sold substantially all of its Canadian assets. EOG continues to monitor the foreign currency exchange rates of countries in which it is currently conducting business and may implement measures to protect against foreign currency exchange rate risk.
EOG was party to a foreign currency aggregate swap with multiple banks to eliminate any exchange rate impacts that may have resulted from the Subsidiary Debt. The foreign currency swap expired and was settled contemporaneously with the repayment upon maturity of the Subsidiary Debt on March 17, 2014 (see Note 2 to the Consolidated Financial Statements).
Outlook
Pricing. Crude oil and natural gas prices have been volatile, and this volatility is expected to continue. As a result of the many uncertainties associated with the world political environment, worldwide supplies of crude oil and condensate, NGL and natural gas, the availabilities of other worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of consumers, EOG is unable to predict what changes may occur in crude oil and condensate, NGL, natural gas, ammonia and methanol prices in the future. The market price of crude oil and condensate, NGL and natural gas in 2015 will impact the amount of cash generated from operating activities, which will in turn impact EOG's financial position. As of January 30, 2015, the average 2015 U.S. New York Mercantile Exchange (NYMEX) crude oil and natural gas price was $51.86 and $2.85, respectively, representing declines of 44% and 35%, respectively, from the average NYMEX prices in 2014. See ITEM 1A. Risk Factors.
Including the impact of EOG's 2015 crude oil derivative contracts (exclusive of options) and based on EOG's tax position, EOG's price sensitivity in 2015 for each $1.00 per barrel increase or decrease in wellhead crude oil and condensate price, combined with the estimated change in NGL price, is approximately $63 million for net income and $93 million for cash flows from operating activities. Including the impact of EOG's 2015 natural gas derivative contracts (exclusive of options) and based on EOG's tax position and the portion of EOG's anticipated natural gas volumes for 2015 for which prices have not been determined under long-term marketing contracts, EOG's price sensitivity for each $0.10 per Mcf increase or decrease in wellhead natural gas price is approximately $15 million for net income and $22 million for cash flows from operating activities. For information regarding EOG's crude oil and natural gas financial commodity derivative contracts at February 16, 2015, see "Derivative Transactions" above.
Capital. EOG plans to continue to focus a substantial portion of its exploration and development expenditures in its major producing areas in the United States. In particular, EOG will be focused on United States crude oil drilling activity in its Eagle Ford, Delaware Basin and Bakken plays.
The total anticipated 2015 capital expenditures of $4.9 to $5.1 billion, excluding acquisitions, is structured to maintain EOG's strategy of capital discipline by funding its exploration, development and exploitation activities primarily from available internally generated cash flows and cash on hand. EOG has significant flexibility with respect to financing alternatives, including borrowings under its commercial paper program and other uncommitted credit facilities, bank borrowings, borrowings under its Credit Agreement and equity and debt offerings.
Operations. In 2015, EOG does not plan to increase crude oil production in the current low commodity price environment. Overall production in 2015 is expected to decline modestly from 2014 levels, and total crude oil production is expected to be flat as compared to the prior year. In 2015, EOG expects to allocate capital primarily to its highest rate-of-return crude oil assets, focus on cost reductions and seek out opportunities to acquire high-quality acreage at low costs.
Summary of Critical Accounting Policies
EOG prepares its financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. EOG identifies certain accounting policies as critical based on, among other things, their impact on the portrayal of EOG's financial condition, results of operations or liquidity, and the degree of difficulty, subjectivity and complexity in their application. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection and disclosure of each of the critical accounting policies. Following is a discussion of EOG's most critical accounting policies:
Proved Oil and Gas Reserves
EOG's engineers estimate proved oil and gas reserves in accordance with United States Securities and Exchange Commission regulations, which directly impact financial accounting estimates, including depreciation, depletion and amortization and impairments of proved properties. Proved reserves represent estimated quantities of crude oil and condensate, NGL and natural gas that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions existing at the time the estimates were made. The process of estimating quantities of proved oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. For related discussion, see ITEM 1A. Risk Factors and "Supplemental Information to Consolidated Financial Statements."
Oil and Gas Exploration Costs
EOG accounts for its crude oil and natural gas exploration and production activities under the successful efforts method of accounting. Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether EOG has discovered proved commercial reserves. Exploratory drilling costs are capitalized when drilling is complete if it is determined that there is economic producibility supported by either actual production, a conclusive formation test or certain technical data if the discovery is located offshore. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been discovered when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. As of December 31, 2012, EOG had exploratory drilling costs related to a project in the United Kingdom that had been deferred for more than one year (see Note 16 to Consolidated Financial Statements). These costs met the accounting requirements outlined above for continued capitalization. Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized.
Depreciation, Depletion and Amortization for Oil and Gas Properties
The quantities of estimated proved oil and gas reserves are a significant component of EOG's calculation of depreciation, depletion and amortization expense, and revisions in such estimates may alter the rate of future expense. Holding all other factors constant, if reserves were revised upward or downward, earnings would increase or decrease, respectively.
Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account.
Oil and gas properties are grouped in accordance with the provisions of the Extractive Industries - Oil and Gas Topic of the ASC. The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
Amortization rates are updated quarterly to reflect the addition of capital costs, reserve revisions (upwards or downwards) and additions, property acquisitions and/or property dispositions and impairments.
Depreciation and amortization of other property, plant and equipment is calculated on a straight-line basis over the estimated useful life of the asset.
Impairments
Oil and gas lease acquisition costs are capitalized when incurred. Unproved properties with acquisition costs that are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and gas properties. Lease rentals are expensed as incurred.
When circumstances indicate that proved oil and gas properties may be impaired, EOG compares expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows, based on EOG's estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally calculated using the Income Approach described in the Fair Value Measurement Topic of the ASC. In certain instances, EOG utilizes accepted bids as the basis for determining fair value. Estimates of undiscounted future cash flows require significant judgment. Crude oil and natural gas prices have exhibited significant volatility in the past, and EOG expects that volatility to continue in the future. During the past five years, West Texas Intermediate crude oil spot prices have fluctuated from approximately $53.45 per barrel to $113.39 per barrel, and Henry Hub natural gas spot prices have ranged from approximately $1.82 per MMBtu to $8.15 per MMBtu. EOG's proved reserves estimates, including the timing of future production, are also subject to significant assumptions and judgment, and are frequently revised (upwards and downwards) as more information becomes available. In the future, if actual crude oil and/or natural gas prices and/or actual production diverge negatively from EOG's current estimates, impairment charges may be necessary.
Income Taxes
Income taxes are accounted for using the asset and liability approach. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. EOG assesses the realizability of deferred tax assets and recognizes valuation allowances as appropriate. Significant assumptions used in estimating future taxable income include future oil and gas prices and changes in tax rates. Changes in such assumptions could materially affect the recognized amounts of valuation allowances.
Stock-Based Compensation
In accounting for stock-based compensation, judgments and estimates are made regarding, among other things, the appropriate valuation methodology to follow in valuing stock compensation awards and the related inputs required by those valuation methodologies. Assumptions regarding expected volatility of EOG's common stock, the level of risk-free interest rates, expected dividend yields on EOG's common stock, the expected term of the awards, expected volatility of the price of shares of EOG's peer companies and other valuation inputs are subject to change. Any such changes could result in different valuations and thus impact the amount of stock-based compensation expense recognized on the Consolidated Statements of Income and Comprehensive Income.
Information Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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 and costs, 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," "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 income or cash flows or pay 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, and demand for, crude oil and condensate, NGL, 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 economically develop its acreage in, produce reserves and achieve anticipated production levels from, and optimize reserve recovery from, its existing and future crude oil and natural gas exploration and development projects;
•
the extent to which EOG is successful in its efforts to market its crude oil, natural gas and related commodity production;
•
the availability, proximity and capacity of, and costs associated with, appropriate gathering, processing, compression, 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; 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 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 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 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 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 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;
•
political conditions and developments around the world (such as 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;
•
physical, electronic and cyber security breaches; and
•
the other factors described under ITEM 1A, Risk Factors, on pages 13 through 20 of this Annual Report on Form 10-K 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 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.
ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is incorporated by reference from Item 7 of this report, specifically the information set forth under the captions "Derivative Transactions," "Financing," "Foreign Currency Exchange Rate Risk" and "Outlook" in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity."
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
The information required by this Item is included in this report as set forth in the "Index to Financial Statements" on page and is incorporated by reference herein.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures. EOG's management, with the participation of EOG's principal executive officer and principal financial officer, evaluated the effectiveness of EOG's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of December 31, 2014. EOG's disclosure controls and procedures are designed to provide reasonable assurance that information that is required to be disclosed in the reports EOG files or submits under the Exchange Act is accumulated and communicated to EOG's management, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Based on that evaluation, EOG's principal executive officer and principal financial officer have concluded that EOG's disclosure controls and procedures were effective as of December 31, 2014.
Management's Annual Report on Internal Control over Financial Reporting. EOG's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act). Even an effective system of internal control over financial reporting, no matter how well designed, has inherent limitations, including the possibility of human error, circumvention of controls or overriding of controls and, therefore, can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, the effectiveness of a system of internal control over financial reporting in future periods can change as conditions change.
EOG's management assessed the effectiveness of EOG's internal control over financial reporting as of December 31, 2014. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). Based on this assessment and such criteria, EOG's management believes that EOG's internal control over financial reporting was effective as of December 31, 2014. See also "Management's Responsibility for Financial Reporting" appearing on page of this report, which is incorporated herein by reference.
The report of EOG's independent registered public accounting firm relating to the consolidated financial statements and effectiveness of internal control over financial reporting is set forth beginning on page of this report.
There were no changes in EOG's internal control over financial reporting that occurred during the quarter ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect, EOG's internal control over financial reporting.
ITEM 9B.
ITEM 9B. Other Information
None.
PART III
ITEM 10.
ITEM 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference from (i) EOG's Definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders to be filed not later than April 30, 2015 and (ii) Item 1 of this report, specifically the information therein set forth under the caption "Executive Officers of the Registrant."
Pursuant to Rule 303A.10 of the New York Stock Exchange and Item 406 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, EOG has adopted a Code of Business Conduct and Ethics for Directors, Officers and Employees (Code of Conduct) that applies to all EOG directors, officers and employees, including EOG's principal executive officer, principal financial officer and principal accounting officer. EOG has also adopted a Code of Ethics for Senior Financial Officers (Code of Ethics) that, along with EOG's Code of Conduct, applies to EOG's principal executive officer, principal financial officer, principal accounting officer and controllers.
You can access the Code of Conduct and Code of Ethics on the Corporate Governance page under "About EOG" on EOG's website at www.eogresources.com, and any EOG stockholder who so requests may obtain a printed copy of the Code of Conduct and Code of Ethics by submitting a written request to EOG's Corporate Secretary.
EOG intends to disclose any amendments to the Code of Conduct or Code of Ethics, and any waivers with respect to the Code of Conduct or Code of Ethics granted to EOG's principal executive officer, principal financial officer, principal accounting officer, any of our controllers or any of our other employees performing similar functions, on its website at www.eogresources.com within four business days of the amendment or waiver. In such case, the disclosure regarding the amendment or waiver will remain available on EOG's website for at least 12 months after the initial disclosure. There have been no waivers granted with respect to EOG's Code of Conduct or Code of Ethics.
ITEM 11.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference from EOG's Definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders to be filed not later than April 30, 2015. The Compensation Committee Report and related information incorporated by reference herein shall not be deemed "soliciting material" or to be "filed" with the United States Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended, except to the extent that EOG specifically incorporates such information by reference into such a filing.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from EOG's Definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders to be filed not later than April 30, 2015.
On February 24, 2014, EOG's Board of Directors (Board) approved a two-for-one stock split in the form of a stock dividend (payable to stockholders of record as of March 17, 2014, and paid on March 31, 2014) and corresponding adjustments to EOG's equity compensation plans. All share amounts set forth below have been restated to reflect the two-for-one stock split and such adjustments.
Equity Compensation Plan Information
Stock Plans Approved by EOG Stockholders. EOG's stockholders approved the EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan (2008 Plan) at the 2008 Annual Meeting of Stockholders in May 2008. At the 2010 Annual Meeting of Stockholders in April 2010 (2010 Annual Meeting), an amendment to the 2008 Plan was approved, pursuant to which the number of shares of common stock available for future grants of stock options, stock-settled stock appreciation rights (SARs), restricted stock, restricted stock units, performance stock, performance units and other stock-based awards under the 2008 Plan was increased by an additional 13.8 million shares, to an aggregate maximum of 25.8 million shares plus shares underlying forfeited or cancelled grants under the prior stock plans referenced below. At the 2013 Annual Meeting of Stockholders in May 2013, EOG's stockholders approved the Amended and Restated EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan (Amended and Restated Plan). As more fully discussed in the Amended and Restated Plan document, the Amended and Restated Plan, among other things, authorizes an additional 31,000,000 shares of EOG common stock for grant under the plan and extends the expiration date of the
plan to May 2023. Under the Amended and Restated Plan, grants may be made to employees and non-employee members of EOG's Board.
At the 2010 Annual Meeting, an amendment to the Employee Stock Purchase Plan (ESPP) was approved to increase the shares available for grant by 2.0 million shares. The ESPP was originally approved by EOG's stockholders in 2001, and would have expired on July 1, 2011. The amendment also extended the term of the ESPP to December 31, 2019, unless terminated earlier by its terms or by EOG.
The 1992 Stock Plan and the 1993 Nonemployee Directors Stock Option Plan have also been approved by EOG's stockholders. Upon the effective date of the 2008 Plan, no further grants were made under the 1992 Stock Plan or the 1993 Non-Employee Directors Stock Option Plan. Plans that have not been approved by EOG's stockholders are described below.
Stock Plans Not Approved by EOG Stockholders. The Board approved the 1994 Stock Plan, which provides equity compensation to employees who are not officers within the meaning of Rule 16a-1 of the Securities Exchange Act of 1934, as amended. Upon the effective date of the 2008 Plan, no further grants were made under the 1994 Stock Plan. As of December 31, 2014, no grants remained outstanding under the 1994 Stock Plan.
In December 2008, the Board approved the amendment and continuation of the 1996 Deferral Plan as the "EOG Resources, Inc. 409A Deferred Compensation Plan" (Deferral Plan). Under the Deferral Plan (as subsequently amended), payment of up to 50% of base salary and 100% of annual cash bonus, director's fees, vestings of restricted stock units granted to non-employee directors (and dividends credited thereon) under the 2008 Plan and 401(k) refunds (as defined in the Deferral Plan) may be deferred into a phantom stock account. In the phantom stock account, deferrals are treated as if shares of EOG common stock were purchased at the closing stock price on the date of deferral. Dividends are credited quarterly and treated as if reinvested in EOG common stock. Payment of the phantom stock account is made in actual shares of EOG common stock in accordance with the Deferral Plan and the individual's deferral election. A total of 540,000 shares of EOG common stock have been authorized by the Board and registered for issuance under the Deferral Plan. As of December 31, 2014, 264,110 phantom shares had been issued.
The following table sets forth data for EOG's equity compensation plans aggregated by the various plans approved by EOG's stockholders and those plans not approved by EOG's stockholders, in each case as of December 31, 2014.
(1)
Does not include 1,907,698 outstanding restricted stock units and 299,691 outstanding performance units, for which shares of EOG common stock will be issued, on a one-for-one basis, upon the vesting of such grants.
(2)
Consists of (i) 28,718,378 shares remaining available for issuance under the 2008 Plan and (ii) 793,684 shares remaining available for purchase under the ESPP. Pursuant to the fungible share design of the 2008 Plan, each share issued as a SAR or stock option under the 2008 Plan counts as 1.0 share against the aggregate plan share limit, and each share issued as a "full value award" (i.e., as restricted stock, restricted stock units, performance stock or performance units) counts as 2.45 shares against the aggregate plan share limit. Thus, from the 28,718,378 shares remaining available for issuance under the 2008 Plan, (i) the maximum number of shares we could issue as SAR and stock option awards is 28,718,378 (i.e., if all shares remaining available for issuance under the 2008 Plan are issued as SAR and stock option awards) and (ii) the maximum number of shares we could issue as full value awards is 11,721,787 (i.e., if all shares remaining available for issuance under the 2008 Plan are issued as full value awards).
(3)
Consists of shares of EOG common stock to be issued in accordance with the Deferral Plan and participant deferral elections (i.e., in respect of the 239,940 phantom shares issued and outstanding under the Deferral Plan as of December 31, 2014). As of December 31, 2014, no grants remained outstanding under the 1994 Stock Plan.
(4)
Represents phantom shares that remain available for issuance under the Deferral Plan.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference from EOG's Definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders to be filed not later than April 30, 2015.
ITEM 14.
ITEM 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference from EOG's Definitive Proxy Statement with respect to its 2015 Annual Meeting of Stockholders to be filed not later than April 30, 2015.
PART IV
ITEM 15.
ITEM 15. Exhibits, Financial Statement Schedules
(a)(1) and (a)(2) Financial Statements and Financial Statement Schedule
See "Index to Financial Statements" set forth on page.
(a)(3), (b) Exhibits
See pages E-1 through E-6 for a listing of the exhibits.
EOG RESOURCES, INC.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The following consolidated financial statements of EOG Resources, Inc., together with its subsidiaries (collectively, EOG), were prepared by management, which is responsible for the integrity, objectivity and fair presentation of such financial statements. The statements have been prepared in conformity with generally accepted accounting principles in the United States of America and, accordingly, include some amounts that are based on the best estimates and judgments of management.
EOG's management is also responsible for establishing and maintaining adequate internal control over financial reporting. The system of internal control of EOG is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. This system consists of 1) entity level controls, including written policies and guidelines relating to the ethical conduct of business affairs, 2) general computer controls and 3) process controls over initiating, authorizing, recording, processing and reporting transactions. Even an effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, circumvention of controls or overriding of controls and, therefore, can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, the effectiveness of a system of internal control over financial reporting in future periods can change as conditions change.
The adequacy of EOG's financial controls and the accounting principles employed by EOG in its financial reporting are under the general oversight of the Audit Committee of the Board of Directors. No member of this committee is an officer or employee of EOG. Moreover, EOG's independent registered public accounting firm and internal auditors have full, free, separate and direct access to the Audit Committee and meet with the committee periodically to discuss accounting, auditing and financial reporting matters.
EOG's management assessed the effectiveness of EOG's internal control over financial reporting as of December 31, 2014. In making this assessment, EOG used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013). These criteria cover the control environment, risk assessment process, control activities, information and communication systems, and monitoring activities. Based on this assessment and those criteria, management believes that EOG maintained effective internal control over financial reporting as of December 31, 2014.
Deloitte & Touche LLP, independent registered public accounting firm, was engaged to audit the consolidated financial statements of EOG, audit EOG's internal control over financial reporting and issue a report thereon. In the conduct of the audits, Deloitte & Touche LLP was given unrestricted access to all financial records and related data, including all minutes of meetings of stockholders, the Board of Directors and committees of the Board of Directors. Management believes that all representations made to Deloitte & Touche LLP during the audits were valid and appropriate. Their audits were made in accordance with the standards of the Public Company Accounting Oversight Board (United States). Their report begins on page.
WILLIAM R. THOMAS
TIMOTHY K. DRIGGERS
Chairman of the Board and
Vice President and Chief
Chief Executive Officer
Financial Officer
Houston, Texas
February 18, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
EOG Resources, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of EOG Resources, Inc. and subsidiaries (the "Company") as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2014. We also have audited the Company's internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EOG Resources, Inc. and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
February 18, 2015
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
The accompanying notes are an integral part of these consolidated financial statements.
EOG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
The accompanying notes are an integral part of these consolidated financial statements.
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data)
The accompanying notes are an integral part of these consolidated financial statements.
EOG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements of EOG Resources, Inc. (EOG) include the accounts of all domestic and foreign subsidiaries. Investments in unconsolidated affiliates, in which EOG is able to exercise significant influence, are accounted for using the equity method. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) 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.
On February 24, 2014, EOG's Board of Directors (Board) approved a two-for-one stock split in the form of a stock dividend, payable to stockholders of record as of March 17, 2014, and paid on March 31, 2014. All share and per share amounts in the financial statements and these notes have been restated to reflect the two-for-one stock split.
Financial Instruments. EOG's financial instruments consist of cash and cash equivalents, commodity derivative contracts, accounts receivable, accounts payable and current and long-term debt, along with associated foreign currency and interest rate swaps. The carrying values of cash and cash equivalents, commodity derivative contracts, accounts receivable and accounts payable approximate fair value (see Notes 2 and 12).
Cash and Cash Equivalents. EOG records as cash equivalents all highly liquid short-term investments with original maturities of three months or less.
Oil and Gas Operations. EOG accounts for its crude oil and natural gas exploration and production activities under the successful efforts method of accounting.
Oil and gas lease acquisition costs are capitalized when incurred. Unproved properties with acquisition costs that are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and gas properties. Lease rentals are expensed as incurred.
Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. The costs of drilling exploratory wells are capitalized pending determination of whether EOG has discovered proved commercial reserves. If proved commercial reserves are not discovered, such drilling costs are expensed. In some circumstances, it may be uncertain whether proved commercial reserves have been discovered when drilling has been completed. Such exploratory well drilling costs may continue to be capitalized if the reserve quantity is sufficient to justify its completion as a producing well and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made (see Note 16). Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized.
Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account.
Oil and gas properties are grouped in accordance with the Extractive Industries - Oil and Gas Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
Amortization rates are updated quarterly to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions and 4) impairments.
When circumstances indicate that proved oil and gas properties may be impaired, EOG compares expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the unamortized capitalized cost of the asset. If the expected undiscounted future cash flows, based on EOG's estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally calculated using the Income Approach described in the Fair Value Measurement Topic of the ASC. If applicable, EOG utilizes accepted bids as the basis for determining fair value.
Inventories, consisting primarily of tubular goods, materials for completion operations and well equipment held for use in the exploration for, and development and production of, crude oil and natural gas reserves, are carried at cost with adjustments made, as appropriate, to recognize any reductions in value.
Arrangements for sales of crude oil and condensate, natural gas liquids (NGL) and natural gas are evidenced by signed contracts with determinable market prices, and revenues are recorded when production is delivered. A significant majority of the purchasers of these products have investment grade credit ratings and material credit losses have been rare. Revenues are recorded on the entitlement method based on EOG's percentage ownership of current production. Each working interest owner in a well generally has the right to a specific percentage of production, although actual production sold on that owner's behalf may differ from that owner's ownership percentage. Under entitlement accounting, a receivable is recorded when underproduction occurs and a payable is recorded when overproduction occurs. Gathering, processing and marketing revenues represent sales of third-party crude oil and condensate, NGL and natural gas, as well as gathering fees associated with gathering third-party natural gas.
Other Property, Plant and Equipment. Other property, plant and equipment consists of gathering and processing assets, compressors, buildings and leasehold improvements, crude-by-rail assets, sand mine and sand processing assets, computer hardware and software, vehicles, and furniture and fixtures. Other property, plant and equipment is generally depreciated on a straight-line basis over the estimated useful lives of the property, plant and equipment, which range from 3 years to 45 years.
Capitalized Interest Costs. Interest costs have been capitalized as a part of the historical cost of unproved oil and gas properties. The amount capitalized is an allocation of the interest cost incurred during the reporting period. Capitalized interest is computed only during the exploration and development phases and ceases once production begins. The interest rate used for capitalization purposes is based on the interest rates on EOG's outstanding borrowings.
Accounting for Risk Management Activities. Derivative instruments are recorded on the balance sheet as either an asset or liability measured at fair value, and changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met. During the three-year period ended December 31, 2014, EOG elected not to designate any of its financial commodity derivative instruments as accounting hedges and, accordingly, changes in the fair value of these outstanding derivative instruments are recognized as gains or losses in the period of change. The gains or losses are recorded as Gains (Losses) on Mark-to-Market Commodity Derivative Contracts on the Consolidated Statements of Income and Comprehensive Income. The related cash flow impact of settled contracts is reflected as cash flows from operating activities. EOG was party to a foreign currency swap transaction and an interest rate swap transaction, both of which were accounted for using the hedge accounting method. EOG employs net presentation of derivative assets and liabilities for financial reporting purposes when such assets and liabilities are with the same counterparty and subject to a master netting arrangement. See Note 12.
Income Taxes. Income taxes are accounted for using the asset and liability approach. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. EOG assesses the realizability of deferred tax assets and recognizes valuation allowances as appropriate (see Note 6).
Foreign Currency Translation. The United States dollar is the functional currency for all of EOG's consolidated subsidiaries except for certain of its Canadian subsidiaries, for which the functional currency is the Canadian dollar, and its United Kingdom subsidiary, for which the functional currency is the British pound. For subsidiaries whose functional currency is deemed to be other than the United States dollar, asset and liability accounts are translated at year-end exchange rates and revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments are included in Accumulated Other Comprehensive Income on the Consolidated Balance Sheets. Any gains or losses on transactions or monetary assets or liabilities in currencies other than the functional currency are included in net income in the current period. See Note 17.
Net Income Per Share. Basic net income per share is computed on the basis of the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed based upon the weighted-average number of common shares outstanding during the period plus the assumed issuance of common shares for all potentially dilutive securities (see Note 9).
Stock-Based Compensation. EOG measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (see Note 7).
Recently Issued Accounting Standards. In April 2014, the FASB issued Accounting Standards Update (ASU) 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" (ASU 2014-08). ASU 2014-08 changes the criteria for reporting discontinued operations by requiring that in order for a disposal to qualify as a discontinued operation, the disposal must represent a strategic shift that has (or will have) a major effect on the entity's operations and financial results. ASU 2014-08 also requires additional disclosures both for discontinued operations and individually significant components of an entity that do not qualify as discontinued operations. ASU 2014-08 is effective for annual and interim periods beginning on or after December 15, 2014, with early adoption permitted. EOG has early-adopted the provisions of ASU 2014-08 and such adoption did not have a material impact on EOG's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09 "Revenue From Contracts With Customers" (ASU 2014-09), which will require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will supersede most current guidance related to revenue recognition when it becomes effective. The new standard also will require expanded disclosures regarding the nature, amount, timing and certainty of revenue and cash flows from contracts with customers. ASU 2014-09 will be effective for interim and annual reporting periods beginning after December 15, 2016, and permits adoption through the use of either the full retrospective approach or a modified retrospective approach. Early application is not permitted. EOG has not determined which transition method it will use and is continuing to analyze ASU 2014-09 to determine what impact the new standard will have on its consolidated financial statements and related disclosures.
2. Long-Term Debt
Long-Term Debt at December 31, 2014 and 2013 consisted of the following (in thousands):
At December 31, 2014, the aggregate annual maturities of long-term debt (excluding capital lease obligations) were $500 million in 2015, $400 million in 2016, $600 million in 2017, $350 million in 2018 and $900 million in 2019. At December 31, 2014, $500 million aggregate principal amount of its 2.95% Senior Notes due 2015 were classified as long-term debt based upon EOG's intent and ability to ultimately replace such amounts with other long-term debt.
During 2014 and 2013, EOG utilized commercial paper and short-term borrowings from uncommitted credit facilities, bearing market interest rates, for various corporate financing purposes. EOG had no outstanding commercial paper borrowings or uncommitted credit facility borrowings at December 31, 2014 and 2013, respectively. The average borrowings outstanding under the commercial paper program were $12 million and $37 million during the years ended December 31, 2014 and 2013, respectively. The average borrowings outstanding under the uncommitted credit facilities were $0.1 million and zero during the
years ended December 31, 2014 and 2013, respectively. The weighted average interest rates for commercial paper borrowings were 0.25% and 0.30% for the years 2014 and 2013, respectively, and were 0.70% for uncommitted credit facility borrowings for the year 2014.
EOG currently has a $2.0 billion senior unsecured Revolving Credit Agreement (Agreement) with domestic and foreign lenders. The Agreement matures on October 11, 2016 and includes an option for EOG to extend, on up to two occasions, the term for successive one-year periods, subject to, among certain other terms and conditions, the consent of the lenders holding greater than 50% of the commitments then outstanding under the Agreement. At December 31, 2014, there were no borrowings or letters of credit outstanding under the Agreement. Advances under the Agreement accrue interest based, at EOG's option, on either the London InterBank Offered Rate (LIBOR) plus an applicable margin (Eurodollar rate), or the base rate (as defined in the Agreement) plus an applicable margin. At December 31, 2014, the Eurodollar rate and applicable base rate, had there been any amounts borrowed under the Agreement, would have been 1.05% and 3.25%, respectively.
The Agreement contains representations, warranties, covenants and events of default that are customary for investment grade, senior unsecured commercial bank credit agreements, including a financial covenant for the maintenance of a total debt-to-total capitalization ratio of no greater than 65%. At December 31, 2014, and during the year then ended, EOG was in compliance with this financial debt covenant.
On March 21, 2014, EOG closed its sale of the $500 million aggregate principal amount of its 2.45% Senior Notes due 2020 (Notes). Interest on the Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning October 1, 2014. Net proceeds from the Notes offering of approximately $496 million were used for general corporate purposes.
On March 17, 2014, EOG repaid upon maturity the $150 million aggregate principal amount of its 4.75% Subsidiary Debt due 2014 (Subsidiary Debt) and settled the foreign currency swap entered into contemporaneously with the issuance of the Subsidiary Debt for $32 million.
On February 3, 2014, EOG repaid upon maturity the $350 million aggregate principal amount of its Floating Rate Senior Notes due 2014 (Floating Rate Notes). On the same date, EOG settled the interest rate swap entered into contemporaneously with the issuance of the Floating Rate Notes for $0.8 million.
Restricted Cash. In order to comply with the Canadian Alberta Energy Regulator's requirements to post financial security for well abandonment obligations, former EOG subsidiary EOG Resources Canada Inc. (EOGRC) established a 160 million Canadian dollar letter of credit facility (subsequently increased to 190 million Canadian dollars), with Royal Bank of Canada (RBC) as the lender. The letter of credit facility required EOGRC to deposit cash, in an amount equal to all outstanding letters of credit under such facility, in a cash collateral account at RBC. In connection with the sale of substantially all of EOG's Canadian assets in the fourth quarter of 2014, this letter of credit facility was amended and the then-outstanding cash collateral balance of 170 million Canadian dollars (approximately 150 million United States dollars) was released. This letter of credit facility was transferred to the purchaser of the Alberta assets. See Note 17.
3. Stockholders' Equity
Common Stock. In September 2001, EOG's Board of Directors (Board) authorized the purchase of an aggregate maximum of 10 million shares of Common Stock that superseded all previous authorizations. At December 31, 2014, 6,386,200 shares remained available for purchase under this authorization. EOG last purchased shares of its Common Stock under this authorization in March 2003. In addition, shares of Common Stock are from time to time withheld by, or returned to, EOG in satisfaction of tax withholding obligations arising upon the exercise of employee stock options or stock-settled stock appreciation rights (SARs), the vesting of restricted stock or restricted stock unit grants or in payment of the exercise price of employee stock options. Such shares withheld or returned do not count against the Board authorization discussed above. Shares purchased, withheld and returned are held in treasury for, among other purposes, fulfilling any obligations arising under EOG's stock-based compensation plans and any other approved transactions or activities for which such shares of Common Stock may be required.
On February 24, 2014, EOG's Board approved a two-for-one stock split in the form of a stock dividend, which was paid on March 31, 2014, to stockholders of record as of March 17, 2014.
On August 5, 2014, the Board increased the quarterly cash dividend on the common stock by 34% to $0.1675 per share, effective beginning with the dividend paid on October 31, 2014, to stockholders of record as of October 17, 2014. On February 24, 2014, the Board increased the quarterly cash dividend on the common stock by 33% to $0.125 per share, effective beginning with the dividend paid on April 30, 2014, to stockholders of record as of April 16, 2014. The Board increased the quarterly cash
dividend on the Common Stock to $0.0938 per share on February 13, 2013, effective beginning with the dividend paid on April 30, 2013, to stockholders of record as of April 16, 2013.
The following summarizes Common Stock activity for each of the years ended December 31, 2012, 2013 and 2014 (in thousands):
(1)
Represents shares that were withheld by, or returned to, EOG in satisfaction of tax withholding obligations that arose upon the exercise of employee stock options or SARs, the vesting of restricted stock or restricted stock unit grants or in payment of the exercise price of employee stock options.
Preferred Stock. EOG currently has one authorized series of preferred stock. As of December 31, 2014, there were no shares of preferred stock outstanding.
4. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes certain transactions that have generally been reported in the Consolidated Statements of Stockholders' Equity. The components of Accumulated Other Comprehensive Income (Loss) at December 31, 2014 and 2013 consisted of the following (in thousands):
(1)
Reclassified to Net Income - Gain on Asset Dispositions, Net. See Note 17.
(2)
Reclassified to Net Income - Interest Expense Incurred. See Note 2.
(3)
Related to certain EOG pension plans. See Note 7.
No significant amounts were reclassified out of Accumulated Other Comprehensive Income (Loss) during the years ended December 31, 2013 and 2012.
5. Other Income (Expense), Net
Other expense, net, for 2014 included net foreign currency transaction losses ($34 million), losses on dispositions of warehouse stock ($15 million) and equity income from investments in ammonia plants in Trinidad ($8 million). Other income, net, for 2013 included net foreign currency transaction gains ($12 million), equity income from investments in ammonia plants in Trinidad ($11 million), interest income ($6 million) primarily related to sales and use tax refunds, and losses on dispositions of warehouse stock ($23 million). Other income, net, for 2012 included equity income from investments in ammonia plants in Trinidad ($20 million), interest income ($9 million) primarily due to severance tax refunds, net foreign currency transaction gains ($7 million), losses on dispositions of warehouse stock ($10 million) and operating losses on EOG's investment in the proposed Pacific Trail Pipelines in Canada ($9 million).
6. Income Taxes
The principal components of EOG's net deferred income tax liabilities at December 31, 2014 and 2013 were as follows (in thousands):
The components of Income Before Income Taxes for the years indicated below were as follows (in thousands):
The principal components of EOG's Income Tax Provision for the years indicated below were as follows (in thousands):
The differences between taxes computed at the United States federal statutory tax rate and EOG's effective rate were as follows:
The effective tax rate of 42% in 2014 was higher than the prior year rate of 36% primarily due to valuation allowances in the United Kingdom and taxes on undistributed foreign earnings in the United States.
Deferred tax assets are recorded for certain tax benefits, including tax net operating losses (NOLs) and tax credit carryforwards, provided that management assesses the utilization of such assets to be "more likely than not." Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. On the basis of this evaluation, as of December 31, 2014, 2013 and 2012, cumulative valuation allowances of $463 million, $224 million and $200 million, respectively, have been recorded as EOG does not believe that certain foreign and state deferred tax assets are more likely than not to be realized. Once established, these valuation allowances are subsequently adjusted for current year taxable profits or losses and future taxable income estimates.
The balance of unrecognized tax benefits at December 31, 2014, was zero. When applicable, EOG records interest and penalties related to unrecognized tax benefits to its income tax provision. Currently, there are no amounts of interest or penalties recognized on the Consolidated Statements of Income and Comprehensive Income or on the Consolidated Balance Sheets. EOG does not anticipate that the amount of the unrecognized tax benefits will significantly change during the next twelve months. EOG and its subsidiaries file income tax returns in the United States and various state, local and foreign jurisdictions. EOG is generally no longer subject to income tax examinations by tax authorities in the United States (federal), Canada, the United Kingdom, Trinidad and China for taxable years before 2011, 2010, 2013, 2002 and 2008, respectively.
EOG's foreign subsidiaries' undistributed earnings of approximately $1.8 billion at December 31, 2014, are no longer considered to be permanently reinvested outside the United States and, accordingly, EOG recorded $250 million of United States federal and state deferred income taxes in 2014. EOG based its change in the permanent reinvestment assertion on a post-Canadian divestiture evaluation of its remaining foreign operations' capital requirements and projected foreign cash surpluses.
In 2014, EOG utilized a United States federal tax NOL of $940 million thereby fully exhausting the balance of federal tax NOLs carried forward from prior years. However, as of December 31, 2014, EOG still had state income tax NOLs being carried forward of approximately $1.6 billion, which, if unused, expire between 2015 and 2034. The Stock Compensation Topic of the ASC provides that when settlement of a stock award contributes to a NOL carryforward, neither the associated excess tax benefit nor the credit to Additional Paid in Capital (APIC) should be recorded until the stock award deduction reduces income taxes payable. Due to the current-year utilization of the available NOLs, a benefit of $29 million was reflected in APIC. In 2014, EOG paid alternative minimum tax (AMT) of $196 million. The AMT paid in 2014, along with AMT of $597 million paid in prior years, will be carried forward indefinitely as a credit available to offset regular income taxes in future periods.
The ability of EOG to utilize the AMT credit carryforwards to reduce federal income taxes may become subject to various limitations under the Internal Revenue Code. Such limitations may arise if certain ownership changes (as defined for income tax purposes) were to occur. As of December 31, 2014, management does not believe that an ownership change has occurred which would limit the carryforward.
During 2014, EOG's United Kingdom subsidiary incurred a tax NOL of approximately $246 million which, along with prior years' NOLs of $548 million, will be carried forward indefinitely. However, as a carryforward, the tax effect of these NOLs represent a future tax benefit (deferred tax asset) and must be evaluated for the likelihood of future utilization. Evaluations done in late 2014 indicate that not all of these NOLs may be utilized and therefore a valuation allowance was recorded in the fourth quarter of this year and is included in the aforementioned valuation allowance total.
7. Employee Benefit Plans
Stock-Based Compensation
During 2014, EOG maintained various stock-based compensation plans as discussed below. EOG recognizes compensation expense on grants of stock options, SARs, restricted stock and restricted stock units, performance units and performance stock, and grants made under its Employee Stock Purchase Plan (ESPP). Stock-based compensation expense is calculated based upon the grant date estimated fair value of the awards, net of forfeitures, based upon EOG's historical employee turnover rate. Compensation expense is amortized over the shorter of the vesting period or the period from date of grant until the date the employee becomes eligible to retire without company approval.
Stock-based compensation expense is included on the Consolidated Statements of Income and Comprehensive Income based upon the job functions of the employees receiving the grants. Compensation expense related to EOG's stock-based compensation plans for the years ended December 31, 2014, 2013 and 2012 was as follows (in millions):
The Amended and Restated EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan (2008 Plan) provides for grants of stock options, SARs, restricted stock and restricted stock units, performance stock and performance units, and other stock-based awards. At December 31, 2014, approximately 28.7 million common shares remained available for grant under the 2008 Plan. EOG's policy is to issue shares related to the 2008 Plan from previously authorized unissued shares or treasury shares to the extent treasury shares are available.
During 2014, 2013 and 2012, EOG issued shares in connection with stock option/SAR exercises, restricted stock and performance stock grants, restricted stock unit releases and ESPP purchases. EOG recognized, as an adjustment to APIC, federal income tax benefits of $99 million, $56 million and $67 million for 2014, 2013 and 2012, respectively, related to the exercise of stock options/SARs and the release of restricted stock and restricted stock units.
Stock Options and Stock-Settled Stock Appreciation Rights and Employee Stock Purchase Plan. Participants in EOG's stock-based compensation plans (including the 2008 Plan) have been or may be granted options to purchase shares of Common Stock. In addition, participants in EOG's stock plans (including the 2008 Plan) have been or may be granted SARs, representing the right to receive shares of Common Stock based on the appreciation in the stock price from the date of grant on the number of
SARs granted. Stock options and SARs are granted at a price not less than the market price of the Common Stock on the date of grant. Stock options and SARs granted vest on a graded vesting schedule up to four years from the date of grant based on the nature of the grants and as defined in individual grant agreements. Terms for stock options and SARs granted have not exceeded a maximum term of 10 years. EOG's ESPP allows eligible employees to semi-annually purchase, through payroll deductions, shares of Common Stock at 85 percent of the fair market value at specified dates. Contributions to the ESPP are limited to 10 percent of the employee's pay (subject to certain ESPP limits) during each of the two six-month offering periods each year.
The fair value of stock option grants and SAR grants is estimated using the Hull-White II binomial option pricing model. The fair value of ESPP grants is estimated using the Black-Scholes-Merton model. Stock-based compensation expense related to stock option, SAR and ESPP grants totaled $62 million, $53 million and $49 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Weighted average fair values and valuation assumptions used to value stock option, SAR and ESPP grants for the years ended December 31, 2014, 2013 and 2012 were as follows:
Expected volatility is based on an equal weighting of historical volatility and implied volatility from traded options in EOG's Common Stock. The risk-free interest rate is based upon United States Treasury yields in effect at the time of grant. The expected life is based upon historical experience and contractual terms of stock option, SAR and ESPP grants.
The following table sets forth the stock option and SAR transactions for the years ended December 31, 2014, 2013 and 2012 (stock options and SARs in thousands):
(1)
The total intrinsic value of stock options/SARs exercised during the years 2014, 2013 and 2012 was $95 million, $151 million and $185 million, respectively. The intrinsic value is based upon the difference between the market price of the Common Stock on the date of exercise and the grant price of the stock options/SARs.
At December 31, 2014, there were 10.1 million stock options/SARs vested or expected to vest with a weighted average grant price of $64.29 per share, an intrinsic value of $299 million and a weighted average remaining contractual life of 4.3 years.
The following table summarizes certain information for the stock options and SARs outstanding and exercisable at December 31, 2014 (stock options and SARs in thousands):
(1)
Based upon the difference between the closing market price of the Common Stock on the last trading day of the year and the grant price of in-the-money stock options and SARs.
At December 31, 2014, unrecognized compensation expense related to non-vested stock option and SAR grants totaled $112 million. This unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.7 years.
At December 31, 2014, approximately 794,000 shares of Common Stock remained available for issuance under the ESPP. The following table summarizes ESPP activities for the years ended December 31, 2014, 2013 and 2012 (in thousands, except number of participants):
Restricted Stock and Restricted Stock Units. Employees may be granted restricted (non-vested) stock and/or restricted stock units without cost to them. The restricted stock and restricted stock units generally vest five years after the date of grant, except for certain bonus grants, and as defined in individual grant agreements. Upon vesting of restricted stock, shares of Common Stock are released to the employee. Upon vesting, restricted stock units are converted into shares of Common Stock and released to the employee. Stock-based compensation expense related to restricted stock and restricted stock units totaled $74 million, $72 million and $72 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The following table sets forth the restricted stock and restricted stock unit transactions for the years ended December 31, 2014, 2013 and 2012 (shares and units in thousands):
(1)
The total intrinsic value of restricted stock and restricted stock units released during the years ended December 31, 2014, 2013 and 2012 was $291 million, $101 million and $120 million, respectively. The intrinsic value is based upon the closing price of EOG's common stock on the date restricted stock and restricted stock units are released.
(2)
The total intrinsic value of restricted stock and restricted stock units outstanding at December 31, 2014 and 2013 was approximately $497 million and $617 million, respectively.
At December 31, 2014, unrecognized compensation expense related to restricted stock and restricted stock units totaled $178 million. Such unrecognized expense will be recognized on a straight-line basis over a weighted average period of 2.5 years.
Performance Units and Performance Stock. EOG grants performance units and/or performance stock to its executive officers. As more fully discussed in the grant agreements, the performance metric applicable to these performance-based grants is EOG's total shareholder return over a three-year performance period relative to the total shareholder return of a designated group of peer companies. Upon the application of the performance multiple at the completion of the performance period, a minimum of zero and a maximum of 666,390 performance units/shares could be outstanding (based on the number of performance units/shares outstanding as of December 31, 2014). Subject to the termination provisions set forth in the grant agreements and the applicable performance multiple, the grants of performance shares/units will "cliff" vest five years from the date of grant. The fair value of the performance units and performance stock is estimated using a Monte Carlo simulation. Stock-based compensation expense related to performance unit and performance stock grants totaled $9 million, $9 million and $7 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Weighted average fair values and valuation assumptions used to value performance unit and performance stock grants during the years ended December 31, 2014, 2013 and 2012 were as follows:
Expected volatility is based on the term-matched historical volatility over the simulated term, which is calculated as the time between the grant date and the end of the performance period. The risk-free interest rate is based on a 3.26 year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date.
The following table sets forth performance unit and performance stock transactions for the years ended December 31, 2014, 2013 and 2012 (shares and units in thousands):
(1)
The total intrinsic value of performance units and performance stock outstanding at December 31, 2014 and 2013 was $30.7 million and $21.9 million, respectively.
At December 31, 2014, unrecognized compensation expense related to performance units and performance stock totaled $5 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 3.8 years.
Pension Plans. EOG has a defined contribution pension plan in place for most of its employees in the United States. EOG's contributions to the pension plan are based on various percentages of compensation and, in some instances, are based upon the amount of the employees' contributions. EOG's total costs recognized for the plan were $41 million, $37 million and $36 million for 2014, 2013 and 2012, respectively.
In addition, at December 31, 2014, EOG's Canadian subsidiary maintained both a non-contributory defined benefit pension plan and a non-contributory defined contribution pension plan, as well as a matched defined contribution savings plan. EOG's Trinidadian subsidiary maintains a contributory defined benefit pension plan and a matched savings plan. EOG's United Kingdom subsidiary maintains a pension plan which includes a non-contributory defined contribution pension plan and a matched defined contribution savings plan. With the exception of Canada's non-contributory defined benefit pension plan, which is closed to new employees, these pension plans are available to most employees of the Canadian, Trinidadian and United Kingdom subsidiaries. EOG's combined contributions to these plans were $5 million, $4 million and $3 million for 2014, 2013 and 2012, respectively.
For the Canadian and Trinidadian defined benefit pension plans, the benefit obligation, fair value of plan assets and accrued benefit cost totaled $14 million, $12 million and $1 million, respectively, at December 31, 2014, and $13 million, $11 million and $1 million, respectively, at December 31, 2013. In connection with the divestiture of substantially all of its Canadian assets, EOG has elected to terminate the Canadian non-contributory defined benefit pension plan.
Postretirement Health Care. EOG has postretirement medical and dental benefits in place for eligible United States and Trinidad employees and their eligible dependents, the costs of which are not material.
8. Commitments and Contingencies
Letters of Credit and Guarantees. At December 31, 2014, EOG had standby letters of credit and guarantees outstanding totaling approximately $423 million primarily representing guarantees of payment or performance obligations on behalf of subsidiaries. In connection with the divestiture of substantially all of EOG's Canadian assets, EOG's standby letters of credit and guarantees outstanding will ultimately decrease by approximately $71 million. At December 31, 2013, EOG had standby letters of credit and guarantees outstanding totaling approximately $711 million, of which $150 million represented a guarantee of subsidiary indebtedness (see Note 2) and $561 million primarily represented guarantees of payment or performance obligations on behalf of subsidiaries. As of February 18, 2015, there were no demands for payment under these guarantees.
Minimum Commitments. At December 31, 2014, total minimum commitments from long-term non-cancelable operating leases, drilling rig commitments, seismic purchase obligations, fracturing services obligations, other purchase obligations and transportation and storage service commitments, based on current transportation and storage rates and the foreign currency exchange rates used to convert Canadian dollars and British pounds into United States dollars at December 31, 2014, were as follows (in thousands):
Included in the table above are leases for buildings, facilities and equipment with varying expiration dates through 2042. Rental expenses associated with existing leases amounted to $237 million, $191 million and $182 million for 2014, 2013 and 2012, respectively.
Contingencies. There are currently various suits and claims pending against EOG that have arisen in the ordinary course of EOG's business, including contract disputes, personal injury and property damage claims and title disputes. While the ultimate outcome and impact on EOG cannot be predicted, management believes that the resolution of these suits and claims will not, individually or in the aggregate, have a material adverse effect on EOG's consolidated financial position, results of operations or cash flow. EOG records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.
9. Net Income Per Share
The following table sets forth the computation of Net Income Per Share for the years ended December 31, 2014, 2013 and 2012 (in thousands, except per share data):
The diluted earnings per share calculation excludes stock options and SARs that were anti-dilutive. Shares underlying the excluded stock options and SARs totaled 0.7 million, 0.3 million and 0.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.
10. Supplemental Cash Flow Information
Net cash paid for interest and income taxes was as follows for the years ended December 31, 2014, 2013 and 2012 (in thousands):
EOG's accrued capital expenditures at December 31, 2014, 2013 and 2012 were $972 million, $731 million and $734 million, respectively.
Non-cash investing activities for each of the years ended December 31, 2014 and 2013 included non-cash additions of $5 million to EOG's oil and gas properties as a result of property exchanges.
Non-cash investing and financing activities for the year ended December 31, 2012, included non-cash additions of $66 million to EOG's other property, plant and equipment and related obligations in connection with a capital lease transaction and non-cash additions of $20 million to EOG's oil and gas properties as a result of property exchanges.
11. Business Segment Information
EOG's operations are all crude oil and natural gas exploration and production related. The Segment Reporting Topic of the ASC establishes standards for reporting information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. EOG's chief operating decision-making process is informal and involves the Chairman of the Board and Chief Executive Officer and other key officers. This group routinely reviews and makes operating decisions related to significant issues associated with each of EOG's major producing areas in the United States, Canada, Trinidad, the United Kingdom and China. For segment reporting purposes, the chief operating decision maker considers the major United States producing areas to be one operating segment.
Financial information by reportable segment is presented below as of and for the years ended December 31, 2014, 2013 and 2012 (in thousands):
(1)
Other International primarily consists of EOG's United Kingdom, China and Argentina operations.
(2)
EOG had sales activity with two significant purchasers in 2014, one totaling $4.0 billion and the other totaling $3.0 billion of consolidated Net Operating Revenues in the United States segment.
(3)
EOG had sales activity with two significant purchasers in 2013, one totaling $3.9 billion and the other totaling $2.0 billion of consolidated Net Operating Revenues in the United States segment.
(4)
EOG had sales activity with a single significant purchaser in 2012 that totaled $2.2 billion of consolidated Net Operating Revenues in the United States segment.
12. Risk Management Activities
Commodity Price Risks. EOG engages in price risk management activities from time to time. These activities are intended to manage EOG's exposure to fluctuations in commodity prices for crude oil and natural gas. EOG utilizes financial commodity derivative instruments, primarily price swap, option, swaption, collar and basis swap contracts, as a means to manage this price risk.
During 2014, 2013 and 2012, EOG elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounted for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as Gains (Losses) on Mark-to-Market Commodity Derivative Contracts on the Consolidated Statements of Income and Comprehensive Income. The related cash flow impact is reflected in Cash Flows from Operating Activities. During 2014, 2013 and 2012, EOG recognized net gains (losses) on the mark-to-market of financial commodity derivative contracts of $834 million, $(166) million and $394 million, respectively, which included cash received from settlements of crude oil and natural gas derivative contracts of $34 million, $116 million and $711 million, respectively.
Commodity Derivative Contracts. Presented below is a comprehensive summary of EOG's crude oil derivative contracts at December 31, 2014, with notional volumes expressed in barrels per day (Bbld) and prices expressed in dollars per barrel ($/Bbl).
(1)
EOG has entered into crude oil derivative contracts which give counterparties the option to extend certain current derivative contracts for additional six-month periods. Options covering a notional volume of 37,000 Bbld are exercisable on June 30, 2015. If the counterparties exercise all such options, the notional volume of EOG's existing crude oil derivative contracts will increase by 37,000 Bbld at an average price of $91.56 per barrel for each month during the period July 1, 2015 through December 31, 2015.
Presented below is a comprehensive summary of EOG's natural gas derivative contracts at December 31, 2014, with notional volumes expressed in million British thermal units (MMBtu) per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu).
(1)
EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative contracts at future dates. All such options are exercisable monthly up until the settlement date of each monthly contract. If the counterparties exercise all such options, the notional volume of EOG's existing natural gas derivative contracts will increase by 175,000 MMBtud at an average price of $4.51 per MMBtu for each month during the period February 1, 2015 through December 31, 2015.
Foreign Currency Exchange Rate Derivative. EOG was party to a foreign currency aggregate swap with multiple banks to eliminate any exchange rate impacts that may have resulted from the Subsidiary Debt. The foreign currency swap agreement expired and was settled contemporaneously with the repayment upon maturity of the Subsidiary Debt on March 17, 2014 (see Note 2).
Interest Rate Derivative. EOG was party to an interest rate swap with a counterparty bank. The interest rate swap was entered into in order to mitigate EOG's exposure to volatility in interest rates related to its Floating Rate Notes. The interest rate swap expired and was settled contemporaneously with the repayment upon maturity of the Floating Rate Notes on February 3, 2014 (see Note 2).
The following table sets forth the amounts and classification of EOG's outstanding derivative financial instruments at December 31, 2014 and 2013, respectively. Certain amounts may be presented on a net basis on the consolidated financial statements when such amounts are with the same counterparty and subject to a master netting arrangement (in millions):
(1)
The current portion of Assets from Price Risk Management Activities consists of gross assets of $477 million, partially offset by gross liabilities of $12 million, at December 31, 2014 and gross assets of $18 million, partially offset by gross liabilities of $10 million, at December 31, 2013.
(2)
The current portion of Liabilities from Price Risk Management Activities consists of gross liabilities of $12 million, offset by gross assets of $12 million, at December 31, 2014 and gross liabilities of $137 million, partially offset by gross assets of $10 million, at December 31, 2013.
Credit Risk. Notional contract amounts are used to express the magnitude of commodity price, foreign currency and interest rate swap agreements. The amounts potentially subject to credit risk, in the event of nonperformance by the counterparties, are equal to the fair value of such contracts (see Note 13). EOG evaluates its exposure to significant counterparties on an ongoing basis, including those arising from physical and financial transactions. In some instances, EOG renegotiates payment terms and/or requires collateral, parent guarantees or letters of credit to minimize credit risk. At December 31, 2014, EOG's net accounts receivable balance related to United States, Canada, Argentina and United Kingdom hydrocarbon sales included two receivable balances, each of which accounted for more than 10% of the total balance. The receivables were due from two petroleum refinery companies. The related amounts were collected during early 2015. At December 31, 2013, EOG's net accounts receivable balance related to United States, Canada, Argentina and United Kingdom hydrocarbon sales included three receivable balances, each of which accounted for more than 10% of the total balance. The receivables were due from two petroleum refinery companies and one multinational oil and gas company. The related amounts were collected during early 2014. In 2014 and 2013, all natural gas from EOG's Trinidad operations was sold to the National Gas Company of Trinidad and Tobago and its subsidiary, and all natural gas from EOG's China operations was sold to Petrochina Company Limited.
All of EOG's outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements (ISDAs) with counterparties. The ISDAs may contain provisions that require EOG, if it is the party in a net liability position, to post collateral when the amount of the net liability exceeds the threshold level specified for EOG's then-current credit ratings. In addition, the ISDAs may also provide that as a result of certain circumstances, including certain events that cause EOG's credit ratings to become materially weaker than its then-current ratings, the counterparty may require all outstanding derivatives under the ISDA to be settled immediately. See Note 13 for the aggregate fair value of all derivative instruments that were in a net liability position at December 31, 2014 and 2013. EOG had no collateral posted and held $278 million of collateral at December 31, 2014, and had no collateral posted and held no collateral at December 31, 2013.
Substantially all of EOG's accounts receivable at December 31, 2014 and 2013 resulted from hydrocarbon sales and/or joint interest billings to third-party companies, including foreign state-owned entities in the oil and gas industry. This concentration of customers and joint interest owners may impact EOG's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral or other credit enhancements from a customer or joint interest owner, EOG typically analyzes the entity's net worth, cash flows, earnings and credit ratings. Receivables are generally not collateralized. During the three-year period ended December 31, 2014, credit losses incurred on receivables by EOG have been immaterial.
13. Fair Value Measurements
Certain of EOG's financial and nonfinancial assets and liabilities are reported at fair value on the Consolidated Balance Sheets. An established fair value hierarchy prioritizes the relative reliability of inputs used in fair value measurements. The hierarchy gives highest priority to Level 1 inputs that represent unadjusted quoted market prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are directly or indirectly observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs and have the lowest priority in the hierarchy. EOG gives consideration to the credit risk of its counterparties, as well as its own credit risk, when measuring financial assets and liabilities at fair value.
The following table provides fair value measurement information within the fair value hierarchy for certain of EOG's financial assets and liabilities carried at fair value on a recurring basis at December 31, 2014 and 2013 (in millions):
The estimated fair value of crude oil and natural gas derivative contracts (including options/swaptions) and the interest rate swap contract (see Note 12) was based upon forward commodity price and interest rate curves based on quoted market prices. The estimated fair value of the foreign currency rate swap was based upon forward currency rates. Commodity derivative contracts were valued by utilizing an independent third-party derivative valuation provider who uses various types of valuation models, as applicable.
The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives. A reconciliation of EOG's asset retirement obligations is presented in Note 15.
During 2014, proved oil and gas properties and other assets with a carrying amount of $968 million were written down to their fair value of $393 million, resulting in pretax impairment charges of $575 million. Included in the $575 million pretax impairment charges are $58 million of impairments of proved oil and gas properties and other assets for which EOG utilized accepted offers from third-party purchasers as the basis for determining fair value. During 2013, proved and unproved oil and gas properties and other assets with a carrying amount of $400 million were written down to their fair value of $228 million, resulting in pretax impairment charges of $172 million. Included in the $172 million pretax impairment charges are $58 million of impairments of proved oil and gas properties and other assets for which EOG utilized accepted offers from third-party purchasers as the basis for determining fair value. Significant Level 3 inputs associated with the calculation of discounted cash flows used in the impairment analysis include EOG's estimate of future crude oil and natural gas prices, production costs, development expenditures, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data.
Fair Value of Debt. At both December 31, 2014 and 2013, EOG had outstanding $5,890 million aggregate principal amount of debt, which had estimated fair values of approximately $6,242 million and $6,222 million, respectively. The estimated fair value of debt was based upon quoted market prices and, where such prices were not available, other observable (Level 2) inputs regarding interest rates available to EOG at year-end.
14. Accounting for Certain Long-Lived Assets
EOG reviews its proved oil and gas properties for impairment purposes by comparing the expected undiscounted future cash flows at a depreciation, depletion and amortization group level to the unamortized capitalized cost of the asset. During 2014, 2013 and 2012, such reviews indicated that unamortized capitalized costs of certain properties were higher than their expected undiscounted future cash flows primarily due to lower commodity prices, downward reserve revisions, drilling of marginal or
uneconomic wells, or development dry holes in certain producing fields. Several impairments over this period were recognized in connection with the signing of purchase and sale agreements. As a result, EOG recorded pretax charges of $171 million, $73 million and $171 million in the United States during 2014, 2013 and 2012, respectively, and $8 million, $76 million and $872 million in Canada during 2014, 2013 and 2012, respectively. Additionally, EOG recorded pretax charges of $396 million and $9 million in Other International during 2014 and 2013, respectively, and $14 million in Trinidad during 2013. The pretax charges are included in Impairments on the Consolidated Statements of Income and Comprehensive Income. The carrying values for assets determined to be impaired were adjusted to estimated fair value using the Income Approach described in the Fair Value Measurement Topic of the ASC. In certain instances, EOG utilizes accepted bids as the basis for determining fair value. Amortization and impairments of unproved oil and gas property costs, including amortization of capitalized interest, were $168 million, $115 million and $228 million during 2014, 2013 and 2012, respectively.
15. Asset Retirement Obligations
The following table presents the reconciliation of the beginning and ending aggregate carrying amounts of short-term and long-term legal obligations associated with the retirement of property, plant and equipment for the years ended December 31, 2014 and 2013 (in thousands):
(1)
Includes settlements related to asset sales.
The current and noncurrent portions of EOG's asset retirement obligations are included in Current Liabilities - Other and Other Liabilities, respectively, on the Consolidated Balance Sheets.
16. Exploratory Well Costs
EOG's net changes in capitalized exploratory well costs for the years ended December 31, 2014, 2013 and 2012 are presented below (in thousands):
(1)
Includes capitalized exploratory well costs charged to either dry hole costs or impairments.
(2)
At December 31, 2012, exploratory well costs totaling $21 million related to an outside operated offshore Central North Sea project in the United Kingdom that had been capitalized for more than one year.
At December 31, 2014 and 2013, all exploratory well costs had been capitalized for periods of less than one year.
17. Divestitures
During 2014, EOG received proceeds of approximately $569 million primarily from the divestiture of all its assets in Manitoba and the majority of its assets in Alberta (collectively, the Canadian Sales) and from sales of producing properties and acreage in the Upper Gulf Coast region, the Rocky Mountain area and the Mid-Continent area. The Canadian Sales that closed on or about December 1, 2014, occurred in two separate transactions, an asset sale and the sale of the stock of certain of EOG's Canadian subsidiaries. As these two transactions represent a substantially complete liquidation of EOG's Canadian operations, EOG reclassified approximately $383 million of cumulative translation adjustments previously recorded in Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheets to Net Income (Gains on Asset Dispositions, Net) on the Consolidated Statements of Income and Comprehensive Income. The Canadian Sales also resulted in the release of approximately $150 million of restricted cash related to future abandonment liabilities. During 2013, EOG received proceeds of approximately $761 million primarily from the sales of its entire interest in the planned Kitimat project in Canada, undeveloped acreage in the Horn River Basin in Canada and producing properties and acreage in the Permian Basin, the Mid-Continent area and the Upper Gulf Coast region. During 2012, EOG received proceeds of approximately $1.3 billion from the sales of producing properties and acreage primarily in the Rocky Mountain area, the Upper Gulf Coast region and Canada.
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data Unless Otherwise Indicated)
(Unaudited)
Oil and Gas Producing Activities
The following disclosures are made in accordance with Financial Accounting Standards Board Accounting Standards Update No. 2010-03 "Oil and Gas Reserve Estimates and Disclosures" and the United States Securities and Exchange Commission's (SEC) final rule on "Modernization of Oil and Gas Reporting."
Oil and Gas Reserves. Users of this information should be aware that the process of estimating quantities of "proved," "proved developed" and "proved undeveloped" crude oil, natural gas liquids (NGL) and natural gas reserves is complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors, including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions (upward or downward) to existing reserve estimates may occur from time to time. Although reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. See ITEM 1A. Risk Factors.
Proved reserves represent estimated quantities of crude oil, NGL and natural gas that geoscience and engineering data are used to estimate, with reasonable certainty, to be economically producible from a given day forward from known reservoirs under then-existing economic conditions, operating methods and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.
Proved developed reserves are proved reserves expected to be recovered under operating methods being utilized at the time the estimates were made, through wells and equipment in place or if the cost of any required equipment is relatively minor compared to the cost of a new well.
Proved undeveloped reserves (PUDs) are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a significant expenditure is required. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. PUDs can be recorded in respect of a particular undrilled location only if the location is scheduled, under the then-current drilling and development plan, to be drilled within five years from the date that the PUDs are to be recorded, unless specific factors (such as those described in interpretative guidance issued by the Staff of the SEC) justify a longer timeframe. Likewise, absent any such specific factors, PUDs associated with a particular undeveloped drilling location shall be removed from the estimates of proved reserves if the location is scheduled, under the then-current drilling and development plan, to be drilled on a date that is beyond five years from the date that the PUDs were recorded. EOG has formulated development plans for all drilling locations associated with its PUDs at December 31, 2014. Under these plans, each PUD location will be drilled within five years from the date it was recorded. Estimates for PUDs are not attributed to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
In making estimates of PUDs, EOG's technical staff, including engineers and geoscientists, perform detailed technical analysis of each potential drilling location within its inventory of prospects. In making a determination as to which of these locations would penetrate undrilled portions of the formation that can be judged, with reasonable certainty, to be continuous and contain economically producible crude oil and natural gas, studies are conducted using numerous data elements and analysis techniques. EOG's technical staff estimates the hydrocarbons in place, by mapping the entirety of the play in question using seismic techniques, typically employing two-dimensional and three-dimensional data. This analysis is integrated with other static data, including, but not limited to, core analysis, mechanical properties of the formation, thermal maturity indicators, and well logs of existing penetrations. Highly specialized equipment is utilized to prepare rock samples in assessing microstructures which contribute to porosity and permeability.
Analysis of dynamic data is then incorporated to arrive at the estimated fractional recovery of hydrocarbons in place. Data analysis techniques employed include, but are not limited to, well testing analysis, static bottom hole pressure analysis, flowing bottom hole pressure analysis, analysis of historical production trends, pressure transient analysis and rate transient analysis. Application of proprietary rate transient analysis techniques in low permeability rocks allow for quantification of estimates of contribution to production from both fractures and rock matrix.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The impact of optimal completion techniques is a key factor in determining if prospective locations are reasonably certain of being economically producible. EOG's technical staff estimates recovery improvement that might be achieved when completing horizontal wells with multi-stage fracture stimulation. In the early stages of development of a play, EOG determines the optimal length of the horizontal lateral and multi-stage fracture stimulation using the aforementioned analysis techniques along with pilot drilling programs and gathering of microseismic data.
The process of analyzing static and dynamic data, well completion optimization and the results of early development activities provides the appropriate level of certainty as well as support for the economic producibility of the plays in which PUDs are reflected. EOG has found this approach to be effective based on successful application in analogous reservoirs in low permeability resource plays.
Certain of EOG's Trinidad reserves are held under production sharing contracts where EOG's interest varies with prices and production volumes. Trinidad reserves, as presented on a net basis, assume prices in existence at the time the estimates were made and EOG's estimate of future production volumes. Future fluctuations in prices, production rates or changes in political or regulatory environments could cause EOG's share of future production from Trinidadian reserves to be materially different from that presented.
Estimates of proved reserves at December 31, 2014, 2013 and 2012 were based on studies performed by the engineering staff of EOG. The Engineering and Acquisitions Department is directly responsible for EOG's reserve evaluation process and consists of nine professionals, all of whom hold, at a minimum, bachelor's degrees in engineering, and five of whom are Registered Professional Engineers. The Vice President, Engineering and Acquisitions is the manager of this department and is the primary technical person responsible for this process. The Vice President, Engineering and Acquisitions holds a Bachelor of Science degree in Petroleum Engineering, has 29 years of experience in reserve evaluations and is a Registered Professional Engineer in the State of Texas.
EOG's reserves estimation process is a collaborative effort coordinated by the Engineering and Acquisitions Department in compliance with EOG's internal controls for such process. Reserve information as well as models used to estimate such reserves are stored on secured databases. Non-technical inputs used in reserve estimation models, including crude oil, NGL and natural gas prices, production costs, transportation costs, future capital expenditures and EOG's net ownership percentages are obtained from other departments within EOG. EOG's Internal Audit Department conducts testing with respect to such non-technical inputs. Additionally, EOG engages DeGolyer and MacNaughton (D&M), independent petroleum consultants, to perform independent reserves evaluation of select EOG properties comprising not less than 75% of EOG's estimates of proved reserves. EOG's Board of Directors requires that D&M's and EOG's reserve quantities for the properties evaluated by D&M vary by no more than 5% in the aggregate. Once completed, EOG's year-end reserves are presented to senior management, including the Chairman of the Board and Chief Executive Officer; the Chief Operating Officer; the Executive Vice Presidents, Exploration and Production; and the Vice President and Chief Financial Officer, for approval.
Opinions by D&M for the years ended December 31, 2014, 2013 and 2012 covered producing areas containing 76%, 82% and 87%, respectively, of proved reserves of EOG on a net-equivalent-barrel-of-oil basis. D&M's opinions indicate that the estimates of proved reserves prepared by EOG's Engineering and Acquisitions Department for the properties reviewed by D&M, when compared in total on a net-equivalent-barrel-of-oil basis, do not differ materially from the estimates prepared by D&M. Such estimates by D&M in the aggregate varied by not more than 5% from those prepared by the Engineering and Acquisitions Department of EOG. All reports by D&M were developed utilizing geological and engineering data provided by EOG. The report of D&M dated January 23, 2015, which contains further discussion of the reserve estimates and evaluations prepared by D&M, as well as the qualifications of D&M's technical person primarily responsible for overseeing such estimates and evaluations, is attached as Exhibit 23.2 to this Annual Report on Form 10-K and incorporated herein by reference.
No major discovery or other favorable or adverse event subsequent to December 31, 2014, is believed to have caused a material change in the estimates of proved or proved developed reserves as of that date.
The following tables set forth EOG's net proved and proved developed reserves at December 31 for each of the four years in the period ended December 31, 2014, and the changes in the net proved reserves for each of the three years in the period ended December 31, 2014, as estimated by the Engineering and Acquisitions Department of EOG:
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NET PROVED AND PROVED DEVELOPED RESERVE SUMMARY
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1)
Other International includes EOG's United Kingdom, China and Argentina operations.
(2)
Thousand barrels or thousand barrels of oil equivalent, as applicable; oil equivalents include crude oil and condensate, NGL and natural gas. Oil equivalents are determined using the ratio of 1.0 barrel of crude oil and condensate or NGL to 6.0 thousand cubic feet of natural gas.
(3)
Billion cubic feet.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 2014, EOG added 519 million barrels of oil equivalent (MMBoe) of proved reserves from drilling activities and technical evaluation of major proved areas, primarily in the Eagle Ford, Permian Basin and the Rocky Mountain area. Approximately 79% of the 2014 reserve additions were crude oil and condensate and NGL, and nearly 100% were in the United States. Sales in place of 36 MMBoe were primarily related to the disposition of certain producing natural gas assets in Canada, the Upper Gulf Coast and other producing basins in the United States. Positive revisions of previous estimates of 101 MMBoe for 2014 included a positive revision of 52 MMBoe primarily due to an increase in the average natural gas price used in the December 31, 2014 reserves estimation as compared to the price used in the prior year estimate. The primary plays affected were the Barnett Shale, the Uinta and Green River basins in the Rocky Mountain area and the Haynesville Shale play. Revisions other than price resulted primarily from improved recovery in the Eagle Ford and improved recoveries and reduced operating costs in the Permian Basin.
During 2013, EOG added 399 MMBoe of proved reserves from drilling activities and technical evaluation of major proved areas, primarily in the Eagle Ford, Bakken, Permian Basin and Barnett Combo shale plays. Approximately 75% of the 2013 reserve additions were crude oil and condensate and NGL, and over 96% were in the United States. Sales in place of 15 MMBoe were primarily related to the disposition of certain producing natural gas assets in South Texas, the Barnett Shale and the Permian Basin. Positive revisions of previous estimates of 109 MMBoe for 2013 included a positive revision of 61 MMBoe primarily due to an increase in the average natural gas price used in the December 31, 2013 reserves estimation as compared to the price used in the prior year estimate. The primary plays affected were the Barnett Shale, the Uinta and Green River basins in the Rocky Mountain area and the Haynesville Shale play. Revisions other than price resulted primarily from improved recovery in the Eagle Ford.
During 2012, EOG added 407 MMBoe of proved reserves from drilling activities and technical evaluation of major proved areas, primarily in the Eagle Ford, Permian Basin, Bakken and Barnett Combo shale plays. Approximately 80% of the 2012 reserve additions were crude oil and condensate and NGL, and over 96% were in the United States. Sales in place of 90 MMBoe were primarily related to the disposition of certain producing natural gas assets on the Gulf Coast, outside-operated crude oil properties in the Rocky Mountain area and other producing basins in the United States. Negative revisions of previous estimates of 393 MMBoe for 2012 included a negative revision of 531 MMBoe primarily due to a decrease in the average natural gas price used in the December 31, 2012 reserves estimation as compared to the price used in the prior year estimate. The primary plays affected were the Horn River, Haynesville, Barnett Shale and Marcellus Shale. Revisions other than price resulted from revisions for certain crude oil and natural gas properties in the United States.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1)
Other International includes EOG's United Kingdom, China and Argentina operations.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the twelve-month period ended December 31, 2014, total PUDs increased by 158 MMBoe to 1,149 MMBoe. EOG added approximately 50 MMBoe of PUDs through drilling activities where the wells were drilled but significant expenditures remained for completion. Based on the technology employed by EOG to identify and record PUDs (see discussion of technology employed on page of this Annual Report on Form 10-K), EOG added 354 MMBoe. The PUD additions were primarily in the Eagle Ford and Permian Basin shale plays, and 80% of the additions were crude oil and condensate and NGL. During 2014, EOG drilled and transferred 160 MMBoe of PUDs to proved developed reserves at a total capital cost of $2,655 million. Revisions of PUDs totaled negative 80 MMBoe, primarily due to removal of certain natural gas PUDs. During 2014, EOG sold 10 MMBoe and acquired 4 MMBoe of PUDs.
For the twelve-month period ended December 31, 2013, total PUDs increased by 130 MMBoe to 991 MMBoe. EOG added approximately 28 MMBoe of PUDs through drilling activities where the wells were drilled but significant expenditures remained for completion. Based on the technology employed by EOG to identify and record PUDs, EOG added 263 MMBoe. The PUD additions were primarily in the Eagle Ford, Bakken and Permian Basin shale plays, and over 80% of the additions were crude oil and condensate and NGL. During 2013, EOG drilled and transferred 160 MMBoe of PUDs to proved developed reserves at a total capital cost of $2,874 million. Revisions of PUDs totaled negative 1 MMBoe. During 2013, EOG did not sell any PUD reserves.
For the twelve-month period ended December 31, 2012, total PUDs decreased by 150 MMBoe to 861 MMBoe. EOG added approximately 32 MMBoe of PUDs through drilling activities where the wells were drilled but significant expenditures remained for completion. Based on the technology employed by EOG to identify and record PUDs, EOG added 268 MMBoe. The PUD additions were primarily in the Eagle Ford, Permian Basin, Bakken and Barnett Combo shale plays, and nearly 84% of the additions were crude oil and condensate and NGL. During 2012, EOG drilled and transferred 138 MMBoe of PUDs to proved developed reserves at a total capital cost of $2,764 million. Revisions of PUDs totaled negative 293 MMBoe, primarily due to removal of certain natural gas PUDs due to lower average natural gas prices. The primary plays affected were the Horn River, Haynesville, Barnett Shale and Marcellus Shale. During 2012, EOG sold 19 MMBoe of PUDs.
Capitalized Costs Relating to Oil and Gas Producing Activities. The following table sets forth the capitalized costs relating to EOG's crude oil and natural gas producing activities at December 31, 2014 and 2013:
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities. The acquisition, exploration and development costs disclosed in the following tables are in accordance with definitions in the Extractive Industries - Oil and Gas Topic of the Accounting Standards Codification (ASC).
Acquisition costs include costs incurred to purchase, lease or otherwise acquire property.
Exploration costs include additions to exploratory wells, including those in progress, and exploration expenses.
Development costs include additions to production facilities and equipment and additions to development wells, including those in progress.
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth costs incurred related to EOG's oil and gas activities for the years ended December 31, 2014, 2013 and 2012:
(1)
Other International primarily consists of EOG's United Kingdom, China and Argentina operations.
(2)
Includes Asset Retirement Costs of $149 million, $31 million, $14 million and $2 million for the United States, Canada, Trinidad and Other International, respectively. Excludes other property, plant and equipment.
(3)
Includes Asset Retirement Costs of $84 million, $13 million and $37 million for the United States, Canada and Other International, respectively. Excludes other property, plant and equipment.
(4)
Includes Asset Retirement Costs of $80 million, $33 million, $2 million and $12 million for the United States, Canada, Trinidad and Other International, respectively. Excludes other property, plant and equipment.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Results of Operations for Oil and Gas Producing Activities (1). The following table sets forth results of operations for oil and gas producing activities for the years ended December 31, 2014, 2013 and 2012:
(1)
Excludes gains or losses on the mark-to-market of financial commodity derivative contracts, gains or losses on sales of reserves and related assets, interest charges and general corporate expenses for each of the three years in the period ended December 31, 2014.
(2)
Other International primarily consists of EOG's United Kingdom, China and Argentina operations.
EOG RESOURCES, INC.
SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth production costs per barrel of oil equivalent, excluding severance/production and ad valorem taxes, for the years ended December 31, 2014, 2013 and 2012:
(1)
Other International primarily consists of EOG's United Kingdom, China and Argentina operations.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves. The following information has been developed utilizing procedures prescribed by the Extractive Industries - Oil and Gas Topic of the ASC and based on crude oil, NGL and natural gas reserves and production volumes estimated by the Engineering and Acquisitions Department of EOG. The estimates were based on a 12-month average for commodity prices for the years 2014, 2013 and 2012. The following information may be useful for certain comparison purposes, but should not be solely relied upon in evaluating EOG or its performance. Further, information contained in the following table should not be considered as representative of realistic assessments of future cash flows, nor should the Standardized Measure of Discounted Future Net Cash Flows be viewed as representative of the current value of EOG.
The future cash flows presented below are based on sales prices, cost rates and statutory income tax rates in existence as of the date of the projections. It is expected that material revisions to some estimates of crude oil, NGL and natural gas reserves may occur in the future, development and production of the reserves may occur in periods other than those assumed, and actual prices realized and costs incurred may vary significantly from those used.
Management does not rely upon the following information in making investment and operating decisions. Such decisions are based upon a wide range of factors, including estimates of probable and possible as well as proved reserves, and varying price and cost assumptions considered more representative of a range of possible economic conditions that may be anticipated.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the standardized measure of discounted future net cash flows from projected production of EOG's oil and gas reserves for the years ended December 31, 2014, 2013 and 2012:
(1)
Other International includes EOG's United Kingdom, China and Argentina operations.
(2)
Estimated crude oil prices used to calculate 2014 future cash inflows for the United States, Canada, Trinidad and Other International were $97.51, $95.11, $80.60 and $94.09, respectively. Estimated NGL prices used to calculate 2014 future cash inflows for the United States and Canada were $34.29 and $27.03, respectively. Estimated natural gas prices used to calculate 2014 future cash inflows for the United States, Canada, Trinidad and Other International were $3.71, $4.79, $3.71 and $5.34, respectively.
(3)
Estimated crude oil prices used to calculate 2013 future cash inflows for the United States, Canada, Trinidad and Other International were $105.91, $91.47, $94.30 and $107.36, respectively. Estimated NGL prices used to calculate 2013 future cash inflows for the United States and Canada were $29.42 and $40.88, respectively. Estimated natural gas prices used to calculate 2013 future cash inflows for the United States, Canada, Trinidad and Other International were $3.50, $2.95, $3.71 and $5.67, respectively.
(4)
Estimated crude oil prices used to calculate 2012 future cash inflows for the United States, Canada, Trinidad and Other International were $99.78, $84.77, $94.46 and $109.94, respectively. Estimated NGL prices used to calculate 2012 future cash inflows for the United States and Canada were $36.95 and $47.80, respectively. Estimated natural gas prices used to calculate 2012 future cash inflows for the United States, Canada, Trinidad and Other International were $2.63, $2.22, $3.61, and $5.04, respectively.
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in Standardized Measure of Discounted Future Net Cash Flows. The following table sets forth the changes in the standardized measure of discounted future net cash flows at December 31, for each of the three years in the period ended December 31, 2014:
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SUPPLEMENTAL INFORMATION TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
Unaudited Quarterly Financial Information
(In Thousands, Except Per Share Data)
(1)
The sum of quarterly net income (loss) per share may not agree with total year net income (loss) per share as each quarterly computation is based on the weighted average of common shares outstanding.
EXHIBITS
Exhibits not incorporated herein by reference to a prior filing are designated by (i) an asterisk (*) and are filed herewith; or (ii) a pound sign (#) and are not filed herewith, and, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the registrant hereby agrees to furnish a copy of such exhibit to the United States Securities and Exchange Commission (SEC) upon request.
E-1
E-2
E-3
E-4
E-5
*Exhibits filed herewith
**Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income and Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2014, (ii) the Consolidated Balance Sheets - December 31, 2014 and 2013, (iii) the Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2014, (iv) the Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2014 and (v) Notes to Consolidated Financial Statements.
+ Management contract, compensatory plan or arrangement
E-6
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities with EOG Resources, Inc. indicated and on the 18th day of February, 2015.
Signature
Title
/s/ WILLIAM R. THOMAS
Chairman of the Board and Chief Executive Officer and
(William R. Thomas)
Director (Principal Executive Officer)
/s/ TIMOTHY K. DRIGGERS
Vice President and Chief Financial Officer
(Timothy K. Driggers)
(Principal Financial Officer)
/s/ ANN D. JANSSEN
Vice President, Accounting
(Ann D. Janssen)
(Principal Accounting Officer)
*
Director
(Janet F. Clark)
*
Director
(Charles R. Crisp)
*
Director
(James C. Day)
*
Director
(H. Leighton Steward)
*
Director
(Donald F. Textor)
*
Director
(Frank G. Wisner)
*By:
/s/ MICHAEL P. DONALDSON
(Michael P. Donaldson)
(Attorney-in-fact for persons indicated)
EOG RESOURCES, INC. AND SUBSIDIARIES
EXHIBITS TO FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014
INDEX OF EXHIBITS
*Exhibits filed herewith
**Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income and Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2014, (ii) the Consolidated Balance Sheets - December 31, 2014 and 2013, (iii) the Consolidated Statements of Stockholders' Equity for Each of the Three Years in the Period Ended December 31, 2014, (iv) the Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2014 and (v) Notes to Consolidated Financial Statements.