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EOG RESOURCES INC - Quarter Report: 2019 September (Form 10-Q)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)

           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-9743
 
EOG RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
47-0684736
(State or other jurisdiction
 of incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1111 Bagby, Sky Lobby 2, Houston, Texas 77002
(Address of principal executive offices)       (Zip Code)
 
713-651-7000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
EOG
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  
Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer     Accelerated filer     Non-accelerated filer 
Smaller reporting company    Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
Yes   No 

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Title of each class
 
Number of shares
Common Stock, par value $0.01 per share
 
581,764,095

(as of October 25, 2019)

 

    



EOG RESOURCES, INC.

TABLE OF CONTENTS



PART I.
FINANCIAL INFORMATION
Page No.
 
 
 
 
ITEM 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
 
 
ITEM 3.
 
 
 
 
 
ITEM 4.
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
ITEM 2.
 
 
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 6.
 
 
 
 
 
 
 
 
 

-2-

    



PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
EOG RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating Revenues and Other
 
 
 
 
 
 
 
Crude Oil and Condensate
$
2,418,989

 
$
2,655,278

 
$
7,148,258

 
$
7,134,114

Natural Gas Liquids
164,736

 
353,704

 
569,748

 
861,473

Natural Gas
269,625

 
311,713

 
874,489

 
912,324

Gains (Losses) on Mark-to-Market Commodity Derivative Contracts
85,902

 
(52,081
)
 
242,622

 
(297,735
)
Gathering, Processing and Marketing
1,334,450

 
1,360,992

 
4,121,490

 
3,899,250

Gains (Losses) on Asset Dispositions, Net
(523
)
 
115,944

 
3,650

 
94,658

Other, Net
30,276

 
36,074

 
99,470

 
96,779

Total
4,303,455

 
4,781,624

 
13,059,727

 
12,700,863

Operating Expenses
 

 
 

 
 

 
 

Lease and Well
348,883

 
321,568

 
1,032,455

 
936,236

Transportation Costs
199,365

 
196,027

 
549,988

 
550,781

Gathering and Processing Costs
127,549

 
114,063

 
351,487

 
324,577

Exploration Costs
34,540

 
32,823

 
103,386

 
115,137

Dry Hole Costs
24,138

 
358

 
28,001

 
5,260

Impairments
105,275

 
44,617

 
289,761

 
160,934

Marketing Costs
1,343,293

 
1,326,974

 
4,114,265

 
3,853,827

Depreciation, Depletion and Amortization
953,597

 
918,180

 
2,790,496

 
2,515,445

General and Administrative
135,758

 
111,284

 
364,210

 
310,065

Taxes Other Than Income
203,098

 
209,043

 
600,418

 
582,395

Total
3,475,496

 
3,274,937

 
10,224,467

 
9,354,657

Operating Income
827,959

 
1,506,687

 
2,835,260

 
3,346,206

Other Income (Expense), Net
9,118

 
3,308

 
23,233

 
(4,516
)
Income Before Interest Expense and Income Taxes
837,077

 
1,509,995

 
2,858,493

 
3,341,690

Interest Expense, Net
39,620

 
63,632

 
144,434

 
189,032

Income Before Income Taxes
797,457

 
1,446,363

 
2,714,059

 
3,152,658

Income Tax Provision
182,335

 
255,411

 
615,670

 
626,386

Net Income
$
615,122

 
$
1,190,952

 
$
2,098,389

 
$
2,526,272

Net Income Per Share
 

 
 

 
 

 
 

Basic
$
1.06

 
$
2.06

 
$
3.63

 
$
4.38

Diluted
$
1.06

 
$
2.05

 
$
3.61

 
$
4.35

Average Number of Common Shares
 

 
 

 
 

 
 

Basic
577,839

 
577,254

 
577,498

 
576,431

Diluted
581,271

 
581,559

 
581,190

 
580,442

Comprehensive Income
 

 
 

 
 

 
 

Net Income
$
615,122

 
$
1,190,952

 
$
2,098,389

 
$
2,526,272

Other Comprehensive Income (Loss)
 

 
 

 
 

 
 

Foreign Currency Translation Adjustments
833

 
(1,952
)
 
(2,616
)
 
(179
)
Other, Net of Tax
6

 
6

 
18

 
18

Other Comprehensive Income (Loss)
839

 
(1,946
)
 
(2,598
)
 
(161
)
Comprehensive Income
$
615,961

 
$
1,189,006

 
$
2,095,791

 
$
2,526,111



The accompanying notes are an integral part of these condensed consolidated financial statements.

-3-

    



EOG RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
 
September 30,
2019
 
December 31,
2018
ASSETS
Current Assets
 
 
 
Cash and Cash Equivalents
$
1,583,105

 
$
1,555,634

Accounts Receivable, Net
1,927,996

 
1,915,215

Inventories
778,120

 
859,359

Assets from Price Risk Management Activities
122,627

 
23,806

Income Taxes Receivable
135,680

 
427,909

Other
272,203

 
275,467

Total
4,819,731

 
5,057,390

Property, Plant and Equipment
 

 
 

Oil and Gas Properties (Successful Efforts Method)
61,620,033

 
57,330,016

Other Property, Plant and Equipment
4,394,486

 
4,220,665

Total Property, Plant and Equipment
66,014,519

 
61,550,681

Less:  Accumulated Depreciation, Depletion and Amortization
(35,810,197
)
 
(33,475,162
)
Total Property, Plant and Equipment, Net
30,204,322

 
28,075,519

Deferred Income Taxes
1,998

 
777

Other Assets
1,516,218

 
800,788

Total Assets
$
36,542,269

 
$
33,934,474

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
 

 
 

Accounts Payable
$
2,395,080

 
$
2,239,850

Accrued Taxes Payable
302,774

 
214,726

Dividends Payable
166,215

 
126,971

Current Portion of Long-Term Debt
1,014,200

 
913,093

Current Portion of Operating Lease Liabilities
384,348

 

Other
211,096

 
233,724

Total
4,473,713

 
3,728,364

 
 
 
 
Long-Term Debt
4,163,115

 
5,170,169

Other Liabilities
1,858,357

 
1,258,355

Deferred Income Taxes
4,922,804

 
4,413,398

Commitments and Contingencies (Note 8)


 


 
 
 
 
Stockholders' Equity
 

 
 

Common Stock, $0.01 Par, 1,280,000,000 Shares Authorized and 582,066,483 Shares Issued at September 30, 2019 and 580,408,117 Shares Issued at December 31, 2018
205,821

 
205,804

Additional Paid in Capital
5,769,073

 
5,658,794

Accumulated Other Comprehensive Loss
(3,689
)
 
(1,358
)
Retained Earnings
15,179,381

 
13,543,130

Common Stock Held in Treasury, 289,903 Shares at September 30, 2019 and 385,042 Shares at December 31, 2018
(26,306
)
 
(42,182
)
Total Stockholders' Equity
21,124,280

 
19,364,188

Total Liabilities and Stockholders' Equity
$
36,542,269

 
$
33,934,474


The accompanying notes are an integral part of these condensed consolidated financial statements.

-4-

    



EOG RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data)
(Unaudited)
 
Common
Stock
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Common
Stock
Held In
Treasury
 
Total
Stockholders'
Equity
Balance at June 30, 2019
$
205,809

 
$
5,729,318

 
$
(4,528
)
 
$
14,731,609

 
$
(31,932
)
 
$
20,630,276

Net Income

 

 

 
615,122

 

 
615,122

Common Stock Issued Under Stock Plans

 

 

 

 

 

Common Stock Dividends Declared, $0.2875 Per Share

 

 

 
(167,350
)
 

 
(167,350
)
Other Comprehensive Income

 

 
839

 

 

 
839

Change in Treasury Stock - Stock Compensation Plans, Net

 
(12,220
)
 

 

 
(759
)
 
(12,979
)
Restricted Stock and Restricted Stock Units, Net
12

 
(2,270
)
 

 

 
2,258

 

Stock-Based Compensation Expenses

 
54,670

 

 

 

 
54,670

Treasury Stock Issued as Compensation

 
(425
)
 

 

 
4,127

 
3,702

Balance at September 30, 2019
$
205,821

 
$
5,769,073

 
$
(3,689
)
 
$
15,179,381

 
$
(26,306
)
 
$
21,124,280


 
Common
Stock
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Common
Stock
Held In
Treasury
 
Total
Stockholders'
Equity
Balance at June 30, 2018
$
205,796

 
$
5,591,643

 
$
(17,512
)
 
$
11,714,656

 
$
(42,189
)
 
$
17,452,394

Net Income

 

 

 
1,190,952

 

 
1,190,952

Common Stock Issued Under Stock Plans
2

 
(2
)
 

 

 

 

Common Stock Dividends Declared, $0.22 Per Share

 

 

 
(127,504
)
 

 
(127,504
)
Other Comprehensive Loss

 

 
(1,946
)
 

 

 
(1,946
)
Change in Treasury Stock - Stock Compensation Plans, Net

 
(7,034
)
 

 

 
(18,550
)
 
(25,584
)
Restricted Stock and Restricted Stock Units, Net
5

 
(7,548
)
 

 

 
7,543

 

Stock-Based Compensation Expenses

 
49,001

 

 

 

 
49,001

Treasury Stock Issued as Compensation

 
199

 

 

 
958

 
1,157

Balance at September 30, 2018
$
205,803

 
$
5,626,259

 
$
(19,458
)
 
$
12,778,104

 
$
(52,238
)
 
$
18,538,470


The accompanying notes are an integral part of these condensed consolidated financial statements.


-5-

    



EOG RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Per Share Data)
(Unaudited)
 
Common
Stock
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Common
Stock
Held In
Treasury
 
Total
Stockholders'
Equity
Balance at December 31, 2018
$
205,804

 
$
5,658,794

 
$
(1,358
)
 
$
13,543,130

 
$
(42,182
)
 
$
19,364,188

Net Income

 

 

 
2,098,389

 

 
2,098,389

Common Stock Issued Under Stock Plans

 

 

 

 

 

Common Stock Dividends Declared, $0.795 Per Share

 

 

 
(461,871
)
 

 
(461,871
)
Other Comprehensive Loss

 

 
(2,598
)
 

 

 
(2,598
)
Change in Treasury Stock - Stock Compensation Plans, Net

 
(19,295
)
 

 

 
6,719

 
(12,576
)
Restricted Stock and Restricted Stock Units, Net
17

 
(1,886
)
 

 

 
1,869

 

Stock-Based Compensation Expenses

 
132,323

 

 

 


 
132,323

Treasury Stock Issued as Compensation

 
(863
)
 

 

 
7,288

 
6,425

Cumulative Effect of Adoption of ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)"

 

 
267

 
(267
)
 

 

Balance at September 30, 2019
$
205,821

 
$
5,769,073

 
$
(3,689
)
 
$
15,179,381

 
$
(26,306
)
 
$
21,124,280


 
Common
Stock
 
Additional
Paid In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Common
Stock
Held In
Treasury
 
Total
Stockholders'
Equity
Balance at December 31, 2017
$
205,788

 
$
5,536,547

 
$
(19,297
)
 
$
10,593,533

 
$
(33,298
)
 
$
16,283,273

Net Income

 

 

 
2,526,272

 

 
2,526,272

Common Stock Issued Under Stock Plans
7

 
(7
)
 

 

 

 

Common Stock Dividends Declared, $0.590 Per Share

 

 

 
(341,701
)
 

 
(341,701
)
Other Comprehensive Loss

 

 
(161
)
 

 

 
(161
)
Change in Treasury Stock - Stock Compensation Plans, Net

 
(23,458
)
 

 

 
(23,002
)
 
(46,460
)
Restricted Stock and Restricted Stock Units, Net
8

 
(3,421
)
 

 

 
3,413

 

Stock-Based Compensation Expenses

 
116,290

 

 

 

 
116,290

Treasury Stock Issued as Compensation

 
308

 

 

 
649

 
957

Balance at September 30, 2018
$
205,803

 
$
5,626,259

 
$
(19,458
)
 
$
12,778,104

 
$
(52,238
)
 
$
18,538,470


The accompanying notes are an integral part of these condensed consolidated financial statements.



-6-


EOG RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2019
 
2018
Cash Flows from Operating Activities
 
 
 
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
 
 
 
Net Income
$
2,098,389

 
$
2,526,272

Items Not Requiring (Providing) Cash
 

 
 

Depreciation, Depletion and Amortization
2,790,496

 
2,515,445

Impairments
289,761

 
160,934

Stock-Based Compensation Expenses
132,323

 
116,290

Deferred Income Taxes
508,576

 
681,702

Gains on Asset Dispositions, Net
(3,650
)
 
(94,658
)
Other, Net
4,155

 
15,314

Dry Hole Costs
28,001

 
5,260

Mark-to-Market Commodity Derivative Contracts
 

 
 

Total (Gains) Losses
(242,622
)
 
297,735

Net Cash Received from (Payments for) Settlements of Commodity Derivative Contracts
139,708

 
(180,228
)
Other, Net
1,215

 
1,652

Changes in Components of Working Capital and Other Assets and Liabilities
 

 
 

Accounts Receivable
(5,855
)
 
(553,529
)
Inventories
55,598

 
(286,817
)
Accounts Payable
134,253

 
537,525

Accrued Taxes Payable
88,047

 
(36,891
)
Other Assets
394,573

 
(103,334
)
Other Liabilities
(18,315
)
 
(14,776
)
Changes in Components of Working Capital Associated with Investing and Financing Activities
(38,677
)
 
95,484

Net Cash Provided by Operating Activities
6,355,976

 
5,683,380

Investing Cash Flows
 

 
 

Additions to Oil and Gas Properties
(4,866,882
)
 
(4,571,932
)
Additions to Other Property, Plant and Equipment
(187,350
)
 
(202,384
)
Proceeds from Sales of Assets
35,409

 
11,582

Other Investing Activities

 
(19,993
)
Changes in Components of Working Capital Associated with Investing Activities
38,677

 
(95,541
)
Net Cash Used in Investing Activities
(4,980,146
)
 
(4,878,268
)
Financing Cash Flows
 

 
 

Long-Term Debt Repayments
(900,000
)
 

Dividends Paid
(420,851
)
 
(311,075
)
Treasury Stock Purchased
(22,238
)
 
(58,558
)
Proceeds from Stock Options Exercised and Employee Stock Purchase Plan
9,558

 
12,098

Debt Issuance Costs
(5,016
)
 

Repayment of Finance Lease Liabilities
(9,638
)
 
(5,052
)
Changes in Components of Working Capital Associated with Financing Activities

 
57

Net Cash Used in Financing Activities
(1,348,185
)
 
(362,530
)
Effect of Exchange Rate Changes on Cash
(174
)
 
(2,678
)
Increase in Cash and Cash Equivalents
27,471

 
439,904

Cash and Cash Equivalents at Beginning of Period
1,555,634

 
834,228

Cash and Cash Equivalents at End of Period
$
1,583,105

 
$
1,274,132


The accompanying notes are an integral part of these condensed consolidated financial statements.

-7-

    



EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    Summary of Significant Accounting Policies

General. The condensed consolidated financial statements of EOG Resources, Inc., together with its subsidiaries (collectively, EOG), included herein have been prepared by management without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). Accordingly, they reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial results for the interim periods presented. Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. However, management believes that the disclosures included either on the face of the financial statements or in these notes are sufficient to make the interim information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in EOG's Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 26, 2019 (EOG's 2018 Annual Report).

The preparation of financial statements in conformity with 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. The operating results for the three and nine months ended September 30, 2019, are not necessarily indicative of the results to be expected for the full year.

Effective January 1, 2019, EOG adopted the provisions of Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" (ASU 2016-02). ASU 2016-02 and other related ASUs require that lessees recognize a right-of-use (ROU) asset and related lease liability, representing the obligation to make lease payments for certain lease transactions, on the Condensed Consolidated Balance Sheets and disclose additional leasing information.

EOG elected to adopt ASU 2016-02 and other related ASUs using the modified retrospective approach with a cumulative-effect adjustment to the opening balance of retained earnings as of the effective date. Financial results reported in periods prior to January 1, 2019, are unchanged. Additionally, EOG elected the package of practical expedients within ASU 2016-02 that allows an entity to not reassess prior to the effective date (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases, but did not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date. EOG also elected the practical expedient under ASU 2018-01, "Leases (Topic 842) - Land Easement Practical Expedient for Transition to Topic 842," and did not evaluate existing or expired land easements not previously accounted for as leases prior to the January 1, 2019 effective date. There was no impact to retained earnings upon adoption of ASU 2016-02 and other related ASUs. See Note 14.

2.    Stock-Based Compensation

As more fully discussed in Note 7 to the Consolidated Financial Statements included in EOG's 2018 Annual Report, EOG maintains various stock-based compensation plans. Stock-based compensation expense is included on the Condensed Consolidated Statements of Income and Comprehensive Income based upon the job function of the employees receiving the grants as follows (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Lease and Well
$
13.3

 
$
12.9

 
$
40.6

 
$
37.1

Gathering and Processing Costs
0.3

 
0.1

 
0.8

 
0.3

Exploration Costs
5.2

 
5.8

 
18.1

 
18.4

General and Administrative
35.9

 
30.2

 
72.8

 
60.5

Total
$
54.7

 
$
49.0

 
$
132.3

 
$
116.3



The Amended and Restated EOG Resources, Inc. 2008 Omnibus Equity Compensation Plan (2008 Plan) provides for grants of stock options, stock-settled stock appreciation rights (SARs), restricted stock and restricted stock units, performance units and other stock-based awards.

-8-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



At September 30, 2019, approximately 7.7 million common shares remained available for grant under the 2008 Plan. EOG's policy is to issue shares related to 2008 Plan grants from previously authorized unissued shares or treasury shares to the extent treasury shares are available.

Stock Options and Stock-Settled Stock Appreciation Rights and Employee Stock Purchase Plan. 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 Employee Stock Purchase Plan (ESPP) grants is estimated using the Black-Scholes-Merton model. Stock-based compensation expense related to stock option, SAR and ESPP grants totaled $20.4 million and $21.7 million during the three months ended September 30, 2019 and 2018, respectively, and $47.8 million and $45.4 million during the nine months ended September 30, 2019 and 2018, respectively.

Weighted average fair values and valuation assumptions used to value stock option, SAR and ESPP grants during the nine-month periods ended September 30, 2019 and 2018 are as follows:
 
Stock Options/SARs
 
ESPP
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Weighted Average Fair Value of Grants
$
19.49

 
$
33.49

 
$
22.83

 
$
25.52

Expected Volatility
32.01
%
 
28.22
%
 
34.83
%
 
24.36
%
Risk-Free Interest Rate
1.69
%
 
2.68
%
 
2.28
%
 
1.86
%
Dividend Yield
1.39
%
 
0.72
%
 
1.04
%
 
0.64
%
Expected Life
5.1 years

 
5.0 years

 
0.5 years

 
0.5 years



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 stock option and SAR transactions for the nine-month periods ended September 30, 2019 and 2018 (stock options and SARs in thousands):
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Number of
Stock
Options/SARs
 
Weighted
Average
Grant
Price
 
Number of
Stock
Options/SARs
 
Weighted
Average
Grant
Price
Outstanding at January 1
8,310

 
$
96.90

 
9,103

 
$
83.89

Granted
1,946

 
75.43

 
1,884

 
126.65

Exercised (1)
(586
)
 
61.19

 
(2,144
)
 
69.62

Forfeited
(200
)
 
104.89

 
(167
)
 
91.89

Outstanding at September 30 (2)
9,470

 
$
94.53

 
8,676

 
$
96.55

Vested or Expected to Vest (3)
9,127

 
$
94.51

 
8,316

 
$
96.08

Exercisable at September 30 (4)
5,307

 
$
94.08

 
4,202

 
$
85.80



(1)
The total intrinsic value of stock options/SARs exercised during the nine months ended September 30, 2019 and 2018 was $13.3 million and $103.7 million, respectively. The intrinsic value is based upon the difference between the market price of EOG's common stock on the date of exercise and the grant price of the stock options/SARs.
(2)
The total intrinsic value of stock options/SARs outstanding at September 30, 2019 and 2018 was $4.8 million and $269.1 million, respectively. At September 30, 2019 and 2018, the weighted average remaining contractual life was 4.5 years and 4.8 years, respectively.
(3)
The total intrinsic value of stock options/SARs vested or expected to vest at September 30, 2019 and 2018 was $4.8 million and $261.9 million, respectively. At September 30, 2019 and 2018, the weighted average remaining contractual life was 4.5 years and 4.7 years, respectively.
(4)
The total intrinsic value of stock options/SARs exercisable at September 30, 2019 and 2018 was $4.7 million and $175.5 million, respectively. At September 30, 2019 and 2018, the weighted average remaining contractual life was 3.3 years and 3.4 years, respectively.

-9-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)



At September 30, 2019, unrecognized compensation expense related to non-vested stock option, SAR and ESPP grants totaled $100.5 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.2 years.

Restricted Stock and Restricted Stock Units. Employees may be granted restricted (non-vested) stock and/or restricted stock units without cost to them. Stock-based compensation expense related to restricted stock and restricted stock units totaled $24.7 million and $17.5 million for the three months ended September 30, 2019 and 2018, respectively, and $71.1 million and $58.8 million for the nine months ended September 30, 2019 and 2018, respectively.

The following table sets forth restricted stock and restricted stock unit transactions for the nine-month periods ended September 30, 2019 and 2018 (shares and units in thousands):
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Number of
Shares and
Units
 
Weighted
Average
Grant Date
Fair Value
 
Number of
Shares and
Units
 
Weighted
Average
Grant Date
Fair Value
Outstanding at January 1
3,792

 
$
96.64

 
3,905

 
$
88.57

Granted
1,728

 
80.12

 
792

 
117.67

Released (1)
(732
)
 
97.51

 
(708
)
 
77.46

Forfeited
(129
)
 
97.81

 
(150
)
 
91.36

Outstanding at September 30 (2)
4,659

 
$
90.34

 
3,839

 
$
96.52

 
(1)
The total intrinsic value of restricted stock and restricted stock units released during the nine months ended September 30, 2019 and 2018 was $61.2 million and $80.2 million, respectively. The intrinsic value is based upon the closing price of EOG's common stock on the date the restricted stock and restricted stock units are released.
(2)
The total intrinsic value of restricted stock and restricted stock units outstanding at September 30, 2019 and 2018 was $345.8 million and $489.7 million, respectively.

At September 30, 2019, unrecognized compensation expense related to restricted stock and restricted stock units totaled $227.5 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.0 years.

Performance Units. EOG grants performance units annually to its executive officers without cost to them. As more fully discussed in the grant agreements, the performance metric applicable to the performance units 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 (Performance Period). Upon the application of the performance multiple at the completion of the Performance Period, a minimum of 0% and a maximum of 200% of the performance units granted could be outstanding. The fair value of the performance units is estimated using a Monte Carlo simulation. Stock-based compensation expense related to the performance unit grants totaled $9.6 million and $9.8 million for the three months ended September 30, 2019 and 2018, respectively, and $13.4 million and $12.1 million for the nine months ended September 30, 2019 and 2018, respectively.


-10-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


The following table sets forth the performance unit transactions for the nine-month periods ended September 30, 2019 and 2018 (units in thousands):
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
Number of
Units
 
Weighted
Average
Price per
Grant Date
 
Number of
Units
 
Weighted
Average
Price per
Grant Date
Outstanding at January 1
539

 
$
101.53

 
502

 
$
90.96

Granted
172

 
75.09

 
107

 
127.00

Granted for Performance Multiple (1)
72

 
69.43

 
72

 
101.87

Released (2)
(185
)
 
94.63

 
(148
)
 
84.43

Forfeited

 

 

 

Outstanding at September 30 (3)
598

(4)
$
92.19

 
533

 
$
101.50

 
(1)
Upon completion of the Performance Period for the performance units granted in 2015 and 2014, a performance multiple of 200% was applied to each of the grants resulting in additional grants of performance units in February 2019 and February 2018, respectively.
(2)
The total intrinsic value of performance units released during the nine months ended September 30, 2019 and 2018, was $15.4 million and $17.7 million, respectively. The intrinsic value is based upon the closing price of EOG's common stock on the date the performance units are released.
(3)
The total intrinsic value of performance units outstanding at September 30, 2019 and 2018 was approximately $44.4 million and $68.0 million, respectively.
(4)
Upon the application of the relevant performance multiple at the completion of each of the remaining Performance Periods, a minimum of 102 thousand and a maximum of 1,094 thousand performance units could be outstanding.

At September 30, 2019, unrecognized compensation expense related to performance units totaled $10.1 million. Such unrecognized expense will be amortized on a straight-line basis over a weighted average period of 2.2 years.

3.    Net Income Per Share

The following table sets forth the computation of Net Income Per Share for the three-month and nine-month periods ended September 30, 2019 and 2018 (in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator for Basic and Diluted Earnings Per Share -
 
 
 
 
 
 
 
Net Income
$
615,122

 
$
1,190,952

 
$
2,098,389

 
$
2,526,272

Denominator for Basic Earnings Per Share -
 

 
 

 
 

 
 

Weighted Average Shares
577,839

 
577,254

 
577,498

 
576,431

Potential Dilutive Common Shares -
 

 
 

 
 

 
 

Stock Options/SARs
203

 
1,432

 
371

 
1,317

Restricted Stock/Units and Performance Units
3,229

 
2,873

 
3,321

 
2,694

Denominator for Diluted Earnings Per Share -
 

 
 

 
 

 
 

Adjusted Diluted Weighted Average Shares
581,271

 
581,559

 
581,190

 
580,442

Net Income Per Share
 

 
 

 
 

 
 

Basic
$
1.06

 
$
2.06

 
$
3.63

 
$
4.38

Diluted
$
1.06

 
$
2.05

 
$
3.61

 
$
4.35



The diluted earnings per share calculation excludes stock options and SARs that were anti-dilutive. Shares underlying the excluded stock options and SARs were 6.8 million and 0.5 million shares for the three months ended September 30, 2019 and 2018, respectively, and were 6.2 million and 0.2 million shares for the nine months ended September 30, 2019 and 2018, respectively.


-11-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


4.    Supplemental Cash Flow Information

Net cash paid (received) for interest and income taxes was as follows for the nine-month periods ended September 30, 2019 and 2018 (in thousands):
 
Nine Months Ended September 30,
 
2019
 
2018
Interest (1)
$
154,852

 
$
172,076

Income Taxes, Net of Refunds Received
$
(314,689
)
 
$
81,059

 
(1)
Net of capitalized interest of $28 million and $18 million for the nine months ended September 30, 2019 and 2018, respectively.

EOG's accrued capital expenditures at September 30, 2019 and 2018 were $568 million and $702 million, respectively.

Non-cash investing activities for the nine months ended September 30, 2019 and 2018, included additions of $85 million and $222 million, respectively, to EOG's oil and gas properties as a result of property exchanges. Non-cash investing activities for the nine months ended September 30, 2018 included additions of $49 million to EOG's other property, plant and equipment primarily in connection with a finance lease transaction in the Permian Basin.

Cash paid for leases for the nine months ended September 30, 2019, is disclosed in Note 14.

5.    Segment Information

Selected financial information by reportable segment is presented below for the three-month and nine-month periods ended September 30, 2019 and 2018 (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating Revenues and Other
 
 
 
 
 
 
 
United States
$
4,224,510

 
$
4,653,342

 
$
12,813,318

 
$
12,339,086

Trinidad
64,726

 
84,648

 
205,726

 
247,272

Other International (1)
14,219

 
43,634

 
40,683

 
114,505

Total
$
4,303,455

 
$
4,781,624

 
$
13,059,727

 
$
12,700,863

Operating Income (Loss)
 

 
 

 
 

 
 

United States
$
825,983

 
$
1,458,641

 
$
2,784,793

 
$
3,251,377

Trinidad
8,991

 
48,988

 
82,213

 
117,106

Other International (1)
(7,015
)
 
(942
)
 
(31,746
)
 
(22,277
)
Total
827,959

 
1,506,687

 
2,835,260

 
3,346,206

Reconciling Items
 

 
 

 
 

 
 

Other Income (Expense), Net
9,118

 
3,308

 
23,233

 
(4,516
)
Interest Expense, Net
(39,620
)
 
(63,632
)
 
(144,434
)
 
(189,032
)
Income Before Income Taxes
$
797,457

 
$
1,446,363

 
$
2,714,059

 
$
3,152,658

 
(1)
Other International primarily consists of EOG's United Kingdom, China and Canada operations. The United Kingdom operations were sold in the fourth quarter of 2018.


-12-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


Total assets by reportable segment are presented below at September 30, 2019 and December 31, 2018 (in thousands):
 
At
September 30,
2019
 
At
December 31,
2018
Total Assets
 
 
 
United States
$
35,765,137

 
$
33,178,733

Trinidad
617,465

 
629,633

Other International (1)
159,667

 
126,108

Total
$
36,542,269

 
$
33,934,474

 
(1)
Other International primarily consists of EOG's China and Canada operations.

6.    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 nine-month periods ended September 30, 2019 and 2018 (in thousands):
 
Nine Months Ended September 30,
 
2019
 
2018
Carrying Amount at January 1
$
954,377

 
$
946,848

Liabilities Incurred
78,025

 
63,443

Liabilities Settled (1)
(52,443
)
 
(15,319
)
Accretion
31,890

 
27,306

Revisions
71,145

 
(39,137
)
Foreign Currency Translations
154

 
(2,197
)
Carrying Amount at September 30
$
1,083,148

 
$
980,944

 
 
 
 
Current Portion
$
27,055

 
$
18,209

Noncurrent Portion
$
1,056,093

 
$
962,735

 
(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 Condensed Consolidated Balance Sheets.

7.    Exploratory Well Costs

EOG's net changes in capitalized exploratory well costs for the nine-month period ended September 30, 2019, are presented below (in thousands):
 
Nine Months Ended September 30, 2019
Balance at January 1
$
4,121

Additions Pending the Determination of Proved Reserves
48,917

Reclassifications to Proved Properties
(6,286
)
Costs Charged to Expense
(22,421
)
Balance at September 30
$
24,331




-13-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


At September 30, 2019, all capitalized exploratory well costs had been capitalized for periods of less than one year.

8.    Commitments and 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.    Pension and Postretirement Benefits

EOG has defined contribution pension plans in place for most of its employees in the United States, and a defined benefit pension plan covering certain of its employees in Trinidad. For the nine months ended September 30, 2019 and 2018, EOG's total costs recognized for these pension plans were $34 million and $30 million, respectively. EOG also has postretirement medical and dental plans in place for eligible employees and their dependents in the United States and Trinidad, the costs of which are not material.

10.    Long-Term Debt and Common Stock

Long-Term Debt. EOG had no outstanding commercial paper borrowings at September 30, 2019 and December 31, 2018 and did not utilize any such borrowings during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, EOG utilized commercial paper borrowings, bearing market interest rates, for various corporate financing purposes. The average borrowings outstanding under the commercial paper program were $11 million during the nine months ended September 30, 2018. The weighted average interest rate for commercial paper borrowings during the nine months ended September 30, 2018, was 1.97%.

On June 3, 2019, EOG repaid upon maturity the $900 million aggregate principal amount of its 5.625% Senior Notes due 2019.

On June 27, 2019, EOG entered into a new $2.0 billion senior unsecured Revolving Credit Agreement (New Facility) with domestic and foreign lenders (Banks). The New Facility replaced EOG’s $2.0 billion senior unsecured Revolving Credit Agreement, dated as of July 21, 2015, with domestic and foreign lenders (2015 Facility), which had a scheduled maturity date of July 21, 2020 and which was terminated by EOG (without penalty), effective as of June 27, 2019, in connection with the completion of the New Facility.

The New Facility has a scheduled maturity date of June 27, 2024, and includes an option for EOG to extend, on up to two occasions, the term for successive one-year periods subject to certain terms and conditions. The New Facility (i) commits the Banks to provide advances up to an aggregate principal amount of $2.0 billion at any one time outstanding, with an option for EOG to request increases in the aggregate commitments to an amount not to exceed $3.0 billion, subject to certain terms and conditions, and (ii) includes a swingline subfacility and a letter of credit subfacility. Advances under the New Facility will accrue interest based, at EOG’s option, on either the London InterBank Offered Rate plus an applicable margin (Eurodollar Rate) or the Base Rate (as defined in the New Facility) plus an applicable margin. The applicable margin used in connection with interest rates and fees will be based on EOG’s credit rating for its senior unsecured long-term debt at the applicable time.

Consistent with the terms of the 2015 Facility, the New Facility contains representations, warranties, covenants and events of default that we believe are customary for investment grade, senior unsecured commercial bank credit agreements, including a financial covenant for the maintenance of a ratio of total debt-to-total capitalization (as such terms are defined in the New Facility) of no greater than 65%. At September 30, 2019, EOG was in compliance with this financial covenant.

There were no borrowings or letters of credit outstanding under the 2015 Facility as of (i) December 31, 2018 or (ii) the June 27, 2019 effective date of the closing of the New Facility and termination of the 2015 Facility. Further, at September 30, 2019, there were no borrowings or letters of credit outstanding under the New Facility. The Eurodollar Rate and Base Rate (inclusive of the applicable margin), had there been any amounts borrowed under the New Facility at September 30, 2019, would have been 2.92% and 5.0%, respectively.


-14-

EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


Common Stock. On May 2, 2019, EOG's Board of Directors increased the quarterly cash dividend on the common stock from the previous $0.22 per share to $0.2875 per share, effective beginning with the dividend paid on July 31, 2019, to stockholders of record as of July 17, 2019.

11.    Fair Value Measurements

As more fully discussed in Note 13 to the Consolidated Financial Statements included in EOG's 2018 Annual Report, certain of EOG's financial and nonfinancial assets and liabilities are reported at fair value on the Condensed Consolidated Balance Sheets. 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 September 30, 2019 and December 31, 2018 (in thousands):
 
Fair Value Measurements Using:
 
Quoted
Prices in
Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
At September 30, 2019
 

 
 

 
 

 
 

Financial Assets:
 

 
 

 
 

 
 

Natural Gas Swaps
$

 
$
3,629

 
$

 
$
3,629

Crude Oil Swaps

 
119,088

 

 
119,088

Crude Oil Basis Swaps

 
1,162

 

 
1,162

Natural Gas Basis Swaps

 
230

 

 
230

Financial Liabilities:
 
 
 
 
 
 
 
Crude Oil Basis Swaps
$

 
$
1,482

 
$

 
$
1,482

Natural Gas Basis Swaps

 
21

 

 
21

 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
Crude Oil Basis Swaps
$

 
$
23,806

 
$

 
$
23,806



The estimated fair value of commodity derivative contracts was based upon forward commodity price curves based on quoted market prices. 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 6.

Proved oil and gas properties and other assets with a carrying amount of $472 million were written down to their fair value of $340 million, resulting in pretax impairment charges of $132 million for the nine months ended September 30, 2019. Included in the $132 million pretax impairment charges are $89 million for a commodity price-related write-down of other assets.

EOG utilized average prices per acre from comparable market transactions and estimated discounted cash flows as the basis for determining the fair value of unproved and proved properties, respectively, received in non-cash property exchanges. See Note 4.

Fair Value of Debt. At September 30, 2019 and December 31, 2018, respectively, EOG had outstanding $5,140 million and $6,040 million aggregate principal amount of senior notes, which had estimated fair values at such dates of approximately $5,453 million and $6,027 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 the end of each respective period.


-15-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


12.    Risk Management Activities

Commodity Price Risk. As more fully discussed in Note 12 to the Consolidated Financial Statements included in EOG's 2018 Annual Report, 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. EOG has not designated any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for financial commodity derivative contracts using the mark-to-market accounting method.

Commodity Derivative Contracts. Prices received by EOG for its crude oil production generally vary from U.S. New York Mercantile Exchange (NYMEX) West Texas Intermediate prices due to adjustments for delivery location (basis) and other factors. EOG has entered into crude oil basis swap contracts in order to fix the differential between pricing in Midland, Texas, and Cushing, Oklahoma (Midland Differential). Presented below is a comprehensive summary of EOG's Midland Differential basis swap contracts for the nine months ended September 30, 2019. The weighted average price differential expressed in dollars per barrel ($/Bbl) represents the amount of reduction to Cushing, Oklahoma, prices for the notional volumes expressed in barrels per day (Bbld) covered by the basis swap contracts.
 
Midland Differential Basis Swap Contracts
 
 
 
Volume (Bbld)
 
Weighted Average Price Differential
($/Bbl)
 
 
 
2019
 
 
 
 
 
January 1, 2019 through October 31, 2019 (closed)
 
20,000

 
$
1.075

 
November 1, 2019 through December 31, 2019
 
20,000

 
1.075



EOG has also entered into crude oil basis swap contracts in order to fix the differential between pricing in the U.S. Gulf Coast and Cushing, Oklahoma (Gulf Coast Differential). Presented below is a comprehensive summary of EOG's Gulf Coast Differential basis swap contracts for the nine months ended September 30, 2019. The weighted average price differential expressed in $/Bbl represents the amount of addition to Cushing, Oklahoma, prices for the notional volumes expressed in Bbld covered by the basis swap contracts.
 
Gulf Coast Differential Basis Swap Contracts
 
 
 
Volume (Bbld)
 
Weighted Average Price Differential
($/Bbl)
 
 
 
2019
 
 
 
 
 
January 1, 2019 through October 31, 2019 (closed)
 
13,000

 
$
5.572

 
November 1, 2019 through December 31, 2019
 
13,000

 
5.572



Presented below is a comprehensive summary of EOG's crude oil price swap contracts for the nine months ended September 30, 2019, with notional volumes expressed in Bbld and prices expressed in $/Bbl.
Crude Oil Price Swap Contracts
 
 
Volume (Bbld)
 
Weighted Average Price ($/Bbl)
2019
 
 
 
 
April 2019 (closed)
 
25,000

 
$
60.00

May 1, 2019 through September 30, 2019 (closed)
 
150,000

 
62.50

October 1, 2019 through December 31, 2019
 
150,000

 
62.50






-16-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


Prices received by EOG for its natural gas production generally vary from NYMEX Henry Hub prices due to adjustments for delivery location (basis) and other factors. EOG has entered into natural gas basis swap contracts in order to fix the differential between pricing in the Rocky Mountain area and NYMEX Henry Hub prices (Rockies Differential). Presented below is a comprehensive summary of EOG's Rockies Differential basis swap contracts for the nine months ended September 30, 2019. The weighted average price differential expressed in dollars per million British thermal units ($/MMBtu) represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtu per day (MMBtud) covered by the basis swap contracts.
 
Rockies Differential Basis Swap Contracts
 
 
 
Volume (MMBtud)
 
Weighted Average Price Differential
 ($/MMBtu)
 
 
 
2020
 
 
 
 
 
January 1, 2020 through December 31, 2020
 
14,000

 
$
0.55



Presented below is a comprehensive summary of EOG's natural gas price swap contracts for the nine months ended September 30, 2019, with notional volumes expressed in MMBtud and prices expressed in $/MMBtu.
Natural Gas Price Swap Contracts
 
 
Volume (MMBtud)
 
Weighted Average Price ($/MMBtu)
2019
 
 
 
 
April 1, 2019 through October 31, 2019 (closed)
 
250,000

 
$
2.90



The following table sets forth the amounts and classification of EOG's outstanding financial derivative instruments at September 30, 2019 and December 31, 2018.  Certain amounts may be presented on a net basis on the Condensed Consolidated Financial Statements when such amounts are with the same counterparty and subject to a master netting arrangement (in thousands):
 
 
  
 
Fair Value at
Description
 
Location on Balance Sheet
 
September 30, 2019
 
December 31, 2018
Asset Derivatives
 
 
 
 
 
 
Crude oil and natural gas derivative contracts -
 
 
 
 
 
 
Current portion
 
Assets from Price Risk Management Activities (1)
 
$
122,627

 
$
23,806

Liability Derivatives
 
 
 
 
 
 
Crude oil and natural gas derivative contracts -
 
 
 
 
 
 
Noncurrent portion
 
Other Liabilities
 
$
21

 
$

 
(1)
The current portion of Assets from Price Risk Management Activities consists of gross assets of $124 million, partially offset by gross liabilities of $1 million at September 30, 2019.


-17-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


Credit Risk. Notional contract amounts are used to express the magnitude of a financial derivative. 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 11). EOG evaluates its exposure to significant counterparties on an ongoing basis, including that 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.

All of EOG's 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 ISDAs to be settled immediately. See Note 11 for the aggregate fair value of all derivative instruments that were in a net asset position at September 30, 2019 and December 31, 2018. EOG had no collateral posted or held at September 30, 2019, or at December 31, 2018.

13.  Acquisitions and Divestitures

During the nine months ended September 30, 2019, EOG paid cash for property acquisitions of $311 million in the United States. Additionally, during the nine months ended September 30, 2019, EOG recognized net gains on asset dispositions of $4 million and received proceeds of approximately $35 million. During the nine months ended September 30, 2018, EOG recognized net gains on asset dispositions of $95 million, primarily due to non-cash exchanges of unproved leasehold in Texas, New Mexico and Wyoming and received proceeds of approximately $12 million.

14. Leases

In the ordinary course of business, EOG enters into contracts for drilling, fracturing, compression, real estate and other services which contain equipment and other assets and that meet the definition of a lease under ASU 2016-02. The lease term for these contracts, which includes any renewals at EOG's option that are reasonably certain to be exercised, ranges from one month to 30 years. ROU assets and related liabilities are recognized on commencement date on the Condensed Consolidated Balance Sheets based on future lease payments, discounted based on the rate implicit in the contract, if readily determinable, or EOG's incremental borrowing rate commensurate with the lease term of the contract. EOG estimates its incremental borrowing rate based on the approximate rate required to borrow on a collateralized basis. Contracts with lease terms of less than 12 months are not recorded on the Condensed Consolidated Balance Sheets, but instead are disclosed as short-term lease cost.

EOG has elected not to separate non-lease components from all leases, excluding those for fracturing services, real estate and salt water disposal, as lease payments under these contracts contain significant non-lease components, such as labor and operating costs.

Lease costs are classified by the function of the ROU asset. The lease costs related to exploration and development activities are initially included in the Oil and Gas Properties line on the Condensed Consolidated Balance Sheets and subsequently accounted for in accordance with the Extractive Industries - Oil and Gas Topic of the Accounting Standards Codification. Variable lease cost represents costs incurred above the contractual minimum payments for operating and finance leases. The components of lease cost for the three month and nine month periods ended September 30, 2019, were as follows (in millions):
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating Lease Cost
$
138

 
$
391

Finance Lease Cost:
 
 
 
Amortization of Lease Assets
3

 
10

Interest on Lease Liabilities

 
1

Variable Lease Cost
39

 
167

Short-Term Lease Cost
67

 
295

Total Lease Cost
$
247

 
$
864




-18-

EOG RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)


The following table sets forth the amounts and classification of EOG's outstanding ROU assets and related lease liabilities and supplemental information at September 30, 2019 (in millions, except lease terms and discount rates):
Description
 
Location on Balance Sheet
 
Amount
Assets
 
 
 
 
Operating Leases
 
Other Assets
 
$
842

Finance Leases
 
Property, Plant and Equipment, Net (1)
 
56

Total
 
 
 
$
898

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Operating Leases
 
Current Portion of Operating Lease Liabilities
 
$
384

Finance Leases
 
Current Portion of Long-Term Debt
 
15

Long-Term
 
 
 
 
Operating Leases
 
Other Liabilities
 
485

Finance Leases
 
Long-Term Debt
 
46

Total
 
 
 
$
930

 
(1)
Finance lease assets are recorded net of accumulated amortization of $57 million at September 30, 2019.



 
Nine Months Ended September 30, 2019
Weighted Average Remaining Lease Term (in years):
 
Operating Leases
3.2

Finance Leases
4.9

 
 
Weighted Average Discount Rate:
 
Operating Leases
3.5
%
Finance Leases
3.0
%


Cash paid for leases was as follows for the nine months ended September 30, 2019 (in millions):
 
Nine Months Ended September 30, 2019
Repayment of Operating Lease Liabilities Associated with Operating Activities
$
162

Repayment of Operating Lease Liabilities Associated with Investing Activities
225

Repayment of Finance Lease Liabilities
10



Upon adoption of ASU 2016-02 effective January 1, 2019, EOG recognized operating lease ROU assets of $566 million. Non-cash leasing activities for the nine months ended September 30, 2019, included the addition of $703 million of operating leases.


-19-

EOG RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Concluded)
(Unaudited)


At September 30, 2019, the future minimum lease payments under non-cancellable leases were as follows (in millions):
 
Operating Leases
 
Finance Leases
October 1, 2019 to December 31, 2019
$
116

 
$
3

2020
377

 
15

2021
198

 
15

2022
118

 
12

2023
50

 
8

2024 and Beyond
64

 
14

Total Lease Payments
923

 
67

Less: Discount to Present Value
54

 
6

Total Lease Liabilities
869

 
61

Less: Current Portion of Lease Liabilities
384

 
15

Long-Term Lease Liabilities
$
485

 
$
46



At September 30, 2019, EOG had additional leases of $675 million, of which $24 million, $446 million and $205 million were expected to commence in the remainder of 2019 and in 2020 and 2021, respectively, with lease terms of one month to 10 years.

At December 31, 2018 and prior to the adoption of ASU 2016-02 and other related ASUs, the future minimum commitments under non-cancellable leases, including non-lease components and excluding contracts with lease terms of less than 12 months, were as follows (in millions):
 
Operating Leases
 
Finance Leases
2019
$
380

 
$
15

2020
213

 
15

2021
86

 
15

2022
39

 
12

2023
30

 
8

2024 and Beyond
62

 
14

Total Lease Payments
$
810

 
$
79




-20-

    



PART I.  FINANCIAL INFORMATION

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOG RESOURCES, INC.

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, Trinidad 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. Each prospective drilling location is evaluated by its estimated rate of return. 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 primarily 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 efficient, safe and environmentally responsible operations is also an important goal in the implementation of EOG's strategy.

United States. 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.

Crude oil, natural gas liquids (NGLs) 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, and demand for, crude oil and condensate, NGLs and natural gas and the availability of other energy supplies, EOG is unable to predict what changes may occur in crude oil and condensate, NGLs, and natural gas prices in the future. The market prices of crude oil and condensate, NGLs and natural gas in 2019 will continue to impact the amount of cash generated from EOG's operating activities, which will in turn impact EOG's financial position and results of operations. For the first nine months of 2019, the average U.S. New York Mercantile Exchange (NYMEX) crude oil and natural gas prices were $57.06 per barrel and $2.66 per million British thermal units (MMBtu), respectively, representing decreases of 15% and 7%, respectively, from the average NYMEX prices for the same period in 2018. Market prices for NGLs are influenced by crude oil prices and the composition of NGL production, including ethane, propane and butane, among others. Based on its 2019 drilling and completion plans, EOG expects both its 2019 total production and total crude oil production to increase as compared to 2018.

During the first nine months of 2019, EOG continued to focus on increasing drilling, completion and operating efficiencies gained in prior years. In addition, EOG continued to evaluate certain potential crude oil and liquids-rich natural gas exploration and development prospects and to look for opportunities to add drilling inventory through leasehold acquisitions, farm-ins, exchanges or tactical acquisitions. On a volumetric basis, as calculated using the ratio of 1.0 barrel of crude oil and condensate or NGLs to 6.0 thousand cubic feet of natural gas, crude oil and condensate and NGL production accounted for approximately 77% of EOG's United States production during both the first nine months of 2019 and 2018, respectively. During the first nine months of 2019, EOG's drilling and completion activities occurred primarily in the Eagle Ford play, Delaware Basin play and Rocky Mountain area. EOG's major producing areas in the United States are in New Mexico, North Dakota, Texas and Wyoming.

Trinidad. In Trinidad, EOG continues 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), Modified U(b) Block, the Banyan Field and the Sercan Area have been developed and are producing natural gas which is sold to the National Gas Company of Trinidad and Tobago Limited and its subsidiary, and crude oil and condensate which is sold to Heritage Petroleum Company Limited. In the third quarter of 2019, EOG drilled two net wells, one of which was an unsuccessful exploratory well. During the remainder of 2019, EOG plans to drill two additional net wells.

Other International. In the Sichuan Basin, Sichuan Province, China, EOG drilled two wells in the first nine months of 2019 to complete the drilling program started in 2018. Additionally, EOG completed two drilled uncompleted wells from 2018 in 2019. All natural gas produced from the Baijaochang Field is sold under a long-term contract to PetroChina.


-21-

    



EOG continues to evaluate other select crude oil and natural gas opportunities outside the United States, 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 20% at September 30, 2019 and 24% at December 31, 2018. As used in this calculation, total capitalization represents the sum of total current and long-term debt and total stockholders' equity.

On June 3, 2019, EOG repaid upon maturity the $900 million aggregate principal amount of its 5.625% Senior Notes due 2019.

On June 27, 2019, EOG entered into a new $2.0 billion senior unsecured Revolving Credit Agreement (New Facility) with domestic and foreign lenders (Banks). The New Facility replaced EOG's $2.0 billion senior unsecured Revolving Credit Agreement, dated as of July 21, 2015, which had a scheduled maturity date of July 21, 2020. The New Facility has a scheduled maturity date of June 27, 2024, and includes an option for EOG to extend, on up to two occasions, the term for successive one-year periods subject to certain terms and conditions. The New Facility (i) commits the Banks to provide advances up to an aggregate principal amount of $2.0 billion at any one time outstanding, with an option for EOG to request increases in the aggregate commitments to an amount not to exceed $3.0 billion, subject to certain terms and conditions, and (ii) includes a swingline subfacility and a letter of credit subfacility.

Effective January 1, 2019, EOG adopted the provisions of Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" (ASU 2016-02). ASU 2016-02 and other related ASUs resulted in the recognition of right-of-use assets and related lease liabilities representing the obligation to make lease payments for certain lease transactions and the disclosure of additional leasing information. The adoption of ASU 2016-02 and other related ASUs resulted in a significant increase to assets and liabilities related to operating leases on the Condensed Consolidated Balance Sheet at September 30, 2019. Financial results prior to January 1, 2019, are unchanged. See Note 1 "Summary of Significant Accounting Policies" and Note 14 "Leases" to EOG's Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Total anticipated 2019 capital expenditures are estimated to range from approximately $6.2 billion to $6.4 billion, excluding acquisitions and non-cash transactions. The majority of 2019 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, bank borrowings, borrowings under its $2.0 billion senior unsecured revolving credit facility described above, joint development agreements and similar agreements and equity and debt offerings.

Management continues to believe EOG has one of the strongest prospect inventories in EOG's history. When it fits EOG's strategy, EOG will make acquisitions that bolster existing drilling programs or offer incremental exploration and/or production opportunities.



-22-

    



Results of Operations

The following review of operations for the three months and nine months ended September 30, 2019 and 2018 should be read in conjunction with the Condensed Consolidated Financial Statements of EOG and notes thereto included in this Quarterly Report on Form 10‑Q.

Three Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018

Operating Revenues. During the third quarter of 2019, operating revenues decreased $479 million, or 10%, to $4,303 million from $4,782 million for the same period of 2018. Total wellhead revenues, which are revenues generated from sales of EOG's production of crude oil and condensate, NGLs and natural gas, for the third quarter of 2019 decreased $468 million, or 14%, to $2,853 million from $3,321 million for the same period of 2018. EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $86 million for the third quarter of 2019 compared to net losses of $52 million for the same period of 2018. Gathering, processing and marketing revenues for the third quarter of 2019 decreased $27 million, or 2%, to $1,334 million from $1,361 million for the same period of 2018. Net losses on asset dispositions were $1 million for the third quarter of 2019 compared to net gains of $116 million for the same period of 2018.


-23-

    



Wellhead volume and price statistics for the three-month periods ended September 30, 2019 and 2018 were as follows:
 
Three Months Ended
September 30,
 
 
2019
 
 
2018
 
Crude Oil and Condensate Volumes (MBbld) (1)
 
 
 
 
 
United States
463.2

 
 
409.2

 
Trinidad
0.8

 
 
0.8

 
Other International (2)
0.1

 
 
5.0

 
Total
464.1

 
 
415.0

 
Average Crude Oil and Condensate Prices ($/Bbl) (3)
 

 
 
 
 
United States
$
56.67

 
 
$
69.53

 
Trinidad
48.36

 
 
61.71

 
Other International (2)
59.87

 
 
72.81

 
Composite
56.66

 
 
69.55

 
Natural Gas Liquids Volumes (MBbld) (1)
 
 
 
 
 
United States
141.3

 
 
127.8

 
Other International (2)

 
 

 
Total
141.3

 
 
127.8

 
Average Natural Gas Liquids Prices ($/Bbl) (3)
 

 
 
 

 
United States
$
12.67

 
 
$
30.09

 
Other International (2)

 
 

 
Composite
12.67

 
 
30.09

 
Natural Gas Volumes (MMcfd) (1)
 
 
 
 
 
United States
1,079

 
 
948

 
Trinidad
260

 
 
260

 
Other International (2)
34

 
 
28

 
Total
1,373

 
 
1,236

 
Average Natural Gas Prices ($/Mcf) (3)
 

 
 
 

 
United States
$
1.97

 
 
$
2.67

 
Trinidad
2.52

 
 
2.88

 
Other International (2)
4.25

 
 
3.83

 
Composite
2.13

 
 
2.74

 
Crude Oil Equivalent Volumes (MBoed) (4)
 
 
 
 
 
United States
784.3

 
 
695.0

 
Trinidad
44.1

 
 
44.1

 
Other International (2)
5.8

 
 
9.7

 
Total
834.2

 
 
748.8

 
 
 
 
 
 
 
Total MMBoe (4)
76.7

 
 
68.9

 
 
(1)
Thousand barrels per day or million cubic feet per day, as applicable.
(2)
Other International includes EOG's United Kingdom, China and Canada operations. The United Kingdom operations were sold in the fourth quarter of 2018.
(3)
Dollars per barrel or per thousand cubic feet, as applicable. Excludes the impact of financial commodity derivative instruments (see Note 12 to the Condensed Consolidated Financial Statements).
(4)
Thousand barrels of oil equivalent per day or million barrels of oil equivalent, as applicable; includes crude oil and condensate, NGLs and natural gas. Crude oil equivalent volumes are determined using a ratio of 1.0 barrel of crude oil and condensate or NGLs 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.


-24-

    



Wellhead crude oil and condensate revenues for the third quarter of 2019 decreased $236 million, or 9%, to $2,419 million from $2,655 million for the same period of 2018. The decrease was due to a lower composite average price ($550 million), partially offset by an increase of 49 MBbld, or 12%, in wellhead crude oil and condensate production ($314 million). Increased production was primarily due to increases in the Permian Basin and the Eagle Ford. EOG's composite wellhead crude oil and condensate price for the third quarter of 2019 decreased 19% to $56.66 per barrel compared to $69.55 per barrel for the same period of 2018.

NGL revenues for the third quarter of 2019 decreased $189 million, or 53%, to $165 million from $354 million for the same period of 2018 due to a lower composite average price ($226 million), partially offset by an increase of 14 MBbld, or 11%, in production ($37 million). Increased production was primarily in the Permian Basin. EOG's composite NGL price for the third quarter of 2019 decreased 58% to $12.67 per barrel compared to $30.09 per barrel for the same period of 2018.

Wellhead natural gas revenues for the third quarter of 2019 decreased $42 million, or 14%, to $270 million from $312 million for the same period of 2018. The decrease was due to a lower average composite price ($76 million), partially offset by an increase in natural gas deliveries ($34 million). Natural gas deliveries for the third quarter of 2019 increased 137 MMcfd, or 11%, compared to the same period of 2018 due primarily to higher deliveries in the United States resulting from increased production of associated natural gas from the Permian Basin and higher natural gas volumes in South Texas, partially offset by lower volumes in the Marcellus Shale. EOG's composite wellhead natural gas price for the third quarter of 2019 decreased 22% to $2.13 per Mcf compared to $2.74 per Mcf for the same period of 2018.

During the third quarter of 2019, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $86 million compared to net losses of $52 million for the same period of 2018. During the third quarter of 2019, net cash received from settlements of financial commodity derivative contracts was $108 million compared to net cash paid of $92 million for the same period of 2018.

Gathering, processing and marketing revenues are revenues generated from sales of third-party crude oil, NGLs and natural gas, as well as fees associated with gathering third-party natural gas and revenues from sales of EOG-owned sand. Purchases and sales of third-party crude oil and natural gas may be utilized in order to balance firm transportation capacity with production in certain areas and to utilize excess capacity at EOG-owned facilities. EOG sells sand in order to balance the timing of firm purchase agreements with completion operations and to utilize excess capacity at EOG-owned facilities. Marketing costs represent the costs to purchase third-party crude oil, natural gas and sand and the associated transportation costs, as well as costs associated with EOG-owned sand sold to third parties.

Gathering, processing and marketing revenues less marketing costs for the third quarter of 2019 decreased $43 million as compared to the same period of 2018 primarily due to lower margins on crude oil marketing activities, partially offset by higher margins on natural gas marketing activities.

Operating and Other Expenses.  For the third quarter of 2019, operating expenses of $3,475 million were $200 million higher than the $3,275 million incurred during the third quarter of 2018.  The following table presents the costs per barrel of oil equivalent (Boe) for the three-month periods ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
2019
 
2018
Lease and Well
$
4.55

 
$
4.67

Transportation Costs
2.60

 
2.85

Depreciation, Depletion and Amortization (DD&A) -
 
 
 
Oil and Gas Properties
12.33

 
12.89

Other Property, Plant and Equipment
0.10

 
0.44

General and Administrative (G&A)
1.77

 
1.62

Interest Expense, Net
0.52

 
0.92

Total (1)
$
21.87

 
$
23.39

 
(1)
Total excludes gathering and processing costs, exploration costs, dry hole costs, impairments, marketing costs and taxes other than income.


-25-

    



The primary factors impacting the cost components of per-unit rates of lease and well, DD&A, G&A and net interest expense for the three months ended September 30, 2019, compared to the same period of 2018, are set forth below. See "Operating Revenues" above for a discussion of wellhead 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 $349 million for the third quarter of 2019 increased $27 million from $322 million for the same prior year period primarily due to increased operating and maintenance costs ($33 million) and lease and well administrative expenses ($9 million) in the United States, partially offset by decreased workover expenditures in the United States ($9 million). Lease and well expenses increased in the United States primarily due to increased operating activities resulting in increased production.

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 for the third quarter of 2019 increased $36 million to $954 million from $918 million for the same prior year period. DD&A expenses associated with oil and gas properties for the third quarter of 2019 were $58 million higher than the same prior year period. The increase primarily reflects increased production in the United States ($109 million), partially offset by lower unit rates in the United States ($42 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 $136 million for the third quarter of 2019 increased $25 million from $111 million for the same prior year period primarily due to increased employee-related and information systems costs resulting from expanded operations.

Interest expense, net of $40 million for the third quarter of 2019 decreased $24 million compared to the same prior year period primarily due to repayment in June 2019 of the $900 million aggregate principal amount of 5.625% Senior Notes due 2019 ($13 million), repayment in October 2018 of the $350 million aggregate principal amount of 6.875% Senior Notes due 2018 ($6 million) and higher capitalized interest ($4 million).

Gathering and processing costs represent operating and maintenance expenses and administrative expenses associated with operating EOG's gathering and processing assets as well as natural gas processing fees and certain NGL fractionation fees from third parties. EOG pays third parties to process the majority of its natural gas production to extract NGLs.

Gathering and processing costs increased $14 million to $128 million for the third quarter of 2019 compared to $114 million for the same prior year period primarily due to increased operating costs and fees in the Permian Basin ($13 million) and the Eagle Ford ($5 million), partially offset by decreased operating costs in the United Kingdom ($7 million ) due to the sale of operations in the fourth quarter of 2018.


-26-

    



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. Unproved properties with individually significant acquisition costs are reviewed individually for impairment. 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. In certain instances, EOG utilizes accepted offers from third-party purchasers as the basis for determining fair value.

Impairments of $105 million for the third quarter of 2019 were $61 million higher than impairments for the same prior year period primarily due to increased impairments of proved properties in the United States ($40 million), and increased amortization of unproved property costs in the United States ($21 million), which were caused by an increase in EOG's estimates of undeveloped properties not expected to be developed before lease expiration. EOG recorded impairments of proved properties, other property, plant and equipment and other assets of $41 million and $1 million for the third quarters of 2019 and 2018, respectively.

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 for the third quarter of 2019 decreased $6 million to $203 million (7.1% of wellhead revenues) from $209 million (6.3% of wellhead revenues) for the same prior year period. The decrease in taxes other than income was primarily due to decreased severance/production taxes in the United States ($13 million) and an increase in credits available to EOG in the third quarter of 2019 for state incentive severance tax rate reductions ($3 million), partially offset by higher payroll taxes in Trinidad ($8 million) and an increase in ad valorem/property taxes in the United States ($4 million).

Other income, net of $9 million for the third quarter of 2019 increased $6 million compared to the same prior year period primarily due to a decrease in deferred compensation expense.

EOG recognized an income tax provision of $182 million for the third quarter of 2019 compared to an income tax provision of $255 million for the third quarter of 2018, primarily due to decreased pretax income, partially offset by the absence of tax benefits from certain tax reform measurement-period adjustments. The net effective tax rate for 2019 increased to 23% from 18% in 2018. The higher effective tax rate is mostly due to the absence of tax benefits from certain tax reform measurement-period adjustments.

Nine Months Ended September 30, 2019 vs. Nine Months Ended September 30, 2018

Operating Revenues. During the first nine months of 2019, operating revenues increased $359 million, or 3%, to $13,060 million from $12,701 million for the same period of 2018. Total wellhead revenues for the first nine months of 2019 decreased $316 million, or 4%, to $8,592 million from $8,908 million for the same period of 2018. During the first nine months of 2019, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $243 million compared to net losses of $298 million for the same period of 2018. Gathering, processing and marketing revenues for the first nine months of 2019 increased $222 million, or 6%, to $4,121 million from $3,899 million for the same period of 2018. Net gains on asset dispositions were $4 million for the first nine months of 2019 compared to net gains of $95 million for the same period of 2018.


-27-

    



Wellhead volume and price statistics for the nine-month periods ended September 30, 2019 and 2018 were as follows:
 
Nine Months Ended September 30,
 
 
2019
 
 
2018
 
Crude Oil and Condensate Volumes (MBbld)
 
 
 
 
 
United States
451.2

 
 
382.9

 
Trinidad
0.7

 
 
0.8

 
Other International
0.1

 
 
4.1

 
Total
452.0

 
 
387.8

 
Average Crude Oil and Condensate Prices ($/Bbl) (1)
 

 
 
 

 
United States
$
57.95

 
 
$
67.35

 
Trinidad
47.26

 
 
58.91

 
Other International
58.43

 
 
71.83

 
Composite
57.93

 
 
67.38

 
Natural Gas Liquids Volumes (MBbld)
 
 
 
 
 
United States
130.8

 
 
113.9

 
Other International

 
 

 
Total
130.8

 
 
113.9

 
Average Natural Gas Liquids Prices ($/Bbl)
 

 
 
 

 
United States
$
15.96

 
 
$
27.71

 
Other International

 
 

 
Composite
15.96

 
 
27.71

 
Natural Gas Volumes (MMcfd)
 
 
 
 
 
United States
1,043

 
 
905

 
Trinidad
267

 
 
278

 
Other International
36

 
 
31

 
Total
1,346

 
 
1,214

 
Average Natural Gas Prices ($/Mcf) (1)
 

 
 
 

 
United States
$
2.23

 
 
$
2.66

 
Trinidad
2.71

 
 
2.91

 
Other International
4.29

 
 
4.10

 
Composite
2.38

 
 
2.75

 
Crude Oil Equivalent Volumes (MBoed)
 
 
 
 
 
United States
755.8

 
 
647.6

 
Trinidad
45.1

 
 
47.2

 
Other International
6.2

 
 
9.2

 
Total
807.1

 
 
704.0

 
 
 
 
 
 
 
Total MMBoe
220.3

 
 
192.2

 
 
(1)
Excludes the impact of financial commodity derivative instruments (see Note 12 to the Condensed Consolidated Financial Statements).


-28-

    



Wellhead crude oil and condensate revenues for the first nine months of 2019 increased $14 million to $7,148 million from $7,134 million for the same period of 2018 due to an increase of 64 MBbld, or 17%, in wellhead crude oil and condensate production ($1,185 million), partially offset by a lower composite average price ($1,171 million). Increased production was primarily due to increases in the Permian Basin and the Eagle Ford. EOG's composite wellhead crude oil and condensate price for the first nine months of 2019 decreased 14% to $57.93 per barrel compared to $67.38 per barrel for the same period of 2018.

NGL revenues for the first nine months of 2019 decreased $292 million, or 34%, to $570 million from $862 million for the same period of 2018 due to a lower composite average price ($420 million), partially offset by an increase of 17 MBbld, or 15%, in NGL deliveries ($128 million). Increased production was primarily in the Permian Basin. EOG's composite NGL price for the first nine months of 2019 decreased 42% to $15.96 per barrel compared to $27.71 per barrel for the same period of 2018.

Wellhead natural gas revenues for the first nine months of 2019 decreased $38 million, or 4%, to $874 million from $912 million for the same period of 2018. The decrease was due to a lower composite wellhead natural gas price ($140 million), partially offset by an increase in natural gas deliveries ($102 million). Natural gas deliveries for the first nine months of 2019 increased 132 MMcfd, or 11%, compared to the same period of 2018 due primarily to higher deliveries in the United States resulting from increased production of associated natural gas from the Permian Basin and higher natural gas volumes from South Texas. EOG's composite wellhead natural gas price for the first nine months of 2019 decreased 14% to $2.38 per Mcf compared to $2.75 per Mcf for the same period of 2018.

During the first nine months of 2019, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $243 million compared to net losses of $298 million for the same period of 2018. During the first nine months of 2019, net cash received from settlements of financial commodity derivative contracts was $140 million compared to net cash paid for settlements of financial commodity derivative contracts of $180 million for the same period of 2018.

Gathering, processing and marketing revenues less marketing costs for the first nine months of 2019 decreased $38 million as compared to the same period of 2018 primarily due to lower margins on crude oil marketing activities, partially offset by higher margins on natural gas marketing activities.

Operating and Other Expenses. For the first nine months of 2019, operating expenses of $10,224 million were $869 million higher than the $9,355 million incurred during the same period of 2018. The following table presents the costs per Boe for the nine-month periods ended September 30, 2019 and 2018:
 
Nine Months Ended September 30,
 
2019
 
2018
Lease and Well
$
4.69

 
$
4.87

Transportation Costs
2.50

 
2.87

DD&A -
 
 
 
Oil and Gas Properties
12.38

 
12.64

Other Property, Plant and Equipment
0.29

 
0.45

G&A
1.65

 
1.61

Interest Expense, Net
0.66

 
0.98

Total (1)
$
22.17

 
$
23.42

 
(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, DD&A, G&A and net interest expense for the nine months ended September 30, 2019, compared to the same period of 2018 are set forth below. See "Operating Revenues" above for a discussion of wellhead volumes.


-29-

    



Lease and well expenses of $1,032 million for the first nine months of 2019 increased $96 million from $936 million for the same prior year period primarily due to higher operating and maintenance costs ($81 million), higher lease and well administrative costs ($21 million) and higher workover expenditures ($8 million), all in the United States, partially offset by lower operating and maintenance costs in the United Kingdom ($11 million) due to the sale of operations in the fourth quarter of 2018. Lease and well expenses increased in the United States primarily due to increased operating activities resulting in increased production.

DD&A expenses for the first nine months of 2019 increased $275 million to $2,790 million from $2,515 million for the same prior year period. DD&A expenses associated with oil and gas properties for the first nine months of 2019 were $299 million higher than the same prior year period. The increase primarily reflects increased production in the United States ($384 million), partially offset by lower unit rates in the United States ($56 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 $364 million for the first nine months of 2019 increased $54 million from $310 million for the same prior year period primarily due to increased employee-related and information systems expenses resulting from expanded operations.

Interest expense, net of $144 million for the first nine months of 2019 decreased $45 million compared to the same prior year period primarily due to repayment in October 2018 of the $350 million aggregate principal amount of 6.875% Senior Notes due 2018 ($18 million), repayment in June 2019 of the $900 million aggregate principal amount of 5.625% Senior Notes due 2019 ($17 million) and higher capitalized interest ($10 million).

Gathering and processing costs of $351 million for the first nine months of 2019 increased $27 million compared to the same prior year period primarily due to increased operating costs and fees in the Permian Basin ($41 million) and the Rocky Mountain area ($7 million), partially offset by decreased operating costs in the United Kingdom ($25 million) due to the sale of operations in the fourth quarter of 2018.

Exploration costs of $103 million for the first nine months of 2019 decreased $12 million from $115 million for the same prior year period primarily due to decreased geological and geophysical costs in Trinidad.

Impairments of $290 million for the first nine months of 2019 were $129 million higher than impairments for the same prior year period primarily due to increased impairments of proved properties and other assets in the United States ($98 million) and increased amortization of unproved property costs in the United States ($31 million), which was caused by an increase in EOG's estimate of undeveloped properties not expected to be developed before lease expiration. EOG recorded impairments of proved properties, other property, plant and equipment and other assets of $132 million and $34 million for the first nine months of 2019 and 2018, respectively.

Taxes other than income for the first nine months of 2019 increased $18 million to $600 million (7.0% of wellhead revenues) from $582 million (6.5% of wellhead revenues) for the same prior year period. The increase in taxes other than income was primarily due to increased ad valorem/property taxes in the United States ($41 million) primarily as a result of increased valuation of the underlying assets and higher payroll taxes in Trinidad ($8 million), partially offset by decreases in severance/production taxes in the United States ($14 million) and Trinidad ($4 million) and an increase in credits available to EOG in the first nine months of 2019 for state incentive severance tax rate reductions ($12 million).

Other income, net of $23 million for the first nine months of 2019 increased $28 million compared to the same prior year period primarily due to an increase in interest income ($14 million), a decrease in deferred compensation expense ($7 million) and higher foreign currency exchange gains ($6 million).

EOG recognized an income tax provision of $616 million for the first nine months of 2019 compared to an income tax provision of $626 million for the same period in 2018, primarily due to decreased pretax income, partially offset by the absence of tax benefits from certain tax reform measurement-period adjustments. The net effective tax rate for the first nine months of 2019 increased to 23% from 20% in 2018. The higher effective tax rate is mostly due to the absence of tax benefits from certain tax reform measurement-period adjustments.
 

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Capital Resources and Liquidity

Cash Flow. The primary sources of cash for EOG during the nine months ended September 30, 2019, were funds generated from operations. The primary uses of cash were funds used in operations; exploration and development expenditures; long-term debt repayments; dividend payments to stockholders; and other property, plant and equipment expenditures. During the first nine months of 2019, EOG's cash balance increased $27 million to $1,583 million from $1,556 million at December 31, 2018.

Net cash provided by operating activities of $6,356 million for the first nine months of 2019 increased $673 million compared to the same period of 2018 primarily due to a favorable change in working capital ($474 million), a decrease in net cash paid for income taxes ($396 million) and an increase in cash received for settlements of commodity derivative contracts ($320 million), partially offset by a decrease in wellhead revenues ($315 million) and an increase in cash operating expenses ($167 million).

Net cash used in investing activities of $4,980 million for the first nine months of 2019 increased by $102 million compared to the same period of 2018 due to an increase in additions to oil and gas properties ($295 million), partially offset by a favorable change in components of working capital associated with investing activities ($134 million), an increase in proceeds from the sale of assets ($24 million), a decrease in other investing activities ($20 million) and a decrease in additions to other property, plant and equipment ($15 million).

Net cash used in financing activities of $1,348 million for the first nine months of 2019 included repayments of long-term debt ($900 million) and cash dividend payments ($421 million). Net cash used in financing activities of $363 million for the first nine months of 2018 included cash dividend payments ($311 million) and purchases of treasury stock in connection with stock compensation plans ($59 million).

Total Expenditures. For the year 2019, EOG's budget for exploration and development and other property, plant and equipment expenditures is approximately $6.2 billion to $6.4 billion, excluding acquisitions and non-cash transactions. The table below sets out components of total expenditures for the nine-month periods ended September 30, 2019 and 2018 (in millions):
 
Nine Months Ended September 30,
 
2019
 
2018
Expenditure Category
 
 
 
Capital
 
 
 
Exploration and Development Drilling
$
3,865

 
$
3,843

Facilities
499

 
518

Leasehold Acquisitions (1)
201

 
331

Property Acquisitions (2)
332

 
79

Capitalized Interest
28

 
18

Subtotal
4,925

 
4,789

Exploration Costs
103

 
115

Dry Hole Costs
28

 
5

Exploration and Development Expenditures
5,056

 
4,909

Asset Retirement Costs
151

 
42

Total Exploration and Development Expenditures
5,207

 
4,951

Other Property, Plant and Equipment (3)
187

 
251

Total Expenditures
$
5,394

 
$
5,202

 
(1)
Leasehold acquisitions included $64 million and $162 million for the nine-month periods ended September 30, 2019 and 2018, respectively, related to non-cash property exchanges.
(2)
Property acquisitions included $21 million and $60 million for the nine-month periods ended September 30, 2019 and 2018, respectively, related to non-cash property exchanges.
(3)
Other property, plant and equipment included $49 million of non-cash additions for the nine-month period ended September 30, 2018 made in connection with a finance lease transaction in the Permian Basin.
    

-31-

    



Exploration and development expenditures of $5,056 million for the first nine months of 2019 were $147 million higher than the same period of 2018 primarily due to increased property acquisitions ($253 million) and increased exploration and drilling expenditures in Trinidad ($28 million), partially offset by decreased leasehold acquisitions ($130 million) and decreased facilities expenditures ($19 million). Exploration and development expenditures for the first nine months of 2019 of $5,056 million consisted of $4,341 million in development drilling and facilities, $355 million in exploration, $332 million in property acquisitions and $28 million in capitalized interest. Exploration and development expenditures for the first nine months of 2018 of $4,909 million consisted of $4,353 million in development drilling and facilities, $459 million in exploration, $79 million in property acquisitions and $18 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 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.

Commodity Derivative Transactions. As more fully discussed in Note 12 to the Consolidated Financial Statements included in EOG's Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 26, 2019, 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. EOG has not designated any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for 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 Condensed Consolidated Statements of Income and Comprehensive Income. The related cash flow impact is reflected in Cash Flows from Operating Activities on the Condensed Consolidated Statements of Cash Flows.

The total fair value of EOG's commodity derivative contracts was reflected on the Condensed Consolidated Balance Sheets at September 30, 2019, as a net asset of $123 million.

Prices received by EOG for its crude oil production generally vary from NYMEX West Texas Intermediate prices due to adjustments for delivery location (basis) and other factors. EOG has entered into crude oil basis swap contracts in order to fix the differential between pricing in Midland, Texas, and Cushing, Oklahoma (Midland Differential). Presented below is a comprehensive summary of EOG's Midland Differential basis swap contracts through October 29, 2019. The weighted average price differential expressed in dollars per barrel ($/Bbl) represents the amount of reduction to Cushing, Oklahoma, prices for the notional volumes expressed in barrels per day (Bbld) covered by the basis swap contracts.
 
Midland Differential Basis Swap Contracts
 
 
 
Volume (Bbld)
 
Weighted Average Price Differential
($/Bbl)
 
 
 
2019
 
 
 
 
 
January 1, 2019 through November 30, 2019 (closed)
 
20,000

 
$
1.075

 
December 2019
 
20,000

 
1.075


EOG has also entered into crude oil basis swap contracts in order to fix the differential between pricing in the U.S. Gulf Coast and Cushing, Oklahoma (Gulf Coast Differential). Presented below is a comprehensive summary of EOG's Gulf Coast Differential basis swap contracts through October 29, 2019. The weighted average price differential expressed in $/Bbl represents the amount of addition to Cushing, Oklahoma, prices for the notional volumes expressed in Bbld covered by the basis swap contracts.
 
Gulf Coast Differential Basis Swap Contracts
 
 
 
Volume (Bbld)
 
Weighted Average Price Differential
($/Bbl)
 
 
 
2019
 
 
 
 
 
January 1, 2019 through November 30, 2019 (closed)
 
13,000

 
$
5.572

 
December 2019
 
13,000

 
5.572


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Presented below is a comprehensive summary of EOG's crude oil price swap contracts through October 29, 2019, with notional volumes expressed in Bbld and prices expressed in $/Bbl.
Crude Oil Price Swap Contracts
 
 
Volume (Bbld)
 
Weighted Average Price ($/Bbl)
2019
 
 
 
 
April 2019 (closed)
 
25,000

 
$
60.00

May 1, 2019 through September 30, 2019 (closed)
 
150,000

 
62.50

October 1, 2019 through December 31, 2019
 
150,000

 
62.50


Prices received by EOG for its natural gas production generally vary from NYMEX Henry Hub prices due to adjustments for delivery location (basis) and other factors. EOG has entered into natural gas basis swap contracts in order to fix the differential between pricing in the Rocky Mountain area and NYMEX Henry Hub prices (Rockies Differential). Presented below is a comprehensive summary of EOG's Rockies Differential basis swap contracts through October 29, 2019. The weighted average price differential expressed in dollars per million British thermal units ($/MMBtu) represents the amount of reduction to NYMEX Henry Hub prices for the notional volumes expressed in MMBtu per day (MMBtud) covered by the basis swap contracts.

 
Rockies Differential Basis Swap Contracts
 
 
 
Volume (MMBtud)
 
Weighted Average Price Differential
 ($/MMBtu)
 
 
 
2020
 
 
 
 
 
January 1, 2020 through December 31, 2020
 
30,000

 
$
0.549


Presented below is a comprehensive summary of EOG's natural gas price swap contracts through October 29, 2019, with notional volumes expressed in MMBtud and prices expressed in $/MMBtu.
Natural Gas Price Swap Contracts
 
 
Volume (MMBtud)
 
Weighted
Average Price
($/MMBtu)
2019
 
 
 
 
April 1, 2019 through October 31, 2019 (closed)
 
250,000

 
$
2.90



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Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, 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, capital expenditures, costs and asset sales, 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," "aims," "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 returns, replace or increase drilling locations, reduce or otherwise control operating costs and capital expenditures, generate cash flows, pay down or refinance indebtedness or pay and/or increase 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, supplies of, and demand for, crude oil and condensate, natural gas liquids, 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 maximize 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 and condensate, natural gas liquids, natural gas and related commodity production;
the availability, proximity and capacity of, and costs associated with, appropriate gathering, processing, compression, storage, 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; climate change and other 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 the acquisition of licenses, leases and properties, 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 tubulars) 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, storage 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 to which EOG is successful in its completion of planned asset dispositions;
the extent and effect of any hedging activities engaged in by EOG;

-34-

    



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;
geopolitical factors and political conditions and developments around the world (such as the imposition of tariffs or trade or other economic sanctions, 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 cybersecurity breaches; and
the other factors described under ITEM 1A, Risk Factors, on pages 13 through 22 of EOG's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, 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 duration or 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.



-35-

    



PART I.  FINANCIAL INFORMATION


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EOG RESOURCES, INC.

EOG's exposure to commodity price risk, interest rate risk and foreign currency exchange rate risk is discussed in (i) the "Derivative Transactions," "Financing," "Foreign Currency Exchange Rate Risk" and "Outlook" sections of "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" on pages 40 through 43 of EOG's Annual Report on Form 10-K for the year ended December 31, 2018, filed on February 26, 2019 (EOG's 2018 Annual Report); and (ii) Note 12, "Risk Management Activities," to EOG's Consolidated Financial Statements on pages F-29 through F-31 of EOG's 2018 Annual Report. There have been no material changes in this information. For additional information regarding EOG's financial commodity derivative contracts and physical commodity contracts, see (i) Note 12, "Risk Management Activities," to EOG's Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q; (ii) "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Operating Revenues" in this Quarterly Report on Form 10-Q; and (iii) "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Commodity Derivative Transactions" in this Quarterly Report on Form 10-Q.


ITEM 4. CONTROLS AND PROCEDURES
EOG RESOURCES, INC.

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 the end of the period covered by this Quarterly Report on Form 10-Q (Evaluation Date). Based on this evaluation, EOG's principal executive officer and principal financial officer have concluded that EOG's disclosure controls and procedures were effective as of the Evaluation Date in ensuring that information that is required to be disclosed in the reports EOG files or furnishes under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to EOG's management, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting. There were no changes in EOG's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) that occurred during the quarterly period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, EOG's internal control over financial reporting.




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PART II. OTHER INFORMATION

EOG RESOURCES, INC.

ITEM 1.    LEGAL PROCEEDINGS
 
See Part I, Item 1, Note 8 to Condensed Consolidated Financial Statements, which is incorporated herein by reference.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth, for the periods indicated, EOG's share repurchase activity:
Period
 
Total
Number of
Shares Purchased (1)
 
Average
Price Paid Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or Programs
 
Maximum Number
of Shares that May Yet
Be Purchased Under The Plans or Programs (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
July 1, 2019 - July 31, 2019
 
17,498

 
$
92.82

 

 
6,386,200

August 1, 2019 - August 31, 2019
 
11,181

 
73.92

 

 
6,386,200

September 1, 2019 - September 30, 2019
 
149,912

 
75.87

 

 
6,386,200

Total
 
178,591

 
77.41

 

 
 
 
(1)
The 178,591 total shares for the quarter ended September 30, 2019, 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 employee stock options or stock-settled stock appreciation rights or the vesting of restricted stock, restricted stock unit, or performance 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 by EOG's Board of Directors (Board) discussed below.
(2)
In September 2001, the Board authorized the repurchase of up to 10 million shares of EOG's common stock. During the third quarter of 2019, EOG did not repurchase any shares under the Board-authorized repurchase program.

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 Quarterly Report on Form 10-Q.


-37-

    



ITEM 6.  EXHIBITS
Exhibit No.  
 
Description
 
 
 
    3.1(a)
-
 
 
 
    3.1(b)
-
 
 
 
    3.1(c)
-
 
 
 
    3.1(d)
-
 
 
 
    3.1(e)
-
 
 
 
    3.1(f)
-
 
 
 
    3.1(g)
-
 
 
 
    3.1(h)
-
 
 
 
    3.1(i)
-
 
 
 
    3.1(j)
-
 
 
 
    3.1(k)
-
 
 
 
    3.1(l)
-
 
 
 
    3.1(m)
-
 
 
 
    3.1(n)
-
 
 
 
    3.2
-
 
 
 
    10.1

-
 
 
 
    31.1
-
 
 
 
    31.2
-
 
 
 
    32.1
-

-38-

    



Exhibit No.
 
Description
 
 
 
    32.2
-
 
 
 
    95
-
 
 
 
  101.INS
-
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
*101.SCH
-
Inline XBRL Schema Document.
 
 
 
*101.CAL
-
Inline XBRL Calculation Linkbase Document.
 
 
 
*101.DEF
-
Inline XBRL Definition Linkbase Document.
 
 
 
*101.LAB
-
Inline XBRL Label Linkbase Document.
 
 
 
*101.PRE
-
Inline XBRL Presentation Linkbase Document.
 
 
 
  104
-
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 
 
 

*Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income and Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018, (ii) the Condensed Consolidated Balance Sheets - September 30, 2019 and December 31, 2018, (iii) the Condensed Consolidated Statements of Stockholders' Equity - Three and Nine Months Ended September 30, 2019 and 2018, (iv) the Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2019 and 2018 and (v) the Notes to Condensed Consolidated Financial Statements.

-39-

    



SIGNATURES



Pursuant to the requirements 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.



 
 
 
EOG RESOURCES, INC.
 
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
Date:
November 6, 2019
By:
/s/ TIMOTHY K. DRIGGERS
Timothy K. Driggers
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)

-40-