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Understanding EOG Resources’ Hedging Activities

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EOG Resources’ hedging advantage

According to EOG Resources’ (EOG) 3Q15 10Q filing, it booked M2M (mark-to-market) gains on commodity derivatives of $29 million for the quarter. These commodity derivatives include hedges on crude oil and natural gas. This M2M gain of $29 million on commodity derivatives stands at ~1.3% of EOG’s 3Q15 operating revenue of $2.2 billion.

For 9M15, EOG booked M2M gain on commodity derivatives of $57 million.

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EOG’s 4Q15 hedges on crude oil

EOG hedged its 4Q15 crude oil production within the US. As shown in the above chart, for 4Q15, EOG had fixed price hedges on crude oil for 10,000 barrels per day at a price of $89.98 per barrel.

EOG also had variable price hedges for crude oil. For October and November 2015, EOG had hedged 82,500 barrels per day using put options. For any NYMEX WTI (West Texas Intermediate) price below $45 per barrel, EOG would receive $45 per barrel price for the hedge volume.

As of September 30, 2015, EOG had derivative coverage for ~33% of forecasted crude oil production for 4Q15.

EOG’s 4Q15 hedges on natural gas

EOG had hedged its 4Q15 natural gas production within the US. For 4Q15, EOG had fixed price hedges on natural gas for 175,000 MMBtu (million British thermal units) per day at a weighted average price of $4.51 per MMBtu.

As of September 30, 2015, EOG had derivative coverage for ~14% of forecasted natural gas production for 4Q15.

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EOG’s production costs

For 3Q15, EOG’s total production cost—including LOE (lease operating expense), transportation costs, G&A (general and administrative) costs, DD&A (depreciation, depletion and amortization) costs—amounted to $25.93 per boe (barrel of oil equivalent), which is ~19% lower when compared with 3Q14.

In 3Q15, EOG’s LOE was $5.40 per boe, which is ~17% lower when compared with 3Q14.

Oil and gas producers

S&P 500 (SPY) upstream companies Murphy Oil (MUR), Pioneer Natural Resources (PXD), and Noble Energy (NBL) have LOEs of $9.62 per boe, $6.82 per boe, and $3.81 per boe, respectively.

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