EOG Warns of $44 Million Hedging Loss

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When crude oil prices rose to around $50 a barrel and natural gas prices rose to more than $2.90 per million BTUs, many producers took the opportunity to enter into hedging contracts that would help insulate them from another sharp dip in energy prices. Sometimes those hedges pay off, and other times the commodity price rises and the hedges are a loss.

The latter is what happened to independent oil and gas producer EOG Resources Inc. (NYSE: EOG). In a filing with the U.S. Securities and Exchange Commission (SEC) after markets closed Thursday, EOG said it anticipates a second-quarter noncash net loss of $44.4 million on the mark-to-market of its commodity derivative contracts.

EOG reported that net cash paid for settlements of its hedges totaled $14.8 million. The cash payments were related to crude oil derivative contracts in effect for the period of April 2, 2016, through May 31 and from April 2 through June 30 for natural gas hedges.

The average second-quarter price for West Texas Intermediate (WTI) crude oil was $46.18 per barrel, according to EOG, and the average price for natural gas was $1.95 per million BTUs. The company did not report its actual realizations other than to say that they “differ from these NYMEX prices due to delivery location, quality and appropriate revenue adjustments.”

EOG said it has not entered into any further crude oil derivative contracts since filing its SEC Form-10Q on May 5 and that the company has no outstanding crude oil hedges as of July 14.

The company has not entered into any new derivatives contracts for natural gas since May 5. EOG closed out a hedge on 60 billion cubic feet per day of natural gas at an average weighted price of $2.49 and still holds derivative contracts for the same amount at the same price for the month of August.

EOG is scheduled to report second-quarter results on August 4, and analysts are expecting the company to post a net loss of $0.52 per share on revenues of $1.58 billion. In the year-ago quarter, EOG reported earnings per share of $0.28 and revenues of $2.47 billion. EOG posted a net loss of $0.83 in the first quarter of this year.

Shares of EOG closed at $84.63 on Thursday, up about 0.9% on the day, in a 52-week range of $57.15 to $89.52.

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