The past came back to haunt Houston-based EOG Resources Inc. in the fourth quarter, after it was snagged with a $19.2 million charge related to former parent Enron Corp. EOG reported a net loss of $27.6 million, or 24 cents a share, compared with net income of $158.7 million, or $1.33 a share, for the fourth quarter of 2000. The charges related just to Enron cost EOG 11 cents a share, estimated at $12.3 million after taxes.

However, EOG also reported charges of $2.7 million ($1.7 million after tax, or 2 cents) on mark-to-market gains for commodity transactions, of which $34.3 million ($22 million after tax or 19 cents) was cash realized in the final quarter. For the entire year, however, earnings were up for the natural gas producer, which reported net income of $387.6 million, or $3.30 per share. For 2000, net income was $385.9 million, or $3.24 per share. The former Enron subsidiary (EOG once stood for “Enron Oil & Gas”) became an independent public company in July 1999 (see Daily GPI, July 21, 1999).

CEO Mark Papa said that throughout all of last year, EOG had made “strategic decisions to position the company for commodity volatility in the natural gas industry. In the first half of 2001, EOG had minimal natural gas price swaps in place, thus benefiting from high commodity prices. EOG used the free cash flow generated in the first half of the year to buy back shares and pay down debt.” And he noted, in the first six months, EOG increased its North American natural gas production by 6.4% per share.

However, weak commodity prices and “escalating service costs” hit EOG hard in the second half of 2001, he said, despite a move to add natural gas price swaps and collars and decrease drilling activity in North America. Despite the drop in the final quarter, Papa noted that EOG still posted a 4.3% per share increase in production.”While we expect natural gas prices to lag during the first half of 2002, a rebound could begin as early as the second half of the year as the U.S. begins to pull out of this recession,” said Papa. “Looking ahead, natural gas prices should be very healthy in 2003 and beyond.”

However, Papa said, “the ongoing acceleration of existing production decline rates in the U.S. will have an impact on prices. Our studies show the rate of decline from existing fields to be approximately 29% in 2002, up from 22% just three years ago in 1999. Production from new reserves will be needed to maintain total U.S. production, which has become increasingly difficult in the industry.”

EOG recorded average natural gas prices in the U.S. in the fourth quarter 2001 of $2.39/Mcf versus $5.58/Mcf in the same period last year. The North American composite was $2.31 and $4.85 respectively. For the year 2001 the U.S. price averaged $4.26/Mcf, compared to $3.96 in 2000. The composites were $4.19 and $3.86 respectively. The company’s U.S. and Canada liquids price for 2001 averaged $16.89 a barrel compared to $19.87 in 2000.

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