Risk Management Activities

9 Months Ended

Sep. 30, 2011

Notes To Financial Statements [Abstract]

Risk Management Activities

13.      Risk Management Activities

Commodity Price Risk.  As more fully discussed in Note 11 to the Consolidated Financial Statements included in EOG's 2010 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, collar and basis swap contracts, as a means to manage this price risk.  In addition to financial transactions, EOG is a party to various physical commodity contracts for the sale of hydrocarbons that cover varying periods of time and have varying pricing provisions.  The financial impact of physical commodity contracts is included in revenues at the time of settlement, which in turn affects average realized hydrocarbon prices.  EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $358 million and $61 million for the three months ended September 30, 2011 and 2010, respectively, and $481 million and $106 million for the nine months ended September 30, 2011 and 2010, respectively.

Financial Price Swap Contracts.  Presented below is a comprehensive summary of EOG's crude oil and natural gas financial price swap contracts at September 30, 2011, with notional volumes expressed in barrels per day (Bbld) and in million British thermal units per day (MMBtud) and prices expressed in dollars per barrel ($/Bbl) and in dollars per million British thermal units ($/MMBtu), as applicable.

Financial Price Swap Contracts
	Crude Oil		Natural Gas
	Volume (Bbld)	Weighted Average Price ($/Bbl)	Volume (MMBtud)	Weighted Average Price ($/MMBtu)
2011 (1)
January 2011 (closed)	17,000	$90.44	275,000	$5.19
February 2011 (closed)	18,000	90.69	425,000	5.09
March 2011 (closed)	20,000	91.82	425,000	5.09
April 2011 (closed)	24,000	93.61	475,000	5.03
May 2011 (closed)	24,000	93.61	650,000	4.90
June 1, 2011 through September 30, 2011 (closed)	30,000	97.02	650,000	4.90
October 1, 2011 through December 31, 2011 (2)	30,000	97.02	650,000	4.90
2012 (3)
January 1, 2012 through December 31, 2012	11,000	$106.37	525,000	$5.44

(1) EOG has entered into natural gas financial price swap contracts which give counterparties the option of entering into price swap contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas financial price swap contracts will increase by 500,000 MMBtud at an average price of $4.73 per million British thermal units (MMBtu) for the period from November 1, 2011 through December 31, 2011.

(2) The crude oil contracts for October 2011 closed on October 31, 2011.  The natural gas contracts for October 2011 are closed.

(3) EOG has entered into natural gas financial price swap contracts which give counterparties the option of entering into price swap contracts at future dates.  Such options are exercisable monthly up until the settlement date of each monthly contract.  If the counterparties exercise all such options, the notional volume of EOG's existing natural gas financial price swap contracts will increase by 425,000 MMBtud at an average price of $5.44 per MMBtu for each month of 2012.

Foreign Currency Exchange Rate Risk.  As more fully described in Note 2 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG is party to a foreign currency swap with multiple banks to eliminate any exchange rate impacts that may result from the $150 million principal amount of notes issued by one of EOG's Canadian subsidiaries.  EOG accounts for the foreign currency swap using the hedge accounting method.  Changes in the fair value of the foreign currency swap do not impact Net Income (Loss).  The after-tax net impact from the foreign currency swap transaction was an increase in Other Comprehensive Income (OCI) of $0.5 million and a reduction in OCI of $0.5 million for the three months ended September 30, 2011 and 2010, respectively, and increases in OCI of $0.3 million and $3.5 million for the nine months ended September 30, 2011 and 2010, respectively.

Interest Rate Derivatives.  As more fully discussed in Note 2 to the Consolidated Financial Statements included in EOG's 2010 Annual Report, EOG is a party to an interest rate swap to mitigate its exposure to volatility in interest rates related to EOG's $350 million principal amount of Floating Rate Senior Notes due 2014 issued on November 23, 2010.  EOG accounts for the interest rate swap transaction using the hedge accounting method.  The after-tax net impact from the interest rate swap transaction was a reduction in OCI of $1.6million and $4.2 million for the three and nine months ended September 30, 2011, respectively.

The following table sets forth the amounts, on a gross basis, and classification of EOG's outstanding financial derivative financial instruments at September 30, 2011 and December 31, 2010.  Certain amounts may be presented on a net basis in the consolidated financial statements when such amounts are with the same counterparty and subject to a master netting arrangement (in millions):

					Fair Value at
					September 30,		December 31,
Description			Location on Balance Sheet		2011		2010
Asset Derivatives
	Crude oil and natural gas price swaps and natural gas swaptions -
		Current Portion	Assets from Price Risk Management Activities	$	365	$	51
		Noncurrent Portion	Other Assets	$	61	$	18
Liability Derivatives
	Crude oil price swaps, natural gas price and basis swaps and natural gas swaptions -
		Current Portion	Liabilities from Price Risk Management Activities	$	-	$	30
		Noncurrent Portion	Other Liabilities	$	-	$	-
	Foreign currency swap - Noncurrent Portion		Other Liabilities	$	46	$	55
	Interest rate swap - Noncurrent Portion		Other Assets	$	-	$	2
			Other Liabilities	$	5	$	-

Credit Risk.  Notional contract amounts are used to express the magnitude of commodity price, foreign currency and interest rate swap agreements.  The amounts potentially subject to credit risk, in the event of nonperformance by the counterparties, are equal to the fair value of such contracts (see Note 12).  EOG evaluates its exposure to significant counterparties on an ongoing basis, including exposure arising from physical and financial transactions.  In some instances, EOG requires collateral, parent guarantees or letters of credit to minimize credit risk.

All of EOG's outstanding derivative instruments are covered by International Swap Dealers Association Master Agreements (ISDA) 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 rating 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 12 for the aggregate fair value of all outstanding derivative instruments with credit-risk-related contingent features that are in a net liability position at September 30, 2011 and December 31, 2010.  EOG had no collateral posted at either September 30, 2011 or December 31, 2010.