Risk Management Activities

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements [Abstract]

Risk Management Activities

11.  Risk Management Activities

Commodity Price Risks.  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, option 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.  These physical commodity contracts qualify for the normal purchases and normal sales exception and, therefore, are not subject to hedge accounting or mark-to-market accounting.  The financial impact of physical commodity contracts is included in revenues at the time of settlement, which in turn affects average realized hydrocarbon prices.

During 2011, 2010 and 2009, EOG elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounted for these financial commodity derivative contracts using the mark-to-market accounting method.  During 2011, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $626 million, which included net realized gains of $181 million.  During 2010, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $62 million, which included net realized gains of $7 million.  During 2009, EOG recognized net gains on the mark-to-market of financial commodity derivative contracts of $432 million, which included net realized losses of $1,278 million.

At December 31, 2011, the fair value of EOG's financial commodity derivative contracts was reflected on the Consolidated Balance Sheets as Current Assets - Assets from Price Risk Management Activities ($451 million) and Other Assets ($35 million).  At December 31, 2010, the fair value of EOG's financial commodity derivative contracts was reflected on the Consolidated Balance Sheets as Current Assets - Assets From Price Risk Management Activities ($48 million), Other Assets ($20 million), Current Liabilities - Liabilities from Price Risk Management Activities ($28 million) and Other Liabilities ($1 million).

Commodity Derivative Contracts.  Presented below is a comprehensive summary of EOG's crude oil derivative contracts at December 31, 2011, with notional volumes expressed in barrels per day (Bbld) and prices expressed in dollars per barrel ($/Bbl)

Crude Oil Derivative Contracts
			Weighted
	Volume		Average Price
	(Bbld)		($/Bbl)
2012 (1)
January 1, 2012 through June 30, 2012		34,000	$	104.95
July 1, 2012 through December 31, 2012		17,000		103.59

(1)   EOG has entered into crude oil derivative contracts which give counterparties the option to extend certain current derivative contracts for an additional six-month period.  Such options are exercisable on June 29, 2012. If the counterparties exercise all such options, the notional volume of EOG's existing crude oil derivative contracts will increase by 17,000 Bbld at an average price of $106.31 per barrel for the period July 1, 2012 through December 31, 2012.

Presented below is a comprehensive summary of EOG's natural gas derivative contracts as of December 31, 2011, with notional volumes expressed in million British thermal units (MMBtu) per day (MMBtud) and prices expressed in dollars per MMBtu ($/MMBtu).

Natural Gas Derivative Contracts
	Volume (MMBtud)		Weighted Average Price ($/MMBtu)
2012 (1)
January 2012 (closed)		525,000	$	5.44
February 1, 2012 through December 31, 2012		525,000		5.44
2013 (2)
January 1, 2013 through December 31, 2013		150,000	$	4.79
2014 (2)
January 1, 2014 through December 31, 2014		150,000	$	4.79

(1) EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative 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 derivative contracts will increase by 425,000 MMBtud at an average price of $5.44 per MMBtu for the period from February 1, 2012 through December 31, 2012.

(2) EOG has entered into natural gas derivative contracts which give counterparties the option of entering into derivative 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 derivative contracts will increase by 150,000 MMBtud at an average price of $4.79 per MMBtu for each month of 2013 and 2014.

Foreign Currency Exchange Rate Derivative.EOG is party to a foreign currency aggregate swap transaction 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 transaction using the hedge accounting method.  The fair value of the foreign currency swap was $(52) million at December 31, 2011 and $(55) million at December 31, 2010.  The after-tax net impact from the foreign currency swap resulted in a decrease in Other Comprehensive Income (OCI) of $1 million for the year ended December 31, 2011 and an increase in OCI of $3 million and $5 million for the years ended December 31, 2010 and 2009, respectively.

Interest Rate Derivative.  EOG is a party to an interest rate swap transaction with a counterparty bank.  The interest rate swap transaction was entered into in order to mitigate EOG's exposure to volatility in interest rates related to EOG's Floating Rate Notes issued on November 23, 2010.  The interest rate swap has a notional amount of $350 million and a fair value of $(3) million and $2 million at December 31, 2011 and 2010, respectively.  EOG accounts for the interest rate swap transaction using the hedge accounting method.  The after-tax impact from the interest rate swap resulted in a decrease in OCI of $3 million for the year ended December 31, 2011 and an increase in OCI of $1 million for the year ended December 31, 2010.

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

		Fair Value at December 31,
Description	Location on Balance Sheet	2011		2010
Asset Derivatives
Crude oil and natural gas derivative contracts -
Current portion	Assets from Price Risk Management Activities	$	451	$	51
Noncurrent portion	Other Assets	$	35	$	18
Liability Derivatives
Crude oil and natural gas derivative contracts -
Current portion	Liabilities from Price Risk Management Activities	$	-	$	30
Foreign currency swap -
Noncurrent portion	Other Liabilities	$	52	$	55
Interest rate swap -
Noncurrent portion	Other Assets	$	-	$	2
Other Liabilities		$	3	$	-

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 those arising from physical and financial transactions.  In some instances, EOG requires collateral, parent guarantees or letters of credit to minimize credit risk.  At December 31, 2011, no individual purchaser's net accounts receivable balance related to United States, Canada and United Kingdom hydrocarbon sales accounted for 10% or more of the total balance.  At December 31, 2010, a crude oil marketing company's net accounts receivable balance related to United States, Canada and United Kingdom hydrocarbon sales accounted for 13% of the total balance.  The related amounts were collected during early 2011.  In 2011 and 2010, all natural gas from EOG's Trinidad operations was sold to the National Gas Company of Trinidad and Tobago and all natural gas from EOG's China operations was sold to Petrochina Company Limited.

All of EOG's outstanding 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 ISDA to be settled immediately.  See Note 12 for the aggregate fair value of all derivative instruments with credit-risk related contingent features that are in a net liability position at December 31, 2011 and 2010.  EOG had no collateral posted at both December 31, 2011 and 2010.

At December 31, 2011 and 2010, EOG had an allowance for doubtful accounts of $3 million and $14 million, respectively.

Substantially all of EOG's accounts receivable at December 31, 2011 and 2010 resulted from hydrocarbon sales and/or joint interest billings to third-party companies, including foreign state-owned entities in the oil and gas industry.  This concentration of customers and joint interest owners may impact EOG's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions.  In determining whether or not to require collateral or other credit enhancements from a customer or joint interest owner, EOG typically analyzes the entity's net worth, cash flows, earnings and credit ratings.  Receivables are generally not collateralized.  During the three-year period ended December 31, 2011, credit losses incurred on receivables by EOG have been immaterial.