EOG RESOURCES, INC. (EOG) Business, 2008

General

EOG Resources, Inc., a Delaware corporation organized in 1985, together with its subsidiaries (collectively, EOG), explores for, develops, produces and markets natural gas and crude oil primarily in major producing basins in the United States of America (United States), Canada, Trinidad, the United Kingdom North Sea, China and, from time to time, select other international areas. EOG's principal producing areas are further described in "Exploration and Production" below. EOG's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports are made available, free of charge, through its website, as soon as reasonably practicable after such reports have been filed with the United States Securities and Exchange Commission (SEC). EOG's website address is http://www.eogresources.com.

At December 31, 2008, EOG's total estimated net proved reserves were 8,689 billion cubic feet equivalent (Bcfe), of which 7,339 billion cubic feet (Bcf) were natural gas reserves and 225 million barrels (MMBbl), or 1,350 Bcfe, were crude oil and condensate and natural gas liquids reserves (see "Supplemental Information to Consolidated Financial Statements"). At such date, approximately 71% of EOG's reserves (on a natural gas equivalent basis) were located in the United States, 15% in Canada and 14% in Trinidad. As of December 31, 2008, EOG employed approximately 2,100 persons, including foreign national employees.

EOG's business strategy is to maximize the rate of return on investment of capital by controlling operating and capital costs. This strategy is intended to enhance the generation of cash flow and earnings from each unit of production on a cost-effective basis. EOG focuses on the cost-effective utilization of advances in technology associated with the gathering, processing and interpretation of three-dimensional (3-D) seismic data, the development of reservoir simulation models, the use of new and/or improved drill bits, mud motors and mud additives, horizontal drilling, formation logging techniques and reservoir stimulation/completion methods. These advanced technologies are used, as appropriate, throughout EOG to reduce the risks associated with all aspects of oil and gas exploration, development and exploitation. EOG implements its strategy by emphasizing the drilling of internally generated prospects in order to find and develop low cost reserves. EOG also makes select strategic acquisitions that result in additional economies of scale or land positions which provide significant additional prospects. Maintaining the lowest possible operating cost structure that is consistent with prudent and safe operations is also an important goal in the implementation of EOG's strategy.

With respect to information on EOG's working interest in wells or acreage, "net" oil and gas wells or acreage are determined by multiplying "gross" oil and gas wells or acreage by EOG's working interest in the wells or acreage.

Business Segments

EOG's operations are all natural gas and crude oil exploration and production related.

Exploration and Production

United States and Canada Operations

EOG's operations are focused on most of the productive basins in the United States and Canada.

At December 31, 2008, 82% of EOG's net proved United States and Canada reserves (on a natural gas equivalent basis) were natural gas and 18% were crude oil and condensate and natural gas liquids. Substantial portions of these reserves are in long-lived fields with well-established production characteristics. EOG believes that opportunities exist to increase production through continued development in and around many of these fields and through the utilization of the applicable technologies described above. EOG also maintains an active exploration program designed to extend fields and add new trends to its broad portfolio. The following is a summary of significant developments during 2008 and certain 2009 plans for EOG's United States and Canada operations.

United States. EOG continues to grow production and future reserve potential in the Barnett Shale play of the Fort Worth Basin. In 2008, EOG began selling production from 410 net wells drilled during the year and grew production to a net average daily rate of 413 million cubic feet per day (MMcfd) of natural gas and 6.6 thousand barrels per day (MBbld) of crude oil and condensate and natural gas liquids. At year-end 2008, EOG's net production had increased to approximately 509 million cubic feet equivalent per day (MMcfed), and net acreage held was approximately 990,000 acres. During 2008, EOG continued to experience successful drilling in Johnson, Hill, and the western extension counties of the Barnett Shale gas play. Additionally, EOG saw successful drilling in the Barnett Combo play located in the northern portion of the Fort Worth Basin. The Barnett Combo play was previously known as the Barnett Oil play but, as a result of the wells in this play producing roughly one-third crude oil, one-third natural gas liquids and one-third natural gas, the name Combo seemed more appropriate. For 2009, EOG plans to begin selling production from approximately 260 net wells. With a focus on maximizing the recovery of hydrocarbons in place and cost reduction, EOG expects the Barnett Shale play to continue to add production and reserve growth to EOG for many years to come.

EOG significantly expanded its activities in 2008 throughout the Rocky Mountain area where it holds approximately 1.6 million net acres. During 2008, 353 net wells were drilled. In the core areas, 210 net wells were drilled in the Uinta Basin, Utah, 64 net wells were drilled in North Dakota and Montana in the Williston Basin, 45 net wells were drilled in the Moxa Arch area of Wyoming and 21 net wells were drilled in the LaBarge Platform, Wyoming. Production from the Rocky Mountain area increased 57% with this expanded drilling activity. The net average production for 2008 was 232 MMcfd of natural gas and 26.6 MBbld of crude oil and condensate and natural gas liquids. EOG ended 2008 producing approximately 24 MBbld, net of crude oil from the Bakken play in North Dakota and intends to drill over 45 net wells in the play in 2009. The majority of the production growth in the Rocky Mountain area was derived from very active drilling programs in the North Dakota Bakken and the Uinta Basin Mesaverde development plays. EOG expects to remain active in these two areas in 2009 and plans to continue its exploration program throughout the Rocky Mountain area.

In the Mid-Continent area, EOG drilled 106 net wells during 2008 in its core areas in Southwest Kansas, the Oklahoma Panhandle and the Texas Panhandle. The net average production for 2008 was 84 MMcfd of natural gas and 4.7 MBbld of crude oil and condensate which represents an 11% total production increase over 2007. EOG continued its strong exploration program in Southwest Kansas and was successful in finding several new Morrow and St. Louis plays. As part of the Hugoton-Deep play, EOG has seven years remaining on an approximately 900,000 gross acre, 10-year farm-in agreement from Anadarko Petroleum Company. In addition to its existing Cleveland Horizontal play in the Texas Panhandle, a new discovery in the Atoka formation was established and exploited in 2008. EOG holds approximately 100,000 net acres in the play. To date, 37 horizontal wells have been drilled with initial production rates up to 7.0 MMcfd of natural gas. Plans for 2009 are to continue exploiting these growth areas while pursuing other exploration prospects throughout the Mid-Continent area. EOG holds approximately 500,000 net acres in the Mid-Continent area.

EOG's South Texas and Gulf of Mexico areas had another successful year in 2008, drilling 89 net wells. South Texas and Gulf of Mexico net production averaged 207 MMcfd of natural gas and 6.8 MBbld of crude oil and condensate and natural gas liquids during 2008. EOG's activity was focused in Webb, Zapata, San Patricio, Duval and Matagorda counties, where EOG drilled successful wells in the Lobo, Roleta, Frio and Wilcox trends. EOG's application of horizontal drilling technology in South Texas continues to increase, and the percentage of horizontal wells drilled in the area significantly increased in 2008. A number of additional trends will be exploited with the application of horizontal drilling in 2009. Production from two deepwater Gulf of Mexico wells, drilled in the Atwater Valley area, began in February 2008 at a peak rate of 117 MMcfd of natural gas, gross and 19 MMcfd, net to EOG. Approximately 68 net wells are planned during 2009 for South Texas and the Gulf of Mexico where EOG holds approximately 580,000 net acres.

During 2008, EOG drilled and participated in 48 net wells in the Permian Basin. Twenty-nine net wells were drilled in New Mexico, of which 20 were drilled in the Wolfcamp horizontal play, and the others were drilled in the Morrow, Bone Spring and Permo-Penn formations. Nineteen net wells were drilled in West Texas in multiple objectives. Net production averaged 79 MMcfd of natural gas and 6.8 MBbld of crude oil and condensate and natural gas liquids. Several new oil projects were identified and acreage assembled for testing in 2009. Over 330 square miles of 3-D seismic were acquired in 2008 to assist with these new projects. With the addition of 97,500 acres in 2008, EOG now has approximately 540,000 net acres in the Permian Basin. EOG expects to remain active in the Permian Basin in 2009 and will pursue several exploration prospects in these same areas.

The Upper Gulf Coast continued to be a growth area for EOG where 2008 net production grew 6% year over year and averaged 146 MMcfd of natural gas and 3.1 MBbld of crude oil and condensate and natural gas liquids. EOG drilled 62 net wells with 36 net wells in the Cotton Valley and Travis Peak development programs located in East Texas and North Louisiana, at the Sligo, Driscoll, Appleby, and Waterman fields. Mississippi remained a growth area where 26 net wells were drilled in 2008 and horizontal development of the Selma Chalk at the Gwinville Field was also successful. EOG is further expanding horizontal drilling programs in this area with the development of approximately 116,000 net acres in the emerging Haynesville play where EOG is currently drilling its third horizontal well. EOG holds approximately 350,000 net acres in the Upper Gulf Coast area.

In February 2008, EOG completed the sale of approximately 2,400 shallow Devonian wells with net production of 17 MMcfd of natural gas in the Appalachian Basin. EOG retained the deep rights on the acreage involved in the sale. During the second half of the year, the focus was entirely on evaluating the Marcellus Shale, drilling six horizontal and three vertical wells. These wells tested acreage blocks in Bradford County, Pennsylvania, as well as blocks in the Seneca Resources Joint Venture in North Central Pennsylvania. EOG has tested wells in each of these areas that initially flowed at rates in excess of 3 MMcfd of natural gas. Plans for 2009 include the drilling of 14 gross wells (both horizontal and vertical) and developing the infrastructure necessary to market the gas from the drilling program. EOG holds approximately 220,000 net acres in this area.

At December 31, 2008, EOG held approximately 3,646,000 net undeveloped acres in the United States.

During 2008, EOG continued the growth of its gathering and processing activities in the Barnett Shale play of North Texas and the Bakken Shale play of North Dakota. In 2008, EOG placed into operation one natural gas processing plant in North Dakota, and constructed a second plant in North Texas that came online in early 2009. EOG installed an additional gathering system in the Barnett Combo play of North Texas to transport production to its processing plant and continued expansion of its system in the Bakken Shale play of North Dakota. The North Texas systems total over 70 miles of 8-inch, 10-inch and 20-inch diameter pipe, while the North Dakota system totals over 100 miles of 8-inch pipe. At year-end 2008, the combined throughput of these systems was 56 MMcfd of natural gas.

EOG expects to continue expanding these facilities to accommodate the drilling activity in the Barnett Shale and Bakken Shale plays. In the North Dakota Bakken Shale play, EOG received confirmation from the Federal Energy Regulatory Commission (FERC) on January 12, 2009, to install an approximately 80-mile, 12-inch diameter "dense phase" gas gathering pipeline connecting its Stanley, North Dakota gathering system with the Alliance Pipeline, near Upham, North Dakota, with start-up planned for the third quarter of 2009. The Alliance Pipeline transports natural gas to major markets in Chicago, Illinois. As a part of that project, EOG expects to replace its 20 MMcfd natural gas liquids processing plant, located near Stanley, North Dakota, with an 80 MMcfd refrigeration oil/condensate removal plant during the second quarter of 2009. In combination, these projects will allow EOG to efficiently transport the associated natural gas and natural gas liquids production from its Bakken oil wells.

Canada. EOG conducts operations through its subsidiary, EOG Resources Canada Inc. (EOGRC), from offices in Calgary, Alberta. During 2008, EOGRC continued with its shallow gas strategy in Western Canada, drilling a total of 474 net wells. Key producing areas are the Southeast Alberta/Southwest Saskatchewan shallow gas trends (including the Drumheller, Twining and Halkirk areas), the Pembina/Highvale area of Central Alberta, the Grande Prairie/Wapiti area of Northwest Alberta and the Waskada area of Southwest Manitoba. During 2008, increased capital was directed to oil development projects principally at the Waskada and Highvale large legacy fields, which were initially developed with vertical wells resulting in low recoveries. Horizontal drilling, coupled with specific zone targeting, along with new completion techniques, have yielded favorable results. As a result, EOG plans large field-scale redevelopments for 2009 and beyond.

In the Horn River Basin of Northeastern British Columbia, EOGRC drilled three vertical and five horizontal wells during 2008 and concluded completion operations on two horizontal wells drilled in 2007. Initial gas sales began in July 2008 and currently EOGRC has seven producing wells. Plans for 2009 include drilling seven horizontal wells to further test EOGRC's net acre position.

In 2008, total Canadian net production averaged 222 MMcfd of natural gas and 3.7 MBbld of crude oil and condensate and natural gas liquids. EOGRC plans to drill approximately 180 net wells in 2009.

At December 31, 2008, EOGRC held approximately 1,655,000 net undeveloped acres in Canada.

Operations Outside the United States and Canada

EOG has operations in Trinidad, in the United Kingdom North Sea and in the China Sichuan Basin, and is evaluating additional exploration, development and exploitation opportunities in those and other international areas.

Trinidad. In November 1992, EOG, through its subsidiary, EOG Resources Trinidad Limited (EOGRT), acquired an exploration and production license in the South East Coast Consortium (SECC) Block offshore Trinidad. EOG currently has an 80% working interest in the SECC Block, except in the Deep Ibis area in which EOG's working interest decreased as a result of a farm-out agreement with BP Trinidad Tobago LLC. In the SECC Block, the Kiskadee, Ibis, Parula and Oilbird fields have been developed and are producing. Effective September 1, 2006, the Oilbird Field Unitization Agreement was executed as the Oilbird field straddles the SECC Block and the Modified U(b) Block discussed below. The license covering the SECC Block will expire in December 2029.

In July 1996, EOG, through its subsidiary, EOG Resources Trinidad-U(a) Block Limited, signed a production sharing contract with the Government of Trinidad and Tobago for the Modified U(a) Block. EOG holds a 100% working interest in this Block. The Osprey field, located on the Modified U(a) Block, has been developed and is producing.

In April 2002, EOG, through its subsidiary, EOG Resources Trinidad-LRL Unlimited, signed a production sharing contract with the Government of Trinidad and Tobago for the Lower Reverse "L" (LRL) Block. In the second quarter of 2008, EOG relinquished its rights to the LRL Block.

In October 2002, EOG, through its subsidiary, EOG Resources Trinidad U(b) Block Unlimited, signed a production sharing contract with the Government of Trinidad and Tobago for the Modified U(b) Block which is adjacent to the SECC Block. EOG holds a 100% working interest in the Modified U(b) Block. As noted above, effective September 1, 2006, the Oilbird Field Unitization Agreement was executed as the Oilbird field straddles the SECC Block and the Modified U(b) Block. At October 2008, 3.7% of the original contract area has been retained for the development of the Oilbird field unit while 12.5% has been retained for further exploration.

In July 2005, EOG, through its subsidiary, EOG Resources Trinidad Block 4(a) Unlimited, signed a production sharing contract with the Government of Trinidad and Tobago for Block 4(a). EOG holds a 100% working interest in Block 4(a). In the first quarter of 2006, two successful wells were drilled on Block 4(a). EOG's subsidiary has obtained approval to develop the discovery and is currently constructing the offshore facilities. From its first discovery on Block 4(a), EOG expects to supply approximately 100 MMcfd, gross (82 MMcfd, net based on current pricing and operating assumptions) in early 2011 under a natural gas contract with the National Gas Company of Trinidad and Tobago (NGC), provided that the pipeline is completed by NGC. The contract is for a term of 15 years with a designated start date of January 1, 2010. EOG expects to begin delivery under this contract in early 2010 and shall initially source the natural gas from its existing fields until the NGC pipeline and development of Block 4(a) are completed. Since the net revenue interest is different on the existing fields, EOG's net deliveries would be 70 MMcfd, based on current pricing and operating assumptions until deliveries begin from Block 4(a).

In the first quarter of 2008, EOG, through its subsidiary, EOGRT, purchased an 80% working interest in the exploration and production license covering the Pelican field and its related facilities (Pelican License) from Trinidad and Tobago Marine Petroleum Company Limited, a subsidiary of the other participants in the SECC Block. The acquisition includes the subsurface rights, offshore facilities, the condensate transport line and the onshore storage facilities. The Pelican License will expire in December 2029.

EOG, through its subsidiary, EOGRT, owns a 12% equity interest in an anhydrous ammonia plant in Point Lisas, Trinidad, that is owned and operated by Caribbean Nitrogen Company Limited (CNCL). The shareholders' agreement governing CNCL requires the consent of the holders of 90% or more of the shares to take certain material actions. Accordingly, given its current level of equity ownership, EOGRT is able to exercise significant influence over the operating and financial policies of CNCL and, therefore, EOG accounts for the investment using the equity method. During 2008, EOG recognized equity income of $7 million and received cash dividends of $1 million from CNCL.

EOG, through its subsidiary, EOG Resources NITRO2000 Ltd. (EOGNitro2000), owns a 10% equity interest in an anhydrous ammonia plant in Point Lisas, Trinidad, that is owned and operated by Nitrogen (2000) Unlimited (N2000). The shareholders' agreement governing N2000 requires the consent of the holders of 100% of the shares to take certain material actions. Accordingly, given its current level of equity ownership, EOGNitro2000 is able to exercise significant influence over the operating and financial policies of N2000 and, therefore, EOG accounts for the investment using the equity method. During 2008, EOG recognized equity income of $12 million and received cash dividends of $8 million from N2000.

Natural gas from EOG's Trinidad operations is sold to either NGC or its subsidiary under five gas sales contracts. Approximately 380 MMcfd, gross (225 MMcfd, net) are sold under contracts with prices which were either wholly or partially dependent on Caribbean ammonia index prices and/or methanol prices. The remaining volumes (approximately 30 MMcfd, gross, 12 MMcfd, net) are sold under a contract for use in the Atlantic LNG Train 4 (ALNG) plant at prices partially dependent on the United States Henry Hub market prices. The pricing mechanisms for these contracts in Trinidad will remain the same in 2009.

In October 2008, EOG finalized crude oil and condensate sales contracts with the Petroleum Company of Trinidad and Tobago. The pricing terms are based on the valuation of the distillation yield of the crude oil and condensate produced less a refining margin.

In 2008, EOG's average net production from Trinidad was 218 MMcfd of natural gas and 3.2 MBbld of crude oil and condensate.

At December 31, 2008, EOG held approximately 156,000 net undeveloped acres in Trinidad.

United Kingdom. In 2002, EOG's subsidiary, EOG Resources United Kingdom Limited (EOGUK), acquired a 25% non-operating working interest in a portion of Block 49/16, located in the Southern Gas Basin of the North Sea. In August 2004, production commenced in the Valkyrie field in the Southern Gas Basin.

In 2003, EOGUK acquired a 30% non-operating working interest in a portion of Blocks 53/1 and 53/2. These blocks are also located in the Southern Gas Basin of the North Sea. Since November 2003, three successful exploratory wells have been drilled in the Arthur field, with production commencing in January 2005. There are currently two producing wells in the Arthur field, one or both of which could cease production during the second half of 2009.

In 2006, EOGUK participated in the drilling and successful testing of the Columbus prospect in the Central North Sea Block 23/16f. A successful Columbus prospect appraisal well was drilled during the third quarter of 2007. The field operator submitted a field development plan to the Department of Energy and Climate Change during the fourth quarter of 2008. EOGUK also participated in the drilling of an unsuccessful exploratory well in August 2007 on the Eos prospect located in the Southern North Sea Block 48/11c.

In the fourth quarter of 2008, EOGUK was awarded three Central North Sea operated licenses in the U.K. 25th Seaward Licensing Round. A rig was contracted to drill two operated wells in the East Irish Sea in 2009. The licenses for the East Irish Sea were awarded to EOG in 2007.

In 2008, EOG delivered net average production of 12 MMcfd of natural gas in the United Kingdom.

At December 31, 2008, EOG held approximately 249,000 net undeveloped acres in the United Kingdom.

China. In July 2008, EOG acquired rights from ConocoPhillips in a Petroleum Contract covering the Chuanzhong Block exploration area in the Sichuan Basin, Sichuan Province, The People's Republic of China. The acquisition includes production of approximately 9 MMcfed, net, on approximately 130,000 acres. In October 2008, EOG obtained the rights to an additional zone on the acreage purchased. EOG plans to drill its first horizontal well in 2009.

Other International. EOG continues to evaluate other select natural gas and crude oil opportunities outside the United States and Canada primarily by pursuing exploitation opportunities in countries where indigenous natural gas and crude oil reserves have been identified.

Marketing

Wellhead Marketing. EOG's United States and Canada wellhead natural gas production is currently being sold on the spot market and under long-term natural gas contracts based on prevailing market prices. In many instances, the long-term contract prices closely approximate the prices received for natural gas being sold on the spot market. In 2008, a large majority of the wellhead natural gas volumes from Trinidad were sold under contracts with prices which were either wholly or partially dependent on Caribbean ammonia index prices and/or methanol prices. The remaining volumes were sold under a contract at prices partially dependent on the United States Henry Hub market prices. The pricing mechanisms for these contracts in Trinidad will remain the same in 2009. In 2008, a large majority of the wellhead natural gas volumes from the United Kingdom were sold on the spot market. The remaining volumes were sold by means of forward contracts. The marketing strategy for the wellhead natural gas volumes in the United Kingdom is expected to remain the same in 2009. In 2008, all of the wellhead natural gas volumes from China were sold under a contract with prices based on the purchaser's pipeline sales prices to various local market segments. The pricing mechanism for the contract in China is expected to remain the same in 2009.

Substantially all of EOG's wellhead crude oil and condensate and natural gas liquids are sold under various terms and arrangements based on prevailing market prices.

In certain instances, EOG purchases natural gas production from third parties under buy/sell or other arrangements in order to balance firm transportation capacity with production in certain areas.

During 2008, no single purchaser accounted for 10% or more of EOG's natural gas and crude oil revenues. EOG does not believe that the loss of any single purchaser would have a material adverse effect on its financial condition or results of operations.

Wellhead Volumes and Prices

The following table sets forth certain information regarding EOG's wellhead volumes of, and average prices for, natural gas per thousand cubic feet (Mcf), crude oil and condensate per barrel (Bbl) and natural gas liquids per Bbl. The table also presents natural gas equivalent volumes which are determined using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl of crude oil and condensate or natural gas liquids delivered during each of the years ended December 31, 2008, 2007 and 2006.

Year Ended December 31 2008 2007 2006 Natural Gas Volumes (MMcfd) (1) United States 1,162 971 817 Canada 222 224 226 Trinidad 218 252 264 Other International (2) 17 23 30 Total 1,619 1,470 1,337 Crude Oil and Condensate Volumes (MBbld) (1) United States 39.5 24.6 20.7 Canada 2.7 2.4 2.5 Trinidad 3.2 4.1 4.8 Other International (2) 0.1 0.1 0.1 Total 45.5 31.2 28.1 Natural Gas Liquids Volumes (MBbld) (1) United States 15.0 11.1 8.5 Canada 1.0 1.1 0.8 Total 16.0 12.2 9.3 Natural Gas Equivalent Volumes (MMcfed) (3) United States 1,490 1,184 992 Canada 244 245 246 Trinidad 237 276 292 Other International (2) 17 24 31 Total 1,988 1,729 1,561 Total Bcfe (3) 727.6 631.3 569.9 Average Natural Gas Prices ($/Mcf) (4) United States $ 8.22 $ 6.27 $ 6.52 Canada 7.64 6.25 6.41 Trinidad 3.58 2.71 2.44 Other International (2) 8.18 6.19 7.69 Composite 7.51 5.65 5.72 Average Crude Oil and Condensate Prices ($/Bbl) (4) United States $ 87.68 $ 68.85 $ 62.68 Canada 89.70 65.27 57.32 Trinidad 92.90 69.84 63.87 Other International (2) 99.30 66.84 57.74 Composite 88.18 68.69 62.38 Average Natural Gas Liquids Prices ($/Bbl) (4) United States $ 53.33 $ 47.63 $ 39.95 Canada 54.77 44.54 43.69 Composite 53.42 47.36 40.25

(1) Million cubic feet per day or thousand barrels per day, as applicable.

(2) Other International includes EOG's United Kingdom operations and, effective July 1, 2008, EOG's China operations.

(3) Million cubic feet equivalent per day or billion cubic feet equivalent, as applicable; includes natural gas, crude oil and condensate and natural gas liquids.

(4) Dollars per thousand cubic feet or per barrel, as applicable.

Competition

EOG competes with major integrated oil and gas companies and other independent oil and gas companies for the acquisition of licenses and leases, properties and reserves and the equipment, materials, services and employees and other personnel (including geologists, geophysicists, engineers and other specialists) required to explore for, develop, produce and market natural gas and crude oil. Moreover, many of EOG's competitors have financial and other resources substantially greater than those EOG possesses and have established strategic long-term positions and strong governmental relationships in countries in which EOG may seek new or expanded entry. As a consequence, EOG may be at a competitive disadvantage in bidding for drilling rights. In addition, many of EOG's larger competitors may have a competitive advantage when responding to factors that affect demand for natural gas and crude oil, such as changing worldwide prices and levels of production and the cost and availability of alternative fuels. EOG also faces competition from competing energy sources, such as liquefied natural gas imported into the United States from other countries, and, to a lesser extent, alternative energy sources.

Regulation

United States Regulation of Natural Gas and Crude Oil Production. Natural gas and crude oil production operations are subject to various types of regulation, including regulation in the United States by state and federal agencies.

United States legislation affecting the oil and gas industry is under constant review for amendment or expansion. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue and have issued rules and regulations which, among other things, require permits for the drilling of wells, regulate the spacing of wells, prevent the waste of natural gas and liquid hydrocarbon resources through proration and restrictions on flaring, require drilling bonds, regulate environmental and safety matters and regulate the calculation and disbursement of royalty payments, production taxes and ad valorem taxes.

A substantial portion of EOG's oil and gas leases in Utah, New Mexico, Wyoming and the Gulf of Mexico, as well as some in other areas, are granted by the federal government and administered by the Bureau of Land Management (BLM) and the Minerals Management Service (MMS), both federal agencies. Operations conducted by EOG on federal oil and gas leases must comply with numerous additional statutory and regulatory restrictions. Certain operations must be conducted pursuant to appropriate permits issued by the BLM and the MMS.

BLM and MMS leases contain relatively standardized terms requiring compliance with detailed regulations and, in the case of offshore leases, orders pursuant to the Outer Continental Shelf Lands Act (which are subject to change by the MMS). Such offshore operations are subject to numerous regulatory requirements, including the need for prior MMS approval for exploration, development and production plans; stringent engineering and construction specifications applicable to offshore production facilities; regulations restricting the flaring or venting of production and regulations governing the plugging and abandonment of offshore wells; and the removal of all production facilities. Under certain circumstances, the MMS may require operations on federal leases to be suspended or terminated. Any such suspension or termination could adversely affect EOG's interests.

Sales of crude oil and condensate and natural gas liquids by EOG are made at unregulated market prices.

The transportation and sale for resale of natural gas in interstate commerce are regulated pursuant to the Natural Gas Act of 1938 (NGA) and the Natural Gas Policy Act of 1978. These statutes are administered by the FERC. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act of 1989 deregulated natural gas prices for all "first sales" of natural gas, which includes all sales by EOG of its own production. All other sales of natural gas by EOG, such as those of natural gas purchased from third parties, remain jurisdictional sales subject to a blanket sales certificate under the NGA, which has flexible terms and conditions. Consequently, all of EOG's sales of natural gas currently may be made at market prices, subject to applicable contract provisions. EOG's jurisdictional sales, however, are subject to the future possibility of greater federal oversight, including the possibility that the FERC might prospectively impose more restrictive conditions on such sales.

EOG owns, directly or indirectly, certain natural gas pipelines that it believes meet the traditional tests the FERC has used to establish a pipeline's status as a gatherer not subject to FERC jurisdiction under the NGA. State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements, but does not generally entail rate regulation. EOG's gathering operations could be

adversely affected should they be subject in the future to the application of state or federal regulation of rates and services.

EOG's natural gas gathering operations also may be, or become, subject to safety and operational regulations relating to the design, installation, testing, construction, operation, replacement and management of such facilities. Additional rules and legislation pertaining to these matters are considered and/or adopted from time to time. Although EOG cannot predict what effect, if any, such legislation might have on its operations and financial condition, the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.

Proposals and proceedings that might affect the natural gas industry are considered from time to time by Congress, the state legislatures, the FERC and the federal and state regulatory commissions and courts. EOG cannot predict when or whether any such proposals or proceedings may become effective. It should also be noted that the natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less regulated approach currently being followed by the FERC will continue indefinitely.

Environmental Regulation - United States. Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, affect EOG's operations and costs as a result of their effect on natural gas and crude oil exploration, development and production operations and could cause EOG to incur remediation or other corrective action costs in connection with a release of regulated substances, including crude oil, into the environment. In addition, EOG has acquired certain oil and gas properties from third parties whose actions with respect to the management and disposal or release of hydrocarbons or other wastes were not under EOG's control. Under environmental laws and regulations, EOG could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, EOG could be responsible under environmental laws and regulations for oil and gas properties in which EOG owns an interest but is not the operator. Compliance with such laws and regulations increases EOG's overall cost of business, but has not had a material adverse effect on EOG's operations or financial condition. It is not anticipated, based on current laws and regulations, that EOG will be required in the near future to expend amounts that are material in relation to its total exploration and development expenditure program in order to comply with environmental laws and regulations but, inasmuch as such laws and regulations are frequently changed, EOG is unable to predict the ultimate cost of compliance. EOG also could incur costs related to the clean-up of sites to which it sent regulated substances for disposal or to which it sent equipment for cleaning, and for damages to natural resources or other claims related to releases of regulated substances at such sites.

EOG is aware of the increasing focus of local, state, national and international regulatory bodies on greenhouse gas (GHG) emissions and climate change issues. EOG is also aware of legislation proposed by United States lawmakers to reduce GHG emissions. Any direct and indirect costs of these regulations may adversely affect EOG's business, results of operations and financial condition. EOG believes that its strategy to reduce GHG emissions throughout our operations is in the best interest of the environment and a generally good business practice. EOG will continue to review the risks to its business and operations associated with all environmental matters, including climate change.

Canadian Regulation of Natural Gas and Crude Oil Production. The crude oil and natural gas industry in Canada is subject to extensive controls and regulations imposed by various levels of government. These regulatory authorities may impose regulations on or otherwise intervene in the crude oil and natural gas industry with respect to prices, taxes, transportation rates, the exportation of the commodity and, possibly, expropriation or cancellation of contract rights. Such regulations may be changed from time to time in response to economic, political or other factors. The implementation of new regulations or the modification of existing regulations affecting the crude oil and natural gas industry could reduce demand for these commodities, could increase EOG's costs and may have a material adverse impact on EOG's operations and financial condition.

It is not expected that any of these controls or regulations will affect EOG's operations in a manner materially different than they would affect other oil and gas companies of similar size; however, EOG is unable to predict what additional legislation or amendments may be enacted or how such additional legislation or amendments may affect EOG's operations and financial condition.

In addition, each province has regulations that govern land tenure, royalties, production rates and other matters. The royalty system in Canada is a significant factor in the profitability of crude oil and natural gas production. Royalties payable on production from freehold lands are determined by negotiations between the mineral owner and the lessee, although production from such lands is also subject to certain provincial taxes and

royalties. Royalties payable on lands that the Crown has an interest in are determined by government regulation and are generally calculated as a percentage of the value of the gross production, and the rate of royalties payable generally depends in part on prescribed reference prices, well productivity, geographical location, field discovery date and the type and quality of the petroleum product produced. From time to time, the federal and provincial governments of Canada have also established incentive programs such as royalty rate reductions, royalty holidays and tax credits for the purpose of encouraging oil and gas exploration or enhanced recovery projects. These incentives generally have the effect of increasing our revenues, earnings and cash flow.

The Alberta Government implemented a new crude oil and natural gas royalty framework effective January 2009. The new framework establishes new royalties for conventional crude oil, natural gas and bitumen that are linked to price and production levels and apply to both new and existing conventional oil and gas activities and oil sands projects. Under the new framework, the formula for conventional crude oil and natural gas royalties uses a sliding rate formula, dependant on the market price and production volumes. Royalty rates for conventional crude oil range from 0% to 50% and natural gas royalty rates range from 5% to 50%.

The Deep Oil Exploration Program (DOEP) and the Natural Gas Deep Drilling Program (NGDDP) are new programs that began January 1, 2009 in Alberta. These programs provide upfront royalty adjustments to new wells. To qualify for royalty adjustments under the DOEP, exploration wells must have a vertical depth greater than 2,000 meters with a Crown interest and must be spudded after January 1, 2009. These oil wells qualify for a royalty exemption on either the first 1,000,000 Canadian dollars of royalty or the first 12 months of production. The NGDDP applies to wells producing at a vertical depth greater than 2,500 meters. The NGDDP will have an escalating royalty credit in line with progressively deeper wells from 625 Canadian dollars per meter to a maximum of 3,750 Canadian dollars per meter. There are additional benefits for the deepest wells. Both the DOEP and the NGDDP are five-year programs. Any wells spudded after December 31, 2013, or any wells for which EOG chooses the transition option described below, will not qualify under either program. No royalty adjustments will be granted under either the DOEP or the NGDDP after December 31, 2018.

In November 2008, the Alberta Government announced that companies drilling new natural gas and conventional crude oil wells at depths between 1,000 and 3,500 meters, which are spudded between November 19, 2008 and December 31, 2013, will have a one-time option of selecting new transitional royalty rates or the new royalty framework rates. The transition option provides lower royalties in the initial years of a well's life. For example, under the transition option, royalty rates for natural gas wells will range from 5% to 30%. The election is made prior to the end of the first calendar month in which the commodity is produced. All wells using the transitional royalty rates must shift to the new royalty framework rates on January 1, 2014.

EOG expects these regulations of the Alberta Government to have a marginally positive impact on EOG's financial condition and results of operations.

Environmental Regulation - Canada. All phases of the crude oil and natural gas industry in Canada are subject to environmental regulation pursuant to a variety of Canadian federal, provincial and municipal laws and regulations. Such laws and regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and wastes and in connection with spills, releases and emissions of various substances to the environment. These laws and regulations also require that facility sites and other properties associated with EOG's operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, new projects or changes to existing projects may require the submission and approval of environmental assessments or permit applications. These laws and regulations are subject to frequent change, and the clear trend is to place increasingly stringent limitations on activities that may affect the environment. Compliance with such laws and regulations increases EOG's overall cost of business, but has not had, to date, a material adverse effect on EOG's operations or financial condition. It is not anticipated, based on current laws and regulations, that EOG will be required in the near future to expend amounts that are material in relation to its total exploration and development expenditure program in order to comply with environmental laws and regulations, but, inasmuch as such laws and regulations are frequently changed, EOG is unable to predict the ultimate cost of compliance or the effect on EOG's operations and financial condition.

Spills and releases from EOG's properties may have resulted, or may result, in soil and groundwater contamination in certain locations. Such contamination is not unusual within the crude oil and natural gas industry. Any contamination found on, under or originating from the properties may be subject to remediation requirements under Canadian laws. In addition, EOG has acquired certain oil and gas properties from third parties whose actions

with respect to the management and disposal or release of hydrocarbons or other wastes were not under EOG's control. Under Canadian laws and regulations, EOG could be required to remove or remediate wastes disposed of or released by prior owners or operators. In addition, EOG could be held responsible for oil and gas properties in which EOG owns an interest but is not the operator.

Canada is a signatory to the United Nations Framework Convention on Climate Change. The Canadian federal government has indicated an intention to regulate industrial emissions of GHG and air pollutants from a broad range of industrial sectors in the Regulatory Framework for Air Emissions released April 2007 and updated in a March 2008 document entitled Turning the Corner: Regulatory Framework for Industrial Greenhouse Gas Emissions (collectively, Federal Plan). The Federal Plan outlines proposed policies to reduce the emissions of GHG and air pollutants by establishing mandatory emissions reduction requirements on a sector basis. Sector-specific regulations are expected to come into effect in 2010 and targets would be based on percentages rather than absolute reductions. The Federal Plan also proposes a credit emissions trading system. Additionally, regulation can take place at the provincial and municipal level. For example, the Alberta Government regulates GHG emissions under the Climate Change and Emissions Management Act, the Specified Gas Reporting Regulation, which imposes GHG emissions reporting requirements, and the Specified Gas Emitters Regulation, which imposes GHG emissions limits. Any direct and indirect costs of these regulations may adversely affect EOG's business, results of operations and financial condition.

Other International Regulation. EOG's exploration and production operations outside the United States and Canada are subject to various types of regulations imposed by the respective governments of the countries in which EOG's operations are conducted, and may affect EOG's operations and costs within that country. EOG currently has operations in Trinidad, the United Kingdom and China.

Other Matters

Energy Prices. Since EOG is primarily a natural gas producer, it is more significantly impacted by changes in prices of natural gas than changes in prices of crude oil and condensate or natural gas liquids. Average United States and Canada wellhead natural gas prices have fluctuated, at times rather dramatically, during the last three years. These fluctuations resulted in a 30% increase in the average wellhead natural gas price for production in the United States and Canada received by EOG from 2007 to 2008, a decrease of 4% from 2006 to 2007, and a decrease of 15% from 2005 to 2006. The average New York Mercantile Exchange (NYMEX) natural gas price strip for 2009 has declined approximately 15% subsequent to December 31, 2008. Crude oil and condensate and natural gas liquids production comprised a larger portion of EOG's product mix in 2008 than in prior years and is expected to increase further in 2009. Average crude oil and condensate prices received by EOG for production in the United States increased by 27% in 2008, 10% in 2007 and 15% in 2006, each as compared to the immediately preceding year. The average NYMEX crude oil price strip for 2009 has declined approximately 10% subsequent to December 31, 2008. Due to the many uncertainties associated with the world political environment, the availabilities of other worldwide energy supplies and the relative competitive relationships of the various energy sources in the view of consumers, EOG is unable to predict what changes may occur in natural gas, crude oil and condensate, natural gas liquids, ammonia and methanol prices in the future. For additional discussion regarding changes in natural gas and crude oil prices and the risks that such changes may present to EOG, see ITEM 1A. Risk Factors.

Including the impact of EOG's 2009 natural gas hedges, based on EOG's tax position and the portion of EOG's anticipated natural gas volumes for 2009 for which prices have not been determined under long-term marketing contracts, EOG's price sensitivity for each $0.10 per Mcf change in wellhead natural gas price is approximately $17 million for net income and $25 million for operating cash flow. EOG's price sensitivity in 2009 for each $1.00 per barrel change in wellhead crude oil and condensate price, combined with the related change in natural gas liquids price, is approximately $14 million for net income and $21 million for operating cash flow. For information regarding EOG's natural gas hedge position as of December 31, 2008, see Note 11 to Consolidated Financial Statements.

Risk Management. 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 natural gas and crude oil. EOG utilizes financial commodity derivative instruments, primarily collar, price swap and basis swap contracts, as the means to manage this price risk. EOG accounts for financial commodity derivative contracts using the mark-to-market accounting method. 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. Under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, 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. For a summary of EOG's financial commodity derivative contracts, see ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Derivative Transactions.

All of EOG's natural gas and crude oil activities are subject to the risks normally incident to the exploration for and development and production of natural gas and crude oil, including blowouts, cratering and fires, each of which could result in damage to life and/or property. EOG's onshore and offshore operations are subject to usual customary perils, including hurricanes and other adverse weather conditions. EOG's activities are also subject to governmental regulations as well as interruption or termination by governmental authorities based on environmental and other considerations. In accordance with customary industry practices, insurance is maintained by EOG against some, but not all, of these risks. Losses and liabilities arising from such events could reduce revenues and increase costs to EOG to the extent not covered by insurance.

EOG's operations outside of the United States are subject to certain risks, including expropriation of assets, risks of increases in taxes and government royalties, renegotiation of contracts with foreign governments, political instability, payment delays, limits on allowable levels of production and currency exchange and repatriation losses, as well as changes in laws, regulations and policies governing operations of foreign companies. Please refer to Item 1A. Risk Factors for further discussion of the risks to which EOG is subject.

Texas Severance Tax Rate Reduction. Natural gas production from qualifying Texas wells spudded or completed after August 31, 1996, is entitled to a reduced severance tax rate for the first 120 consecutive months of production. However, the cumulative value of the tax reduction cannot exceed 50 percent of the drilling and completion costs incurred on a well-by-well basis. For the impact on EOG, see ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Operating and Other Expenses.

Executive Officers of the Registrant

The current executive officers of EOG and their names and ages (as of February 25, 2009) are as follows:

Name Age Position Mark G. Papa 62 Chairman of the Board and Chief Executive Officer; Director Loren M. Leiker 55 Senior Executive Vice President, Exploration Gary L. Thomas 59 Senior Executive Vice President, Operations Robert K. Garrison 56 Executive Vice President, Exploration Fredrick J. Plaeger, II 55 Senior Vice President and General Counsel Timothy K. Driggers 47 Vice President and Chief Financial Officer

Mark G. Papa was elected Chairman of the Board and Chief Executive Officer of EOG in August 1999, President and Chief Executive Officer and Director in September 1998, President and Chief Operating Officer in September 1997 and President in December 1996, and was President-North America Operations from February 1994 to December 1996. Mr. Papa joined Belco Petroleum Corporation, a predecessor of EOG, in 1981. Mr. Papa is currently a director of Oil States International, Inc., an oilfield service company. Mr. Papa is EOG's principal executive officer.

Loren M. Leiker was elected Senior Executive Vice President, Exploration in February 2007. He was elected Executive Vice President, Exploration in May 1998 and was subsequently named Executive Vice President, Exploration and Development in January 2000. He was previously Senior Vice President, Exploration. Mr. Leiker joined EOG in April 1989.

Gary L. Thomas was elected Senior Executive Vice President, Operations in February 2007. He was elected Executive Vice President, North America Operations in May 1998 and was subsequently named Executive Vice President, Operations in May 2002. He was previously Senior Vice President and General Manager of EOG's Midland, Texas office. Mr. Thomas joined a predecessor of EOG in July 1978.

Robert K. Garrison was elected Executive Vice President, Exploration in February 2007. He was elected Senior Vice President and General Manager of EOG's Corpus Christi, Texas office in August 2004 and, prior to such election, was Vice President and General Manger of EOG's Corpus Christi, Texas office. Mr. Garrison joined EOG in April 1995.

Frederick J. Plaeger, II joined EOG as Senior Vice President and General Counsel in April 2007. He served as Vice President and General Counsel of Burlington Resources Inc., an independent oil and natural gas exploration and production company, from June 1998 until its acquisition by ConocoPhillips in March 2006. Mr. Plaeger engaged exclusively in leadership roles in professional legal associations from April 2006 until April 2007.

Timothy K. Driggers was elected Vice President and Chief Financial Officer in July 2007. He was elected Vice President and Controller of EOG in October 1999 and was subsequently named Vice President, Accounting and Land Administration in October 2000 and Vice President and Chief Accounting Officer in August 2003. Mr. Driggers is EOG's principal financial and accounting officer. Mr. Driggers joined EOG in October 1999.