Pioneer Natural Resources Earnings 2020-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

pxd-20200930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-13245

______________________________

PIONEER NATURAL RESOURCES COMPANY

(Exact name of Registrant as specified in its charter)

______________________________


Delaware						75-2702753
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

777 Hidden Ridge

Irving, Texas 75038

(Address of principal executive offices and zip code)

(972) 444-9001

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $.01 per share

PXD

New York Stock Exchange

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of Common Stock outstanding as of November 4, 2020 164,406,947

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

TABLE OF CONTENTS


		Page
Cautionary Statement Concerning Forward-Looking Statements		3

Definitions of Certain Terms and Conventions Used Herein		4

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	6

	Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	8

	Consolidated Statements of Equity for the three and nine months ended September 30, 2020 and 2019	9

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	11

	Notes to Consolidated Financial Statements	12

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	47

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 6.	Exhibits	53

Signatures		54

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PIONEER NATURAL RESOURCES COMPANY

Cautionary Statement Concerning Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "continue," "may," "will," "could," "should," "future," "potential," "estimate" or the negative of such terms and similar expressions as they relate to Pioneer Natural Resources Company ("Pioneer" or the "Company") are intended to identify forward-looking statements, which are generally not historical in nature. The forward-looking statements are based on the Company's current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company's control.

These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand; the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, on global and U.S. economic activity; competition; the ability to obtain environmental and other permits and the timing thereof; other government regulation or action; the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms; litigation; the costs and results of drilling and operations; availability of equipment, services, resources and personnel required to perform the Company's drilling and operating activities; access to and availability of transportation, processing, fractionation, refining, storage and export facilities; Pioneer's ability to replace reserves; implement its business plans or complete its development activities as scheduled; access to and cost of capital; the financial strength of counterparties to Pioneer's credit facility, investment instruments and derivative contracts and purchasers of Pioneer's oil, NGL and gas production; uncertainties about estimates of reserves; identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying forecasts, including forecasts of production, cash flow, well costs, capital expenditures, rates of return, expenses, cash flow from purchases and sales of oil and gas, net of firm transportation commitments; sources of funding; tax rates; quality of technical data; environmental and weather risks, including the possible impacts of climate change; cybersecurity risks; ability to implement stock repurchases; the risks associated with the ownership and operation of the Company's oilfield services businesses and acts of war or terrorism. These and other risks are described in Pioneer's Annual Report on Form 10-K for the year ended December 31, 2019, Quarterly Reports on Form 10-Q filed thereafter and other filings with the United States Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it.

Additionally, the information in this Report contains forward-looking statements related to the recently announced merger transaction between the Company and Parsley Energy, Inc. ("Parsley"). Such forward-looking statements are subject to risks and uncertainties that are difficult to predict and, in many cases, beyond the Company's control. These risks and uncertainties include, among other things, the risk that the businesses of Pioneer and Parsley will not be integrated successfully; the cost savings, synergies and growth from the proposed transaction may not be fully realized or may take longer to realize than expected; management time may be diverted on transaction-related issues; the potential adverse effect of future regulatory or legislative actions on Pioneer and Parsley or the industries in which they operate, including the risk of new restrictions with respect to development activities on Pioneer's or Parsley's assets; the credit ratings of the combined company or its subsidiaries may be different from what Pioneer expects; Pioneer or Parsley may be unable to obtain governmental and regulatory approvals required for the proposed transaction, or that required governmental and regulatory approvals may delay the proposed transaction or result in the imposition of conditions that could reduce the anticipated benefits from the proposed transaction or cause the parties to abandon the proposed transaction; a condition to closing of the proposed transaction may not be satisfied; the length of time necessary to consummate the proposed transaction may be longer than anticipated for various reasons; potential liability resulting from litigation related to the proposed transaction; the potential impact of the announcement or consummation of the proposed transaction on relationships with customers, suppliers, and competitors; and transaction costs may be higher than anticipated.

Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. Pioneer undertakes no duty to publicly update these statements except as required by law.

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PIONEER NATURAL RESOURCES COMPANY

Definitions of Certain Terms and Conventions Used Herein

Within this Report, the following terms and conventions have specific meanings:

•"Bbl" means a standard barrel containing 42 United States gallons.

•"Bcf" means one billion cubic feet and is a measure of gas volume.

•"BOE" means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.

•"BOEPD" means BOE per day.

•"Brent" means Brent oil price, a major trading classification of light sweet oil that serves as a benchmark price for oil worldwide.

•"Btu" means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.

•"DD&A" means depletion, depreciation and amortization.

•"GAAP" means accounting principles generally accepted in the United States of America.

•"HH" means Henry Hub, a distribution hub in Louisiana that serves as the delivery location for gas futures contracts on the NYMEX.

•"MBbl" means one thousand Bbls.

•"MBOE" means one thousand BOEs.

•"Mcf" means one thousand cubic feet and is a measure of gas volume.

•"MMBtu" means one million Btus.

•"NGLs" means natural gas liquids, which are the heavier hydrocarbon liquids that are separated from the gas stream; such liquids include ethane, propane, isobutane, normal butane and natural gasoline.

•"NYMEX" means the New York Mercantile Exchange.

•"OPEC" means the Organization of Petroleum Exporting Countries.

•"Pioneer" or the "Company" means Pioneer Natural Resources Company and its subsidiaries.

•"Proved reserves" mean those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons ("LKH") as seen in a well penetration unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil ("HKO") elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month

within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

•"SEC" means the United States Securities and Exchange Commission.

•"U.S." means United States.

•"WTI" means West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil used as a benchmark in oil pricing.

•With respect to information on the working interest in wells, drilling locations and acreage, "net" wells, drilling locations and acres are determined by multiplying "gross" wells, drilling locations and acres by the Company's working interest in such wells, drilling locations or acres. Unless otherwise specified, wells, drilling locations and acreage statistics quoted herein represent gross wells, drilling locations or acres.

•All currency amounts are expressed in U.S. dollars.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions)


	September 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,325	$	631
Restricted cash	66		74

Accounts receivable:
Trade, net	662		1,032
Due from affiliates	—		3
Income taxes receivable	22		7
Inventories	191		205


Derivatives	49		32
Investment in affiliate	67		187
Other	38		20
Total current assets	2,420		2,191
Oil and gas properties, using the successful efforts method of accounting:
Proved properties	23,498		22,444
Unproved properties	572		584
Accumulated depletion, depreciation and amortization	(9,719)		(8,583)
Total oil and gas properties, net	14,351		14,445
Other property and equipment, net	1,603		1,632
Operating lease right-of-use assets	198		280


Goodwill	261		261

Other assets	144		258
	$	18,977	$	19,067

The financial information included as of September 30, 2020 has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS (continued)

(in millions, except share data)


	September 30, 2020		December 31, 2019
	(Unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	871	$	1,221
Due to affiliates	137		190
Interest payable	17		53
Income taxes payable	2		3
Current portion of long-term debt	140		450

Derivatives	51		12
Operating leases	99		136
Other	371		431
Total current liabilities	1,688		2,496
Long-term debt	3,148		1,839
Derivatives	14		8
Deferred income taxes	1,406		1,389
Operating leases	113		170
Other liabilities	954		1,046
Equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 175,462,969 and 175,057,889 shares issued as of September 30, 2020 and December 31, 2019, respectively	2		2
Additional paid-in capital	9,305		9,161
Treasury stock at cost: 11,059,909 and 9,511,248 shares as of September 30, 2020 and December 31, 2019, respectively	(1,235)		(1,069)
Retained earnings	3,582		4,025


Total equity	11,654		12,119
Commitments and contingencies
	$	18,977	$	19,067

The financial information included as of September 30, 2020 has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues and other income:
Oil and gas	$	922	$	1,235	$	2,617	$	3,567
Sales of purchased oil and gas	935		1,171		2,391		3,463
Interest and other income (loss), net	13		(222)		(145)		(42)
Derivative gain (loss), net	(57)		121		60		150
Gain (loss) on disposition of assets, net	2		20		7		(477)
	1,815		2,325		4,930		6,661
Costs and expenses:
Oil and gas production	163		227		506		667
Production and ad valorem taxes	63		86		182		223
Depletion, depreciation and amortization	393		438		1,243		1,271
Purchased oil and gas	998		1,125		2,598		3,184

Exploration and abandonments	16		11		35		46
General and administrative	64		72		180		246
Accretion of discount on asset retirement obligations	2		2		7		7
Interest	34		29		94		88
Other	98		32		273		390
	1,831		2,022		5,118		6,122
Income (loss) before income taxes	(16)		303		(188)		539
Income tax benefit (provision)	(4)		(72)		18		(127)


Net income (loss) attributable to common stockholders	$	(20)	$	231	$	(170)	$	412


Basic and diluted net income (loss) per share attributable to common stockholders	$	(0.12)	$	1.38	$	(1.03)	$	2.44


Basic and diluted weighted average shares outstanding	165		167		165		168


Dividends declared per share	$	0.55	$	0.44	$	1.65	$	0.76

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except share data and dividends per share)

(Unaudited)



	Shares Outstanding	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Total Equity
	(in thousands)
Balance as of December 31, 2019	165,547	$	2	$	9,161	$	(1,069)	$	4,025	$	12,119

Dividends declared ($0.55 per share)	—	—		—		—		(91)		(91)
Exercise of long-term incentive stock options	8	—		(1)		1		—		—

Purchases of treasury stock	(1,007)	—		—		(122)		—		(122)
Stock-based compensation costs:
Issued awards	316	—		—		—		—		—
Compensation costs included in net income	—	—		16		—		—		16
Net income	—	—		—		—		289		289
Balance as of March 31, 2020	164,864	2		9,176		(1,190)		4,223		12,211

Dividends declared ($0.55 per share)	—	—		—		—		(91)		(91)

Convertible senior notes:
Equity component	—	—		230		—		—		230
Capped call	—	—		(113)		—		—		(113)
Deferred tax provision	—	—		(25)		—		—		(25)

Purchases of treasury stock	(592)	—		—		(50)		—		(50)
Stock-based compensation costs:
Issued awards	4	—		—		—		—		—
Compensation costs included in net loss	—	—		17		—		—		17
Net loss	—	—		—		—		(439)		(439)
Balance as of June 30, 2020	164,276	2		9,285		(1,240)		3,693		11,740

Dividends declared ($0.55 per share)	—	—		—		—		(91)		(91)




Exercise of employee stock purchases	62	—		(1)		7		—		6
Purchases of treasury stock	(19)	—		—		(2)		—		(2)
Stock-based compensation costs:
Issued awards	84	—		—		—		—		—
Compensation costs included in net loss	—	—		21		—		—		21
Net loss	—	—		—		—		(20)		(20)
Balance as of September 30, 2020	164,403	$	2	$	9,305	$	(1,235)	$	3,582	$	11,654

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except share data and dividends per share)

(Unaudited)



	Shares Outstanding	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Total Equity
	(in thousands)
Balance as of December 31, 2018	169,499	$	2	$	9,062	$	(423)	$	3,470	$	12,111
Dividends declared ($0.32 per share)	—	—		—		—		(54)		(54)
Exercise of long-term incentive stock options	10	—		(1)		1		—		—
Purchases of treasury stock	(1,594)	—		—		(222)		—		(222)
Stock-based compensation costs:
Issued awards	507	—		—		—		—		—
Compensation costs included in net income	—	—		24		—		—		24
Net income	—	—		—		—		350		350
Balance as of March 31, 2019	168,422	2		9,085		(644)		3,766		12,209

Purchases of treasury stock	(1,349)	—		—		(202)		—		(202)
Stock-based compensation costs:
Issued awards	49	—		—		—		—		—
Compensation costs included in net loss	—	—		38		—		—		38
Net loss	—	—		—		—		(169)		(169)
Balance as of June 30, 2019	167,122	$	2	$	9,123	$	(846)	$	3,597	11,876
Dividends declared ($0.44 per share)	—	—		—		—		(73)		(73)
Exercise of long-term incentive stock options and employee stock purchases	54	—		—		6		—		6
Purchases of treasury stock	(1,619)	—		—		(203)		—		(203)
Stock-based compensation costs:
Issued awards	86	—		—		—		—		—
Compensation costs included in net income	—	—		19		—		—		19

Net income	—	—		—		—		231		231
Balance as of September 30, 2019	165,643	$	2	$	9,142	$	(1,043)	$	3,755	$	11,856

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(170)	$	412
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization	1,243		1,271

Impairment of inventory and other property and equipment	2		34
Exploration expenses, including dry holes	8		6
Deferred income taxes	(8)		127
(Gain) loss on disposition of assets, net	(7)		477
Loss on early extinguishment of debt	27		—
Accretion of discount on asset retirement obligations	7		7
Interest expense	34		4
Derivative-related activity	28		(116)
Amortization of stock-based compensation	54		81
Investment in affiliate valuation adjustment	119		22
South Texas contingent consideration valuation adjustment	42		61
South Texas deficiency fee obligation	69		—
Other	94		96
Change in operating assets and liabilities:
Accounts receivable	371		(47)
Inventories	13		(55)



Other assets	22		(15)
Accounts payable	(164)		1
Interest payable	(37)		(29)
Other liabilities	(201)		(50)
Net cash provided by operating activities	1,546		2,287
Cash flows from investing activities:
Proceeds from disposition of assets	58		82
Proceeds from investments	—		568
Purchase of investments	(1)		—
Additions to oil and gas properties	(1,297)		(2,380)
Additions to other assets and other property and equipment	(102)		(184)
Net cash used in investing activities	(1,342)		(1,914)
Cash flows from financing activities:
Proceeds from issuance of senior notes, net of discount	1,091		—
Proceeds from issuance of convertible senior notes	1,323		—
Purchase of derivatives related to issuance of convertible senior notes	(113)		—
Borrowing under credit facility	800		—
Repayment of credit facility	(800)		—
Repayment of senior notes, including tender offer premiums	(1,198)		—

Payments of other liabilities	(162)		(10)
Payments of financing fees, net	(36)		—
Purchases of treasury stock	(174)		(627)
Exercise of long-term incentive plan stock options and employee stock purchases	6		6
Dividends paid	(255)		(54)
Net cash provided by (used in) financing activities	482		(685)
Net increase (decrease) in cash, cash equivalents and restricted cash	686		(312)
Cash, cash equivalents and restricted cash, beginning of period	705		825
Cash, cash equivalents and restricted cash, end of period	$	1,391	$	513

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

NOTE 1. Organization and Nature of Operations

Pioneer Natural Resources Company ("Pioneer" or the "Company") is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. The Company is a large independent oil and gas exploration and production company that explores for, develops and produces oil, natural gas liquids ("NGLs") and gas in the Permian Basin in West Texas.

NOTE 2. Basis of Presentation

Presentation. In the opinion of management, the unaudited interim consolidated financial statements of the Company as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 include all adjustments and accruals, consisting only of normal, recurring adjustments and accruals necessary for a fair presentation of the results for the interim periods in conformity with generally accepted accounting principles in the United States ("GAAP"). The operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These unaudited interim consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Use of estimates in the preparation of financial statements. Preparation of the Company's unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of oil and gas properties is calculated using estimates of proved oil and gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of goodwill and proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of proved, probable and possible reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.

Impact of the COVID-19 Pandemic. A novel strain of the coronavirus ("COVID-19") surfaced in late 2019 and has spread around the world, including to the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The COVID-19 pandemic has significantly affected the global economy, disrupted global supply chains and created significant volatility in the financial markets. In addition, the COVID-19 pandemic has resulted in travel restrictions, business closures and other restrictions that have disrupted the demand for oil throughout the world and when combined with pressures on the global supply-demand balance for oil and related products, resulted in significant volatility in oil prices beginning in late February 2020. The length of this demand disruption is unknown, and there is significant uncertainty regarding the long-term impact of the effects of the COVID-19 pandemic to global oil demand, which has negatively impacted the Company's results of operations and led to a significant reduction in the Company's 2020 capital activities.

Adoption of new accounting standards. In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). Effective January 1, 2020, the Company adopted ASU 2016-13 prospectively. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments, including trade receivables. The amendment requires entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. The impact of the adoption of ASU 2016-13 was not material.

The Company is exposed to credit losses primarily through sales of oil, NGLs, gas and purchased oil and gas. The Company's expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on an aging of the accounts receivable balances and the financial condition of the Company's customers. The Company's

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company has considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic in determining its estimate of expected credit losses.

New accounting pronouncements. In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06"). ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. Additionally, this ASU amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method will no longer be available. Entities may adopt this ASU using either a full or modified retrospective approach, and it is effective for interim and annual reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods beginning after December 15, 2020. This ASU is applicable to the Company’s 0.25% convertible senior notes due 2025. The Company is assessing the impact the adoption of this ASU will have on its consolidated financial statements.

NOTE 3. Divestitures, Decommissioning and Restructuring Activities

Divestitures

•In May 2020, the Company completed the sale of certain vertical wells and approximately 1,500 undeveloped acres in Upton County of the Permian Basin to an unaffiliated third party for net cash proceeds of $6 million. The Company recorded a gain of $6 million associated with the sale.

•In July 2019, the Company completed the sale of certain vertical wells and approximately 1,400 undeveloped acres in Martin County of the Permian Basin to an unaffiliated third party for net cash proceeds of $27 million. The Company recorded a gain of $26 million associated with the sale.

•In June 2019, the Company completed the sale of certain vertical wells and approximately 1,900 undeveloped acres in Martin County of the Permian Basin to an unaffiliated third party for net cash proceeds of $38 million. The Company recorded a gain of $31 million associated with the sale.

•In May 2019, the Company completed the sale of its Eagle Ford assets and other remaining assets in South Texas (the "South Texas Divestiture") to an unaffiliated third party in exchange for total consideration having an estimated fair value of $210 million. The fair value of the consideration included (i) net cash proceeds of $2 million, (ii) $136 million in contingent consideration and (iii) a $72 million receivable associated with estimated deficiency fees to be paid by the buyer. The Company recorded a loss of $525 million associated with the sale.

Contingent Consideration. Per the terms of the purchase and sale agreement, the Company was entitled to receive contingent consideration based on future annual oil and NGL prices during each of the five years from 2020 to 2024. The Company revalued the contingent consideration using an option pricing model each reporting period prior to the three months ended September 30, 2020. In July 2020, the Company received cash proceeds of $49 million to fully satisfy the South Texas Divestiture contingent consideration. The Company recorded a noncash mark-to-market ("MTM") gain of $22 million and a noncash MTM loss of $42 million to interest and other income to adjust the contingent consideration to its estimated fair value during the three and nine months ended September 30, 2020, respectively. See Note 4, Note 5 and Note 13 for additional information.

Deficiency Fee Obligation. The Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC from January 2019 through July 2022. The Company determines the fair value of the deficiency fee obligation using a probability weighted present value model. The deficiency fee obligation is included in current or noncurrent liabilities in the consolidated balance sheets, based on the estimated timing of payments. During the nine months ended September 30, 2020, the Company recorded a charge of $69 million in other expense to increase the Company's forecasted deficiency fee payments as a result of a reduction in planned drilling activities by the buyer of the assets. The estimated remaining deficiency fee obligation

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

was $321 million as of September 30, 2020. See Note 4, Note 10 and Note 14 for additional information.

Deficiency Fee Receivable. The buyer is required to reimburse the Company for 18 percent of the deficiency fees paid under the transferred midstream agreements from January 2019 through July 2022. Such reimbursement will be paid by the buyer in installments beginning in 2023 through 2025. The Company determines the fair value of the deficiency fee receivable using a credit risk-adjusted valuation model. The deficiency fee receivable is included in noncurrent other assets in the consolidated balance sheets. See Note 4 for additional information.

Restricted Cash. As of September 30, 2020, the Company has $66 million deposited in an escrow account to be used to fund future deficiency fee payments. The escrow account balance is included in restricted cash in the consolidated balance sheets as of September 30, 2020. Beginning in 2021, the required escrow balance will decline to $50 million and, to the extent that there is any remaining balance after the payment of deficiency fees, the balance will become unrestricted and revert to the Company on March 31, 2023.

Decommissioning

In November 2018, the Company announced plans to close its sand mine located in Brady, Texas and transition its proppant supply requirements to West Texas sand sources. During the nine months ended September 30, 2019, the Company recorded $23 million of accelerated depreciation, $13 million of inventory and other property and equipment impairment charges and $12 million of sand mine closure-related costs. See Note 4 and Note 14 for additional information.

Restructuring

During the third quarter of 2020, the Company announced a corporate restructuring to reduce its staffing levels to correspond with a planned reduction in future activity levels. The restructuring resulted in approximately 300 employees being involuntarily separated from the Company in October 2020. The Company recorded $74 million of employee-related charges, including $3 million of noncash stock-based compensation expense related to the accelerated vesting of certain equity awards, in other expense in the consolidated statements of operations during the three and nine months ended September 30, 2020. See Note 8 and Note 14 for additional information.

In June 2020, the Company implemented changes to its well services business, including a staffing reduction of approximately 50 employees. The changes were made to more closely align the well services cost structure and headcount with the Company's reduction in expected activity levels as a result of the COVID-19 pandemic's impact on oil prices.

During 2019, the Company implemented a corporate restructuring program to align its cost structure with the needs of a Permian Basin-focused company. The restructuring occurred in three phases (collectively, the "2019 Corporate Restructuring Program") as follows:

•In March 2019, the Company made certain changes to its leadership and organizational structure, which included the early retirement and departure of certain officers of the Company,

•In April 2019, the Company adopted a voluntary separation program ("VSP") for certain eligible employees, and

•In May 2019, the Company implemented an involuntary separation program ("ISP").

The employee-related costs associated with restructuring activities were primarily recorded in other expense in the consolidated statements of operations. Obligations associated with employee-related charges are included in accounts payable - due to affiliates in the consolidated balance sheets. See Note 14 for additional information.

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

The changes in the Company's total employee-related obligations are as follows:


	Nine Months Ended September 30,
	2020		2019

	(in millions)

Beginning employee-related obligations	$	6	$	27


Additions (a)	72		133


Cash payments	(7)		(154)
Ending employee-related obligations	$	71	$	6

______________________

(a)Additions for the nine months ended September 30, 2020 primarily represent employee-related charges associated with the 2020 corporate restructuring of $74 million and the Company's staffing reduction in its well services business of $1 million. Additions for the nine months ended September 30, 2019 primarily represent employee-related charges associated with the 2019 Corporate Restructuring Program of $156 million. Additions exclude $3 million and $23 million of noncash stock based compensation expense for the nine months ended September 30, 2020 and September 30, 2019, respectively. See Note 14 for additional information.

NOTE 4. Fair Value Measurements

The Company determines fair value based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The three input levels of the fair value hierarchy are as follows:

•Level 1 – quoted prices for identical assets or liabilities in active markets.

•Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 – unobservable inputs for the asset or liability, typically reflecting management's estimate of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore, determined using model-based techniques, including discounted cash flow models.

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(Unaudited)

Assets and liabilities measured at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows:


	As of September 30, 2020
	Fair Value Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

	(in millions)
Assets:
Commodity price derivatives	$	—	$	49	$	—	$	49
Deferred compensation plan assets	68

Price	126.32	EPS	2
Shares	168	P/E	52
MCap	21,222	P/FCF	9
Net Debt	1,775	EBIT	627
TEV	22,997	TEV/EBIT	37
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-09-30	Filed 2020-11-06
10-Q	2020-06-30	Filed 2020-08-05
10-Q	2020-03-31	Filed 2020-05-08
10-K	2019-12-31	Filed 2020-02-24
10-Q	2019-09-30	Filed 2019-11-06
10-Q	2019-06-30	Filed 2019-08-09
10-Q	2019-03-31	Filed 2019-05-10
10-K	2018-12-31	Filed 2019-02-26
10-Q	2018-09-30	Filed 2018-11-09
10-Q	2018-06-30	Filed 2018-08-09
10-Q	2018-03-31	Filed 2018-05-04
10-K	2017-12-31	Filed 2018-02-20
10-Q	2017-09-30	Filed 2017-11-03
10-Q	2017-06-30	Filed 2017-08-01
10-Q	2017-03-31	Filed 2017-05-03
10-K	2016-12-31	Filed 2017-02-17
10-Q	2016-09-30	Filed 2016-11-02
10-Q	2016-06-30	Filed 2016-07-28
10-Q	2016-03-31	Filed 2016-04-28
10-K	2015-12-31	Filed 2016-02-19
10-Q	2015-09-30	Filed 2015-11-03
10-Q	2015-06-30	Filed 2015-08-07
10-Q	2015-05-07	Filed 2015-05-07
10-K	2014-12-31	Filed 2015-02-19
10-Q	2014-09-30	Filed 2014-11-04
10-Q	2014-06-30	Filed 2014-08-06
10-Q	2014-03-31	Filed 2014-05-09
10-K	2013-12-31	Filed 2014-02-27
10-Q	2013-09-30	Filed 2013-11-06
10-Q	2013-06-30	Filed 2013-08-06
10-Q	2013-03-31	Filed 2013-05-08
10-K	2012-12-31	Filed 2013-02-13
10-Q	2012-06-30	Filed 2012-08-07
10-Q	2012-03-31	Filed 2012-05-07
10-K	2011-12-31	Filed 2012-02-29
10-Q	2011-09-30	Filed 2011-11-04
10-Q	2011-06-30	Filed 2011-08-05
10-Q	2011-03-31	Filed 2011-05-10
10-K	2010-12-31	Filed 2011-02-25
10-Q	2010-06-30	Filed 2010-07-30
10-Q	2010-05-05	Filed 2010-05-06
10-K	2009-12-31	Filed 2010-02-26

8-K	2020-11-18
8-K	2020-11-04
8-K	2020-10-22
8-K	2020-10-20
8-K	2020-10-20
8-K	2020-10-12
8-K	2020-10-01
8-K	2020-09-09
8-K	2020-08-06
8-K	2020-08-04
8-K	2020-07-22
8-K	2020-05-21
8-K	2020-05-11
8-K	2020-05-11
8-K	2020-05-06
8-K	2020-05-06
8-K	2020-04-24
8-K	2020-04-06
8-K	2020-04-03
8-K	2020-03-04
8-K	2020-02-19
8-K	2020-02-05
8-K	2019-11-04
8-K	2019-10-21
8-K	2019-10-16
8-K	2019-08-06
8-K	2019-07-25
8-K	2019-06-19
8-K	2019-05-16
8-K	2019-05-06
8-K	2019-04-30
8-K	2019-04-01
8-K	2019-02-21
8-K	2019-02-13
8-K	2019-01-29
8-K	2018-11-12
8-K	2018-11-06
8-K	2018-10-24
8-K	2018-10-24
8-K	2018-09-17
8-K	2018-08-07
8-K	2018-07-31
8-K	2018-07-25
8-K	2018-06-18
8-K	2018-06-01
8-K	2018-05-17
8-K	2018-05-02
8-K	2018-04-17
8-K	2018-04-09
8-K	2018-02-27
8-K	2018-02-21
8-K	2018-02-06
8-K	2018-01-16
8-K	2018-01-09

EX-10.1	pxd-exx10120200930.htm
EX-31.1	pxd-exx31120200930.htm
EX-31.2	pxd-exx31220200930.htm
EX-32.1	pxd-exx32120200930.htm
EX-32.2	pxd-exx32220200930.htm

PXD 10Q Quarterly Report

Pioneer Natural Resources Earnings 2020-09-30