10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q / x / Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to ________ Commission File No. 1-13245 PIONEER NATURAL RESOURCES COMPANY (Exact name of Registrant as specified in its charter) Delaware 75-2702753 ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 Williams Square West, 5205 N. O'Connor Blvd., Irving, Texas 75039 ---------------------------------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code : (972) 444-9001 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 / x / No / / Number of shares of Common Stock outstanding as of July 31, 2000..... 99,256,386 PIONEER NATURAL RESOURCES COMPANY TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999.......................................... 3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2000 and 1999..................................... 4 Consolidated Statement of Stockholders' Equity for the six months ended June 30, 2000............................. 5 Consolidated Statements of Cash Flows for the three and six months ended June 30, 2000 and 1999.................... 6 Notes to Consolidated Financial Statements.................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 31 Item 4. Submission of Matters to a Vote of Security Holders........... 31 Item 6. Exhibits and Reports on Form 8-K.............................. 31 Signatures.................................................... 33 Exhibit Index................................................. 34 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) June 30, December 31, 2000 1999 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents................................ $ 38,269 $ 34,788 Accounts receivable: Trade, net............................................ 115,884 116,456 Affiliates............................................ 1,644 2,119 Inventories.............................................. 14,702 13,721 Deferred income taxes.................................... 6,900 5,800 Other current assets..................................... 9,029 10,252 ---------- ---------- Total current assets................................ 186,428 183,136 ---------- ---------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties..................................... 3,112,696 2,997,335 Unproved properties................................... 224,761 257,583 Accumulated depletion, depreciation and amortization..... (851,515) (751,956) ---------- ---------- 2,485,942 2,502,962 ---------- ---------- Deferred income taxes...................................... 82,300 83,400 Other property and equipment, net.......................... 28,239 43,006 Other assets, net.......................................... 150,296 116,969 ---------- ---------- $ 2,933,205 $ 2,929,473 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt..................... $ 327 $ 828 Accounts payable: Trade................................................. 69,060 86,442 Affiliates............................................ 341 426 Interest payable......................................... 38,257 36,045 Other current liabilities................................ 108,130 73,072 ---------- ---------- Total current liabilities........................... 216,115 196,813 ---------- ---------- Long-term debt, less current maturities.................... 1,702,662 1,745,108 Other noncurrent liabilities............................... 169,403 169,438 Deferred income taxes...................................... 39,200 43,500 Stockholders' equity: Preferred stock, $.01 par value; 100,000,000 shares authorized; one share issued and outstanding.......... - - Common stock, $.01 par value; 500,000,000 shares authorized; 100,920,391 and 100,876,789 shares issued as of June 30, 2000 and December 31, 1999, respectively.......................................... 1,009 1,009 Additional paid-in-capital............................... 2,348,701 2,348,448 Treasury stock, at cost; 1,268,183 and 537,206 shares as of June 30, 2000 and December 31, 1999, respectively.......................................... (16,691) (10,384) Accumulated deficit...................................... (1,576,175) (1,574,884) Accumulated other comprehensive income: Unrealized gain on available for sale securities...... 43,207 - Cumulative translation adjustment..................... 5,774 10,425 ---------- ---------- Total stockholders' equity.......................... 805,825 774,614 Commitments and contingencies.............................. $ 2,933,205 $ 2,929,473 ========== ==========
The financial information included as of June 30, 2000 has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 3 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Revenues: Oil and gas................................. $ 197,947 $ 174,231 $ 372,322 $ 321,382 Interest and other.......................... 5,186 2,804 8,941 48,777 Gain (loss) on disposition of assets, net... (4,779) (42,291) 3,593 (42,224) -------- -------- -------- -------- 198,354 134,744 384,856 327,935 -------- -------- -------- -------- Costs and expenses: Oil and gas production...................... 43,140 41,624 86,262 88,818 Depletion, depreciation and amortization.... 53,549 64,235 105,457 133,607 Impairment of oil and gas properties........ - 17,894 - 17,894 Exploration and abandonments................ 27,696 17,925 40,771 29,701 General and administrative.................. 6,963 10,188 16,722 20,437 Reorganization.............................. - 1,490 - 7,019 Interest.................................... 41,863 46,903 81,618 89,424 Other....................................... 30,486 9,601 44,899 18,252 -------- -------- -------- -------- 203,697 209,860 375,729 405,152 -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item.......................... (5,343) (75,116) 9,127 (77,217) Income tax benefit............................ 1,600 500 1,900 100 -------- -------- -------- -------- Income (loss) before extraordinary item....... (3,743) (74,616) 11,027 (77,117) Extraordinary item - loss on early extinguishment of debt, net of tax.......... (12,318) - (12,318) - -------- -------- -------- -------- Net loss...................................... (16,061) (74,616) (1,291) (77,117) Other comprehensive income (loss): Unrealized gain on available for sale securities............................... 11,465 - 43,207 - Translation adjustment...................... (4,189) 5,734 (4,651) 5,829 -------- -------- -------- -------- Comprehensive income (loss)................... $ (8,785) $ (68,882) $ 37,265 $ (71,288) ======== ======== ======== ======== Net loss per share: Basic: Income (loss) before extraordinary item.. $ (.04) $ (.74) $ .11 $ (.77) Extraordinary item....................... (.12) - (.12) - -------- -------- -------- -------- Net loss............................... $ (.16) $ (.74) $ (.01) $ (.77) ======== ======== ======== ======== Diluted: Income (loss) before extraordinary item.. $ (.04) $ (.74) $ .11 $ (.77) Extraordinary item....................... (.12) - (.12) - -------- -------- -------- -------- Net loss............................... $ (.16) $ (.74) $ (.01) $ (.77) ======== ======== ======== ======== Weighted average basic shares outstanding..... 99,683 100,300 99,923 100,300 ======== ======== ======== ========
The financial information included herein has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands) (Unaudited) Accumulated Other Common Comprehensive Income Stock Additional ----------------------- Total Shares Common Paid-in Treasury Accumulated Investment Translation Stockholders' Outstanding Stock Capital Stock Deficit Gains Adjustment Equity ----------- ------- ---------- -------- ----------- ---------- ----------- ------------- Balance as of January 1, 2000...... 100,340 $ 1,009 $2,348,448 $(10,384) $(1,574,884) $ - $ 10,425 $ 774,614 Stock options exercised.......... 43 - 253 - - - - 253 Treasury stock purchases......... (731) - - (6,307) - - - (6,307) Net loss......................... - - - - (1,291) - - (1,291) Other comprehensive income (loss): Unrealized gain on available for sale securities......... - - - - - 43,207 - 43,207 Translation adjustment........ - - - - - - (4,651) (4,651) ------- ------ -------- ------- --------- -------- ------- -------- Balance as of June 30, 2000........ 99,652 $ 1,009 $2,348,701 $(16,691) $(1,576,175) $ 43,207 $ 5,774 $ 805,825 ======= ====== ========= ======= ========== ======== ======= ========
The financial information included herein has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 5 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Cash flows from operating activities: Net loss........................................ $ (16,061) $ (74,616) $ (1,291) $ (77,117) Adjustments to reconcile net loss to net cash provided by operating activities: Depletion, depreciation and amortization..... 53,549 64,235 105,457 133,607 Impairment of oil and gas properties......... - 17,894 - 17,894 Exploration expenses, including dry holes.... 20,320 14,721 30,052 25,031 Deferred income taxes........................ (2,400) (500) (3,900) (600) (Gain) loss on disposition of assets, net.... 4,779 42,291 (3,593) 42,224 Extraordinary item, net of tax............... 12,318 - 12,318 - Other non-cash items......................... 32,612 11,611 50,276 (18,675) Changes in operating assets and liabilities: Accounts receivable.......................... 19,857 (1,996) 907 299 Inventories.................................. (2,130) (545) (2,320) 1,270 Other current assets......................... 2,644 1,292 1,995 1,119 Accounts payable............................. (697) 3,987 (14,460) (22,527) Interest payable............................. 10,724 14,936 2,212 3,846 Other current liabilities.................... (13,350) (4,222) (8,287) (8,992) -------- -------- -------- -------- Net cash provided by operating activities.. 122,165 89,088 169,366 97,379 -------- -------- -------- -------- Cash flows from investing activities: Proceeds from disposition of assets............. 8,975 264,282 28,522 269,432 Additions to oil and gas properties............. (52,221) (18,274) (112,255) (65,447) Other property dispositions, net................ 325 971 878 1,072 -------- -------- -------- -------- Net cash provided by (used in) investing activities..................... (42,921) 246,979 (82,855) 205,057 -------- -------- -------- -------- Cash flows from financing activities: Borrowings under long-term debt................. 845,836 12,123 876,675 319,340 Principal payments on long-term debt............ (896,970) (292,530) (928,677) (572,271) Payment of noncurrent liabilities............... (7,093) (9,810) (11,002) (22,737) Exercise of long-term incentive plan stock options................................. 205 - 253 - Purchase of treasury stock...................... (2,195) - (6,307) - Deferred loan fees/issuance costs............... (13,807) - (13,878) (6,891) -------- -------- -------- -------- Net cash used in financing activities...... (74,024) (290,217) (82,936) (282,559) -------- -------- -------- -------- Net increase in cash and cash equivalents......... 5,220 45,850 3,575 19,877 Effect of exchange rate changes on cash and cash equivalents................................ (87) (144) (94) 171 Cash and cash equivalents, beginning of period.... 33,136 33,563 34,788 59,221 -------- -------- -------- -------- Cash and cash equivalents, end of period.......... $ 38,269 $ 79,269 $ 38,269 $ 79,269 ======== ======== ======== ========
The financial information included herein has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 6 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) NOTE A. Organization and Nature of Operations Pioneer Natural Resources Company (the "Company") is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange and the Toronto Stock Exchange. The Company is an oil and gas exploration and production company with ownership interests in oil and gas properties located principally in the Mid Continent, Southwestern and onshore and offshore Gulf Coast regions of the United States and in Argentina, Canada and South Africa. NOTE B. Basis of Presentation In the opinion of management, the unaudited consolidated financial statements of the Company as of June 30, 2000 and for the three and six month periods ended June 30, 2000 and 1999 include all adjustments and accruals, consisting only of normal recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-K. NOTE C. Long-term Debt Senior notes. During April 2000, the Company issued $425.0 million of 9-5/8% Senior Notes Due April 1, 2010 (the "9-5/8% Senior Notes"). The 9-5/8% Senior Notes were issued at a discount of .353 percent and resulted in net proceeds to the Company, after underwriting discounts, commissions and costs of issuance, of $415.4 million. The net proceeds from the issuance of the 9-5/8% Senior Notes were used to reduce outstanding borrowings under the Company's revolving credit facility. The 9-5/8% Senior Notes are unsecured senior obligations of the Company, bear interest that is due semi-annually on April 1 and October 1, and contain various restrictive covenants, including restrictions on the incurrance of additional indebtedness and certain payments defined within the associated indenture. The principal and interest payments on the 9-5/8% Senior Notes are unconditionally guaranteed by Pioneer Natural Resources USA, Inc. ("Pioneer USA"). See Note K for a discussion of Pioneer USA debt guarantees and Consolidating Financial Statements. Credit facilities. On May 31, 2000, the Company entered into a $575.0 million credit agreement (the "Credit Agreement") with a syndication of banks (the "Banks"). The Credit Agreement replaced the Company's prior revolving credit facility that had a maturity date of August 7, 2002 (the "Prior Credit Facility"). Advances under the Credit Agreement bear interest, at the option of the Company, based on (a) a base rate equal to a base rate margin (the "Base Rate Margin") of 37.5 basis points plus the higher of the Bank of America, N.A. prime rate or a rate per annum based on the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System, plus 50 basis points, (b) a Eurodollar rate, substantially equal to the London Interbank Offered Rate ("LIBOR"), plus a Eurodollar margin (the "Eurodollar Margin") equal to 162.5 basis points, or (c) a fixed rate (for aggregate advances not exceeding $50 million) as quoted by the Banks pursuant to a request by the Company. Effective December 1, 2000, the Base Rate Margin will equal the Eurodollar Margin less 125 basis points and the Eurodollar Margin will be based on a grid of the Company's debt ratings and ratio of total debt to earnings before gain or loss on the disposition of assets; interest expense; income taxes; depreciation, depletion and amortization and amortization expense; exploration expense and other non-cash expenses (the "Total Leverage Ratio"). As 7 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) a result of the early extinguishment of the Prior Credit Facility, the Company recognized an extraordinary loss of $12.3 million, net of taxes, during the quarter ended June 30, 2000. The Credit Agreement contains certain restrictive covenants on the Company, including the maintenance of a Total Leverage Ratio not to exceed 4.00 to 1.00 through September 30, 2002 and 3.75 to 1.00, thereafter; maintenance of an annual ratio of the net present value of the Company's oil and gas properties to total debt of at least 1.25 to 1.00; a limitation on the Company's total debt; and, restrictions on certain payments. Interest rate swap agreements. During the quarter ended June 30, 2000, the Company entered into interest rate swap agreements to hedge the fair value of a portion of its fixed rate debt. The interest rate swap agreements are for an aggregate notional amount of $150 million of debt; commenced on April 19, 2000 and mature on April 15, 2005; require the counterparties to pay the Company a fixed annual rate of 8.875 percent on the notional amount; and, require the Company to pay the counterparties a variable annual rate on the notional amount equal to the three-month LIBOR plus a weighted average margin of 178.2 basis points. NOTE D. Commitments and Contingencies Legal actions. The Company is party to various legal actions incidental to its business, including, but not limited to, the proceedings described below. The majority of these lawsuits primarily involve claims for damages arising from oil and gas leases and ownership interest disputes. The Company believes that the ultimate disposition of these legal actions will not have a material adverse effect on the Company's consolidated financial position, liquidity, capital resources or future results of operations. The Company will continue to evaluate its litigation matters on a quarter-by- quarter basis and will adjust its litigation reserves as appropriate to reflect the then current status of litigation. Masterson. In February 1992, the current lessors of an oil and gas lease (the "Gas Lease") dated April 30, 1955, between R.B. Masterson et al., as lessor, and Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in Federal District Court in Amarillo, Texas, claiming that CIG had underpaid royalties due under the Gas Lease. Under the agreements with CIG, the Company, as successor to MESA Inc. ("Mesa"), has an entitlement to gas produced from the Gas Lease. In August 1992, CIG filed a third-party complaint against the Company for any such royalty underpayment which may be allocable to the Company. Plaintiffs alleged that the underpayment was the result of CIG's use of an improper gas sales price upon which to calculate royalties and that the proper price should have been determined pursuant to a "favored-nations" clause in a July 1, 1967, amendment to the Gas Lease. The plaintiffs also sought a declaration by the court as to the proper price to be used for calculating future royalties. The plaintiffs alleged royalty underpayments of approximately $500 million (including interest at 10 percent) dating from July 1, 1967. In March 1995, the court made certain pretrial rulings that eliminated approximately $400 million of the plaintiff's claims (which related to periods prior to October 1, 1989), but which also reduced a number of the Company's defenses. The Company and CIG filed stipulations with the court whereby the Company would have been liable for between 50 percent and 60 percent, depending on the time period covered, of an adverse judgment against CIG for post-February 1988 underpayments of royalties. On March 22, 1995, a jury trial began and on May 4, 1995, the jury returned its verdict. Among its findings, the jury determined that CIG had underpaid royalties for the period after September 30, 1989, in the amount of approximately $140,000. Although the plaintiffs argued that the "favored-nations" clause entitled them to be paid for all of their gas at the highest price voluntarily paid by CIG to any other lessor, the jury determined that the plaintiffs were estopped from claiming that the "favored-nations" clause provides for other than a pricing-scheme to pricing- scheme comparison. In light of this determination, and the plaintiff's stipulation that a 8 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) pricing-scheme to pricing-scheme comparison would not result in any "trigger prices" or damages, defendants asked the court for a judgment that plaintiffs take nothing. The court, on June 7, 1995, entered final judgment that plaintiffs recover no monetary damages. The plaintiffs filed a motion for a new trial on June 22, 1995. The court, on July 18, 1997, denied plaintiffs' motion. The plaintiffs have appealed to the Fifth Circuit Court of Appeals, where oral arguments were heard in December 1998. The Court's decision regarding this litigation could be announced at any time. On June 7, 1996, the plaintiffs filed a separate suit against CIG and the Company in state court in Amarillo, Texas, similarly claiming underpayment of royalties under the "favored-nations" clause, but based upon the above- described pricing-scheme to pricing-scheme comparison on a well-by-well monthly basis. The plaintiffs also claim underpayment of royalties since June 7, 1995, under the "favored-nations" clause based upon either the pricing-scheme to pricing-scheme method or their previously alleged higher price method. The Company believes it has several defenses to this action and intends to contest it vigorously. The Company has not yet determined the amount of damages, if any, that would be payable if such action was determined adversely to the Company. The federal court in the above-referenced first suit issued an order on July 29, 1996, which stayed the state suit pending the plaintiffs' resolution of the first suit. Based on the jury verdict and final judgment, the Company does not currently expect the ultimate resolution of either of these lawsuits to have a material adverse effect on its financial position or results of operations. Kansas ad valorem tax. The Natural Gas Policy Act of 1978 ("NGPA") allows a "severance, production or similar" tax to be included as an add-on, over and above the maximum lawful price for natural gas. Based on a Federal Energy Regulatory Commission ("FERC") ruling that Kansas ad valorem tax was such a tax, Mesa collected the Kansas ad valorem tax in addition to the otherwise maximum lawful price. The FERC's ruling was appealed to the United States Court of Appeals for the District of Columbia ("D.C. Circuit"), which held in June 1988 that the FERC failed to provide a reasoned basis for its findings and remanded the case to the FERC for further consideration. On December 1, 1993, the FERC issued an order reversing its prior ruling, but limiting the effect of its decision to Kansas ad valorem taxes for sales made on or after June 28, 1988. The FERC clarified the effective date of its decision by an order dated May 18, 1994. The order clarified that the effective date applies to tax bills rendered after June 28, 1988, not sales made on or after that date. Numerous parties filed appeals on the FERC's action in the D.C. Circuit. Various natural gas producers challenged the FERC's orders on two grounds: (1) that the Kansas ad valorem tax, properly understood, does qualify for reimbursement under the NGPA; and (2) the FERC's ruling should, in any event, have been applied prospectively. Other parties challenged the FERC's orders on the grounds that the FERC's ruling should have been applied retroactively to December 1, 1978, the date of the enactment of the NGPA and producers should have been required to pay refunds accordingly. The D.C. Circuit issued its decision on August 2, 1996, which holds that producers must make refunds of all Kansas ad valorem tax collected with respect to production since October 4, 1983, as opposed to June 28, 1988. Petitions for rehearing were denied on November 6, 1996. Various natural gas producers subsequently filed a petition for writ of certiori with the United States Supreme Court seeking to limit the scope of the potential refunds to tax bills rendered on or after June 28, 1988 (the effective date originally selected by the FERC). Williams Natural Gas Company filed a cross-petition for certiori seeking to impose refund liability back to December 1, 1978. Both petitions were denied on May 12, 1997. The Company and other producers filed petitions for adjustment with the FERC on June 24, 1997. The Company is seeking waiver or set-off from FERC with respect to that portion of the refund associated with (i) non-recoupable 9 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) royalties, (ii) non-recoupable Kansas property taxes based, in part, upon the higher prices collected, and (iii) interest for all periods. On September 10, 1997, FERC denied this request, and on October 10, 1997, the Company and other producers filed a request for rehearing. Pipelines were given until November 10, 1997 to file claims on refunds sought from producers and refunds totaling approximately $30 million were made against the Company. The Company is unable at this time to predict the final outcome of this matter or the amount, if any, that will ultimately be refunded. As of June 30, 2000 and December 31, 1999, the Company had set aside $32.2 million and $31.3 million, respectively, including accrued interest, in an escrow account and had corresponding obligations for this litigation recorded in other current liabilities in the accompanying Consolidated Balance Sheets. NOTE E. Commodity Hedge Derivatives The Company utilizes various commodity swap and option contracts to (i) reduce the effect of the volatility of price changes on the commodities the Company produces and sells, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) lock in prices to protect the economics related to certain capital projects. Crude oil. All material sales contracts governing the Company's oil production are tied directly or indirectly to the New York Mercantile Exchange ("NYMEX") prices. The following table sets forth the Company's outstanding oil hedge contracts as of June 30, 2000: Yearly Third Fourth Outstanding Quarter Quarter Average ------------- ------------- ------------- Daily oil production: 2000 - Swap Contracts Volume (Bbl)............... 478 435 457 Price per Bbl.............. $ 15.76 $ 15.76 $ 15.76 2000 - Collar Contracts* Volume (Bbl)............... 7,898 7,977 7,938 Price per Bbl.............. $17.48-$20.71 $17.50-$20.74 $17.47-$20.70
---------- * Concurrent with the Company's purchase of the year 2000 collar contracts, the Company sold year 2000 put contracts to the counterparties for average notional contract volumes of 7,000 Bbls per day at a weighted average index price of $14.29 per Bbl. Consequently, if the weighted average year 2000 index price falls below $14.29 per Bbl, the Company will receive the weighted average index price for the notional contract volumes, plus $3.18 per Bbl. The counterparties have the contractual right to extend contracts for notional volumes of 5,000 Bbls per day through year 2001 at weighted average per Bbl strike prices of $17.00-$20.09 for the collar contracts and $14.00 for the put contracts. In addition to the oil hedge contracts set forth above, the Company has deferred oil hedge losses of $15.4 million that will be recognized during the following periods: $5.9 million during the third quarter of 2000, $5.9 million during the fourth quarter of 2000 and $3.6 million during 2001. The Company reports average oil prices per Bbl including the effects of oil quality, gathering and transportation costs and the net effect of the oil hedges. The following table sets forth the Company's oil prices, both realized and reported, and the net effects of settlements of oil price hedges to revenue: 10 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) Three months ended Six months ended June 30, June 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Average price reported per Bbl............... $ 22.59 $ 14.90 $ 22.51 $ 13.32 Average price realized per Bbl............... $ 27.28 $ 15.02 $ 27.52 $ 12.97 Addition (reduction) to revenue (in millions) $ (14.3) $ (.5) $ (31.0) $ 3.0
Natural Gas. The Company employs a policy of hedging gas production based on the index price upon which the gas is actually sold in order to mitigate the basis risk between NYMEX prices and actual index prices. The following table sets forth the Company's outstanding gas hedge contracts as of June 30, 2000 (prices included herein represent the Company's weighted average index price per MMBtu): Yearly First Second Third Fourth Outstanding Quarter Quarter Quarter Quarter Average ----------- ------------ ----------- ----------- ----------- Daily gas production: 2000 - Collar Contracts* Volume (Mcf)................ 58,223 55,571 57,227 Index price per MMBtu....... $2.01-$2.58 $2.02-$2.61 $2.01-$2.59 2002 - Swap Contracts Volume (Mcf)................ 10,000 10,000 10,000 10,000 10,000 Index price per MMBtu....... $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42
--------------- * Concurrent with the Company's purchase of the year 2000 collar contracts, the Company sold year 2000 put contracts to the counterparties for an equal volume at an average index price of $1.73 per MMBtu. Consequently, if the weighted average year 2000 index price falls below $1.73 per MMBtu, the Company will receive the weighted average index price for the notional contract volumes, plus approximately $.28 per MMBtu. In addition to the hedge contracts shown above, the Company has deferred gas hedge losses of $4.8 million that will be recognized during the following periods: $1.1 million during the third quarter of 2000, $1.2 million during the fourth quarter of 2000 and $2.5 million during 2001. Certain counterparties have the contractual right to sell 2001, 2002 and 2003 swap contracts to the Company for notional contract volumes of 49,233; 12,500; and 10,000 Mcf per day, respectively, at weighted average index prices of $2.21, $2.52, and $2.58 per MMBtu, respectively. Certain counterparties also have the contractual right to sell 2001 and 2002 collar contracts with associated put contracts to the Company for notional contract volumes of 54,482 and 60,000 Mcf per day, respectively, at weighted average index prices of $2.09-$2.71 and $2.25-$2.64 per MMBtu, respectively, for the collar contracts, and $1.80 and $1.95 per MMBtu, respectively, for the associated put contracts. The Company reports average gas prices per Mcf including the effects of Btu content, gathering and transportation costs, gas processing and shrinkage and the net effect of gas hedges. The following table sets forth the Company's gas prices, both realized and reported, and the net effects of settlements of gas price hedges to revenue: Three months ended Six months ended June 30, June 30, ----------------- ----------------- 2000 1999 2000 1999 ------- ------- ------- ------- Average price reported per Mcf............... $ 2.60 $ 1.88 $ 2.29 $ 1.80 Average price realized per Mcf............... $ 2.73 $ 1.80 $ 2.37 $ 1.65 Addition (reduction) to revenue (in millions) $ (4.7) $ 3.6 $ (5.5) $ 12.9
11 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) NOTE F. Other Revenue In December 1998, the Company announced the sale of an exclusive and irrevocable option to a third party to purchase, on or before March 31, 1999, certain oil and gas properties of the Company. The third party was unable to complete the purchase of the Company's oil and gas properties. In payment for the option and related liquidation damages, the third party paid $41.8 million of aggregate fees and damages to the Company during 1998 and 1999. Interest and other revenue in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month periods ended June 30, 1999 include other revenue of $.5 million and $41.8 million, respectively, associated with these transactions. Other non-cash items in the accompanying Consolidated Statement of Cash Flows for the three and six month periods ended June 30, 1999 include $.5 million and $41.8 million reductions, respectively, for these non-cash components of earnings. NOTE G. Asset Divestitures During the quarter ended June 30, 2000, the Company sold an office building in Midland, Texas that previously served as its headquarters. The Company sold the building for gross proceeds of $4.5 million and recognized a loss of $5.3 million on the sale of the building during the quarter ended June 30, 2000. Additionally, during the three and six month periods ended June 30, 2000, the Company realized gains on the sale of a portion of its investment in common stock of a third party entity of $.4 million and $8.7 million, respectively. See Note H for a discussion of the sales of the investment in common stock. During the three and six month periods ended June 30, 1999, the Company completed the divestiture of certain United States and Canadian oil and gas producing properties, gas plants and other assets for net cash proceeds of $264.3 million and $269.4 million, respectively, and recognized net losses from the dispositions of $42.3 million and $42.2 million during the respective three and six month periods ended June 30, 1999. The net cash proceeds from the 1999 asset divestitures were used to reduce the Company's outstanding indebtedness. NOTE H. Mark-to-Market Financial Instruments Available for sale securities. On December 31, 1999, the Company owned 2,376.923 shares of Prize Energy Corp. ("Prize") six percent convertible preferred stock ("Prize Preferred") having a liquidation preference of $30.0 million. Prior to February 9, 2000, Prize was a closely held, non-public entity and the fair value of the Prize Preferred was not readily determinable. On February 9, 2000, Prize merged with Vista Energy Resources Inc. and the common stock of the merged Prize entity began to publicly trade on the American Stock Exchange. Additionally, on February 9, 2000, the Company's Prize Preferred was exchanged for 3,984,197 shares of Prize Series A 6% Convertible Preferred Stock ("Prize Senior A Preferred"), which was subsequently increased to 4,018,161 shares as a result of associated in- kind dividends. On March 31, 2000, the Company and Prize converted the Company's 4,018,161 shares of Prize Senior A Preferred to 4,018,161 shares of Prize common stock ("Prize Common") and sold to Prize 1,380,446 shares of the Prize Common for $18.6 million. During the three months ended June 30, 2000, the Company sold an additional 24,500 shares of Prize Common for $.5 million. Associated with these transactions, the Company recognized an $8.7 million gain on the Prize Common disposition that is included in the accompanying Statement of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2000. The fair value of the Company's remaining investment in 2,613,215 shares of Prize Common was $62.7 million as of June 30, 2000, representing a $43.2 million unrealized gain on the Company's remaining investment in the Prize Common. The Company has classified its investment in Prize Common as available for sale securities and, accordingly, recognized unrealized gains on the securities in other comprehensive income in the accompanying Consolidated Statement of Operations and Comprehensive Income 12 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) (Loss) of $11.5 million and $43.2 million during the three and six month periods ended June 30, 2000. These securities will continue to be marked-to-market at the end of each reporting period. The related effects on the Company's future comprehensive income (loss) could be significant. Non-hedge commodity derivatives. During the first quarter of 1999, the Company sold NYMEX crude oil call contracts for 8,000 barrels per day of oil, at a weighted average strike price of $17.15 per barrel, for a nine month period ending on December 31, 1999. Additionally, the Company sold calls that provide the counter party an option to exercise call provisions on 10,000 barrels per day of oil, at a strike price of $20.00 per barrel, for a twenty-one month period that began on April 1, 1999 and ends on December 31, 2000, or to exercise call provisions over that same time period on 100,000 MMBtu per day of natural gas, at a weighted average price of $2.75 per MMBtu. These contracts do not qualify for hedge accounting treatment. Other expenses in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month periods ended June 30, 2000, include noncash mark-to- market increases to the liabilities recognized on these contracts of $23.9 million and $38.0 million, respectively. For the three and six month periods ended June 30, 1999, other expenses include mark-to-market increases to the liabilities recognized on these contracts of $5.6 million and $8.2 million, respectively. The Company's non-hedge commodity derivatives will continue to be marked-to-market until they mature. The related effects on the Company's results of operations for the remainder of 2000 could be significant. The Company is a party to certain BTU swap agreements that do not qualify as hedges. Other expenses in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month periods ended June 30, 2000 include mark-to-market increases to the liabilities recognized for the BTU swap agreements of $3.4 million and $2.7 million, respectively. During the three and six month periods ended June 30, 1999, the Company recorded a $1.2 million mark-to-market decrease and a $.9 million increase, respectively, to other expenses and the BTU swap agreement liabilities. These contracts will continue to be marked-to-market at the end of each reporting period during their respective lives. The related effects on the Company's future results of operations could be significant. Foreign currency agreements. The Company has a series of forward foreign exchange swap agreements to exchange Canadian dollars for United States dollars at future dates for a fixed amount of the first currency. As these contracts do not qualify as hedges, the Company recorded mark-to-market increases to the recognized liabilities associated with these agreements during the three and six month periods ended June 30, 2000 of $1.1 million and $1.3 million, respectively; and for the three and six month periods ended June 30, 1999, decreases of $3.4 million and $5.9 million, respectively. These contracts will continue to be marked-to-market until they mature at various dates during the fourth quarter of 2000. The related effects on the Company's future results of operations could be significant. Trading securities. During the fourth quarter of 1998, the Company received three million shares of common stock of a non-affiliated, publicly traded entity in partial payment of option fees. During the three and six month periods ended June 30, 1999, the market quoted value of the three million shares of common stock declined by $7.0 million and $11.9 million, respectively. Accordingly, other expenses in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and six month periods ended June 30, 1999 include these mark-to- market decreases to the carrying value of the investment. The investment in the common stock of the non-affiliated entity was sold by the Company for $.7 million during the three months ended June 30, 1999. 13 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) NOTE I. Reorganization During 1998, the Company announced its intentions to reorganize its operations to realize additional operational and administrative efficiencies. During the three and six month periods ended June 30, 1999, the Company recorded relocation and certain other costs of $1.5 million and $7.0 million, respectively, relating to the reorganization. NOTE J. Geographic Operating Segment Information The Company has operations in only one industry segment, that being the oil and gas exploration and production industry; however, the Company is organizationally structured along geographic operating segments, or regions. The Company has reportable operations in the United States, Argentina and Canada. The following tables provide the Company's interim geographic operating segment data. Geographic operating segment income tax benefits (provisions) have been determined based on statutory rates existing in the various tax jurisdictions where the Company has oil and gas producing activities. The "Headquarters and other" table column includes revenues and expenses that are not routinely included in the earnings measures internally reported to management on a geographic operating segment basis. United Other Headquarters Consolidated States Argentina Canada Foreign and other Total -------- --------- -------- --------- ------------ ------------ (in thousands) Three months ended June 30, 2000: Oil and gas revenue................... $149,894 $ 33,357 $ 14,696 $ - $ - $ 197,947 Interest and other.................... - - - - 5,186 5,186 Gain (loss) on disposition of asset... 33 - 245 - (5,057) (4,779) ------- ------- ------- -------- ------- -------- 149,927 33,357 14,941 - 129 198,354 ------- ------- ------- -------- ------- -------- Production costs...................... 36,222 5,596 1,322 - - 43,140 Depletion, depreciation and amortization....................... 29,811 13,112 6,790 - 3,836 53,549 Exploration and abandonments.......... 11,346 11,847 2,306 2,197 - 27,696 General and administrative............ - - - - 6,963 6,963 Interest.............................. - - - - 41,863 41,863 Other ................................ - - - - 30,486 30,486 ------- ------- ------- -------- ------- -------- 77,379 30,555 10,418 2,197 83,148 203,697 ------- ------- ------- -------- ------- -------- Income (loss) before income taxes and extraordinary item............. 72,548 2,802 4,523 (2,197) (83,019) (5,343) Income tax benefit (provision)........ (25,392) (981) (2,017) 769 29,221 1,600 ------- ------- ------- -------- ------- -------- Net income (loss) before extraordinary item................. $ 47,156 $ 1,821 $ 2,506 $ (1,428) $(53,798) $ (3,743) ======= ======= ======= ======== ======= ======== Three months ended June 30, 1999: Oil and gas revenue................... $134,002 $ 19,803 $ 20,426 $ - $ - $ 174,231 Interest and other.................... - - - - 2,804 2,804 Loss on disposition of assets......... (40,339) - (1,897) - (55) (42,291) ------- ------- ------- -------- ------- -------- 93,663 19,803 18,529 - 2,749 134,744 ------- ------- ------- -------- ------- -------- Production costs...................... 31,275 3,924 6,425 - - 41,624 Depletion, depreciation and amortization....................... 41,516 9,508 8,619 - 4,592 64,235 Impairment of oil and gas properties.. 17,894 - - - - 17,894 Exploration and abandonments.......... 11,422 4,067 1,433 1,003 - 17,925 General and administrative............ - - - - 10,188 10,188 Reorganization........................ - - - - 1,490 1,490 Interest.............................. - - - - 46,903 46,903 Other ................................ - - - - 9,601 9,601 ------- ------- ------- -------- ------- -------- 102,107 17,499 16,477 1,003 72,774 209,860 ------- ------- ------- -------- ------- -------- Income (loss) before income taxes..... (8,444) 2,304 2,052 (1,003) (70,025) (75,116) Income tax benefit (provision)........ 2,955 (806) (915) 351 (1,085) 500 ------- ------- ------- -------- ------- -------- Net income (loss)..................... $ (5,489) $ 1,498 $ 1,137 $ (652) $(71,110) $ (74,616) ======= ======= ======= ======== ======= ========
14 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) United Other Headquarters Consolidated States Argentina Canada Foreign and other Total -------- --------- -------- --------- ------------ ------------ (in thousands) Six months ended June 30, 2000: Oil and gas revenue................... $282,336 $ 64,475 $ 25,511 $ - $ - $ 372,322 Interest and other.................... - - - - 8,941 8,941 Gain (loss) on disposition of asset... 23 - 252 - 3,318 3,593 ------- ------- ------- ------- -------- -------- 282,359 64,475 25,763 - 12,259 384,856 ------- ------- ------- ------- -------- -------- Production costs...................... 70,634 10,996 4,632 - - 86,262 Depletion, depreciation and amortization....................... 60,800 24,292 12,519 - 7,846 105,457 Exploration and abandonments.......... 16,296 18,017 2,753 3,705 - 40,771 General and administrative............ - - - - 16,722 16,722 Interest.............................. - - - - 81,618 81,618 Other ................................ - - - - 44,899 44,899 ------- ------- ------- ------- -------- -------- 147,730 53,305 19,904 3,705 151,085 375,729 ------- ------- ------- ------- -------- -------- Income (loss) before income taxes and extraordinary item............. 134,629 11,170 5,859 (3,705) (138,826) 9,127 Income tax benefit (provision)........ (47,120) (3,910) (2,613) 1,297 54,246 1,900 ------- ------- ------- ------- -------- -------- Net income (loss) before extraordinary item................. $ 87,509 $ 7,260 $ 3,246 $ (2,408) $ (84,580) $ 11,027 ======= ======= ======= ======= ======== ======== Six months ended June 30, 1999: Oil and gas revenue................... $251,475 $ 34,350 $ 35,557 $ - $ - $ 321,382 Interest and other.................... - - - - 48,777 48,777 Loss on disposition of assets......... (40,339) - (1,897) - 12 (42,224) ------- ------- ------- ------- -------- -------- 211,136 34,350 33,660 - 48,789 327,935 ------- ------- ------- ------- -------- -------- Production costs...................... 68,794 8,317 11,707 - - 88,818 Depletion, depreciation and amortization....................... 90,503 17,709 16,200 - 9,195 133,607 Impairment of oil and gas properties.. 17,894 - - - - 17,894 Exploration and abandonments.......... 19,279 4,886 3,244 2,292 - 29,701 General and administrative............ - - - - 20,437 20,437 Reorganization........................ - - - - 7,019 7,019 Interest.............................. - - - - 89,424 89,424 Other ................................ - - - - 18,252 18,252 ------- ------- ------- ------- -------- -------- 196,470 30,912 31,151 2,292 144,327 405,152 ------- ------- ------- ------- -------- -------- Income (loss) before income taxes..... 14,666 3,438 2,509 (2,292) (95,538) (77,217) Income tax benefit (provision)........ (5,133) (1,203) (1,119) 802 6,753 100 ------- ------- ------- ------- -------- -------- Net income (loss)..................... $ 9,533 $ 2,235 $ 1,390 $ (1,490) $ (88,785) $ (77,117) ======= ======= ======= ======= ======== ========
NOTE K. Pioneer USA Pioneer USA is a wholly-owned subsidiary of the Company that has fully and unconditionally guaranteed certain debt securities of the Company. In accordance with practices accepted by the SEC, the Company has prepared Consolidating Financial Statements in order to quantify the assets of Pioneer USA as a subsidiary guarantor. The following Consolidating Balance Sheets, Consolidating Statements of Operations and Comprehensive Income (Loss) and Consolidating Statements of Cash Flows present financial information for Pioneer Natural Resources Company as the Parent on a stand-alone basis (carrying any investments in subsidiaries under the equity method), financial information for Pioneer USA on a stand-alone basis (carrying any investment in non-guarantor subsidiaries under the equity method), the non-guarantor subsidiaries of the Company on a consolidated basis, the consolidation and elimination entries necessary to arrive at the information for the Company on a consolidated basis, and the financial information for the Company on a consolidated basis. Pioneer USA is not restricted from making distributions to the Company. 15 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) CONSOLIDATING BALANCE SHEET As of June 30, 2000 (in thousands) (Unaudited) ASSETS Non- Pioneer Guarantor The Parent USA Subsidiaries Eliminations Company ---------- ----------- ------------ ------------ ---------- Current assets: Cash and cash equivalents.............. $ - $ 33,612 $ 4,657 $ $ 38,269 Other current assets................... 2,119,983 (1,362,127) (609,697) 148,159 --------- ----------- --------- --------- Total current assets.............. 2,119,983 (1,328,515) (605,040) 186,428 --------- ---------- --------- --------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties................... - 2,261,061 851,635 3,112,696 Unproved properties................. - 18,983 205,778 224,761 Accumulated depletion, depreciation and amortization..................... - (674,769) (176,546) (851,515) --------- ---------- --------- --------- - 1,605,075 880,867 2,485,942 --------- ---------- --------- --------- Deferred income taxes.................... 82,300 - - 82,300 Other property and equipment, net........ - 22,004 6,235 28,239 Other assets, net........................ 19,761 88,997 41,538 150,296 Investment in subsidiaries............... 200,835 107,141 611 (308,587) - --------- ---------- --------- --------- $2,422,879 $ 494,702 $ 324,211 $2,933,205 ========= ========== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt... $ - $ 327 $ - $ $ 327 Other current liabilities.............. 38,097 149,608 28,083 215,788 --------- --------- --------- --------- Total current liabilities......... 38,097 149,935 28,083 216,115 --------- --------- --------- --------- Long-term debt, less current maturities.. 1,702,662 - - 1,702,662 Other noncurrent liabilities............. - 136,891 32,512 169,403 Deferred income taxes.................... - - 39,200 39,200 Stockholders' equity..................... 682,120 207,876 224,416 (308,587) 805,825 Commitments and contingencies............ --------- ---------- --------- --------- $2,422,879 $ 494,702 $ 324,211 $2,933,205 ========= ========== ========= =========
CONSOLIDATING BALANCE SHEET As of December 31, 1999 (in thousands) ASSETS Non- Pioneer Guarantor The Parent USA Subsidiaries Eliminations Company ---------- ----------- ------------ ------------ ---------- Current assets: Cash and cash equivalents.............. $ 5 $ 22,699 $ 12,084 $ $ 34,788 Other current assets................... 2,160,134 (1,455,442) (556,344) 148,348 --------- ---------- --------- --------- Total current assets.............. 2,160,139 (1,432,743) (544,260) 183,136 --------- ---------- --------- --------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties................... - 2,200,173 797,162 2,997,335 Unproved properties................. - 24,267 233,316 257,583 Accumulated depletion, depreciation and amortization..................... - (614,402) (137,554) (751,956) --------- ---------- --------- --------- - 1,610,038 892,924 2,502,962 --------- ---------- --------- ---------- Deferred income taxes.................... 83,400 - - 83,400 Other property and equipment, net........ - 28,144 14,862 43,006 Other assets, net........................ 13,293 58,117 45,559 116,969 Investment in subsidiaries............... 190,293 161,061 - (351,354) - --------- ---------- --------- --------- $2,447,125 $ 424,617 $ 409,085 $2,929,473 ========= ========== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt... $ - $ 828 $ - $ $ 828 Other current liabilities.............. 36,115 120,857 39,013 195,985 --------- ---------- --------- --------- Total current liabilities......... 36,115 121,685 39,013 196,813 --------- ---------- --------- --------- Long-term debt, less current maturities.. 1,745,108 - - 1,745,108 Other noncurrent liabilities............. - 137,848 31,590 169,438 Deferred income taxes.................... - - 43,500 43,500 Stockholders' equity..................... 665,902 165,084 294,982 (351,354) 774,614 Commitments and contingencies............ --------- ---------- --------- --------- $2,447,125 $ 424,617 $ 409,085 $2,929,473 ========= ========== ========= =========
16 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the Six Months Ended June 30, 2000 (in thousands) (Unaudited) Non- Consolidated Pioneer Guarantor Income The Parent USA Subsidiaries Tax Benefit Eliminations Company -------- --------- ------------ ------------ ------------ ---------- Revenues: Oil and gas......................... $ - $ 269,500 $ 102,822 $ - $ $ 372,322 Interest and other.................. 18 4,882 4,041 - 8,941 Gain on disposition of assets, net.. - 7,341 (3,748) - 3,593 ------- -------- --------- -------- --------- 18 281,723 103,115 - 384,856 ------- -------- --------- -------- --------- Costs and expenses: Oil and gas production.............. - 69,275 16,987 - 86,262 Depletion, depreciation and amortization...................... - 64,751 40,706 - 105,457 Exploration and abandonments........ - 18,360 22,411 - 40,771 General and administrative.......... 22 11,936 4,764 - 16,722 Interest............................ (24,002) 74,288 31,332 - 81,618 Equity income from subsidiaries..... 13,016 (433) - - (12,583) - Other............................... - 43,174 1,725 - 44,899 ------- -------- --------- -------- --------- (10,964) 281,351 117,925 - 375,729 ------- -------- --------- -------- --------- Income (loss) before income taxes and extraordinary item............... 10,982 372 (14,810) 9,127 Income tax benefit..................... - - 1,855 45 1,900 ------- -------- --------- -------- --------- Net income (loss) before extraordinary item................... 10,982 372 (12,955) 45 11,027 Extraordinary item - loss on early extinguishment of debt, net of tax... (12,318) - - - (12,318) ------- -------- --------- -------- --------- Net income (loss)...................... (1,336) 372 (12,955) 45 (1,291) Other comprehensive income (loss): Unrealized gain on available for sale securities................... - 43,207 - - 43,207 Translation adjustment.............. - - (4,651) - (4,651) ------- -------- --------- -------- --------- Comprehensive income (loss)............ $ (1,336) $ 43,579 $ (17,606) $ 45 $ 37,265 ======= ======== ========= ======== =========
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS For the Six Months Ended June 30, 1999 (in thousands) (Unaudited) Non- Consolidated Pioneer Guarantor Income The Parent USA Subsidiaries Tax Benefit Eliminations Company -------- --------- ------------ ------------ ------------ ---------- Revenues: Oil and gas......................... $ - $ 232,882 $ 88,500 $ - $ $ 321,382 Interest and other.................. 11 44,123 4,643 - 48,777 Gain on disposition of assets, net.. - (9,322) (32,902) - (42,224) ------- -------- --------- -------- --------- 11 267,683 60,241 - 327,935 ------- -------- --------- -------- --------- Costs and expenses: Oil and gas production.............. - 65,607 23,211 - 88,818 Depletion, depreciation and amortization...................... - 88,986 44,621 - 133,607 Impairment of oil and gas properties........................ - 17,894 - - 17,894 Exploration and abandonments........ - 19,793 9,908 - 29,701 General and administrative.......... 536 14,293 5,608 - 20,437 Reorganization...................... - 7,019 - - 7,019 Interest............................ (16,675) 78,161 27,938 - 89,424 Equity (income) loss from subsidiaries...................... 92,699 (758) - - (91,941) - Other............................... 568 22,628 (4,944) - 18,252 ------- -------- --------- -------- --------- 77,128 313,623 106,342 - 405,152 ------- -------- --------- -------- --------- Loss before income taxes............... (77,117) (45,940) (46,101) (77,217) Income tax (provision) benefit......... - - 594 (494) 100 ------- -------- --------- -------- --------- Net loss............................... (77,117) (45,940) (45,507) (494) (77,117) Other comprehensive income: Translation adjustment.............. - - 5,829 - 5,829 ------- -------- -------- -------- --------- Comprehensive loss..................... $(77,117) $ (45,940) $ (39,678) $ (494) $ (71,288) ======= ======== ========= ======== =========
17 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2000 (in thousands) (Unaudited) Non- Pioneer Guarantor The Parent USA Subsidiaries Company --------- --------- ------------ ---------- Cash flows from operating activities: Net cash provided by operating activities..... $ 71,428 $ 59,414 $ 38,524 $ 169,366 -------- -------- -------- --------- Cash flows from investing activities: Proceeds from disposition of assets........... - 22,622 5,900 28,522 Additions to oil and gas properties........... - (58,391) (53,864) (112,255) Other property (additions) dispositions, net.. - (2,451) 3,329 878 -------- -------- -------- --------- Net cash used in investing activities...... - (38,220) (44,635) (82,855) -------- -------- -------- --------- Cash flows from financing activities: Borrowings under long-term debt............... 876,675 - - 876,675 Principal payments on long-term debt.......... (928,176) (501) - (928,677) Payment of noncurrent liabilities............. - (9,780) (1,222) (11,002) Exercise of long-term incentive plan stock options.............................. 253 - - 253 Purchase of treasury stock.................... (6,307) - - (6,307) Deferred loan fees/issuance costs............. (13,878) - - (13,878) -------- -------- -------- --------- Net cash used in financing activities...... (71,433) (10,281) (1,222) (82,936) -------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents.................................. (5) 10,913 (7,333) 3,575 Effect of exchange rate changes on cash and cash equivalents.................... - - (94) (94) Cash and cash equivalents, beginning of period.......................... 5 22,699 12,084 34,788 -------- -------- -------- --------- Cash and cash equivalents, end of period.................................... $ - $ 33,612 $ 4,657 $ 38,269 ======== ======== ======== =========
CONSOLIDATING STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 1999 (in thousands) (Unaudited) Non- Pioneer Guarantor The Parent USA Subsidiaries Company --------- --------- ------------ ---------- Cash flows from operating activities: Net cash provided by (used in) operating activities................... $ (32,267) $(156,606) $ 286,252 $ 97,379 -------- -------- -------- --------- Cash flows from investing activities: Proceeds from disposition of assets........... - 234,428 35,004 269,432 Additions to oil and gas properties........... - (42,093) (23,354) (65,447) Other property (additions) dispositions, net.. - (2,316) 3,388 1,072 -------- -------- -------- --------- Net cash provided by investing activities..................... - 190,019 15,038 205,057 -------- -------- -------- --------- Cash flows from financing activities: Borrowings under long-term debt............... 319,048 - 292 319,340 Principal payments on long-term debt.......... (283,049) (696) (288,526) (572,271) Payment of noncurrent liabilities............. - (19,332) (3,405) (22,737) Deferred loan fees/issuance costs............. (6,891) - - (6,891) -------- -------- -------- --------- Net cash provided by (used in) financing activities............................... 29,108 (20,028) (291,639) (282,559) -------- -------- -------- --------- Net decrease in cash and cash equivalents.................................. (3,159) 13,385 9,651 19,877 Effect of exchange rate changes on cash and cash equivalents.................... - - 171 171 Cash and cash equivalents, beginning of period.......................... 3,161 37,932 18,128 59,221 -------- -------- -------- --------- Cash and cash equivalents, end of period.................................... $ 2 $ 51,317 $ 27,950 $ 79,269 ======== ======== ======== =========
18 PIONEER NATURAL RESOURCES COMPANY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations(1) Financial Performance The Company's financial performance during the three and six month periods ended June 30, 2000 was highlighted by significant increases in operating cash flows; further reductions in outstanding borrowings; and, a substantial enhancement of the Company's financial flexibility and liquidity through the issuance of $425 million of 9- 5/8% Senior Notes (the "9-5/8% Senior Notes") due April 1, 2010 and the replacement of the Company's prior credit facility (the "Prior Credit Facility") due August 7, 2002 with a new $575 million credit agreement (the "Credit Agreement") due March 1, 2005 (see "Capital Commitments, Capital Resources and Liquidity", below). These results have allowed the Company to increase its capital expenditures budget for 2000 to $290 million from the $250 million budget originally established (see "Drilling Highlights - Budgeted capital expenditures", below). Primarily as a result of favorable commodity prices, continuation of the Company's cost containment strategy and increases in Argentine production volumes (see "Results of Operations", below), the Company's net cash provided by operating activities grew to $122.2 million and $169.4 million during the three and six month periods ended June 30, 2000, respectively, representing increases of 37 percent and 74 percent, as compared to net cash provided by operating activities of $89.1 million and $97.4 million for the same respective periods in 1999. During the three and six month periods ended June 30, 2000, the Company used its net cash provided by operating activities to fund additions to oil and gas properties, to reduce outstanding indebtedness by $51.1 million and $52.0 million, respectively, and for other general corporate needs. The Company's reported results for the three and six month periods ended June 30, 2000 include net losses of $16.1 million ($.16 per share) and $1.3 million ($.01 per share) for the three and six month periods ended June 30, 2000, respectively, as compared to net losses of $74.6 million ($.74 per share) and $77.1 million ($.77 per share) for the same respective periods in 1999. During the three months ended June 30, 2000, the positive impacts of favorable commodity prices and cost reductions (see "Trends and Uncertainties" and "Results of Operations", below) were offset by $28.5 million of derivative mark-to-market charges to other costs and expenses (see "Results of Operations - Other costs and expenses", below), a $4.8 million loss on the disposition of assets primarily associated with the sale of an office building (see "Results of Operations - Gain (loss) on disposition of assets", below) and a $12.3 million extraordinary item - loss on early extinguishment of debt (see "Capital Commitments, Capital Resources and Liquidity - Capital resources", below). The Company's results for the six months ended June 30, 2000 were significantly impacted by $42.0 million of derivative mark-to-market charges to other costs and expenses; a $3.6 million gain on the disposition of assets, including an $8.7 million gain on the sale of a portion of the Company's investment in the common stock of a non- affiliated entity; and, the $12.3 million extraordinary item - loss on early extinguishment of debt. The net losses for the three and six months ended June 30, 1999 include $42.3 million and $42.2 million, respectively, of net losses from the divestment of certain United States and Canadian oil and gas properties, gas plants and other assets. The Company strives to maintain its outstanding indebtedness at a moderate level in order to provide sufficient financial flexibility to fund future opportunities. The Company's total book capitalization at June 30, 2000 was $2.5 billion, consisting of total debt of $1.7 billion and stockholders' equity of $.8 billion. Debt as a percentage of total book capitalization was 68 percent at June 30, 2000, as compared to 69 percent at December 31, 1999. The Company intends to continue reducing its outstanding indebtedness during 2000 and 2001 through the use of funds generated by the individual or combined sources of operating activities and asset dispositions. Drilling Highlights During the first six months of 2000, the Company spent $112.3 million on capital projects, including $71.9 million for development activities, $32.5 million for exploration activities and $7.9 million on acquisitions. The Company completed 122 development wells and 28 exploratory wells, plugged and abandoned five development wells and eight exploratory wells, and temporarily abandoned six development wells. As of June 30, 2000, the Company had 26 development wells and seven exploratory wells in progress. 19 Domestic. The Company expended $49.9 million during the first six months of 2000 on drilling activities in the Gulf Coast, Permian Basin and Mid Continent areas of the United States. Gulf Coast area. In the Gulf Coast area, the Company expended $32.0 million of drilling capital during the first six months of 2000, successfully completed three exploratory wells and three development wells, plugged and abandoned one exploratory well and one development well, and began drilling nine wells that remain in progress on June 30, 2000. The Company's successful completions included the Devil's Tower prospect on Mississippi Canyon 773 and the Aconcagua appraisal well on Mississippi Canyon 305. The Mississippi Canyon 773 well was drilled to a total depth of 15,625 feet and encountered a significant number of hydrocarbon-bearing sands. The Company has a 15.8 percent working interest in the discovery. The Company has drilled one successful appraisal well on the Devil's Tower prospect that extended the field into an adjacent fault block and confirmed commercial quantities of proved reserves. A sidetrack well was also successful and further delineated the accumulation. The Aconcagua appraisal well was drilled to a total depth of 14,113 feet and encountered over 250 net feet of gas pay. The Company has a 25 percent working interest in the discovery. During July 2000, the Company also announced a new pool gas discovery on its Fiji prospect on Brazos A-7 in the Big Hum trend offshore the Texas Coast. The Fiji prospect well is flowing at a rate of 8 MMcf per day from a secondary objective at 12,300 feet. The deeper, primary objective sands were present but non- productive. The Company's unsuccessful Gulf Coast area exploratory wells include the South Louisiana Amoco Fee, that was an onshore prospect that was abandoned during the second quarter of 2000, and an offshore Miocene prospect well that was determined to be unsuccessful during the third quarter of 2000. Associated with the offshore Miocene prospect well, approximately $5.8 million of third quarter 2000 dry hole costs will be recognized by the Company. The Company has a 50 percent working interest in the Fiji prospect. In the East Texas Bossier field, the Company currently has four drilling rigs contracted and operating, with a fifth to be added in August. Permian Basin area. In the Permian Basin area, the Company expended $15.0 million of drilling capital during the first six months of 2000 and successfully completed 54 development wells, of which 23 were in progress at December 31, 1999. During the first six months of 2000, the wells drilled in the Permian Basin area were primarily located in the Company's core Spraberry field, where the Company currently has seven drilling rigs contracted and operating. As of June 30, 2000, the Company has nine development wells in progress in the Spraberry field. Mid Continent area. In the Mid Continent area, the Company expended $2.9 million of drilling capital during the first six months of 2000, successfully completed 33 development wells, 14 of which were in progress at December 31, 1999, and temporarily abandoned six development wells. The Company's development drilling in the Mid Continent area is focused on West Panhandle gas prospects, where the Company currently has two drilling rigs contracted and operating. As of June 30, 2000, the Company has four development wells in progress in the Mid Continent area. Argentina. In Argentina, the Company expended $23.0 million of drilling capital during the first six months of 2000, successfully completed 31 wells, 14 of which were exploratory wells and 17 of which were development wells, and plugged and abandoned four exploratory wells and two development wells. Included in the first six months well completions were four exploratory wells and one development well that were in progress at December 31, 1999. During February 2000, the Company announced its first discovery on new Neuquen Basin acreage acquired during 1999. The Borde Colorado 1006 well was drilled in the Al Sur de la Dorsal block, where the Company has a 100 percent working interest, on a structure defined by 3-D seismic. The well was drilled to a depth of approximately 1,500 meters and initially flowed at a rate of 450 barrels of oil per day. The Company currently has four drilling rigs contracted and operating in Argentina. As of June 30, 2000, the Company has two exploratory wells and five development wells in progress in Argentina. Canada. In Canada, the Company expended $26.3 million of drilling capital during the first six months of 2000, successfully completed 17 development wells and 12 exploratory wells, of which three exploratory wells were in progress at December 31, 1999, and plugged and abandoned two development wells and two exploratory wells. During the first quarter of 2000, the Company completed its annual winter drilling program in the Chinchaga, North Chinchaga and Martin Creek areas that are only accessible to drilling operations during the winter. Additionally, the Company installed new pipeline infrastructure in field extension areas that have follow-up drilling scheduled for next winter and increased compressor capacity to accommodate production from new wells. 20 Africa. In South Africa and Gabon, the Company expended $5.2 million during the first six months of 2000, which was primarily incurred to participate in the third appraisal well on the Sable oil field project. The appraisal well encountered a thin oil column in an accumulation separate from the main Sable field formation. A 3-D seismic survey is planned to further establish the areal extent of the Western extension of this reservoir. The Company has scheduled one additional exploratory well to be spud in South Africa during the third quarter of 2000. Budgeted capital expenditures. The Company is experiencing stronger than anticipated operating cash flows during 2000 as a result of the favorable commodity price environment. In response thereto, the Company has revised its 2000 capital expenditures budget to $290 million from the $250 million budget originally established. Approximately 25 percent of the budget will be expended on exploration activities and 75 percent on exploitation and development activities. Events, Trends and Uncertainties Commodity prices. The oil and gas prices that the Company reports are based on the market prices received for the commodities adjusted by the results of the Company's hedging activities. Historically, worldwide oil and gas prices have been extremely volatile and subject to significant changes in response to real and perceived conditions in world politics, weather patterns and other fundamental supply and demand variables. During the first quarter of 1999, the Organization of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting nations reduced their oil export volumes. The export volume reductions initiated by OPEC and other crude oil exporting nations, and strong North American natural gas market fundamentals have sustained a favorable oil and gas commodity price environment through 1999 and into the third quarter of 2000. No assurances can be given as to the duration of the current commodity price environment. The benchmark daily average NYMEX West Texas Intermediate closing price increased 62 percent during the three months ended June 30, 2000, in comparison with the three months ended June 30, 1999. The benchmark daily average NYMEX Henry Hub closing price increased 61 percent during the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. To mitigate the impact of changing prices on the Company's results of operations, cash flows and financial condition, the Company from time to time enters into commodity derivative contracts as hedges against oil and gas price risk (see Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements"). Market sensitive financial instruments. The Company is a party to various financial instruments that, by their terms, cause the Company to be at risk from future changes in commodity prices, interest and foreign exchange rates, and other market sensitivities. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for specific information concerning market risk associated with financial instruments that the Company is a party to. Accounting for derivatives. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain qualifications are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency- denominated forecasted transaction. In June 1999, the FASB issued Statement of Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - and amendment of FASB Statement 133" ("SFAS 137"). SFAS 137 defers the effective date for SFAS 133 to fiscal years beginning after June 15, 2000. 21 The Company intends to adopt the provisions of SFAS 133 effective on January 1, 2001. The Company currently records its derivative instruments that do not qualify for hedge accounting treatment at fair market value. Upon the adoption of SFAS 133, the Company will record all of its derivative instruments at fair market value, as assets or liabilities in the Company's Consolidated Balance Sheet, based on market quoted values and the Company's portfolio of derivative instruments as of January 1, 2001. Subsequent to the adoption of the provisions of SFAS 133, the Company will adjust the carrying values of all of its derivative instruments to fair market value on an ongoing basis. The initial adoption of the provisions of SFAS 133 and the ongoing valuation of the Company's portfolio of derivative instruments are expected to add an element of volatility to the Company's financial position and results of operations, measured under generally accepted accounting principles. The Company is unable at this time to predict the market quoted values that will exist for its derivative instruments on January 1, 2001. Results of Operations Oil and gas revenues. Revenues from oil and gas operations totaled $197.9 million and $372.3 million for the three and six month periods ended June 30, 2000, respectively, compared to $174.2 million and $321.4 million for the same respective periods in 1999. The increase in revenues is reflective of commodity price increases which more than offset decreased production volumes resulting from the 1999 asset dispositions. The following table provides volume and average price statistics for the Company during the three and six month periods ended June 30, 2000 and 1999: Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Production: Oil (MBbls)................... 3,040 4,346 6,203 8,883 NGLs (MBbls).................. 2,140 2,383 4,203 4,861 Gas (MMcf).................... 34,716 45,712 67,403 89,426 Total (MBOE).................. 10,966 14,348 21,640 28,648 Average daily production: Oil (Bbls).................... 33,404 47,759 34,082 49,076 NGLs (Bbls)................... 23,520 26,184 23,093 26,858 Gas (Mcf)..................... 381,490 502,331 370,349 494,065 Total (BOE)................... 120,505 157,665 118,900 158,278 Average prices: Oil (per Bbl): United States............... $ 20.86 $ 14.75 $ 20.43 $ 13.44 Argentina................... $ 27.38 $ 16.95 $ 28.40 $ 13.99 Canada...................... $ 25.35 $ 14.02 $ 27.28 $ 12.21 Worldwide................... $ 22.59 $ 14.90 $ 22.51 $ 13.32 NGLs (per Bbl): United States............... $ 18.12 $ 9.87 $ 18.48 $ 8.75 Argentina................... $ 23.58 $ 7.80 $ 21.72 $ 7.19 Canada...................... $ 20.99 $ 10.70 $ 21.67 $ 9.03 Worldwide................... $ 18.37 $ 9.86 $ 18.68 $ 8.72 Gas (per Mcf): United States............... $ 3.24 $ 2.16 $ 2.76 $ 2.01 Argentina................... $ 1.20 $ 1.11 $ 1.16 $ 1.10 Canada...................... $ 2.55 $ 1.72 $ 2.26 $ 1.67 Worldwide................... $ 2.60 $ 1.88 $ 2.29 $ 1.80
As is discussed above, oil and gas revenues for the three and six months ended June 30, 2000 were significantly impacted by commodity price increases. As compared to the three months ended June 30, 1999, the average oil price for the three months ended June 30, 2000 increased 52 percent; the average NGL price increased 86 percent; and the average gas price increased 28 percent. As compared to the six months ended June 30, 1999, the average oil price for the six months ended June 30, 2000 increased 69 percent; the average NGL price increased 114 percent; and the average gas price increased 27 percent. 22 On a BOE basis, production decreased by 24 percent for each of the three and six month periods ended June 30, 2000, as compared to the same periods in 1999. During the three and six month periods ended June 30, 2000, as compared to the same periods in 1999, production declined on a BOE basis by 26 percent and 27 percent in the United States and by 49 percent and 20 percent in Canada, where the Company completed asset dispositions during 1999; while production in Argentina increased by 11 percent in each respective period. Hedging activities The oil and gas prices that the Company reports are based on the market price received for the commodities adjusted by the results of the Company's hedging activities. The Company utilizes commodity derivative contracts (swaps, futures and options) in order to (i) reduce the effect of the volatility of price changes on the commodities the Company produces and sells, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) lock in prices to protect the economics related to certain capital projects. See Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for information regarding the Company's hedging activities. Interest and other revenue. During the three and six months ended June 30, 2000, the Company recorded interest and other revenue of $5.2 million and $8.9 million, respectively, as compared to $2.8 million and $48.8 million, respectively, during the same periods in 1999. Other revenue during the first six months of 1999 includes $41.3 million of option fees received by the Company from a third party. See Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for a discussion of transactions that gave rise to the 1999 option fee revenue. Gain (loss) on disposition of assets. During the three and six months ended June 30, 2000, the Company recorded a loss on the disposition of assets of $4.8 million and a gain on the disposition of assets of $3.6 million, respectively, as compared to net losses of $42.3 million and $42.2 million during the same periods in 1999. The loss recognized during the three months ended June 30, 2000, is primarily associated with the sale of an office building in Midland, Texas that previously served as the Company's headquarters. During the first quarter of 2000, the Company recorded an $8.3 million gain from the sale of a portion of the Company's investment in common stock of a publicly traded entity. During the three and six month periods ended June 30, 1999, the Company completed the divestiture of certain United States and Canadian oil and gas producing properties, gas plants and other assets for net cash proceeds of $264.3 million and $269.4 million, respectively, and recognized net losses from the dispositions of $42.3 million and $42.2 million, respectively. The net cash proceeds from the 1999 asset divestitures were used to reduce outstanding indebtedness. See Notes G and H of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Company's 1999 and 2000 asset divestitures and the investment in the common stock of the public traded entity. Production costs. During the three and six month periods ended June 30, 2000, total production costs per BOE averaged $3.93 and $3.99, respectively, representing increases of $1.03 and $.89 per BOE, respectively, as compared to production costs per BOE during the same periods in 1999. The increase in production costs per BOE during the three months ended June 30, 2000, as compared to the same period in 1999, is comprised of a $.78 per BOE increase in lease operating expense; a $.29 per BOE increase in production taxes; and a $.04 per BOE decrease in workover costs. As compared to the six months ended June 30, 1999, the increase in total production costs during the six months ended June 30, 2000 is comprised of a $.44 per BOE increase in lease operating expenses; a $.35 per BOE increase in production taxes; and a $.10 per BOE increase in workover costs. Per BOE lease operating expenses increased during 2000 primarily as a result of increases in field fuel costs related to higher natural gas prices. The increase in per BOE production taxes during 2000 was caused by increases in oil and gas commodity prices. 23 Three months ended Six months ended June 30, June 30, ------------------ ----------------- 2000 1999 2000 1999 ------ ------ ------ ------ (per BOE) Lease operating expense........... $ 3.20 $ 2.42 $ 3.15 $ 2.71 Production taxes.................. .67 .38 .67 .32 Workover costs.................... .06 .10 .17 .07 ----- ----- ----- ----- Total production costs...... $ 3.93 $ 2.90 $ 3.99 $ 3.10 ===== ===== ===== =====
Depletion expense. Depletion expense per BOE was $4.53 and $4.51 during the three and six month periods ended June 30, 2000, respectively, as compared to $4.16 and $4.34 during the same respective periods in 1999. The increase in depletion expense per BOE during 2000 is primarily associated with decreases in lower cost basis United States production relative to combined Argentine and Canadian production. Exploration and abandonments/geological and geophysical costs. Exploration and abandonments/geological and geophysical costs increased to $27.7 million and $40.8 million during the three and six month periods ended June 30, 2000, respectively, from $17.9 million and $29.7 million during the same respective periods in 1999. The increases are largely the result of United States Gulf Coast area geological and geophysical costs that are supportive of future exploratory drilling; dry hole costs in the United States Gulf Coast area and the Argentine Rio Grande Sur, Aquada Villanueva and Al Norte de la Dorsal areas; and Argentine unproved leasehold abandonments associated with the exploratory dry holes. The following table provides the Company's geological and geophysical costs, exploratory dry hole expense, lease abandonments expense and other exploration expense for the three and six month periods ended June 30, 2000 and 1999: United Other States Argentina Canada Foreign Total ------- --------- ------ ------- -------- (in thousands) Three months ended June 30, 2000: Geological and geophysical costs..... $ 6,831 $ 1,086 $ 274 $ 2,197 $ 10,388 Exploratory dry holes................ 3,366 2,669 873 - 6,908 Leasehold abandonments and other..... 1,149 8,092 1,159 - 10,400 ------ ------ ----- ------ ------- $11,346 $11,847 $2,306 $ 2,197 $ 27,696 ====== ====== ===== ====== ======= Three months ended June 30, 1999: Geological and geophysical costs..... $ 3,975 $ 352 $ (126) $ 984 $ 5,185 Exploratory dry holes................ 5,871 3,608 191 65 9,735 Leasehold abandonments and other..... 1,576 107 1,368 (46) 3,005 ------ ------ ----- ------ ------- $11,422 $ 4,067 $1,433 $ 1,003 $ 17,925 ====== ====== ===== ====== ======= Six months ended June 30, 2000: Geological and geophysical costs..... $10,490 $ 1,870 $ 539 $ 3,698 $ 16,597 Exploratory dry holes................ 3,657 4,180 860 - 8,697 Leasehold abandonments and other..... 2,149 11,967 1,354 7 15,477 ------ ------ ----- ------ ------- $16,296 $18,017 $2,753 $ 3,705 $ 40,771 ====== ====== ===== ====== ======= Six months ended June 30, 1999: Geological and geophysical costs..... $ 8,151 $ 1,104 $ 39 $ 1,950 $ 11,244 Exploratory dry holes................ 8,245 3,656 925 334 13,160 Leasehold abandonments and other..... 2,883 126 2,280 8 5,297 ------ ------ ----- ------ ------- $19,279 $ 4,886 $3,244 $ 2,292 $ 29,701 ====== ====== ===== ====== =======
24 General and administrative expense. General and administrative expense was $7.0 million and $16.7 million for the three and six months ended June 30, 2000, respectively, as compared to $10.2 million and $20.4 million for the same periods in 1999, representing decreases of 31 percent and 18 percent, respectively. On a per BOE basis, general and administrative expense was $.71 during each of the three and six month periods ended June 30, 1999, as compared to $.63 and $.77 during the three and six months ended June 30, 2000. Reorganization costs for the three and six month periods ended June 30, 1999, totaled $1.5 million and $7.0 million, respectively. During 1998 and 1999, the Company consolidated its six domestic operating divisions; relocated most of its administrative services to Dallas, Texas; closed its regional offices in Corpus Christi, Texas; Houston, Texas and Oklahoma City, Oklahoma; and, eliminated approximately 350 employee positions. The Company does not expect to recognize any additional reorganization charges during 2000. Interest expense. Interest expense for the three and six months ended June 30, 2000 was $41.9 million and $81.6 million, respectively, as compared to $46.9 million and $89.4 million, respectively, for the same periods in 1999. The $5.0 million and $7.8 million decreases in interest expense during the three and six month periods ended June 30, 2000, as compared to the same periods in 1999, are reflective of decreases of $421.9 million and $424.4 million, respectively, in the Company's average debt outstanding due to the application of net cash provided by 2000 operating activities and to 1999 net proceeds from asset dispositions, partially offset by basis point increases of 83 and 127, respectively, in the Company's weighted average interest rate on debt. During the three and six month periods ended June 30, 2000 and 1999, the Company was a party to interest rate swap agreements that hedge a portion of the Company's fixed rate debt. During the three month periods ended June 30, 2000 and 1999, the interest rate swap agreements decreased the Company's interest expense by $.2 million and $.3 million, respectively. The interest rate swap agreements decreased the Company's interest expense by $.2 million and $.8 million during the six month periods ended June 30, 2000 and 1999, respectively. Other costs and expenses. Other costs and expenses for the three and six month periods ended June 30, 2000 were $30.5 million and $44.9 million, respectively, compared to $9.6 million and $18.3 million for the same respective periods in 1999. The increase in other costs and expenses is primarily attributable to fluctuations in mark-to-market provisions on financial instruments. Mark-to-market provisions during the three and six month periods ended June 30, 2000 included increases in the liabilities associated with non-hedge commodity call contracts of $23.9 million and $38.0 million, respectively; increases in the liabilities associated with the Company's BTU swap agreements of $3.4 million and $2.7 million, respectively; and, increases in the liabilities associated with forward foreign currency swap agreements of $1.1 million and $1.3 million, respectively. During the three and six month periods ended June 30, 1999, mark-to- market provisions included decreases of $7.0 million and $11.9 million, respectively, in the fair value of the Company's investment in three million shares of a non-affiliated entity; increases in the liabilities associated with non-hedge commodity call contracts of $5.6 million and $8.2 million, respectively; a decrease in the liabilities associated with the Company's BTU swap agreements of $1.2 million during the three months ended June 30, 1999, and an increase of $.9 million during the six months ended June 30, 1999; and, decreases of $3.4 million and $5.9 million, respectively, in the liabilities associated with forward foreign currency swap agreements. See Note H of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information pertaining to the Company's financial instruments that are recorded at fair value. Investments and non-hedge derivative contracts are marked-to-market at the end of each reporting period as long as the Company maintains an ownership in the investment or the non-hedge derivative contract has not been liquidated or matured. The related effects on the Company's future results of operations and comprehensive income (loss) could be significant. Income tax provisions (benefits). During the three month periods ended June 30, 2000 and 1999, the Company recognized income tax benefits of $1.6 million and $1.9 million, respectively, as compared to tax benefits of $.5 million and $.1 million for the three and six month periods ended June 30, 1999, respectively. The Company's income tax benefits for the three and six month periods ended June 30, 2000 are associated with the tax attributes of the Company's operations in Argentina. Due to continuing uncertainties regarding the likelihood that certain of the Company's net operating loss carryforwards and other credit carryforwards may expire unused, the Company has established valuation reserves to reduce the carrying value of its deferred tax assets. The Company's deferred tax valuation reserves are reduced when the Company's financial results establish that deferred tax assets previously reserved will be used prior to their expiration. 25 Extraordinary item - loss on early extinguishment of debt. During the second quarter of 2000, the Company replaced its Prior Credit Facility with the Credit Agreement. Associated therewith, the Company recognized a $12.3 million extraordinary loss, comprised of deferred costs associated with the Prior Credit Facility. See Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding this transaction. Capital Commitments, Capital Resources and Liquidity Capital commitments. The Company's primary needs for cash are for exploration, development and acquisitions of oil and gas properties, repayment of principal and interest on outstanding indebtedness and working capital obligations. The Company's cash expenditures for additions to oil and gas properties totaled $112.3 million during the first half of 2000. This amount includes $7.9 million for the acquisition of prospects and properties and $104.4 million for development and exploratory drilling. Drilling expenditures during the first half of 2000 included $50.0 million in the United States, $26.3 million in Canada, $23.0 in Argentina and $5.2 million in other international areas. See "Drilling Highlights", above, for a specific discussion of capital investments made during the first half of 2000. Funding for the Company's working capital obligations is provided by internally-generated cash flow. Funding for the repayment of principal and interest on outstanding debt may be provided by any combination of internally- generated cash flows, proceeds from the disposition of non-core assets or alternative financing sources as discussed in "Capital resources" below. Capital resources. The Company's primary capital resources are net cash provided by operating activities, proceeds from financing activities and proceeds from asset dispositions. The Company expects that its capital resources will be sufficient to fund its remaining capital commitments in 2000 and allow for further reductions in debt during the remainder of 2000. Operating activities. Net cash provided by operating activities was $122.2 million and $169.4 million during the three and six months ended June 30, 2000, respectively, as compared to net cash provided by operating activities of $89.1 million and $97.4 million for the same periods in 1999. The increase in net cash provided by operating activities is primarily attributable to increases in commodity prices and reductions in cash costs (see "Oil and gas revenues," above). Financing activities. The Company had an outstanding balance under its Credit Agreement at June 30, 2000 of $377.0 million (including outstanding, undrawn letters of credit of $27.0 million), leaving approximately $198.0 million of unused borrowing capacity immediately available. During the second quarter of 2000, the Company issued the 9-5/8% Senior Notes and replaced its Prior Credit Facility that was to mature on August 7, 2002, with the Credit Agreement that has a March 1, 2005 maturity. See Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the 9-5/8% Senior Notes and the Credit Agreement. As the Company pursues its strategy, it may utilize various financing sources, including fixed and floating rate debt, convertible securities, preferred stock or common stock. The Company may also issue securities in exchange for oil and gas properties, stock or other interests in other oil and gas companies or related assets. Additional securities may be of a class preferred to common stock with respect to such matters as dividends and liquidation rights and may also have other rights and preferences as determined by the Company's Board of Directors. Asset dispositions. During the three and six months ended June 30, 2000, proceeds from asset dispositions totaled $9.0 million and $28.5 million, respectively, as compared to $264.3 million and $269.4 million for the same periods in 1999. The primary source of proceeds from asset dispositions during the three months ended June 30, 2000 was the sale of an office building in Midland, Texas. During the six months ended June 30, 2000, the sale of the Midland office building and the sale of 1,404,946 shares of Prize Common for 26 $19.1 million were the primary sources of the Company's proceeds from asset dispositions. The proceeds from these dispositions were used to reduce the Company's outstanding bank indebtedness and for general working capital purposes. Liquidity. At June 30, 2000, the Company had $38.3 million of cash and cash equivalents on hand, compared to $34.8 million at December 31, 1999. The Company's ratio of current assets to current liabilities was .86 to 1 at June 30, 2000 and .93 to 1 at December 31, 1999. Item 3. Quantitative and Qualitative Disclosures About Market Risk (1) The following quantitative and qualitative disclosures about market risk are supplementary to the quantitative and qualitative disclosures provided in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. As such, the information contained herein should be read in conjunction with the related disclosures in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The following disclosures provide specific information about material changes that have occurred since December 31, 1999 in the Company's portfolio of financial instruments. The Company may recognize future earnings gains or losses on these instruments from changes in market interest rates, foreign exchange rates, commodity prices or common stock prices. Interest rate sensitivity. On April 7, 2000, the Company announced the sale of $425 million of 9-5/8% Senior Notes Due April 1, 2010 ("9-5/8% Senior Notes"). Net proceeds of approximately $415.4 million from the sale of the 9-5/8% Senior Notes were used by the Company to reduce borrowings under the Prior Credit Facility that was to mature on August 7, 2002. Also in April 2000, the Company entered into certain interest rate swap agreements to hedge the fair value of a portion of its fixed rate debt. The interest rate swap agreements are for an aggregate notional amount of $150 million of debt; commence on April 19, 2000 and mature on April 15, 2005; require the counterparties to pay the Company a fixed annual rate of 8.875 percent on the notional amount; and, require the Company to pay the counterparties a variable annual rate on the notional amount equal to the three-month London Interbank Offered Rate plus a weighted average margin of 178.2 basis points. As of June 30, 2000, the fair market value of the Company's interest rate swap agreements was a liability of $.7 million. Effective May 31, 2000, the Company replaced its Prior Credit Facility with the Credit Agreement that matures on March 1, 2005. See Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for interest rate terms available to the Company under the Credit Agreement. Foreign exchange rate sensitivity. During the six months ended June 30, 2000, there were no material changes to the Company's foreign exchange exposures. Commodity price sensitivity. During the first six months of 2000, the Company terminated certain crude oil and natural gas hedge derivatives. The following tables provide information about the Company's crude oil and natural gas derivative financial instruments that the Company was a party to as of June 30, 2000. The tables segregate hedge derivative contracts from those that do not qualify as hedges. See Notes E and H of Notes to Consolidated Financial Statements included in"Item 1. Financial Statements" for information regarding the terms of the Company's derivative financial instruments that are sensitive to changes in natural gas and crude oil commodity prices. 27 Pioneer Natural Resources Company Crude Oil Price Sensitivity Derivative Financial Instruments as of June 30, 2000 2000 2001 2002 2003 2004 Fair Value ------- ------- ------- ------- ------- ---------- (in thousands, except volumes and prices) Crude Oil Hedge Derivatives: Average daily notional Bbl volumes (1): Swap contracts........................... 457 $ (1,212) Weighted average per Bbl fixed price................................. $ 15.76 Collar contracts........................... 938 $ (1,180) Weighted average short call per Bbl ceiling price......................... $ 23.00 Weighted average long put per Bbl floor price........................... $ 19.00 Collar contracts with short put (2)........ 7,000 $(22,534) Weighted average short call per Bbl ceiling price......................... $ 20.42 Weighted average long put per Bbl floor price........................... $ 17.29 Weighted average short put per Bbl price below which floor becomes variable.............................. $ 14.29 Crude Oil Non-Hedge Derivatives (3): Daily notional crude oil Bbl volumes under optional calls sold (4)............ 10,000 $(33,731) Weighted average short call per Bbl ceiling price......................... $ 20.00 Average forward NYMEX crude oil price per Bbl (5)................. $ 27.67 Daily notional MMBtu volumes under swap of NYMEX gas price for 10 percent of NYMEX WTI price............... 13,036 13,036 13,036 13,036 13,036 $(14,814) Average forward NYMEX gas prices (5)............................ $ 3.93 $ 3.68 $ 3.46 $ 3.32 $ 3.29 Average forward NYMEX oil prices (5)............................ $ 27.67 $ 25.69 $ 23.49 $ 21.88 $ 20.91
--------------- (1) See Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter. (2) Certain counterparties to the 2000 collar contracts with short put have the contractual right to extend 5,000 Bbls per day through year 2001 at strike prices of $20.09 per Bbl for the short call ceiling price, $17.00 per Bbl for the long put floor price and $14.00 per Bbl for the short put price below which the floor becomes variable. (3) Since the crude oil non-hedge derivatives are sensitive to changes in both crude oil and natural gas market prices, they are presented in both the Crude Oil Price Sensitivity table and the accompanying Natural Gas Price Sensitivity table. (4) The counterparties to the 2000 and 2001 optional call contracts have the contractual right to elect to call either crude volumes or gas volumes at the indicated prices. See the "Natural Gas Price Sensitivity" table for the optional natural gas volumes and call prices available to the counterparties. (5) Average forward NYMEX oil and gas prices are as of July 28, 2000. 28 Pioneer Natural Resources Company Natural Gas Price Sensitivity Derivative Financial Instruments as of June 30, 2000 2000 2001 2002 2003 2004 Fair Value -------- ------- ------- ------- ------- ---------- (in thousands, except volumes and prices) Natural Gas Hedge Derivatives (1): Average daily notional MMBtu volumes (2): Swap contracts (3)......................... 10,000 $ (23,485) Weighted average MMBtu fixed price................................. $ 2.42 Collar contracts with short puts (4)....... 57,227 $ (43,576) Weighted average short call MMBtu ceiling price......................... $ 2.59 Weighted average long put MMBtu contingent floor price............... $ 2.01 Weighted average short put MMBtu price below which floor becomes variable.............................. $ 1.73 Natural Gas Non-hedge Derivatives (5): Daily nominal gas MMBtu volumes under optional calls sold (6)............ 100,000 $ (33,731) Weighted average short call per MMBtu ceiling price................... $ 2.75 Average forward NYMEX gas price per MMBtu (7)................... $ 3.93 Daily notional MMBtu volumes under agreement to swap NYMEX gas price for 10 percent of NYMEX WTI price................................ 13,036 13,036 13,036 13,036 13,036 $ (14,814) Average forward NYMEX gas prices (7)............................ $ 3.93 $ 3.68 $ 3.46 $ 3.32 $ 3.29 Average forward NYMEX oil prices (7)............................ $ 27.67 $ 25.69 $ 23.49 $ 21.88 $ 20.91
--------------- (1) When necessary, to minimize basis risk, the Company enters into natural gas basis swaps to connect the index price of the hedging instrument from a NYMEX index to an index which reflects the geographic area of production. The Company considers these basis swaps as part of the associated swap and option contracts and, accordingly, the effects of the basis swaps have been presented together with the associated contracts. (2) See Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter. (3) Certain counterparties have the contractual right to sell year 2001, 2002 and 2003 swap contracts to the Company for notional daily volumes of 49,233; 12,500; and 10,000 MMBtu per day, respectively, at average strike prices of $2.21; $2.52 and $2.58 per MMBtu, respectively. (4) Certain counterparties have the contractual right to sell year 2001 and 2002 collar contracts with short puts to the Company for notional daily contract volumes of 54,482 and 60,000 MMBtu, respectively, at weighted average index prices of $2.71 and $2.64 per MMBtu for the short call ceiling prices, respectively; $2.09 and $2.25 per MMBtu for the long put floor prices, respectively; and $1.80 and $1.95 per MMBtu for the short put prices below which the floors become variable. (5) Since the natural gas non-hedge derivatives are sensitive to changes in both natural gas and crude oil market prices, they are presented in both the Natural Gas Sensitivity table and the accompanying Crude Oil Price Sensitivity table. (6) The counterparties to the 2000 and 2001 optional call contracts have the contractual right to elect to call either crude volumes or gas volumes at the indicated prices See the "Crude Oil Price Sensitivity" table for the optional crude oil volume and call prices available to the counterparties. (7) Average forward NYMEX oil and gas prices are as of July 28, 2000. 29 Other price sensitivity. On December 31, 1999, the Company owned 2,376.923 shares of Prize Energy Corp. ("Prize") six percent convertible preferred stock ("Prize Preferred") having a liquidation preference of $30.0 million. Prior to February 9, 2000, Prize was a closely held, non-public entity and the fair value of the Prize Preferred was not readily determinable. On February 9, 2000, Prize merged with Vista Energy Resources Inc. and the common stock of the merged Prize entity began to publicly trade on the American Stock Exchange. At that time, the Company's Prize Preferred was exchanged for 3,984,197 shares of Prize Series A 6% Convertible Preferred Stock ("Prize Senior Preferred"), which was subsequently increased to 4,018,161 shares as a result of associated in-kind dividends. On March 31, 2000, the Company and Prize converted the Company's 4,018,161 shares of Prize Senior A Preferred to 4,018,161 shares of Prize common stock ("Prize Common") and sold to Prize 1,380,446 shares of the Prize Common for $18.6 million. During the three months ended June 30, 2000, the Company sold an additional 24,500 shares of Prize Common for $.5 million. The fair value of the Company's remaining investment in 2,613,215 shares of Prize Common was $62.7 million as of June 30, 2000, representing a $43.2 million unrealized gain on the Company's remaining investment in the Prize Common. --------------- (1) The information in this document includes forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, and the business prospects of Pioneer Natural Resources Company, are subject to a number of risks and uncertainties which may cause the Company's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of oil and gas prices, product supply and demand, competition, government regulation or action, litigation, the costs and results of drilling and operations, the Company's ability to replace reserves or implement its business plans, access to and cost of capital, uncertainties about estimates of reserves, quality of technical data and environmental risks. These and other risks are described in the Company's 1999 Annual Report on Form 10-K which is available from the United States Securities and Exchange Commission. 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings As discussed in Note D of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements", the Company is a party to various legal actions incidental to its business. The probable damages from such legal actions are not expected to be in excess of 10 percent of the Company's current assets and the Company believes none of these actions to be material. Item 4. Submission of Matters to a Vote of Security Holders The Company's annual meeting of stockholders was held on May 18, 2000 in Dallas, Texas. At the meeting, two proposals were submitted for vote of stockholders (as described in the Company's Proxy Statement dated April 10, 2000). The following is a brief description of the proposal and results of the stockholders' votes. Election of Directors. Prior to the meeting, the Company's Board of Directors designated two nominees as Class III directors with their terms to expire at the annual meeting in 2003 when their successors are elected and qualified. Messrs. Jones and Ramsey were, at the time of such nomination and at the time of the meeting, directors of the Company. Each nominee was re-elected as a director of the Company, with the results of the stockholder voting being as follows: Authority Broker For Withheld Abstain Non-Votes ---------- --------- ------- --------- Jerry P. Jones 86,077,317 1,377,620 - - Charles E. Ramsey, Jr. 86,090,725 1,364,212 - -
Messrs. I. Jon Brumley, Kenneth A. Hersh and Philip B. Smith resigned their positions as directors of the Company in 1999 and Mr. Richard E. Rainwater resigned his position as a director of the Company in 2000. The term of office for the following directors continues as of June 30, 2000: Scott D. Sheffield, James R. Baroffio, R. Hartwell Gardner, James L. Houghton, Jerry P. Jones, Charles E. Ramsey, Jr., and Robert L. Stillwell. Ratification of selection of auditors. The engagement of Ernst & Young LLP as the Company's independent auditors for 2000 was submitted to the stockholders for ratification. Such election was ratified, with the results of the stockholder voting being as follows: For 87,177,801 Against 226,170 Abstain 50,966 Broker non-votes - Item 6. Exhibits and Reports on Form 8-K Exhibits 10.1 - Second Supplemental Indenture, dated as of April 11, 2000, among the Company, Pioneer USA, as the subsidiary guarantor and the Bank of New York, as trustee, with respect to the Indenture, dated January 13, 1998, between the Company and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.2 - Form of 9-5/8% Senior Notes Due April 1, 2010, dated as of April 11, 2000, in the aggregate principal amount of $425,000,000, together with Trustee's Certificate of Authentication dated April 11, 2000, establishing the terms of the 9-5/8% Senior Notes Due April 1, 2010 pursuant to the Second Supplemental Indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 31 Exhibits 10.3 - Guarantee, dated as of April 11, 2000, by Pioneer USA as the subsidiary guarantor relating to the $425,000,000 aggregate principal amount of 9-5/8% Senior Notes Due April 1, 2010 issued under the Second Supplemental Indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.4 - $575,000,000 Credit Agreement dated as of May 31, 2000, among the Company, as the borrower, Bank of America, N.A., as the Administrative Agent, Credit Suisse First Boston, as the Documentation Agent, the Chase Manhattan Bank, as the Syndicated Agent and certain Lenders. 27.1 - Financial Data Schedule Reports on Form 8-K During the quarter ended June 30, 2000, the Company did not file any Current Reports on Form 8-K. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. PIONEER NATURAL RESOURCES COMPANY Date: August 9, 2000 By: /s/ Timothy L. Dove --------------------------------- Timothy L. Dove Executive Vice President and Chief Financial Officer Date: August 9, 2000 By: /s/ Rich Dealy --------------------------------- Rich Dealy Vice President and Chief Accounting Officer 33 PIONEER NATURAL RESOURCES COMPANY Exhibit Index Page 10.1 - Second Supplemental Indenture, dated as of April 11, 2000, among the Company, Pioneer USA, as the subsidiary guarantor and the Bank of New York, as trustee, with respect to the Indenture, dated January 13, 1998, between the Company and The Bank of New York, as trustee (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.2 - Form of 9-5/8% Senior Notes Due April 1, 2010, dated as of April 11, 2000, in the aggregate principal amount of $425,000,000, together with Trustee's Certificate of Authentication dated April 11, 2000, establishing the terms of the 9-5/8% Senior Notes Due April 1, 2010 pursuant to the Second Supplemental Indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.3 - Guarantee, dated as of April 11, 2000, by Pioneer USA as the subsidiary guarantor relating to the $425,000,000 aggregate principal amount of 9-5/8% Senior Notes Due April 1, 2010 issued under the Second Supplemental Indenture identified above as Exhibit 10.1 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on May 11, 2000). 10.4* - $575,000,000 Credit Agreement dated as of May 31, 2000, among the Company, as the borrower, Bank of America, N.A., as the Administrative Agent, Credit Suisse First Boston, as the Documentation Agent, the Chase Manhattan Bank, as the Syndicated Agent and certain Lenders. 27.1* - Financial Data Schedule --------------- * Filed herewith 34