10-Q 1 pxd-20130331.htm 10-Q PXD-2013.03.31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
______________________________
FORM 10-Q 
______________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
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 Number: 1-13245
______________________________ 
PIONEER NATURAL RESOURCES COMPANY
(Exact name of Registrant as specified in its charter)
______________________________
Delaware
 
75-2702753
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
5205 N. O'Connor Blvd., Suite 200, Irving, Texas
 
75039
(Address of principal executive offices)
 
(Zip Code)
(972) 444-9001
(Registrant's telephone number, including area code)
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý    No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨    No  ý
Number of shares of Common Stock outstanding as of May 2, 2013                                 136,578,089



PIONEER NATURAL RESOURCES COMPANY
TABLE OF CONTENTS 
 
 
Page
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 4.
 
 
 
Item 6.
 
 
 
 

2


PIONEER NATURAL RESOURCES COMPANY
Cautionary Statement Concerning Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q (the "Report") contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "continue," "may," "will," "could," "should," "future," "potential," "estimate" or the negative of such terms and similar expressions as they relate to Pioneer Natural Resources Company ("Pioneer" or the "Company") are intended to identify forward-looking statements. The forward-looking statements are based on the Company's current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company's control.
These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, the receipt of approvals required to consummate the Company's Southern Wolfcamp joint interest transaction, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to complete the Company's operating activities, access to and availability of transportation, processing, fractionation and refining facilities, Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer's credit facility and derivative contracts and the purchasers of Pioneer's oil, NGL and gas production, uncertainties about estimates of reserves and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impacts of climate change, the risks associated with the ownership and operation of an industrial sand mining business and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K, this Report and other filings with the United States Securities and Exchange Commission (the "SEC"). In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no duty to publicly update these statements except as required by law.

3


PIONEER NATURAL RESOURCES COMPANY
Definitions of Certain Terms and Conventions Used Herein
Within this Report, the following terms and conventions have specific meanings:
"BBL" means a standard barrel containing 42 United States gallons.
"BOE" means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one BBL of oil or natural gas liquid.
"BOEPD" means BOE per day.
"BTU" means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.
"Conway" means the daily average natural gas liquids components as priced in Oil Price Information Service ("OPIS") in the table "U.S. and Canada LP – Gas Weekly Averages" at Conway, Kansas.
"DD&A" means depletion, depreciation and amortization.
"GAAP" means accounting principles that are generally accepted in the United States of America.
"LIBOR" means London Interbank Offered Rate, which is a market rate of interest.
"MCF" means one thousand cubic feet and is a measure of gas volume.
"MMBTU" means one million BTUs.
"MMBTUPD" means MMBTU per day.
"Mont Belvieu" means the daily average natural gas liquids components as priced in OPIS in the table "U.S. and Canada LP – Gas Weekly Averages" at Mont Belvieu, Texas.
"NGL" means natural gas liquid.
"NYMEX" means the New York Mercantile Exchange.
"Pioneer" or the "Company" means Pioneer Natural Resources Company and its subsidiaries.
"Pioneer Southwest" means Pioneer Southwest Energy Partners L.P. and its subsidiaries.
"Proved reserves" mean the quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons ("LKH") as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil ("HKO") elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
"U.S." means United States.
With respect to information on the working interest in wells, drilling locations and acreage, "net" wells, drilling locations and acres are determined by multiplying "gross" wells, drilling locations and acres by the Company's working interest in such wells, drilling locations or acres. Unless otherwise specified, wells, drilling locations and acreage statistics quoted herein represent gross wells, drilling locations or acres.
Unless otherwise indicated, all currency amounts are expressed in U.S. dollars.

4


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
 
March 31,
2013
 
December 31,
2012
 
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
430,298

 
$
229,396

Accounts receivable:
 
 
 
 
Trade, net
 
355,093

 
316,854

Due from affiliates
 
4,124

 
3,299

Income taxes receivable
 
1,394

 
7,447

Inventories
 
233,402

 
197,056

Prepaid expenses
 
13,337

 
13,438

Other current assets:
 

 

Derivatives
 
151,431

 
279,119

Other
 
7,335

 
3,746

Total current assets
 
1,196,414

 
1,050,355

Property, plant and equipment, at cost:
 
 
 
 
Oil and gas properties, using the successful efforts method of accounting:
 
 
 
 
Proved properties
 
15,007,980

 
14,259,708

Unproved properties
 
218,404

 
231,555

Accumulated depletion, depreciation and amortization
 
(4,633,359
)
 
(4,412,913
)
Total property, plant and equipment
 
10,593,025

 
10,078,350

Goodwill
 
298,142

 
298,142

Other property and equipment, net
 
1,228,108

 
1,217,694

Other assets:
 
 
 
 
Investment in unconsolidated affiliate
 
216,369

 
204,129

Derivatives
 
95,121

 
55,257

Other, net
 
134,118

 
165,103

 
 
$
13,761,297

 
$
13,069,030








The financial information included as of March 31, 2013 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.


5


PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
 
 
 
March 31,
2013
 
December 31,
2012
 
 
(Unaudited)
 
 
LIABILITIES AND EQUITY
Current liabilities:
 
 
 
 
Accounts payable:
 
 
 
 
Trade
 
$
780,395

 
$
729,942

Due to affiliates
 
39,968

 
96,935

Interest payable
 
37,494

 
68,083

Income taxes payable
 
292

 
208

Deferred income taxes
 
51,783

 
86,481

Other current liabilities:
 
 
 
 
Derivatives
 
20,413

 
13,416

Other
 
41,521

 
39,725

Total current liabilities
 
971,866

 
1,034,790

Long-term debt
 
3,017,280

 
3,721,193

Derivatives
 
13,372

 
12,307

Deferred income taxes
 
2,202,637

 
2,140,416

Other liabilities
 
290,071

 
293,016

Equity:
 
 
 
 
Common stock, $.01 par value; 500,000,000 shares authorized; 145,799,929 and 134,966,740 shares issued at March 31, 2013 and December 31, 2012, respectively
 
1,458

 
1,350

Additional paid-in capital
 
4,898,318

 
3,683,934

Treasury stock at cost: 9,337,865 and 11,611,093 at March 31, 2013 and December 31, 2012, respectively
 
(420,947
)
 
(510,570
)
Retained earnings
 
2,609,801

 
2,514,640

Total equity attributable to common stockholders
 
7,088,630

 
5,689,354

Noncontrolling interests in consolidating subsidiaries
 
177,441

 
177,954

Total equity
 
7,266,071

 
5,867,308

Commitments and contingencies
 


 


 
 
$
13,761,297

 
$
13,069,030








The financial information included as of March 31, 2013 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.

6


PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited) 
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
Revenues and other income:
 
 
 
 
Oil and gas
 
$
787,855

 
$
718,956

Interest and other
 
19,315

 
21,908

Gain on disposition of assets, net
 
24,417

 
43,596

 
 
831,587

 
784,460

Costs and expenses:
 
 
 
 
Oil and gas production
 
169,140

 
131,781

Production and ad valorem taxes
 
54,297

 
45,796

Depletion, depreciation and amortization
 
230,763

 
181,418

Exploration and abandonments
 
27,627

 
53,287

General and administrative
 
63,751

 
63,067

Accretion of discount on asset retirement obligations
 
3,153

 
2,430

Interest
 
50,735

 
46,858

Derivative (gains) losses, net
 
42,243

 
(91,750
)
Other
 
21,349

 
23,607

 
 
663,058

 
456,494

Income from continuing operations before income taxes
 
168,529

 
327,966

Income tax provision
 
(59,329
)
 
(117,703
)
Income from continuing operations
 
109,200

 
210,263

Income (loss) from discontinued operations, net of tax
 
(465
)
 
10,695

Net income
 
108,735

 
220,958

Net income attributable to noncontrolling interests
 
(8,072
)
 
(6,339
)
Net income attributable to common stockholders
 
$
100,663

 
$
214,619

 
 
 
 
 
Basic earnings per share:
 
 
 
 
Income from continuing operations attributable to common stockholders
 
$
0.77

 
$
1.65

Income (loss) from discontinued operations attributable to common stockholders
 

 
0.08

Net income attributable to common stockholders
 
$
0.77

 
$
1.73

Diluted earnings per share:
 
 
 
 
Income from continuing operations attributable to common stockholders
 
$
0.75

 
$
1.60

Income (loss) from discontinued operations attributable to common stockholders
 

 
0.08

Net income attributable to common stockholders
 
$
0.75

 
$
1.68

Weighted average shares outstanding:
 
 
 
 
Basic
 
128,940

 
122,480

Diluted
 
132,751

 
126,247

Dividends declared per share
 
$
0.04

 
$
0.04

 
 
 
 
 
Amounts attributable to common stockholders:
 
 
 
 
Income from continuing operations
 
$
101,128

 
$
203,924

Income (loss) from discontinued operations, net of tax
 
(465
)
 
10,695

Net income
 
$
100,663

 
$
214,619




The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.

7



PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
 
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
Net income
 
$
108,735

 
$
220,958

Other comprehensive activity:
 
 
 
 
Net hedge losses included in continuing operations
 

 
2,508

Income tax benefit
 

 
(928
)
Other comprehensive activity
 

 
1,580

Comprehensive income
 
108,735

 
222,538

Comprehensive income attributable to the noncontrolling interests
 
(8,072
)
 
(6,339
)
Comprehensive income attributable to common stockholders
 
$
100,663

 
$
216,199




















The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.

8


PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(in thousands, except dividends per share)
(Unaudited)
 
 
 
 
 
Equity Attributable To Common Stockholders
 
 
 
 
 
 
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Noncontrolling
Interests
 
Total Equity
Balance as of December 31, 2012
 
123,356

 
$
1,350

 
$
3,683,934

 
$
(510,570
)
 
$
2,514,640

 
$
177,954

 
$
5,867,308

Issuance of common stock
 
10,350

 
103

 
1,280,813

 

 

 

 
1,280,916

Dividends declared ($0.04 per share)
 

 

 

 

 
(5,502
)
 

 
(5,502
)
Exercise of long-term incentive plan stock options
 
41

 

 
(791
)
 
1,838

 

 

 
1,047

Treasury stock purchases
 
2,232

 

 

 
(19,202
)
 

 

 
(19,202
)
Conversion of 2.875% senior convertible notes
 

 

 
(106,989
)
 
106,987

 

 

 
(2
)
Tax benefit related to conversion of 2.875% senior convertible notes
 

 

 
22,524

 

 

 

 
22,524

Tax benefit related to stock-based compensation
 

 

 
1,688

 

 

 

 
1,688

Compensation costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Vested compensation awards, net
 
484

 
5

 
(5
)
 

 

 

 

Compensation costs included in net income
 

 

 
17,144

 

 

 
300

 
17,444

Cash distributions to noncontrolling interests
 

 

 

 

 

 
(8,885
)
 
(8,885
)
Net income
 

 

 

 

 
100,663

 
8,072

 
108,735

Balance as of March 31, 2013
 
136,463

 
$
1,458

 
$
4,898,318

 
$
(420,947
)
 
$
2,609,801

 
$
177,441

 
$
7,266,071







The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.

9


PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income
 
$
108,735

 
$
220,958

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depletion, depreciation and amortization
 
230,763

 
181,418

Exploration expenses, including dry holes
 
7,954

 
27,163

Deferred income taxes
 
51,894

 
105,871

Gain on disposition of assets, net
 
(24,417
)
 
(43,596
)
Accretion of discount on asset retirement obligations
 
3,153

 
2,430

Discontinued operations
 
(158
)
 
1,577

Interest expense
 
4,844

 
9,870

Derivative related activity
 
95,884

 
(27,243
)
Amortization of stock-based compensation
 
17,395

 
15,086

Amortization of deferred revenue
 

 
(10,459
)
Other noncash items
 
(2,922
)
 
(9,516
)
Change in operating assets and liabilities, net of effects from acquisitions and dispositions:
 
 
 
 
Accounts receivable, net
 
(41,803
)
 
(20,663
)
Income taxes receivable
 
6,053

 
1,407

Inventories
 
825

 
(31,027
)
Prepaid expenses
 
101

 
1,413

Other current assets
 
(636
)
 
2,488

Accounts payable
 
(57,572
)
 
19,326

Interest payable
 
(30,589
)
 
(21,917
)
Income taxes payable
 
84

 
16,941

Other current liabilities
 
(9,514
)
 
(15,441
)
Net cash provided by operating activities
 
360,074

 
426,086

Cash flows from investing activities:
 
 
 
 
Proceeds from disposition of assets
 
46,184

 
58,514

Additions to oil and gas properties
 
(697,191
)
 
(678,339
)
Additions to other assets and other property and equipment, net
 
(56,169
)
 
(59,841
)
Net cash used in investing activities
 
(707,176
)
 
(679,666
)
Cash flows from financing activities:
 
 
 
 
Borrowings under long-term debt
 
304,922

 
134,000

Principal payments on long-term debt
 
(1,012,253
)
 
(49,000
)
Proceeds from issuance of common stock, net of issuance costs
 
1,280,916

 

Distributions to noncontrolling interests
 
(8,885
)
 
(8,957
)
Borrowings (payments) of other liabilities
 
(210
)
 
458

Exercise of long-term incentive plan stock options
 
1,047

 
1,008

Purchases of treasury stock
 
(19,202
)
 
(56,129
)
Excess tax benefits from share-based payment arrangements
 
1,688

 
12,938

Payments of convertible senior note conversions and financing fees
 
(2
)
 
(1,261
)
Dividends paid
 
(17
)
 
(43
)
Net cash provided by financing activities
 
548,004

 
33,014

Net increase (decrease) in cash and cash equivalents
 
200,902

 
(220,566
)
Cash and cash equivalents, beginning of period
 
229,396

 
537,484

Cash and cash equivalents, end of period
 
$
430,298

 
$
316,918



The financial information included herein has been prepared by management
without audit by independent registered public accountants.

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

10

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)


NOTE A. Organization and Nature of Operations
Pioneer Natural Resources Company ("Pioneer" or the "Company") is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. The Company is a large independent oil and gas exploration and production company operating in the United States, with field operations in the Permian Basin in West Texas, the Eagle Ford Shale play in South Texas, the Barnett Shale Combo play in North Texas, the Raton field in southeastern Colorado, the Hugoton field in southwest Kansas, the West Panhandle field in the Texas Panhandle and Alaska.
NOTE B. Basis of Presentation
Presentation. In the opinion of management, the consolidated financial statements of the Company as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 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 information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP") have been condensed in or omitted from this report pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.
Certain reclassifications have been made to the 2012 financial statement and footnote amounts in order to conform to the 2013 presentation.
Issuance of common stock. In February 2013, the Company issued 10.35 million shares of its common stock and realized $1.3 billion of proceeds, net of associated underwriting and offering expenses.
Noncontrolling interest in consolidated subsidiaries. The Company owns a 0.1 percent general partner interest and a 52.4 percent limited partner interest in Pioneer Southwest Energy Partners L.P. ("Pioneer Southwest"). The Company owns and controls Pioneer Natural Resources GP LLC (the "General Partner"), which manages Pioneer Southwest. Pioneer Southwest owns interests in certain oil and gas properties in the Spraberry field in the Permian Basin of West Texas. The financial position, results of operations and cash flows of Pioneer Southwest are consolidated with those of the Company. Noncontrolling interests in consolidated subsidiaries includes $163.9 million attributable to outstanding Pioneer Southwest common units held by unitholders other than Pioneer or its subsidiaries as of March 31, 2013.

NOTE C. Acquisitions and Divestitures

Premier Silica Business Combination

On April 2, 2012, a wholly-owned subsidiary of the Company acquired an industrial sand mining business that is now called Premier Silica LLC ("Premier Silica"). Premier Silica's primary mine operations are in Brady, Texas. The Brady mine facilities primarily produce, process and provide sand to the Company for use as proppant in its fracture stimulation of oil and gas wells in Texas. Excess sand and sand not useable for fracture stimulation is sold to third parties for use as proppant or other industrial and recreational purposes. The aggregate purchase price of Premier Silica was $297.1 million, including closing adjustments.

Divestitures Recorded in Continuing Operations

Sales of unproved oil and gas properties. For the three months ended March 31, 2013, the Company's pretax gain on disposition of assets from continuing operations of $24.4 million was primarily associated with the sale of its interest in unproved oil and gas properties adjacent to the Company's West Panhandle field operations to an unaffiliated third party for cash proceeds of $37.4 million, which resulted in a pretax gain of $21.7 million. For the three months ended March 31, 2012, the Company's pretax gain on disposition of assets of $43.6 million was primarily associated with the sale of a portion of its interest in an unproved oil and gas property in the Eagle Ford Shale field to unaffiliated third parties for cash proceeds of $54.7 million, which resulted in a pretax gain of $42.6 million.


11

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

Divestitures Recorded as Discontinued Operations

South Africa. During the first quarter of 2012, the Company agreed to sell its net assets in South Africa ("Pioneer South Africa") to an unaffiliated third party, effective January 1, 2012, for $60.0 million of cash proceeds before normal closing and other adjustments, and the buyer's assumption of certain liabilities of the Company's South Africa subsidiaries. In August 2012, the Company completed the sale of Pioneer South Africa for net cash proceeds of $15.9 million, including normal closing adjustments for cash revenues and costs and expenses from the effective date through the date of the sale, resulting in a third quarter 2012 pretax gain of $28.6 million. The Company classified Pioneer South Africa's results of operations as income from discontinued operations, net of tax, in the accompanying consolidated statements of operations.

For the three months ended March 31, 2012, the Company recognized revenues and other income and pretax earnings of $19.6 million and $17.4 million, respectively, associated with discontinued operations, principally related to the results of operations of Pioneer South Africa prior to its divestiture in August 2012.

Pending Divestitures
Southern Wolfcamp. In January 2013, the Company signed an agreement with Sinochem Petroleum USA LLC ("Sinochem"), a U.S. subsidiary of the Sinochem Group, an unaffiliated third party, to sell 40 percent of Pioneer's interest in 207,000 net acres leased by the Company in the horizontal Wolfcamp Shale play in the southern portion of the Spraberry field in West Texas for total consideration of $1.7 billion. Sinochem will pay $522.0 million in cash to Pioneer at closing, before normal closing adjustments, and will pay the remaining $1.2 billion by carrying 75 percent of Pioneer's portion of future drilling and facilities costs attributable to the horizontal Wolfcamp Shale play. This transaction is expected to close during the second quarter of 2013, subject to governmental approvals.

NOTE D. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The three input levels of the fair value hierarchy are as follows:
Level 1 – quoted prices for identical assets or liabilities in active markets.
Level 2 – quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – unobservable inputs for the asset or liability.

12

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

Assets and liabilities measured at fair value on a recurring basis. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
 
The following table presents the Company's assets and liabilities that are measured at fair value as of March 31, 2013: 
 
 
Fair Value Measurement at the End of the
Reporting Period Using
 
 
 
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value at March 31, 2013
 
 
(in thousands)
Recurring fair value measurements
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Trading securities
 
$
158

 
$
142

 
$

 
$
300

Commodity derivatives
 

 
246,552

 

 
246,552

Deferred compensation plan assets
 
53,768

 

 

 
53,768

Total assets
 
53,926

 
246,694

 

 
300,620

Liabilities:
 
 
 
 
 
 
 
 
Commodity derivatives
 

 
28,001

 

 
28,001

Interest rate derivatives
 

 
5,784

 

 
5,784

Total liabilities
 

 
33,785

 

 
33,785

Total recurring fair value measurements
 
$
53,926

 
$
212,909

 
$

 
$
266,835

Trading securities and deferred compensation plan assets. The Company's trading securities are comprised of securities that are both actively traded and not actively traded on major exchanges. The Company's deferred compensation plan assets represent investments in equity and mutual fund securities that are actively traded on major exchanges. These investments are measured based on observable prices on major exchanges. As of March 31, 2013, substantially all of the significant inputs to these asset exchange values represented Level 1 independent active exchange market price inputs. Inputs for certain trading securities that are not actively traded on major exchanges were classified as Level 2 inputs.
Commodity derivatives. The Company's commodity derivatives represent oil, natural gas liquids ("NGL") and gas swap contracts, collar contracts and collar contracts with short puts. The asset and liability measurements for the Company's oil, NGL and gas swap, collar and collar contracts with short puts represent Level 2 inputs in the hierarchy. The Company utilizes discounted cash flow and option-pricing models for valuing its commodity derivatives.

The asset and liability values attributable to the Company's commodity derivatives were determined based on inputs that include (i) the contracted notional volumes, (ii) independent active market price quotes, (iii) the applicable estimated credit-adjusted risk-free rate yield curve and (iv) the implied rate of volatility inherent in the collar and collar contracts with short puts, which is based on active and independent market-quoted volatility factors.
Interest rate derivatives. The Company's interest rate derivative liabilities as of March 31, 2013 represent interest rate swap contracts. The Company utilizes discounted cash flow models for valuing its interest rate derivatives. The net derivative values attributable to the Company's interest rate derivative contracts as of March 31, 2013 are based on (i) the contracted notional amounts, (ii) active market-quoted London Interbank Offered Rate ("LIBOR") yield curves and (iii) the applicable credit-adjusted risk-free rate yield curve. The Company's interest rate derivative liability measurements represent Level 2 inputs in the hierarchy.


13

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

Financial instruments not carried at fair value. Carrying values and fair values of financial instruments that are not carried at fair value in the consolidated balance sheet as of March 31, 2013 and December 31, 2012 are as follows: 

 
 
March 31, 2013
 
December 31, 2012
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
 
(in thousands)
Long-term debt
 
$
3,017,280

 
$
3,768,884

 
$
3,721,193

 
$
4,555,770

Long-term debt includes the Company's credit facility, the Pioneer Southwest credit facility and the Company's senior notes. The fair value of debt is determined utilizing inputs that are Level 2 measurements in the fair value hierarchy.
Credit facilities. The fair values of the Company's and Pioneer Southwest's credit facilities are calculated using a discounted cash flow model based on (i) forecasted contractual interest and fee payments, (ii) forward active market-quoted United States Treasury Bill rate (in the case of the Company's credit facility) or LIBOR (in the case of the Pioneer Southwest credit facility) yield curves and (iii) the applicable credit-adjustments.
Senior notes. The Company's senior notes represent debt securities that are not actively traded on major exchanges. The fair values of the Company's senior notes are based on their periodic values as quoted on the major exchanges.
The Company has other financial instruments consisting primarily of cash equivalents, receivables, prepaid expenses, payables and other current assets and liabilities that approximate fair value due to the nature of the instrument and relatively short maturities. Non-financial assets and liabilities initially measured at fair value include certain assets acquired and liabilities assumed in a business combination, goodwill and asset retirement obligations.
NOTE E. Derivative Financial Instruments
The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness.
Oil production derivative activities. All material physical sales contracts governing the Company's oil production are tied directly to, or are highly correlated with, New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices.

14

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

The following table sets forth the volumes per day in barrels ("BBLs") associated with the Company's outstanding oil derivative contracts as of March 31, 2013 and the weighted average oil prices per BBL for those contracts: 
 
 
Nine Months Ending December 31,
 
Year Ending December 31,
 
 
2013
 
2014
 
2015
Collar contracts with short puts:
 
 
 
 
 
 
Volume (BBL)
 
72,430

 
69,000

 
26,000

Average price per BBL:
 
 
 
 
 
 
Ceiling
 
$
119.89

 
$
114.05

 
$
104.45

Floor
 
$
92.26

 
$
93.70

 
$
95.00

Short put
 
$
74.36

 
$
77.61

 
$
80.00

Swap contracts:
 
 
 
 
 
 
Volume (BBL)
 
3,000

 

 

Average price per BBL
 
$
81.02

 
$

 
$

Rollfactor swap contracts:
 
 
 
 
 
 
Volume (BBL)
 
6,000

 
15,000

 

NYMEX roll price (a)
 
$
0.43

 
$
0.38

 
$

Basis swap contracts:
 
 
 
 
 
 
Midland-Cushing index swap volume (BBL)
 
1,655

 

 

Average price per BBL (b)
 
$
(5.75
)
 
$

 
$

Cushing-LLS index swap volume (BBL)
 
669

 

 

Average price per BBL (c)
 
$
(9.30
)
 
$

 
$

 ____________________
(a)
Represents swaps that fix the difference between (i) each day's price per BBL of WTI for the first nearby month less (ii) the price per BBL of WTI for the second nearby NYMEX month, multiplied by .6667; plus (iii) each day's price per BBL of WTI for the first nearby month less (iv) the price per BBL of WTI for the third nearby NYMEX month, multiplied by .3333.
(b)
Basis differential price between Midland WTI and Cushing WTI.
(c)
Basis differential price between Cushing WTI and Louisiana Light Sweet crude "LLS".
NGL production derivative activities. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to either Mont Belvieu or Conway fractionation facilities' NGL product component prices.
The following table sets forth the volumes per day in BBLs associated with the Company's outstanding NGL derivative contracts as of March 31, 2013 and the weighted average NGL prices per BBL for those contracts: 
 
 
Nine Months Ending December 31,
 
Year Ending December 31,
 
 
2013
 
2014
Collar contracts with short puts:
 
 
 
 
Volume (BBL)
 
1,064

 
1,000

Average price per BBL:
 
 
 
 
Ceiling
 
$
105.28

 
$
109.50

Floor
 
$
89.30

 
$
95.00

Short put
 
$
75.20

 
$
80.00



15

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

Subsequent to March 31, 2013, the Company entered into additional NGL collar contracts for (i) 2,000 BBLs per day of the Company's May through December 2013 ethane production with a ceiling price of $12.60 per BBL and a floor price of $10.50 per BBL, (ii) 500 BBLs per day of the Company's July through December 2013 ethane production with a ceiling price of $13.02 per BBL and a floor price of $10.50 per BBL and (iii) 3,000 BBLs per day of the Company's 2014 ethane production with a ceiling price of $13.72 per BBL and a floor price of $10.78 per BBL.
Gas production derivative activities. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX Henry Hub ("HH") gas prices or regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and reduce basis risk between HH prices and actual index prices at which the gas is sold.
The following table sets forth the volumes per day in millions of British thermal units ("MMBTU") associated with the Company's outstanding gas derivative contracts as of March 31, 2013 and the weighted average gas prices per MMBTU for those contracts: 
 
 
Nine Months Ending December 31,
 
Year Ending December 31,
 
 
2013
 
2014
 
2015
 
2016
Collar contracts with short puts:
 
 
 
 
 
 
 
 
Volume (MMBTU) (a)
 

 
65,000

 
235,000

 
20,000

Price per MMBTU:
 
 
 
 
 
 
 
 
Ceiling
 
$

 
$
4.70

 
$
5.09

 
$
5.36

Floor
 
$

 
$
4.00

 
$
4.00

 
$
4.00

Short put
 
$

 
$
3.00

 
$
3.00

 
$
3.00

Collar contracts:
 
 
 
 
 
 
 
 
Volume (MMBTU) (a)
 
150,000

 

 

 

Price per MMBTU:
 
 
 
 
 
 
 
 
Ceiling
 
$
6.25

 
$

 
$

 
$

Floor
 
$
5.00

 
$

 
$

 
$

Swap contracts:
 
 
 
 
 
 
 
 
Volume (MMBTU)
 
170,282

 
175,000

 
20,000

 

Price per MMBTU
 
$
5.07

 
$
4.02

 
$
4.31

 
$

Basis swap contracts:
 
 
 
 
 
 
 
 
Volume (MMBTU) (a)
 
162,500

 
10,000

 

 

Price per MMBTU
 
$
(0.22
)
 
$
(0.19
)
 
$

 
$

____________________
(a)
Subsequent to March 31, 2013, the Company entered into additional (i) collar contracts for 2,500 MMBTUs per day of the Company's June through December 2013 production with a ceiling price of $4.50 per MMBTU and a floor price of $4.00 per MMBTU, (ii) collar contracts with short puts for 50,000 MMBTUs per day of the Company's 2014 production with a ceiling price of $4.70 per MMBTU, a floor price of $4.00 per MMBTU and a short put price of $3.00 per MMBTU, (iii) collar contracts with short puts for 50,000 MMBTUs per day of the Company's 2015 production with a ceiling price of $5.03 per MMBTU, a floor price of $4.00 per MMBTU and a short put price of $3.00 per MMBTU, (iv) basis swap contracts for 22,500 MMBTU per day of the Company's 2014 production with a negative price differential of $0.18 per MMBTU between the relevant index price and the NYMEX price and (v) basis swap contracts for 7,500 MMBTU per day of the Company's 2015 production with a negative price differential of $0.13 per MMBTU between the relevant index price and the NYMEX price.
Marketing and basis transfer derivative activities. Periodically, the Company enters into buy and sell marketing arrangements to utilize unused firm pipeline transportation commitments. Associated with these marketing arrangements, the Company may enter into index swaps to mitigate the related price risk.

16

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

The following table sets forth the contract volumes associated with the Company's outstanding marketing derivative contracts as of March 31, 2013 and the weighted average prices for those contracts: 
 
Nine Months Ending December 31,
 
2013
Average Daily Gas Production Associated with Marketing Derivatives:
 
Basis swap contracts:
 
Index swap volume (MMBTU)
4,364

Price differential ($/MMBTU)
$
0.34

     Interest rates. As of March 31, 2013, the Company was a party to interest rate derivative contracts that lock in a fixed forward annual interest rate of 3.21 percent, for a 10-year period ending in December 2025, on a notional amount of $250 million. These derivative contracts mature and settle by their terms in December 2015.
Tabular disclosure of derivative financial instruments. All of the Company's derivatives are accounted for as non-hedge derivatives as of March 31, 2013 and December 31, 2012 and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the earnings of the periods in which they occur. The Company classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty, as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty.
The aggregate fair value of the Company's derivative instruments reported in the consolidated balance sheets by commodity and counterparty, including the classification between current and noncurrent assets and liabilities, consists of the following:
 
Fair Value of Derivative Instruments as of March 31, 2013
Type
 
Consolidated Balance Sheet
Location
 
Fair
Value
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Fair Value Presented in the Consolidated Balance Sheet
 
 
 
 
(in thousands)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
Asset Derivatives:
 
 
 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
160,149

 
$
(8,718
)
 
$
151,431

Commodity price derivatives
 
Derivatives - noncurrent
 
$
100,090

 
$
(4,969
)
 
95,121

 
 
 
 
 
 
 
 
$
246,552

Liability Derivatives:
 

 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
29,131

 
$
(8,718
)
 
$
20,413

Commodity price derivatives
 
Derivatives - noncurrent
 
$
12,557

 
$
(4,969
)
 
7,588

Interest rate derivatives
 
Derivatives - noncurrent
 
$
5,784

 
$

 
5,784

 
 
 
 
 
 
 
 
$
33,785



17

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

Fair Value of Derivative Instruments as of December 31, 2012
Type
 
Consolidated Balance Sheet
Location
 
Fair
Value
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Fair Value Presented in the Consolidated Balance Sheet
 
 
 
 
(in thousands)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
Asset Derivatives:
 
 
 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
286,805

 
$
(7,686
)
 
$
279,119

Commodity price derivatives
 
Derivatives - noncurrent
 
$
61,618

 
$
(6,361
)
 
55,257

 
 
 
 
 
 
 
 
$
334,376

Liability Derivatives:
 
 
 
 
 
 
Commodity price derivatives
 
Derivatives - current
 
$
21,102

 
$
(7,686
)
 
$
13,416

Commodity price derivatives
 
Derivatives - noncurrent
 
$
8,944

 
$
(6,361
)
 
2,583

Interest rate derivatives
 
Derivatives - noncurrent
 
$
9,724

 
$

 
9,724

 
 
 
 
 
 
 
 
$
25,723


The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.
Derivatives in Cash Flow Hedging
 
Location of (Gain)/Loss Reclassified from
 
 
 
 
Three Months Ended
March 31,
Relationships
 
AOCI into Earnings
 
2013
 
2012
 
 
 
 
(a)
 
 
Commodity price derivatives
 
Oil and gas revenue
 
$

 
$
809

Interest rate derivatives
 
Interest expense
 

 
1,699

Total
 
 
 
$

 
$
2,508

____________________
(a)
During 2012, all remaining Accumulated Other Comprehensive Income ("AOCI") related to hedging was transferred to earnings.
 
 
 
 
 
 
 
Derivatives Not Designated as Hedging
 
Location of (Gain) Loss Recognized in
 
Three Months Ended
March 31,
Instruments
 
Earnings on Derivatives
 
2013
 
2012
 
 
 
 
 
 
 
Commodity price derivatives
 
Derivative (gains) losses, net
 
$
46,183

 
$
(88,130
)
Interest rate derivatives
 
Derivative (gains) losses, net
 
(3,940
)
 
(3,620
)
Total
 
 
 
$
42,243

 
$
(91,750
)
NOTE F. Exploratory Costs
The Company capitalizes exploratory well and project costs until a determination is made that the well or project has either found proved reserves, is impaired or is sold. After an exploratory well has been completed and found oil and gas reserves, a determination may be pending as to whether the oil and gas reserves can be classified as proved. In those circumstances, the Company continues to capitalize the well or project costs pending the determination of proved status if (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (ii) the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. The Company's capitalized exploratory well and project costs are presented in proved properties in the accompanying consolidated balance sheets. If the exploratory well or project is determined to be impaired, the impaired costs are charged to exploration and abandonments expense.


18

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

The following table reflects the Company's capitalized exploratory well and project activity during the three months ended March 31, 2013:
 
Three Months Ended March 31, 2013
 
(in thousands)
Beginning capitalized exploratory costs
$
212,670

Additions to exploratory costs pending the determination of proved reserves
351,575

Reclassification due to determination of proved reserves
(262,754
)
Exploratory well costs charged to exploration expense
(7,734
)
Ending capitalized exploratory costs
$
293,757


The following table provides an aging, as of March 31, 2013 and December 31, 2012, of capitalized exploratory costs and the number of projects for which exploratory costs have been capitalized for a period greater than one year based on the date drilling was completed:
 
March 31, 2013
 
December 31, 2012
 
(in thousands, except project counts)
Capitalized exploratory costs that have been suspended:
 
 
 
One year or less
$
174,841

 
$
190,678

More than one year
118,916

 
21,992

 
$
293,757

 
$
212,670

 
 
 
 
Number of projects with exploratory costs that have been suspended for a period greater than one year
2

 
1

Alaska - Oooguruk. As of each of March 31, 2013 and December 31, 2012, the Company had $22.0 million of suspended well costs recorded for the K-13 well in the Alaska Oooguruk field. Drilling on the K-13 well was completed during September 2011. During well completion operations, subsurface damages were sustained. The Company plans to recomplete the well during 2013. The well may require additional stimulation work that, if required, will be done during the first quarter of 2014 to initiate production.
Alaska - Nuna. The Company's Nuna project, which has $96.9 million of suspended project costs as of March 31, 2013, includes the Nuna-1 exploration well that was drilled during 2012 to test the Torok formation and a second appraisal well that was drilled and logged during the first quarter of 2013. The Company flow-tested the Nuna-1 well during the second quarter of 2012 and again in the first quarter of 2013. The second appraisal well encountered a mechanical problem and could not be flow-tested before the end of the winter drilling season. The results of the flow-tests on the Nuna-1 well and the log data from the second Nuna well are both very encouraging. The Company is currently conducting a front-end engineering design ("FEED") study to evaluate the potential for onshore production facilities to support the project.
NOTE G. Long-term Debt
The Company's long-term debt consists of senior notes and revolving credit facilities, including the effects of net deferred fair value hedge losses and issuance discounts. As of March 31, 2013, the Company and Pioneer Southwest were in compliance with all of their debt covenants.
Credit facility. The Company maintains a Credit Agreement (the "Credit Facility") with a syndicate of financial institutions that has aggregate loan commitments of $1.5 billion that expires in December 2017. As of March 31, 2013, the Company had no outstanding borrowings under the Credit Facility.
Pioneer Southwest credit facility. Pioneer Southwest maintains a Credit Agreement (the "Pioneer Southwest Credit Facility") with a syndicate of financial institutions that has aggregate loan commitments of $300 million that expires in March 2017. As of

19

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

March 31, 2013, Pioneer Southwest had outstanding borrowings of $154.0 million under the Credit Facility, leaving $146.0 million of unused borrowing capacity.
Convertible senior notes. As of March 31, 2013 and December 31, 2012, the Company had $218.6 million and $479.9 million of 2.875% Convertible Senior Notes due 2038 ("Convertible Senior Notes") outstanding. The Convertible Senior Notes are convertible at the option of the holders under certain circumstances, using a net share settlement process, into a combination of cash and the Company's common stock based on a formula set forth in the indenture supplement pursuant to which the Convertible Senior Notes were issued and, as of January 15, 2013, are redeemable by the Company at any time for cash at a price equal to the full principal amount plus accrued and unpaid interest.
During December 2012, the Company's stock price met the price threshold that causes the Convertible Senior Notes to be convertible at the option of the holders for the three months ended March 31, 2013. Associated therewith, during the three months ended March 31, 2013, holders of $274.1 million principal amount of the Convertible Senior Notes exercised their right to convert their Convertible Senior Notes into cash and shares of the Company's common stock and the Company paid the tendering holders $261.3 million of cash and issued to the tendering holders 2.4 million shares of the Company's common stock during the three months ended March 31, 2013, in accordance with the terms of the Convertible Senior Notes indenture agreement. The remaining $12.8 million principal amount was settled in cash and the issuance of 115 thousand shares of the Company's common stock in April 2013.
The Company's stock prices during March 2013 and 2012 also met the price threshold that causes the Convertible Senior Notes to be convertible at the option of the holders for the following three month period. In addition, on April 15, 2013, the Company announced that it would exercise its option to redeem all Convertible Senior Notes that have not been converted by the holders before May 16, 2013.
If all of the remaining Convertible Senior Notes had been converted on March 31, 2013, the note holders would have received $218.6 million of additional cash and approximately 2.1 million shares of the Company's common stock, which were valued at $259.7 million on March 31, 2013. Holders of the Convertible Senior Notes who present their notes for conversion prior to May 16, 2013 will be subject to a 20 consecutive day cash settlement averaging period that will encompass the trading days from April 16, 2013 through May 13, 2013. The Company has the intent and ability to fund cash payments that will be required upon the conversion or redemption of the Convertible Senior Notes with borrowing capacity under the Credit Facility. Accordingly, the Convertible Senior Notes are classified as long-term debt in the accompanying balance sheets.
Interest on the principal amount of the Convertible Senior Notes is payable semiannually in arrears on January 15 and July 15 of each year. The trading price of the Convertible Senior Notes for the five consecutive trading days preceding January 15, 2013 exceeded 120 percent of the principal amount of the note and, in accordance with the indenture supplement, the interest rate in effect during the January 15, 2013 to July 14, 2013 period was reduced to 2.375 percent.
NOTE H. Incentive Plans
Stock-based compensation
For the three months ended March 31, 2013, the Company recorded $27.6 million of stock-based compensation expense for all plans, as compared to $21.3 million for the same period of 2012. As of March 31, 2013, there was $198.5 million of unrecognized compensation expense related to unvested share- and unit-based compensation plan awards, including $47.5 million attributable to stock-based awards that are expected to be settled in cash on their vesting date, rather than in equity shares ("Liability Awards"). This compensation will be recognized over the remaining vesting periods of the awards, which is a period of less than three years on a weighted average basis. As of March 31, 2013 and December 31, 2012, accounts payable – due to affiliates includes $5.8 million and $18.8 million, respectively, of liabilities attributable to Liability Awards.

20

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

The following table summarizes the activity that occurred during the three months ended March 31, 2013, for each type of share-based incentive award issued by Pioneer: 
 
 
Restricted
Stock Equity
Awards
 
Restricted
Stock
Liability
Awards
 
Performance
Units
 
Stock
Options
 
Pioneer
Southwest
LTIP
Restricted
Units
 
Pioneer
Southwest
LTIP
Phantom
Units
Outstanding at December 31, 2012
 
1,512,762

 
405,916

 
91,370

 
467,486

 
7,496

 
102,644

Awards granted
 
397,439

 
238,269

 
94,917

 

 

 
32,242

Awards vested
 
(476,717
)
 
(178,143
)
 

 

 

 
(35,118
)
Options exercised
 

 

 

 
(12,818
)
 

 

Awards forfeited
 
(3,834
)
 
(5,015
)
 

 

 

 

Outstanding as of March 31, 2013
 
1,429,650

 
461,027

 
186,287

 
454,668

 
7,496

 
99,768

Postretirement Benefit Obligations
As of March 31, 2013 and December 31, 2012, the Company had $9.1 million and $9.7 million, respectively, of unfunded accumulated postretirement benefit obligations, the current and noncurrent portions of which are included in other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. These obligations are comprised of five unfunded plans, of which four relate to predecessor entities that the Company acquired in prior years, and one funded plan that the Company assumed sponsorship for in conjunction with the acquisition of Premier Silica.
The unfunded plans had no assets as of March 31, 2013 or December 31, 2012. The Company's funding policy for the Premier Silica plan is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plan, tax deductibility, the cash flow generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions and may elect to make such contributions in future periods.

21

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

NOTE I. Asset Retirement Obligations
The Company's asset retirement obligations primarily relate to the future plugging and abandonment of wells and facilities. The following table summarizes the Company's asset retirement obligation activity during the three months ended March 31, 2013 and 2012: 
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
 
(in thousands)
Beginning asset retirement obligations
 
$
197,754

 
$
136,742

New wells placed on production
 
2,468

 
830

Changes in estimates (a)
 
(5,597
)
 

Dispositions
 
(4,079
)
 

Liabilities settled
 
(2,849
)
 
(5,688
)
Accretion of discount
 
3,153

 
2,430

Accretion of discount from integrated services (b)
 
11

 

Ending asset retirement obligations
 
$
190,861

 
$
134,314

_____________________
(a)
The change in estimate during the three months ended March 31, 2013 is attributable to lengthening the economic life of certain wells, which reduced the present value of the associated asset retirement obligation.
(b)
Accretion of discount from integrated services includes Premier Silica accretion expense, which is recorded as a reduction in third-party income from vertical integration services in interest and other income in the Company's accompanying consolidated statements of operations. See Note K for more information about interest and other income.
The Company records the current and noncurrent portions of asset retirement obligations in other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. As of March 31, 2013 and December 31, 2012, the current portions of the Company's asset retirement obligations were $12.8 million and $13.3 million, respectively.
NOTE J. Commitments and Contingencies
The Company is a party to various proceedings and claims incidental to its business. While many of these matters involve inherent uncertainty, the Company believes that the amount of the liability, if any, ultimately incurred with respect to such proceedings and claims will not have a material adverse effect on the Company's consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations. The Company records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.

22

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

NOTE K. Interest and Other Income
The following table provides the components of the Company's interest and other income for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
 
 
(in thousands)
Alaskan Petroleum Production Tax credits and refunds (a)
 
$
19,408

 
$
11,846

Equity interest in income of unconsolidated affiliate
 
3,536

 
441

Other income
 
1,876

 
1,641

Deferred compensation plan income
 
1,627

 
1,374

Interest income
 
93

 
57

Income (loss) from vertical integration services (b)
 
(7,225
)
 
6,549

Total interest and other income
 
$
19,315

 
$
21,908

 ____________________
(a)
The Company earns Alaskan Petroleum Production Tax ("PPT") credits on qualifying capital expenditures. The Company recognizes income from PPT credits when they are realized through cash refunds or as reductions in production and ad valorem taxes if realizable as offsets to PPT expense.
(b)
Income (loss) from vertical integration services represent net margins that result from Company-provided fracture stimulation, drilling and related service operations, which are ancillary to and supportive of the Company's oil and gas joint operating activities, and do not represent intercompany transactions. For the three months ended March 31, 2013 and 2012, these net margins include $56.1 million and $75.4 million of gross vertical integration revenues, respectively, and $63.3 million and $68.9 million of total vertical integration costs and expenses, respectively.

 NOTE L. Other Expense
The following table provides the components of the Company's other expense for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
 
 
(in thousands)
Transportation commitment charge (a)
 
$
9,377

 
$
8,453

Other
 
4,565

 
2,911

Above market and idle drilling and well services equipment rates (b)
 
3,507

 
4,986

Inventory impairment (c)
 
1,587

 
6,041

Contingency and environmental accrual adjustments
 
1,294

 
1,216

Terminated drilling rig contract charges (d)
 
1,019

 

Total other expense
 
$
21,349

 
$
23,607

 ____________________
(a)
Primarily represents firm transportation payments on excess pipeline capacity commitments.
(b)
Primarily represents expenses attributable to the portion of Pioneer's contracted drilling rig rates that are above current market rates and idle drilling rig fees, neither of which are charged to joint operations.
(c)
Represents valuation charges on excess materials and supplies inventories.
(d)
Primarily represents charges to terminate a drilling rig contract that is not required to meet planned activities.

23

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

NOTE M. Income Taxes
The Company's income tax provisions attributable to income from continuing operations consisted of the following for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
 
 
(in thousands)
Current
 
$
(7,435
)
 
$
(11,832
)
Deferred
 
(51,894
)
 
(105,871
)
Income tax provision
 
$
(59,329
)
 
$
(117,703
)
    
For each of the three months ended March 31, 2013 and 2012, the Company's effective tax rate, excluding income attributable to the noncontrolling interest, was 37 percent. The Company's effective tax rate differed from the U.S. statutory rate of 35 percent due to state income taxes and nondeductible expenses.

The Company files income tax returns in the U.S. federal and various state and foreign jurisdictions. The Internal Revenue Service has closed examinations of the 2011 and prior tax years and, with few exceptions, the Company believes that it is no longer subject to examinations by state and foreign tax authorities for years before 2008. As of March 31, 2013, no adjustments had been proposed in any jurisdiction that would have a significant effect on the Company's liquidity, future results of operations or financial position.
NOTE N. Net Income Per Share
The Company uses the two-class method of calculating net income per share because certain of the Company's and its consolidated subsidiaries' unvested share-based awards qualify as participating securities. Participating securities participate in the Company's dividend or partnership distributions and are assumed to participate in the Company's undistributed income proportionate to their share of the weighted average outstanding common shares, but are not assumed to participate in the Company's net losses because they are not contractually obligated to do so. Accordingly, allocations of earnings to participating securities are included in the Company's calculations of basic and diluted earnings per share from continuing operations, discontinued operations and net income attributable to common stockholders.
During periods in which the Company realizes a loss from continuing operations attributable to common stockholders, securities or other contracts to issue common stock would be dilutive to loss per share from continuing operations; therefore, conversion into common stock is assumed not to occur.

24

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

The following tables reconcile the Company's net income (loss) attributable to common stockholders to basic net income attributable to common stockholders and diluted net income (loss) attributable to common stockholders for the three months ended March 31, 2013 and 2012:
 
 
Three Months Ended March 31, 2013
 
 
Continuing
Operations
 
Discontinued
Operations
 
Total
 
 
(in thousands)
Net income (loss) attributable to common stockholders
 
$
101,128

 
$
(465
)
 
$
100,663

Participating basic earnings
 
(1,270
)
 

 
(1,270
)
Basic net income (loss) attributable to common stockholders
 
99,858

 
(465
)
 
99,393

Reallocation of participating earnings
 
35

 

 
35

Diluted income (loss) attributable to common stockholders
 
$
99,893

 
$
(465
)
 
$
99,428


 
 
Three Months Ended March 31, 2012
 
 
Continuing
Operations
 
Discontinued
Operations
 
Total
 
 
(in thousands)
Net income attributable to common stockholders
 
$
203,924

 
$
10,695

 
$
214,619

Participating basic earnings
 
(2,326
)
 
(122
)
 
(2,448
)
Basic income attributable to common stockholders
 
201,598

 
10,573

 
212,171

Reallocation of participating earnings
 
68

 
3

 
71

Diluted income attributable to common stockholders
 
$
201,666

 
$
10,576

 
$
212,242

The following table is a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three months ended March 31, 2013 and 2012: 
 
 
Three Months Ended
March 31,
 
 
2013
 
2012
 
 
(in thousands)
Weighted average common shares outstanding:
 
 
 
 
Basic
 
128,940

 
122,480

Dilutive common stock options (a)
 
157

 
150

Convertible Senior Notes dilution
 
3,534

 
3,460

Contingently issuable performance unit shares
 
120

 
157

Diluted
 
132,751

 
126,247

 ____________________
(a)
Options to purchase 98,819 shares of the Company's common stock were excluded from the diluted income per share calculations for the three months ended March 31, 2013 because they would have been anti-dilutive to the calculation.

NOTE O. Subsequent Event
In April 2013, Pioneer Southwest declared a cash distribution of $0.52 per common unit for the period from January 1 to March 31, 2013. The distribution is payable on May 10, 2013 to unitholders of record at the close of business on May 3, 2013. Associated therewith, Pioneer Southwest expects to pay $18.6 million of aggregate distributions.
On April 15, 2013, the Company announced that it would exercise its option to redeem all Convertible Senior Notes that have not been converted by the holders before May 16, 2013 for cash at a price equal to the full principal amount plus accrued and unpaid interest, in accordance with the indenture agreement. The Convertible Senior Notes are convertible at the option of

25

PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013
(Unaudited)

the holders prior to May 16, 2013, using a net share settlement process, into a combination of cash and shares of the Company's common stock based on a formula set forth in the indenture supplement. See Note G for additional information about the Convertible Senior Notes.
On May 7, 2013, the Company delivered a proposal to the chairman of the Conflicts Committee (the "Conflicts Committee") of the General Partner to acquire all of the outstanding common units of Pioneer Southwest that are held by unitholders other than Pioneer or its subsidiaries for consideration of .2234 of a share of common stock of Pioneer for each outstanding common unit of Pioneer Southwest held by such unitholders in a transaction to be structured as a merger of Pioneer Southwest with a wholly-owned subsidiary of Pioneer.  In proposing the .2234 exchange ratio, the Company stated that it has assumed that a regular quarterly common unit distribution of $0.52 per common unit will be declared by Pioneer Southwest in July 2013 and that, thereafter, common unit distributions will be suspended while the transaction is pending.  The consummation of the transactions contemplated by the Company's proposal is subject to approval of the Company's board of directors, approval of the Conflicts Committee and the negotiation of a definitive agreement.  There can be no assurance that a definitive agreement will be executed or that any transaction will be approved or consummated.

26

PIONEER NATURAL RESOURCES COMPANY

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Financial and Operating Performance
The Company's financial and operating performance for the first quarter of 2013 included the following highlights:
Net income attributable to common stockholders for the first quarter of 2013 was $100.7 million ($0.75 per diluted share), as compared to $214.6 million ($1.68 per diluted share) for the first quarter of 2012. The decrease in net income attributable to common stockholders is primarily comprised of a $101.1 million decrease in net income from continuing operations and an $11.2 million decline in income from discontinued operations, net of tax, as a result of completing the sale of Pioneer South Africa during the third quarter of 2012 and no longer recognizing the results of operations for Pioneer South Africa as discontinued operations. The primary components of the decrease in net income from continuing operations include:
a $134.0 million change in net derivative activity, principally comprised of increases in gas derivative losses, partially offset by increases in oil derivative gains, as a result of cash settlements and changes in forward commodity prices and the Company's portfolio of derivatives;
a $49.3 million increase in DD&A expense, primarily due to increased sales volumes and an increase in the carrying value of proved oil and gas properties; and
a $37.4 million increase in oil and gas production costs, primarily due to increases in variable lease operating expenses and third-party transportation fees due to higher sales volumes; partially offset by
a $68.9 million increase in oil and gas revenues as a result of an increase in sales volumes and average gas prices, partially offset by lower average oil and NGL prices; and
a $58.4 million decrease in the Company's income tax provision.
During the first quarter of 2013, average daily sales volumes from continuing operations increased by 16 percent to 170,900 BOEPD, as compared to 146,727 BOEPD during the first quarter of 2012. The increase in first quarter 2013 average daily sales volumes, as compared to the first quarter of 2012, was primarily due to the Company's successful drilling program during the last nine months of 2012 and the first three months of 2013.
Average reported oil and NGL prices decreased during the first quarter of 2013 to $88.57 per BBL and $30.36 per BBL, respectively, as compared to $100.99 per BBL and $41.81 per BBL, respectively, in the first quarter of 2012. Average reported gas prices increased during the first quarter of 2013 to $3.14 per MCF, as compared to $2.51 per MCF in the first quarter of 2012.
Average oil and gas production costs per BOE increased to $10.99 for the first quarter of 2013, as compared to $9.87 for the first quarter of 2012, primarily due to increases in lease operating expenses and third-party transportation charges. The increase in lease operating expenses is primarily due to inflation of field services costs and the increase in third-party transportation fees is primarily due to gathering, treating and transportation costs associated with increasing sales volumes in the Permian Basin and South Texas asset areas.
Net cash provided by operating activities decreased to $360.1 million for the three months ended March 31, 2013, as compared to $426.1 million for the three months ended March 31, 2012. The $66.0 million decrease in net cash provided by operating activities is primarily due to working capital changes.
In January 2013, the Company signed an agreement with Sinochem, an unaffiliated third party to sell 40 percent of Pioneer's interest in 207,000 net acres leased by the Company in the horizontal Wolfcamp Shale play in the southern portion of the Spraberry field for total consideration of $1.7 billion. Sinochem will pay $522.0 million in cash to Pioneer at closing, before normal closing adjustments, and will pay the remaining $1.2 billion by carrying 75 percent of Pioneer's portion of future drilling and facilities costs attributable to the horizontal Wolfcamp Shale play. This transaction is expected to close during the second quarter of 2013, subject to governmental approvals.
During February 2013, the Company completed an offering of 10.35 million shares of its common stock at a per-share price, after underwriting and offering expenses, of $123.76 and realized $1.3 billion of associated net proceeds. The Company used the net proceeds from the offering to reduce outstanding debt under the Credit Facility and to increase cash and cash equivalents. The Company intends to use the increase in cash and cash equivalents for general corporate purposes, including funding the acceleration of horizontal appraisal drilling in the northern portion of the Company's highly prospective Wolfcamp/Spraberry acreage position in West Texas.
During the first three months of 2013, certain holders of the Company's Convertible Senior Notes exercised their right to convert their Convertible Senior Notes. Associated therewith, the Company paid $261.3 million of cash and issued 2.4 million shares of the Company's common stock during the first quarter of 2013. In April 2013, the Company announced

27

PIONEER NATURAL RESOURCES COMPANY

that it would exercise its option to redeem all Convertible Senior Notes that have not been converted by the holders before May 16, 2013 for cash at a price equal to the full principal amount plus accrued and unpaid interest, in accordance with the indenture agreement. The Convertible Senior Notes are convertible at the option of the holders prior to May 16, 2013, using a net share settlement process, into a combination of cash and shares of the Company's common stock for the Convertible Senior Note's conversion value in excess of the principal amount. See Note G of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information about the Convertible Senior Notes.
As of March 31, 2013, the Company's net debt to book capitalization was 26 percent, as compared to 37 percent as of December 31, 2012. The Company was upgraded to investment grade by one of its debt rating agencies during the first quarter of 2013. Three of the major debt rating agencies have now upgraded the Company to investment grade.
Recent Developments
On May 7, 2013, the Company delivered a proposal to the chairman of the Conflicts Committee of the General Partner to acquire all of the outstanding common units of Pioneer Southwest that are held by unitholders other than Pioneer or its subsidiaries for consideration of .2234 of a share of common stock of Pioneer for each outstanding common unit of Pioneer Southwest held by such unitholders in a transaction to be structured as a merger of Pioneer Southwest with a wholly-owned subsidiary of Pioneer.  In proposing the .2234 exchange ratio, the Company stated that it has assumed that a regular quarterly common unit distribution of $0.52 per common unit will be declared by Pioneer Southwest in July 2013 and that, thereafter, common unit distributions will be suspended while the transaction is pending.  The consummation of the transactions contemplated by the Company's proposal is subject to approval of the Company's board of directors (the "Board"), approval of the Conflicts Committee and the negotiation of a definitive agreement.  There can be no assurance that a definitive agreement will be executed or that any transaction will be approved or consummated.
The consolidation of the properties of Pioneer and Pioneer Southwest in the Midland Basin in West Texas through this proposed transaction would facilitate the Company's plans to fully and optimally develop the area and would provide organizational, operational and administrative efficiencies. Pioneer owns 100 percent of the General Partner and owns approximately 52.4 percent of the 35,713,700 outstanding common units of Pioneer Southwest. See Notes B and O of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for more information about Pioneer Southwest.

 Second Quarter 2013 Outlook
Based on current estimates, the Company expects the following operations and financial results from continuing operations for the quarter ending June 30, 2013:
Production is forecasted to average 174,000 to 179,000 BOEPD.
Production costs (including production and ad valorem taxes and transportation costs) are expected to average $14.00 to $16.00 per BOE based on current NYMEX strip commodity prices. DD&A expense is expected to average $14.00 to $16.00 per BOE.
Total exploration and abandonment expense is expected to be $25 million to $35 million. General and administrative expense is expected to be $62 million to $67 million. Interest expense is expected to be $50 million to $55 million, and other expense is expected to be $25 million to $35 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $4 million.
Noncontrolling interest in consolidated subsidiaries' net income, excluding noncash mark-to-market adjustments, is expected to be $8 million to $11 million, primarily reflecting the public ownership in Pioneer Southwest.
The Company's effective income tax rate, excluding the effect of net income attributable to noncontrolling interest, is expected to range from 35 percent to 40 percent assuming current capital spending plans and no significant mark-to-market changes in the Company's derivative position. Cash income taxes are expected to range from $5 million to $10 million, attributable to federal alternative minimum tax and state taxes.

28

PIONEER NATURAL RESOURCES COMPANY

Operations and Drilling Highlights
The following table summarizes the Company's average daily oil, NGL, gas and total production by asset area during the three months ended March 31, 2013:
 
 
Oil (BBLs)
 
NGLs (BBLs)
 
Gas (MCF)
 
Total (BOE)
Permian Basin
 
52,763

 
13,303

 
62,116

 
76,418

South Texas - Eagle Ford Shale
 
12,741

 
10,133

 
86,305

 
37,257

Raton Basin
 

 

 
138,358

 
23,060

Mid-Continent
 
3,202

 
6,511

 
41,250

 
16,588

South Texas - Edwards and Austin Chalk
 
79

 
2

 
31,609

 
5,349

Barnett Shale
 
1,445

 
3,038

 
24,159

 
8,510

Alaska
 
3,707

 

 

 
3,707

Other
 
2

 
2

 
39

 
11

 
 
73,939

 
32,989

 
383,836

 
170,900

During 2013 and 2012, the Company has focused its capital budgets and expenditures on oil and liquids-rich-gas drilling activities due to low gas prices. As a result of these capital activities, the Company's total liquids production from continuing operations increased to 63 percent of total production, on a BOE basis, for the three months ended March 31, 2013, as compared to 58 percent for the same period last year. Despite the increase in liquids production, the Company's liquids revenue, as a percent of total commodity sales, decreased to 86 percent for the three months ended March 31, 2013, as compared to 88 percent for the same period last year, due to a 25 percent increase in the average reported gas price and declines of 12 percent and 27 percent in reported oil and NGL prices, respectively, as compared to the first quarter of 2012.
 The following table summarizes by geographic area the Company's finding and development costs incurred during the three months ended March 31, 2013: 
 
 
Acquisition Costs
 
Exploration
 
Development
 
Asset
Retirement
 
 
 
 
Proved
 
Unproved
 
Costs
 
Costs
 
Obligations
 
Total
 
 
(in thousands)
Permian Basin
 
$
266

 
$
3,531

 
$
170,876

 
$
313,455

 
$
1,339

 
$
489,467

South Texas - Eagle Ford Shale
 

 
763

 
121,520

 
39,910

 
776

 
162,969

Raton Basin
 

 

 
1,728

 
1,009

 

 
2,737

Mid-Continent
 

 
59

 
712

 
861

 

 
1,632

South Texas - Edwards and Austin Chalk
 

 

 
292

 
72

 

 
364

Barnett Shale
 
1,071

 
1,452

 
22,612

 
(1,413
)
 
168

 
23,890

Alaska
 

 

 
41,326

 
52,827

 
(5,434
)
 
88,719

Other
 
4

 
360

 
9,176

 

 
22

 
9,562

 
 
$
1,341

 
$
6,165

 
$
368,242

 
$
406,721

 
$
(3,129
)
 
$
779,340


29

PIONEER NATURAL RESOURCES COMPANY

The following table summarizes the Company's development and exploration/extension drillin