UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

______________________________

FORM 10-Q 

______________________________

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

For the quarterly period ended June 30, 2020

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.)

777 Hidden Ridge

Irving, Texas 75038

(Address of principal executive offices and zip code)

(972) 444-9001

(Registrant's telephone number, including area code)

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	PXD	New York Stock Exchange

Not applicable

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

______________________________

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

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

Yes   ☒    No   ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Yes   ☐    No  ☒

Number of shares of Common Stock outstanding as of August 4, 2020     164,276,170

PIONEER NATURAL RESOURCES COMPANY

TABLE OF CONTENTS 

		Page
Cautionary Statement Concerning Forward-Looking Statements		3
Definitions of Certain Terms and Conventions Used Herein		4
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	6
	Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	8
	Consolidated Statements of Equity for the three and six months ended June 30, 2020 and 2019	9
	Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	11
	Notes to Consolidated Financial Statements	12
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	46
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 6.	Exhibits	48
Signatures		49

2

PIONEER NATURAL RESOURCES COMPANY

Cautionary Statement Concerning Forward-Looking Statements

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

These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, the impact of a widespread outbreak of an illness, such as the COVID-19 pandemic, on global and U.S. economic activity, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to perform the Company's drilling and operating activities, access to and availability of transportation, processing, fractionation, refining, storage and export facilities, Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer's credit facility, investment instruments and derivative contracts and purchasers of Pioneer's oil, NGL and gas production, uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future, the assumptions underlying forecasts, including forecasts of production, expenses, cash flow from purchases and sales of oil and gas, net of firm transportation commitments, and tax rates, quality of technical data, environmental and weather risks, including the possible impacts of climate change, cybersecurity risks, ability to implement stock repurchases, the risks associated with the ownership and operation of the Company's oilfield services businesses and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K, this and other Quarterly Reports on Form 10-Q and other filings with the United States Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. 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.

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

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

•"BOEPD" means BOE per day.

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

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

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

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

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

•"MBbl" means one thousand Bbls.

•"MBOE" means one thousand BOEs.

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

•"MMBtu" means one million Btus.

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

•"NYMEX" means the New York Mercantile Exchange.

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

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

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

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

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

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

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

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

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

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

•"U.S." means United States.

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

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

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

4

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions)

	June 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	180	$	631
Restricted cash	69		74
Accounts receivable:
Trade, net	566		1,032
Due from affiliates	—		3
Income taxes receivable	21		7
Inventories	170		205
Derivatives	72		32
Investment in affiliate	85		187
Other	32		20
Total current assets	1,195		2,191
Oil and gas properties, using the successful efforts method of accounting:
Proved properties	23,217		22,444
Unproved properties	577		584
Accumulated depletion, depreciation and amortization	(9,349)		(8,583)
Total oil and gas properties, net	14,445		14,445
Other property and equipment, net	1,622		1,632
Operating lease right-of-use assets	216		280
Goodwill	261		261
Derivatives	3		—
Other assets	164		258
	$	17,906	$	19,067

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

without audit by independent registered public accountants.

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

5

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS (continued)

(in millions, except share data) 

	June 30, 2020		December 31, 2019
	(Unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	787	$	1,221
Due to affiliates	65		190
Interest payable	26		53
Income taxes payable	4		3
Current portion of long-term debt	139		450
Derivatives	88		12
Operating leases	110		136
Other	365		431
Total current liabilities	1,584		2,496
Long-term debt	2,054		1,839
Derivatives	27		8
Deferred income taxes	1,403		1,389
Operating leases	124		170
Other liabilities	974		1,046
Equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 175,378,954 and 175,057,889 shares issued as of June 30, 2020 and December 31, 2019, respectively	2		2
Additional paid-in capital	9,285		9,161
Treasury stock at cost: 11,102,784 and 9,511,248 shares as of June 30, 2020 and December 31, 2019, respectively	(1,240)		(1,069)
Retained earnings	3,693		4,025
Total equity	11,740		12,119
Commitments and contingencies
	$	17,906	$	19,067

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

without audit by independent registered public accountants.

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

6

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(Unaudited) 

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenues and other income:
Oil and gas	$	600	$	1,196	$	1,695	$	2,332
Sales of purchased oil and gas	541		1,183		1,456		2,292
Interest and other income (loss), net	48		(11)		(158)		181
Derivative gain (loss), net	(336)		43		117		29
Gain (loss) on disposition of assets, net	6		(488)		6		(498)
	859		1,923		3,116		4,336
Costs and expenses:
Oil and gas production	167		219		343		440
Production and ad valorem taxes	47		69		120		136
Depletion, depreciation and amortization	416		412		850		833
Purchased oil and gas	572		1,102		1,600		2,059
Exploration and abandonments	10		15		19		35
General and administrative	60		80		116		174
Accretion of discount on asset retirement obligations	2		2		5		5
Interest	33		29		60		59
Other	90		211		175		358
	1,397		2,139		3,288		4,099
Income (loss) before income taxes	(538)		(216)		(172)		237
Income tax benefit (provision)	99		47		22		(56)
Net income (loss) attributable to common stockholders	$	(439)	$	(169)	$	(150)	$	181
Basic and diluted net income (loss) per share attributable to common stockholders	$	(2.66)	$	(1.01)	$	(0.91)	$	1.07
Weighted average shares outstanding:
Basic	165		168		165		168
Diluted	165		168		165		169
Dividends declared per share	$	0.55	$	—	$	1.10	$	0.32

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 EQUITY

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

(Unaudited)

		Equity Attributable To Common Stockholders
	Shares Outstanding	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Total Equity
	(in thousands)
Balance as of December 31, 2019	165,547	$	2	$	9,161	$	(1,069)	$	4,025	$	12,119
Dividends declared ($0.55 per share)	—	—		—		—		(91)		(91)
Exercise of long-term incentive stock options	8	—		(1)		1		—		—
Purchases of treasury stock	(1,007)	—		—		(122)		—		(122)
Stock-based compensation costs:
Issued awards	316	—		—		—		—		—
Compensation costs included in net income	—	—		16		—		—		16
Net income	—	—		—		—		289		289
Balance as of March 31, 2020	164,864	2		9,176		(1,190)		4,223		12,211
Dividends declared ($0.55 per share)	—	—		—		—		(91)		(91)
Convertible senior notes:
Equity component	—	—		230		—		—		230
Capped call	—	—		(113)		—		—		(113)
Deferred tax provision	—	—		(25)		—		—		(25)
Purchases of treasury stock	(592)	—		—		(50)		—		(50)
Stock-based compensation costs:
Issued awards	4	—		—		—		—		—
Compensation costs included in net loss	—	—		17		—		—		17
Net loss	—	—		—		—		(439)		(439)
Balance as of June 30, 2020	164,276	$	2	$	9,285	$	(1,240)	$	3,693	$	11,740

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

8

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

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

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

(Unaudited)

		Equity Attributable To Common Stockholders
	Shares Outstanding	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Total Equity
	(in thousands)
Balance as of December 31, 2018	169,499	$	2	$	9,062	$	(423)	$	3,470	$	12,111
Dividends declared ($0.32 per share)	—	—		—		—		(54)		(54)
Exercise of long-term incentive stock options	10	—		(1)		1		—		—
Purchases of treasury stock	(1,594)	—		—		(222)		—		(222)
Stock-based compensation costs:
Issued awards	507	—		—		—		—		—
Compensation costs included in net income	—	—		24		—		—		24
Net income	—	—		—		—		350		350
Balance as of March 31, 2019	168,422	2		9,085		(644)		3,766		12,209
Purchases of treasury stock	(1,349)	—		—		(202)		—		(202)
Stock-based compensation costs:
Issued awards	49	—		—		—		—		—
Compensation costs included in net loss	—	—		38		—		—		38
Net loss	—	—		—		—		(169)		(169)
Balance as of June 30, 2019	167,122	$	2	$	9,123	$	(846)	$	3,597	$	11,876

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 millions)

(Unaudited)

	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(150)	$	181
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization	850		833
Impairment of inventory and other property and equipment	1		31
Exploration expenses, including dry holes	3		4
Deferred income taxes	(11)		56
(Gain) loss on disposition of assets, net	(6)		498
Loss on early extinguishment of debt	27		—
Accretion of discount on asset retirement obligations	5		5
Interest expense	18		3
Derivative-related activity	52		(20)
Amortization of stock-based compensation	33		62
Investment in affiliate valuation adjustment	101		(171)
South Texas contingent consideration valuation adjustment	64		13
South Texas deficiency fee obligation	69		—
Other	64		76
Change in operating assets and liabilities:
Accounts receivable	468		17
Inventories	34		(58)
Other assets	26		(16)
Accounts payable	(313)		(69)
Interest payable	(27)		—
Other liabilities	(154)		(52)
Net cash provided by operating activities	1,154		1,393
Cash flows from investing activities:
Proceeds from disposition of assets	7		57
Proceeds from investments	—		568
Purchase of investments	(1)		—
Additions to oil and gas properties	(1,034)		(1,510)
Additions to other assets and other property and equipment	(78)		(135)
Net cash used in investing activities	(1,106)		(1,020)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes	1,323		—
Purchase of derivatives related to issuance of convertible senior notes	(113)		—
Borrowing under credit facility	800		—
Repayment of credit facility	(800)		—
Repayment of senior notes, including tender offer premiums	(1,198)		—
Payments of other liabilities	(154)		(2)
Payments of financing fees, net	(26)		—
Purchases of treasury stock	(172)		(424)
Dividends paid	(164)		(54)
Net cash used in financing activities	(504)		(480)
Net decrease in cash, cash equivalents and restricted cash	(456)		(107)
Cash, cash equivalents and restricted cash, beginning of period	705		825
Cash, cash equivalents and restricted cash, end of period	$	249	$	718

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

June 30, 2020

(Unaudited)

NOTE 1. Organization and Nature of Operations

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

NOTE 2. Basis of Presentation

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

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

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

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

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

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

11

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

on an aging of the accounts receivable balances and the financial condition of customers. The Company's monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not significantly impacted.

NOTE 3. Divestitures, Decommissioning and Restructuring Activities

Divestitures

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

•In June 2019, the Company completed the sale of certain vertical wells and approximately 1,900 undeveloped acres in Martin County of the Permian Basin to an unaffiliated third party for net cash proceeds of $38 million. The Company recorded a gain of $31 million associated with the sale during the three months ended June 30, 2019.

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

Contingent Consideration. Per the terms of the purchase and sale agreement, the Company was entitled to receive contingent consideration based on future annual oil and NGL prices during each of the five years from 2020 to 2024. The Company revalued the contingent consideration using an option pricing model each reporting period. During the six months end June 30, 2020, the Company recorded a loss on valuation adjustment of $64 million. The fair value of the contingent consideration was $27 million as of June 30, 2020, and is included in noncurrent other assets in the consolidated balance sheets since, if earned, such consideration would have been paid by the buyer in installments beginning in 2023 through 2025. In July 2020, the Company accepted $49 million to fully satisfy the South Texas Divestiture contingent consideration receivable. See Note 4, Note 5 and Note 13 for additional information.

Deficiency Fee Obligation. The Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC from January 2019 through July 2022. The Company determines the fair value of the deficiency fee obligation using a probability weighted present value model. The deficiency fee obligation is included in current or noncurrent liabilities in the consolidated balance sheets, based on the timing of payments. During the six months ended June 30, 2020, the Company recorded a charge of $69 million in other expense to reflect the changes in the Company's forecasted deficiency fee payments. The estimated remaining deficiency fee obligation was $321 million as of June 30, 2020. See Note 4, Note 10 and Note 14 for additional information.

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

Restricted Cash. As of June 30, 2020, the Company has $69 million deposited in an escrow account to be used to fund future deficiency fee payments. The escrow account balance is included in restricted cash in the consolidated balance sheets as of June 30, 2020. Beginning in 2021, the required escrow balance will decline to

12

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

$50 million and, to the extent that there is any remaining balance after the payment of deficiency fees, the balance will become unrestricted and revert to the Company on March 31, 2023.

Decommissioning

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

Restructuring

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

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

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

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

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

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

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

	Six Months Ended June 30,
	2020		2019
	(in millions)
Beginning employee-related obligations	$	6	$	27
Additions (a)	1		156
Cash payments	(6)		(89)
Ending employee-related obligations	$	1	$	94

______________________

(a)Represents employee-related charges associated with the Company's staffing reduction in its well services business. See Note 14 for additional information.

NOTE 4. Fair Value Measurements

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

13

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

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

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

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

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

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

	As of June 30, 2020
	Fair Value Measurement
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in millions)
Assets:
Commodity price derivatives	$	—	$	75	$	—	$	75
Deferred compensation plan assets	64		—		—		64
Investment in affiliate	85		—		—		85
Contingent consideration	—		27		—		27
Total assets	149		102		—		251
Liabilities:
Commodity price derivatives	—		115		—		115
	$	149	$	(13)	$	—