<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to ________
COMMISSION FILE NO. 1-13245
PIONEER NATURAL RESOURCES COMPANY
---------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 75-2702753
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
- ---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code : (972) 444-9001
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
AS OF APRIL 30, 1999................................100,300,023
<PAGE> 2
PIONEER NATURAL RESOURCES COMPANY
TABLE OF CONTENTS
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Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ............ 3
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the three months ended March 31, 1999 and 1998.............................. 5
Consolidated Statement of Stockholders' Equity for the three months ended
March 31, 1999.................................................................. 6
Consolidated Statements of Cash Flows for the three months ended March 31,
1999 and 1998................................................................... 7
Notes to Consolidated Financial Statements......................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................... 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................. 38
Item 6. Exhibits and Reports on Form 8-K................................................... 38
Signatures......................................................................... 39
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 33,563 $ 59,221
Accounts receivable:
Trade, net ............................................................. 29,456 33,384
Affiliates ............................................................. 1,899 3,657
Oil and gas sales ...................................................... 77,666 73,479
Inventories .............................................................. 13,450 15,221
Deferred income taxes .................................................... 5,700 7,100
Other current assets ..................................................... 9,546 9,926
----------- -----------
Total current assets ................................................. 171,280 201,988
----------- -----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties ................................................. 3,662,266 3,621,630
Unproved properties ............................................... 340,578 342,589
Accumulated depletion, depreciation and amortization ..................... (998,541) (930,111)
----------- -----------
3,004,303 3,034,108
----------- -----------
Deferred income taxes ...................................................... 98,200 96,800
Other property and equipment, net .......................................... 51,612 55,010
Other assets, net .......................................................... 91,734 93,408
----------- -----------
$ 3,417,129 $ 3,481,314
=========== ===========
</TABLE>
The financial information included as of March 31, 1999 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt ....................................... $ 339,282 $ 306,521
Accounts payable:
Trade ................................................................... 68,227 94,937
Affiliates .............................................................. 531 4,492
Accrued interest payable ................................................... 22,104 33,194
Other current liabilities .................................................. 76,467 87,688
----------- -----------
Total current liabilities ......................................... 506,611 526,832
----------- -----------
Long-term debt, less current maturities ....................................... 1,869,134 1,868,744
Other noncurrent liabilities .................................................. 189,838 232,461
Deferred income taxes ......................................................... 64,800 64,200
Stockholders' equity:
Preferred stock, $.01 par value; 100,000,000 shares authorized;
one share issued and outstanding ........................................ -- --
Common stock, $.01 par value; 500,000,000 shares authorized; 100,837,415 and
100,833,615 shares issued as of March 31,
1999 and December 31, 1998, respectively ................................ 1,008 1,008
Additional paid-in-capital ................................................. 2,348,071 2,347,996
Treasury stock, at cost; 537,392 shares as of March 31, 1999
and December 31, 1998 ................................................... (10,388) (10,388)
Retained deficit ........................................................... (1,554,943) (1,552,442)
Accumulated other comprehensive income:
Cumulative translation adjustment .................................... 2,998 2,903
----------- -----------
Total stockholders' equity ........................................ 786,746 789,077
----------- -----------
Commitments and contingencies
$ 3,417,129 $ 3,481,314
=========== ===========
</TABLE>
The financial information included as of March 31, 1999 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Oil and gas ................................................................. $ 147,151 $ 197,369
Interest and other .......................................................... 45,973 1,178
Gain on disposition of assets, net .......................................... 67 10
--------- ---------
193,191 198,557
--------- ---------
Costs and expenses:
Oil and gas production ...................................................... 47,194 55,142
Depletion, depreciation and amortization .................................... 69,372 76,250
Exploration and abandonments ................................................ 11,776 23,949
General and administrative .................................................. 10,249 20,025
Reorganization .............................................................. 5,529 17,177
Interest .................................................................... 42,521 39,478
Other ....................................................................... 8,651 6,780
--------- ---------
195,292 238,801
--------- ---------
Loss before income taxes ....................................................... (2,101) (40,244)
Income tax (provision) benefit ................................................. (400) 13,400
--------- ---------
Net loss ....................................................................... (2,501) (26,844)
Other comprehensive income:
Translation adjustment ...................................................... 95 940
--------- ---------
Comprehensive loss ............................................................. $ (2,406) $ (25,904)
========= =========
Net loss per share:
Basic ....................................................................... $ (.02) $ (.27)
========= =========
Diluted ..................................................................... $ (.02) $ (.27)
========= =========
Dividends declared per share ................................................... $ -- $ .05
========= =========
Weighted average shares outstanding ............................................ 100,300 100,545
========= =========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK ADDITIONAL OTHER TOTAL
SHARES COMMON PAID-IN TREASURY RETAINED COMPREHENSIVE STOCKHOLDERS'
OUTSTANDING STOCK CAPITAL STOCK DEFICIT INCOME EQUITY
----------- ----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1999 ... 100,296 $ 1,008 $ 2,347,996 $ (10,388) $(1,552,442) $ 2,903 $ 789,077
Restricted stock awards ...... 3 -- 69 -- -- -- 69
Stock options exercised ...... 1 -- 6 -- -- -- 6
Net loss ..................... -- -- -- -- (2,501) -- (2,501)
Other comprehensive income:
Translation adjustment .... -- -- -- -- -- 95 95
----------- ----------- ----------- ----------- ----------- ------------- -------------
Balance as of March 31, 1999 .... 100,300 $ 1,008 $ 2,348,071 $ (10,388) $(1,554,943) $ 2,998 $ 786,746
=========== =========== =========== =========== =========== ============= =============
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (2,501) $ (26,844)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depletion, depreciation and amortization .............................. 69,372 76,250
Exploration expenses, including dry holes ............................. 10,310 15,834
Deferred income taxes ................................................. (100) (12,700)
Gain on disposition of assets, net .................................... (67) (10)
Other noncash items ................................................... (30,286) 13,137
Change in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable ................................................... 2,295 5,429
Inventory ............................................................. 1,815 825
Other current assets .................................................. (173) (8,791)
Accounts payable ...................................................... (26,514) (7,832)
Other current liabilities ............................................. (15,860) 13,753
--------- ---------
Net cash provided by operating activities ....................... 8,291 69,051
--------- ---------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired .............................. -- (429)
Proceeds from disposition of assets ......................................... 5,150 12,884
Additions to oil and gas properties ......................................... (47,173) (195,309)
Other property additions, net ............................................... 101 (3,870)
--------- ---------
Net cash used in investing activities ........................... (41,922) (186,724)
--------- ---------
Cash flows from financing activities:
Borrowings under long-term debt ............................................. 307,217 773,183
Principal payments on long-term debt ........................................ (279,741) (615,719)
Payment of noncurrent liabilities ........................................... (12,927) (21,434)
Dividends ................................................................... -- (5,056)
Purchase of treasury stock .................................................. -- (5,572)
Deferred loan fees/issuance costs ........................................... (6,891) (5,290)
--------- ---------
Net cash provided by financing activities ....................... 7,658 120,112
--------- ---------
Net increase (decrease) in cash and cash equivalents ........................... (25,973) 2,439
Effect of exchange rate changes on cash and cash equivalents ................... 315 --
Cash and cash equivalents, beginning of period ................................. 59,221 71,713
--------- ---------
Cash and cash equivalents, end of period ....................................... $ 33,563 $ 74,152
========= =========
</TABLE>
The financial information included herein has been prepared by management
without audit by independent public accountants.
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE A. ORGANIZATION AND NATURE OF OPERATIONS
Pioneer Natural Resources Company (the "Company") is a Delaware
corporation whose common stock is listed and traded on the New York Stock
Exchange and the Toronto Stock Exchange. The Company was formed by the merger of
Parker & Parsley Petroleum Company and MESA Inc. ("Mesa") on August 7, 1997. The
Company was significantly expanded by the subsequent acquisition of the Canadian
and Argentine oil and gas business of Chauvco Resources Ltd ("Chauvco"), a
publicly traded independent oil and gas company based in Calgary, Canada on
December 18, 1997. The Company is an oil and gas exploration and production
company with ownership interests in oil and gas properties located principally
in the Mid Continent, Southwestern and onshore and offshore Gulf Coast regions
of the United States and in Argentina, Canada and South Africa.
NOTE B. BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated financial
statements of the Company as of March 31, 1999 and for the three months ended
March 31, 1999 and 1998 include all adjustments and accruals, consisting only of
normal recurring accrual adjustments, which are necessary for a fair
presentation of the results for the interim periods. These interim results are
not necessarily indicative of results for a full year. Certain amounts in the
prior period financial statements have been reclassified to conform to the
current period presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). These
consolidated financial statements should be read in connection with the
consolidated financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
NOTE C. AMENDED CREDIT FACILITIES
As of March 31, 1999 and December 31, 1998, the Company had $1.28
billion and $1.25 billion of respective borrowings under credit facility
agreements financed by a syndicate of banks (the "Banks"). As of December 31,
1998, the Company's credit facility borrowings included $974 million of
borrowings (excluding $19.6 million of undrawn letters of credit) outstanding
under a $1.075 billion credit facility (the "Primary Facility"), $276 million of
borrowings under a $290 million Canadian credit facility (the "Canadian
Facility") and no borrowings outstanding under the Company's $85 million 364-day
credit facility (the "364-day Facility). Total loan commitments under these
facilities were $1.44 billion on December 31, 1998.
On March 19, 1999, the Company and the Banks executed amendments to the
credit facility agreements that combined the Primary Facility and the Canadian
Facility into one facility (the "Credit Facility"). The 364-day Facility will
expire by its terms in August, 1999. The terms of the Credit Facility provide
for a $495 million combined reduction in loan commitments (to $941 million),
prior to December 31, 1999. Additionally, the amendments provide for an increase
in the maximum interest rate margin on LIBOR rate advances under the Credit
Facility to 300 basis points, including leverage fees; and, the amendments
provide for the maintenance of certain associated debt covenants, the most
restrictive of which being the maintenance of an annualized ratio of outstanding
Company senior debt to earnings before interest, depletion, depreciation,
amortization, income taxes, exploration and abandonment and other non-cash
expenses not to exceed 5.75 to one through September 30, 1999, 4.25 to one for
the period of October 1, 1999 through March 31, 2000, and 3.5 to one,
thereafter. To satisfy the commitment reduction provisions of the Credit
Facility, the Company intends to reduce its outstanding borrowings through the
use of funds generated by the individual or combined sources of operating
activities, oil and gas property divestitures, borrowings under subordinated
debt agreements or additional issuances of equity.
8
<PAGE> 9
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE D. COMMITMENTS AND CONTINGENCIES
LEGAL ACTIONS. The Company is party to various legal actions incidental
to its business, including, but not limited to, the proceedings described below.
The majority of these lawsuits primarily involve claims for damages arising from
oil and gas leases and ownership interest disputes. The Company believes that
the ultimate disposition of these legal actions will not have a material adverse
effect on the Company's consolidated financial position, liquidity, capital
resources or future results of operations. The Company will continue to evaluate
its litigation matters on a quarter-by-quarter basis and will adjust its
litigation reserve as appropriate to reflect the then current status of its
litigation.
Masterson
In February 1992, the current lessors of an oil and gas lease (the "Gas
Lease") dated April 30, 1955, between R.B. Masterson et. al., as lessor, and
Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in Federal District
Court in Amarillo, Texas, claiming that CIG had underpaid royalties due under
the Gas Lease. Under the agreements with CIG, the Company, as successor to Mesa,
has an entitlement to gas produced from the Gas Lease. In August 1992, CIG filed
a third-party complaint against the Company for any such royalty underpayment
which may be allocable to the Company. Plaintiffs alleged that the underpayment
was the result of CIG's use of an improper gas sales price upon which to
calculate royalties and that the proper price should have been determined
pursuant to a "favored-nations" clause in a July 1, 1967, amendment to the Gas
Lease. The plaintiffs also sought a declaration by the court as to the proper
price to be used for calculating future royalties.
The plaintiffs alleged royalty underpayments of approximately $500
million (including interest at 10 percent) dating from July 1, 1967. In March
1995, the court made certain pretrial rulings that eliminated approximately $400
million of the plaintiff's claims (which related to periods prior to October 1,
1989), but which also reduced a number of the Company's defenses. The Company
and CIG filed stipulations with the court whereby the Company would have been
liable for between 50 percent and 60 percent, depending on the time period
covered, of an adverse judgment against CIG or post-February 1988 underpayments
of royalties.
On March 22, 1995, a jury trial began and on May 4, 1995, the jury
returned its verdict. Among its findings, the jury determined that CIG had
underpaid royalties for the period after September 30, 1989, in the amount of
approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at the
highest price voluntarily paid by CIG to any other lessor, the jury determined
that the plaintiffs were estopped from claiming that the "favored-nations"
clause provides for other than a pricing-scheme to pricing-scheme comparison. In
light of this determination, and the plaintiff's stipulation that a
pricing-scheme to pricing-scheme comparison would not result in any "trigger
prices" or damages, defendants asked the court for a judgment that plaintiffs
take nothing. The court, on June 7, 1995, entered final judgment that plaintiffs
recover no monetary damages. The plaintiffs filed a motion for new trial on June
22, 1995. The court, on July 18, 1997, denied plaintiffs' motion. The plaintiffs
have appealed to the Fifth Circuit Court of Appeals, where oral arguments were
heard in December 1998 and a decision could be announced by the end of the
second quarter of 1999.
On June 7, 1996, the plaintiffs filed a separate suit against CIG and
the Company in state court in Amarillo, Texas, similarly claiming underpayment
of royalties under the "favored-nations" clause, but based upon the
above-described pricing-scheme to pricing-scheme comparison on a well-by-well
monthly basis. The plaintiffs also claim underpayment of royalties since June 7,
1995, under the "favored-nations" clause based upon either the pricing-scheme to
pricing-scheme method or their previously alleged higher price method. The
Company believes it has several defenses to this action and intends to contest
it vigorously. The Company has not yet determined the amount of damages, if any,
that would be payable if such action was determined adversely to the Company.
9
<PAGE> 10
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
The federal court in the above-referenced first suit issued an order on
July 29, 1996, which stayed the state suit pending the plaintiffs' resolution of
the first suit.
Based on the jury verdict and final judgment, the Company does not
currently expect the ultimate resolution of either of these lawsuits to have a
material adverse effect on its financial position or results of operations.
Kansas Ad Valorem Tax
The Natural Gas Policy Act of 1978 ("NGPA") allows a "severance,
production or similar" tax to be included as an add-on, over and above the
maximum lawful price for natural gas. Based on a Federal Energy Regulatory
Commission ("FERC") ruling that Kansas ad valorem tax was such a tax, Mesa
collected the Kansas ad valorem tax in addition to the otherwise maximum lawful
price. The FERC's ruling was appealed to the United States Court of Appeals for
the District of Columbia ("D.C. Circuit"), which held in June 1988 that the FERC
failed to provide a reasoned basis for its findings and remanded the case to the
FERC for further consideration.
On December 1, 1993, the FERC issued an order reversing its prior
ruling, but limiting the effect of its decision to Kansas ad valorem taxes for
sales made on or after June 28, 1988. The FERC clarified the effective date of
its decision by an order dated May 18, 1994. The order clarified that the
effective date applies to tax bills rendered after June 28, 1988, not sales made
on or after that date. Numerous parties filed appeals on the FERC's action in
the D.C. Circuit. Various natural gas producers challenged the FERC's orders on
two grounds: (1) that the Kansas ad valorem tax, properly understood, does
qualify for reimbursement under the NGPA; and (2) the FERC's ruling should, in
any event, have been applied prospectively. Other parties challenged the FERC's
orders on the grounds that the FERC's ruling should have been applied
retroactively to December 1, 1978, the date of the enactment of the NGPA and
producers should have been required to pay refunds accordingly.
The D.C. Circuit issued its decision on August 2, 1996, which holds that
producers must make refunds of all Kansas ad valorem tax collected with respect
to production since October 4, 1983 as opposed to June 28, 1988. Petitions for
rehearing were denied on November 6, 1996. Various natural gas producers
subsequently filed a petition for writ of certiori with the United States
Supreme Court seeking to limit the scope of the potential refunds to tax bills
rendered on or after June 28, 1988 (the effective date originally selected by
the FERC). Williams Natural Gas Company filed a cross-petition for certiori
seeking to impose refund liability back to December 1, 1978. Both petitions were
denied on May 12, 1997.
The Company and other producers filed petitions for adjustment with the
FERC on June 24, 1997. The Company is seeking waiver or set-off from FERC with
respect to that portion of the refund associated with (i) non-recoupable
royalties, (ii) non-recoupable Kansas property taxes based, in part, upon the
higher prices collected, and (iii) interest for all periods. On September 10,
1997, FERC denied this request, and on October 10, 1997, the Company and other
producers filed a request for rehearing. Pipelines were given until November 10,
1997 to file claims on refunds sought from producers and refunds totaling
approximately $30 million were made against the Company. The Company is unable
at this time to predict the final outcome of this matter or the amount, if any,
that will ultimately be refunded. As of March 31, 1999, the Company has set
aside approximately $30 million, including accrued interest, in an escrow
account and has a corresponding amount recorded as other current liabilities in
the accompanying Consolidated Balance Sheet as of March 31, 1999.
NOTE E. COMMODITY HEDGE DERIVATIVES
The Company utilizes various commodity swap and option contracts to (i)
reduce the effect of the volatility of price changes on the commodities the
Company produces and sells, (ii) support the Company's annual capital budgeting
and expenditure plans and (iii) lock in prices to protect the economics related
to certain capital projects.
10
<PAGE> 11
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
Crude oil. All material purchase contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The following table
sets forth the Company's outstanding oil hedge contracts as of March 31, 1999.
<TABLE>
<CAPTION>
YEARLY
SECOND THIRD FOURTH OUTSTANDING
QUARTER QUARTER QUARTER AVERAGE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Daily oil production:
1999 - Swap Contracts*
Volume (Bbl) 16,000 16,000 16,000 16,000
Price per Bbl $15.32 $15.32 $15.32 $15.32
1999 - Collar Contracts
Volume (Bbl) 2,000 2,000 2,000 2,000
Price per Bbl $15.00-$17.60 $15.00-$17.60 $15.00-$17.60 $15.00-$17.60
1999 - Purchased Put
Contracts**
Volume (Bbl) 10,000 10,000 10,000 10,000
Price per Bbl $15.00 $15.00 $15.00 $15.00
</TABLE>
- ----------------
* Certain counterparties to the Swap Contracts have the contractual right to
extend 10,000 Bbl's per day for an additional year at a price of $15.00
per Bbl.
** Concurrent with the Company's purchase of the Put Contracts, the Company
sold 1999 put contracts to the counterparties for an equal volume at an
average strike price of $11.00 per Bbl. Consequently, if the weighted
average 1999 index price falls below $11.00 per Bbl, the Company will
receive the weighted average index price for the notional contract volumes
plus approximately $4.00 per Bbl.
The Company reports average oil prices per Bbl including the effects of
oil quality, gathering and transportation costs and the net effect of the oil
hedges. The following table sets forth the Company's oil prices, both realized
and reported, and net effects of settlements of oil price hedges to revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Average price reported per Bbl $ 11.80 $ 13.97
Average price realized per Bbl $ 11.02 $ 13.16
Addition to revenue (in millions) $ 3.5 $ 4.6
</TABLE>
Natural gas. The Company employs a policy of hedging gas production based
on the index price upon which the gas is actually sold in order to mitigate the
basis risk between NYMEX prices and actual index prices. The following table
sets forth the Company's outstanding gas hedge contracts as of March 31, 1999.
Prices included herein represent the Company's weighted average index price per
MMBtu and, as an additional point of reference, the weighted average price for
the portion of the Company's gas which is hedged based on NYMEX.
11
<PAGE> 12
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
YEARLY
FIRST SECOND THIRD FOURTH OUTSTANDING
QUARTER QUARTER QUARTER QUARTER AVERAGE
Daily gas production: ----------- ----------- ----------- ----------- -----------
1999 - Swap Contracts*
<S> <C> <C> <C> <C> <C>
Volume (Mcf) 106,247 156,800 133,851 132,394
Index price per MMBtu $2.21 $2.21 $2.24 $2.22
NYMEX price per MMBtu $2.39 $2.39 $2.39 $2.39
1999 - Collar Contracts**
Volume (Mcf) 109,818 163,827 154,991 142,999
Index price per MMBtu $2.06-$2.61 $2.06-$2.61 $2.09-$2.65 $2.07-$2.63
2000 - Swap Contracts*
Volume (Mcf) 49,223 49,223 49,223 49,223 49,223
Index price per MMBtu $2.17 $2.17 $2.17 $2.17 $2.17
2000 - Collar Contracts***
Volume (Mcf) 103,223 103,223 103,223 100,571 102,557
Index price per MMBtu $2.09-$2.67 $2.09-$2.67 $2.09-$2.67 $2.10-$2.69 $2.09-$2.68
</TABLE>
- ----------------
* Certain counterparties to the 1999 and 2000 Swap Contracts have the
contractural right to extend 35,000 and 48,861 Mcf per day, respectively,
for an additional year at weighted average strike prices of $2.40 and
$2.21 per MMBtu, respectively.
** Concurrent with the Company's purchase of certain of the 1999 Collar
Contracts, the Company has sold 1999 put contracts to the counterparties
for an average volume of 110,481 Mcf per day at an average index price of
$1.82 per MMBtu. Consequently, if the weighted average 1999 index price
falls below $1.82 per MMBtu, the Company will receive the weighted average
index price for the notional contract volumes, plus approximately $.30 per
MMBtu. 65,000 Mcf per day of the 1999 Collar Contracts and associated put
contracts sold are extendable at the option of the counterparties for a
period of one year at average per MMBtu strike prices of $2.18-$2.79 for
the collar contracts and $1.88 for the put contracts.
*** Concurrent with the Company's purchase of the 2000 Collar Contracts, the
Company sold 2000 put contracts to the counterparties for an equal volume
at an average index price of $1.80 per MMBtu. Consequently, if the
weighted average 2000 index price falls below $1.80 per MMBtu, the Company
will receive the weighted average index price for the notional contract
volumes, plus approximately $.29 per MMBtu. 84,482 Mcf per day of the 2000
Collar Contracts and associated put contracts are extendable for one year
at the option of the counterparties at average per MMBtu prices of
$2.13-$2.79 for the collar contracts and $1.84 for the put contracts.
The Company reports average gas prices per Mcf including the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. The following table sets forth the
Company's gas prices, both realized and reported, and net effects of settlements
of gas price hedges to revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Average price reported per Mcf $ 1.71 $ 2.07
Average price realized per Mcf $ 1.50 $ 1.94
Addition to revenue (in millions) $ 9.3 $ 5.5
</TABLE>
12
<PAGE> 13
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE F. OTHER INCOME
In December 1998, the Company announced the sale of an exclusive and
irrevocable option to a third party to purchase, on or before March 31, 1999,
certain oil and gas properties of the Company. In consideration for the option,
the third party paid an option fee of $41.3 million to the Company. The third
party was unable to complete the purchase of the Company's oil and gas
properties. Accordingly, interest and other revenue in the accompanying
Consolidated Statement of Operations and Comprehensive Income (Loss) for the
three months ended March 31, 1999 includes other income of $41.3 million. Other
noncash items in the accompanying Consolidated Statement of Cash Flows for the
three months ended March 31, 1999 includes a $41.3 million reduction for this
noncash component of earnings.
NOTE G. MARK-TO-MARKET FINANCIAL INSTRUMENTS
The Company is a party to certain BTU swap agreements that do not
qualify as hedges. Other expenses in the accompanying Consolidated Statements of
Operations and Comprehensive Income (Loss) for the three months ended March 31,
1999 and 1998 include non-cash, pre-tax mark-to-market increases to the
liabilities recognized for the BTU swap agreements of $2.0 million and $6.2
million, respectively. These contracts will continue to be marked-to-market at
the end of each reporting period during their respective lives. The effects on
the Company's results of operations in future periods could be significant.
During the fourth quarter of 1998, the Company received three million
shares of common stock of a closely held, non-affiliated, publicly traded entity
in partial payment of option fees referred to in Note F, above. During the three
months ended March 31, 1999, the market quoted value of the three million shares
of common stock declined by $4.9 million to $7.1 million. Accordingly, other
expenses in the accompanying Consolidated Statement of Operations and
Comprehensive Income (Loss) for the three months ended March 31, 1999 includes a
non-cash, pre-tax mark-to-market decrease to the carrying value of the
investment of $4.9 million. The investment in the common stock of the
non-affiliated entity will continue to be marked-to-market at the end of each
reporting period.
The company has a series of forward foreign exchange swap agreements to
exchange Canadian dollars for United States dollars at future dates for a fixed
amount of the first currency. As these contracts do not qualify as hedges, the
company recorded a $2.6 million non-cash pre-tax mark-to-market decrease to the
recognized liabilities associated with these agreements during the three months
ended March 31, 1999. These contracts will continue to be marked-to-market until
they mature at various dates in the fourth quarter of 2000 and the effects on
the Company's results of operations in future periods could be significant.
During the first quarter of 1999, the Company sold NYMEX crude oil calls
for 8,000 barrels per day of oil, at a weighted average strike price of $17.15
per barrel, for a nine month period ending on December 31, 1999. Additionally,
the Company sold calls that provide the counter party an option to exercise call
provisions on 10,000 barrels per day of oil, at a strike price of $20.00 per
barrel, for a twenty-one month period beginning April 1, 1999 and ending on
December 31, 2000, or to exercise call provisions over that same time period on
100,000 MMBtu per day of natural gas, at a weighted average price of $2.70 per
MMBtu. These contracts do not qualify for hedge accounting treatment. Other
expenses in the accompanying Consolidated Statement of Operations and
Comprehensive Income (Loss) for the three months ended March 31, 1999 includes a
$2.6 million non-cash, pre-tax mark-to-market increase to the liability
recognized on these contracts.
NOTE H. REORGANIZATION
During 1998, the Company announced its intentions to reorganize its
operations to realize additional operational and administrative efficiencies.
During the three months ended March 31, 1999 and 1998, the Company recorded
severance, relocation, lease termination and other costs of $5.5 million and
$17.2 million, respectively, relating to the reorganization. The $5.5 million of
reorganization costs recognized during the first quarter of 1999 primarily
consisted of relocation costs that were related to the Company's 1998
initiatives, but were not incurred until 1999.
13
<PAGE> 14
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE I. GEOGRAPHIC OPERATING SEGMENT INFORMATION
The Company has operations in only one industry segment, that being the
oil and gas exploration and production industry; however, the Company is
organizationally structured along geographic operating segments, or regions.
Since the merger with Mesa and the acquisition of Chauvco, the Company has had
reportable operations in the United States, Argentina and Canada.
The following table provides the interim geographic operating segment
data required by Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Geographic
operating segment income tax benefits (provisions) have been determined based on
statutory rates existing in the various tax jurisdictions where the Company has
oil and gas producing activities. The "Headquarters and other" table column
includes revenues and expenses that are not routinely included in the earnings
measures internally reported to management on a geographic operating segment
basis.
<TABLE>
<CAPTION>
UNITED OTHER HEADQUARTERS CONSOLIDATED
STATES ARGENTINA CANADA FOREIGN AND OTHER TOTAL
--------- --------- --------- --------- ------------ ------------
(in thousands)
THREE MONTHS ENDED MARCH 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
Oil and gas revenue .............. $ 117,473 $ 14,547 $ 15,131 $ -- $ -- $ 147,151
Interest and other ............... -- -- -- -- 45,973 45,973
Gain on disposition of assets .... -- -- -- -- 67 67
--------- --------- --------- --------- ------------ ------------
117,473 14,547 15,131 -- 46,040 193,191
--------- --------- --------- --------- ------------ ------------
Production costs ................. 37,519 4,393 5,282 -- -- 47,194
Depletion, depreciation and
amortization ..................... 48,987 8,201 7,581 -- 4,603 69,372
Exploration and abandonments ..... 7,857 819 1,811 1,289 -- 11,776
General and administrative ....... -- -- -- -- 10,249 10,249
Reorganization ................... -- -- -- -- 5,529 5,529
Interest ......................... -- -- -- -- 42,521 42,521
Other ............................ -- -- -- -- 8,651 8,651
--------- --------- --------- --------- ------------ ------------
94,363 13,413 14,674 1,289 71,553 195,292
--------- --------- --------- --------- ------------ ------------
Income (loss) before income taxes 23,110 1,134 457 (1,289) (25,513) (2,101)
Income tax benefit (provision) ... (8,551) (374) (200) 451 8,274 (400)
--------- --------- --------- --------- ------------ ------------
Net income (loss) ................ $ 14,559 $ 760 $ 257 $ (838) $ (17,239) $ (2,501)
========= ========= ========= ========= ============ ============
THREE MONTHS ENDED MARCH 31, 1998:
Oil and gas revenue .............. $ 164,703 $ 16,224 $ 16,442 $ -- $ -- $ 197,369
Interest and other ............... -- -- -- -- 1,178 1,178
Gain on disposition of assets .... -- -- -- -- 10 10
--------- --------- --------- --------- ------------ ------------
164,703 16,224 16,442 -- 1,188 198,557
--------- --------- --------- --------- ------------ ------------
Production costs ................. 44,345 5,122 5,675 -- -- 55,142
Depletion, depreciation and
amortization ..................... 54,774 9,440 8,941 -- 3,095 76,250
Exploration and abandonments ..... 10,427 3,199 7,843 2,480 -- 23,949
General and administrative ....... -- -- -- -- 20,025 20,025
Reorganization ................... -- -- -- -- 17,177 17,177
Interest ......................... -- -- -- -- 39,478 39,478
Other ............................ -- -- -- -- 6,780 6,780
--------- --------- --------- --------- ------------ ------------
109,546 17,761 22,459 2,480 86,555 238,801
--------- --------- --------- --------- ------------ ------------
Income (loss) before income taxes 55,157 (1,537) (6,017) (2,480) (85,367) (40,244)
Income tax benefit (provision) ... (20,408) 508 2,629 868 29,803 13,400
--------- --------- --------- --------- ------------ ------------
Net income (loss) ................ $ 34,749 $ (1,029) $ (3,388) $ (1,612) $ (55,564) $ (26,844)
========= ========= ========= ========= ============ ============
</TABLE>
14
<PAGE> 15
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE J. PIONEER USA
Pioneer Natural Resources USA, Inc. ("Pioneer USA") is a wholly-owned
subsidiary of the Company that has fully and unconditionally guaranteed certain
debt securities of the Company. The Company has not prepared financial
statements and related disclosures for Pioneer USA under separate cover because
management of the Company has determined that such information is not material
to investors. In accordance with practices accepted by the SEC, the Company has
prepared Consolidating Financial Statements in order to quantify the assets of
Pioneer USA as a subsidiary guarantor. The following Consolidating Balance
Sheets, Consolidating Statements of Operations and Comprehensive Income (Loss)
and Consolidating Statements of Cash Flows present financial information for
Pioneer Natural Resources Company as the Parent on a stand-alone basis (carrying
any investments in subsidiaries under the equity method), financial information
for Pioneer USA on a stand-alone basis (carrying any investment in non-guarantor
subsidiaries under the equity method), the non-guarantor subsidiaries of the
Company on a consolidated basis, the consolidation and elimination entries
necessary to arrive at the information for the Company on a consolidated basis,
and the financial information for the Company on a consolidated basis.
Pioneer USA is not restricted from making distributions to the Company.
15
<PAGE> 16
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1999
(in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON-
COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY
----------- ----------- ------------ ------------ -----------
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ........................... $ 53 $ 30,370 $ 3,140 $ $ 33,563
Accounts receivable:
Trade ............................................ 20 72,867 34,235 107,122
Affiliate ........................................ 2,545,570 (1,855,025) (688,646) 1,899
Inventories ......................................... -- 8,001 5,449 13,450
Deferred income taxes ............................... 5,700 -- -- 5,700
Other current assets ................................ 78 7,655 1,813 9,546
----------- ----------- ----------- -----------
Total current assets ...................... 2,551,421 (1,736,132) (644,009) 171,280
----------- ----------- ----------- -----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of accounting:
Proved properties ............................... -- 2,700,693 961,573 3,662,266
Unproved properties ............................. -- 58,507 282,071 340,578
Accumulated depletion, depreciation
and amortization .................................... -- (800,810) (197,731) (998,541)
----------- ----------- ----------- -----------
-- 1,958,390 1,045,913 3,004,303
----------- ----------- ----------- -----------
Deferred income taxes ................................. 98,200 -- -- 98,200
Other property and equipment, net ..................... -- 35,341 16,271 51,612
Other assets, net ..................................... 15,651 37,361 38,722 91,734
Investment in subsidiaries ............................ 157,817 148,784 -- (306,601) --
----------- ----------- ----------- -----------
$ 2,823,089 $ 443,744 $ 456,897 $ 3,417,129
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................ $ 336,716 $ 1,122 $ 1,444 $ 339,282
Accounts payable:
Trade ............................................. 871 38,965 28,391 $ 68,227
Affiliates ........................................ 26 505 -- 531
Other current liabilities ........................... 14,416 75,533 8,622 98,571
----------- ----------- ----------- -----------
Total current liabilities ................. 352,029 116,125 38,457 506,611
----------- ----------- ----------- -----------
Long-term debt, less current maturities ............... 1,857,385 608 11,141 1,869,134
Other noncurrent liabilities .......................... -- 150,654 39,184 189,838
Deferred income taxes ................................. -- -- 64,800 64,800
Stockholders' equity:
Partners' capital ................................... -- -- 22 (22) --
Common stock ........................................ 946 1 64 (3) 1,008
Additional paid-in-capital .......................... 2,177,145 2,022,076 589,778 (2,440,928) 2,348,071
Treasury stock, at cost ............................. (10,388) -- -- (10,388)
Retained deficit .................................... (1,554,028) (1,845,720) (289,547) 2,134,352 (1,554,943)
Cumulative translation adjustment ................... -- -- 2,998 2,998
----------- ----------- ----------- -----------
Total stockholders' equity ................ 613,675 176,357 303,315 786,746
----------- ----------- ----------- -----------
Commitments and contingencies
$ 2,823,089 $ 443,744 $ 456,897 $ 3,417,129
=========== =========== =========== ===========
</TABLE>
16
<PAGE> 17
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(in thousands)
ASSETS
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON-
COMPANY PIONEER GUARANTOR THE
(PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY
----------- ----------- ------------ ------------ -----------
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ........................... $ 3,161 $ 37,932 $ 18,128 $ $ 59,221
Accounts receivable:
Trade ............................................ 636 75,236 30,991 106,863
Affiliate ........................................ 2,240,421 (1,828,672) (408,092) 3,657
Inventories ......................................... -- 8,930 6,291 15,221
Deferred income taxes ............................... 7,100 -- -- 7,100
Other current assets ................................ 87 8,868 971 9,926
----------- ----------- ----------- -----------
Total current assets ...................... 2,251,405 (1,697,706) (351,711) 201,988
----------- ----------- ----------- -----------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of accounting:
Proved properties ............................... -- 2,678,637 942,993 3,621,630
Unproved properties ............................. -- 58,989 283,600 342,589
Accumulated depletion, depreciation
and amortization .................................... -- (753,570) (176,541) (930,111)
----------- ----------- ----------- -----------
-- 1,984,056 1,050,052 3,034,108
----------- ----------- ----------- -----------
Deferred income taxes ................................. 96,800 -- -- 96,800
Other property and equipment, net ..................... -- 38,229 16,781 55,010
Other assets, net ..................................... 9,787 43,557 40,064 93,408
Investment in subsidiaries ............................ 135,204 148,257 -- (283,461) --
----------- ----------- ----------- -----------
$ 2,493,196 $ 516,393 $ 755,186 $ 3,481,314
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................ $ 212,302 $ 1,189 $ 93,030 $ 306,521
Accounts payable:
Trade ............................................. 697 56,723 37,517 94,937
Affiliates ........................................ 29 4,463 -- 4,492
Other current liabilities ........................... 21,001 84,759 15,122 120,882
----------- ----------- ----------- -----------
Total current liabilities ................. 234,029 147,134 145,669 526,832
----------- ----------- ----------- -----------
Long-term debt, less current maturities ............... 1,676,933 830 190,981 1,868,744
Other noncurrent liabilities .......................... -- 189,325 43,136 232,461
Deferred income taxes ................................. -- -- 64,200 64,200
Stockholders' equity:
Partners capital .................................... -- -- 22 (22) --
Common stock ........................................ 934 1 76 (3) 1,008
Additional paid-in-capital .......................... 2,143,214 2,022,076 589,511 (2,406,805) 2,347,996
Treasury stock, at cost ............................. (10,388) -- -- (10,388)
Retained deficit .................................... (1,551,526) (1,842,973) (281,312) 2,123,369 (1,552,442)
Cumulative translation adjustment ................... -- -- 2,903 2,903
----------- ----------- ----------- -----------
Total stockholders' equity ................ 582,234 179,104 311,200 789,077
----------- ----------- ----------- -----------
Commitments and contingencies
$ 2,493,196 $ 516,393 $ 755,186 $ 3,481,314
=========== =========== =========== ===========
</TABLE>
17
<PAGE> 18
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY
-------- --------- ------------ ------------ ------------ ---------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Oil and gas ................... $ $ 110,082 $ 37,069 $ $ $ 147,151
Interest and other ............ 11 42,634 3,328 45,973
Gain on disposition of assets,
net ........................... -- 67 -- 67
--------- --------- ------------ ---------
11 152,783 40,397 193,191
--------- --------- ------------ ---------
Costs and expenses:
Oil and gas production ........ -- 36,046 11,148 47,194
Depletion, depreciation and
amortization .............. -- 48,099 21,273 69,372
Exploration and abandonments .. -- 8,889 2,887 11,776
General and administrative .... 320 7,460 2,469 10,249
Reorganization ................ -- 5,529 -- 5,529
Interest ...................... (9,619) 39,338 12,802 42,521
Equity (income) loss from
subsidiary ................ 11,255 (273) -- (10,982) --
Other ......................... 544 9,959 (1,852) 8,651
--------- --------- ------------ ---------
2,500 155,047 48,727 195,292
--------- --------- ------------ ---------
Income (loss) before income taxes (2,489) (2,264) (8,330) (2,101)
Income tax (provision) benefit .. -- (483) 95 (12) (400)
--------- --------- ------------ ---------
Net income (loss) ............... (2,489) (2,747) (8,235) (2,501)
Other comprehensive income:
Translation adjustment .... -- -- 95 95
--------- --------- ------------ ---------
Comprehensive loss $ (2,489) $ (2,747) $ (8,140) $ (2,406)
========= ========= ============ =========
</TABLE>
18
<PAGE> 19
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY
--------- --------- ------------ ----------- ------------ ---------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Oil and gas .................. $ -- $ 140,412 $ 56,957 $ $ $ 197,369
Interest and other ........... 38 863 765 (488) 1,178
Gain on disposition of assets,
net ...................... -- 10 -- 10
--------- --------- ------------ ---------
38 141,285 57,722 198,557
--------- --------- ------------ ---------
Costs and expenses:
Oil and gas production ....... -- 38,036 17,106 55,142
Depletion, depreciation and
amortization ............. -- 46,378 29,872 76,250
Exploration and abandonments . -- 11,597 12,352 23,949
General and administrative ... 495 16,064 3,466 20,025
Reorganization ............... -- 17,177 -- 17,177
Interest ..................... (4,041) 38,907 5,100 (488) 39,478
Equity (income) loss from
subsidiary ............... 39,791 (2,774) -- (37,017) --
Other ........................ -- 5,879 901 6,780
--------- --------- ------------ ---------
36,245 171,264 68,797 238,801
--------- --------- ------------ ---------
Loss before income taxes ....... (36,207) (29,979) (11,075) (40,244)
Income tax benefit ............. -- -- 4,700 8,700 13,400
--------- --------- ------------ ---------
Net loss ....................... (36,207) (29,979) (6,375) (26,844)
Other comprehensive income:
Translation adjustment ....... -- -- 940 940
--------- --------- ------------ ---------
Comprehensive loss ... $ (36,207) $ (29,979) $ (5,435) $ (25,904)
========= ========= ============ =========
</TABLE>
19
<PAGE> 20
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY
--------- --------- ------------ ------------ ------------ ---------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net (income) loss .................. $ (2,489) $ (2,747) $ (8,235) $ (12) $ 10,982 $ (2,501)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depletion, depreciation
and amortization ............ -- 48,099 21,273 69,372
Exploration and
abandonments ................ -- 8,233 2,077 10,310
Deferred income taxes ........ -- -- (100) (100)
Gain on disposition of
assets, net ................. -- (67) -- (67)
Other noncash items .......... 13,516 (30,835) (1,985) (10,982) (30,286)
Change in working capital .......... (310,943) 4,294 268,200 12 (38,437)
--------- --------- ------------ ---------
Net cash provided
by (used in) operating
activities ........... (299,916) 26,977 281,230 8,291
--------- --------- ------------ ---------
Cash flows from investing activities:
Proceeds from disposition of
assets ............................ -- 3,286 1,864 5,150
Additions to oil and gas
properties ........................ -- (24,798) (22,375) (47,173)
Other property additions, net ...... -- (1,890) 1,991 101
--------- --------- ------------ ---------
Net cash used in
investing
activities .......... -- (23,402) (18,520) (41,922)
--------- --------- ------------ ---------
Cash flows from financing activities:
Borrowings under long-term debt .... 306,925 -- 292 307,217
Principal payments on long-term
debt .............................. (3,226) (290) (276,225) (279,741)
Payment of noncurrent
liabilities ....................... -- (10,847) (2,080) (12,927)
Deferred loan fees/issuance
costs ............................. (6,891) -- -- (6,891)
--------- --------- ------------ ---------
Net cash provided by
(used in) financing
activities ........... 296,808 (11,137) (278,013) 7,658
--------- --------- ------------ ---------
Net decrease in cash and cash
equivalents ........................ (3,108) (7,562) (15,303) (25,973)
Effect of exchange rate changes on
cash and cash equivalents .......... -- -- 315 315
Cash and cash equivalents,
beginning of period ................ 3,161 37,932 18,128 59,221
--------- --------- ------------ ---------
Cash and cash equivalents, end
of period .......................... $ 53 $ 30,370 $ 3,140 $ 33,563
========= ========= ============ =========
</TABLE>
20
<PAGE> 21
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PIONEER
NATURAL
RESOURCES NON- CONSOLIDATED
COMPANY PIONEER GUARANTOR INCOME THE
(PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY
--------- --------- ------------ ------------ ------------ ----------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C> <C>
Net loss .......................... $ (36,207) $ (29,979) $ (6,375) $ 8,700 $ 37,017 $ (26,844)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depletion, depreciation
and amortization .......... -- 46,378 29,872 76,250
Exploration and
abandonments .............. -- 5,075 10,759 15,834
Deferred income taxes ....... -- -- (4,700) (8,000) (12,700)
Gain on disposition of
assets, net ............... -- (10) -- (10)
Other noncash items ......... 49,729 400 25 (37,017) 13,137
Change in working capital ......... (114,761) 119,487 (642) (700) 3,384
--------- --------- --------- ---------
Net cash provided
by (used in) operating
activities ............. (101,239) 141,351 28,939 69,051
--------- --------- --------- ---------
Cash flows from investing activities:
Payment for acquisitions, net of
cash acquired ................... -- (429) -- (429)
Proceeds from disposition of
assets .......................... -- 12,426 458 12,884
Additions to oil and gas
properties ...................... -- (113,746) (81,563) (195,309)
Other property additions, net ..... -- (5,532) 1,662 (3,870)
--------- --------- --------- ---------
Net cash used in
investing activities ... -- (107,281) (79,443) (186,724)
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings under long-term debt ... 732,142 -- 41,041 773,183
Principal payments on long-term
debt ............................ (614,991) (250) (478) (615,719)
Borrowings (payment) of
noncurrent liabilities .......... -- (22,419) 985 (21,434)
Dividends ......................... (5,056) -- -- (5,056)
Purchase of treasury stock ........ (5,572) -- -- (5,572)
Deferred loan fees/issuance
costs ........................... (5,290) -- -- (5,290)
--------- --------- --------- ---------
Net cash provided
by (used in)
financing activities ... 101,233 (22,669) 41,548 120,112
--------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents ............... (6) 11,401 (8,956) 2,439
Cash and cash equivalents,
beginning of period ............... 41 49,033 22,639 71,713
--------- --------- --------- ---------
Cash and cash equivalents, and
of period ......................... $ 35 $ 60,434 $ 13,683 $ 74,152
========= ========= ========= =========
</TABLE>
21
<PAGE> 22
PIONEER NATURAL RESOURCES COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
FINANCIAL PERFORMANCE
The Company reported a net loss of $2.5 million ($.02 per share) for the
three months ended March 31, 1999, as compared to a net loss of $26.8 million
($.27 per share) for the same period in 1998. The Company's results for the
three months ended March 31, 1999 and 1998 have been significantly impacted by
declines in commodity prices (see "Trends and Uncertainties" and "Results of
Operations", below). The net loss for the three months ended March 31, 1999
includes $41.3 million of pre-tax other income recognized on March 31, 1999,
related to option fees received for a terminated property sales agreement. See
Note F to the Notes to Consolidated Financial Statements included in "Item 1.
Financial Statements".
Net cash provided by operating activities was $8.3 million during the
three months ended March 31, 1999, as compared to net cash provided by operating
activities of $69.1 million for the same period in 1998. The decrease in net
cash provided by operating activities during the three months ended March 31,
1999, as compared to the first quarter of 1998, is primarily attributable to
continued declines in commodity prices, an eight percent decline in total
production volumes and a $41.8 million increase in working capital excluding
cash and cash equivalents (see "Results of Operations", below).
The Company strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. The Company's total book capitalization at March 31, 1999
was $3.0 billion, consisting of total debt of $2.2 billion and stockholders'
equity of $.8 billion. Debt as a percentage of total book capitalization was 74
percent at March 31, 1999 as compared to 73 percent at December 31, 1998. The
Company intends to reduce its outstanding indebtedness to more moderate levels
in 1999 and 2000 through the use of funds generated by the individual or
combined sources of operating activities, oil and gas property divestitures or
additional issuances of equity.
DRILLING HIGHLIGHTS
During the first quarter of 1999, the Company spent $47.2 million on
capital projects including $29.0 million for development activities, $17.5
million for exploration activities and $.7 million on acquisitions. The Company
participated in spudding 48 development wells and three exploratory wells,
placed 41 development wells and seven exploratory wells on production and
plugged and abandoned one development well and six exploratory wells. As of
March 31, 1999, the Company had 62 development wells and six exploratory wells
in progress.
DOMESTIC. The Company expended $30.0 million during the first quarter
of 1999 on drilling activities primarily in the Gulf Coast and Permian Basin
regions of the United States.
The Company's first deepwater Gulf of Mexico venture at Mississippi
Canyon Block 305 was spud in late December 1998. This well was drilled to a
total depth of 14,000 feet, at a cost of $10.7 million net to the Company. In
March 1999, the Company announced the results of the Mississippi Canyon Block
305 exploration as being a significant discovery, as it encountered a
hydrocarbon-bearing section of over 200 gross feet. The Company holds a 25
percent interest in the block. The Company plans to drill a second appraisal
well on the block during the fourth quarter of 1999 or in early 2000.
Additionally, the Company plans to spud its second deepwater well during the
second quarter of 1999 at Garden Banks 515. Other drilling in the Gulf Coast
region included spudding two exploratory wells in East Texas which were plugged
and abandoned as non-commercial. During the first quarter of 1999, the Company
also completed four development wells and one exploratory well and plugged and
abandoned three exploratory wells that were in progress at December 31, 1998.
Drilling in the Permian Basin region included spudding 19 development
wells in the Spraberry Driver Unit, all of which were still in progress at March
31, 1999. Of the 41 development wells and three exploratory wells in progress at
December 31, 1998, two development wells and one exploratory well were completed
during the first quarter of 1999 with the remainder still in progress at March
31, 1999. The Company began a drilling program during the fourth quarter of 1998
to drill 100 wells at minimal cost in the Spraberry units of West Texas,
primarily the Spraberry Driver Unit. However, the wells were being shut-in until
oil prices rebounded. In April 1999, with the increase in oil prices, the
Company began completing these wells and placing them on production.
22
<PAGE> 23
PIONEER NATURAL RESOURCES COMPANY
ARGENTINA. The Company spent $4.6 million during the first quarter of
1999 on drilling activities primarily in the Neuquen Basin of Argentina. Of the
seven wells in progress at December 31, 1998, one exploratory well was completed
and two development wells were completed during the first quarter of 1999 with
three exploratory wells and one development well still in progress at March 31,
1999. The Company also spud four development wells and one exploratory well
during the first quarter of 1999 with one development well and the one
exploratory well being completed as producers. One development well was plugged
and abandoned as non-commercial leaving two development wells still in progress
at March 31, 1999. As such, the Company had three development wells and three
exploratory wells in progress at March 31, 1999.
CANADA. The Company spent $11.3 million during the first quarter of
1999 to complete winter access drilling activities that began during the fourth
quarter of 1998. The drilling operations were focused primarily in the Chinchaga
and Martin Creek areas in northeast British Columbia. Of the three Canadian
wells in progress at December 31, 1998, two development wells were completed as
producers and one exploratory well was plugged and abandoned. The Company also
spud 23 development wells during the first quarter of 1999 with all being
completed as producers. New well production from the recently completed winter
access drilling operations began during the first quarter of 1999. Combined
initial test rates on the Chinchaga wells totaled 17.6 MMCF per day, net to the
Company. The Company estimates that the full impact of new well completions in
the Chinchaga, Martin Creek and Rycroft areas will be 15 to 18 MMCF per day, net
to the Company, by mid-May, 1999. The Company had no wells in progress in Canada
as of March 31, 1999.
1999 EXPENDITURES. In February 1999, the Company announced a 1999
capital budget of approximately $100 million, of which approximately 25 percent
would be expended on exploration. The Company also announced its intention to
reduce its outstanding indebtedness through the use of funds generated by the
individual or combined sources of operating activities, oil and gas property
divestitures or additional issuances of equity. Since that time, commodity price
outlooks have improved significantly. If the Company is successful in reducing
its outstanding indebtedness during 1999 and commodity price outlooks remain
favorable, the Company may increase its 1999 capital budget to approximately
$150 million.
AMENDED CREDIT FACILITIES
On March 19, 1999, the Company and a syndicate of banks executed
amendments to the credit facility agreements that combined the Company's
existing primary credit facility and Canadian credit facility agreements into a
new primary credit facility (the "Credit Facility"). The Company's 364-day
credit facility will expire by its terms in August 1999. The amended terms of
the Credit Facility provide for a $495 million combined reduction in loan
commitments, to $941 million prior to December 31, 1999. Additionally, the
amendments provide for an increase in the maximum interest rate margin on LIBOR
rate advances under the Credit Facility to 300 basis points, including leverage
fees; and, maintenance of certain associated debt covenants (see Note C to Notes
to Consolidated Financial Statements included in "Item 1. Financial Statements"
for a specific discussion of the Credit Facility terms, including restrictive
debt covenants).
To satisfy the commitment reduction provisions of the Credit Facility,
the Company intends to reduce outstanding borrowings through the use of funds
generated by the individual or combined sources of operating activities, oil and
gas property divestitures, borrowings under subordinated debt agreements or
additional issuances of equity.
ASSET DIVESTITURES
The Company has previously announced its intentions to sell non-strategic
oil and gas assets for gross proceeds of $500 million to $600 million in 1999
and 2000. The realization of the Company's plans to divest oil and gas
properties in 1999 or in 2000 is contingent upon, among other things, the
Company's ability to find one or more purchasers willing to purchase the
nonstrategic assets at prices acceptable to the Company and the purchasers'
ability to complete the transaction.
23
<PAGE> 24
PIONEER NATURAL RESOURCES COMPANY
In December 1998, the Company announced the renegotiation of an agreement
to sell certain oil and gas properties to a third party. Associated with this
contemplated transaction, the Company sold to the third party an exclusive and
irrevocable option to purchase the properties, on or before March 31, 1999, for
gross proceeds of $335 million, including a $41.3 million option fee paid to the
Company prior to December 31, 1998. The third party was unable to complete the
purchase of the oil and gas producing properties. Accordingly, the Company has
recognized the $41.3 million of other income during the three months ended March
31, 1999. See Note F to the Notes to Consolidated Financial Statements included
in "Item 1. Financial Statements".
In April 1999, the Company announced the signing of a letter of intent
with an undisclosed third party providing for the sale of certain natural gas
properties in South Texas, together with existing production and exploration
potential, for consideration of $65 million to $70 million. Additionally, the
Company solicited bids on several divestiture packages of Canadian non-core
natural gas and oil properties. Bids to purchase the Canadian properties were
received in April and May, 1999, and are being evaluated by the Company. The
Company expects to generate gross proceeds of $60 million to $80 million from
the sale of the Canadian assets. Although the Company's plans provide for the
closings of the above described divestitures during the second quarter of 1999,
the actual closings are subject to the uncertainties of timing and purchaser
ability.
There can be no assurances that the Company will be successful in
completing its targeted divestitures during 1999 or 2000. The Company intends to
use divestiture proceeds, if such proceeds are realized, to reduce outstanding
indebtedness during 1999 and 2000.
1998 REORGANIZATION
In 1998, the Company announced its intentions to combine its six domestic
regions to realize operational and administrative efficiencies. During 1998, the
Company relocated the majority of its administrative services from Midland,
Texas to Dallas, Texas; closed its regional offices in Corpus Christi, Texas,
Houston, Texas and Oklahoma City, Oklahoma; and, eliminated approximately 350
employee positions. During the three months ended March 31, 1999 and 1998, the
Company recorded severance, relocation, lease termination and other costs of
$5.5 million and $17.2 million, respectively, relating to this reorganization.
The Company does not expect any significant additional reorganization charges
during the remainder of 1999. (See Note H of Notes to Consolidated Financial
Statements included in "Item 1. Financial Statements".)
TRENDS AND UNCERTAINTIES
COMMODITY PRICES. The oil and gas prices that the Company reports are
based on the market prices received for the commodities adjusted by the results
of the Company's hedging activities. Historically, worldwide oil and gas prices
have been extremely volatile and subject to significant changes in response to
real and perceived conditions in world politics, weather patterns and other
fundamental supply and demand variables.
Since the third quarter of 1997, there has been a declining trend in oil
and gas price levels. The benchmark daily average NYMEX West Texas Intermediate
closing price declined 18 percent during the three months ended March 31, 1999,
in comparison with the three months ended March 31, 1998. The benchmark daily
average NYMEX Henry Hub closing price declined 20 percent during the three
months ended March 31, 1999, as compared to the three months ended March 31,
1998.
During the first quarter of 1999, the Organization of Petroleum Exporting
Countries and certain other crude oil exporting nations announced reductions in
their planned export volumes. These announcements, together with early
indications that the nations have initiated their planned reductions, have had
some stabilizing effect on commodity prices during the latter part of the first
quarter of 1999 and into May 1999. However, no assurances can be given that the
stabilizing effect of these actions, or the planned reductions in export
volumes, will be sustained for an extended period of time.
The declines in commodity prices have had, and continue to have, a
significant impact on the Company's results of and cash flows from operations,
capital spending programs and general financial condition.
24
<PAGE> 25
PIONEER NATURAL RESOURCES COMPANY
To mitigate the impact of changing prices on the Company's results of
operations, cash flows and financial condition, the Company from time to time
enters into commodity derivative contracts as hedges against oil and gas price
risk (see Note E of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements").
MARKET SENSITIVE FINANCIAL INSTRUMENTS. The Company is a party to various
financial instruments that, by their terms, cause the Company to be at risk from
future changes in commodity prices, interest and foreign exchange rates, and
other market sensitivities. See "Item 3. Quantitative and Qualitative
Disclosures About Market Risk" for specific information concerning market risk
associated with financial instruments that the Company is a party to.
ASSET IMPAIRMENTS AND VALUATION ALLOWANCES. The recent improvement in
commodity prices may be sustained by market fundamentals. However, if the
improvement proves to be short-lived, continuation of the declining price trend,
or other relevant factors, could result in future impairment provisions to the
carrying value of the Company's proved or unproved properties or the recognition
of additional valuation allowances to the Company's deferred tax assets. If
additional asset impairments or valuation allowances were to become necessary in
the future, they could have a material adverse effect on the Company's financial
condition and results of operations.
YEAR 2000 PROJECT READINESS. Historically, many computer programs have
been developed that use only the last two digits in a date to refer to a year.
As the year 2000 nears, the inability of such computer programs and embedded
technologies to distinguish between "1900" and "2000" has given rise to the
"Year 2000" problem. Theoretically, such computer programs and related
technology could fail outright, or communicate inaccurate data, if not
remediated or replaced. With the proliferation of electronic data interchange,
the Year 2000 problem represents a significant exposure to the entire global
community, the full extent of which cannot be accurately assessed.
In proactive response to the Year 2000 problem, the Company established a
"Year 2000" project to assess, to the extent possible, the Company's internal
Year 2000 problem; to take remedial actions necessary to minimize the Year 2000
risk exposure to the Company and significant third parties with whom it has data
interchange; and, to test its systems and processes once remedial actions have
been taken. The Company has contracted with IBM Global Services to perform the
assessment and remedial phases of its Year 2000 project.
As of March 31, 1999, the Company estimates that the assessment phase is
approximately 99 percent complete and has included, but is not limited to, the
following procedures:
o the identification of necessary remediation, upgrade and/or replacement of
existing information technology applications and systems;
o the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process control
equipment;
o the initiation of inquiry and dialogue with significant third party
business partners, customers and suppliers in an effort to understand and
assess their Year 2000 problems, readiness and potential impact on the
Company and its Year 2000 problem;
o the implementation of processes designed to reduce the risk of
reintroduction of Year 2000 problems into the Company's systems and
business processes; and,
o the formulation of contingency plans for mission-critical information
technology systems.
The Company expects to complete the assessment phase of its Year 2000
project by the end of the second quarter of 1999. Through March 31, 1999, the
Company had distributed Year 2000 problem inquiries to over 500 entities and has
received responses to approximately 48 percent of the inquiries.
25
<PAGE> 26
PIONEER NATURAL RESOURCES COMPANY
The remedial phase of the Company's Year 2000 project is in varying
stages of completion as pertains to the remediation of information technology
and non-information technology applications and systems in the United States,
Canada and Argentina. As of March 31, 1999, the Company estimates that the
remedial phase is approximately 79 percent complete, on a worldwide basis,
subject to continuing evaluations of the responses to third party inquiries and
to the testing phase results. The remedial phase has included the upgrade and/or
replacement of certain application and hardware systems. The Company has
upgraded its Artesia general ledger accounting systems through remedial coding
and has completed the testing of the system for Year 2000 compliance. The
remediation of non-information technology is expected to be completed by
mid-1999. The Company's Year 2000 remedial actions have not delayed other
information technology projects or upgrades.
The testing phase of the Company's Year 2000 project is on schedule. The
Company expects to complete the testing of information technology systems by
October 1999. The testing of the non-information technology remediation is
scheduled to be completed by the end of June 1999.
The Company expects that its total costs related to the Year 2000 problem
will approximate $3.6 million, of which approximately $500 thousand will have
been incurred to replace non-compliant information technology systems. As of
March 31, 1999, the Company's total costs incurred on the Year 2000 problem were
$2.4 million, of which approximately $200 thousand were incurred to replace
non-compliant systems.
The risks associated with the Year 2000 problem are significant. A
failure to remedy a critical Year 2000 problem could have a materially adverse
affect on the Company's results of operations and financial condition. The most
likely worst case scenario which may be encountered as a result of a Year 2000
problem could include information and non-information system failures, the
receipt or transmission of erroneous data, lost data or a combination of similar
problems of a magnitude that cannot be accurately assessed at this time.
In the assessment phase of the Company's Year 2000 project, contingency
plans were designed to mitigate the exposures to mission critical information
technology systems, such as oil and gas sales receipts; vendor and royalty cash
distributions; debt compliance; accounting; and employee compensation. Such
contingency plans anticipate the extensive utilization of third-party data
processing services, personal computer applications and the substitution of
courier and mail services in place of electronic data interchange. Given the
uncertainties regarding the scope of the Year 2000 problem and the compliance of
significant third parties, there can be no assurance that contingency plans will
have anticipated all Year 2000 scenarios.
ACCOUNTING FOR DERIVATIVES. In June 1998, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company has not determined what effect, if any, SFAS
133 will have on its consolidated financial statements.
26
<PAGE> 27
PIONEER NATURAL RESOURCES COMPANY
RESULTS OF OPERATIONS
OIL AND GAS PRODUCTION.
The following table provides the Company's production volume data, average
prices and per BOE average production and depletion costs for the three months
ended March 31, 1999 and 1998. See Note I to the Notes to Consolidated Financial
Statements included in "Item 1. Financial Statements" for the Company's
unaudited results of operations, by geographic operating segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
----------------------------------------------------
UNITED
STATES CANADA ARGENTINA TOTAL
--------- --------- --------- ---------
Production:
<S> <C> <C> <C> <C>
Oil (MBbls)........................... 3,311 689 537 4,537
NGLs (MBbls).......................... 2,352 71 55 2,478
Gas (MMcf)............................ 31,556 4,601 7,557 43,714
Total (MBOE).......................... 10,922 1,527 1,852 14,301
Average daily production:
Oil (Bbls)............................ 36,783 7,655 5,969 50,407
NGLs (Bbls)........................... 26,143 787 609 27,539
Gas (Mcf)............................. 350,620 51,124 83,963 485,707
Total (BOE)........................... 121,362 16,963 20,572 158,897
Average oil price (per Bbl) ............ $ 12.19 $ 10.46 $ 11.08 $ 11.80
Average NGL price (per Bbl) ............ $ 7.68 $ 6.78 $ 6.58 $ 7.63
Average Gas price (per Mcf) ............ $ 1.88 $ 1.62 $ 1.09 $ 1.71
Costs (per BOE):
Lease operating expense .............. $ 3.08 $ 3.23 $ 2.23 $ 2.99
Production taxes ..................... .33 -- .14 .27
Workover costs ....................... .03 .23 -- .05
--------- --------- --------- ---------
Total production costs $ 3.44 $ 3.46 $ 2.37 $ 3.31
========= ========= ========= =========
Depletion ............................ $ 4.48 $ 4.97 $ 4.43 $ 4.53
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------
UNITED
STATES CANADA ARGENTINA TOTAL
--------- --------- -------- ---------
Production:
<S> <C> <C> <C> <C>
Oil (MBbls)........................... 3,866 885 842 5,593
NGLs (MBbls).......................... 2,413 62 54 2,529
Gas (MMcf)............................ 35,000 3,573 5,457 44,030
Total (MBOE).......................... 12,112 1,543 1,806 15,461
Average daily production:
Oil (Bbls)............................ 42,952 9,835 9,359 62,146
NGLs (Bbls)........................... 26,814 693 599 28,106
Gas (Mcf)............................. 388,890 39,703 60,632 489,225
Total (BOE)........................... 134,581 17,145 20,064 171,790
Average oil price (per Bbl)............. $ 15.08 $ 11.82 $ 11.16 $ 13.97
Average NGL price (per Bbl)............. $ 11.03 $ 12.01 $ 14.09 $ 11.12
Average gas price (per Mcf)............. $ 2.28 $ 1.46 $ 1.11 $ 2.07
Costs (per BOE):
Lease operating expense .............. $ 2.94 $ 3.65 $ 2.68 $ 2.98
Production taxes ..................... .55 -- .15 .45
Workover costs ....................... .17 .03 -- .13
--------- --------- --------- ---------
Total production costs.............. $ 3.66 $ 3.68 $ 2.83 $ 3.56
========= ========= ========= =========
Depletion ............................ $ 4.52 $ 5.79 $ 5.23 $ 4.73
</TABLE>
OIL AND GAS REVENUES. Revenues from oil and gas operations totaled $147.2
million for the three months ended March 31, 1999 compared to $197.4 million for
the same period in 1998. The decrease in revenues is reflective of continuing
declines in commodity prices and decreased production volumes.
27
<PAGE> 28
PIONEER NATURAL RESOURCES COMPANY
On a BOE basis, production decreased by eight percent for the three
months ended March 31, 1999, as compared to the same period in 1998. Production,
on a BOE basis, declined 10 percent in the United States and one percent in
Canada, while production in Argentina increased by three percent. On a worldwide
basis, 91 percent of the relative decline in production was attributable to
declines in crude oil production, which was primarily due to the Company having
suspended oil development drilling in 1998 following the decline in oil prices.
The average oil price for the three months ended March 31, 1999 decreased
16 percent (from $13.97 per Bbl to $11.80 per Bbl for the three months ended
March 31, 1998 and 1999, respectively); the average NGL price decreased 31
percent (from $11.12 per Bbl to $7.63 per Bbl for the three months ended March
31, 1998 and 1999, respectively); and, the average gas price decreased 17
percent (from $2.07 per Mcf to $1.71 per Mcf for the three months ended March
31, 1998 and 1999, respectively).
Hedging Activities
The oil and gas prices that the Company reports are based on the market
price received for the commodities adjusted by the results of the Company's
hedging activities. The Company from time to time enters into commodity
derivative contracts (swaps, futures and options) in order to (i) reduce the
effect of the volatility of price changes on the commodities the Company
produces and sells, (ii) support the Company's annual capital budgeting and
expenditure plans and (iii) lock in prices to protect the economics related to
certain capital projects. During the three months ended March 31, 1999, the
Company's hedging activities increased the average price received for oil and
gas sales seven percent and 14 percent, respectively, as discussed below.
Crude Oil. All material sales contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The average oil
price per Bbl that the Company reports includes the effects of oil quality,
gathering and transportation costs and the net effect of the oil hedges. The
Company's average realized price for physical oil sales (excluding hedge
results) for the three months ended March 31, 1999 was $11.02 per Bbl, while, as
a point of reference, the comparable daily average NYMEX closing per Bbl was
$13.05 per Bbl. The Company recorded a net increase to oil revenues of $3.5
million during the three months ended March 31, 1999, as a result of its
commodity hedges.
During the three months ended March 31, 1998, the Company realized an
average price for physical oil sales (excluding hedge results) of $13.16 per
Bbl, while, as a point of reference, the comparable daily average NYMEX closing
per Bbl for the same period was $15.92 per Bbl. The Company recorded a net
increase to oil revenues of $4.6 million for the three months ended March 31,
1998, as a result of its commodity hedges.
Natural Gas. The Company hedges gas production based on the index price
upon which the gas is actually sold in order to mitigate the basis risk between
NYMEX prices and actual index prices. The average gas price per Mcf that the
Company reports includes the effects of Btu content, gathering and
transportation costs, gas processing and shrinkage and the net effect of the gas
hedges. The Company's average realized price for physical gas sales (excluding
hedge results) for the three months ended March 31, 1999 was $1.50 per Mcf,
while, as a point of reference, the comparable daily average NYMEX closing for
the same period was $1.75 per Mcf. The Company recorded a net increase to gas
revenues of $9.3 million for the three months ended March 31, 1999, as a result
of its commodity hedges.
During the three months ended March 31, 1998, the Company realized an
average price for physical gas sales (excluding hedge results) of $1.94 per Mcf,
while, as a point of reference, the comparable daily average NYMEX closing was
$2.21 per Mcf. The Company recorded a net increase to gas revenues of $5.5
million for the three months ended March 31, 1998, as a result of its commodity
hedges.
See Note E of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for information concerning the Company's open hedge
positions and related contract prices as of March 31, 1999.
PRODUCTION COSTS. During the three month period ended March 31, 1999, total
production costs per BOE decreased to $3.31, as compared to production costs per
BOE of $3.56 during the same period in 1998. The decrease was primarily due to
decreases in production taxes caused by the decline in oil and gas sales, and
decreases in workover expense. As compared to the first quarter of 1998, first
quarter 1999 per BOE lease operating expenses remained constant.
28
<PAGE> 29
PIONEER NATURAL RESOURCES COMPANY
DEPLETION EXPENSE. Depletion expense per BOE decreased to $4.53 per BOE
during the three months ended March 31, 1999, as compared to $4.73 per BOE
during the same period in 1998. The decline in depletion expense per BOE during
1999 is primarily associated with the reduction in net depletable basis that
resulted from the fourth quarter, 1998 impairment charge taken in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
EXPLORATION AND ABANDONMENTS/GEOLOGICAL AND GEOPHYSICAL COSTS. Exploration
and abandonments and geological and geophysical costs decreased to $11.8 million
during the three months ended March 31, 1999, from $23.9 million during the same
period in 1998. The decrease is largely the result of reductions in geological
and geophysical activity and leasehold abandonments.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------
1999 1998
------- -------
Exploratory dry holes:
<S> <C> <C>
United States ................. $ 2,747 $ 1,746
Argentina ..................... 67 1,416
Canada ........................ 734 479
Other foreign ................. 269 1,687
Geological and geophysical costs:
United States ................. 4,176 6,451
Argentina ..................... 752 990
Canada ........................ 165 4,588
Other foreign ................. 966 794
Leasehold abandonments and other
1,900 5,798
------- -------
$11,776 $23,949
======= =======
</TABLE>
Approximately 25 percent of the 1999 capital budget will be spent on
exploratory projects (compared to 30 percent in 1998 and 25 percent in 1997).
The Company's 1999 exploration efforts will be concentrated in the Gulf of
Mexico and onshore Gulf Coast regions of the United States. The Company's
exploration programs in South Africa, Gabon and the Gulf Coast transition zone
are undergoing comprehensive studies focusing on analysis, ranking and timing of
prospects during 1999. The Company may increase its 1999 capital budget if it is
successful in reducing outstanding indebtedness and if commodity price outlooks
remain favorable (see "Drilling Highlights," above).
INTEREST AND OTHER REVENUE
During the three months ended March 31, 1999, the Company recorded
interest and other revenue of $46.0 million as compared to $1.2 million during
the same period of 1998. The increase in revenue was primarily attributable to
the $41.3 million of option income referred to in "Financial Performance,"
above.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense was $10.2 million for the three
months ended March 31, 1999, as compared to $20.0 million for the period ended
March 31, 1998, representing a decrease of 49 percent. On a per BOE basis,
general and administrative expense declined from $1.30 per BOE during the first
quarter of 1998 to $.72 per BOE during the first quarter of 1999. The decrease
is primarily attributable to the efficiency measures initiated through the 1998
reorganization.
Reorganization costs for the three months ended March 31, 1999 and 1998
totaled $5.5 million and $17.2 million, respectively. As announced in 1998, the
Company has consolidated its six domestic operating divisions, relocated most of
its administrative services to Dallas, Texas, closed its regional offices in
Corpus Christi, Texas, Houston, Texas and Oklahoma City, Oklahoma, and
eliminated approximately 350 employee positions. The Company does not expect any
significant additional reorganization charges during the remainder of 1999.
29
<PAGE> 30
PIONEER NATURAL RESOURCES COMPANY
INTEREST EXPENSE
Interest expense for the quarter ended March 31, 1999 was $42.5 million
as compared to $39.5 million for the same period in 1998. The $3.0 million
increase in interest expense during the first quarter of 1999 as compared to the
first quarter of 1998 is reflective of a $152 million increase in the Company's
average debt outstanding and a six basis point increase in the Company's
weighted average interest rate on debt.
During the three months ended March 31, 1999, the Company was a party to
interest rate swap agreements that resulted in a decrease in interest expense of
$543 thousand. During the same period in 1998, such agreements resulted in a
reduction to interest expense of $5 thousand.
OTHER COSTS AND EXPENSES
Other costs and expenses for the three months ended March 31, 1999 and
1998 were $8.7 million and $6.8 million, respectively. The increase in others
costs and expenses is primarily attributable to fluctuations in mark-to-market
provisions on financial instruments.
The Company is a party to certain BTU swap agreements that do not
qualify as hedges. Other expenses for the three months ended March 31, 1999 and
1998, include non-cash, pre-tax mark-to-market increases to the liabilities
recognized for the BTU swap agreements of $2.0 million and $6.2 million,
respectively. These contracts will continue to be marked-to-market at the end of
each reporting period during their respective lives. The effects on the
Company's results of operations in future periods could be significant.
During the fourth quarter of 1998, the Company received three million
shares of common stock of a closely held, non-affiliated, publicly traded entity
in partial payment of option fees referred to in "Financial Performance," above.
During the three months ended March 31, 1999, the market quoted value of the
three million shares of common stock declined by $4.9 million to $7.1 million
($2.375 per share). Accordingly, other expenses for the three months ended March
31, 1999, includes a non-cash, pre-tax mark-to-market decrease to the carrying
value of the investment of $4.9 million. During April 1999, the Company was paid
liquidated damages of an additional one million shares of common stock of the
entity. The investment in the common stock of the non-affiliated entity will
continue to be marked-to-market at the end of each reporting period. At market
close on April 30, 1999, the per share value of this common stock was $.469.
The company has a series of forward foreign exchange swap agreements to
exchange Canadian dollars for United States dollars at future dates for a fixed
amount of the first currency. As these contracts do not qualify as hedges, the
company recorded a $2.6 million non-cash pre-tax mark-to-market decrease to
other expense for the three months ended March 31, 1999. These contracts will
continue to be marked-to-market until they mature at various dates in the fourth
quarter of 2000. The effects on the Company's results of operations in future
periods could be significant.
During the first quarter of 1999, the Company sold certain NYMEX crude
oil calls that do not qualify for hedge accounting treatment. Other expenses for
the three months ended March 31, 1999, includes a $2.6 million non-cash, pre-tax
mark-to-market increase to the liability recognized on these contracts.
30
<PAGE> 31
PIONEER NATURAL RESOURCES COMPANY
INCOME TAXES
During 1998, the Company determined that it was more likely than not
that certain of its net operating loss carryforwards and other credit
carryforwards may expire unused. Accordingly, the Company has established a
valuation reserve to reduce the carrying value of its deferred tax assets. As a
result of this situation, it is likely that the Company's effective tax rate
during the remainder of 1999 will be minimal or nil if the Company recognizes a
loss before income taxes. If the Company recognizes income before income taxes
during the remainder of 1999, its effective tax rate will be reduced to the
extent that taxable earnings are recognized in those tax jurisdictions where the
Company has established deferred tax valuation allowances.
During the first quarter of 1999, the Company recognized an income tax
provision of $400 thousand, as compared to a tax benefit of $13.4 million for
the three months ended March 31, 1998. The income tax provision recognized
during the first quarter of 1999 is primarily due to state taxes associated with
a 1998 property divestiture and to the continuing uncertainties regarding the
Company's ability to utilize net operating loss carryforwards and other credit
carryforwards prior to their expiration.
CAPITAL COMMITMENTS, CAPITAL RESOURCES AND LIQUIDITY
CAPITAL COMMITMENTS. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations.
The Company's cash expenditures during the first quarter of 1999 for
additions to oil and gas properties totaled $47.2 million. This amount includes
$.7 million for the acquisition of prospects and properties and $46.5 million
for development and exploratory drilling. Significant drilling expenditures
during the first quarter of 1999 included $30.0 million in the United States,
$11.3 million in Canada, $4.6 million in Argentina and $.6 million in other
international areas. See "Drilling Highlights", above, for a specific discussion
of capital investments made during the first quarter of 1999.
Funding for the Company's working capital obligations is provided by
internally-generated cash flows. Funding for the repayment of principal and
interest on outstanding debt may be provided by any combination of
internally-generated cash flows, proceeds from the disposition of nonstrategic
assets or alternative financing sources as discussed in "Capital Resources"
below.
CAPITAL RESOURCES. The Company's primary capital resources are net cash
provided by operating activities, proceeds from financing activities and
proceeds from sales of nonstrategic assets. The Company expects that these
resources will be sufficient to fund its capital commitments in 1999.
Operating Activities. Net cash provided by operating activities was $8.3
million during the three months ended March 31, 1999, as compared to net cash
provided by operating activities of $69.1 million for the same period in 1998.
The decrease in net cash provided by operating activities was primarily
attributable to declines in revenue from oil and gas operations due to declines
in commodity prices and production volumes, and to a $41.8 million increase in
working capital excluding cash and cash equivalents (see "Oil and Gas Revenues,"
above.)
Financing Activities. The Company had an outstanding balance under its
credit facility agreements at March 31, 1999 of $1.3 billion (including
outstanding, undrawn letters of credit of $19.4 million), leaving approximately
$138 million of unused borrowing capacity immediately available. However, under
commitment reduction provisions of the Credit Facility, the Company must reduce
its borrowings under the Credit Facility to $941 million prior to December 31,
1999. To satisfy the commitment reduction provisions of the Credit Facility, the
Company intends to reduce outstanding borrowings through the use of funds
generated by the individual or combined sources of operating activities, oil and
gas property divestitures, borrowings under subordinated debt agreements or
additional issuances of equity. See Note C to Notes to the Consolidated
Financial Statements included in "Item 1. Financial Statements" and "Amended
Credit Facilities", above, for specific discussions of the Credit Facility
terms.
31
<PAGE> 32
PIONEER NATURAL RESOURCES COMPANY
As the Company pursues its strategy, it may utilize various financing
sources, including fixed and floating rate debt, convertible securities,
preferred stock or common stock. The Company may also issue securities in
exchange for oil and gas properties, stock or other interests in other oil and
gas companies or related assets. Additional securities may be of a class
preferred to common stock with respect to such matters as dividends and
liquidation rights and may also have other rights and preferences as determined
by the Company's Board of Directors.
SALES OF NONSTRATEGIC ASSETS. During the three months ended March 31,
1999 and 1998, proceeds from the sale of domestic nonstrategic assets totaled
$5.2 million and $12.9 million, respectively. The proceeds from these sales were
utilized to reduce the Company's outstanding bank indebtedness and for general
working capital purposes.
See "Asset Divestitures" above, for a discussion of the Company's plans
to sell nonstrategic oil and gas assets for gross proceeds of $500 million to
$600 million in 1999 and 2000.
LIQUIDITY. As of March 31, 1999, the Company had $33.6 million of cash
and cash equivalents on hand, compared to $59.2 million as of December 31, 1998.
The Company's ratio of current assets to current liabilities was .34 at March
31, 1999 and .38 at December 31, 1998.
32
<PAGE> 33
PIONEER NATURAL RESOURCES COMPANY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(1)
The following quantitative and qualitative disclosures about market risk
are supplementary to the quantitative and qualitative disclosures provided in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998. As such, the information contained herein should be read in conjunction
with the related disclosures in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
The following disclosures provide specific information about material
changes during the three months ended March 31, 1999 in the Company's portfolio
of financial instruments. The Company may incur future earnings gains or losses
on these instruments from changes in market interest rates, foreign exchange
rates, commodity prices or common stock prices.
INTEREST RATE SENSITIVITY. On March 19, 1999, the Company and a
syndicate of banks executed amendments to the Company's variable rate credit
facility agreements. The amendments combined the Company's existing primary
credit facility and Canadian credit facility agreements into a new primary
credit facility (the "Credit Facility"). The terms of the Credit Facility
provide for a $495 million combined reduction in loan commitments, to $941
million prior to December 31, 1999. Additionally, the amendments provide for an
increase in the maximum interest rate margin on LIBOR rate advances under the
Credit Facility to 300 basis points, including leverage fees; and, maintenance
of certain associated debt covenants (see Note C to Notes to Consolidated
Financial Statements included in "Item 1. Financial Statements" for a specific
discussion of the Credit Facility). The quantitative information provided in the
Company's Annual Report on Form 10-K was reflective of the terms of the March
19, 1999 amendments described above. During the three months ended March 31,
1999, the Company increased its combined borrowings under its credit facility
agreements to $1.3 billion, representing a $33 million increase in variable rate
borrowings and 1999 debt maturities.
During the three months ended March 31, 1999, there were no material
changes to the Company's interest rate derivatives related to total debt.
FOREIGN EXCHANGE RATE SENSITIVITY. As of March 31, 1999, the recognized
liability for the fair value of the Company's foreign currency swaps has
declined to $12.8 million. The terms of the foreign currency swaps provide for
the Company to pay a fixed Canadian to United States dollar rate on notional
United States dollar amounts of $72 million in 1999 and 2000.
During the three months ended March 31, 1999, there were no other
material changes to the Company's foreign exchange rate sensitive derivatives.
COMMODITY PRICE SENSITIVITY. During the first quarter of 1999, the
Company entered into certain hedge and non-hedge crude oil derivatives and
changed its portfolio of natural gas hedge derivatives.
The following tables provide information about the Company's crude oil
and natural gas derivative financial instruments that the Company was a party to
as of March 31, 1999. The tables segregate hedge derivative contracts from those
that do not qualify as hedges.
Commodity hedge instruments. The Company hedges commodity price risk
with swap contracts, collar contracts, collar contracts with short put options,
and put spread contracts. Swap contracts provide a fixed price for a notional
amount of sales volumes. Collar contracts provide a floor price for the Company
on a notional amount of sales volumes while allowing some additional price
participation if the relevant index price closes above the floor price. Collar
contracts with short put options differ from other collar contracts by virtue of
the short put option price, below which the Company's realized price will exceed
variable market prices by the long put-to-short put price differential. With put
spread contracts, the Company purchases a put contract and concurrently sells a
put contract at a lower index price. The put spread contracts are similar to the
collar contracts with short put options, except that the Company participates in
all prices above the tentative floor price.
33
<PAGE> 34
PIONEER NATURAL RESOURCES COMPANY
Commodity non-hedge instruments. The Company has also entered into Btu
swap contracts that do not qualify for hedge accounting. Under the terms of the
BTU swap, the Company receives 10 percent of the NYMEX oil price and pays the
NYMEX gas price on 13,036 notional MMBtu daily volume.
The Company has also sold crude oil calls and optional calls that do
not qualify for hedge accounting treatment. The terms of the optional calls
provide the counter-parties with the option to elect to call either notional
crude oil volumes or natural gas volumes at specific index prices.
See Notes E and G of Notes to Consolidated Financial Statements
included in "Item 1. Financial Statements" for information regarding the terms
of the Company's derivative financial instruments that are sensitive to changes
in natural gas and crude oil commodity prices.
34
<PAGE> 35
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES COMPANY
CRUDE OIL PRICE SENSITIVITY
DERIVATIVE FINANCIAL INSTRUMENTS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Fair value
----------- ----------- ----------- ----------- ----------- ---------- ----------
(in thousands except volumes and prices)
Crude Oil Hedge Derivatives:
Average daily notional Bbl Volumes (1):
<S> <C> <C> <C> <C> <C> <C> <C>
Swap contracts (2): ................. 16,000 $ (5,746)
Weighted average per Bbl
fixed price ...................$ 15.32
Collar contracts: ................... 2,000 $ (36)
Weighted average short call
per Bbl ceiling price ........$ 17.60
Weighted average long put
per Bbl floor price ..........$ 15.00
Put spread contracts: ............... 10,000 $ 1,436
Weighted average long put
per Bbl contingent floor
price.........................$ 15.00
Weighted average short put
per Bbl price below which
floor becomes variable........$ 11.00
Crude Oil Non-hedge Derivatives:
Call option contracts sold ........... 8,000 $ (1,892)
Weighted average short put
per Bbl price below which the
floor becomes variable........$ 17.15
Daily notional crude oil Bbl volumes
under optional calls sold(3) ....... 10,000 10,000 $ (4,783)
Weighted average short call
per Bbl ceiling price.........$ 20.00 $ 20.00
Average forward NYMEX crude
oil price per Bbl.............$ 17.40 $ 16.43
Daily notional MMBtu volumes under
swap of NYMEX gas price for 10%
10 percent of NYMEX WTI price ........ 13,036 13,036 13,036 13,036 13,036 13,036 $ (16,698)
Average forward NYMEX gas
prices(4) ....................$ 2.34 $ 2.38 $ 2.42 $ 2.46 $ 2.51 $ 2.58
Ave. forward NYMEX oil
prices(4).......................$ 17.40 $ 16.43 $ 16.48 $ 16.71 $ 16.87 $ 16.75
</TABLE>
- ----------
(1) See Note E of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for hedge volumes and weighted average prices by
calendar quarter for 1999 and 2000.
(2) Certain counterparties to the 1999 swap contracts have the contractual
right to extend 10,000 Bbl per day for one additional year at a strike
price of $15.00 per Bbl.
(3) The counterparties to the 1999 and 2000 optional call contracts have the
contractual right to elect to call crude volumes or gas volumes at the
indicated prices. See the "Natural Gas Price Sensitivity" table for the
optional natural gas volumes and call prices available to the
counterparties.
(4) Average forward NYMEX oil and gas prices are as of April 30, 1999.
35
<PAGE> 36
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES COMPANY
NATURAL GAS PRICE SENSITIVITY
DERIVATIVE FINANCIAL INSTRUMENTS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER FAIR VALUE
---------- ----------- ---------- ---------- ----------- ---------- ----------
(in thousands except volumes and prices)
Natural Gas Hedge Derivatives(1):
Average daily notional MMBtu
volumes(2):
<S> <C> <C> <C> <C> <C> <C> <C>
Swap contracts(3) ............ 132,394 49,223 $ 6,004
Weighted average MMBtu
fixed price .............. $ 2.22 $ 2.17
Collar contracts ............. 32,518 $ 562
Weighted average short call
MMBtu ceiling price ....... $ 2.56
Weighted average long put
MMBtu floor price ........ $ 1.91
Collar contracts with
short puts(4) .............. 110,481 102,557 $ 2,577
Weighted average short call
MMBtu ceiling price ...... $ 2.65 $ 2.68
Weighted average long put
MMBtu contingent floor
price .................... $ 2.12 $ 2.09
Weighted average short put
MMBtu price below which
floor becomes variable ... $ 1.82 $ 1.80
Natural Gas Non-hedge Derivatives:
Daily nominal gas MMBtu volumes
under optional calls sold(5) ... 100,000 100,000 $ (4,783)
Weighted average short call
per MMBtu ceiling price ... $ 2.64 $ 2.76
Average forward NYMEX gas
price per MMBtu .......... $ 2.34 $ 2.38
Daily notional MMBtu volumes
under agreement to swap NYMEX
gas price for 10 percent of
NYMEX WTI price .............. 13,036 13,036 13,036 13,036 13,036 13,036 $ (16,698)
Average forward NYMEX gas
prices(6) .................. $ 2.34 $ 2.38 $ 2.42 $ 2.46 $ 2.51 $ 2.58
Average forward NYMEX oil
prices(6) .................. $ 17.40 $ 16.43 $ 16.48 $ 16.71 $ 16.87 $ 16.75
</TABLE>
- ----------
(1) When necessary, to minimize basis risk the Company enters into natural gas
basis swaps to connect the index price of the hedging instrument from a
NYMEX index to an index which reflects the geographic area of production.
The Company considers these basis swaps as part of the associated swap and
option contracts and, accordingly, the effects of the basis swaps have been
presented together with the associated contracts.
(2) See Note E of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for hedge volumes and weighted average prices by
calendar quarter for 1999 and 2000.
(3) Certain counterparties to the 1999 and 2000 swap contracts have the
contractual right to extend 35,000 and 48,868 MMBtu per day, respectively,
for one additional year at average strike prices of $2.40 and $2.21 per
MMBtu, respectively.
(4) 65,000 MMBtu per day of the 1999 collar option contracts with short puts
are extendable at the option of the counterparties for a period of one year
at average per MMBtu prices of $2.79, $2.18 and $1.88 for the short call,
long put and short put, respectively. 84,482 MMBtu per day of the 2000
collar option contracts with short puts are extendable at the option of the
counterparties at average per MMBtu prices of $2.79, $2.13 and $1.84 for
the short call, long put and short put, respectively.
(5) The counterparties to the 1999 and 2000 optional call contracts have the
contractual right to elect to call crude volumes or gas volumes at the
indicated prices. See the "Crude Oil Price Sensitivity" table for the
optional crude oil volumes and call prices available to the counterparties.
(6) Average forward NYMEX oil and gas prices are as of April 30, 1999.
36
<PAGE> 37
PIONEER NATURAL RESOURCES COMPANY
OTHER PRICE SENSITIVITY. During the three months ended March 31, 1999, the
fair value of the Company's investment in Costilla Energy Inc. ("Costilla")
common stock declined by $4.9 million to $7.1 million, based on a market quoted
closing price of $2.375 per share on March 31, 1999. On April 30, 1999, the
market quoted closing price of Costilla common stock was $.469 per share.
- --------------
(1) The information in this document includes forward-looking statements that
are made pursuant to the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, and the business
prospects of Pioneer Natural Resources Company, are subject to a number of
risks and uncertainties which may cause the Company's actual results in
future periods to differ materially from the forward-looking statements.
These risks and uncertainties include, among other things, volatility of
oil and gas prices, product supply and demand, competition, government
regulation or action, litigation, the costs and results of drilling and
operations, the Company's ability to replace reserves or implement its
business plans, access to and cost of capital, uncertainties about
estimates of reserves, quality of technical data and environmental risks.
These and other risks are described in the Company's 1998 Annual Report on
Form 10-K which is available from the United States Securities and Exchange
Commission.
37
<PAGE> 38
PIONEER NATURAL RESOURCES COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in Note D of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements", the Company is a party to various legal actions
incidental to its business. The claims for damages from such legal actions are
not in excess of 10 percent of the Company's current assets and the Company
believes none of these actions to be material.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27. Financial Data Schedule
REPORTS ON FORM 8-K
During the quarter ended March 31, 1999, the Company did not file any Current
Reports on Form 8-K.
38
<PAGE> 39
PIONEER NATURAL RESOURCES COMPANY
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
PIONEER NATURAL RESOURCES COMPANY
Date: May 10, 1999 By: /s/ M. Garrett Smith
-----------------------------------------
M. Garrett Smith
Executive Vice President and Chief
Financial Officer
Date: May 10, 1999 By: /s/ Rich Dealy
-----------------------------------------
Rich Dealy
Vice President and Chief
Accounting Officer
39
<PAGE> 40
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 33,563
<SECURITIES> 0
<RECEIVABLES> 109,021
<ALLOWANCES> 0
<INVENTORY> 13,450
<CURRENT-ASSETS> 171,280
<PP&E> 4,002,844
<DEPRECIATION> 998,541
<TOTAL-ASSETS> 3,417,129
<CURRENT-LIABILITIES> 506,611
<BONDS> 0
0
0
<COMMON> 1,008
<OTHER-SE> 785,738
<TOTAL-LIABILITY-AND-EQUITY> 3,417,129
<SALES> 147,151
<TOTAL-REVENUES> 193,191
<CGS> 0
<TOTAL-COSTS> 47,194
<OTHER-EXPENSES> 105,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,521
<INCOME-PRETAX> (2,101)
<INCOME-TAX> 400
<INCOME-CONTINUING> (2,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,501)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
