UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number: 1-13245
Pioneer Natural Resources Company
(Exact name of registrant as specified in its charter)
Delaware 75-2702753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 Williams Square West, 5205 N. O'Connor Blvd., Irving, Texas 75039
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 444-9001
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Stock................................... New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of the voting stock held by non-affiliates
of the Registrant as of February 28, 2000....................... $721,125,899
Number of shares of Common Stock outstanding as of
February 28, 2000............................................... 100,016,779
Documents Incorporated by Reference:
None
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT TO REPORT FILED PURSUANT
TO
SECTION 13 OF THE SECURITIES ACT OF 1934
PIONEER NATURAL RESOURCES COMPANY
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The registrant hereby amends the cover page of its Annual Report on
Form 10-K for the year ended December 31, 1999 and Part III, Items 10 through 13
to delete references to the incorporation by reference in Part III of this
report of required information set forth in the Company's definitive proxy
statement for the annual meeting of stockholders to be held on May 18, 2000 and
to provide the information required in response to Items 10 through 13, as set
forth below; and, amends Part IV, Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K, (a) Listing of Financial Statements and
Exhibits, to add Exhibit 12.1 (Ratio of Earnings to Fixed Charges and Earnings
to Fixed Charges and Preferred Stock Dividends) and to amend Exhibits 23.1
(Consent of Ernst & Young LLP) and 23.2 (Consent of KPMG LLP) to expand the
scope of Ernst & Young LLP and KPMG LLP consents to include inclusion in and
incorporation by reference of their reports dated January 24, 2000 and February
13, 1998, respectively, in the Registration Statements (No. 333-42315, No.
333-44439 and No. 333-39381) on Form S-3 and the Registration Statements (No.
333-35087, No. 333-35165, No. 333-39153, No. 333-39249, No. 33-44851, No.
333-35085 and No. 333-35175) on Form S-8 and to being named as an "expert"
within Registration Statement No. 333-42315, as documented within the attached
exhibits 23.1 and 23.2.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, and positions of the Company's
directors and executive officers as of February 28, 2000.
Name Age Position
---- --- --------
Scott D. Sheffield....... 47 Chairman of the Board, President and Chief
Executive Officer
Timothy L. Dove.......... 43 Executive Vice President and Chief Financial
Officer
Dennis E. Fagerstone..... 51 Executive Vice President
Mark L. Withrow.......... 52 Executive Vice President, General Counsel and
Secretary
Danny L. Kellum.......... 45 Vice President - Domestic Operations
James R. Baroffio........ 68 Director
R. Hartwell Gardner...... 65 Director
James L. Houghton........ 69 Director
Jerry P. Jones........... 68 Director
Richard E. Rainwater..... 55 Director
Charles E. Ramsey, Jr.... 63 Director
Robert L. Stillwell...... 63 Director
The Company has classified its board of directors (the "Board of
Directors") into three classes. Directors in each class are elected to serve for
three-year terms and until their successors are elected and qualified. Each
year, the directors of one class stand for re-election as their terms of office
expire. Messrs. Jones, Ramsey and Rainwater (who is not standing for
re-election) are designated as Class III directors, and their terms of office
expire on the annual meeting of the Company's stockholders to be held on May 18,
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2000. Messrs. Gardner and Houghton are designated as Class I directors, and
their terms of office expire at the annual meeting of stockholders in 2001.
Messrs. Baroffio, Sheffield and Stillwell are designated as Class II directors,
and their terms of office expire at the annual meeting of stockholders in 2002.
Since the last annual meeting of stockholders, three directors of the Company,
I. Jon Brumley, Kenneth A. Hersh and Philip B. Smith, voluntarily resigned as
directors of the Company. None of these resignations was the result of a
disagreement with the Company on any matter relating to the Company's
operations, policies or practices. Mr. Rainwater has notified the Board of
Directors of his intention not to stand for re-election to the Board of
Directors due to his decision to retire effective May 17, 2000. Mr. Brumley
resigned to devote his full time and attention to his position as President and
CEO of Encore Acquisition Partners, a new independent exploration and production
company founded in 1998. Mr. Hersh and Mr. Smith resigned following the Prize
transaction (see Note E of Notes to Consolidated Financial Statements included
in "Item 8. Financial Statements and Supplementary Data" and "Item 13. Certain
Relationships and Related Transactions", below).
Members of the current Board of Directors (other than Mr. Baroffio) were
appointed under the terms of the merger agreement between Parker & Parsley
Petroleum Company and MESA Inc. Mr. Baroffio became a director in December 1997
under the terms of the combination agreement between the Company and Chauvco
Resources Ltd.
Executive officers serve at the discretion of the Board of Directors.
Set forth below is biographical information about each of the Company's
directors and executive officers.
Scott D. Sheffield. Mr. Sheffield, a distinguished graduate of the
University of Texas with a Bachelor of Science degree in Petroleum Engineering,
has been the President and Chief Executive Officer of the Company since August
1997, and assumed the position of Chairman of the Board in August 1999. He was
the President and a director of Parker & Parsley since May 1990 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley since
October 1990. Mr. Sheffield was the sole director of Parker & Parsley from May
1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development
Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in
1979. Mr. Sheffield served as Vice President - Engineering of PPDC from
September 1981 until April 1985, when he was elected President and a director.
In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief
Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield
was employed as a production and reservoir engineer for Amoco Production
Company.
Timothy L. Dove. Mr. Dove became Executive Vice President - Business
Development of the Company in August 1997, and was elected Executive Vice
President and Chief Financial Officer in February 2000. Mr. Dove joined Parker &
Parsley in May 1994 as Vice President - International and was promoted to Senior
Vice President - Business Development in October 1996, in which position he
served until August 1997. Before joining Parker & Parsley, Mr. Dove was employed
with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining, and
planning and development. Mr. Dove earned a Bachelor of Science degree in
Mechanical Engineering from Massachusetts Institute of Technology in 1979 and
received his M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of the Company in August 1997. Mr. Fagerstone served as Executive Vice
President and Chief Operating Officer of Mesa from March 1997, until August
1997. Mr. Fagerstone served as Senior Vice President and Chief Operating Officer
of Mesa from October 1996 to February 1997, as Vice President - Exploration and
Production of Mesa from May 1991 to October 1996 and as Vice President -
Operations of Mesa from June 1988 until May 1991.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a Bachelor of Science degree in Accounting and Texas Tech University with a
Juris Doctorate degree, has been the Executive Vice President, General Counsel
and Secretary of the Company since August 1997. He served as Vice President -
General Counsel of Parker & Parsley from February 1991 until January 1995, and
served as Senior Vice President, General Counsel of Parker & Parsley from
January 1995 until August 1997. He was Parker & Parsley's Secretary from August
1992 until August 1997. Mr. Withrow joined PPDC in January 1991. Before joining
PPDC, Mr. Withrow was the managing partner of the law firm of Turpin, Smith,
Dyer, Saxe & MacDonald, Midland, Texas.
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Danny L. Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, has served the Company
as Vice President - Domestic Operations since August 1999. From November 1998
until August 1999, Mr. Kellum served as Vice President - Domestic Operations of
Pioneer's subsidiary, Pioneer Natural Resources USA, Inc., and from August 1997
until November 1998, he served as Vice President of that company's Permian
Division. He served as Spraberry District Manager from 1989 until 1994 and as
Vice President of the Spraberry and Permian Divisions for Parker & Parsley until
August of 1997. He joined Parker & Parsley in 1981 in the capacity of Operations
Engineer after a brief career with Mobil Oil Corporation.
James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College
of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in
Geology at the University of Illinois. Before becoming a director of the Company
in December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company
of California, the predecessor of Chevron Corporation, where he served as
President, Chevron Research and Technology Center from 1980 to 1985, eventually
retiring as President of Chevron Canada Resources in 1994. Dr. Baroffio was a
member of the Board of Directors of the Rocky Mountain Oil & Gas Association,
and Chairman of the U.S. National Committee of the World Petroleum Congress. His
community leadership positions included membership on the Board of Directors of
Glenbow Museum and the Nature Conservancy of Canada, as well as serving as
President of the Alberta Nature Conservancy.
R. Hartwell Gardner. Mr. Gardner became a director of the Company in
August 1997. He served as a director of Parker & Parsley from November 1995
until August 1997. Mr. Gardner graduated from Colgate University with a Bachelor
of Arts degree in Economics and then earned an M.B.A. from Harvard University.
Until October 1, 1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation
and Mobil Corporation from 1974 and 1976, respectively. Mr. Gardner is a member
of the Financial Executives Institute of which he served as Chairman in
1986/1987 and is a Director of Oil Investment Corporation Ltd. and Oil Casualty
Investment Corporation Ltd., Pembroke, Bermuda.
James L. Houghton. Mr. Houghton is a Certified Public Accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Laws degree. Mr. Houghton has served as a director of
the Company since August 1997, and as a director of Parker & Parsley from
October 1991 until August 1997. Until October 1, 1991, Mr. Houghton was the lead
oil and gas tax specialist for the accounting firm of Ernst & Young, was a
member of Ernst & Young's National Energy Group, and had served as its Southwest
Regional Director of Tax. Mr. Houghton is a member of the American Institute of
Certified Public Accountants, a member of the Oklahoma Society of Certified
Public Accountants and a former Chairman of its Federal and Oklahoma Taxation
Committee and past President of the Oklahoma Institute on Taxation. He has also
served as a Director for the Independent Petroleum Association of America and as
a member of its Tax Committee.
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Mr. Jones has served as a director of the Company
since August 1997, and as a director of Parker & Parsley from May 1991 until
August 1997. Mr. Jones has been an attorney with the law firm of Thompson &
Knight, L.L.P., Dallas, Texas, since September 1959 and was a shareholder in
that firm until January 1998, when he retired and became of counsel to the firm.
Mr. Jones specialized in civil litigation, especially in the area of energy
disputes.
Richard E. Rainwater. Mr. Rainwater, a graduate of the University of
Texas with a B.A. and the Stanford University Graduate School of Business with
an M.B.A., became a director of the Company in August 1997. He served as a
director of Mesa from July 1996 until August 1997. Since 1986, Mr. Rainwater has
been an independent investor and the sole shareholder and Chairman of Rainwater,
Inc. Mr. Rainwater was the founder of Crescent Real Estate Equities, Inc. in
1994, and since that time has served as its Chairman of the Board. He was the
co-founder of Mid Ocean Limited in 1991, the founder of Columbia Hospital
Corporation (predecessor to Columbia/HCA Healthcare Corporation) in 1987, and
the founder of ENSCO International, Inc. in 1986. From 1970 until 1986, Mr.
Rainwater served as the Chief Investment Advisor to the Bass Family of Texas.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School
of Mines with a Petroleum Engineering degree and a graduate of the Smaller
Company Management program at the Harvard Graduate School of Business
Administration. Mr. Ramsey has served as a director of the Company since August
1997. Mr. Ramsey served as a director of Parker & Parsley from October 1991
until August 1997. Since October 1991, he has operated an independent management
and financial consulting firm. From June 1958 until June 1986, Mr. Ramsey held
various engineering and management positions in the oil and gas industry and,
4
<PAGE>
for six years before October 1991, was a Senior Vice President in the Corporate
Finance Department of Dean Witter Reynolds Inc. (Dallas, Texas office). His
industry experience includes 12 years of senior management experience in the
positions of President, Chief Executive Officer and Executive Vice President of
May Petroleum Inc. Mr. Ramsey is also a former director of MBank Dallas, the
Dallas Petroleum Club and Lear Petroleum Corporation.
Robert L. Stillwell. Mr. Stillwell, a graduate of the University of Texas
with a B.B.A. and the University of Texas School of Law with a J.D., has served
as a director of the Company since August 1997. He served as a director of Mesa
from January 1992 until August 1997, as a member of the Advisory Committee of
Mesa, L.P., a predecessor of Mesa, from December 1985 until December 1991, and
as a director of Mesa in its original corporate form from 1968 until January
1987. Mr. Stillwell has been a partner in the law firm of Baker & Botts, L.L.P.,
Houston, Texas.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The executive officers and directors of the Company are required to file
reports with the Securities and Exchange Commission, and with the various
Canadian provincial securities commissions (the "Canadian Commissions"),
disclosing the amount and nature of their beneficial ownership in common stock,
as well as changes in that ownership. Pursuant to applicable Canadian policies,
the executive officers and directors of the Company are exempted from filing
reports with the Canadian Commissions, provided that they timely file all
reports required to be filed with the Securities and Exchange Commission.
Based solely on its review of reports and written representations that
the Company has received, the Company believes that all required reports were
filed on time for 1999.
ITEM 11. EXECUTIVE COMPENSATION
The Company began operations upon completion of the merger of Parker &
Parsley and Mesa on August 7, 1997. Information about management compensation
for periods before that date refers to compensation that either of the
predecessor companies paid.
Compensation of Directors
Each non-employee director receives an annual retainer fee of $50,000 if
the director serves on a committee and $40,000 if he does not. In addition, each
non-employee director is reimbursed for travel expenses to attend meetings of
the Board of Directors or its committees and an additional $2,500 for services
as chairman of a committee. No additional fees are paid for attendance at board
or committee meetings. Executive officers of the Company do not receive
additional compensation for serving on the Board of Directors.
Under the Company's Long-Term Incentive Plan (the "Plan"), non-employee
directors are eligible to receive awards in the form of non-qualified stock
options, stock appreciation rights, restricted stock, or performance units. The
Company uses these awards instead of cash to pay its non-employee directors
their annual retainer fees. The Board of Directors determines the form (or
combination of forms) of consideration each year, based on the economic and
other circumstances at the time and based on its view of which awards will best
align the interests of the stockholders and the directors.
In order for the directors to participate in the Company's cost reduction
program and to tie 100% of their compensation to the Company's stock
performance, the Board of Directors determined to use non-qualified stock
options to pay all of the non-employee directors' annual fees for the year
following the Company's 1999 annual stockholders' meeting. The number of shares
subject to stock options granted to each non-employee director was determined by
dividing the director's annual retainer fee by the value of an option for one
share on May 28, 1999 (the last business day of the month in which the Company's
1999 annual stockholders' meeting was held). The options have a fair-market
value exercise price, and the value of each option was calculated using the
Black-Scholes method based on assumptions provided by the Company's executive
compensation consulting firm. These options vest 25% each quarter. The first
vesting date was on August 31, 1999.
5
<PAGE>
On May 28, 1999, each non-employee director received the following awards
of stock options to compensate him for his annual retainer fee (each stock
option awarded has an exercise price of $10.875): Messrs. Baroffio, Gardner,
Jones and Stillwell each received options for 10,184 shares; Messrs. Brumley,
Houghton and Ramsey each received options for 10,693 shares; and Mr. Rainwater
received an option for 8,147 shares. Mr. Brumley subsequently retired as a
director of the Company effective August 31, 1999, and forfeited stock options
to purchase 8,019 shares.
Effective November 18, 1999 each non-employee director received an award
of 30,000 non-qualified stock options at an exercise price of $10.25. One third
of these options vest on the day prior to the next annual meeting, May 17, 2000,
one third vest on May 17, 2001 and the remaining one third vest May 17, 2002.
The foregoing stock option awards are not regular, annual awards but were
granted to bring the directors' compensation package to a level competitive with
the director compensation of the Company's peer group used for establishing
executive compensation.
Compensation of Executive Officers
The compensation paid to the Company's executive officers generally
consists of base salaries, annual bonuses, awards under the Plan, contributions
to the Company's 401(k) retirement plan, and miscellaneous perquisites. The
following table summarizes the total compensation for 1999, 1998, and 1997
awarded to, earned by or paid to the following persons:
SUMMARY COMPENSATION TABLE
<TABLE>
Long-Term Compensation
Awards
Annual Compensation ----------------------------------------
--------------------------------------------- Value of Shares
Name and Other Annual Restricted Underlying All Other
Principal Position Year Salary (a) Bonus (b) Compensation (c) Stock (d) Options Compensation (e)
- ------------------ ---- ---------- --------- ---------------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott D. Sheffield (f) 1999 $480,000 $ 270,000 $ 14,427 - 90,000 $ 69,378
President and 1998 600,000 216,000 16,734 - 90,000 123,252
Chief Executive Officer 1997 518,875 360,000 838,075 2,234,625 90,000 105,996
Dennis E. Fagerstone 1999 247,500 92,812 8,478 - 35,000 40,564
Executive Vice President 1998 275,000 92,812 8,076 - 35,000 37,757
1997 259,387 123,750 61,985 871,125 35,000 27,149
Mark L. Withrow (f) 1999 225,000 84,376 4,327 - 35,000 38,855
Executive Vice President 1998 250,000 84,376 60,882 - 35,000 61,178
and General Counsel 1997 228,000 112,500 382,020 871,125 35,000 51,835
Timothy L. Dove 1999 225,000 197,580 4,611 - 35,000 38,394
Executive Vice President 1998 250,000 84,375 4,618 - 35,000 57,713
Business Development 1997 221,750 112,500 484,227 871,125 35,000 39,258
M. Garrett Smith (g) 1999 225,000 84,376 8,418 - 35,000 39,362
Executive Vice President 1998 250,000 84,376 7,457 - 35,000 36,559
and Chief Financial Officer 1997 214,000 105,750 44,386 871,125 35,000 15,812
</TABLE>
(a) Mr. Sheffield voluntarily reduced his 1999 salary 20%, and the other
named executive officers' salaries were voluntarily reduced 10% during
1999.
(b) Represents the amount awarded under the Company's annual bonus program
and the forgiveness of a Company loan to Mr. Dove for $113,204 in 1999
(see "Item 13. Certain Relationships and Related Transactions"). The 1999
and 1998 annual bonus awards were paid fully in cash. The 1997 annual
bonus was paid one-half in cash and one-half in restricted common stock
as follows:
Restricted Stock Award
----------------------
Number Value
Year Cash Award of Shares of Shares
---- ---------- --------- ---------
Mr. Sheffield............... 1997 179,993 8,045 180,007
Mr. Fagerstone.............. 1997 61,883 2,765 61,867
Mr. Withrow................. 1997 56,249 2,514 56,251
Mr. Dove.................... 1997 56,249 2,514 56,251
Mr. Smith................... 1997 52,878 2,363 52,872
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Subject to accelerated lapse in certain circumstances, the ownership of
the stock vests after one year and transfer restrictions lapse on one-
third of the shares on each of the first, second and third anniversaries
of the date of grant. The number of shares of restricted stock awarded as
annual bonuses was calculated using the last closing sale price of the
common stock before the date of the award ($22.375). Ownership of the
restricted stock awarded for 1997 vested on September 30, 1998, due to
the triggering of a vesting acceleration clause contained in the Plan.
See Note F. of Notes to Consolidated Financial Statements included in
"Item 8. Financial Statements and Supplementary Data".
(c) This column includes (i) gross-up payments for taxes in connection with
the receipt of restricted stock awarded pursuant to the annual bonus plan
as follows: Mr. Sheffield $118,805; Mr. Fagerstone $40,832; Mr. Withrow
$37,125; Mr. Dove $37,125; and Mr. Smith $34,896; (ii) relocation and
housing cost of living adjustment related to moving corporate
headquarters from Midland, Texas to Irving, Texas as follows: payment for
1998 - Mr. Withrow $42,290; payments for 1997 - Mr. Sheffield $432,856;
Mr. Withrow $204,000; and Mr. Dove $290,737; (iii) tax gross-up payments
for relocation and cost of living adjustment: payment for 1998 - Mr.
Withrow $12,044; payments for 1997 - Mr. Sheffield $283,781; Mr. Withrow
$133,742; and Mr. Dove $190,458; (iv) and a 1997 payment to Mr.
Fagerstone of $21,153. Amounts not shown represent miscellaneous
perquisites.
(d) The restricted stock awarded in 1997 represents grants on August 8, 1997
of 59,000 shares of common stock to Mr. Sheffield and 23,000 shares of
common stock to each of Messrs. Fagerstone, Withrow, Dove and Smith with
vesting restrictions that were to lapse one-half on August 8, 2000, and
one-half on August 8, 2001. Messrs. Sheffield, Fagerstone, Withrow, Dove
and Smith's restricted stock fully vested on September 30, 1998 due to
the triggering of a vesting acceleration clause contained in the Plan.
See Note F. of Notes to Consolidated Financial Statements included in
"Item 8. Financial Statements and Supplementary Data". The values of the
awards were calculated using the closing sale price of the common stock
of $37.875 on August 7, 1997. Because all vesting restrictions on all
restricted stock heretofore awarded to each executive officer have lapsed
(either by their terms or through acceleration upon the happening of
certain events) no executive officer held any shares of restricted stock
on December 31, 1999.
(e) For 1999 this column includes (i) contributions to qualified retirement
plans for Messrs. Sheffield, Fagerstone, Withrow, Dove and Smith of
$16,000, $15,814, $15,922, $15,894, $15,922, respectively; (ii)
contributions to the Company's non-qualified deferred compensation
retirement plan form Messrs. Sheffield, Fagerstone, Withrow, Dove and
Smith of $48,923, $24,750, $22,933, $22,500, $22,933, respectively; (iii)
a $1,330 premium with respect to a term life insurance policy for the
benefit of Mr. Sheffield; (iv) reimbursement for financial counseling
services for Messrs. Sheffield and Smith for $3,125 and $507,
respectively.
(f) See "Employee Investment Partnerships" below for information about Parker
& Parsley-sponsored employee investment partnerships in which Mr.
Sheffield and Mr. Withrow invested their own funds.
(g) Mr. Smith resigned from the Company effective February 1, 2000.
Long-Term Incentive Plan. The Plan provides for employee and non-employee
director awards in the form of stock options, stock appreciation rights,
restricted stock, and performance units payable in stock or cash. The maximum
number of shares of common stock that may be issued under the Plan is equal to
10% of the total number of shares of common stock outstanding from time to time
minus the total number of shares of stock subject to outstanding awards on the
date of calculation under any other stock-based plan for employees or directors
of the Company and its subsidiaries. The Plan had 4,275,311 shares available for
additional awards at December 31, 1999.
Information about restricted stock awards made under the Plan is set
forth in the Summary Compensation Table. No performance units or stock
appreciation rights have been awarded under the Plan.
The following table sets forth information about stock option grants made
during 1999 to the named executive officers.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------
Number of % of Total
Securities Options Granted Exercise or
Underlying to Employees Base Price Expiration Grant Date
Name Options Granted in Fiscal Year Per Share (c) Date Value (d)
---- --------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Mr. Sheffield......... 45,000 (a) 2.27% $ 5.81 2/24/05-06-07 $ 147,150
45,000 (b) 2.27% 12.44 8/23/05-06-07 314,100
Mr. Fagerstone........ 17,500 (a) 0.88% 5.81 2/24/05-06-07 57,225
17,500 (b) 0.88% 12.44 8/23/05-06-07 122,150
Mr. Withrow........... 17,500 (a) 0.88% 5.81 2/24/05-06-07 57,225
17,500 (b) 0.88% 12.44 8/23/05-06-07 122,150
Mr. Dove.............. 17,500 (a) 0.88% 5.81 2/24/05-06-07 57,225
17,500 (b) 0.88% 12.44 8/23/05-06-07 122,150
Mr. Smith............. 17,500 (a) 0.88% 5.81 2/24/05-06-07 57,225
17,500 (b) 0.88% 12.44 8/23/05-06-07 122,150
</TABLE>
(a) These options were granted on February 24, 1999, vest at the rate of
one-third each year commencing on the first anniversary of the grant
date, and have a term of five years from the date of vesting. The
compensation committee of the Board of Directors (the "Compensation
Committee") retains discretion, subject to plan limits, to modify the
terms of the options. In the event of a change in control of the Company
as defined in the Plan, the options will immediately become fully vested
and exercisable in full.
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<PAGE>
(b) These options were granted on August 23, 1999, vest at the rate of
one-third each year commencing on the first anniversary of the grant
date, and have a term of five years from the date of vesting. The
Compensation Committee retains discretion, subject to plan limits, to
modify the terms of the options. In the event of a change in control of
the Company as defined in the Plan, the options will immediately become
fully vested and exercisable in full.
(c) The exercise price per share is equal to the closing price of the common
stock on the New York Stock Exchange composite tape on the day before the
date of grant.
(d) The estimated grant date value of shares in footnotes (a) and (b) is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the
value of the options include the following:
o An interest rate of 6.59% for footnote (a) and 6.51% for footnote
(b), which represents the interest rate on a U. S. Treasury security
with a maturity date corresponding to the option term.
o Volatility of 50% for footnote (a) and 50% for footnote (b)
calculated using daily stock prices for the 120-day period prior to
the grant date.
No other adjustments were made to the model for non-transferability
or risk of forfeiture. The ultimate values of the options will depend
on the future market price of the common stock, which cannot be
forecast with reasonable accuracy. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the
excess of the market value of the common stock over the exercise
price on the date the option is exercised.
The following table sets forth, for each named executive officer,
information concerning the exercise of stock options during 1999 and the value
of unexercised stock options as of December 31, 1999.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money
Shares Options at Fiscal Year End Options at Fiscal Year End
Acquired on Value --------------------------- ------------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable (a)
----------- -------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Sheffield............. - $ - 320,000 120,000 $ - $140,625
Mr. Fagerstone............ - - 138,332 46,666 - 54,688
Mr. Withrow............... - - 106,334 46,666 - 54,688
Mr. Dove.................. - - 100,334 46,666 - 54,688
Mr. Smith................. - - 111,905 46,666 - 54,688
</TABLE>
(a) Amounts were calculated by multiplying the number of unexercised options
by $8.9375, which was the closing sale price of the common stock on
December 31, 1999 and subtracting the aggregate exercise price.
Retirement Plan. The Company provides a non-qualified deferred
compensation retirement plan for officers and key employees of the Company. Each
participant is allowed to contribute up to 25% of base salary. The Company
provides a matching contribution of 100% of the participant's contribution
limited to the first 10% of the officer's base salary. The Company matching
contribution vests immediately.
Employee Investment Partnerships. From 1987 through 1991, Parker &
Parsley formed employee partnership programs in which Mr. Sheffield
participated. In 1992 and 1993 Mr. Sheffield and Mr. Withrow participated in a
Direct Investment Partnership formed to invest in all wells drilled by Parker &
Parsley during those years (except in certain circumstances where its
participation would impose additional costs to Parker & Parsley). As of December
31, 1999, the aggregate contributions that have been made to the employee
partnerships and the Direct Investment Partnerships by Mr. Sheffield and Mr.
Withrow and the aggregate distributions that have been received by them from
those partnerships were as follows: Mr. Sheffield contributed $734,955 and
received $1,145,680 ($79,555 of which was received during 1999); and Mr. Withrow
contributed $142,625 and received $151,437 ($13,206 of which was received during
1999).
Severance Agreements. On August 8, 1997, the Company entered into
severance agreements with its officers. Salaries and bonuses are set by the
Compensation Committee independent of these agreements, and the Compensation
Committee can increase or reduce base salaries at its discretion.
Either the Company or the officer may terminate the officer's employment
under the severance agreement at any time. The Company must pay the officer an
amount equal to one year's base salary if the officer's employment is terminated
because of death, disability, or normal retirement. The Company must pay the
8
<PAGE>
officer an amount equal to one year's base salary and continue health insurance
for the officer's family for one year if the Company terminates the officer's
employment without cause or if the officer terminates employment for good
reason, which is when reductions in the officer's base annual salary exceed
specified limits or when the officer's responsibilities have been significantly
reduced. If within one year after a change in control of the Company, the
Company terminates the officer without cause, or if the officer terminates
employment for good reason, the Company must pay the officer an amount equal to
2.99 times the sum of the officer's base salary plus target bonus for the year
and continue health insurance for the officer's family for one year. If the
officer terminates employment with the Company without reason between six months
and one year after a change in control, or at any time within one year after a
change in control if the officer is required to move, then the Company must pay
the officer one year's base salary and continue health insurance for the
officer's family for one year. Officers are also entitled to additional payments
for certain tax liabilities that may apply to severance payments following a
change in control.
Indemnification Agreements. The Company has entered into indemnification
agreements with each of its directors and officers, including the named
executive officers. Those agreements require the Company to indemnify the
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law and to advance expenses in connection with certain claims
against directors and officers. The Company expects to enter into similar
agreements with persons selected to be directors and officers in the future.
Each indemnification agreement also provides that, upon a potential change in
control of the Company and if the indemnified director or officer so requests,
the Company will create a trust for the benefit of the indemnified director or
officer in an amount sufficient to satisfy payment of all liabilities and suits
against which the Company has indemnified the director or officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Robert L. Stillwell is a member of the Compensation Committee and is
a partner of Baker & Botts, L.L.P., which provided limited legal services to the
Company during 1999. The dollar amount of fees that the Company paid to Baker &
Botts, L.L.P., during the most recent fiscal year of that law firm did not
exceed 5% of that firm's gross revenues. Mr. Stillwell does not serve on the
sub-committee of the Compensation Committee which administers the Company's
Long-Term Incentive Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of common stock as of February 28, 2000, by (a) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of common stock, (b) each director and nominee for director of the
Company, (c) each executive officer of the Company, and (d) all directors and
executive officers as a group.
Number of Percentage
Name of Person or Identity of Group Shares Of Class (1)
----------------------------------- ---------- ------------
Southeastern Asset Management, Inc. (2)............. 26,593,532 26.6%
Longleaf Partners Fund
O. Mason Hawkins
6410 Poplar Avenue, Suite 900
Memphis, Tennessee 38119
The Prudential Insurance Company of America (3)..... 9,775,877 9.8%
751 Broad Street
Newark, New Jersey 07102-3777
R3C 3C3
Richard E. Rainwater (4) (5)........................ 5,553,654 5.6%
777 Main Street, Suite 2700
Fort Worth, Texas 76102
Scott D. Sheffield (5), (6)......................... 854,679 *
Timothy L. Dove (5), (7)............................ 207,295 *
9
<PAGE>
Dennis E. Fagerstone (5)............................ 238,895 *
Danny L. Kellum (5), (8)............................ 110,536 *
Mark L. Withrow (5), (9)............................ 231,643 *
James R. Baroffio (5)............................... 50,937 *
R. Hartwell Gardner (5)............................. 46,075 *
James L. Houghton (5), (10)......................... 53,933 *
Jerry P. Jones (5).................................. 55,736 *
Charles E. Ramsey, Jr. (5).......................... 57,779 *
Robert L. Stillwell (5), (11)....................... 46,833 *
All directors and executive officers as a group
(12 persons) (12).................................. 8,391,537 8.4%
- ---------------
* Does not exceed 1%.
(1) Based on 100,016,779 shares of common stock consisting of 96,435,493
outstanding shares of common stock and 3,581,286 outstanding exchangeable
shares that are exchangeable for the same number of shares of common stock.
(2) The Schedule 13G/A filed with the SEC on February 9, 2000, which is a joint
statement on Schedule 13G/A filed by Southeastern Asset Management, Inc.
("Southeastern"), Longleaf Partners Fund ("Longleaf") and O. Mason Hawkins
("Hawkins"), states that the statement is being filed by Southeastern as a
registered investment adviser, and that all of the securities covered by
the statement are owned legally by Southeastern's investment advisory
clients and none are owned directly or indirectly by Southeastern. The
Schedule 13G/A further states that the statement is also being filed by
Hawkins, Chairman of the Board and C.E.O. of Southeastern, in the event he
could be deemed to be a controlling person of that firm as the result of
his official positions with or ownership of its voting securities. The
existence of such control is expressly disclaimed. Hawkins does not own
directly or indirectly any securities covered by the Schedule 13G/A for his
own account.
(3) The Schedule 13G/A filed with the SEC on January 31, 2000 states that The
Prudential Insurance Company of America may have direct or indirect voting
and/or investment discretion over 9,775,877 shares or 9.8% of the
outstanding common stock which are held for the benefit of its clients by
its separate accounts, externally managed accounts, registered investment
companies, subsidiaries and/or other affiliates.
(4) Includes 109,324 shares owned directly by Rainwater, Inc., of which Mr.
Rainwater is the sole shareholder, and 244,950 shares (of which Mr.
Rainwater disclaims beneficial ownership) owned by Mr. Rainwater's spouse.
(5) Includes the following number of shares subject to stock options that were
exercisable at or within 60 days after February 28, 2000: Mr. Rainwater,
38,147; Mr. Sheffield, 500,350; Mr. Dove, 176,000; Mr. Fagerstone, 207,988;
Mr. Kellum, 98,000; Mr. Withrow, 170,000; Mr. Baroffio, 40,184; Mr.
Gardner, 40,184; Mr. Houghton, 40,693; Mr. Jones, 40,184; Mr. Ramsey,
40,693; and Mr. Stillwell, 40,184.
(6) Includes 100 shares held by a minor child of Mr. Sheffield and 24,845
shares held in Mr. Sheffield's 401(k) account.
(7) Includes 370 shares held in Mr. Dove's 401(k) account.
(8) Includes 516 shares held in Mr. Kellum's 401(k) account.
(9) Includes 17,266 shares held in Mr. Withrow's 401(k) account.
(10) Includes 9,666 shares held by two trusts of which Mr. Houghton is a trustee
and over which shares he has sole voting and investment power, 2,000 shares
held in Mr. Houghton's investment retirement account, and 479 shares held
by a corporation that is in Mr. Houghton's control..
(11) Includes 758 shares held by Mr. Stillwell's wife.
(12) Includes 1,685,107 shares of common stock subject to stock options that
were exercisable at or within 60 days after February 28, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company, through its wholly-owned subsidiaries, has in the past
sponsored certain affiliated partnerships, including 22 public and 22 private
drilling partnerships and three public income partnerships, all of which were
formed primarily for the purpose of drilling and completing wells or acquiring
producing properties. In accordance with the terms of the partnership agreements
and the related tax partnership agreements of the affiliated partnerships, the
10
<PAGE>
Company participated in the activities of the sponsored partnerships on a
promoted basis. In 1992, the Company discontinued sponsoring public and private
oil and gas development drilling and income partnerships.
During each of 1994, 1993 and 1992, the Company formed a Direct
Investment Partnership for the purpose of permitting selected key employees to
invest directly, on an unpromoted basis, in wells that the Company drills. The
partners in the Direct Investment Partnerships formed in 1994, 1993 and 1992 pay
and receive approximately .337%, 1.5375% and 1.865%, respectively, of the costs
and revenues attributable to the Company's interest in the wells in which each
such Direct Investment Partnership participates. The Company discontinued the
formation of Direct Investment Partnerships in 1995.
The Company, through a wholly-owned subsidiary, serves as operator of
properties in which it and its affiliated partnerships have an interest.
Accordingly, the Company receives producing well overhead, drilling well
overhead and other fees related to the operation of the properties. The
affiliated partnerships also reimburse the Company for their allocated share of
general and administrative charges.
Effective January 1, 1999, the Company entered into an agreement with
Rainwater, Inc., the former general partner of DNR that Mr. Rainwater wholly
owns, modifying certain terms of a prior agreement between DNR and Mesa, which
was assumed by the Company upon consummation of the merger between Parker &
Parsley and Mesa. Pursuant to the terms of this agreement, as modified, the
Company will pay Rainwater, Inc. $300,000 per year and reimburse Rainwater, Inc.
for certain expenses in consideration of the provision of certain consulting and
financial analysis services to the Company by Rainwater, Inc. and its
representatives.
On June 29, 1999, the Company completed the sale of certain United States
oil and gas producing properties, gas plants and other assets primarily located
in the Gulf Coast, Mid Continent and Permian Basin to Prize Energy Corp.
("Prize"). The sale of these assets was initiated through an auction process.
The Board of Directors of Prize includes Mr. Philip P. Smith, its Chief
Executive Officer, Mr. Kenneth A. Hersh, and Mr. Lon C. Kile, its President and
Chief Operating Officer. Mr. Hersh, through his association with Natural Gas
Partners V, L.P., owned or controlled approximately 88% of Prize. Messrs. Smith
and Kile owned or controlled approximately 10.5% and .5% of Prize respectively.
Because Mr. Smith and Mr. Hersh were members of the Board of Directors of the
Company and Mr. Kile was an Executive Vice President of the Company prior to
initiating the auction process, supervision of the sale process was placed under
the direction of a special independent committee (comprised of outside directors
unrelated to Prize) of the Company's Board of Directors. The independent
committee reviewed and considered all offers presented to the Company for the
purchase of the assets acquired by Prize. The Prize offer was approved by the
special independent committee as being the best offer presented. Following
approval of the Prize offer by the special independent committee, Messrs. Smith,
Hersh and Kile resigned their positions with the Company.
In accordance with the terms of the Prize purchase and sale agreement,
the Company received net sales proceeds of $245.0 million, comprised of $215.0
million of cash and 2,307.693 shares of six percent convertible preferred stock
having a liquidation preference and fair value of $30.0 million. As a result of
Prize merging with Vista Energy Resources, Inc., the Company's investment in
Prize's six percent convertible preferred stock was exchanged for 4,018,161
shares of Prize Series A convertible preferred stock ("Prize Series A
Preferred"). The Prize Series A Preferred provides for six percent annual
dividend payments, payable quarterly in additional equity shares of Prize
through 2001. Subsequent to 2001, Prize has the option of paying the quarterly
dividends on the Prize Series A Preferred in equity shares or cash. Each share
of the Prize Series A Preferred may, at the option of the Company, be converted
into one share of Prize common stock, subject to certain anti-dilution
adjustments.
The Company has entered into an agreement with Prize, subject to certain
contingencies, to sell effective March 31, 2000, 1,380,446 shares of the Prize
Series A Preferred back to Prize for $18,636,021. Pioneer and Prize have also
agreed to convert the remaining shares of the Prize Series A Preferred to
2,637,715 shares of Prize common stock. If these transactions are completed
as planned, the Company's ownership of outstanding Prize common and preferred
voting shares would decline from 27.4% to 19.9% and Mr. Sheffield and Mr.
Withrow will resign from the Prize Board of Directors.
11
<PAGE>
In February 1999, the Company, after approval from the Compensation
Committee, forgave an August, 1997 loan to Mr. Dove in the amount of $113,204,
which funded the tax liability resulting from vesting of his restricted stock in
August 1997 in the merger of Parker & Parsley and MESA.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Listing of Financial Statements and Exhibits
Exhibits
Exhibit
Number Description
- ------ -----------
12.1* - Ratio of Earnings to Fixed Charges and Earnings to Fixed Charges
and Preferred Stock Dividends
23.1* - Consent of Ernst & Young LLP.
23.2* - Consent of KPMG LLP.
- --------------
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed by
the undersigned, thereunto duly authorized.
PIONEER NATURAL RESOURCES COMPANY
Date: March 23, 2000 By: /s/ Rich Dealy
-------------------------------------
Rich Dealy, Vice President and Chief
Accounting Officer
12
<PAGE>
EXHIBIT 12.1
PIONEER NATURAL RESOURCES COMPANY
RATIO OF EARNINGS TO FIXED CHARGES AND EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(in thousands, except ratios)
<TABLE>
Year Ended December 31
-----------------------------------------------------------------------
Proforma
1999(1) 1999 1998 1997 1996 1995
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Pretax earnings $ (4,916) $ (23,060) $(730,826) $(1,377,563) $ 200,348 $(150,007)
Adjustments:
Add fixed charges and
preferred stock dividends:
Interest expense 155,226 170,344 164,285 77,550 46,155 65,449
Interest capitalized - - - - - -
Rental expense
attributable to
interest 2,300 2,300 2,967 1,233 965 1,200
Preferred stock
dividends - - - - - -
-------- -------- -------- ---------- -------- --------
Total fixed charges
and preferred stock
dividends 157,526 172,644 167,252 78,783 47,120 66,649
-------- -------- -------- ---------- -------- --------
Deduct:
Interest capitalized - - - - - -
Preferred stock dividends - - - - - -
-------- -------- -------- ---------- -------- --------
Total deductions - - - - - -
-------- -------- -------- ---------- -------- --------
Adjusted earnings $ 152,610 $ 149,584 $(563,574) $(1,298,780) $ 247,468 $ (83,358)
======== ======== ======== ========== ======== ========
Ratio of earnings to
fixed charges 0.97 0.87 (3.37) (16.49) 5.25 (1.25)
Ratio of earnings to fixed
charges and preferred
stock dividends 0.97 0.87 (3.37) (16.49) 5.25 (1.25)
</TABLE>
- ---------------
(1) Proforma 1999 gives effect to the Company's 1999 asset dispositions as if
they had occurred on January 1, 1999, and that the associated divestment
proceeds had been used to reduce outstanding indebtedness as of January 1,
1999.
(2) Earnings were insufficient to cover fixed charges and preferred stock
dividends by $5 million, $23 million, $731 million, $1,378 million and $150
million for the 1999 pro forma and actual results for the years ended
December 31, 1999, 1998, 1997 and 1995, respectively.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 (No. 333-42315) and the related Prospectus
and Prospectus Supplement of Pioneer Natural Resources Company and subsidiaries.
We also consent to the incorporation by reference in the Registration Statement
(No. 333-35087, No. 333-35165, No. 333-39153, No. 333-39249, No. 33-44851, No.
333-35085 and No. 333-35175) on Form S-8 and to the inclusion and incorporation
by reference in the Registration Statement (No. 333-42315, No. 333-44439 and No.
333-39381) on Form S-3 of Pioneer Natural Resources Company and subsidiaries of
our report dated January 24, 2000, with respect to the consolidated financial
statements of Pioneer Natural Resources Company included in this Annual Report
on Form 10-K for the year ended December 31, 1999.
Ernst & Young LLP
Dallas, Texas
March 23, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pioneer Natural Resources Company:
We consent to the inclusion and incorporation by reference in the
Registration Statements (No. 333-35087, No. 333-35165, No. 333-39153, No.
333-39249, No. 33-44851, No. 333-35085, and No. 333-35175) on Form S-8 and
Registration Statements (No. 333-42315, No. 333-44439 and No. 333-39381) on Form
S-3 of Pioneer Natural Resources Company and subsidiaries and its predecessors
of our report dated February 13, 1998, related to the Pioneer Natural Resources
Company and subsidiaries consolidated statements of operations and comprehensive
loss, stockholders' equity, and cash flows for the year ended December 31, 1997,
which report appears in the December 31, 1999 annual report on Form 10-K of
Pioneer Natural Resources Company, and to reference to our firm under the
heading "Experts" contained in the prospectus supplement and the prospectus
dated March 23, 2000 and included in the Registration Statement (No. 333-42315)
on Form S-3.
KPMG LLP
Midland, Texas
March 23, 2000
<PAGE>
