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 SEPTEMBER 30, 2021 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to ________ COMMISSION FILE NO. 1-13245 PIONEER NATURAL RESOURCES COMPANY ------------------------------------------------------ (Exact name of Registrant as specified in its charter) DELAWARE 75-2702753 - ---------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039 - ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip code) Registrant's Telephone Number, including area code: (972) 444-9001 Not applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO / / NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF OCTOBER 31, 1999.................100,306,273

2 PIONEER NATURAL RESOURCES COMPANY TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of SEPTEMBER 30, 2021 and December 31, 1998.....................................................................3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended SEPTEMBER 30, 2021 and 1998.........................5 Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 1999........................................................6 Consolidated Statements of Cash Flows for the three and nine months ended SEPTEMBER 30, 2021 and 1998...............................................7 Notes to Consolidated Financial Statements...............................................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................24 Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................38 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................................................43 Item 6. Exhibits and Reports on Form 8-K........................................................43 Signatures..............................................................................44 Exhibit Index...........................................................................45 2

3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share data) SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ................................................ $ 33,246 $ 59,221 Accounts receivable: Trade, net ............................................................. 30,154 33,384 Affiliates ............................................................. 1,808 3,657 Oil and gas sales ...................................................... 72,699 73,479 Inventories .............................................................. 12,902 15,221 Deferred income taxes .................................................... 6,400 7,100 Other current assets ..................................................... 8,462 9,926 ------------- ------------- Total current assets ................................................. 165,671 201,988 ------------- ------------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties ................................................. 2,892,364 3,621,630 Unproved properties ............................................... 292,505 342,589 Accumulated depletion, depreciation and amortization ..................... (704,504) (930,111) ------------- ------------- 2,480,365 3,034,108 ------------- ------------- Deferred income taxes ...................................................... 97,500 96,800 Other property and equipment, net .......................................... 43,851 55,010 Other assets, net .......................................................... 109,719 93,408 ------------- ------------- $ 2,897,106 $ 3,481,314 ============= ============= The financial information included as of SEPTEMBER 30, 2021 has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 3

4 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED BALANCE SHEETS (CONTINUED) (in thousands, except share data) SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ........................... $ 856 $ 306,521 Accounts payable: Trade ....................................................... 69,947 94,937 Affiliates .................................................. 425 4,492 Accrued interest payable ....................................... 23,835 33,194 Other current liabilities ...................................... 91,974 87,688 ------------- ------------- Total current liabilities ............................. 187,037 526,832 ------------- ------------- Long-term debt, less current maturities ........................... 1,714,314 1,868,744 Other noncurrent liabilities ...................................... 173,233 232,461 Deferred income taxes ............................................. 59,000 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; 100,843,665 and 100,833,615 shares issued as of September 30, 1999 and December 31, 1998, respectively .................... 1,008 1,008 Additional paid-in-capital ..................................... 2,348,228 2,347,996 Treasury stock, at cost; 537,392 shares as of SEPTEMBER 30, 2021 and December 31, 2021 ....................................... (10,388) (10,388) Accumulated deficit ............................................ (1,583,131) (1,552,442) Accumulated other comprehensive income: Cumulative translation adjustment ........................... 7,805 2,903 ------------- ------------- Total stockholders' equity ............................ 763,522 789,077 ------------- ------------- Commitments and contingencies $ 2,897,106 $ 3,481,314 ============= ============= The financial information included as of SEPTEMBER 30, 2021 has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 4

5 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ---------- ------------- ------------- Revenues: Oil and gas ............................... $ 159,855 $ 173,462 $ 481,237 $ 554,478 Interest and other ........................ 32,362 5,868 81,139 8,191 Gain (loss) on disposition of assets, net.. 20,948 (461) (21,276) (136) ------------- ------------- ------------- ------------- 213,165 178,869 541,100 562,533 ------------- ------------- ------------- ------------- Costs and expenses: Oil and gas production .................... 34,643 57,753 123,461 169,508 Depletion, depreciation and amortization 50,981 87,150 184,588 247,208 Impairment of oil and gas properties ...... -- -- 17,894 -- Exploration and abandonments .............. 11,891 35,627 41,592 86,149 General and administrative ................ 8,795 19,236 29,232 56,648 Reorganization ............................ 786 609 7,805 21,158 Interest .................................. 41,002 41,822 130,426 122,317 Other...................................... 18,039 4,874 36,291 18,500 ------------- ------------- ------------- ------------- 166,137 247,071 571,289 721,488 ------------- ------------- ------------- ------------- Income (loss) before income taxes ........... 47,028 (68,202) (30,189) (158,955) Income tax benefit (provision)............... (600) 24,300 (500) 55,400 ------------- ------------- ------------- ------------- Net income (loss) ........................... 46,428 (43,902) (30,689) (103,555) Other comprehensive income (loss): Unrealized translation adjustments......... (91) 4,784 5,738 2,022 ------------- ------------- ------------- ------------- Comprehensive income (loss) ................. $ 46,337 $ (39,118) $ (24,951) $ (101,533) ============= ============= ============= ============= Net income (loss) per share: Basic ................................... $ .46 $ (.44) $ (.31) $ (1.04) ============= ============= ============= ============= Diluted ................................. $ .46 $ (.44) $ (.31) $ (1.04) ============= ============= ============= ============= Dividends declared per share ................ $ -- $ .05 $ -- $ .10 ============= ============= ============= ============= Weighted average shares outstanding ......... 100,305 99,939 100,304 99,982 ============= ============= ============= ============= 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

6 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands) (Unaudited) COMMON STOCK ADDITIONAL SHARES COMMON PAID-IN- TREASURY OUTSTANDING STOCK CAPITAL STOCK ------------- ------------- ------------- ------------- Balance as of January 1, 2022 ............... 100,296 $ 1,008 $ 2,347,996 $ (10,388) Restricted stock awards .................. 6 -- 182 -- Stock option awards ...................... -- -- 25 -- Exercise of long-term incentive plan stock options ......................... 4 -- 25 -- Net loss ................................. -- -- -- -- Realized translation adjustments ......... -- -- -- -- Other comprehensive income: Unrealized translation adjustments .... -- -- -- -- ------------- ------------- ------------- ------------- Balance as of SEPTEMBER 30, 2021 ............ 100,306 $ 1,008 $ 2,348,228 $ (10,388) ============= ============= ============= ============= ACCUMULATED OTHER TOTAL ACCUMULATED COMPREHENSIVE STOCKHOLDERS' DEFICIT INCOME EQUITY ------------- ------------- ------------- Balance as of January 1, 2022 ............... $ (1,552,442) $ 2,903 $ 789,077 Restricted stock awards .................. -- -- 182 Stock option awards ...................... -- -- 25 Exercise of long-term incentive plan stock options ......................... -- -- 25 Net loss ................................. (30,689) -- (30,689) Realized translation adjustments ......... -- (836) (836) Other comprehensive income: Unrealized translation adjustments .... -- 5,738 5,738 ------------- ------------- ------------- Balance as of SEPTEMBER 30, 2021 ............ $ (1,583,131) $ 7,805 $ 763,522 ============= ============= ============= 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

7 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- Cash flows from operating activities: Net income (loss) ..................................... $ 46,428 $ (43,902) $ (30,689) $(103,555) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization ....... 50,981 87,150 184,588 247,208 Impairment of oil and gas properties ........... -- -- 17,894 -- Exploration expenses, including dry holes ...... 3,630 29,832 28,661 65,477 Deferred income taxes .......................... 600 (24,600) -- (53,000) (Gain) loss on disposition of assets, net ...... (20,948) 461 21,276 136 Other noncash items ............................ 20,365 12,232 1,690 38,045 Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Accounts receivable ............................ 6,576 59,383 6,875 96,685 Inventory ...................................... 1,043 731 2,313 874 Other current assets ........................... (357) 236 762 (1,093) Accounts payable ............................... (5,586) (2,198) (28,113) (26,921) Other current liabilities ...................... (13,404) (13,237) (18,550) 2,652 --------- --------- --------- --------- Net cash provided by operating activities ... 89,328 106,088 186,707 266,508 --------- --------- --------- --------- Cash flows from investing activities: Proceeds from disposition of assets ................... 117,238 3,560 386,670 19,682 Additions to oil and gas properties ................... (29,875) (97,866) (95,322) (427,938) Other property additions, net ......................... (2,294) (5,985) (1,222) (23,814) --------- --------- --------- --------- Net cash provided by (used in) investing activities ................................ 85,069 (100,291) 290,126 (432,070) --------- --------- --------- --------- Cash flows from financing activities: Borrowings under long-term debt ....................... -- 96,709 319,340 922,910 Principal payments on long-term debt .................. (215,016) (63,277) (787,287) (694,502) Payment of other noncurrent liabilities ............... (5,494) (4,686) (28,231) (37,001) Dividends ............................................. -- (5,023) -- (10,079) Purchase of treasury stock ............................ -- (3,112) -- (9,890) Deferred loan fees and issuance costs ................. -- (1,765) (6,891) (7,199) Exercise of long-term incentive plan stock options ............................................. 25 -- 25 -- --------- --------- --------- --------- Net cash provided by (used in) financing activities ................................ (220,485) 18,846 (503,044) 164,239 --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents... (46,088) 24,643 (26,211) (1,323) Effect of exchange rate changes on cash and cash equivalents.......................................... 65 (51) 236 (105) Cash and cash equivalents, beginning of period ........ 79,269 45,693 59,221 71,713 --------- --------- --------- --------- Cash and cash equivalents, end of period .............. $ 33,246 $ 70,285 $ 33,246 $ 70,285 ========= ========= ========= ========= 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

8 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (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., 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 SEPTEMBER 30, 2021 and for the three and nine months ended SEPTEMBER 30, 2021 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. ASSET DIVESTITURES During 1998, the Company announced measures to increase its financial flexibility and to safeguard net asset values. Those measures included the enactment of an operating strategy focused on the enhancement of core assets and the divestiture of non-core assets, continuation of cost containment measures and the reduction of outstanding indebtedness. During the nine months ended September 30, 1999, the Company completed the asset divestiture phase of the measures referred to above. As a result, the Company realized net divestment proceeds of $117.2 million and $416.7 million, respectively, during the three and nine month periods ended September 30, 1999, and has recorded an associated net gain on disposition of assets of $20.9 million during the three months ended SEPTEMBER 30, 2021 and a net loss on disposition of assets of $21.3 million during the nine months ended September 30, 1999. The net cash proceeds from the 1999 asset divestitures were used to reduce outstanding indebtedness (see Note D. Amended Credit Facilities, below). Prize Divestitures. On June 29, 1999, the Company completed a sale of certain United States oil and gas producing properties, gas plants and other assets to Prize Energy Corp. ("Prize"). The oil and gas producing assets sold to Prize include properties located in the Gulf Coast, Mid Continent and Permian Basin areas of the Company's United States region. In accordance with the terms of the purchase and sale agreement (the "Prize Divestitures"), 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. The convertible preferred stock provides for a six percent annual dividend payment, payable quarterly in additional equity shares of Prize through 2001. Subsequent to 2001, Prize has the option of paying the quarterly dividends on the convertible preferred stock in equity shares or cash. Each share of the convertible preferred stock may, at the option of the Company, be converted into one share of Prize common stock, subject to certain anti-dilution adjustments. The Company recognized a loss of $46.4 million from the Prize Divestitures during the nine months ended September 30, 1999. 8

9 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) The board of directors of Prize is comprised of six directors, which include Mr. Philip P. Smith, the Chief Executive Officer; Mr. Kenneth A. Hersh; two directors to be elected by the Company under the terms of the convertible preferred stock received in this transaction; and, two other directors unrelated to the Company. Messrs. Smith and Hersh were members of the board of directors of the Company and resigned their positions with the Company during the second quarter of 1999. Additionally, Mr. Lon C. Kile resigned his position as Executive Vice President of the Company to accept the position of President and Chief Operating Officer of Prize. The sale of the assets to Prize was initiated through an auction process which, upon receipt of Prize's initial offer, was placed under the supervision of a special independent committee (comprised of outside directors unrelated to Prize) of the Company's board of directors. Upon the independent committee's review and consideration of all offers presented to the Company, the Prize offer was approved. Other United States Divestitures. In addition to the Prize Divestiture, the Company completed the divestitures of non-strategic United States oil and gas properties located in the South Texas Gulf Coast, West Texas Permian Basin and North Dakota areas, an East Texas gas facility and certain other assets for net cash proceeds of $91.1 million and $113.7 million, respectively, during the three and nine month periods ended September 30, 1999. Associated with these divestitures, the Company recorded net gains on divestitures of assets of $27.5 million and $33.6 million, respectively, during the three and nine month periods ended September 30, 1999. Canadian Divestitures. During 1999, the Company completed the divestitures of certain non-strategic Canadian oil and gas properties, gas plants and other related assets. In accordance with the terms of the Canadian divestitures, the Company received net cash proceeds of US $26.1 million and US $58.0 million, respectively, during the three and nine month periods ended September 30, 1999. Associated with these divestitures, the Company recognized net losses of US $6.6 million and US $8.5 million, respectively, during the three and nine month periods ended September 30, 1999. NOTE D. AMENDED CREDIT FACILITIES As of SEPTEMBER 30, 2021 and December 31, 1998, the Company had $795.3 million 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 expired by its terms in August 1999. The terms of the Credit Facility provide for a combined reduction in loan commitments to $941 million, prior to December 31, 1999. Additionally, the amendments provided 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. In satisfaction of the commitment reduction provisions of the Credit Facility, the Company reduced its outstanding borrowings through the use of funds generated by the combined sources of operating activities and asset divestitures. During the nine months ended September 30, 1999, the Company reduced its outstanding borrowings under the Credit Facility by $454.7 million (see Note C. Asset Divestitures, above). 9

10 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) During October 1999, the Company reduced its loan commitments under the Credit Facility to $939.6 million. As a result of the loan commitment reduction and debt covenant compliance, the future interest rate margin on LIBOR rate advances under the Credit Facility will be reduced to 187.5 basis points. NOTE E. 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 certain 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 that 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, 2021), but which also reduced a number of the Company's defenses. The Company and CIG filed stipulations with the court whereby the Company would have been liable for between 50 percent and 60 percent, depending on the time period covered, of an adverse judgment against CIG for post-February 1988 underpayments of royalties. On March 22, 1995, a jury trial began and on May 4, 1995, the jury returned its verdict. Among its findings, the jury determined that CIG had underpaid royalties for the period after September 30, 1989, in the amount of approximately $140,000. Although the plaintiffs argued that the "favored-nations" clause entitled them to be paid for all of their gas at the highest price voluntarily paid by CIG to any other lessor, the jury determined that the plaintiffs were estopped from claiming that the "favored-nations" clause provides for other than a pricing-scheme to pricing-scheme comparison. In light of this determination, and the plaintiff's stipulation that a 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. The court's decision regarding this litigation could be announced at any time. On June 7, 1996, the plaintiffs filed a separate suit against CIG and the Company in state court in Amarillo, Texas, similarly claiming underpayment of royalties under the "favored-nations" clause, but based upon the above-described pricing-scheme to pricing-scheme comparison on a well-by-well monthly basis. The plaintiffs also claim underpayment of royalties since June 7, 1995, under the "favored-nations" clause based upon either the pricing-scheme to pricing-scheme method or their previously alleged higher price method. The Company believes it has several defenses to this action and intends to contest it vigorously. The Company has not yet determined the amount of damages, if any, which would be payable if such action was determined adversely to the Company. 10

11 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) The federal court in the above-referenced first suit issued an order on July 29, 1996, which stayed the state court suit pending the resolution of the first suit. Based on the jury verdict and final judgment in the first suit, 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, 2021 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, 2022 (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 September 30, 1999, the Company has set aside approximately $31.0 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 September 30, 1999. NOTE F. 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. 11

12 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) Crude oil. The majority of sales contracts governing the Company's oil production are tied directly or indirectly to NYMEX prices. Correspondingly, the Company, from time to time, enters into NYMEX based hedge contracts to mitigate the impact of price volatility. The following table sets forth the Company's outstanding oil hedge contracts as of September 30, 1999. In addition to the outstanding hedge contracts identified in the following table, the Company has deferred oil hedge gains of $.9 million that will be recognized during the fourth quarter of 1999 and deferred oil hedge losses of $1.6 million and $.3 million that will be recognized during 2000 and 2001, respectively. YEARLY FIRST SECOND THIRD FOURTH OUTSTANDING QUARTER QUARTER QUARTER QUARTER AVERAGE ------------- ------------- ------------- ------------- ------------- Daily oil production: 1999 - Swap Contracts* Volume (Bbl) ............. 8,728 8,728 Price per Bbl ............ $ 15.67 $ 15.67 1999 - Collar Contracts** Volume (Bbl) ............. 14,000 14,000 Price per Bbl ............ $ 15.86-18.58 $ 15.86-18.58 1999 - Purchased Put Contracts Volume (Bbl) ............. 2,000 2,000 Price per Bbl ............ $ 15.00 $ 15.00 2000 - Swap Contracts Volume (Bbl) ............. 626 538 478 435 519 Price per Bbl ............ $ 15.76 $ 15.76 $ 15.76 $ 15.76 $ 15.76 2000 - Collar Contracts*** Volume (Bbl) ............. 7,000 7,000 7,000 7,000 7,000 Price per Bbl ............ $17.29-$20.42 $17.29-$20.42 $17.29-$20.42 $17.29-$20.42 $17.29-$20.42 2001 - Collar Contracts**** Volume (Bbl) ............. 3,000 3,000 3,000 3,000 3,000 Price per Bbl ............ $17.50-$20.58 $17.50-$20.58 $17.50-$20.58 $17.50-$20.58 $17.50-$20.58 - ---------------------------- * Certain counterparties to the 1999 swap contracts have the contractual right to buy year 2000 swap contracts from the Company for 9,000 Bbl's per day for a fixed price of $16.56 per Bbl. ** Associated with the Company's purchase of the fourth quarter 1999 collar contracts, the Company sold fourth quarter 1999 put contracts to the counterparties for equal notional contract volumes at a weighted average index price of $12.14 per Bbl. Consequently, if the weighted average fourth quarter 1999 index price falls below $12.14 per Bbl, the Company will receive the weighted average index price for the notional contract volumes plus approximately $3.72 per Bbl. *** Concurrent with the Company's purchase of the year 2000 collar contracts, the Company sold year 2000 put contracts to the counterparties for equal notional contract volumes at a weighted average index price of $14.29 per Bbl. Consequently, if the weighted average year 2000 index price falls below $14.29 per Bbl, the Company will receive the weighted average index price for the notional contract volumes, plus $3.00 per Bbl. The counterparties have the contractual right to extend contracts for notional volumes of 5,000 Bbl's per day through year 2001 at weighted average per Bbl strike prices of $17.00 - $20.09 for the collar contracts and $14.00 for the put contracts. **** Concurrent with the Company's purchase of the year 2001 collar contracts, the Company sold year 2001 put contracts to the counterparties for equal notional contract volumes at a weighted average index price of $14.50 per Bbl. Consequently, if the weighted average year 2001 index price falls below $14.50 per Bbl, the Company will receive the weighted average index price for the notional contract volumes, plus $3.00 per Bbl. 12

13 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) The Company reports average oil prices per Bbl including the effects of oil quality, gathering and transportation costs and the net effect of the oil hedges. The following table sets forth the Company's oil prices, both realized and reported, and the net effects of settlements of oil price hedges to revenue: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- -------------------- 1999 1998 1999 1998 -------- --------- -------- -------- Average price reported per Bbl ...... $17.20 $12.97 $14.38 $13.34 Average price realized per Bbl ...... $18.84 $11.80 $14.59 $12.30 Addition (reduction) to revenue (in millions) .......................... $ (5.5) $ 6.2 $ (2.5) $ 17.2 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 September 30, 1999. Prices included herein represent the Company's weighted average index price per MMBtu. In addition to the outstanding hedge contracts identified in the following table, the Company has deferred gas hedge gains of $3.2 million that will be recognized during the fourth quarter of 1999, and deferred hedge losses of $1.4 million and $.2 million that will be recognized in 2000 and 2001, respectively. YEARLY FIRST SECOND THIRD FOURTH OUTSTANDING QUARTER QUARTER QUARTER QUARTER AVERAGE ----------- ----------- ----------- ----------- ----------- Daily gas production: 1999 - Swap Contracts* Volume (Mcf).............. 6,896 6,896 Index price per MMBtu..... $2.16 $2.16 1999 - Collar Contracts** Volume (Mcf).............. 73,266 73,266 Index price per MMBtu..... $2.06-$2.62 $2.06-$2.62 2000 - Collar Contracts*** Volume (Mcf).............. 73,223 73,223 73,223 70,571 72,557 Index price per MMBtu..... $2.04-$2.57 $2.04-$2.57 $2.04-$2.57 $2.05-$2.58 $2.04-$2.57 2001 Collar Contracts**** Volume (Mcf).............. 60,000 60,000 60,000 60,000 60,000 Index price per MMBtu..... $2.25-$2.74 $2.24-$2.58 $2.24-$2.58 $2.25-$2.68 $2.25-$2.64 2002 Swap Contracts* Volume (Mcf).............. 10,000 10,000 10,000 10,000 10,000 Index price Per MMBtu..... $2.42 $2.42 $2.42 $2.42 $2.42 13

14 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) - ---------------- * Certain counterparties have the contractual right to sell year 2000, 2001, 2002, and 2003 swap contracts to the Company for notional contract volumes of 20,000; 49,223; 12,500; and 10,000 Mcf per day, respectively, at weighted average strike prices of $2.32; $2.21; $2.52; and $2.58 per MMBtu, respectively. ** Concurrent with the Company's purchase of certain of the fourth quarter 1999 collar contracts, the Company sold fourth quarter 1999 put contracts to the counterparties for a weighted average volume of 49,065 Mcf per day at an average index price of $1.84 per MMBtu. Consequently, if the weighted average 1999 index price falls below $1.84 per MMBtu, the Company will receive the weighted average index price for the notional contract volumes, plus approximately $.30 per MMBtu. 30,000 Mcf per day of the fourth quarter 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 $2.13-$2.73 for the collar contracts and $1.83 for the put contracts. *** Concurrent with the Company's purchase of the year 2000 collar contracts, the Company sold year 2000 put contracts to the counterparties for an equal volume at a weighted average index price of $1.76 per MMBtu. Consequently, if the weighted average year 2000 index price falls below $1.76 per MMBtu, the Company will receive the weighted average index price for the notional contract volumes, plus approximately $.28 per MMBtu. 54,482 Mcf per day of the year 2000 collar contracts and associated put contracts are extendable for one year at the option of the counterparties at weighted average per MMBtu prices of $2.09-$2.71 for the collar contracts and $1.80 for the put contracts. **** Concurrent with the Company's purchase of the year 2001 collar contracts, the Company sold year 2001 put contracts to the counterparties for an equal volume at a weighted average index price of $1.95 per MMBtu. Consequently, if the weighted average year 2001 index price falls below $1.95 per MMBtu, the Company will receive the weighted average index price for the notional contract volumes, plus approximately $.30 per MMBtu. The year 2001 collar contracts and associated put contracts are extendable for one year at the option of the counterparties for notional contract volumes of 60,000 Mcf per day at weighted average per MMBtu prices of $2.25-$2.64 for the collar contracts and $1.95 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 the net effects of settlements of gas price hedges to revenue: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 1999 1998 1999 1998 ------- ------ ------ ------ Average price reported per Mcf ....... $ 2.00 $ 1.73 $ 1.86 $ 1.87 Average price realized per Mcf ....... $ 2.06 $ 1.68 $ 1.77 $ 1.83 Addition (reduction) to revenue (in millions)............................ $ (2.2) $ 2.5 $ 10.8 $ 4.8 NOTE G. 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, consisting of $29.3 million of cash and the third party's common stock valued at $12.0 million. The third party was unable to complete the purchase of the Company's oil and gas properties on March 31, 1999. A new purchase and sale agreement was entered into between the parties that was not completed in April 1999 as specified in the purchase and sale agreement; resulting in the Company receiving $.5 million of liquidated damages (in the form of common stock of the third party) during the second quarter of 1999. Accordingly, interest and other revenue in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the nine month period ended SEPTEMBER 30, 2021 includes other income of $41.8 million associated with these transactions. (See Note H. Mark-to-Market Financial Instruments for a discussion of 1999 mark-to-market charges associated with the Company's investment in the third party's common stock). Other non-cash items in the accompanying Consolidated Statement of Cash Flows for the nine months ended SEPTEMBER 30, 2021 includes a $41.8 million reduction for these non-cash components of earnings. 14

15 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) During July 1999, the Company received a $30.2 million refund of excise taxes. Due to the uncertainty surrounding the collectability of this refund, the Company was not carrying it as an asset. Accordingly, the Company recognized the tax refund as other income during the third quarter of 1999. The proceeds from the tax refund were used by the Company to reduce its outstanding indebtedness under its Credit Facility (see Note D. Amended Credit Facilities). NOTE H. 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 and nine month periods ended SEPTEMBER 30, 2021 include non-cash mark-to-market increases of $1.5 million and $2.4 million, respectively, to the liabilities recognized for the BTU swap agreements; and, for the three and nine month periods ended September 30, 1998, a decrease of $2.8 million and an increase of $3.0 million, respectively. These contracts will continue to be marked-to-market at the end of each reporting period during their respective lives. The related effects on the Company's 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 G, above. During April 1999, the Company was paid liquidated damages of an additional one million shares of common stock of the entity. Other expenses in the accompanying Consolidated Statement of Operations and Comprehensive Income (Loss) for the nine month period ended SEPTEMBER 30, 2021 includes a non-cash mark-to-market charge of $11.9 million to recognize declines in the market quoted value of the four million shares of common stock prior to the Company's sale of the investment. In June 1999, the Company sold its investments in the common stock of the non-affiliated entity for cash proceeds of $.6 million. The Company has a series of forward foreign exchange swap agreements to exchange Canadian dollars for United States dollars at future dates and fixed exchange rates. As these contracts do not qualify as hedges, the Company recorded a non-cash mark-to-market increase to the recognized liabilities associated with these agreements during the three month period ended September 30, 1999 of $.5 million and, during the nine month period ended September 30, 1999, the Company recorded a decrease to the recognized liabilities of $5.4 million. During the three and nine month periods ended September 30, 1998, the Company recognized non-cash mark-to-market increases to the recognized liabilities for these agreements of $8.6 million and $14.5 million, respectively. These contracts will continue to be marked-to-market until they mature at various dates in the fourth quarter of 2000. The associated effects on the Company's future results of operations could be significant. During the first quarter of 1999, the Company sold call options that provide the counterparties an option to exercise call provisions on 10,000 barrels per day of oil, at a strike price of $20.00 per barrel, for a twenty-one month period that began on April 1, 2022 and ends on December 31, 2000, or to exercise call provisions over that same time period on 100,000 MMBtu per day of natural gas, at a weighted average price of $2.70 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 and nine month periods ended SEPTEMBER 30, 2021 include $14.3 million and $22.5 million of respective non-cash mark-to-market increases to the liabilities recognized on these contracts. NOTE I. IMPAIRMENT OF OIL AND GAS PROPERTIES In accordance with Statement of Financial Accounting Standards No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" ("SFAS 19"), the Company periodically assesses its unproved properties for impairment by comparing their cost to their estimated value on a project-by-project basis. During the second quarter of 1999, the Company completed the analysis of seismic data pertaining to certain unproved properties owned by the Company in the East Texas area. The results of the analysis of the seismic data indicated a decline in the recoverability of the carrying value of the properties. Accordingly, the Company recognized a $17.9 million provision for impairment of unproved properties during the second quarter of 1999. 15

16 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) NOTE J. REORGANIZATION During 1998, the Company announced its intentions to reorganize its operations to realize additional operational and administrative efficiencies. During the three and nine month periods ended September 30, 1999, the Company recorded reorganization costs of $.8 million and $7.8 million, respectively, primarily consisting of relocation costs that were related to the 1998 reorganization initiatives, but that were not incurred until 1999, and certain costs associated with the second quarter 1999 centralization, in Irving, Texas, of certain operational functions that were previously located in Midland, Texas. During the three and nine month periods ended September 30, 1998, the Company recorded severance, relocation, lease termination and other costs of $.6 million and $21.2 million, respectively, relating to the reorganization. NOTE K. GEOGRAPHIC OPERATING SEGMENT INFORMATION The Company has operations in only one industry segment, that being the oil and gas exploration and production industry; however, the Company is organizationally structured along geographic operating segments, or regions. The Company has reportable operations in the United States, Argentina and Canada. The following 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. UNITED OTHER HEADQUARTERS CONSOLIDATED STATES ARGENTINA CANADA FOREIGN AND OTHER TOTAL --------- --------- --------- --------- --------- --------- (in thousands) THREE MONTHS ENDED SEPTEMBER 30, 1999: Oil and gas revenue .......................... $ 124,309 $ 23,011 $ 12,535 $ -- $ -- $ 159,855 Interest and other ........................... -- -- -- -- 32,362 32,362 Gain (loss) on disposition of assets ......... 35,259 -- (6,605) -- (7,706) 20,948 --------- --------- --------- --------- --------- --------- 159,568 23,011 5,930 -- 24,656 213,165 --------- --------- --------- --------- --------- --------- Production costs ............................. 27,431 4,056 3,156 -- -- 34,643 Depletion, depreciation and amortization ..... 31,817 10,150 4,675 -- 4,339 50,981 Impairment of oil and gas properties.......... -- -- -- -- -- -- Exploration and abandonments ................. 7,784 2,422 1,056 629 -- 11,891 General and administrative ................... -- -- -- -- 8,795 8,795 Reorganization ............................... -- -- -- -- 786 786 Interest ..................................... -- -- -- -- 41,002 41,002 Other ........................................ -- -- -- -- 18,039 18,039 --------- --------- --------- --------- --------- --------- 67,032 16,628 8,887 629 72,961 166,137 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes ............ 92,536 6,383 (2,957) (629) (48,305) 47,028 Income tax benefit (provision)................ (34,246) (2,233) 1,291 220 34,368 (600) --------- --------- --------- --------- --------- --------- Net income (loss) ............................ $ 58,290 $ 4,150 $ (1,666) $ (409) $ (13,937) $ 46,428 ========= ========= ========= ========= ========= ========= THREE MONTHS ENDED SEPTEMBER 30, 1998: Oil and gas revenue .......................... $ 139,247 $ 17,808 $ 16,407 $ -- $ -- $ 173,462 Interest and other ........................... -- -- -- -- 5,868 5,868 Loss on disposition of assets ................ (391) -- -- -- (70) (461) --------- --------- --------- --------- --------- --------- 138,856 17,808 16,407 -- 5,798 178,869 --------- --------- --------- --------- --------- --------- Production costs ............................. 45,812 5,011 6,930 -- -- 57,753 Depletion, depreciation and amortization ..... 62,323 12,197 9,017 -- 3,613 87,150 Exploration and abandonments ................. 17,549 7,895 3,804 6,379 -- 35,627 General and administrative ................... -- -- -- -- 19,236 19,236 Reorganization ............................... -- -- -- -- 609 609 Interest ..................................... -- -- -- -- 41,822 41,822 Other......................................... -- -- -- -- 4,874 4,874 --------- --------- --------- --------- --------- --------- 125,684 25,103 19,751 6,379 70,154 247,071 --------- --------- --------- --------- --------- --------- Income (loss) before income taxes ............ 13,172 (7,295) (3,344) (6,379) (64,356) (68,202) Income tax benefit (provision) ............... (4,874) 2,407 1,461 2,233 23,073 24,300 --------- --------- --------- --------- --------- --------- Net income (loss) ............................ $ 8,298 $ (4,888) $ (1,883) $ (4,146) $ (41,283) $ (43,902) ========= ========= ========= ========= ========= ========= 16

17 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) UNITED OTHER HEADQUARTERS CONSOLIDATED STATES ARGENTINA CANADA FOREIGN AND OTHER TOTAL --------- --------- --------- --------- ------------ ------------ (in thousands) NINE MONTHS ENDED SEPTEMBER 30, 1999: Oil and gas revenue ...................... $ 375,785 $ 57,360 $ 48,092 $ -- $ -- $ 481,237 Interest and other ....................... -- -- -- -- 81,139 81,139 Loss on disposition of assets ............ (5,081) -- (8,502) -- (7,693) (21,276) ----------- ----------- ----------- --------- ----------- ----------- 370,704 57,360 39,590 -- 73,446 541,100 ----------- ----------- ----------- --------- ----------- ----------- Production costs ......................... 96,226 12,372 14,863 -- -- 123,461 Depletion, depreciation and amortization.. 122,320 27,859 20,875 -- 13,534 184,588 Impairment of oil and gas properties ..... 17,894 -- -- -- -- 17,894 Exploration and abandonments ............. 27,063 7,308 4,300 2,921 -- 41,592 General and administrative ............... -- -- -- -- 29,232 29,232 Reorganization ........................... -- -- -- -- 7,805 7,805 Interest ................................. -- -- -- -- 130,426 130,426 Other .................................... -- -- -- -- 36,291 36,291 ----------- ----------- ----------- --------- ----------- ----------- 263,503 47,539 40,038 2,921 217,288 571,289 ----------- ----------- ----------- --------- ----------- ----------- Income (loss) before income taxes ........ 107,201 9,821 (448) (2,921) (143,842) (30,189) Income tax benefit (provision) ........... (39,662) (3,436) 196 1,022 41,380 (500) ----------- ----------- ----------- --------- ----------- ----------- Net income (loss) ........................ $ 67,539 $ 6,385 $ (252) $ (1,899) $ (102,462) $ (30,689) =========== =========== =========== ========= =========== =========== Segment assets (as of September 30) ........ $ 1,884,936 $ 676,957 $ 208,726 $ 8,318 $ 118,169 $ 2,897,106 =========== =========== =========== ========= =========== =========== NINE MONTHS ENDED SEPTEMBER 30, 1998: Oil and gas revenue ...................... $ 454,339 $ 50,331 $ 49,808 $ -- $ -- $ 554,478 Interest and other ....................... -- -- -- -- 8,191 8,191 Loss on disposition of assets ............ (117) -- -- -- (19) (136) ----------- ----------- ----------- --------- ----------- ----------- 454,222 50,331 49,808 -- 8,172 562,533 ----------- ----------- ----------- --------- ----------- ----------- Production costs ......................... 134,292 15,913 19,303 -- -- 169,508 Depletion,depreciation and amortization.. 176,944 31,729 28,390 -- 10,145 247,208 Exploration and abandonments ............. 41,910 16,126 15,747 12,366 -- 86,149 General and administrative ............... -- -- -- -- 56,648 56,648 Reorganization ........................... -- -- -- -- 21,158 21,158 Interest ................................. -- -- -- -- 122,317 122,317 Other .................................... -- -- -- -- 18,500 18,500 ----------- ----------- ----------- --------- ----------- ----------- 353,146 63,768 63,440 12,366 228,768 721,488 ----------- ----------- ----------- --------- ----------- ----------- Income (loss) before income taxes ........ 101,076 (13,437) (13,632) (12,366) (220,596) (158,955) Income tax benefit (provision) ........... (37,398) 4,434 5,957 4,328 78,079 55,400 ----------- ----------- ----------- --------- ----------- ----------- Net income (loss) ........................ $ 63,678 $ (9,003) $ (7,675) $ (8,038) $ (142,517) $ (103,555) =========== =========== =========== ========= =========== =========== Segment assets (as of September 30) ...... $ 2,594,282 $ 816,970 $ 392,732 $ 1,936 $ 186,706 $ 3,992,626 =========== =========== =========== ========= =========== =========== NOTE L. 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. 17

18 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 30, 2021 (in thousands) (Unaudited) ASSETS PIONEER NATURAL RESOURCES NON- COMPANY PIONEER GUARANTOR THE (PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY ----------- ----------- ------------ ------------ ----------- Current assets: Cash and cash equivalents .................. $ 3 $ 28,434 $ 4,809 $ $ 33,246 Accounts receivable: Trade ................................... 84 65,906 36,863 102,853 Affiliate ............................... 2,090,625 (1,549,695) (539,122) 1,808 Inventories ................................ -- 7,238 5,664 12,902 Deferred income taxes ...................... 6,400 -- -- 6,400 Other current assets ....................... 99 7,517 846 8,462 ----------- ----------- ----------- ----------- Total current assets ................. 2,097,211 (1,440,600) (490,940) 165,671 ----------- ----------- ----------- ----------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties ...................... 9 2,176,765 715,590 2,892,364 Unproved properties .................... -- 35,059 257,446 292,505 Accumulated depletion, depreciation and amortization ......................... -- (583,728) (120,776) (704,504) ----------- ----------- ----------- ----------- 9 1,628,096 852,260 2,480,365 ----------- ----------- ----------- ----------- Deferred income taxes ........................ 97,500 -- -- 97,500 Other property and equipment, net ............ -- 28,721 15,130 43,851 Other assets, net ............................ 14,073 57,239 38,407 109,719 Investment in subsidiaries ................... 175,915 152,964 -- (328,879) -- ----------- ----------- ----------- ----------- $ 2,384,708 $ 426,420 $ 414,857 $ 2,897,106 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt........ $ -- $ 856 $ -- $ 856 Accounts payable: Trade .................................... 628 47,582 21,737 69,947 Affiliates ............................... -- 425 -- 425 Other current liabilities .................. 23,436 83,723 8,650 115,809 ----------- ----------- ----------- ----------- Total current liabilities ........ 24,064 132,586 30,387 187,037 ----------- ----------- ----------- ----------- Long-term debt, less current maturities ...... 1,714,117 197 -- 1,714,314 Other noncurrent liabilities ................. -- 142,023 31,210 173,233 Deferred income taxes ........................ -- -- 59,000 59,000 Stockholders' equity: Partners' capital .......................... -- -- 22 (22) -- Common stock ............................... 969 1 41 (3) 1,008 Additional paid-in-capital ................. 2,238,162 2,022,076 590,388 (2,502,398) 2,348,228 Treasury stock, at cost .................... (10,388) -- -- (10,388) Accumulated deficit ........................ (1,582,216) (1,870,463) (303,996) 2,173,544 (1,583,131) Cumulative translation adjustment .......... -- -- 7,805 7,805 ----------- ----------- ----------- ----------- Total stockholders' equity ....... 646,527 151,614 294,260 763,522 ----------- ----------- ----------- ----------- Commitments and contingencies $ 2,384,708 $ 426,420 $ 414,857 $ 2,897,106 =========== =========== =========== =========== 18

19 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING BALANCE SHEET AS OF December 31, 2021 (in thousands) ASSETS PIONEER NATURAL RESOURCES NON- COMPANY PIONEER GUARANTOR THE (PARENT) USA SUBSIDIARIES ELIMINATIONS COMPANY ----------- ----------- ------------ ------------ ----------- Current assets: 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) Accumulated 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 =========== =========== =========== =========== 19

20 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 (in thousands) (Unaudited) PIONEER NATURAL RESOURCES NON- CONSOLIDATED COMPANY PIONEER GUARANTOR INCOME THE (PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY ----------- ----------- ------------ ----------- ------------ ----------- Revenues: Oil and gas ..................... $ -- $ 350,591 $ 130,646 $ -- $ $ 481,237 Interest and other .............. 264 45,056 35,819 -- 81,139 Gain (loss) on disposition of assets, net ................. -- 22,538 (43,814) -- (21,276) --------- --------- --------- --------- --------- 264 418,185 122,651 -- 541,100 --------- --------- --------- --------- --------- Costs and expenses: Oil and gas production .......... -- 92,873 30,588 -- 123,461 Depletion, depreciation and amortization ................ -- 122,854 61,734 -- 184,588 Impairment of oil and gas properties .................. -- 17,894 -- -- 17,894 Exploration and abandonments .... -- 28,478 13,114 -- 41,592 General and administrative ...... 852 20,793 7,587 -- 29,232 Reorganization .................. -- 7,805 -- -- 7,805 Interest ........................ (24,572) 114,602 40,396 -- 130,426 Equity (income) loss from subsidiary .................. 54,039 (3,864) -- -- (50,175) -- Other ........................... 657 40,127 (4,493) -- 36,291 --------- --------- --------- --------- --------- 30,976 441,562 148,926 -- 571,289 --------- --------- --------- --------- --------- Loss before income taxes .......... (30,712) (23,377) (26,275) -- (30,189) Income tax provision .............. -- (443) (80) 23 (500) --------- --------- --------- --------- --------- Net loss .......................... (30,712) (23,820) (26,355) 23 (30,689) Other comprehensive income: Translation adjustment ...... -- -- 5,738 -- 5,738 --------- --------- --------- --------- --------- Comprehensive loss ................ $ (30,712) $ (23,820) $ (20,617) $ 23 $ (24,951) ========= ========= ========= ========= ========= 20

21 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE NINE MONTHS ENDED September 30, 2021 (in thousands) (Unaudited) PIONEER NATURAL RESOURCES NON- CONSOLIDATED COMPANY PIONEER GUARANTOR INCOME THE (PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY ----------- ----------- ------------ ----------- ------------ ----------- Revenues: Oil and gas .................... $ -- $ 408,885 $ 145,593 $ -- $ $ 554,478 Interest and other ............. 38 7,433 84 -- 636 8,191 Gain (loss) on disposition of assets, net................. -- (168) 32 -- (136) --------- --------- --------- --------- --------- 38 416,150 145,709 -- 562,533 --------- --------- --------- --------- --------- Costs and expenses: Oil and gas production ......... -- 124,411 45,097 -- 169,508 Depletion, depreciation and amortization ............... -- 163,743 83,465 -- 247,208 Exploration and abandonments.... -- 52,335 33,814 -- 86,149 General and administrative ..... 1,424 45,161 10,063 -- 56,648 Reorganization ................. -- 21,158 -- -- 21,158 Interest ....................... (14,309) 121,196 15,430 -- 122,317 Equity (income) loss from subsidiary ................. 143,197 (3,929) -- -- (139,268) -- Other .......................... 14 3,857 13,993 -- 636 18,500 --------- --------- --------- --------- --------- 130,326 527,932 201,862 -- 721,488 --------- --------- --------- --------- --------- Loss before income taxes ......... (130,288) (111,782) (56,153) -- (158,955) Income tax benefit ............... -- -- 28,667 26,733 55,400 --------- --------- --------- --------- --------- Net loss ......................... (130,288) (111,782) (27,486) 26,733 (103,555) Other comprehensive income: Translation adjustment ......... -- -- 2,022 -- 2,022 --------- --------- --------- --------- --------- Comprehensive loss ............... $(130,288) $(111,782) $ (25,464) $ 26,733 $(101,533) ========= ========= ========= ========= ========= 21

22 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 (in thousands) (Unaudited) PIONEER NATURAL RESOURCES NON- CONSOLIDATED COMPANY PIONEER GUARANTOR INCOME THE (PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY ----------- ----------- ------------ ----------- ------------ ----------- Cash flows from operating activities: Net income (loss) .................... $ (30,712) $ (23,820) $ (26,355) $ 23 $ 50,175 $ (30,689) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion, depreciation and amortization ................. -- 122,854 61,734 -- 184,588 Impairment of oil and gas properties ................... -- 17,894 -- -- 17,894 Exploration and abandonments.... -- 21,594 7,067 -- 28,661 Deferred income taxes .......... -- -- -- -- -- (Gain) loss on disposition of assets, net .................. -- (22,538) 43,814 -- 21,276 Other noncash items ............ 60,458 (4,140) (4,453) -- (50,175) 1,690 Change in working capital .......... 152,708 (303,355) 113,957 (23) (36,713) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities ... 182,454 (191,511) 195,764 -- 186,707 --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from disposition of assets .. -- 268,746 117,924 -- 386,670 Additions to oil and gas properties .. -- (58,435) (36,887) -- (95,322) Other property additions (retirements), net ............... -- (3,227) 2,005 -- (1,222) --------- --------- --------- --------- --------- Net cash provided by investing activities ........ -- 207,084 83,042 -- 290,126 --------- --------- --------- --------- --------- Cash flows from financing activities: Borrowings under long-term debt ...... 319,048 -- 292 -- 319,340 Principal payments on long-term debt ............................. (497,794) (967) (288,526) -- (787,287) Payment of other noncurrent liabilities ...................... -- (24,104) (4,127) -- (28,231) Deferred loan fees/issuance costs .... (6,891) -- -- -- (6,891) Exercise of long-term incentive plan stock options ............... 25 -- -- -- 25 --------- --------- --------- --------- --------- Net cash used in financing activities ......... (185,612) (25,071) (292,361) -- (503,044) --------- --------- --------- --------- --------- Net decrease in cash and cash equivalents .......................... (3,158) (9,498) (13,555) -- (26,211) Effect of exchange rate changes on cash and cash equivalents ............ -- -- 236 -- 236 Cash and cash equivalents, beginning of period ............................ 3,161 37,932 18,128 -- 59,221 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period ............................... $ 3 $ 28,434 $ 4,809 $ -- $ 33,246 ========= ========= ========= ========= ========= 22

23 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED September 30, 2021 (in thousands) (Unaudited) PIONEER NATURAL RESOURCES NON- CONSOLIDATED COMPANY PIONEER GUARANTOR INCOME THE (PARENT) USA SUBSIDIARIES TAX BENEFIT ELIMINATIONS COMPANY ----------- ----------- ------------ ------------ ------------ ----------- Cash flows from operating activities: Net loss ....................................... $(130,288) $(111,782) $ (27,486) $ 26,733 $ 139,268 $(103,555) Adjustments to reconcile net loss to net cash provided by operating activities: Depletion, depreciation and amortization .... -- 163,743 83,465 -- 247,208 Exploration and abandonments................. -- 38,064 27,413 -- 65,477 Deferred income taxes ....................... -- -- (26,267) (26,733) (53,000) (Gain) loss on disposition of assets, net ... -- 175 (39) -- 136 Other noncash items ......................... 150,780 9,867 16,666 -- (139,268) 38,045 Change in working capital ...................... (170,501) 208,774 33,924 -- 72,197 --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities .......................... (150,009) 308,841 107,676 -- 266,508 --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from disposition of assets............. -- 16,900 2,782 -- 19,682 Additions to oil and gas properties............. -- (268,132) (159,806) -- (427,938) Other property additions, net .................. -- (17,327) (6,487) -- (23,814) --------- --------- --------- --------- --------- Net cash used in investing activities... -- (268,559) (163,511) -- (432,070) --------- --------- --------- --------- --------- Cash flows from financing activities: Borrowings under long-term debt ................. 805,785 -- 117,125 -- 922,910 Principal payments on long-term debt............. (628,635) (476) (65,391) -- (694,502) Payment of other noncurrent liabilities ......... -- (32,873) (4,128) -- (37,001) Dividends ....................................... (10,079) -- -- -- (10,079) Purchase of treasury stock ...................... (9,890) -- -- -- (9,890) Deferred loan fees/issuance costs ............... (7,196) (3) -- -- (7,199) --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities .......................... 149,985 (33,352) 47,606 -- 164,239 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents .................................... (24) 6,930 (8,229) -- (1,323) Effect of exchange rate changes on each and cash equivalents................................ -- -- (105) -- (105) Cash and cash equivalents, beginning of period ... 41 49,033 22,639 -- 71,713 --------- --------- --------- --------- --------- Cash and cash equivalents, end of period ......... $ 17 $ 55,963 $ 14,305 $ -- $ 70,285 ========= ========= ========= ========= ========= 23

24 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 (Unaudited) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) FINANCIAL PERFORMANCE The Company reported net income of $46.4 million ($.46 per share) for the three months ended SEPTEMBER 30, 2021 and a net loss of $30.7 million ($.31 per share) for the nine months ended September 30, 1999, as compared to respective net losses of $43.9 million ($.44 per share) and $103.6 million ($1.04 per share) for the same periods in 1998. The Company's results for the three and nine months ended SEPTEMBER 30, 2021 were significantly impacted by divestment gains and losses; while the Company's results for the three and nine months ended September 30, 2021 were significantly impacted by declines in commodity prices (see "Trends and Uncertainties" and "Results of Operations", below). The results for the three and nine months ended SEPTEMBER 30, 2021 include a net gain of $20.9 million and a net loss of $21.3 million, respectively, from the divestment of certain United States and Canadian oil and gas properties, gas plants and other assets. See Note C. of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and "Asset Divestitures", below, for specific discussions of the 1999 asset divestitures. Additionally, the Company's results of operations for the nine month period ended September 30, 1999 includes other income of $30.2 million associated with a third quarter refund of excise taxes and $41.8 million of option fees principally received for a terminated property sales agreement in the first quarter. See Note G of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for specific discussions of the excise tax refund and option fees recognized during 1999. Net cash provided by operating activities were $89.3 million and $186.7 million, respectively, during the three and nine months ended September 30, 1999, as compared to net cash provided by operating activities of $106.1 million and $266.5 million, respectively, for the same periods in 1998. Net cash provided by operating activities during the three and nine month periods ended September 30, 1999, as compared to the same periods of 1998, were positively impacted by improving commodity prices and cost structures, but were negatively impacted by production declines in the Company's United States and Canadian areas, primarily as a result of asset divestitures (see "Results of Operations", below). Additionally, net cash provided by operating activities during the three and nine month periods ended September 30, 1999, as compared to the same periods of 1998, were negatively impacted by working capital changes. During the three and nine month periods ended September 30, 1999, working capital changes associated with operating activities used $11.7 million and $36.7 million of operating cashflows, respectively, primarily associated with reductions in accounts payable due to declines in capital expenditures; as compared to working capital changes having provided $44.9 million and $72.2 million of operating cashflows, respectively, during the three and nine month periods ended September 30, 1998, primarily associated with reductions in accounts receivable due to commodity price declines. 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 SEPTEMBER 30, 2021 was $2.5 billion, consisting of total debt of $1.7 billion and stockholders' equity of $.8 billion. Debt as a percentage of total book capitalization was 68 percent at September 30, 1999, as compared to 73 percent at December 31, 1998. The Company has reduced its outstanding indebtedness by $460.1 million during 1999 through the use of funds generated by the combined sources of operating activities and asset divestitures. DRILLING HIGHLIGHTS During the first nine months of 1999, the Company spent $95.3 million on capital projects, including $64.5 million for development activities, $27.1 million for exploration activities and $3.7 million on acquisitions. The Company, which had 57 development wells and 15 exploratory wells in progress at December 1998, participated in spudding 168 development wells and seven exploratory wells, completed 121 development wells and eight exploratory wells for production and plugged and abandoned four development wells and ten exploratory wells. As of September 30, 1999, the Company had 100 development wells and four exploratory wells in progress. DOMESTIC. The Company expended $58.2 million during the first nine months of 1999 on drilling activities primarily in the Gulf Coast, Permian Basin and Mid Continent areas of the United States. 24

25 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1)(continued) In the Gulf Coast area, the Company drilled its first deepwater Gulf of Mexico well to a depth of 14,000 feet, at a cost of $10.7 million net to the Company. As a result, in March 1999, the Company announced a significant discovery at Mississippi Canyon Block 305 encountering a hydrocarbon-bearing section of over 200 gross feet. The Company plans to spud a second appraisal well on the block during the fourth quarter of 1999, where it owns a 25 percent working interest. The Company spudded its second deepwater well during the second quarter of 1999 at Garden Banks 515, which was unsuccessful. In East Texas, the Company plugged and abandoned one exploratory well that was in progress at December 31, 2021 and two exploratory wells that were spud in the first quarter of 1999. During the third quarter of 1999, the Company completed a non-cash transaction whereby it traded its interest in several prospects in East Texas for the remaining interest in the Overton prospect, also in East Texas. The Company spud its first exploratory well in the Overton prospect during the third quarter of 1999, which remains in progress at September 30, 1999. Other projects initiated in the Gulf Coast area during the third quarter of 1999 were the spuding of one development well at Pawnee in South Texas and one development well at Spider Logansport in Northwest Louisiana, both of which were in progress at September 30, 1999. In the Permian Basin area, the Company completed 52 new development wells and one exploratory well during the first nine months of 1999. Of the new development wells completed, 49 were Spraberry Driver Unit development wells. 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 the second quarter of 1999, with the increase in oil prices, the Company initiated a program to begin completing these wells and placing them on production. As of September 30, 1999, the Company has 64 Spraberry Driver Unit wells in progress. During 1999, the Company plans to complete 150 Spraberry Field oil development wells. The Company's Mid Continent drilling program has been focused primarily in the West Panhandle Field in the Texas Panhandle. During the first nine months of 1999, the Company spudded 24 development wells in the West Panhandle field; five were successfully completed and 19 remain in progress as of SEPTEMBER 30, 2021 waiting on pipeline connections. During the third quarter of 1999, the Company also spud four development wells in the Panoma Field in Southwest Kansas that remain in progress at September 30, 1999. ARGENTINA. The Company spent $20.5 million during the first nine months of 1999 on drilling activities primarily in the Neuquen Basin of Argentina. Of the seven wells in progress at December 31, 1998, two exploratory wells and two development wells were completed during the first nine months of 1999, two exploratory wells were plugged and abandoned and one development well remains in progress at September 30, 1999. The Company also spud 28 development wells and two exploratory wells during the first nine months of 1999 with 18 development wells and one exploratory well being completed as producers. Three development wells and one exploratory well were plugged and abandoned as non-commercial. As a result, the Company had eight development wells in progress at September 30, 1999. CANADA. The Company spent $12.6 million during the first nine months of 1999 on drilling activities, principally to complete winter access drilling 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 32 development wells during the first nine months 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 new well completions in the Chinchaga, Martin Creek and Rycroft areas contributed 15 to 18 MMCF per day of new production, net to the Company. The Company had no wells in progress in Canada as of September 30, 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, asset divestitures or additional issuances of equity. Since that time, the Company has 25

26 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) reduced its outstanding indebtedness by $460.1 million through the use of the net cash provided by operating activities and the net cash proceeds from asset divestitures (see "Asset Divestitures", below). As a result of the successful completion of the Company's 1999 asset divestitures and the use of the associated net cash proceeds to reduce its outstanding indebtedness, the Company has increased its 1999 capital budget to $180 million. ASSET DIVESTITURES During 1998, the Company announced measures to increase its financial flexibility and to safeguard net asset values. Those measures included the enactment of an operating strategy focused on the enhancement of core assets and the divestiture of non-core assets, continuation of cost containment measures and the reduction of outstanding indebtedness. During the nine months ended September 30, 1999, the Company completed the asset divestiture phase of the measures referred to above. As a result, the Company realized net divestment proceeds of $117.2 million and $416.7 million, respectively, during the three and nine month periods ended September 30, 1999, and has recorded an associated net gain on disposition of assets of $20.9 million during the three months ended SEPTEMBER 30, 2021 and a net loss on disposition of assets of $21.3 million during the nine months ended September 30, 1999. The net cash proceeds from the 1999 asset divestitures were used to reduce outstanding indebtedness (see "Amended Credit Facilities", below, for a discussion of the Company's credit facility agreements). Prize Divestiture. On June 29, 1999, the Company completed the divestiture (the "Prize Divestiture") of certain United States oil and gas producing properties, gas plants and other assets to Prize Energy Corp. ("Prize"). The oil and gas producing assets sold to Prize include properties located in the Gulf Coast, Mid Continent and Permian Basin areas of the Company's United States region. At December 31, 1998, the Company's interest in these properties contained 63 million BOE of proved reserves (consisting of 26 million Bbls of oil and NGL's, and 224 Bcf of gas), representing $199 million of SEC 10 value. During 1998, daily production from these properties averaged 7,390 Bbls of oil, 1,904 Bbls of NGL's and 68,884 Mcf of gas. In accordance with the terms of the Prize Divestiture, 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. The convertible preferred stock provides for a six percent annual dividend payment (see Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for a specific discussion of the conversion features of the Prize convertible preferred stock, as well as information concerning the Prize Divestiture). The Company recognized a loss of $46.4 million from the disposition during the quarter ended June 30, 1999. The cash sales proceeds realized from the Prize Divestiture were used to reduce the Company's outstanding indebtedness under its Credit Facility. Other United States Divestitures. In addition to the Prize Divestiture, the Company completed the divestitures of non-strategic United States oil and gas properties located in the South Texas Gulf Coast, the West Texas Permian Basin and North Dakota areas, an East Texas gas facility and certain other assets for net cash proceeds of $91.1 million and $113.7 million, respectively, during the three and nine month periods ended September 30, 1999. Associated with these divestitures, the Company recorded net gains on disposition of assets of $27.5 million and $33.6 million, respectively, during the three and nine month periods ended September 30, 1999. At December 31, 1998, the Company's interest in these properties contained 12.5 million BOE of proved reserves (consisting of 6 million Bbls of oil and NGL's, and 37 Bcf of gas), representing $38 million of SEC 10 value. During 1998, daily production from these properties averaged 2,514 Bbls of oil, 120 Bbls of NGL's and 12,864 Mcf of gas. 26

27 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) Canadian Divestitures. During 1999, the Company completed the divestiture of certain non-strategic Canadian oil and gas properties, gas plants and other related assets. In accordance with the terms of the Canadian purchase and sale agreements, the Company received net cash proceeds of US $26.1 million and US $58.0 million, respectively, during the three and nine month periods ended September 30, 1999. Associated with these divestitures, the Company recognized net losses of US $6.6 million and US $58.5 million, respectively, during the three and nine month periods ended September 30, 1999. At December 31, 1998, the Company's interest in the divested Canadian properties contained 13.8 million BOE of proved reserves (consisting of 9 million Bbls of oil and NGL's, and 29 Bcf of gas), representing $47 million of SEC 10 value. During 1998, daily production from these properties averaged 7,805 Bbls of oil, 211 Bbls of NGL's and 15,970 Mcf of gas. 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 expired by its terms in August 1999. The terms of the Credit Facility provide for a combined reduction in loan commitments to $941 million prior to December 31, 1999. Additionally, the amendments provided 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 D 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 reduced its outstanding borrowings through the use of funds generated by operating activities and asset divestitures. During the nine months ended September 30, 1999, the Company reduced its outstanding borrowings under the Credit Facility by $454.7 million. During October 1999, the Company reduced its loan commitments under the Credit Facility to $939.6 million. As a result of the loan commitment reduction and debt covenant compliance, the future interest rate margin on LIBOR rate advances under the Credit Facility will be reduced to 187.5 basis points. EVENTS, TRENDS AND UNCERTAINTIES COMMODITY PRICES. The oil and gas prices that the Company reports are based on the market prices received for the commodities adjusted by the results of the Company's hedging activities. Historically, worldwide oil and gas prices have been extremely volatile and subject to significant changes in response to real and perceived conditions in world politics, weather patterns and other fundamental supply and demand variables. From the third quarter of 1997 through the first quarter of 1999, there was a declining trend in oil and gas price levels. 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 the enactment of announced reductions in export volumes, have had a positive impact on world crude oil prices since the first quarter of 1999. No assurances can be given that the reductions in export volumes or the positive trend in oil and gas commodity prices can be sustained for an extended period of time. 27

28 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) The volatility of commodity prices has had, and will continue to have, a significant impact on the Company's results of and cash flows from operations, capital spending programs and general financial condition. 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 F 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. For specific information concerning the market risk associated with financial instruments that the Company is a party to, see "Item 3. Quantitative and Qualitative Disclosures About Market Risk". 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, re-emergence 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. See "Results of Operations", below, for information concerning the Company's $17.9 million provision for impairment of oil and gas properties that was recognized during the second quarter of 1999. 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 September 30, 1999, the assessment phase of the Company's Year 2000 project is complete and has included, but was not limited to, the following procedures: o the identification of necessary remediation, upgrades 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, 28

29 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) o the formulation of contingency plans for mission-critical information technology systems. The Company distributed Year 2000 problem inquiries to over 500 entities and received responses to approximately 52 percent of the inquiries. The remedial phase of the Company's Year 2000 project is in the final stages of completion as it pertains to the remediation of information technology and non-information technology applications and systems in the United States, Canada and Argentina. As of September 30, 1999, the remedial phase of the Company's Year 2000 project was approximately 98 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 was 97 percent complete as of September 30, 1999, and was completed in October 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 completed the testing of non-information technology remediation in October 1999. The testing of information technology remediation is scheduled to be completed by the end of November 1999. The Company now expects that its total costs related to the Year 2000 problem will approximate $2.9 million. As of September 30, 1999, the Company's total costs incurred on the Year 2000 problem were $2.5 million. The risks associated with the Year 2000 problem are significant. A failure to remedy a critical Year 2000 problem could have a material adverse effect 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 business continuity and contingency planning 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. PROPOSAL TO ACQUIRE PARTNERSHIPS. On September 8, 1999, Pioneer USA filed a preliminary proxy statement with the SEC proposing an agreement and plan of merger to the limited partners of 25 publicly-held Parker & Parsley limited partnerships. Pioneer USA is the managing partner of the Parker & Parsley limited partnerships. The preliminary proxy statement is non-building and is subject to, among other things, consideration of offers from third parties to purchase any partnership or its assets, the majority approval of the limited partners in each partnership and SEC review and comments. If the agreement and plan of merger is consummated, the amount of cash that Pioneer USA would pay for the partnership interests would be based on the partnerships' reserve values plus net working capital. Pioneer USA estimates that the cash offer for the partnership interests would be approximately $60 million in the aggregate. 29

30 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) ACCOUNTING FOR DERIVATIVES. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (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. On May 19, 1999, the FASB voted to delay the effective date for SFAS 133 to fiscal years beginning after June 15, 2000. The Company has not determined what effect, if any, SFAS 133 will have on its consolidated financial statements. 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 and nine months ended SEPTEMBER 30, 2021 and 1998. See Note K 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. 30

31 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) THREE MONTHS ENDED SEPTEMBER 30, 2021 ------------------------------------------------------------ UNITED STATES ARGENTINA CANADA TOTAL ------------ ----------- ------------ ------------ Production: Oil (MBbls) ................ 2,584 558 223 3,365 NGLs (MBbls) ............... 2,080 57 74 2,211 Gas (MMcf) ................. 22,065 9,516 4,063 35,644 Total (MBOE) ............... 8,343 2,201 973 11,517 Average daily production: Oil (Bbls) ................. 28,092 6,064 2,420 36,576 NGLs (Bbls) ................ 22,615 616 800 24,031 Gas (Mcf) .................. 239,837 103,438 44,162 387,437 Total (BOE) ................ 90,681 23,919 10,580 125,180 Average oil price (per Bbl) .. $ 16.37 $ 21.05 $ 17.10 $ 17.20 Average NGL price (per Bbl) .. $ 14.12 $ 11.64 $ 12.77 $ 14.02 Average gas price (per Mcf) .. $ 2.39 $ 1.11 $ 1.92 $ 2.00 Costs (per BOE): Lease operating expense .... $ 2.67 1.67 2.64 2.48 Production taxes ........... .47 .17 -- .37 Workover costs ............. .15 -- .60 .16 ------------ ----------- ------------ ------------ Total production costs ... $ 3.29 $ 1.84 $ 3.24 $ 3.01 ============ =========== ============ ============ Depletion .................... $ 3.81 $ 4.61 $ 4.80 $ 4.05 ============ =========== ============ ============ THREE MONTHS ENDED September 30, 2021 ------------------------------------------------------------ UNITED STATES ARGENTINA CANADA TOTAL ------------ ----------- ------------ ------------ Production: Oil (MBbls) ................ 3,746 806 744 5,296 NGLs (MBbls) ............... 2,589 76 57 2,722 Gas (MMcf) ................. 34,202 5,409 7,780 47,391 Total (MBOE) ............... 12,036 1,783 2,097 15,916 Average daily production: Oil (Bbls) ................. 40,717 8,761 8,078 57,556 NGLs (Bbls) ................ 28,146 821 621 29,588 Gas (Mcf) .................. 371,757 58,793 84,570 515,120 Total (BOE) ................ 130,822 19,381 22,794 172,997 Average oil price (per Bbl) .. $ 13.71 $ 10.56 $ 11.88 $ 12.97 Average NGL price (per Bbl) .. $ 8.31 $ 7.84 $ 8.24 $ 8.30 Average gas price (per Mcf) .. $ 1.94 $ 1.35 $ 1.09 $ 1.73 Costs (per BOE): Lease operating expense .... $ 3.20 $ 3.73 $ 2.25 $ 3.13 Production taxes ........... .49 -- .14 .39 Workover costs ............. .12 .15 -- .11 ------------ ----------- ------------ ------------ Total production costs ... $ 3.81 $ 3.88 $ 2.39 $ 3.63 ============ =========== ============ ============ Depletion .................... $ 5.18 $ 5.06 $ 5.82 $ 5.25 ============ =========== ============ ============ 31

32 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) NINE MONTHS ENDED SEPTEMBER 30, 2021 ------------------------------------------------------------ UNITED STATES ARGENTINA CANADA TOTAL ------------ ------------ ------------ ------------ Production: Oil (MBbls) ................ 9,050 1,621 1,577 12,248 NGLs (MBbls) ............... 6,665 167 240 7,072 Gas (MMcf) ................. 84,043 26,505 14,522 125,070 Total (MBOE) ............... 29,722 6,205 4,238 40,165 Average daily production: Oil (Bbls) ................. 33,150 5,936 5,777 44,863 NGLs (Bbls) ................ 24,412 612 881 25,905 Gas (Mcf) .................. 307,849 97,087 53,196 458,132 Total (BOE) ................ 108,872 22,729 15,523 147,124 Average oil price (per Bbl) .. $ 14.28 $ 16.42 $ 12.90 $ 14.38 Average NGL price (per Bbl) .. $ 10.42 $ 8.70 $ 10.18 $ 10.38 Average gas price (per Mcf) .. $ 2.11 $ 1.11 $ 1.74 $ 1.86 Costs (per BOE): Lease operating expense .... $ 2.74 $ 1.84 $ 3.15 $ 2.63 Production taxes ........... .42 .15 -- .34 Workover costs ............. .08 -- .36 .10 ------------ ------------ ------------ ------------ Total production costs ... $ 3.24 $ 1.99 $ 3.51 $ 3.07 ============ ============ ============ ============ Depletion .................. $ 4.12 $ 4.49 $ 4.93 $ 4.26 ============ ============ ============ ============ NINE MONTHS ENDED September 30, 2021 ------------------------------------------------------------ UNITED STATES ARGENTINA CANADA TOTAL ------------ ------------ ------------ ------------ Production: Oil (MBbls) ................ 11,568 2,563 2,378 16,509 NGLs (MBbls) ............... 7,616 207 169 7,992 Gas (MMcf) ................. 105,481 13,739 19,432 138,652 Total (MBOE) ............... 36,765 5,059 5,785 47,609 Average daily production: Oil (Bbls) ................. 42,374 9,387 8,710 60,471 NGLs (Bbls) ................ 27,900 756 618 29,274 Gas (Mcf) .................. 386,378 50,328 71,178 507,884 Total (BOE) ................ 134,670 18,531 21,191 174,392 Average oil price (per Bbl) .. $ 14.20 $ 11.30 $ 11.37 $ 13.34 Average NGL price (per Bbl) .. $ 9.38 $ 9.84 $ 10.86 $ 9.42 Average gas price (per Mcf) .. $ 2.07 $ 1.37 $ 1.10 $ 1.87 Costs (per BOE): Lease operating expense .... $ 3.01 $ 3.73 $ 2.59 $ 3.04 Production taxes ........... .51 -- .16 .41 Workover costs ............. .14 .09 -- .11 ------------ ------------ ------------ ------------ Total production costs ... $ 3.66 $ 3.82 $ 2.75 $ 3.56 ============ ============ ============ ============ Depletion .................... $ 4.81 $ 5.61 $ 5.48 $ 4.98 ============ ============ ============ ============ OIL AND GAS REVENUES. Revenues from oil and gas operations totaled $159.9 million and $481.2 million for the three and nine months ended September 30, 1999, respectively, compared to $173.5 million and $554.5 million, respectively, for the same periods in 1998. The decrease in revenues during the three and nine month periods ended September 30, 1999, as compared to the three and nine month periods ended September 30, 1998, is reflective of declines in production volumes, principally due to the 1999 asset divestitures, partially offset by increased commodity prices. See "Asset Divestitures", above, and Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for specific discussions of the Company's 1999 asset divestitures. 32

33 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) On a BOE basis, production decreased by 28 percent and 16 percent for the three and nine months ended September 30, 1999, respectively, as compared to the same periods in 1998. For the three months ended September 30, 1999, production, on a BOE basis, declined 31 percent in the United States, Argentine production increased by 23 percent and Canadian production declined by 54 percent. On a worldwide basis, 44 percent of the decline in production was attributable to declines in crude oil production, which was primarily due to asset divestitures and to the Company having suspended oil development drilling in 1998 following the decline in oil prices. For the nine months ended September 30, 1999, production, on a BOE basis, declined 19 percent in the United States, Argentine production increased by 23 percent and Canadian production declined by 27 percent. On a worldwide basis, 57 percent of the decline in production was attributable to declines in crude oil production, primarily resulting from asset divestitures and suspended oil development drilling in 1998. Comparing the three months ended SEPTEMBER 30, 2021 to the same period in 1998, the average oil price increased 33 percent (from $12.97 per Bbl to $17.20 per Bbl, respectively); the average NGL price increased 69 percent (from $8.30 per Bbl to $14.02 per Bbl, respectively); and, the average gas price increased 16 percent (from $1.73 per Mcf to $2.00 per Mcf, respectively). Comparing the first nine months of 1999 to the same period in 1998, the average oil price increased eight percent (from $13.34 per Bbl to $14.38 per Bbl, respectively); the average NGL price increased ten percent (from $9.42 per Bbl to $10.38 per Bbl, respectively); and, the average gas price decreased one percent (from $1.87 per Mcf to $1.86 per Mcf, 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 and nine months ended September 30, 1999, the Company's hedging activities decreased the average price received for oil sales by nine percent and one percent, respectively. The average price received for gas sales were decreased by three percent and increased by five percent, as a result of the Company's hedging activities during the respective three and nine month periods ended September 30, 1999. Crude Oil. The majority of sales contracts governing the Company's oil production are tied directly or indirectly to NYMEX prices. Correspondingly, the Company, from time to time, enters into NYMEX based hedge contracts to mitigate the impact of price volatility. 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 and nine months ended SEPTEMBER 30, 2021 was $18.84 per Bbl, and $14.59 per Bbl, respectively, while, as a point of reference, the comparable daily average NYMEX closing for the same periods were $21.72 per Bbl and $17.48 per Bbl, respectively. The Company recorded a net decrease to oil revenues of $5.5 million and $2.5 million, respectively, for the three and nine month periods ended September 30, 1999, as a result of its commodity hedges. During the three and nine months ended September 30, 1998, the Company realized an average price for physical oil sales (excluding hedge results) of $11.80 per Bbl and $12.30 per Bbl, respectively, while, as a point of reference, the comparable daily average NYMEX closing per Bbl for the same periods were $14.18 per Bbl and $14.95 per Bbl, respectively. The Company recorded net increases to oil revenues of $6.2 million and $17.2 million for the three and nine months ended September 30, 1998, respectively, as a result of its commodity hedges. 33

34 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) 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 gas hedges. The Company's average realized price for physical gas sales (excluding hedge results) for the three and nine months ended SEPTEMBER 30, 2021 were $2.06 per Mcf and $1.77 per Mcf, respectively, while, as a point of reference, the comparable daily average NYMEX closing for the same periods were $2.60 per Mcf and $2.16 per Mcf, respectively. The Company recorded a net decrease to gas revenues of $2.2 million during the three months ended September 30, 1999, and, during the nine months ended September 30, 1999, a net increase to gas revenues of $10.8 million as a result of its commodity hedges. During the three and nine months ended September 30, 1998, the Company realized an average price for physical gas sales (excluding hedge results) of $1.68 per Mcf and $1.83 per Mcf, respectively, while, as a point of reference, the comparable daily average NYMEX closing for the same periods were $2.02 and $2.14 per Mcf, respectively. The Company recorded net increases to gas revenues of $2.5 million and $4.8 million for the three and nine months ended September 30, 1998, respectively, as a result of its commodity hedges. See Note F 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 September 30, 1999. PRODUCTION COSTS. During the three and nine months ended September 30, 1999, total production costs per BOE decreased to $3.01 and $3.07, respectively, as compared to production costs per BOE of $3.63 and $3.56, respectively, during the same periods in 1998. The quarter-to-quarter decline in production costs per BOE is reflective of a 21 percent decline in lease operating expenses, primarily realized as a result of the Company's cost containment initiatives and the sale of certain high cost properties, and a five percent decline in production taxes. Quarter-to-quarter workover costs increased by $.05 per BOE. The relative decline in year-to-date production costs per BOE is reflective of a 13 percent decline in lease operating expenses, a 17 percent decline in production taxes and a nine percent decline in workover costs per BOE. DEPLETION EXPENSE. Depletion expense per BOE decreased to $4.05 per BOE and $4.26 per BOE during the three and nine months ended September 30, 1999, respectively, as compared to $5.25 per BOE and $4.98 per BOE during the same periods 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". A secondary factor to the decline in per BOE depletion expense is the relative increase in estimated recoverable proved reserves resulting from improved commodity price outlooks. IMPAIRMENT OF OIL AND GAS PROPERTIES. During the second quarter of 1999, the Company reduced the carrying value of certain of its East Texas unproved properties by $17.9 million. The impairment of the associated properties was recognized after the assessment of seismic data that indicated that the estimated value of the properties was less than their carrying cost. See Note I. of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements". EXPLORATION AND ABANDONMENTS/GEOLOGICAL AND GEOPHYSICAL COSTS. Exploration and abandonments and geological and geophysical costs decreased to $11.9 million and $41.6 million during the three and nine month periods ended September 30, 1999, respectively, from $35.6 million and $86.1 million during the same periods in 1998. The decrease is primarily the result of the Company's curtailed capital program as evidenced by declines in all categories of exploration, abandonments, geological and geophysical costs. 34

35 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ----------------------- --------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Exploratory dry holes: United States ....................... $ 665 $ 8,639 $ 8,910 $ 11,440 Argentina ........................... 2,063 348 2,523 3,156 Canada .............................. 57 6 982 809 Other foreign ....................... (609) 5,115 (275) 9,050 Geological and geophysical costs: United States ....................... 6,100 7,531 14,250 25,136 Argentina ........................... 301 5,784 1,406 8,689 Canada .............................. 185 3,268 224 11,221 Other foreign ....................... 1,237 1,266 3,187 3,317 Leasehold abandonments and other....... 1,892 3,670 10,385 13,331 -------- -------- -------- -------- $ 11,891 $ 35,627 $ 41,592 $ 86,149 ======== ======== ======== ======== INTEREST AND OTHER INCOME During the three and nine months ended September 30, 1999, the Company recorded interest and other income of $32.4 million and $81.1 million, respectively, as compared to $5.9 million and $8.2 million, respectively, during the same periods of 1998. The increase in interest and other income for the quarter ended September 30, 1999, as compared to the quarter ended September 30, 1998, is primarily comprised of a $30.2 million refund of excise taxes. The increase in revenue during the nine months ended September 30, 1999, as compared to the same period in 1998, was primarily attributable to the $41.8 million of option income and liquidated damages, and the refund of excise taxes (see Note G. of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for disclosure regarding interest and other income). GAIN (LOSS) ON DISPOSITION OF ASSETS The Company recognized a net gain of $20.9 million and a net loss of $21.3 million on the divestiture of assets during the three and nine month periods ended September 30, 1999, respectively, as compared to net losses of $.5 million and $.1 million during the respective prior year periods ended September 30, 1998. The 1999 gains and losses are associated with the divestitures of oil and gas properties, gas plants and other assets in the United States and Canada. See Note C. of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and "Asset Divestitures", above, for discussions pertaining to the divestitures completed during the first nine months of 1999. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense was $8.8 million and $29.2 million during the respective three and nine month periods ended September 30, 1999, as compared to $19.2 million and $56.6 million for the same periods ended September 30, 1998, representing respective period-to-period decreases of 54 percent and 48 percent. On a per BOE basis, general and administrative expense declined from $1.21 and $1.19, respectively, during the three and nine months ended September 30, 1998, to $.76 and $.73 during each of the same respective periods in 1999. The decreases are primarily attributable to the efficiency measures initiated through the 1998 reorganization. 35

36 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) REORGANIZATION EXPENSE Reorganization expense for the three and nine month periods ended September 30, 1999 totaled $.8 million and $7.8 million, respectively, compared to $.6 million and $21.2 million during the same periods in 1998. As announced in 1998, the Company has consolidated its six domestic operating divisions, relocated most of its administrative services to Irving, Texas, closed its regional offices in Corpus Christi, Texas, Houston, Texas and Oklahoma City, Oklahoma, and eliminated approximately 350 employee positions. Additionally, during the second quarter of 1999, the Company centralized, in Irving, Texas, certain operational functions that were previously located in Midland, Texas. The Company does not expect any significant additional reorganization charges during the remainder of 1999. See Note J of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for a specific discussion of the reorganization provisions recognized by the Company. INTEREST EXPENSE Interest expense for the three and nine months ended SEPTEMBER 30, 2021 was $41.0 million and $130.4 million, respectively, as compared to $41.8 million and $122.3 million for the same periods in 1998. The $.8 million decrease in interest expense during the third quarter of 1999 as compared to the third quarter of 1998 is reflective of a $343.1 million decrease in the Company's average debt outstanding, partially offset by a 122 basis point increase in the Company's weighted average interest rate on debt. The $8.1 million increase in interest expense during the first nine months of 1999 as compared to the first nine months of 1998 is primarily reflective of a $103.7 million increase in the Company's average debt outstanding. Prior to their maturity in May and June 1999, the Company was a party to interest rate swap agreements that resulted in a decrease in interest expense of $849 thousand during the nine months ended September 30, 1999. The swap agreements had no impact on interest expense during the three months ended September 30, 1999. Such agreements resulted in a decrease in interest expense of $58 thousand and an increase in interest expense of $15 thousand during the respective three and nine month periods ended September 30, 1998. OTHER COSTS AND EXPENSES Other costs and expenses for the three and nine months ended September 30, 1999 were $18.0 million and $36.3 million, respectively, compared to $4.9 million and $18.5 million for the same periods in 1998. The increase in other costs and expenses are 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 and nine month periods ended September 30, 1999 include non-cash mark-to-market increases of $1.5 million and $2.4 million, respectively, to the liabilities recognized for the BTU swap agreements; and, for the three and nine month periods ended September 30, 1998, a decrease of $2.8 million and an increase of $3.0 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 April 1999, the Company was paid liquidated damages of an additional one million shares of common stock of the entity. Other expenses for the nine months ended September 30, 1999, includes a non-cash mark-to-market charge of $11.9 million to recognize declines in the market quoted value of the four million shares of common stock prior to the Company's sale of the investment. In June 1999, the Company sold its interest in this investment. 36

37 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) 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 non-cash mark-to-market increase in the recognized liabilities associated with these agreements during the three months ended SEPTEMBER 30, 2021 of $.5 million and, during the nine months ended September 30, 1999, the Company recorded a decrease in the recognized liabilities of $5.4 million. These contracts will continue to be marked-to-market until they mature at various dates in the fourth quarter of 2000. The related 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 and other crude oil and natural gas call options that do not qualify for hedge accounting treatment. Other expenses for the three and nine months ended September 30, 1999, include $14.3 million and $22.5 million, respectively, of non-cash mark-to-market increases to the liabilities recognized on these contracts. 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 three and nine month periods ended September 30, 1999, the Company recognized income tax provisions of $600 thousand and $500 thousand, respectively, as compared to tax benefits of $24.3 million and $55.4 million for the three and nine month periods ended September 30, 1998, respectively. The minimal income tax provision recognized during the nine months ended September 30, 1999 is primarily comprised of state and provincial income taxes incurred by the Company. 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 nine months of 1999 for additions to oil and gas properties totaled $95.3 million. This amount includes $3.7 million for the acquisition of prospects and properties and $91.6 million for development and exploratory drilling. Drilling expenditures during the first nine months of 1999 included $58.2 million of expenditures in the United States, $20.5 million of expenditures in Argentina, $12.6 million of expenditures in Canada and $.3 million of expenditures in other international areas. See "Drilling Highlights", above, for a specific discussion of capital investments made during the first nine months 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 has been principally funded by operating cash flow and proceeds from the divestitures of non-strategic assets during 1999, 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 non-strategic assets. The Company expects that these resources will be sufficient to fund its capital commitments in 1999. 37

38 PIONEER NATURAL RESOURCES COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(1) (continued) Operating Activities. Net cash provided by operating activities was $89.3 million and $186.7 million during the three and nine month periods ended September 30, 1999, respectively, as compared to net cash provided by operating activities of $106.1 million and $266.5 million for the same respective periods in 1998. The decrease in net cash provided by operating activities during the three and nine month periods ended SEPTEMBER 30, 2021 as compared to the same periods of 1998 are primarily attributable to declines in revenue from oil and gas operations due to declines in production volumes and to changes in working capital associated with operating activities, partially offset by increases in commodity prices (see "Financial Performance" and "Oil and Gas Revenues", above). Financing Activities. The Company had an outstanding balance under its Credit Facility at SEPTEMBER 30, 2021 of $795.3 million ($823.8 million including outstanding, undrawn letters of credit of $28.5 million). In accordance with the commitment reduction provisions of the Credit Facility, the Company reduced its debt commitments under the Credit Facility to $939.6 million during October 1999, leaving approximately 99 million of unused borrowing capacity available after the reduction in debt commitments. The Company reduced its outstanding borrowings by $460.1 million, of which $454.7 million was used to reduce outstanding borrowings under the Credit Facility, during the first nine months of 1999 through the use of funds generated by the combined sources of operating activities and asset divestitures. See Note D 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. 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. DIVESTITURE OF NON-STRATEGIC ASSETS. During the three and nine month periods ended September 30, 1999, net cash proceeds from the divestiture of non-strategic assets totaled $117.2 million and $386.7 million, respectively. The proceeds from these divestitures were used to reduce the Company's outstanding borrowings. LIQUIDITY. As of September 30, 1999, the Company had $33.2 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 .89 to one at SEPTEMBER 30, 2021 and .38 to one at December 31, 1998. 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 disclosures provided below provide specific information about material changes during the nine months ended SEPTEMBER 30, 2021 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, which the Company completed in October 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, that was reduced to 187.5 basis points in October 1999 as a result of the loan commitment reduction and the debt covenant compliance and, the maintenance of certain associated debt covenants 38

39 PIONEER NATURAL RESOURCES COMPANY ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(1) (continued) (see Note D 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, 2022 amendments described above, except for the change in the interest rate margin on LIBOR rate advances under the Credit Facility to 187.5 basis points. As of October 28, 1999, the market rate for 60-day LIBOR was 6.35 percent per annum. During the nine months ended September 30, 1999, the Company reduced its combined borrowings under its Credit Facility to $795.3 million, representing a $454.7 million decrease in variable rate borrowings and a $306.2 million decrease in 1999 variable rate debt maturities. During May and June 1999, the Company's $150 million notional amount interest rate swaps matured. During the nine months ended September 30, 1999, there were no other material changes to the Company's interest rate derivatives related to total debt. FOREIGN EXCHANGE RATE SENSITIVITY. As of September 30, 1999, the recognized liability for the fair value of the Company's foreign currency swaps declined to $9.9 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 nine months ended September 30, 1999, there were no other material changes to the Company's foreign exchange rate sensitive derivatives. COMMODITY PRICE SENSITIVITY. During the nine months ended September 30, 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 crude oil and natural gas derivative financial instruments that the Company was a party to as of September 30, 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. 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 also entered into 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 F and H of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for information regarding the terms of the Company's derivative financial instruments that are sensitive to changes in natural gas and crude oil commodity prices. 39

40 PIONEER NATURAL RESOURCES COMPANY ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(1) (continued) PIONEER NATURAL RESOURCES COMPANY CRUDE OIL PRICE SENSITIVITY DERIVATIVE FINANCIAL INSTRUMENTS AS OF SEPTEMBER 30, 2021 1999 2000 2001 2002 2003 THEREAFTER FAIR VALUE --------- ---------- ---------- ---------- --------- ---------- ---------- (in thousands except volumes and prices) Crude Oil Hedge Derivatives: Average daily notional Bbl volumes (1): Swap contracts (2): .................... 8,728 519 $(21,827) Weighted average per Bbl fixed price .............................. $ 15.67 $ 15.76 Put contracts: ......................... 2,000 $ 1 Weighted average long put per Bbl floor price ........................ $ 15.00 Collar contracts with short put (3): ... 14,000 7,000 3,000 $(12,250) Weighted average short call per Bbl ceiling price ...................... $ 18.58 $ 20.42 $ 20.58 Weighted average long put per Bbl floor price......................... $ 15.86 $ 17.29 $ 17.50 Weighted average short put per Bbl price below which floor becomes variable ........................... $ 12.14 $ 14.29 $ 14.50 Crude Oil Non-hedge Derivatives: Daily notional crude oil Bbl volumes under optional calls sold (4) ...... 10,000 10,000 $(18,738) Weighted average short call per Bbl ceiling price ...................... $ 20.00 $ 20.00 Average forward NYMEX crude oil price per Bbl ...................... $ 22.90 $ 20.43 Daily notional MMBtu volumes under swap of NYMEX gas price for 10 percent of NYMEX WTI price .................... 13,036 13,036 13,036 13,036 13,036 13,036 $(16,241) Average forward NYMEX gas prices(5) ........................ $ 2.83 $ 2.62 $ 2.60 $ 2.63 $ 2.67 $ 2.73 Average forward NYMEX oil prices (5) ....................... $ 22.90 $ 20.43 $ 18.21 $ 17.73 $ 17.50 $ 17.20 - ---------- (1) See Note F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter for 1999, 2000 and 2001. (2) Certain counterparties to the fourth quarter 1999 swap contracts have the contractual right to extend 9,000 Bbl's per day for one additional year at a weighted average strike price of $16.56 per Bbl. (3) The counterparties to the year 2000 collar contracts with short puts have the contractual right to extend the contracts for notional volumes of 5,000 Bbl's per day through year 2001 at weighted average per Bbl strike prices of $20.09, $17.00 and $14.00 for the short call, long put and short put, respectively. (4) The counterparties to the fourth quarter 1999 and year 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. (5) Average forward NYMEX oil and gas prices are as of November 8, 1999. 40

41 PIONEER NATURAL RESOURCES COMPANY ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(1) (continued) PIONEER NATURAL RESOURCES COMPANY NATURAL GAS PRICE SENSITIVITY DERIVATIVE FINANCIAL INSTRUMENTS AS OF SEPTEMBER 30, 2021 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): Swap contracts(3) ............. 6,896 -- -- 10,000 $(11,313) Weighted average MMBtu fixed price ..................... $ 2.16 $ 2.42 Collar contracts .............. 24,201 $ (469) Weighted average short call MMBtu ceiling price ........ $ 2.56 Weighted average long put MMBtu floor price ......... $ 1.91 Collar contracts with short puts(4) ............... 49,065 72,557 60,000 $(19,147) Weighted average short call MMBtu ceiling price ....... $ 2.65 $ 2.57 $ 2.64 Weighted average long put MMBtu contingent floor price ..................... $ 2.14 $ 2.04 $ 2.25 Weighted average short put MMBtu price below which floor becomes variable .... $ 1.84 $ 1.76 $ 1.95 Natural Gas Non-hedge Derivatives: Daily nominal gas MMBtu volumes under optional calls sold(5)..... 100,000 100,000 $(18,738) Weighted average short call per MMBtu ceiling price... $ 2.64 $ 2.76 Average forward NYMEX gas price per MMBtu ........... $ 2.83 $ 2.62 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 $(16,241) Average forward NYMEX gas prices(6) ................... $ 2.83 $ 2.62 $ 2.60 $ 2.63 $ 2.67 $ 2.73 Average forward NYMEX oil prices(6) ................... $ 22.90 $ 20.43 $ 18.21 $ 17.73 $ 17.50 $ 17.20 - -------- (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 that 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 F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter for 1999, 2000, 2001 and 2002. (3) Certain counterparties have the contractual right to sell year 2000, 2001, 2002 and 2003 swap contacts to the Company for notional contract volumes of 20,000; 49,223; 12,500; and 10,000 MMBtu per day, respectively, at weighted average strike prices of $2.32; $2.21; $2.52; and $2.58 per MMBtu, respectively. (4) 30,000; 54,482; and 60,000 MMBtu per day of the fourth quarter 1999, and year 2000 and 2001 collar option contracts with short puts are extendable at the option of the counterparties for a period of one year at respective weighted average per MMBtu prices of $2.73, $2.71 and $2.64 for the short call, $2.13, $2.09 and $2.25 for the long put and $1.83, $1.80 and $1.95 for the short put. (5) The counterparties to the fourth quarter 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 November 8, 1999. 41

42 PIONEER NATURAL RESOURCES COMPANY ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK(1) (continued) OTHER PRICE SENSITIVITY. During June 1999, the Company sold its investment in Costilla Energy Inc. common stock for $.6 million. - -------------- (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 that is available from the United States Securities and Exchange Commission. 42

43 PIONEER NATURAL RESOURCES COMPANY PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In addition to the specific litigation discussed in Note E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements", the Company is a party to various other 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 On July 13, 1999, the Company filed a Current Report on Form 8-K to report the disposition of assets under Items 2. and 7. of Form 8-K, related pro forma condensed balance of the Company as of March 31, 2022 and related pro forma condensed statements of operations of the Company for the three months ended March 31, 2022 and the year ended December 31, 1998. See Note C of the Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for disclosures regarding the dispositions of assets. 43

44 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: November 9, 2021 By: /s/ M. Garrett Smith ---------------------------------- M. Garrett Smith Executive Vice President and Chief Financial Officer Date: November 9, 2021 By: /s/ Rich Dealy ---------------------------------- Rich Dealy Vice President and Chief Accounting Officer 44

45 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule

5 1,000 9-MOS DEC-31-1999 SEP-30-1999 33,246 0 104,661 0 12,902 165,671 3,184,869 704,504 2,897,106 187,037 0 0 0 1,008 762,514 2,897,106 481,237 541,100 308,049 337,281 103,582 0 130,426 (30,189) (500) (30,689) 0 0 0 (30,689) (.31) (.31)

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