PIONEER NATURAL RESOURCES COMPANY Financial and Operating Performance Pioneer's financial and operating performance for 2020 included the following highlights: •Net loss attributable to common stockholders was$200 million ($1.21 per diluted share) for the year endedDecember 31, 2020 , as compared to net income of$773 million ($4.59 per diluted share) in 2019. The primary components of the$973 million decrease in net income (loss) attributable to common stockholders include: •a$1.3 billion decrease in oil and gas revenues, primarily due to a 31 percent decrease in average realized commodity prices per BOE, partially offset by a six percent increase in daily sales volumes due to the Company's successful horizontal drilling program in thePermian Basin ; •a$522 million decrease in net sales of purchased commodities due to a decrease in margins on the Company's downstreamGulf Coast refinery and export oil sales; •a$336 million decrease in derivative results, primarily due to changes in forward commodity prices and the cash settlement of derivative positions in accordance with their terms; and •a$143 million decrease in interest and other income (loss), primarily related to noncash valuation adjustments associated with the Company's investment in an affiliate, net proceeds received in 2019 from the sale of the Company's investment in its corporate headquarters and a decrease in interest income. Partially offset by: •a$486 million increase in the gain (loss) on disposition of assets (from a net loss on disposition of assets in 2019 to a net gain on disposition of assets in 2020), primarily due to the 2019 net loss recorded on the divestiture of the Company'sEagle Ford assets and other remainingSouth Texas assets inMay 2019 (the "South Texas Divestiture"); •a$296 million reduction in income taxes primarily due to the decrease in earnings between 2020 and 2019; •a$249 million decrease in production costs, including taxes, primarily attributable to (i) the Company's cost saving initiatives to lower production costs and (ii) the reduction in production taxes as a result of the aforementioned 31 percent decrease in average realized commodity prices per BOE; •a$127 million decrease in other expense, primarily related to decreases of (i)$80 million in employee-related charges associated with the 2020 and 2019 corporate restructurings and the Company's 2020 staffing reduction in its well services business, (ii)$83 million related to asset divestitures, decommissioning and impairments, (iii)$58 million in firm transportation charges on excess pipeline capacity commitments and (iv)$42 million in corporate headquarters relocation-related costs, partially offset by increases of (i)$80 million in the Company's net forecasted deficiency fee obligation and receivable associated with the South Texas Divestiture, (ii)$55 million in idle frac fleet fees, stacked drilling rig charges and drilling rig early terminations charges and (iii)$27 million in early extinguishment of debt charges; •an$80 million decrease in general and administrative expense primarily due to (i) the effect of the Company's 2019 and 2020 corporate restructurings, which resulted in employee headcount reductions and decreased salaries and benefits and (ii) the Company's reduction of additional overhead related costs during 2020 through voluntary salary reductions by the Company's officers and board of directors, reductions in estimated cash incentive compensation, benefit reductions and other cash cost reductions as a result of the Company's response to the COVID-19 pandemic's impact on oil demand and prices; and •a$72 million decrease in DD&A expense, primarily due to additions to proved reserves attributable to the Company's successful Spraberry/Wolfcamp horizontal drilling program. •During 2020, average daily sales volumes increased on a BOE basis by six percent to 367,253 BOEPD, as compared to 345,518 BOEPD during 2019, primarily due to the Company's successful Spraberry/Wolfcamp horizontal drilling program. •Average oil and NGL prices decreased per Bbl in 2020 to$37.24 and$15.62 , respectively, as compared to$53.77 and$19.33 , respectively, in 2019. Average gas prices decreased per Mcf in 2020 to$1.73 as compared to$1.79 in 2019. Parsley Acquisition The Company completed the Parsley Acquisition onJanuary 12, 2021 . Parsley's results of operations will be consolidated with the Company's interim consolidated financial statements beginning on January 12, 2021. See Item 1. Business - Acquisition Activities " and Note 19 of Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for additional information. First Quarter 2021 Outlook The first quarter of 2021 is expected to continue to have a high degree of uncertainty related to how long it will take to return to a balanced oil supply and demand environment. As a result, the Company's future operating and financial results will depend on various factors beyond the Company's control, such as: the duration of the COVID-19 pandemic and the speed and effectiveness of vaccine distributions to combat the virus, which is expected to directly impact the recovery of world economic growth and the demand for oil; the impact ofU.S. energy, monetary, environmental and trade policies; fiscal challenges facingthe United States federal government; geopolitical issues globally, especially in theMiddle East ; the extent to whichOPEC members and some nonmembers, includingRussia , adhere to and agree to extend cuts to their oil production quotas; and uncertainty in oil demand fundamentals associated with governmental policy aimed at redirecting fossil fuel consumption towards lower carbon energy. Based on current estimates, the Company expects the following operating and financial results for the first quarter of 2021, which includes the effects of the Parsley Acquisition (from the date of acquisition) and theFebruary 2021 winter storms inWest Texas : Three Months Ending March 31, 2021 Preliminary Guidance ($ in millions, except per BOE amounts) Average daily production (MBOE) 444 - 470 Average daily oil production (MBbls) 259 - 274 Production costs per BOE$6.50 -$8.00 DD&A per BOE$11.25 -$13.25 Exploration and abandonments expense$10 -$20 General and administrative expense$65 -$75 Accretion of discount on asset retirement obligations$2 -$5 Interest expense$38 -$43 Other expense$10 -$20 Cash flow impact from firm transportation (a)$(60) -$(30) Current income tax provision (benefit) <$5 Effective tax rate 21% - 25% _____________________ (a)The cash flow impact from firm transportation is primarily based on the forecasted differential between WTI oil prices and Brent oil prices less the costs to transport purchased oil from the areas of the Company's production to theGulf Coast . To the extent that the Company'sGulf Coast sales of purchased oil does not cover the purchase price and associated firm transport costs, the Company's results of operations will reflect the negative cashflow impact attributable to its firm transportation commitments. DuringFebruary 2021 , the Company's operations inWest Texas were significantly impacted by winter weather that brought abnormally cold temperatures, along with snow and icy conditions across the state ofTexas . The extreme winter weather impacted production operations, midstream infrastructure and power providers throughout the state, along with many other services. As a result, most of the Company's production was offline for about a week. Early in the weather event, the Company attempted to perform or otherwise satisfy its firm gas sales commitments, but as the impacts of the winter weather became clearer, the Company subsequently issued force majeure notices to its customers given the inability to perform such contracts for a variety of reasons, including significant production being offline, interruptions to midstream operations, the inability to flow gas to markets due to infrastructure downtime and compliance with government orders to direct any available gas volumes towards supporting power generation. Certain of the Company's customers have alleged that the Company's force majeure notices were improper under the applicable contracts. The Company estimates that it incurred incremental cash costs of$75 million to$85 million in connection with its firm gas sales commitments early in the weather event. 2021 Capital Budget The Company's capital budget for 2021 is expected to be in the range of$2.5 billion to$2.8 billion , consisting of$2.3 billion to$2.6 billion for drilling and completion related activities, including additional tank batteries and saltwater disposal facilities,$100 million of estimated Parsley integration costs and$90 million for water infrastructure, well services and vehicles. The 2021 capital budget excludes acquisitions, asset retirement obligations, capitalized interest and geological and geophysical general and administrative expense and corporate facilities. 49
--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY The 2021 capital budget is expected to be funded from operating cash flow, and, if necessary, from cash and cash equivalents on hand or borrowings under the Company's credit facility. Divestitures, Decommissioning and Restructuring Activities Divestitures. InMay 2020 , the Company completed the sale of certain vertical wells and approximately 1,500 undeveloped acres inUpton County of thePermian Basin to an unaffiliated third party for net cash proceeds of$6 million . The Company recorded a gain of$6 million associated with the sale. InDecember 2019 , the Company completed the sale of certain vertical and horizontal wells and approximately 4,500 undeveloped acres inGlasscock County of thePermian Basin to an unaffiliated third party for net cash proceeds of$64 million . The Company recorded a gain of$10 million associated with the sale. InJuly 2019 , the Company completed the sale of certain vertical wells and approximately 1,400 undeveloped acres inMartin County of thePermian Basin to an unaffiliated third party for net cash proceeds of$27 million . The Company recorded a gain of$26 million associated with the sale. InJune 2019 , the Company completed the sale of certain vertical wells and approximately 1,900 undeveloped acres inMartin County of thePermian Basin to an unaffiliated third party for net cash proceeds of$38 million . The Company recorded a gain of$31 million associated with the sale. InMay 2019 , the Company completed the South Texas Divestiture to an unaffiliated third party in exchange for total consideration having an estimated fair value of$210 million . The fair value of the consideration included (i) net cash proceeds of$2 million , (ii)$136 million in contingent consideration and (iii) a$72 million receivable associated with estimated deficiency fees to be paid by the buyer. The Company recorded a loss of$525 million and recognized employee-related charges of$19 million associated with the sale. Contingent Consideration. Per the terms of the South Texas Divestiture, the Company was entitled to receive contingent consideration based on future annual oil and NGL prices during each of the five years from 2020 to 2024. The Company revalued the contingent consideration using an option pricing model each reporting period prior to the settlement of the contingent consideration inJuly 2020 when the Company received cash proceeds of$49 million from the buyer to fully satisfy the contingent consideration. The Company recorded a noncash loss of$42 million to interest and other income during the year endedDecember 31, 2020 associated with the settlement. Deficiency Fee Obligation. The Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC fromJanuary 2019 throughJuly 2022 . The Company determines the fair value of the deficiency fee obligation using a probability weighted discounted cash flow model. The deficiency fee obligation is included in current or noncurrent liabilities in the consolidated balance sheets, based on the estimated timing of payments. During the year endedDecember 31, 2020 , the Company recorded a charge of$84 million in other expense in the consolidated statements of operations, to increase the Company's forecasted deficiency fee payments as a result of a reduction in planned drilling activities by the buyer of the assets. The estimated remaining deficiency fee obligation was$333 million as ofDecember 31, 2020 . Deficiency Fee Receivable. The buyer is required to reimburse the Company for 18 percent of the deficiency fees paid under the transferred midstream agreements fromJanuary 2019 throughJuly 2022 . Such reimbursement will be paid by the buyer in installments beginning in 2023 through 2025. The Company determines the fair value of the deficiency fee receivable using a credit risk-adjusted valuation model. During the year endedDecember 31, 2020 , the Company recorded an increase to the Company's long-term deficiency fee receivable of$4 million in other expense in the consolidated statements of operations, to reflect the buyer's share of 2020 deficiency fees which were greater than originally forecasted as of the date of the sale. The deficiency fee receivable is included in noncurrent other assets in the consolidated balance sheets. Decommissioning. InNovember 2018 , the Company announced plans to close its sand mine located inBrady, Texas and transition its proppant supply requirements toWest Texas sand sources. •During 2019, the Company recorded$23 million of accelerated depreciation,$13 million of inventory and other property and equipment impairment charges and$12 million of sand mine closure-related costs. 50
--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
•During 2018, the Company recorded $443 million of accelerated depreciation and
$7 million of employee-related charges associated with the shutdown.
Restructuring.
During the third quarter of 2020, the Company announced a corporate
restructuring to reduce its staffing levels to correspond with a planned
reduction in future activity levels. The restructuring resulted in approximately
300 employees being involuntarily separated from the Company in October 2020 .
The Company recorded $78 million of employee-related charges, including $5
million of noncash stock-based compensation expense related to the accelerated
vesting of certain equity awards, in other expense in the consolidated
statements of operations during the year ended December 31, 2020. See Note
3 , Note 8 and Note 16 of Notes to Consolidated Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for additional
information.
In June 2020 , the Company implemented changes to its well services business,
including a staffing reduction of approximately 50 employees. The changes were
made to more closely align the well services cost structure and headcount with
the Company's reduction in expected activity levels as a result of the COVID-19
pandemic's impact on oil prices. The Company recorded $1 million of
employee-related charges in other expense in the consolidated statements of
operations during the year ended December 31, 2020 related to the staffing
reductions in its well services business.
During 2019, the Company implemented a corporate restructuring to align its cost
structure with the needs of a Permian Basin -focused company (the "2019 Corporate
Restructuring Program"). The 2019 Corporate Restructuring Program occurred in
three phases as follows:
•In March 2019 , the Company made certain changes to its leadership and
organizational structure, which included the early retirement and departure of
certain officers of the Company,
•In April 2019 , the Company adopted a voluntary separation program ("VSP") for
certain eligible employees, and
•In May 2019 , the Company implemented an involuntary separation program ("ISP").
During 2019, the Company recorded $159 million of employee-related charges,
including $26 million of noncash stock-based compensation expense related to the
accelerated vesting of certain equity awards, associated with the 2019 Corporate
Restructuring Program.
See Note 3 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information
regarding Divestitures, Decommissioning and Restructuring activities.
Results of Operations
Results of operations should be read together with the Company's consolidated
financial statements and related notes included in "Item 8. Financial Statements
and Supplementary Data" of this Annual Report on Form 10-K. See the Company's
Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion
of the Company's 2019 results of operations as compared to the Company's 2018
results of operations.
Oil and gas revenues. The Company's revenues are derived from sales of oil, NGL
and gas production. Increases or decreases in the Company's revenues,
profitability and future production are highly dependent on commodity prices.
Prices are market driven and future prices will fluctuate due to supply and
demand factors, availability of transportation, seasonality, geopolitical
developments and economic factors, among other items.
Year Ended December 31,
2020 2019 Change
(in millions)
Oil and gas revenues $ 3,630 $ 4,916 $ (1,286)
51--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Average daily sales volumes are as follows:
Year Ended December 31,
2020 2019 % Change
Oil (Bbls) 210,641 212,353 (1 %)
NGLs (Bbls) 85,728 72,323 19 %
Gas (Mcf) (a) 425,307 365,055 17 %
Total (BOE) 367,253 345,518 6 %
____________________
(a)Gas production excludes gas produced and used as field fuel. Average daily sales volumes per BOE increased for the year endedDecember 31, 2020 , as compared to 2019, primarily due to the Company's successful Spraberry/Wolfcamp horizontal drilling program. The increase in NGL and gas volumes primarily reflects (i) increasing wet gas production (as a percentage of a horizontal wells total production) over time, (ii) new processing facilities and takeaway capacity being placed into service during 2019 and 2020, which had the effect of lowering line pressures and (iii) increased recovery rates for NGLs. The decrease in oil volumes for the year endedDecember 31, 2020 , as compared to 2019, was primarily due to the Company's reduced drilling and completion activity and proactively curtailing lower-margin, higher-cost vertical well production during 2020 as a result of the reduced oil price environment. The oil, NGL and gas prices reported by the Company are based on the market prices received for each commodity. The average prices are as follows: Year Ended December 31, 2020 2019 % Change Oil per Bbl$ 37.24 $ 53.77 (31 %) NGLs per Bbl$ 15.62 $ 19.33 (19 %) Gas per Mcf$ 1.73 $ 1.79 (3 %) Total per BOE$ 27.01 $ 38.98 (31 %) Sales of purchased commodities. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil and gas sales to (i)Gulf Coast refineries, (ii)Gulf Coast andWest Coast gas markets and (iii) international oil markets and to satisfy unused gas pipeline capacity commitments. Revenues and expenses from these transactions are generally presented on a gross basis as the Company acts as a principal in the transaction by assuming both the risks and rewards of ownership, including credit risk, of the commodities purchased and the responsibility to deliver the commodities sold. In conjunction with the Company's downstream sales, the Company also enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production to downstream sales points. The transportation costs associated with these transactions are included in purchased commodities expense. The net effect of third party purchases and sales of commodities is as follows: Year Ended December 31, 2020 2019 Change (in millions) Sales of purchased commodities$ 3,394 $ 4,755 $ (1,361) Purchased commodities 3,633 4,472 (839) Net effect on earnings$ (239) $ 283 $ (522) The$522 million decrease in net sales of purchased commodities for the year endedDecember 31, 2020 , as compared to 2019, is primarily due to (i) a$74 million loss during the first quarter of 2020 attributable to oil that was purchased and in transit via pipeline to theGulf Coast or inGulf Coast storage at the end of January and February, and was subsequently sold inFebruary 2020 andMarch 2020 , respectively, at lower prices (this oil inventory is sold in the following month at contracted prices that are generally tied to monthly average index oil prices (typically Brent oil prices)) and (ii) a decrease in 2020 margins on the Company's downstreamGulf Coast refinery and export oil sales. Firm transportation payments on excess pipeline capacity are included in other expense in the accompanying consolidated statements of operations. See Note 16 of Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for additional information. 52
--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Interest and other income (loss), net.
Year Ended December 31,
2020 2019 Change
(in millions)
Interest and other income (loss), net $ (67) The decrease in interest and other income for the year endedDecember 31, 2020 , as compared to 2019, is primarily due to (i) a noncash loss of$64 million attributable to the decrease in fair value of the Company's investment in affiliate as compared to a noncash gain of$15 million for the same period in 2019, (ii) a net gain of$56 million related to the 2019 sale of the Company's investment in its corporate headquarters and (iii) a$12 million decrease in interest income, partially offset by a$7 million increase in sales and use tax refunds. See Note 15 of Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for additional information. Derivative gain (loss), net. Year Ended December 31, 2020 2019 Change (in millions) Noncash derivative gain (loss), net $ (325)$ 8 $ (333) Cash receipts on settled derivative instruments, net (a) 44 47 (3) Derivative gain (loss), net $ (281)
____________________
(a)Includes a$22 million loss related to interest rate derivatives for the year endedDecember 31, 2020 . The Company primarily utilizes commodity swap contracts, collar contracts, collar contracts with short puts and basis swap contracts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, and (ii) support the Company's capital budgeting and expenditure plans. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness. Commodity derivatives and the relative price impact are as follows: Year Ended December 31, 2020 2019 Net Cash Receipts Net Cash Receipts (Payments) Price Impact (Payments) Price Impact (in millions) (in millions)
Oil derivative receipts (a)$ 80 $ 1.03 per Bbl $ 75$ 0.97 per Bbl Gas derivative payments (b) (3)$ (0.02) per Mcf (28)$ (0.21) per Mcf Total net commodity derivative receipts$ 77 $ 47 _____________________ (a)Excludes the effect of liquidating certain of the Company's 2020 and 2021 Brent collar contracts with short puts for cash payments of$11 million for the year endedDecember 31, 2020 . (b)Excludes the effect of liquidating certain of the Company's 2021 NYMEX swap contracts for cash receipts of$1 million for the year endedDecember 31, 2020 . The Company's open derivative contracts are subject to continuing market risk. See " Item 7A. Quantitative and Qualitative Disclosures About Market Risk " and Note 5 of Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for additional information. Gain (loss) on disposition of assets, net. Year Ended December 31, 2020 2019 Change (in millions) Gain (loss) on disposition of assets, net$ 9 $ (477) $ 486 53
--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
The Company's gain (loss) on disposition of assets is primarily attributable to the following divestitures:
Net Gain (Loss)
Asset Sold Completion Date Recorded
(in millions)
Year Ended December 31, 2020 :
Upton County - Permian Basin acreage and wells May 2020 $ 6
Other $ 3
Year Ended December 31, 2019 :
Martin County - Permian Basin acreage June/July 2019 $ 57
South Texas Divestiture May 2019 $ (525)
Other $ (9)
See Note 3 of Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for additional information. Oil and gas production costs.
Year Ended December 31,
2020 2019 Change
(in millions)
Oil and gas production costs $ 682 $ 874 Total production costs per BOE are as follows:
Year Ended December 31,
2020 2019 % Change
Lease operating expense (a) $ 3.00 $ 4.57 (34 %)
Gathering, processing and transportation expense (b) 2.59 2.24 16 %
Workover costs (a) 0.24 0.71 (66 %)
Net natural gas plant income (c) (0.76) (0.59) 29 %
$ 5.07 $ 6.93 (27 %)
_____________________
(a)Lease operating expense and workover costs represent the components of oil
and gas production costs over which the Company has management control.
(b)Gathering, processing and transportation expense represents the costs to
gather, process, fractionate and transport the Company's gas and NGLs to their
point of sale.
(c)Net natural gas plant income represents the earnings from the Company's
ownership share of gas processing facilities that gather and process the
Company's and third party gas.
Lease operating expense per BOE decreased for the year ended December 31, 2020 ,
as compared to 2019, primarily due to (i) the Company's cost saving initiatives
to lower production costs and (ii) the impact of the sale of the Company's South
Texas assets in May 2019 , which had a higher lease operating expense per BOE
than the Company's Permian Basin assets. Gathering, processing and
transportation expense per BOE increased due to a higher proportion of the
Company's total production being attributable to gas and NGL production, higher
NGL recoveries and incremental costs associated with new processing facilities
and pipeline takeaway capacity for the Company's gas and NGL production.
Workover costs per BOE decreased primarily due to reduced workover activity as a
result of lower commodity prices being realized in 2020, which reduced the
economic benefit of repairing many of the Company's marginal vertical wells. Net
natural gas plant income per BOE increased primarily due to new processing
facilities brought online in 2019 and 2020 that resulted in higher NGL
recoveries and reduced plant operating expenses.
Production and ad valorem taxes.
Year Ended December 31,
2020 2019 Change
(in millions)
Production and ad valorem taxes $ 242 $ 299 $ (57)
54--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
In general, production taxes and ad valorem taxes are directly related to
commodity price changes; however, Texas ad valorem taxes are based upon prior
year commodity prices, whereas production taxes are based upon current year
commodity prices.
Production and ad valorem taxes per BOE are as follows:
Year Ended December 31,
2020 2019 % Change
Production taxes $ 1.17 $ 1.75 (33 %)
Ad valorem taxes 0.64 0.63 2 %
$ 1.81 $ 2.38 (24 %)
Production taxes per BOE decreased for the year ended
Depletion, depreciation and amortization ("DD&A") expense.
Year Ended December 31,
2020 2019 Change
(in millions)
Depletion, depreciation and amortization $ 1,639 $
1,711
Total DD&A expense per BOE is as follows:
Year Ended December 31,
2020 2019 % Change
DD&A $ 12.19 $ 13.56 (10 %)
Depletion expense $ 11.55 $ 12.78 (10 %)
The decrease in DD&A per BOE and depletion expense per BOE for the year ended
December 31, 2020 , as compared to 2019, is primarily due to additions of proved
reserves attributable to the Company's successful Spraberry/Wolfcamp horizontal
drilling program.
Exploration and abandonments expense.
Year Ended December 31,
2020 2019 Change
(in millions)
Geological and geophysical $ 36 $ 49 $ (13)
Exploratory/extension well costs - 4 (4)
Leasehold abandonments and other 11 5 6
$ 47 $ 58 $ (11)
The decrease in geological and geophysical costs for the year ended December 31,
2020 , as compared to 2019, is primarily due to a decrease in geological and
geophysical personnel costs as a result of (i) the 2020 cost reduction
initiatives in response to the COVID-19 pandemic, (ii) the 2020 Corporate
Restructuring and (iii) the 2019 Corporate Restructuring Program (collectively
the "2019 and 2020 Overhead Cost Reduction Initiatives"). The increase in
leasehold abandonment costs is primarily due to the abandonment of certain
unproved properties that the Company no longer plans to drill before the leases
expire.
During 2020 and 2019, the Company completed and evaluated 242 and 281
exploration/extension wells, respectively, and 100 percent and 96 percent,
respectively, were successfully completed as discoveries.
See Note 6 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
55--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
General and administrative expense.
Year Ended December 31,
2020 2019 Change
(in millions)
Noncash general and administrative expense $ 42 $ 53 $ (11)
Cash general and administrative expense 202 271 (69)
$ 244 $ 324 $ (80) Total general and administrative expense per BOE is as follows:
Year Ended December 31,
2020 2019 % Change
Noncash general and administrative expense $ 0.31 $ 0.42 (26 %)
Cash general and administrative expense 1.51 2.15 (30 %)
$ 1.82 $ 2.57 (29 %)
The decrease in noncash general and administrative expense per BOE for the year
ended December 31, 2020 , as compared to 2019, is primarily due to market
fluctuations in the Company's deferred compensation obligation as a result of
mark-to-market valuation changes attributable to the Company's deferred
compensation plan assets and a decrease in employee share-based compensation
amortization due to reduced staffing levels associated with the 2019 and 2020
Overhead Cost Reduction Initiatives.
The decrease in cash general and administrative expense per BOE for the year
ended December 31, 2020 , as compared to 2019, is primarily due to a decrease in
corporate staffing levels and the Company's 2019 and 2020 Overhead Cost
Reduction Initiatives.
See Note 3 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Interest expense.
Year Ended December 31,
2020 2019 Change
(in millions)
Noncash interest expense $ 51 $ 9 $ 42
Cash interest expense 78 112 (34)
$ 129 $ 121 $ 8
The increase in noncash interest expense for the year ended December 31, 2020 ,
as compared to 2019, is primarily due to (i) amortization of the discount
attributable to the issuance of convertible senior notes in May 2020 that was
recorded to additional paid-in capital in the accompanying consolidated balance
sheets and (ii) accretion associated with the Company's corporate headquarters
that was capitalized as a finance lease in November 2019 .
The decrease in cash interest expense is primarily due to the repayment of $450
million of 7.50% senior notes that matured in January 2020 and the Company's
partial repayment of $360 million of its 3.45% senior notes due 2021, $356
million of its 3.95% senior notes due 2022 and $9 million of its 7.20% senior
notes due 2028 as a result of the Company's tender offer for these notes in May
2020 , partially offset by the issuance in May 2020 and August 2020 ,
respectively, of $1.3 billion of 0.25% convertible senior notes due 2025 and
$1.1 billion of 1.90% senior notes due 2030.
The weighted average cash interest rate on the Company's indebtedness for the
year ended December 31, 2020 decreased to 2.2 percent, as compared to 5.0
percent for the year ended December 31, 2019 .
See Note 2 and Note 7 of Notes to Consolidated Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for additional
information and for the Company's assessment of the impact of the adoption of
Accounting Standards Codification 2020-06, "Debt-Debt with Conversion and Other
Options (Subtopic 470-20) and Derivative and Hedging-Contracts in Entity's Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts
in an Entity's Own Equity".
56--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Other expense.
Year Ended December 31,
2020 2019 Change
(in millions)
Other expense $ 321 $ 448 $ (127)
The decrease in other expense for the year ended December 31, 2020 , as compared
to 2019, is primarily related to decreases of (i) $80 million in
employee-related charges associated with the 2019 and 2020 Overhead Cost
Reduction Initiatives, (ii) $83 million related to asset divestitures,
decommissioning and impairments, (iii) $58 million in firm transportation
charges on excess pipeline capacity commitments and (iv) $42 million in
corporate headquarters relocation-related costs, partially offset by increases
of (i) $80 million in the Company's net forecasted deficiency fee obligation and
receivable associated with the South Texas Divestiture, (ii) $55 million in idle
frac fleet fees, stacked drilling rig charges and drilling rig early
terminations charges and (iii) $27 million in early extinguishment of debt
charges.
See Note 16 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Income tax benefit (provision).
Year Ended December 31,
2020 2019 Change
(in millions)
Income tax benefit (provision) $ 61 $ (235) $ 296
Effective tax rate 23 % 23 % - %
The decrease in income taxes for the year ended December 31, 2020 , as compared
to 2019, is primarily due to a decrease of $1.3 billion in income before income
taxes.
See Note 17 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Liquidity and Capital Resources
Liquidity. In response to the COVID-19 pandemic, the Company implemented
measures to reduce, defer or cancel certain planned capital expenditures and
reduce its overall cost structure commensurate with its expected level of
activities. Additionally, as described in financing activities below, the
Company enhanced its liquidity position by refinancing a portion of its existing
debt and issuing new debt, with the combined objective of increasing liquidity,
extending the Company's debt maturities and lowering the Company's future cash
interest expense on long-term debt.
The Company's primary sources of short-term liquidity are (i) cash and cash
equivalents, (ii) net cash provided by operating activities, (iii) sales of
investments, (iv) unused borrowing capacity under its credit facility (the
"Credit Facility"), (v) issuances of debt or equity securities and (vi) other
sources, such as sales of nonstrategic assets. In January 2021 , Pioneer entered
into the First Amendment to Credit Agreement, with the primary changes being to
increase the aggregate loan commitments from $1.5 billion to $2.0 billion ,
extend the maturity of the credit facility to January 12, 2026 and to nominally
adjust the drawn and undrawn pricing.
The Company's short-term and long-term liquidity requirements consist primarily
of (i) capital expenditures, (ii) acquisitions of oil and gas properties, (iii)
payments of contractual obligations, including debt maturities, (iv) dividends
and share repurchases and (v) working capital obligations. Funding for these
requirements may be provided by any combination of the Company's sources of
liquidity. Although the Company expects that its sources of funding will be
adequate to fund its 2021 liquidity requirements, no assurance can be given that
such funding sources will be adequate to meet the Company's future needs.
Capital resources.
See the Company's Annual Report on Form 10-K for the year ended December 31,
2019 for a discussion of the Company's 2019 capital resources as compared to the
Company's 2018 capital resources.
As of December 31, 2020 , the Company had no outstanding borrowings under its
Credit Facility, and was in compliance with all of its debt covenants. The
Company also had unrestricted cash on hand of $1.4 billion as of December 31,
2020 .
57--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Sources and uses of cash in 2020, as compared to 2019, are as follows:
Year Ended December 31,
2020 2019 Change
(in millions)
Net cash provided by operating activities $ 2,083 $ 3,115 $ (1,032)
Net cash used in investing activities $ (1,668) $ (2,447) $ (779)
Net cash provided by (used in) financing activities $ 381 Operating activities. The decrease in net cash flow provided by operating activities in 2020, as compared to 2019, is primarily due to (i) decreases in the Company's oil and NGL revenues as a result of decreases in commodity prices and (ii) a$522 million decrease in net sales of purchased oil and gas due to a decrease in margins on the Company's downstreamGulf Coast refinery and export oil sales, partially offset by the Company's overall lower cost structure due to its operating cost reduction efforts and its 2019 and 2020 Overhead Cost Reduction Initiatives. Investing activities. The decrease in net cash flow used in investing activities during 2020, as compared to 2019, is primarily due to decreases in additions to oil and gas properties and additions of other assets and other property and equipment of$1.5 billion . The reduction in 2020 investing activities reflects the Company's reduced capital budget and cost reduction efforts, partially offset by a decrease in the sale of investments and the disposition of assets of$624 million and$89 million , respectively. The Company's investing activities during the year endedDecember 31, 2020 were primarily funded by net cash provided by operating activities. Financing activities. The Company's significant financing activities are as follows: •2020: The Company (i) received$1.1 billion from the issuance of 1.90% senior notes, net of issuance costs and discounts, (ii) received$1.3 billion from the issuance of the 0.25% convertible senior notes, net of issuance fees, (iii) paid$113 million to enter into capped call transactions with certain financial institution counterparties associated with the convertible senior notes issuance, (iv) paid an aggregate total of$748 million associated with the early repayment of a portion of the 3.45% senior notes, 3.95% senior notes and 7.20% senior notes, (v) repaid$450 million associated with the maturity of its 7.50% senior notes inJanuary 2020 , (vi) paid dividends of$346 million , (vii) repurchased$176 million of its common stock and (viii) paid$173 million of other liabilities. •2019: The Company repurchased$653 million of its common stock and paid dividends of$127 million . Dividends/distributions. During the year endedDecember 31, 2020 , the Company's board of directors declared dividends of$2.20 per common share, compared to dividends declared of$1.20 per common share during the year endedDecember 31, 2019 . The Company paid aggregate dividends of$346 million during 2020 and$127 million during 2019. Future dividends are at the discretion of the Company's board of directors, and, if declared, the board of directors may change the dividend amount based on the Company's liquidity and capital resources at the time. Off-balance sheet arrangements. From time to time, the Company enters into arrangements and transactions that can give rise to material off-balance sheet obligations of the Company. As ofDecember 31, 2020 , the material off-balance sheet arrangements and transactions that the Company had entered into included (i) firm purchase, transportation, storage and fractionation commitments, (ii) open purchase commitments and (iii) contractual obligations for which the ultimate settlement amounts are not fixed and determinable. The contractual obligations for which the ultimate settlement amounts are not fixed and determinable include (i) derivative contracts that are sensitive to future changes in commodity prices or interest rates, (ii) gathering, processing (primarily treating and fractionation) and transportation commitments on uncertain volumes of future throughput and (iii) indemnification obligations following certain divestitures. In connection with its divestiture transactions, the Company may retain certain liabilities and provide the purchaser certain indemnifications, subject to defined limitations, which may apply to identified pre-closing matters, including matters of litigation, environmental contingencies, royalty and income taxes. Also associated with its divestiture transactions, the Company has issued and received guarantees to facilitate the transfer of contractual obligations, such as firm transportation agreements or gathering and processing arrangements. The Company does not recognize a liability if the fair value of the obligation is immaterial and the likelihood of making payments under these guarantees is remote. Other than the off-balance sheet arrangements described above, the Company has no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company's liquidity or availability of or requirements for capital resources. The Company expects to enter into similar contractual arrangements in the future, including incremental derivative contracts and additional firm purchase, transportation, storage and fractionation 58
--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
arrangements, in order to support the Company's business plans. See Note 11
of Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data" for additional information.
Contractual obligations. The Company's contractual obligations include long-term
debt, operating leases (primarily related to contracted drilling rigs, equipment
and office facilities), capital funding obligations, derivative obligations,
firm transportation, storage and fractionation commitments, minimum annual
gathering, processing and transportation commitments and other liabilities
(including postretirement benefit obligations). Other joint owners in the
properties operated by the Company could incur portions of the costs represented
by these commitments.
Firm commitments. The Company has short-term and long-term firm purchase,
gathering, processing, transportation, fractionation and storage commitments
representing take-or-pay agreements, which include contractual commitments (i)
to purchase sand, water and diesel for use in the Company's drilling operations,
(ii) with midstream service companies and pipeline carriers for future
gathering, processing, transportation, fractionation and storage and (iii) with
oilfield services companies that provide drilling and pressure pumping services.
The Company does not expect to be able to fulfill all of its short-term and
long-term firm transportation volume obligations from projected production of
available reserves; consequently, the Company plans to purchase third party
volumes to satisfy its firm transportation commitments if it is economic to do
so; otherwise, it will pay demand fees for any commitment shortfalls. The
Company also has open purchase commitments for inventories, materials and other
property and equipment ordered, but not received, as of December 31, 2020 . See
"Item 2. Properties" and Note 11 of Notes to Consolidated Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
additional information.
Long-term debt. As of December 31, 2020 , the Company's outstanding debt is
comprised of senior notes and convertible senior notes. The senior notes and
convertible senior notes are unsecured obligations ranking equally in right of
payment with all other senior unsecured indebtedness of the Company. See Note
7 of Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data" for additional information.
Leases. The Company's short-term and long-term operating lease obligations
primarily relate to contracted drilling rigs, equipment and office facilities.
See Note 10 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Derivative obligations. The Company's short-term and long-term derivative
obligations represent net liabilities determined in accordance with master
netting arrangements for commodity derivatives that were valued as of
December 31, 2020 . The Company's commodity derivative contracts are periodically
measured and recorded at fair value and continue to be subject to market and
credit risk. The ultimate liquidation value of the Company's commodity
derivatives will be dependent upon actual future commodity prices, which may
differ materially from the inputs used to determine the derivatives' fair values
as of December 31, 2020. See Note 4 and Note 5 of Notes to Consolidated
Financial Statements included in "Item 8. Financial Statements and Supplementary
Data" and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk"
for additional information.
Other liabilities. The Company's other liabilities represent current and
noncurrent other liabilities that are comprised of litigation and environmental
contingencies, asset retirement obligations and other obligations for which
neither the ultimate settlement amounts nor their timings can be precisely
determined in advance. See Note 9 and Note 11 of Notes to Consolidated
Financial Statements included in "Item 8. Financial Statements and Supplementary
Data" for additional information.
Book capitalization and current ratio. The Company's net book capitalization at
December 31, 2020 was $13.4 billion , consisting of cash and cash equivalents of
$1.4 billion , debt of $3.3 billion and equity of $11.6 billion . The Company's
net debt to book capitalization increased to 14 percent at December 31, 2020
from 12 percent at December 31, 2019 . The Company's ratio of current assets to
current liabilities was 1.36:1 at December 31, 2020 , as compared to 0.88:1 at
December 31, 2019 .
Debt ratings. The Company is rated as investment grade by three credit rating
agencies. The Company's credit ratings are subject to regular reviews by the
credit rating agencies. The Company believes that each of the rating agencies
considers many factors in determining the Company's ratings, including: (i)
production growth opportunities, (ii) liquidity, (iii) debt levels, (iv) asset
composition and (v) proved reserve mix. A reduction in the Company's debt
ratings could increase the interest rates that the Company incurs on Credit
Facility borrowings and could negatively impact the Company's ability to obtain
additional financing or the interest rate, fees and other terms associated with
such additional financing.
Financing activities in connection with the Parsley Acquisition.
On the closing date of the Parsley Acquisition, Parsley merged into a newly
formed wholly-owned subsidiary of the Company, and the subsidiaries of Parsley,
including Jagged Peak Energy LLC ("Jagged Peak"), became indirect subsidiaries
of the Company. In January 2021 , the Company issued $750 million of 0.750%
Senior Notes that will mature January 15, 2024 ,
59--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
$750 million of 1.125% Senior Notes that will mature January 15, 2026 and $1
billion of 2.150% Senior Notes that will mature January 15, 2031 (the "January
2021 Senior Notes Offering"). The Company received proceeds, net of $18 million
of issuance costs and discounts, of $2.5 billion . The senior notes are unsecured
obligations ranking equally in right of payment with all other senior unsecured
indebtedness of the Company.
The Company used the proceeds from the January 2021 Senior Notes Offering to (i)
pay $1.6 billion to redeem Parsley's 5.250% Senior Notes due 2025, Parsley's
5.375% Senior Notes due 2025 and Jagged Peak's 5.875% Senior Notes due 2026, and
(ii) pay $852 million to purchase a portion of the outstanding Parsley 5.625%
Senior Notes due 2027 and 4.125% Senior Notes due 2028 pursuant to a cash tender
offer. In connection with the tender offers, the Company also obtained the
requisite consents from holders of Parsley's 5.625% Senior Notes due 2027 and
4.125% Senior Notes due 2028 to amend the indentures pursuant to which the notes
were issued to, among other things, (i) eliminate substantially all of the
restrictive covenants and related provisions and certain events of default
contained in each indenture and (ii) shorten the minimum notice requirement for
optional redemptions to three days. Following the completion of the tender
offers, an aggregate principal amount of $179 million of Parsley's 5.625% Senior
Notes due 2027 and $138 million of Parsley's 4.125% Senior Notes due 2028
remained outstanding. See Note 19 of Notes to Consolidated Financial
Statements included in " Item 8. Financial Statements and Supplementary Data "
for additional information.
Critical Accounting Estimates
The Company prepares its consolidated financial statements for inclusion in this
Report in accordance with GAAP. See Note 2 of Notes to Consolidated
Financial Statements included in "Item 8. Financial Statements and Supplementary
Data" for additional information. The following is a discussion of the Company's
most critical accounting estimates, judgments and uncertainties that are
inherent in the Company's application of GAAP.
Successful efforts method of accounting. The Company utilizes the successful
efforts method of accounting for oil and gas producing activities as opposed to
the alternate acceptable full cost method. In general, the Company believes that
net assets and net income are more conservatively measured under the successful
efforts method of accounting for oil and gas producing activities than under the
full cost method, particularly during periods of active exploration. The
critical difference between the successful efforts method of accounting and the
full cost method is that under the successful efforts method, exploratory dry
holes and geological and geophysical exploration costs are charged against
earnings during the periods in which they occur; whereas, under the full cost
method of accounting, such costs and expenses are capitalized as assets, pooled
with the costs of successful wells and charged against the earnings of future
periods as a component of depletion expense.
Proved reserve estimates. Estimates of the Company's proved reserves included in
this Report are prepared in accordance with GAAP and SEC guidelines. The
accuracy of a proved reserve estimate is a function of:
•the quality and quantity of available data;
•the interpretation of that data;
•the accuracy of various mandated economic assumptions; and
•the judgment of the persons preparing the estimate.
The Company's proved reserve information included in this Report as of
December 31, 2020 , 2019 and 2018 was prepared by the Company's engineers and
audited by independent petroleum engineers with respect to the Company's major
properties. Estimates prepared by third parties may be higher or lower than
those included herein.
Because these estimates depend on many assumptions, all of which may
substantially differ from future actual results, proved reserve estimates will
be different from the quantities of oil and gas that are ultimately recovered.
In addition, results of drilling, testing and production after the date of an
estimate may justify, positively or negatively, material revisions to the
estimate of proved reserves.
It should not be assumed that the Standardized Measure included in this Report
as of December 31, 2020 is the current market value of the Company's estimated
proved reserves. In accordance with SEC requirements, the Company based the 2020
Standardized Measure on a twelve month average of commodity prices on the first
day of each month in 2020 and prevailing costs on the date of the estimate.
Actual future prices and costs may be materially higher or lower than the prices
and costs utilized in the estimate. See "Item 2. Properties" and Unaudited
Supplementary Information included in "Item 8. Financial Statements and
Supplementary Data" for additional information.
The Company's estimates of proved reserves materially impact depletion expense.
If the estimates of proved reserves decline, the rate at which the Company
records depletion expense will increase, reducing future net income. Such a
decline may result from lower commodity prices, which may make it uneconomical
to drill for and produce higher cost fields. In addition, a
60--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
decline in proved reserve estimates may impact the outcome of the Company's
assessment of its proved properties and goodwill for impairment.
Impairment of proved oil and gas properties. The Company reviews its proved
properties to be held and used whenever management determines that events or
circumstances indicate that the recorded carrying value of the properties may
not be recoverable. Management assesses whether or not an impairment provision
is necessary based upon estimated future recoverable proved and risk-adjusted
probable and possible reserves, commodity price outlooks, production and capital
costs expected to be incurred to recover the reserves, discount rates
commensurate with the nature of the properties and net cash flows that may be
generated by the properties. Proved oil and gas properties are reviewed for
impairment at the level at which depletion of proved properties is calculated.
See Note 4 of Notes to Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Impairment of unproved oil and gas properties. Management assesses unproved oil
and gas properties for impairment on a project-by-project basis. Such
assessments are affected by the results of exploration activities, commodity
price outlooks, planned future property sales or the expiration of all or a
portion of such projects.
Suspended wells. The Company suspends the costs of exploratory/extension wells
that discover hydrocarbons pending a final determination of the commercial
potential of the discovery. The ultimate disposition of these well costs is
dependent on the results of future drilling activity and development decisions.
If the Company decides not to pursue additional appraisal activities or
development of these fields, the costs of these wells will be charged to
exploration and abandonment expense.
The Company does not carry the costs of drilling an exploratory/extension well
as an asset in its consolidated balance sheets following the completion of
drilling unless both of the following conditions are met:
•The well has found a sufficient quantity of reserves to justify its completion
as a producing well; and
•The Company is making sufficient progress assessing the reserves and the
economic and operating viability of the project.
Due to the capital intensive nature and the geographical location of certain
projects, it may take an extended period of time to evaluate the future
potential of an exploration project and the economics associated with making a
determination on its commercial viability. In these instances, the project's
feasibility is not contingent upon price improvements or advances in technology,
but rather the Company's ongoing efforts and expenditures related to accurately
predicting the hydrocarbon recoverability based on well information, gaining
access to other companies' production, transportation or processing facilities
and/or getting partner approval to drill additional appraisal wells. These
activities are ongoing and being pursued constantly. Consequently, the Company's
assessment of suspended exploratory/extension well costs is continuous until a
decision can be made that the well has found sufficient quantities of proved
reserves to sanction the project or is determined to be noncommercial and is
impaired. See Note 6 of Notes to Consolidated Financial Statements included
in "Item 8. Financial Statements and Supplementary Data" for additional
information.
Asset retirement obligations. The Company has significant obligations to remove
tangible equipment and facilities and to restore the land at the end of oil and
gas production operations. The Company's removal and restoration obligations are
primarily associated with plugging and abandoning wells. Estimating the future
restoration and removal costs is difficult and requires management to make
estimates and judgments because most of the removal obligations are many years
in the future and contracts and regulations often have vague descriptions of
what constitutes removal. Asset removal technologies and costs are constantly
changing, as are regulatory, political, environmental, safety and public
relations considerations.
Inherent in the present value calculation are numerous assumptions and judgments
including the ultimate settlement amounts, credit-adjusted discount rates,
timing of settlement and changes in the legal, regulatory, environmental and
political environments. To the extent future revisions to these assumptions
impact the present value of the existing asset retirement obligations, a
corresponding adjustment is generally made to the oil and gas property or other
property and equipment balance. See Note 9 of Notes to Consolidated
Financial Statements included in "Item 8. Financial Statements and Supplementary
Data" for additional information.
Deferred tax asset valuation allowances. The Company continually assesses both
positive and negative evidence to determine whether it is more likely than not
that its deferred tax assets will be realized prior to their expiration. Pioneer
monitors Company-specific, oil and gas industry and worldwide economic factors
and based on that information, along with other data, reassesses the likelihood
that the Company's net operating loss carryforwards and other deferred tax
attributes in each jurisdiction will be utilized prior to their expiration.
There can be no assurance that facts and circumstances will not materially
change and require the Company to establish deferred tax asset valuation
allowances in certain jurisdictions in a future period.
61--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Uncertain tax positions. The Company recognizes the tax benefit from an
uncertain tax position only if it is more likely than not that the tax position
will be sustained upon examination by the taxing authorities, based upon the
technical merits of the position. If all or a portion of the unrecognized tax
benefits is sustained upon examination by the taxing authorities, the tax
benefit will be recorded as a reduction to the Company's deferred tax liability
and will affect the Company's effective tax rate in the period it is recorded.
As of December 2020 , the Company did not have any unrecognized tax benefits. See
Note 17 of Notes to the Consolidated Financial Statements included in "Item
8. Financial Statements and Supplementary Data" for additional information.
Goodwill impairment. The Company reviews its goodwill for impairment at least
annually. During the third quarter of 2020, the Company performed a qualitative
assessment of goodwill to assess whether it was more likely than not that the
fair value of the Company's reporting unit was less than its carrying amount as
a basis for determining whether it was necessary to record a noncash impairment
charge. The Company determined that it was more likely than not that the
Company's goodwill was not impaired. There is considerable judgment involved in
estimating fair values, particularly in determining the valuation methods and
the weighting to use for each method if multiple valuation methods are applied.
Litigation and environmental contingencies. The Company makes judgments and
estimates in recording liabilities for ongoing litigation and environmental
remediation. Actual costs can vary from such estimates for a variety of reasons.
The costs to settle litigation can vary from estimates based on differing
interpretations of laws and opinions and assessments on the amount of damages.
Similarly, environmental remediation liabilities are subject to change because
of changes in laws and regulations, developing information relating to the
extent and nature of site contamination and improvements in technology. A
liability is recorded for these types of contingencies if the Company determines
the loss to be both probable and reasonably estimable. See Note 11 of Notes
to Consolidated Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for additional information.
Valuation of stock-based compensation. The Company calculates the fair value of
stock-based compensation using various valuation methods. The valuation methods
require the use of estimates to derive the inputs necessary to determine fair
value. The Company utilizes (i) the Black-Scholes option pricing model to
measure the fair value of stock options, (ii) the closing stock price on the day
prior to the date of grant for the fair value of restricted stock awards,
(iii) the closing stock price on the balance sheet date for restricted stock
awards that are expected to be settled wholly or partially in cash on their
vesting date and (iv) the Monte Carlo simulation method for the fair value of
performance unit awards. See Note 8 of Notes to Consolidated Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
additional information.
Valuation of other assets and liabilities at fair value. The Company
periodically measures and records certain assets and liabilities at fair value.
The assets and liabilities that the Company measures and records at fair value
on a recurring basis include equity investments, deferred compensation plan
assets, commodity derivative contracts and interest rate contracts. Other assets
are not measured at fair value on an ongoing basis, but are subject to fair
value adjustments in certain circumstances. The assets and liabilities that the
Company measures and records at fair value on a nonrecurring basis include
inventories, proved and unproved oil and gas properties, assets acquired and
liabilities assumed in business combinations and other long-lived assets that
are written down to fair value when they are determined to be impaired or held
for sale. The Company also measures and discloses certain financial assets and
liabilities at fair value, such as long-term debt and investments. The valuation
methods used by the Company to measure the fair values of these assets and
liabilities may require considerable management judgment and estimates to derive
the inputs necessary to determine fair value estimates, such as future prices,
credit-adjusted risk-free rates and current volatility factors. See Note 4
of Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data" for additional information.
New Accounting Pronouncements
The effects of new accounting pronouncements are discussed in Note 2 of
Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data."
62--------------------------------------------------------------------------------
Table of Contents
PIONEER NATURAL RESOURCES COMPANY
© Edgar Online, source
