PIONEER NATURAL RESOURCES COMPANY Parsley and DoublePoint Acquisitions The Company completed the Parsley Acquisition onJanuary 12, 2021 . The Parsley Acquisition was accounted for as a business combination, with the fair value of the acquisition consideration allocated to the acquisition date fair value of assets and liabilities acquired. Parsley's post-acquisition date results of operations were included in the Company's interim consolidated financial statements beginning on January 12, 2021. See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. OnMay 4, 2021 , the Company completed the acquisition of DoublePoint for total consideration valued at approximately$6.2 billion , which was comprised of 27.2 million shares of Pioneer common stock,$1 billion of cash and the assumption of approximately$890 million of debt. Although this Form 10-Q is being filed following the completion of the DoublePoint Acquisition, unless otherwise specifically noted, information set forth herein only relates to the period as of and for the quarter endedMarch 31, 2021 and therefore does not include information relating to DoublePoint or its subsidiaries as of and for such periods. Accordingly, unless otherwise specifically noted, references herein to "Pioneer" or the "Company" refer only to Pioneer and its subsidiaries prior to the DoublePoint Acquisition and do not include DoublePoint or its subsidiaries. The DoublePoint Acquisition will be accounted for as a business combination, with the fair value of the acquisition consideration allocated to the acquisition date fair value of assets and liabilities acquired. DoublePoint's post-acquisition date results of operations will be included in the Company's interim consolidated financial statements beginning in May 2021. See Note 17 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Financial and Operating Performance The Company's financial and operating performance for the three months endedMarch 31, 2021 included the following highlights: •Net loss attributable to common stockholders for the three months endedMarch 31, 2021 was$70 million ($0.33 per diluted share) as compared to net income of$291 million ($1.75 per diluted share) for the same period in 2020. The primary components of the$361 million decrease in earnings attributable to common stockholders include: •a$1.15 billion decrease in net derivative results, primarily due to changes in forward commodity prices and the cash settlement of derivative positions in accordance with their terms; •a$219 million increase in other expense, primarily due to$197 million of transaction costs related to the Parsley Acquisition and$80 million of costs related to covering firm gas commitments during a winter weather event that brought abnormally cold temperatures, along with snow and icy conditions across the state ofTexas inFebruary 2021 known as Winter Storm Uri as compared to a$69 million noncash charge for estimated deficiency payments related to the Company's 2019 South Texas Divestiture during the three months endedMarch 31, 2020 ; •a$114 million increase in production costs, including taxes, primarily attributable to (i) an increase in production taxes as a result of a 33 percent increase in average realized commodity prices per BOE and (ii) increased costs attributable to production added from the Parsley Acquisition; •a$40 million increase in DD&A expense, primarily due to an increase in sales volumes from the Parsley Acquisition and the Company's successful horizontal drilling program in thePermian Basin ; •a$12 million increase in general and administrative expense primarily due to the reinstatement of certain employee benefits during 2021 that were suspended during 2020 in response to the COVID-19 pandemic; partially offset by: •a$729 million increase in oil and gas revenues due to a 33 percent increase in average realized commodity prices per BOE and a 26 percent increase in daily sales volumes due to additional production from the Parsley Acquisition and the Company's successful horizontal drilling program in thePermian Basin ; •a$266 million increase in net interest and other income (loss), primarily due to (i) noncash gains attributable to the increase in the fair value of the Company's investment in affiliate of$54 million during the three months endedMarch 31, 2021 as compared to a noncash loss of$145 million for the same period in 2020 and (ii) a$63 million noncash decrease in the fair value of the divestiture contingent consideration associated with the South Texas Divestiture for the three months endedMarch 31, 2020 ; 31 -------------------------------------------------------------------------------- PIONEER NATURAL RESOURCES COMPANY •a$98 million increase in net sales of purchased commodities primarily due to an increase during the first quarter of 2021 in downstream oil margins on the Company'sGulf Coast refinery and export sales; and •an$88 million decrease in the Company's income tax provision due to the decrease in earnings during the three months endedMarch 31, 2021 as compared to the same period in 2020. •During the three months endedMarch 31, 2021 , average daily sales volumes increased by 26 percent to 473,937 BOEPD, as compared to 375,163 BOEPD during the same period in 2020, due to additional production from the Parsley Acquisition and the Company's successful horizontal drilling program in thePermian Basin , partially offset by a 45 MBOEPD loss in sales volumes due to Winter Storm Uri inFebruary 2021 . •Average oil and NGL prices per Bbl and average gas prices per Mcf increased to$56.71 ,$25.90 and$3.04 , respectively, during the three months endedMarch 31, 2021 as compared to$45.60 ,$14.52 and$1.61 , respectively, for the same period in 2020. •Cash provided by operating activities decreased during the three months endedMarch 31, 2021 to$377 million as compared to$825 million for the same period in 2020. The decrease was primarily due to (i) additional cash used in derivative activities, (ii) increased accounts receivables and commodity inventories as a result of higher commodity prices, (iii) one-time cash Parsley transaction costs and (iv) cash paid to fulfill certain gas commitments during Winter Storm Uri, partially offset by an increase in accounts payable as a result of increased drilling and operational activity and an increase in oil and gas revenues due to the aforementioned increase in commodity prices. •As ofMarch 31, 2021 andDecember 31, 2020 , the Company's net debt to book capitalization was 23 percent and 14 percent, respectively. Winter Storm Uri DuringFebruary 2021 , the Company's operations inWest Texas were significantly impacted by Winter Storm Uri. 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, which negatively impacted first quarter 2021 production by approximately 45 MBOEPD. 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 incurred incremental cash costs of$80 million in connection with its firm gas sales commitments early in the weather event. Impact of the COVID-19 Pandemic The COVID-19 pandemic has resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and has created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil combined with pressures on the global supply-demand balance for oil and related products, resulted in oil prices declining significantly beginning in lateFebruary 2020 . The length of this demand disruption is unknown, and there is significant uncertainty regarding the long-term impact to global oil demand, which will ultimately depend on various factors and consequences beyond the Company's control, such as the duration and scope of the pandemic, the length and severity of the worldwide economic downturn, the ability ofOPEC ,Russia and other oil producing nations to manage the global oil supply, additional actions by businesses and governments in response to the pandemic, the economic downturn and the decrease in oil demand, the speed and effectiveness of responses to combat the virus, and the time necessary to balance oil supply and demand to restore oil pricing. The Company continues to assess the global impacts of the COVID-19 pandemic and may modify its plans as the health and economic impacts of COVID-19 continue to evolve. Second Quarter 2021 Outlook The Company's operating and financial results for the second quarter of 2021 and beyond are uncertain and 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; 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; uncertainty in oil 32
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PIONEER NATURAL RESOURCES COMPANY demand fundamentals associated with governmental policy aimed at redirecting fossil fuel consumption towards lower carbon energy, and the success of the integration of DoublePoint. Based on current estimates, the Company expects the following operating and financial results for the second quarter of 2021, which includes the effects of the DoublePoint Acquisition from the date of acquisition: Three Months EndingJune 30, 2021 Guidance ($ in millions, except per BOE amounts) Average daily production (MBOE) 606 - 632 Average daily oil production (MBO) 352 - 367 Production costs per BOE$6.75 -$8.25 DD&A per BOE$10.75 -$12.75 Exploration and abandonments expense$10 -$20 General and administrative expense$67 -$77 Accretion of discount on asset retirement obligations$2 -$5 Interest expense$43 -$48 Other expense$15 -$30 Cash flow impact from firm transportation (a)$(70) -$(40) Current income tax provision$5 -$10 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. It also includes the expected cash flow impact from the Company's firm transportation marketing contracts that are accounted for as derivatives. 2021 Revised Capital Budget With the completion of the DoublePoint Acquisition, the Company's capital budget for 2021 has been revised and is expected to be in the range of$3.1 billion to$3.4 billion , consisting of$2.9 billion to$3.1 billion for drilling and completion related activities, including additional tank batteries and saltwater disposal facilities,$150 million of estimated Parsley and DoublePoint integration costs and$90 million for water infrastructure and vehicles. The Company's capital expenditures for the three months endedMarch 31, 2021 were$605 million . The 2021 capital budget and actual capital expenditures for the three months endedMarch 31, 2021 excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical general and administrative expense and corporate facilities. 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. Operations and Drilling Highlights Average daily oil, NGL and gas sales volumes are as follows: Three Months EndedMarch 31, 2021 Oil (Bbls) 281,017 NGL (Bbls) 105,675 Gas (Mcf) 523,467 Total (BOE) 473,937
The Company's liquids production was 82 percent of total production on a BOE
basis for the three months ended
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Costs incurred are as follows:
Three Months Ended March 31 , 2021
(in millions)
Proved property acquisition costs (a) $ 5,096
Unproved property acquisitions (a) 5,659
Exploration/extension costs 480
Development costs 118
Asset retirement obligations 2
$ 11,355
_____________________
(a) Includes proved and unproved acquisition costs related to the Parsley
Acquisition of
Three Months Ended March 31, 2021
Development Exploration/Extension
Beginning wells in progress 9 210
Wells spud 11 96
Acquired wells in progress - 59
Successful wells - (106)
Ending wells in progress 20 259
The Company is currently operating 26 drilling rigs and nine frac fleets in the
Spraberry/Wolfcamp field. The Company will continue to evaluate its drilling and
completions program with future activity levels assessed regularly.
During the three months ended March 31, 2021 , the Company successfully completed
77 horizontal wells in the northern portion of the Midland Basin , 25 horizontal
wells in the southern portion of the Midland Basin and four horizontal wells in
the Delaware Basin . In the northern portion of the Midland Basin , approximately
46 percent of the horizontal wells placed on production were Wolfcamp A interval
wells, approximately 35 percent were Wolfcamp B interval wells and the remaining
19 percent were primarily Spraberry and Wolfcamp D interval wells. In the
southern portion of the Midland Basin , the majority of the wells placed on
production were Wolfcamp A and B interval wells. In the Delaware Basin ,
approximately 75 percent were in the Bone Spring interval and the remaining 25
percent were in Wolfcamp A interval.
Results of Operations
Oil and gas revenues.
Average daily sales volumes are as follows:
Three Months Ended March 31,
2021 2020 % Change
Oil (Bbls) 281,017 222,657 26 %
NGL (Bbls) 105,675 84,358 25 %
Gas (Mcf) 523,467 408,893 28 %
Total (BOEs) 473,937 375,163 26 %
The increase in average daily BOE sales volumes for the three months ended
March 31, 2021 , as compared to the same period in 2020 was due to the Company's
successful Spraberry/Wolfcamp horizontal drilling program and the Parsley
Acquisition, partially offset by the 45 MBOEPD production loss due to Winter
Storm Uri in February 2021 .
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The oil, NGL and gas prices that the Company reports are based on the market prices received for each commodity. The average prices are as follows:
Three Months Ended March 31,
2021 2020 % Change
Oil per Bbl $ 56.71 $ 45.60 24 %
NGL per Bbl $ 25.90 $ 14.52 78 %
Gas per Mcf $ 3.04 $ 1.61 89 %
Total per BOE $ 42.75 $ 32.08 33 %
Purchased commodities. The Company enters into pipeline capacity commitments in
order to secure available oil, NGLs and gas transportation capacity from the
Company's areas of production and secure diesel supply from the Gulf Coast to
the Company's operations in the Permian Basin . 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 and West 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 in sales of purchased commodities and purchased commodities in the
accompanying consolidated statements of operations 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. The Company has also entered
into long-term marketing contracts, which are accounted for as derivatives, to
similarly diversify its oil sales to Gulf Coast and international markets. The
gains and losses associated with the Company's marketing derivatives are
recognized in net derivative gains (losses) in the consolidated statements of
operations. 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 sales of
purchased commodities are included in purchased commodities expense. See
Consolidated Sta t ement s of Operations included in "Item 1.
Financial Statements" for additional information.
The net effects of third party purchases and sales of commodities and associated
marketing contracts are as follows:
Three Months Ended March 31,
2021 2020 Change
(in millions)
Sales of purchased commodities $ 1,240 $ 915 $ 325
Purchased commodities 1,255 1,028 227
Net effect (15) (113) 98
Realized marketing derivative losses (7) - (7)
$ (22) $ (113) $ 91
The increase in net sales of purchased commodities for the three months ended
March 31, 2021 , as compared to the same periods in 2020, was primarily due to an
increase in first quarter of 2021 downstream oil margins on the Company's Gulf
Coast refinery and export sales.
Firm transportation payments on excess pipeline capacity are included in other
expense in the accompanying consolidated statements of operations. See Note
14 of Notes to Consolidated Financial Statements included in "Item 1.
Financial Statements" for additional information.
Interest and other income (loss), net.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Interest and other income (loss), net The increase in net interest and other income (loss) for the three months endedMarch 31, 2021 , as compared to the same period in 2020, was primarily due to a noncash gain of$54 million attributable to the increase in fair value of the Company's investment in affiliate during the three months endedMarch 31, 2021 compared to a noncash loss of$145 million attributable to the decrease in fair value of the Company's investment in affiliate and a$63 million noncash loss attributable to the decrease in the fair value of divestiture contingent consideration associated with the South Texas Divestiture for the three months endedMarch 31, 2020 . 35
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PIONEER NATURAL RESOURCES COMPANY
See Note 13 of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for additional information.
Derivative gain (loss), net.
Three Months Ended
March 31,
2021 2020 Change
(in millions)
Commodity derivatives:
Noncash derivative gain (loss), net $
(350)
Cash receipts (payments) on settled derivative instruments, net (314) 63 (377) Total commodity derivative gain (loss), net (664) 472 (1,136) Marketing derivatives: Noncash derivative gain (loss), net (20) 6 (26) Cash payments on settled derivative instruments, net (7) - (7) Total marketing derivative gain (loss), net (27) 6 (33) Interest rate derivatives: Cash payments on settled derivative instruments, net - (22) 22 Total interest rate derivative gain (loss), net - (22) 22 Derivative gain (loss), net$ (691) $ 456 $ (1,147) 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, (ii) support the Company's capital budgeting and expenditure plans and (iii) support the payment of contractual obligations and dividends. The Company also uses marketing derivatives to diversify its oil sales toGulf Coast and international markets. Commodity derivative settlements and the related price impact (per Bbl or Mcf) are as follows: Three Months Ended March 31, 2021 2020 Net cash payments Price impact (in millions) Oil derivative payments (a) $ (293)$ (11.58) per Bbl Gas derivative payments (8)$ (0.16) per Mcf Total net commodity derivative payments
$ (301)
_____________________
(a)Excludes the effect of liquidating certain of the Company's 2022 WTI swap
contracts for cash payments of
Three Months Ended
Net cash receipts Price impact
(in millions)
Oil derivative receipts $ 63 $ 3.12 per Bbl
The Company's open derivative contracts are subject to continuing market risk. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" and
Note 4 and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Gain on disposition of assets, net.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Gain on disposition of assets, net The increase in gain on disposition of assets for the three months endedMarch 31, 2021 , as compared to the same periods in 2020, was primarily due to recognizing a gain of$9 million associated with the sale of the Company's well services 36
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PIONEER NATURAL RESOURCES COMPANY
business to a third party for (i) net cash proceeds of $20 million and (ii) an
earnout of up to $4 million cash to be earned over the next three years.
Oil and gas production costs.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Oil and gas production costs $ 252 $ 176 $ 76 Oil and gas production costs per BOE are as follows:
Three Months Ended
March 31,
2021 2020 % Change
Lease operating expense per BOE (a) $ 3.47 $ 3.32 5 %
Gathering, processing and transportation expense per BOE (b) 3.05 2.52 21 %
Workover costs per BOE (a) 0.43 0.44 (2 %)
Net natural gas plant income per BOE (c) (1.05) (1.14) (8 %)
$ 5.90 $ 5.14 15 %
_____________________
(a)Lease operating expense and workover expense 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, transport and fractionate the Company's gas and NGLs to a 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.
Although the Company continues to realize the benefit of lower production costs
in 2021 due to the Company's cost saving initiatives, the Company realized
higher than expected production costs during the three months ended March 31,
2021 compared to the same period in 2020 due to the following:
•Lease operating expense per BOE increased due to an increase in electricity
costs, increased maintenance and repair costs and lower production associated
with the impact Winter Storm Uri had on the Company's operations in February
2021 ;
•Gathering, processing and transportation expense per BOE increased primarily
due to (i) transportation costs related to new pipeline takeaway capacity for
the Company's gas and NGL production, (ii) increased gas processing and
transportation costs as a result of higher electricity costs during Winter Storm
Uri in February 2021 and (iii) increased gas and NGL prices during the first
quarter of 2021 that resulted in increased gas processing costs for those
contractual volumes retained by the processor as payment for their services; and
•Net natural gas plant income per BOE decreased primarily due to processing
facility revenues being impacted by Winter Storm Uri, partially offset by
improved gas and NGL prices.
Production and ad valorem taxes.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Production and ad valorem taxes
In general, production taxes and ad valorem taxes are directly related to
commodity price changes; however,
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Production and ad valorem taxes per BOE are as follows:
Three Months Ended March 31,
2021 2020 % Change
Production taxes per BOE $ 1.98 $ 1.44 38 %
Ad valorem taxes per BOE 0.66 0.73 (10 %)
$ 2.64 $ 2.17 22 %
The increase in production taxes per BOE for the three months ended March 31,
2021 , as compared to the same period in 2020, was primarily due to increases in
oil, NGL and gas commodity prices. The decrease in ad valorem taxes per BOE for
the three months ended March 31, 2021 , as compared to the same period in 2020,
was primarily due to lower prior year commodity prices for which ad valorem
taxes are based upon.
Depletion, depreciation and amortization expense.
Three Months Ended
March 31,
2021 2020 Change
(in millions)
Depletion, depreciation and amortization $
474
Total DD&A and depletion expense per BOE is as follows:
Three Months Ended March 31,
2021 2020 % Change
DD&A per BOE $ 11.11 $ 12.71 (13 %)
Depletion expense per BOE $ 10.54 $ 12.09 (13 %)
The decrease in DD&A per BOE and depletion expense per BOE was primarily due to
incremental additions to proved reserves due to new wells from the Company's
successful Spraberry/Wolfcamp horizontal drilling program, improved commodity
prices and recognizing the proved reserves attributable to the Parsley
Acquisition.
Exploration and abandonments expense. Geological and geophysical costs and lease
abandonments and other exploration expenses are as follows:
Three Months Ended March 31,
2021 2020 Change
(in millions)
Geological and geophysical $ 16 $ 7 $ 9
Leasehold abandonments and other 3 2 1
$ 19 $ 9 $ 10
The increase in geological and geophysical costs for the three months ended
March 31, 2021 , as compared to the same period in 2020, was primarily due to
relicensing certain seismic data in connection with the Parsley Acquisition.
During the three months ended March 31, 2021 , the Company drilled and evaluated
106 exploration/extension wells, of which 100 percent were successfully
completed as discoveries. During the same period in 2020, the Company drilled
and evaluated 83 exploration/extension wells, of which 100 percent were
successfully completed as discoveries.
General and administrative expense.
Three Months Ended
March 31,
2021 2020 Change
(in millions)
Noncash general and administrative expense $ 12 $ 5 $ 7
Cash general and administrative expense 56 51 5
$ 68 $ 56 $ 12
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PIONEER NATURAL RESOURCES COMPANY
Total general and administrative expense per BOE is as follows:
Three Months Ended
March 31,
2021 2020 % Change
Noncash general and administrative expense per BOE $ 0.28 $ 0.15 87 %
Cash general and administrative expense per BOE 1.32 1.50 (12 %)
$ 1.60 $ 1.65 (3 %)
The change in noncash general and administrative expense for the three months
ended March 31, 2021 , as compared to the same period in 2020, 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.
The increase in cash general and administrative expense for the three months
ended March 31, 2021 , as compared to the same period in 2020, was primarily due
to the reinstatement of certain employee benefits during 2021 that were
temporarily suspended during 2020 in response to the COVID-19 pandemic.
Interest expense.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Noncash interest expense $ 6 $ 5 $ 1
Cash interest expense 33 22 11
$ 39 $ 27 $ 12
The increase in cash interest expense during the three months ended March 31,
2021 , as compared to the same respective period in 2020, is primarily due to (i)
the changes in long-term debt as a result of the Parsley Acquisition (see
"Liquidity and Capital Resources" below for further information) and (ii) the
issuance in May 2020 and August 2020 , respectively, of $1.3 billion of the
Convertible Notes and $1.1 billion of 1.90% senior notes due 2030, partially
offset by (a) the partial repayment of $360 million of the Company's 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 and (b) the repayment of its 3.45% senior
notes that matured in January 2021 .
The weighted average cash interest rate on the Company's indebtedness for the
three months ended March 31, 2021 was 2.0 percent, as compared to 4.4 percent
for the same period in 2020. See Note 7 of Notes to Consolidated Financial
Statements in "Item 1. Financial Statements" for additional information.
Other expense.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Other expense $ 304 $ 85 $ 219
The increase in other expense during the three months ended March 31, 2021 , as
compared to the same respective period in 2020, was primarily due to the
following:
•$80 million of losses related to the Company's fulfillment of certain firm gas
purchase commitments during Winter Storm Uri in February 2021 ; and
•$197 million of one-time Parsley Acquisition related costs for the three months
ended March 31, 2021 ; as compared to
•a $69 million charge for estimated deficiency payments related to the Company's
South Texas Divestiture for the three months ended March 31, 2020 .
See Note 14 of Notes to Consolidated Financial Statements in "Item 1.
Financial Statements" for additional information.
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Income tax benefit (provision).
Three Months Ended March 31,
2021 2020 Change
(in millions)
Income tax benefit (provision) $ 11 $ (77) $ 88
Effective tax rate 14 % 21 % (7 %)
The change in income tax benefit (provision) during the three months ended
March 31, 2021 , as compared to the same period in 2020, was primarily due to a
$449 million decrease in income before income taxes. The Company evaluates and
updates its annual effective income tax rate on an interim basis based on
current and forecasted earnings and tax laws. The mix and timing of the
Company's actual earnings compared to annual projections can cause interim
effective tax rate fluctuations. The Company's interim effective tax rate for
the three months ended March 31, 2021 differed from the U.S. statutory rate of
21 percent primarily due to forecasted state income taxes. See Note 15
of Notes to Consolidated Financial Statements included in "Item 1. Financial
Statements" for additional information.
Liquidity and Capital Resources
Liquidity. 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,
(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, (v) working capital obligations and (vi) funding the cash
portion of the consideration in the DoublePoint Acquisition and retiring the
outstanding balance under the DoublePoint credit facility. 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.
During the three months ended March 31, 2021 , the Company enhanced its liquidity
position by refinancing a portion of the debt acquired in the Parsley
Acquisition, issuing new debt and increasing borrowing capacity under the
Company's Credit Facility 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 funded the purchase of DoublePoint with $1 billion of cash and by
issuing 27.2 million shares of the Company's common stock. The Company also
repaid DoublePoint's credit facility of $241 million on the acquisition date. In
conjunction with the DoublePoint Acquisition, the Company delivered a notice of
conditional redemption for all of the Notes. The redemption date for the Notes
provided in the notice of conditional redemption is expected to be on May 18,
2021 (the "Redemption Date"). The redemption of the Notes is conditioned upon
the successful completion by Pioneer of an investment grade public debt
financing transaction of at least $650 million by the Redemption Date; provided
that at the discretion of the Issuers, the Redemption Date may be delayed until
such time as any or all conditions shall be satisfied or waived (provided that
in no event shall such Redemption Date be delayed to a date later than July 3,
2021 ).
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Capital resources. As of March 31, 2021 , the Company had no outstanding
borrowings under its Credit Facility, leaving $2.0 billion of unused borrowing
capacity. The Company was in compliance with all of its debt covenants as of
March 31, 2021 . The Company also had unrestricted cash on hand of $668 million
as of March 31, 2021 .
Cash flows from operating, investing and financing activities are summarized
below.
Three Months Ended March 31,
2021 2020 Change
(in millions)
Net cash provided by operating activities $ 377 $ 825 $ (448)
Net cash used in investing activities $ (348) $ (681) $ (333)
Net cash provided by (used in) financing activities $ (806) Operating activities. The decrease in net cash flow provided by operating activities for the three months endedMarch 31, 2021 , as compared to the same period in 2020, was primarily due to (i) additional cash used in derivative activities, (ii) increased accounts receivables and commodity inventories as a result of higher commodity prices, (iii) one-time cash Parsley transaction costs and (iv) cash paid to fulfill certain gas commitments during Winter Storm Uri, partially offset by an increase in accounts payable as a result of increased drilling and operational activity and an increase in oil and gas revenues due to the aforementioned increase in commodity prices. Investing activities. The decrease in net cash used in investing activities for the three months endedMarch 31, 2021 , as compared to the same period in 2020, was primarily a result of (i) the Company's cost reduction efforts with decreases in additions to oil and gas properties and additions to other assets and other property and equipment of$175 million and$19 million , respectively, (ii)$117 million of cash acquired in the Parsley Acquisition and (iii) an increase in proceeds from disposition of assets of$22 million primarily related to the sale of the Company's well services business. Financing activities. The Company's significant financing activities are as follows: •2021: The Company (i) received proceeds from theJanuary 2021 Senior Notes Offering, net of$24 million of issuance costs and discounts, of$2.5 billion , (ii) repaid$140 million associated with the maturity of its 3.45% senior notes due inJanuary 2021 , (iii) used the proceeds from theJanuary 2021 Senior Notes Offering to 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, (iv) paid$852 million to purchase a portion of Parsley's 5.625% Senior Notes due 2027 and Parsley's 4.125% Senior Notes due 2028 pursuant to a cash tender offer, (v) repaid Parsley's credit facility, which had an outstanding balance of$397 million , (vi) paid$140 million of other liabilities and (vii) paid dividends of$91 million . •2020: The Company (i) borrowed$800 million under the Credit Facility, (ii) repaid$450 million associated with the maturity of its 7.50% senior notes, (iii) paid$146 million of other liabilities, (iv) purchased$122 million of treasury stock and (v) paid dividends of$73 million . Dividends/distributions. During the three months endedMarch 31, 2021 , the Company paid dividends of$91 million , or$0.55 per share. InFebruary 2021 , the board of directors declared a quarterly cash dividend of$0.56 per share on the Company's outstanding common stock, payable onApril 14, 2021 , to stockholders of record onMarch 31, 2021 . 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 that 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. As ofMarch 31, 2021 , 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 (a) derivative contracts that are sensitive to future changes in commodity prices or interest rates, (b) gathering, processing (primarily treating and fractionation) and transportation commitments on uncertain volumes of future throughput and (c) 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 41
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PIONEER NATURAL RESOURCES COMPANY 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 arrangements, in order to support the Company's business plans. See "Contractual obligations" below and Note 10
of
Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Contractual obligations. The Company's contractual obligations include long-term debt, 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. 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 and completion 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's commodity and marketing derivative contracts are periodically measured and recorded at fair value and continue to be subject to market and credit risk. As ofMarch 31, 2021 , these contracts represented net liabilities of$970 million . 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 March 31, 2021. See Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and " Item 3. Quantitative and Qualitative Disclosures About Market Risk " 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 1. Financial Statements." ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company's financial position is routinely subject to a variety of risks, including market risks associated with changes in commodity prices, interest rate movements on outstanding debt and credit risks. These risks are mitigated through the Company's risk management program, which includes the use of derivative financial instruments and selling purchased oil and gas outside of thePermian Basin . The following quantitative and qualitative information is provided about financial instruments to which the Company was a party as ofMarch 31, 2021 , and from which the Company may incur future gains or losses from changes in commodity prices or interest rates. The Company does not enter into any financial instruments, including derivatives, for speculative or trading purposes. Interest rate risk. As ofMarch 31, 2021 , the Company had no variable rate debt outstanding under the Credit Facility and, consequently, no related exposure to interest rate risk. As ofMarch 31, 2021 , the Company had$6.2 billion of fixed rate long-term debt outstanding with a weighted average effective interest rate of 2.0 percent. Although changes in interest rates may affect the fair value of the Company's fixed rate long-term debt, any changes would not impact earnings or expose the Company to the risk of cash flow losses. The Company did not have any interest rate derivative instruments outstanding as ofMarch 31, 2021 ; however, it may enter into such instruments in the future to mitigate interest rate risk. See Note 4 and Note 7 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information. Commodity price risk. The Company's primary market risk exposure is related to the price it receives from the sale of its oil, NGLs and gas production. Realized pricing is volatile and is determined by market prices that fluctuate with changes in supply and demand for these products throughout the world. The price the Company receives for its production depends on many factors outside of the control of the Company, including differences in commodity pricing at the point of sale versus 42
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PIONEER NATURAL RESOURCES COMPANY
market index prices. Reducing the Company's exposure to price volatility helps
secure funds to be used in its capital program and to fund general working
capital needs, debt obligations, dividends and share repurchases, among other
uses. The Company mitigates its commodity price risk through the use of
derivative financial instruments and sales of purchased oil and gas.
Derivative financial instruments. The Company's decision on the quantity and
price at which it executes derivative contracts is based in part on its view of
current and future market conditions. The Company may choose not to enter into
derivative positions for expected production if the commodity price forecast for
certain time periods is deemed to be unfavorable. Additionally, the Company may
choose to liquidate existing derivative positions prior to the expiration of
their contractual maturity in order to monetize gain positions or minimize loss
positions if it is anticipated that the commodity price forecast is expected to
improve. Proceeds, if any, can be used for the purpose of funding the Company's
capital program, general working capital needs, debt obligations, dividends and
share repurchases, among other uses. While derivative positions limit the
downside risk of adverse price movements, they also limit future revenues from
upward price movements. The Company manages commodity price risk with the
following types of commodity derivative contracts:
•Swaps. The Company receives a fixed price and pays a floating market price to
the counterparty on a notional amount of sales volumes, thereby fixing the price
for the commodity sold.
•Collars. Collar contracts provide minimum ("floor" or "long put") and maximum
("ceiling") prices on a notional amount of sales volumes, thereby allowing some
price participation if the relevant index price closes above the floor price but
below the ceiling price.
•Collar contracts with short put options. 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 the variable market
prices by the long put-to-short put price differential.
•Basis swaps. Basis swap contracts fix the basis differentials between the index
price at which the Company sells its production and the index price used in swap
or collar contracts.
•Options. Selling individual call options can enhance the market price by the
premium received or, alternatively, the premium received can be utilized to
improve swap or collar contract prices. Purchased put options establish a
minimum floor price (less any premiums paid) and allow participation in higher
prices when prices close above the floor price.
The Company has entered into commodity derivative contracts for a portion of
forecasted 2021 and 2022 production; consequently, if commodity prices decline,
the Company could realize lower prices for volumes not protected by the
Company's derivative activities and could see a reduction in derivative contract
prices on additional volumes in the future. As a result, the Company's internal
cash flows will be negatively impacted by a reduction in commodity prices.
The average forward prices based on March 31, 2021 market quotes were as
follows:
2021 Year Ending
Third Fourth December 31,
Second Quarter Quarter Quarter 2022
Average forward Brent oil price $ 62.32 $ 59.70
$ 60.23
$ 2.64
$ 6.54
$ 2.46
Average forward basis differential price (a)
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PIONEER NATURAL RESOURCES COMPANY
The average forward prices based on May 4, 2021 market quotes are as follows:
2021 Year Ending
Third Fourth December 31,
Second Quarter Quarter Quarter 2022
Average forward Brent oil price $ 68.67 $ 66.00
$ 66.52
$ 2.97
$ 8.14
$ 2.80
Average forward basis differential price (a)
___________________
(a)Based on market quotes for basis differentials betweenMidland oil index prices and the Brent oil index price. See Note 4 and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for a description of the Company's open derivative positions and additional information. Sales of purchased oil and gas. 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. Marketing derivatives. The Company's marketing derivatives reflect two long-term marketing contracts that were entered inOctober 2019 whereby the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day at an oil terminal inMidland, Texas for a six-year term that began onJanuary 1, 2021 and ends onDecember 31, 2026 . The price the Company pays to purchase the oil volumes under the purchase contract is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a WASP that a non-affiliated counterparty receives for selling oil through theirGulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. Based on the form of the marketing contracts, the Company determined that the marketing contracts should be accounted for as derivative instruments. Similar to sales of purchased commodities, these marketing derivatives allow the Company to diversify a portion of its oil sales from its area of production toGulf Coast and international markets. The average forward prices based onMarch 31, 2021 market quotes are as follows:
Year Ending
December 31 ,December 31 ,
2021 2022 2023 2024 2025 2026
Average forward Brent oil price
55.89
$ 58.51 $ 54.90 $
52.25
$ (2.57) $ (3.02) $
(3.64)
The average forward prices based on
Year Ending
December 31 ,December 31 ,
2021 2022 2023 2024 2025 2026
Average forward Brent oil price
60.99
$ 64.81 $ 60.51 $ 57.21 $ 55.32 $ 54.37 $ 53.79 Average forward basis differential price (a)$ (2.62) $ (3.15) $ (3.78) $ (4.05) $ (4.12) $ (4.28) ___________________ (a)Based on market quotes for basis differentials betweenMidland oil index prices and the Brent oil index price. Credit risk. The Company's primary concentration of credit risks are associated with the collection of receivables resulting from the sale of oil and gas production and purchased oil and gas, and the risk of a counterparty's failure to meet its obligations under derivative contracts with the Company. 44
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PIONEER NATURAL RESOURCES COMPANY The Company's commodities are sold to various purchasers who must be prequalified under the Company's credit risk and procedures. The Company monitors exposure to counterparties primarily by reviewing credit ratings, financial criteria and payment history. Where appropriate, the Company obtains assurances of payment, such as a guarantee by the parent company of the counterparty, a letter of credit or other credit support. Historically, the Company's credit losses on commodities receivables have not been material. The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures. The Company has entered into International Swap Dealers Association Master Agreements ("ISDA Agreements") with each of its derivative counterparties. The terms of the ISDA Agreements provide the Company and the counterparties with right of set off upon the occurrence of defined acts of default by either the Company or a counterparty to a derivative contract, whereby the party not in default may set off all derivative liabilities owed to the defaulting party against all derivative asset receivables from the defaulting party. See Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
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