PIONEER NATURAL RESOURCES CO - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________

FORM 10-Q

______________________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-13245

______________________________

PIONEER NATURAL RESOURCES COMPANY

(Exact name of Registrant as specified in its charter)

______________________________



Delaware		75-2702753
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5205 N. O'Connor Blvd., Suite 200, Irving, Texas		75039
(Address of principal executive offices)		(Zip Code)

(972) 444-9001

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	PXD	New York Stock Exchange

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

______________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	o	Smaller reporting company	¨

		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ý


Number of shares of Common Stock outstanding as of May 6, 2019	168,423,736

Table of Contents

PIONEER NATURAL RESOURCES COMPANY

TABLE OF CONTENTS



		Page
Cautionary Statement Concerning Forward-Looking Statements		3

Definitions of Certain Terms and Conventions Used Herein		4

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	5

	Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018	7

	Consolidated Statements of Equity for the three months ended March 31, 2019 and 2018	8

	Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	9

	Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 4.	Mine Safety Disclosures	36

Item 6.	Exhibits	37

Signatures		38

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PIONEER NATURAL RESOURCES COMPANY

Cautionary Statement Concerning Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "continue," "may," "will," "could," "should," "future," "potential," "estimate" or the negative of such terms and similar expressions as they relate to Pioneer Natural Resources Company ("Pioneer" or the "Company") are intended to identify forward-looking statements, which are generally not historical in nature. The forward-looking statements are based on the Company's current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company's control.

These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, completion of planned divestitures, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to perform the Company's drilling and operating activities, access to and availability of transportation, processing, fractionation, refining and export facilities, Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer's credit facility, investment instruments and derivative contracts and purchasers of Pioneer's oil, NGL and gas production, uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impacts of climate change, cybersecurity risks, ability to implement planned stock repurchases, the risks associated with the ownership and operation of the Company's industrial sand mining and oilfield services businesses and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K, this and other Quarterly Reports on Form 10-Q and other filings with the United States Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no duty to publicly update these statements except as required by law.

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PIONEER NATURAL RESOURCES COMPANY

Definitions of Certain Terms and Conventions Used Herein

Within this Report, the following terms and conventions have specific meanings:


•	"Bbl" means a standard barrel containing 42 United States gallons.


•	"Bcf" means one billion cubic feet and is a measure of gas volume.


•	"BOE" means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.


•	"BOEPD" means BOE per day.


•	"Brent" means Brent oil price, a major trading classification of light sweet oil that serves as a benchmark price for purchases of oil worldwide.


•	"Btu" means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.


•	"DD&A" means depletion, depreciation and amortization.


•	"GAAP" means accounting principles generally accepted in the United States of America.


•	"HH" means Henry Hub, a distribution hub in Louisiana that serves as the delivery location for gas futures contracts on the NYMEX.


•	"MBbl" means one thousand Bbls.


•	"MBOE" means one thousand BOEs.


•	"Mcf" means one thousand cubic feet and is a measure of gas volume.


•	"MMBtu" means one million Btus.


•	"Mont Belvieu" means the daily average natural gas liquids components as priced in OPIS in the table "U.S. and Canada LP – Gas Weekly Averages" at Mont Belvieu, Texas.


•	"NGL" means natural gas liquid, which are the heavier hydrocarbon liquids that are separated from the gas stream; such liquids include ethane, propane, isobutane, normal butane and natural gasoline.


•	"NYMEX" means the New York Mercantile Exchange.


•	"Pioneer" or the "Company" means Pioneer Natural Resources Company and its subsidiaries.

•

"Proved reserves" mean those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons ("LKH") as seen in a well penetration unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil ("HKO") elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.


•	"SEC" means the United States Securities and Exchange Commission.


•	"U.S." means United States.


•	"WTI" means West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil used as a benchmark in oil pricing.

•

With respect to information on the working interest in wells, drilling locations and acreage, "net" wells, drilling locations and acres are determined by multiplying "gross" wells, drilling locations and acres by the Company's working interest in such wells, drilling locations or acres. Unless otherwise specified, wells, drilling locations and acreage statistics quoted herein represent gross wells, drilling locations or acres.


•	All currency amounts are expressed in U.S. dollars.

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PIONEER NATURAL RESOURCES COMPANY

PART I. FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions)



	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	511		$	825
Short-term investments	445			443
Accounts receivable:
Trade, net	870			694
Due from affiliates	7			120
Income taxes receivable	6			7
Inventories	253			242
Derivatives	30			52
Investment in affiliate	347			172
Other	36			25
Total current assets	2,505			2,580
Oil and gas properties, successful efforts method of accounting:
Proved properties	22,038			21,165
Unproved properties	607			601
Accumulated depletion, depreciation and amortization	(8,600		)	(8,218		)
Total oil and gas properties, net	14,045			13,548
Other property and equipment, net	1,072			1,291
Operating lease right-of-use assets	356			—
Long-term investments	11			125
Goodwill	264			264
Other assets	102			95
	$	18,355		$	17,903

The financial information included as of March 31, 2019 has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS (continued)

(in millions, except share data)



	March 31, 2019			December 31, 2018
	(Unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	1,536		$	1,441
Due to affiliates	181			183
Interest payable	25			53
Income taxes payable	2			2
Current portion of long-term debt	449			—
Derivatives	22			27
Operating leases	145			—
Other	172			112
Total current liabilities	2,532			1,818
Long-term debt	1,836			2,284
Deferred income taxes	1,255			1,152
Operating leases	217			—
Other liabilities	306			538
Equity:
Common stock, $.01 par value; 500,000,000 shares authorized; 174,828,478 and 174,321,171 shares issued as of March 31, 2019 and December 31, 2018, respectively	2			2
Additional paid-in capital	9,086			9,062
Treasury stock at cost: 6,406,441 and 4,822,069 shares as of March 31, 2019 and December 31, 2018, respectively	(645		)	(423		)
Retained earnings	3,766			3,470
Total equity	12,209			12,111
Commitments and contingencies
	$	18,355		$	17,903

The financial information included as of March 31, 2019 has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
Revenues and other income:
Oil and gas	$	1,135		$	1,266
Sales of purchased oil and gas	1,109			1,070
Interest and other	191			18
Derivative loss, net	(13		)	(208		)
Gain (loss) on disposition of assets, net	(9		)	4
	2,413			2,150
Costs and expenses:
Oil and gas production	221			213
Production and ad valorem taxes	68			76
Depletion, depreciation and amortization	421			357
Purchased oil and gas	957			1,054
Exploration and abandonments	20			35
General and administrative	94			90
Accretion of discount on asset retirement obligations	3			4
Interest	29			36
Other	147			57
	1,960			1,922
Income before income taxes	453			228
Income tax provision	(103		)	(50		)
Net income attributable to common stockholders	$	350		$	178

Basic and diluted net income per share attributable to common stockholders	$	2.06		$	1.04

Weighted average shares outstanding:
Basic	169			170
Diluted	169			171

Dividends declared per share	$	0.32		$	0.16

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except share data and dividends per share)

(Unaudited)



			Equity Attributable To Common Stockholders
	Shares Outstanding		Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings			Noncontrolling Interests		Total Equity
	(in thousands)
Balance as of December 31, 2018	169,499		$	2	$	9,062	$	(423	)	$	3,470		$	—	$	12,111
Dividends declared ($0.32 per share)	—		—		—		—			(54		)	—		(54		)
Exercise of long-term incentive stock options	10		—		—		—			—			—		—
Purchases of treasury stock	(1,594	)	—		—		(222		)	—			—		(222		)
Stock-based compensation costs:
Issued awards	507		—		—		—			—			—		—
Compensation costs included in net income	—		—		24		—			—			—		24
Net income	—		—		—		—			350			—		350
Balance as of March 31, 2019	168,422		$	2	$	9,086	$	(645	)	$	3,766		$	—	$	12,209


			Equity Attributable To Common Stockholders
	Shares Outstanding		Common Stock		Additional Paid-in Capital		Treasury Stock			Retained Earnings			Noncontrolling Interests		Total Equity
	(in thousands)
Balance as of December 31, 2017	170,189		$	2	$	8,974	$	(249	)	$	2,547		$	5	$	11,279
Dividends declared ($0.16 per share)	—		—		—		—			(27		)	—		(27		)
Purchases of treasury stock	(262	)	—		—		(45		)	—			—		(45		)
Stock-based compensation costs:
Issued awards	492		—		—		—			—			—		—
Compensation costs included in net income	—		—		17		—			—			—		17
Net income	—		—		—		—			178			—		178
Balance as of March 31, 2018	170,419		$	2	$	8,991	$	(294	)	$	2,698		$	5	$	11,402

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)



	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	350		$	178
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation and amortization	421			357
Impairment of inventory and other property and equipment	32			—
Exploration expenses, including dry holes	1			5
Deferred income taxes	103			50
(Gain) loss on disposition of assets, net	9			(4		)
Accretion of discount on asset retirement obligations	3			4
Interest expense	1			1
Derivative related activity	17			136
Amortization of stock-based compensation	24			17
Investment in affiliate fair value adjustment	(174		)	—
Other	62			22
Change in operating assets and liabilities:
Accounts receivable	(69		)	(181		)
Inventories	(36		)	(6		)
Investments	—			3
Other current assets	(15		)	(3		)
Accounts payable	(74		)	(9		)
Interest payable	(29		)	(21		)
Income taxes payable	—			1
Other current liabilities	(22		)	5
Net cash provided by operating activities	604			555
Cash flows from investing activities:
Proceeds from disposition of assets, net of cash sold	6			4
Proceeds from investments	112			554
Purchase of investments	—			(94		)
Additions to oil and gas properties	(741		)	(818		)
Additions to other assets and other property and equipment	(72		)	(51		)
Net cash used in investing activities	(695		)	(405		)
Cash flows from financing activities:
Purchase of treasury stock	(222		)	(45		)
Payments of other liabilities	(1		)	—
Net cash used in financing activities	(223		)	(45		)
Net increase (decrease) in cash and cash equivalents	(314		)	105
Cash and cash equivalents, beginning of period	825			896
Cash and cash equivalents, end of period	$	511		$	1,001

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 1. Organization and Nature of Operations

Pioneer Natural Resources Company ("Pioneer" or the "Company") is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. The Company is a large independent oil and gas exploration and production company that explores for, develops and produces oil, natural gas liquids ("NGL") and gas within the United States, with operations primarily in the Permian Basin in West Texas.

NOTE 2. Basis of Presentation

Presentation. In the opinion of management, the unaudited interim consolidated financial statements of the Company as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 include all adjustments and accruals, consisting only of normal, recurring adjustments and accruals necessary for a fair presentation of the results for the interim periods in conformity with generally accepted accounting principles in the United States ("GAAP"). The operating results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These unaudited interim consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.

Use of estimates in the preparation of financial statements. Preparation of the Company's unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of oil and gas properties and impairment of goodwill and proved and unproved oil and gas properties, in part, is determined using estimates of proved, probable and possible oil and gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.

Adoption of new accounting standards. In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" ("ASC 842") which supersedes the lease recognition requirements in Accounting Standards Codification ("ASC") 840, "Leases" ("ASC 840"), and requires lessees to recognize lease assets and lease liabilities for those leases previously classified as operating leases. The Company adopted ASC 842 as of January 1, 2019 using the modified retrospective transition method. The Company elected to apply the transition guidance under ASU 2018-11, "Leases (Topic 842) Targeted Improvements," in which ASC 842 is applied at the adoption date, while the comparative periods continue to be reported in accordance with historic accounting under ASC 840. This standard does not apply to leases to explore for or use minerals, oil or gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained.

ASC 842 allowed for the election of certain practical expedients at adoption to ease the burden of implementation. At implementation, the Company elected to (i) maintain the historical lease classification for leases prior to January 1, 2019, (ii) maintain the historical accounting treatment for land easements that existed at adoption, (iii) use historical practices in assessing the lease term of existing contracts at adoption, (iv) combine lease and non-lease components of a contract as a single lease and (v) not record short-term leases on the consolidated balance sheet, all in accordance with ASC 842.

As of March 31, 2019, the Company's operating lease assets and liabilities totaled $356 million and $362 million, respectively, on the consolidated balance sheet, in accordance with ASC 842. The adoption of ASC 842 did not have a material impact on the consolidated statements of operations and had no impact on cash flows. The Company did not record a change to its opening retained earnings as of January 1, 2019, as there was no material change to the timing or pattern of recognition of lease costs due to the adoption of ASC 842.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

As of December 31, 2018, the Company was the deemed owner of the Company's new corporate headquarters (for accounting purposes) during the construction period and was following the build-to-suit accounting guidance under ASC 840. On January 1, 2019, upon the adoption of ASC 842, the Company derecognized $217 million of other property and equipment and $219 million of build-to-suit lease liability costs associated with the building as this contract no longer qualifies for capitalization. The contract will be evaluated and recorded on the Company's consolidated balance sheets upon lease commencement, which is expected to occur during the second half of 2019.

See Note 10 for additional information.

New accounting pronouncements. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Entities will use the modified retrospective approach to apply the standard's provisions and record a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company continues to evaluate ASU 2016-13 but does not expect that it will have a material impact on its consolidated financial statements.

NOTE 3. Divestiture, Decommissioning and Restructuring Activities

The Company's significant divestiture, decommissioning and restructuring activities during the three months ended March 31, 2019 and 2018 are as follows:

•

In March 2019, the Company made certain changes to its leadership and organizational structure to align its cost structure with the needs of a Permian Basin-focused company. These changes included the early retirement and departure of certain officers of the Company. During the three months ended March 31, 2019, the Company recorded $12 million of employee-related charges associated with these changes. See Note 15 for additional information.

•

In December 2018, the Company completed the sale of its pressure pumping assets to ProPetro Holding Corp. ("ProPetro") in exchange for total consideration of $282 million, of which $110 million was received in the first quarter of 2019. See Note 12 for additional information. During the three months ended March 31, 2019, the Company reduced the gain associated with the sale by $10 million and recorded additional employee-related charges of $1 million related to the sale.


•	In November 2018, the Company announced plans to close its sand mine located in Brady, Texas and transition its proppant supply requirements to West Texas sand sources. During the three months ended March 31, 2019, the Company recorded $23 million of accelerated depreciation and $16 million of inventory and other property and equipment impairment charges associated with the planned shutdown.

The Company's restructuring activities, including employee-related charges, contract termination charges and other costs are recorded as other expense in the statements of operations and as other noncash operating activities in the consolidated statements of cash flows. Obligations associated with employee-related charges are classified as accounts payable - due to affiliates in the consolidated balance sheets. Obligations associated with contract termination charges are classified as other current or noncurrent liabilities in the consolidated balance sheets.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

The Company's restructuring activity during the three months ended March 31, 2019 is as follows (in millions):



Employee-related charges:
Beginning employee-related obligations	$	27
Additions (Note 15)	13
Cash payments	(10		)
Noncash changes (Note 8)	(4		)
Ending employee-related obligations	26

Contract termination charges:
Beginning contract termination obligations	111
Cash payments	(9		)
Ending contract termination obligations (a)	102
Total restructuring obligations	$	128

______________________


(a)	Includes $90 million of deficiency charges related to certain firm transportation contracts associated with the divestiture of the Company's gas field assets in the Raton Basin. These obligations were retained by the Company and are expected to be paid as follows: $30 million in 2019, $43 million in 2020 and $17 million in 2021.

NOTE 4. Fair Value Measurements

The Company determines fair value based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.

The three input levels of the fair value hierarchy are as follows:


•	Level 1 – quoted prices for identical assets or liabilities in active markets.


•	Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3 – unobservable inputs for the asset or liability, typically reflecting management's estimate of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore, determined using model-based techniques, including discounted cash flow models.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

Assets and liabilities measured at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows:



	Fair Value Measurement as of March 31, 2019 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value as of March 31, 2019
	(in millions)
Assets:
Commodity derivatives	$	—	$	30	$	—	$	30
Deferred compensation plan assets	89		—		—		89
Investment in affiliate	—		347		—		347
Total assets	89		377		—		466
Liabilities:
Commodity derivatives	—		22		—		22
Total liabilities	—		22		—		22
	$	89	$	355	$	—	$	444



	Fair Value Measurement as of December 31, 2018 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair value as of December 31, 2018
	(in millions)
Assets:
Commodity derivatives	$	—	$	52	$	—	$	52
Deferred compensation plan assets	82		—		—		82
Investment in affiliate	—		172		—		172
Total assets	82		224		—		306
Liabilities:
Commodity derivatives	—		27		—		27
Total liabilities	—		27		—		27
	$	82	$	197	$	—	$	279

Commodity derivatives. The Company's commodity derivatives represent oil, NGL and gas swap contracts, collar contracts, collar contracts with short puts and basis swap contracts. The asset and liability measurements for the Company's commodity derivative contracts represent Level 2 inputs in the hierarchy. The Company utilizes discounted cash flow and option-pricing models for valuing its commodity derivatives.

The asset and liability values attributable to the Company's commodity derivatives were determined based on inputs that include (i) the contracted notional volumes, (ii) independent active market price quotes, (iii) the applicable estimated credit-adjusted risk-free rate yield curve and (iv) the implied rate of volatility inherent in the collar contracts and collar contracts with short puts, which is based on active and independent market-quoted volatility factors.

Deferred compensation plan assets. The Company's deferred compensation plan assets represent investments in equity and mutual fund securities that are actively traded on major exchanges. These investments are measured based on observable prices on major exchanges. As of March 31, 2019 and December 31, 2018, the significant inputs to these asset exchange values represented Level 1 independent active exchange market price inputs.

Investment in affiliate. The Company elected the fair value option for measuring its equity method investment in ProPetro. The fair value of its investment in ProPetro is determined using Level 2 inputs, including the quoted market price for the stock as

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

adjusted to reflect a value discount due to the shares not being able to be sold until mid-2019. See Note 12 and Note 14 for additional information.

Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. These assets and liabilities can include inventory, proved and unproved oil and gas properties and other long-lived assets that are written down to fair value when they are impaired or held for sale.

During the three months ended March 31, 2019, the Company impaired the remaining $16 million of inventory and other property and equipment related to the decommissioning of the Company's Brady, Texas sand mine, as these assets had no remaining future economic value. In addition, the Company recognized a $15 million impairment charge related to pressure pumping assets excluded from the December 2018 sale of the Company's pumping services assets. See Note 15 for additional information.

Financial instruments not carried at fair value. Carrying values and fair values of financial instruments that are not carried at fair value in the consolidated balance sheets are as follows:



	As of March 31, 2019				As of December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Assets:
Cash and cash equivalents:
Cash (a)	$	461	461		$	775	$	775
Time deposits (a)	50		50		50		50
Total	$	511	$	511	$	825	$	825
Short-term investments:
Commercial paper (b)	$	21	21		$	53	53
Corporate bonds (c)	374		374		290		288
Time deposits (b)	50		50		100		100
Total	$	445	$	445	$	443	$	441
Long-term investments:
Corporate bonds (c)	$	11	$	11	$	125	$	125

Liabilities:
Current portion of long-term debt (d)	$	449	$	466	$	—	$	—
Long-term debt (d)	$	1,836	$	1,948	$	2,284	$	2,374

______________________


(a)	Fair value approximates carrying value due to the short-term nature of the instruments.


(b)	Fair value is determined using Level 2 inputs.


(c)	Fair value is determined using Level 1 inputs.


(d)	Fair value is determined using Level 2 inputs. The Company's senior notes are quoted but not actively traded on major exchanges; therefore, fair value is based on periodic values as quoted on major exchanges.

The Company has other financial instruments consisting primarily of receivables, payables, operating leases and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities. Non-financial assets and liabilities initially measured at fair value include assets acquired and liabilities assumed in a business combination, goodwill and asset retirement obligations.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 5. Derivative Financial Instruments

The Company utilizes commodity swap contracts, option 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 annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness.

Oil production derivatives. The Company sells its oil production at the lease and the sales contracts governing such oil production are tied directly to, or are highly correlated with, New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices. The Company also enters into pipeline capacity commitments in order to secure available oil transportation capacity from its areas of production to the Gulf Coast. In order to diversify the oil price it receives, the Company (i) enters into oil purchase transactions with third parties in its areas of production that are consistent with the oil prices that the Company receives at the lease, adjusted for transportation costs to the point of purchase, (ii) transports the purchased oil using its pipeline capacity to the Gulf Coast and (iii) enters into third party sale transactions to sell the oil into the Gulf Coast refinery or international export markets at prices that are highly correlated with Brent oil prices. As a result, the Company will generally use Brent derivative contracts to manage future oil price volatility.

Volumes per day associated with the Company's outstanding oil derivative contracts as of March 31, 2019 and the weighted average oil prices for those contracts are as follows:



	2019
	Second Quarter		Third Quarter		Fourth Quarter
Brent collar contracts with short puts:
Volume per day (Bbl) (a)	15,000		15,000		15,000
Price per Bbl:
Ceiling	$	89.90	$	89.90	$	89.90
Floor	$	75.00	$	75.00	$	75.00
Short put	$	65.00	$	65.00	$	65.00

____________________

(a)

Subsequent to March 31, 2019, the Company entered into additional Brent collar contracts with short puts for (i) 30,000 Bbls per day of May through December 2019 production with an average ceiling price of $75.13 per Bbl, a floor price of $65.00 per Bbl and a short put price of $55.00 per Bbl and (ii) 9,000 Bbls per day of 2020 production with a ceiling price of $75.57, a floor price of $65.00 and a short put price of $55.00.

NGL production derivatives. All material physical sales contracts governing the Company's NGL production are tied directly or indirectly to Mont Belvieu, Texas NGL component product prices. The Company uses derivative contracts to manage the NGL component product price volatility. As of March 31, 2019, the Company did not have any NGL derivative contracts outstanding.

Gas production derivatives. All material physical sales contracts governing the Company's gas production are tied directly or indirectly to NYMEX Henry Hub ("HH") gas prices or regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and basis swap contracts to reduce basis risk between HH prices and actual index prices at which the gas is sold.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

Volumes per day associated with outstanding gas derivative contracts as of March 31, 2019 and the weighted average gas prices for those contracts are as follows:



	2019
	Second Quarter			Third Quarter			Fourth Quarter
Swap contracts:
Volume per day (MMBtu)	50,000			50,000			16,848
Price per MMBtu	$	2.94		$	2.94		$	2.94
Basis swap contracts:
Permian Basin index swap volume per day(MMBtu) (a)	60,000			60,000			—
Price differential ($/MMBtu)	$	(1.46	)	$	(1.46	)	$	—
Southern California index swap volume per day (MMBtu) (b)	80,000			80,000			80,000
Price differential ($/MMBtu)	$	0.31		$	0.31		$	0.31

____________________


(a)	The referenced basis swap contracts fix the basis differentials between the index price at which the Company sells its Permian Basin gas and the HH price used in swap contracts.


(b)	The referenced basis swap contracts fix the basis differentials between Permian Basin index prices and southern California index prices for Permian Basin gas forecasted for sale in Arizona and southern California.

The Company's derivatives are accounted for as non-hedge derivatives and therefore all changes in the fair values of its derivative contracts are recognized as gains or losses in the earnings of the periods in which they occur. The Company enters into derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty.

Fair value. The fair value of derivative financial instruments not designated as hedging instruments is as follows:



Fair Value of Derivative Instruments as of March 31, 2019
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	36	$	(6	)	$	30
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	28	$	(6	)	$	22



Fair Value of Derivative Instruments as of December 31, 2018
Type	Consolidated Balance Sheet Location	Fair Value		Gross Amounts Offset in the Consolidated Balance Sheet			Net Fair Value Presented in the Consolidated Balance Sheet
		(in millions)
Asset Derivatives:
Commodity price derivatives	Derivatives - current	$	59	$	(7	)	$	52
Liability Derivatives:
Commodity price derivatives	Derivatives - current	$	34	$	(7	)	$	27

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

Gains and losses recorded on derivative contracts are as follows:



Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Earnings on Derivatives	Three Months Ended March 31,
Derivatives Not Designated as Hedging Instruments	Location of Loss Recognized in Earnings on Derivatives	2019		2018
		(in millions)
Commodity price derivatives	Derivative loss, net	$	13	$	208

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.

NOTE 6. Exploratory Costs

The Company capitalizes exploratory well and project costs until a determination is made that the well or project has either found proved reserves, is impaired or is sold. The Company's capitalized exploratory well and project costs are presented in proved properties in the consolidated balance sheets. If the exploratory well or project is determined to be impaired, the impaired costs are charged to exploration and abandonments expense.

Capitalized exploratory well and project activity is as follows:



	Three Months Ended March 31, 2019
	(in millions)
Beginning capitalized exploratory well costs	$	509
Additions to exploratory well costs pending the determination of proved reserves	647
Reclassification due to determination of proved reserves	(406		)
Ending capitalized exploratory well costs	$	750

Aging of capitalized exploratory costs and the number of projects for which exploratory well costs have been capitalized for a period greater than one year, based on the date drilling was completed, are as follows:



	As of March 31, 2019		As of December 31, 2018
	(in millions, except well counts)
Capitalized exploratory well costs that have been suspended:
One year or less	$	750	$	509
More than one year	—		—
	$	750	$	509
Number of wells or projects with exploratory well costs that have been suspended for a period greater than one year	—		—

NOTE 7. Long-term Debt

Credit facility. The Company's long-term debt consists of senior notes, a revolving corporate credit facility (the "Credit Facility") and the effects of issuance costs and discounts. The Credit Facility is maintained with a syndicate of financial institutions and has aggregate loan commitments of $1.5 billion. The Credit Facility has a maturity date of October 2023. As of March 31, 2019, the Company had no outstanding borrowings under the Credit Facility and was in compliance with its debt covenants.

Senior notes. The Company's 7.50% senior notes with a debt principal balance of $450 million will mature in January 2020 and are classified as current in the consolidated balance sheet as of March 31, 2019.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 8. Incentive Plans

Stock-based compensation. For the three months ended March 31, 2019, the Company recorded $29 million of stock-based compensation expense for all plans, as compared to $23 million for the same period in 2018. Stock-based compensation expense for the three months ended March 31, 2019 included $3 million of remaining expense associated with the unvested restricted stock awards and performance units granted to the Company's former CEO, who retired during the period, in accordance with the terms of his award agreements. In addition, the Company accounted for the modification of award agreements with certain other officers that were notified during the three months ended March 31, 2019 of the Company's planned changes to its leadership and organizational structure to align its cost structure with the needs of a Permian Basin-focused company. These other officer modifications provided for the full vesting of all outstanding awards upon each such officers' early retirement and departure from the Company. The modification associated with the full vesting of outstanding awards resulted in a modified fair value that is in excess of what would have vested in accordance with the terms of the original award agreements. The stock-based compensation expense associated with the modified awards will be recognized over the remaining service period of those officers, which is generally expected to be less than 90 days.

As of March 31, 2019, there was $146 million of unrecognized stock-based compensation expense related to unvested share-based compensation plans, including $29 million attributable to stock-based awards that are expected to be settled on their vesting date in cash, rather than in equity shares ("Liability Awards"). The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than three years on a weighted average basis. As of March 31, 2019 and December 31, 2018, accounts payable – due to affiliates included $3 million and $14 million, respectively, of liabilities attributable to Liability Awards.

Activity for outstanding restricted stock awards and performance units is as follows:



	Three Months Ended March 31, 2019
	Restricted Stock Equity Awards		Restricted Stock Liability Awards		Performance Units
Beginning incentive compensation awards	799,672		201,501		119,169
Awards granted	470,204		125,607		86,483
Awards forfeited	(3,201	)	(2,026	)	—
Awards vested (a)	(391,446	)	(101,219	)	(39,793	)
Ending incentive compensation awards	875,229		223,863		165,859

____________________


(a)	Per the terms of award agreements and elections, the issuance of common stock may be deferred for certain restricted stock equity awards and performance units that vest during the period.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 9. Asset Retirement Obligations

Asset retirement obligations activity is as follows:



	Three Months Ended March 31,
	2019			2018
	(in millions)
Beginning asset retirement obligations	$	183		$	271
New wells placed on production	—			1
Changes in estimates	—			2
Obligations reclassified to liabilities held for sale	—			(6		)
Liabilities settled	(6		)	(9		)
Accretion of discount	3			4
Ending asset retirement obligations	$	180		$	263

The Company records the current and noncurrent portions of asset retirement obligations in other current liabilities and other liabilities, respectively, in the consolidated balance sheets. As of March 31, 2019 and December 31, 2018, the current portions of the Company's asset retirement obligations were $31 million and $25 million, respectively.

NOTE 10. Leases

The Company leases drilling rigs, storage tanks, equipment and office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. As most of the Company's lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain leases contain variable costs above the minimum required payments and are not included in the right-of-use assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

In June 2017, the Company entered into a 20-year operating lease for the Company's new corporate headquarters that is currently being constructed in Irving, Texas. Annual base rent is expected to be $33 million and lease payments are expected to commence once the building is complete. The Company has a variable equity interest in the entity that is constructing the building. The Company is not the primary beneficiary of the variable interest entity and only has a profit sharing interest after certain economic returns are achieved. The Company has no exposure to the variable interest entity's losses or future liabilities, if any. The contract for the Company's new corporate headquarters will be evaluated under ASC 842 upon lease commencement, which is expected to occur during the second half of 2019.

Lease costs, including amounts recoverable from joint operating partners, are as follows:



	Three Months Ended March 31, 2019
	($ in millions)
Lease costs:
Operating lease cost (a)	$	45
Short-term lease cost (b)	6
Variable lease cost (c)	19
Total lease costs	$	70

Other information:
Cash paid for amounts included in lease costs (d):
Operating cash flows from operating leases	$	21
Investing cash flows from operating leases (e)	$	49
Right-of-use assets obtained in exchange for new operating lease liabilities	$	88
Weighted-average remaining lease term - operating leases	3.4 years
Weighted-average discount rate - operating leases	3.3		%

____________________


(a)	Represents straight-line rent cost associated with the Company's operating lease right-of-use assets.


(b)	Represents costs associated with short-term leases (those with a contractual term of 12 months or less) that are not recorded on the consolidated balance sheet.


(c)	Variable lease costs are primarily comprised of the non-lease service component of drilling rig commitments above the minimum required payments. Both the minimum required payments and the non-lease service component of the drilling rig commitments are capitalized as additions to oil and gas properties.


(d)	Cash paid for amounts included in total lease costs may not agree due to timing of cash payments and costs incurred.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)


(e)	Lease costs associated with drilling operations are capitalized as additions to oil and gas properties.

The payment schedule for the Company's operating lease obligations as of March 31, 2019 is as follows:



	Operating Leases
	(in millions)
Remainder of 2019	$	122
2020	127
2021	69
2022	36
2023	9
Thereafter	26
Total minimum lease payments	389
Less: Amount associated with discounting	(27		)
Total	$	362

NOTE 11. Commitments and Contingencies

Legal actions. The Company is a party to various proceedings and claims incidental to its business. While many of these matters involve inherent uncertainty, the Company believes that the amount of the liability, if any, ultimately incurred with respect to these proceedings and claims will not have a material adverse effect on the Company's consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations. The Company records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

Obligations following 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. The Company does not believe it is probable that these obligations will have a material impact on its liquidity, financial position or future results of operations. 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 believes the likelihood of making or receiving payments under these guarantees is remote. As of March 31, 2019, the maximum amount of payments the Company could be required to make under the guarantees is $128 million, which could be partially offset by credit support from third parties of $69 million.

Firm purchase, gathering, processing, transportation and fractionation commitments. From time to time, the Company enters into, and as of March 31, 2019 was a party to, take-or-pay agreements, which include contractual commitments (i) to purchase and process sand and purchase water for use in the Company's drilling operations, (ii) with midstream service companies and pipeline carriers for future gathering, processing, transportation, storage and fractionation services and (iii) with oilfield services companies that provide pressure pumping services. These commitments are normal and customary for the Company's business activities.

NOTE 12. Related Party Transactions

In December 2018, the Company completed the sale of its pressure pumping assets to ProPetro in exchange for 16.6 million shares of ProPetro common stock and $110 million of short-term receivables that were collected during the three months ended March 31, 2019. ProPetro is considered a related party since the shares received represent approximately 16 percent of ProPetro's outstanding common stock. In addition to the sale of equipment and related facilities, the Company entered into a long-term agreement with ProPetro for it to provide pressure pumping and related services. The costs of these services are capitalized in oil and gas properties as incurred. See Note 3 and Note 14 for additional information.

Transactions and balances with ProPetro are as follows:



	Three Months Ended March 31, 2019
	(in millions)
Pressure pumping services	$	147



	As of March 31, 2019		As of December 31, 2018
	(in millions)
Accounts receivable - due from affiliate (a)	$	7	$	119
Accounts payable - due to affiliate (b)	$	104	$	37

____________________


(a)	Includes employee-related charges to be reimbursed by ProPetro and $110 million of short-term receivables as of December 31, 2018 that were collected during the three months ended March 31, 2019.


(b)	Prior to the Company's sale of its pressure pumping assets to ProPetro, the Company utilized the services of ProPetro in the normal course of business. The balance as of December 31, 2018 represents invoices associated with those services that were in the process of being paid.

NOTE 13. Revenue Recognition

The Company recognizes revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Disaggregated revenue from contracts with purchasers. Revenues on sales of oil, NGL, gas and purchased oil and gas are recognized when control of the product is transferred to the purchaser and payment can be reasonably assured. Sales prices for oil, NGL and gas production are negotiated based on factors normally considered in the industry, such as an index or spot price, distance from the well to the pipeline or market, commodity quality and prevailing supply and demand conditions. As such, the prices of oil, NGL and gas generally fluctuate based on the relevant market index rates.

Disaggregated revenue from contracts with purchasers by product type is as follows:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Oil sales	$	917	$	1,013
NGL sales	138		165
Gas sales	80		88
Total oil and gas sales	1,135		1,266
Sales of purchased oil	1,107		1,051
Sales of purchased gas	2		19
Total sales of purchased oil and gas	1,109		1,070
Total revenue derived from contracts with purchasers	$	2,244	$	2,336

Oil sales. Sales under the Company's oil contracts are generally considered performed when the Company sells oil production at the wellhead and receives an agreed-upon index price, net of any price differentials. The Company recognizes revenue when control transfers to the purchaser at the wellhead based on the net price received.

NGL and gas sales. The Company evaluated whether it is the principal or the agent in gas processing transactions and concluded that it is the principal when it has the ability to take-in-kind, which is the case in the majority of the Company's gas processing and transportation contracts. Therefore the Company recognizes revenue on a gross basis, with the gathering, processing,

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

transportation and fractionation costs associated with its take-in-kind arrangements being recorded as oil and gas production costs in the consolidated statement of operations.

Sales of purchased oil and gas. The Company enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to (i) diversify a portion of the Company's WTI oil sales to the Gulf Coast refinery or international export markets and (ii) satisfy unused pipeline capacity commitments. Revenues and expenses from these transactions are presented on a gross basis as the Company acts as a principal in the transaction by assuming control of the commodities purchased and the responsibility to deliver the commodities sold. Revenue is recognized when control transfers to the purchaser at the delivery point based on the price received from the purchaser. The transportation costs associated with these transactions are presented as a component of purchased oil and gas expense. Firm transportation payments on excess pipeline capacity are included in other expense in the consolidated statements of operations.

Performance obligations and contract balances. The majority of the Company's product sale commitments are short-term in nature with a contract term of one year or less. The Company typically satisfies its performance obligations upon transfer of control as described above in Disaggregated revenue from contracts with purchasers and records the related revenue in the month production is delivered to the purchaser. Settlement statements for sales of oil, NGL and gas and sales of purchased oil and gas may not be received for 30 to 60 days after the date the volumes are delivered, and as a result, the Company is required to estimate the amount of volumes delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Historically, differences between the Company's revenue estimates and actual revenue received have not been significant. As of March 31, 2019 and December 31, 2018, the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was $825 million and $646 million, respectively.

NOTE 14. Interest and Other Income

The components of interest and other income are as follows:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Investment in affiliate fair value adjustment (Note 4)	$	174	$	—
Interest income	8		7
Deferred compensation plan income	7		4
Other income	2		4
Seismic data sales	—		3
	$	191	$	18

NOTE 15. Other Expense

The components of other expense are as follows:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Transportation commitment charges (a)	$	40	$	34
Asset impairment (b) (Note 4)	32		—
Restructuring charges (Note 3)	13		—
Accelerated depreciation (c)	23		—
Vertical integration services loss, net (d)	20		6
Other	10		13
Legal and environmental charges	5		4
Idle drilling and well service equipment charges (e)	4		—
	$	147	$	57

____________________


(a)	Primarily represents firm transportation payments on excess pipeline capacity commitments.


(b)	Represents inventory and other property and equipment impairment charges of $16 million related to the decommissioning of the Company's Brady, Texas sand mine and $15 million of impairment charges related to inventory and other property and equipment excluded from the Company's sale of its pumping services assets in December 2018.


(c)	Represents accelerated depreciation related to the decommissioning of the Company's Brady, Texas sand mine.

(d)

For the three months ended March 31, 2019, amount includes $9 million of decommissioning operating expenses related to the Company's Brady sand mine and $15 million of carryover and winding down operating expenses related to the Company's sale of its pumping services assets in December 2018, partially offset by net margins (attributable to third party working interest owners) that result from Company-provided well service operations, which are ancillary to and supportive of the Company's oil and gas joint operating activities, and do not represent intercompany transactions. For the three months ended March 31, 2019, these vertical integration net margins included $35 million of revenues and $55 million of costs and expenses. For the same period in 2018, these vertical integration net margins included $34 million of revenues and $40 million of costs and expenses.


(e)	Primarily represents expenses attributable to idle frac fleet and drilling rig fees that are not chargeable to joint operations.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

NOTE 16. Income Taxes

Income tax provision and effective tax rate are as follows:



	Three Months Ended March 31,
	2019			2018
	(in millions)
Deferred tax provision	$	103		$	50
Effective tax rate	23		%	22		%

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. As of March 31, 2019 and December 31, 2018, the Company had unrecognized tax benefits ("UTBs") of $141 million for each respective period resulting from research and experimental expenditures related to horizontal drilling and completion innovations. If all or a portion of the UTBs 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. The timing as to when the Company will substantially resolve the uncertainties associated with the UTBs is uncertain.

The Company files income tax returns in the U.S. federal and various state and foreign jurisdictions. The Internal Revenue Service has closed examinations of the 2011 and prior tax years and, with few exceptions, the Company believes that it is no longer subject to examinations by state and foreign tax authorities for years before 2012. As of March 31, 2019, no adjustments had been proposed in any jurisdiction that would have a significant effect on the Company's liquidity, future results of operations or financial position.

NOTE 17. Net Income Per Share

The components of basic and diluted net income per share attributable to common stockholders are as follows:



	Three Months Ended March 31,
	2019			2018
	(in millions)
Net income attributable to common stockholders	$	350		$	178
Participating share-based earnings	(2		)	(1		)
Basic and diluted net income attributable to common stockholders	$	348		$	177

Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows:



	Three Months Ended March 31,
	2019	2018
	(in millions)
Basic weighted average shares outstanding	169	170
Dilution attributable to stock-based compensation awards	—	1
Diluted weighted average shares outstanding	169	171

Stock repurchase program. In December 2018, the Company's board of directors authorized a $2 billion common stock repurchase program. Under this stock repurchase program, the Company may repurchase shares at management's discretion in accordance with applicable securities laws. In addition, the Company may repurchase shares pursuant to a trading plan meeting the requirements of Rule 10b5-1 under the Securities Act of 1934, which would permit the Company to repurchase shares at times that may otherwise be prohibited under the Company's insider trading policy. The stock repurchase program has no time limit, may be modified, suspended or terminated at any time by the board of directors and replaced and terminated the Company's prior $100 million common stock repurchase program announced in February 2018.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(Unaudited)

During the three months ended March 31, 2019 and 2018, the Company repurchased $200 million and $17 million, respectively, of common stock under these repurchase programs. As of March 31, 2019, $1.7 billion remains available for use to repurchase shares under the Company's common stock repurchase program.

NOTE 18. Subsequent Events

In May 2019, the Company completed the sale of its Eagle Ford assets and other remaining assets in South Texas to an unaffiliated third party. The sale of these assets is expected to result in a pretax loss of $400 million to $550 million during the second quarter of 2019. The Company expects to recognize a liability associated with the sale for estimated deficiency fees retained by the Company on unused minimum volume commitments. Additionally, under the agreement, the Company expects to receive up to $475 million in total proceeds, of which $25 million was received at closing and $450 million is contingent on future commodity prices. The contingent proceeds will be valued based on the probability-weighted estimate of proceeds that will be received over the earn-out period using forecasted commodity prices. The contingent proceeds will be determined annually over the 2020 through 2024-time periods based on actual commodity prices for each year. The contingent proceeds, if any, will be received between 2023 and 2025.

In May 2019, the Company announced its plans to divest of its ownership interest in certain gas gathering and processing assets operated by a third party. The Company expects this divestiture process to be completed before the end of 2019, although no assurance can be given that this divestiture will be completed in accordance with the Company's plans or on terms and at a price that is acceptable to the Company.

In April 2019, the Company adopted a voluntary separation program (“VSP”) for certain eligible employees. Eligible employees who voluntarily choose to participate in the program will receive certain severance and related benefits above the Company's customary involuntary termination benefits. The Company plans to further reduce its headcount levels during the second quarter of 2019 with an involuntary separation program. Based on initial estimates, the Company expects to recognize between $140 million and $180 million of severance and related benefit costs associated with the voluntary and involuntary programs during the second quarter of 2019, of which approximately 25 percent is expected to be noncash charges related to the accelerated vesting of certain equity awards.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial and Operating Performance

The Company's financial and operating performance for the three months ended March 31, 2019 included the following highlights:


•	Net income attributable to common stockholders for the three months ended March 31, 2019 was $350 million ($2.06 per diluted share), as compared to net income of $178 million ($1.04 per diluted share) for the same period in 2018. The primary components of the increase in net income attributable to common stockholders include:


•	a $195 million decrease in derivative net losses, primarily as a result of changes in forward commodity prices and the cash settlement of derivative positions in accordance with their terms;


•	a $173 million increase in interest and other income, primarily due to a $174 million noncash fair value adjustment gain attributable to the 16.6 million shares of ProPetro Holding Corp. ("ProPetro") common stock owned by the Company;


•	a $136 million increase in net sales of purchased oil and gas, primarily due to favorable downstream oil margins on the Company's Gulf Coast refinery and export sales; and


•	a $15 million decrease in exploration and abandonment expense, primarily due to reductions in geological and geophysical costs and abandoned well costs;

partially offset by:


•	a $131 million decrease in oil and gas revenues primarily due to a 16 percent decrease in average realized commodity prices per BOE, partially offset by a seven percent increase in daily sales volumes;

•

a $90 million increase in other expense, primarily due to inventory and other property and other equipment impairment charges of $32 million associated with the Company's decommissioning of the Brady, Texas sand mine and pumping services asset sale, accelerated depreciation of $23 million related to the decommissioning of the Company's Brady, Texas sand mine and corporate restructuring-related charges of $13 million to align the organization with the needs of a Permian Basin-focused company;


•	a $64 million increase in DD&A expense, primarily due to declines in commodity prices, which led to reductions in proved reserves as a result of shortening the economic productive lives of the Company's producing wells; and


•	a $53 million increase in the Company's income tax provision as a result of the improvements in earnings during the three months ended March 31, 2019, as compared to the same period in 2018.


•	During the three months ended March 31, 2019, average daily sales volumes increased by seven percent to 333,430 BOEPD, as compared to 311,845 BOEPD during the same period in 2018, primarily due to the Company's successful Spraberry/Wolfcamp horizontal drilling program, which more than offset the loss of production associated with the Company's 2018 divestitures.


•	Average oil, NGL and gas prices decreased per Bbl (for oil and NGL) and Mcf (for gas) during the three months ended March 31, 2019 to $49.38, $22.79 and $2.50, respectively, as compared to $61.64, $27.74 and $2.59, respectively, for the same period in 2018.

•

Net cash provided by operating activities increased by nine percent to $604 million for the three months ended March 31, 2019, as compared to $555 million for the same period in 2018, primarily due to an increase of (i) $136 million in net sales of purchased oil and gas, primarily due to favorable downstream oil margins on the Company's Gulf Coast refinery and export sales and (ii) $76 million of incremental cash available from commodity derivative activity, partially offset by decreases in the Company's oil and gas revenues in 2019 as a result of decreases in commodity prices.


•	As of March 31, 2019 and December 31, 2018, the Company's net debt to book capitalization was 10 percent and seven percent, respectively.

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Second Quarter 2019 Outlook

The Company is only providing Permian Basin specific estimates for production, production costs and DD&A expense for the three months ending June 30, 2019. All other operating and financial results for the three months ending June 30, 2019 provided below reflect the expected results of the total Company. The Company completed the sale of its Eagle Ford and other South Texas assets in early May 2019; consequently, the results of operations for these assets will be included in the Company's consolidated financial results through April 2019.



	Three Months Ending June 30, 2019
	Guidance
	($ in millions, except per BOE amounts)
Permian Basin Specific Guidance:
Average daily production (MBOE)	313 - 328
Average daily oil production (MBbl)	198 - 208
Production costs per BOE	$8.50 - $10.50
DD&A per BOE	$13.00 - $15.00
Total Company Guidance:
Exploration and abandonments expense	$20 - $30
General and administrative expense	$93 - $98
Accretion of discount on asset retirement obligations	$3 - $6
Interest expense	$28 - $33
Other expense	$25 - $35
Cash flow uplift from firm transportation	$50 - $110
Current income tax provision	< $5
Effective tax rate	21% - 25%

Operations and Drilling Highlights

Average daily oil, NGL and gas sales volumes by significant asset area are as follows:



	Three Months Ended March 31, 2019
	Permian Basin	Total Company
Oil (Bbls)	202,538	206,256
NGL (Bbls)	63,277	67,070
Gas (Mcf)	322,986	360,620
Total (BOE)	319,646	333,430

The Company's liquids production increased to 82 percent of total production on a BOE basis for the three months ended March 31, 2019, as compared to 80 percent for the same period last year.

Costs incurred by significant asset area are as follows:



	Three Months Ended March 31, 2019
	Permian Basin		Total Company
	(in millions)
Unproved property acquisitions costs	$	11	$	11
Exploration costs	659		663
Development costs	238		239
Total	$	908	$	913

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Development drilling activity by significant asset area is as follows:



	Three Months Ended March 31, 2019
	Permian Basin		Total Company
Beginning wells in progress	16		16
Wells spud	9		9
Successful wells	(9	)	(9	)
Ending wells in progress	16		16

Exploration/extension drilling activity by significant asset area is as follows:



	Three Months Ended March 31, 2019
	Permian Basin		Total Company
Beginning wells in progress	163		166
Wells spud	92		92
Successful wells	(64	)	(64	)
Ending wells in progress	191		194

Permian Basin area. The Company is currently operating 22 rigs in the Spraberry/Wolfcamp field, with 17 rigs operating in the northern portion of the play and 5 rigs operating in the southern portion of the play.

During the three months ended March 31, 2019, the Company successfully completed 60 horizontal wells in the northern portion of the play and 13 horizontal wells in the southern portion of the play. In the northern portion of the play, approximately 50 percent of the horizontal wells placed on production were Wolfcamp A interval wells, approximately 30 percent were Wolfcamp B interval wells and the remaining 20 percent were primarily Spraberry interval wells. In the southern portion of the play, 100 percent of the horizontal wells placed on production were Wolfcamp B interval wells.

The Company expects to place on production in 2019 between 265 and 290 horizontal wells. Approximately 45 percent of the horizontal wells are planned to be drilled in the Wolfcamp B interval, 35 percent of the horizontal wells are planned to be drilled in the Wolfcamp A interval and the remaining 20 percent will be a combination of wells in the Spraberry intervals and a limited appraisal program for the Wolfcamp D interval.

Results of Operations

Oil and gas revenues. Oil and gas revenues totaled $1.1 billion for the three months ended March 31, 2019, as compared to $1.3 billion for the same period in 2018. The decrease in oil and gas revenues during the three months ended March 31, 2019, as compared to the same period in 2018, is primarily due to decreases of 20 percent, 18 percent and three percent in oil, NGL and gas prices, respectively, and a decrease of five percent in gas sales volumes, partially offset by increases of 13 percent and one percent in daily oil and NGL sales volumes, respectively.

Average daily BOE sales volumes increased by seven percent for the three months ended March 31, 2019, as compared to the same period in 2018, principally due to the Company's successful Spraberry/Wolfcamp horizontal drilling program, which more than offset the loss of production associated with the Company's 2018 divestitures.

Average daily sales volumes are as follows:



	Three Months Ended March 31,
	2019	2018
Oil (Bbls)	206,256	182,519
NGL (Bbls)	67,070	66,181
Gas (Mcf)	360,620	378,869
Total (BOEs)	333,430	311,845

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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,
	2019		2018
Oil per Bbl	$	49.38	$	61.64
NGL per Bbl	$	22.79	$	27.74
Gas per Mcf	$	2.50	$	2.59
Total per BOE	$	37.84	$	45.11

Sales of purchased oil and gas. The Company enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to (i) diversify a portion of the Company's WTI oil sales to the Gulf Coast refinery or international export markets and (ii) satisfy unused pipeline capacity commitments. Revenues and expenses from these transactions are presented on a gross basis as the Company acts as a principal in the transaction by assuming both the risk and rewards of ownership, including credit risk, of the commodities purchased and the responsibility to deliver the commodities sold. The transportation costs associated with these transactions are presented as a component of purchased oil and gas expense. The net effect of third party purchases and sales of oil and gas for the three months ended March 31, 2019 was income of $152 million, as compared to income of $16 million for the same period in 2018. Firm transportation payments on excess pipeline capacity commitments that are not able to be mitigated through purchase and sale transactions are included in other expense in the consolidated statements of operations. See Note 15 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.

Interest and other income. The Company's interest and other income for the three months ended March 31, 2019 was $191 million , as compared to $18 million for the same period in 2018. The increase in interest and other income during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to a noncash gain of $174 million as a result of the fair value adjustment on the 16.6 million shares of ProPetro's common stock that the Company owns. See Note 14 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.

Derivative loss, net. The Company utilizes commodity swap contracts, option 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 annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. During the three months ended March 31, 2019, the Company recorded a $13 million net derivative loss on commodity price derivatives, which included $4 million of net cash receipts. During the three months ended March 31, 2018, the Company recorded a $208 million net derivative loss on commodity price and marketing derivatives, of which $72 million represented net cash payments.

Commodity derivatives and the relative price impact (per Bbl or Mcf) are as follows:



	Three Months Ended March 31, 2019
	Net cash receipts (payments)			Price impact
	(in millions)
Oil derivative receipts	$	12		$	0.68		per Bbl
Gas derivative payments	(8		)	$	(0.26	)	per Mcf
Total net commodity derivative receipts	$	4



	Three Months Ended March 31, 2018
	Net cash receipts (payments)			Price impact
	(in millions)
Oil derivative payments	$	(74	)	$	(4.49	)	per Bbl
NGL derivative receipts	—			$	0.08		per Bbl
Gas derivative receipts	2			$	0.05		per Mcf
Total net commodity derivative payments	$	(72	)

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The Company's open derivative contracts are subject to continuing market risk. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.

Gain (loss) on disposition of assets, net. The Company recorded a net loss on the disposition of assets of $9 million for the three months ended March 31, 2019, as compared to a net gain of $4 million for the same period in 2018. The net loss on the disposition of assets for the three months ended March 31, 2019 is primarily related to post-closing adjustments that were recorded associated with the Company's December 2018 sale of its pressure pumping assets.

Oil and gas production costs. The Company recognized oil and gas production costs of $221 million during the three months ended March 31, 2019, as compared to $213 million during the same period in 2018. Lease operating expenses and workover expenses represent the components of oil and gas production costs over which the Company has management control. Gathering, processing and transportation charges represent the cost to gather, process, transport and fractionate the Company's gas and NGL. Net natural gas plant income represents the net revenues attributable to the Company's ownership interest in third party operated gathering and processing facilities.

Total production costs per BOE are as follows:



	Three Months Ended March 31,
	2019			2018
Lease operating expenses	$	5.12		$	4.41
Gathering, processing and transportation charges	2.33			2.47
Net natural gas plant income	(0.96		)	(0.10		)
Workover costs	0.87			0.82
	$	7.36		$	7.60

Total oil and gas production costs per BOE for the three months ended March 31, 2019 decreased by three percent, as compared to the same period in 2018. Lease operating expenses per BOE increased during the three months ended March 31, 2019, as compared to the same period in 2018, primarily due to increased maintenance on the Company's vertical wells. Gathering, processing and transportation charges include field gathering and gas processing costs and transportation and fractionation costs paid to third parties to transport and fractionate the Company's NGL production and transport the Company's gas production so such production can be sold. The change in net natural gas plant income per BOE for the three months ended March 31, 2019, as compared to the same period in 2018, is primarily reflective of changes in net revenues earned from the Company's ownership interest in third party operated gathering and processing facilities.

Production and ad valorem taxes. The Company's production and ad valorem taxes were $68 million during the three months ended March 31, 2019, as compared to $76 million for the same period in 2018. 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. The decrease in production and ad valorem taxes per BOE for the three months ended March 31, 2019, as compared to the same period in 2018, is primarily due to the decrease in oil, NGL and gas prices during 2019.

Production and ad valorem taxes per BOE are as follows:



	Three Months Ended March 31,
	2019		2018
Production taxes	$	1.70	$	2.01
Ad valorem taxes	0.56		0.69
	$	2.26	$	2.70

Depletion, depreciation and amortization expense. The Company's DD&A expense was $421 million ($14.01 per BOE) for the three months ended March 31, 2019, as compared to $357 million ($12.72 per BOE) for the same period in 2018. Depletion

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expense on oil and gas properties was $13.20 per BOE during the three months ended March 31, 2019, as compared to $12.32 per BOE during the same period in 2018.

Depletion expense on oil and gas properties per BOE for the three months ended March 31, 2019 increased by seven percent, as compared to the same period in 2018, primarily due to declines in commodity prices, which led to reductions in proved reserves as a result of shortening the economic productive lives of the Company's producing wells.

Exploration and abandonments expense. Geological and geophysical costs, exploratory dry holes expenses and lease abandonments and other exploration expenses are as follows:



	Three Months Ended March 31,
	2019		2018
	(in millions)
Geological and geophysical	$	20	$	28
Exploratory well costs	—		4
Leasehold abandonments and other	—		3
	$	20	$	35

The geological and geophysical expenses for the three months ended March 31, 2019 and 2018 were primarily related to geological and geophysical personnel costs.

During the three months ended March 31, 2019, the Company drilled and evaluated 64 exploration/extension wells, all of which were successfully completed as discoveries. During the same period in 2018, the Company drilled and evaluated 67 exploration/extension wells, 65 of which were successfully completed as discoveries.

General and administrative expense. General and administrative expense for the three months ended March 31, 2019 was $94 million ($3.14 per BOE) as compared to $90 million ($3.22 per BOE) for the same period in 2018. The increase in general and administrative costs during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to an increase in costs associated with information technology subscription-based software.

During the three months ended March 31, 2019, the Company initiated a review of its overall headcount and cost structure in order to better align the organization around its Permian Basin assets. This review resulted in the notification to certain officers of the Company's planned changes to its leadership and organizational structure to align its cost structure with the needs of a Permian Basin-focused company. The Company plans to further reduce its headcount levels during the second quarter of 2019 with a voluntary and involuntary separation program. Based on initial estimates, the Company expects to recognize between $140 million and $180 million of severance related benefit costs associated with the voluntary and involuntary programs during the second quarter of 2019, of which approximately 25 percent is expected to be noncash charges related to the accelerated vesting of certain equity awards. In addition to headcount adjustments, the Company is implementing other cost reduction initiatives to further reduce general and administrative costs.

Accretion of discount on asset retirement obligations. Accretion of discount on asset retirement obligations was $3 million and for the three months ended March 31, 2019, as compared to $4 million for the same period in 2018. See Note 9 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.

Interest expense. Interest expense was $29 million for the three months ended March 31, 2019, as compared to $36 million for the same period in 2018. The decrease in interest expense during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to the repayment of the Company's 6.875% Senior Notes, which matured in May 2018. The weighted average interest rate on the Company's indebtedness for the three months ended March 31, 2019 was 5.3 percent, as compared to 5.6 percent for the same period in 2018. See Note 7 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.

Other expense. Other expense was $147 million for the three months ended March 31, 2019, as compared to $57 million for the same period in 2018. The increase in other expense during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to inventory and other property and other equipment impairment charges of $32 million associated with the Company's decommissioning of the Brady, Texas sand mine and pumping services asset sale, accelerated depreciation of $23 million related to the decommissioning of the Company's Brady, Texas sand mine and corporate restructuring-related charges of $13 million as part of the Company's initiative to align the organization with the needs of a Permian Basin-focused company. See Note 3 and Note 15 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.

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Income tax provision. The Company recognized an income tax provision of $103 million for the three months ended March 31, 2019, as compared to an income tax provision of $50 million for the same period in 2018. The Company's effective tax rate for the three months ended March 31, 2019 was 23 percent, as compared to 22 percent for the same period in 2018. See Note 16 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 short-term and long-term investments, (iv) proceeds from planned divestitures, (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.

The Company's primary needs for cash are for (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 cash needs 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 2019 capital expenditures and dividend payments and provide adequate liquidity to fund other needs, including stock repurchases, no assurance can be given that such funding sources will be adequate to meet the Company's future needs.

2019 capital budget. The Company's total Permian capital budget for 2019 is expected to be in the range of $3.1 billion to $3.4 billion, consisting of $2.8 billion to $3.1 billion for drilling and completion related activities, including additional tank batteries and salt water disposal facilities, and $300 million for gas processing facilities, water infrastructure, well services and vehicles. The Company's total Permian capital expenditures for the three months ended March 31, 2019 were $928 million. The 2019 capital budget and actual capital expenditures exclude acquisitions, asset retirement obligations, capitalized interest, geological and geophysical general and administrative expense and corporate facilities.

Capital resources. Cash flows from operating, investing and financing activities are summarized below.

As of March 31, 2019, the Company had no outstanding borrowings under its Credit Facility, leaving $1.5 billion of unused borrowing capacity. The Company was in compliance with all of its debt covenants as of March 31, 2019. The Company also had cash on hand of $511 million, short-term investments of $792 million (including the Company's $347 million investment in an affiliate) and long-term investments of $11 million as of March 31, 2019.

Operating activities. Net cash provided by operating activities was $604 million for the three months ended March 31, 2019, as compared to $555 million during the same period in 2018. The increase in net cash flow provided by operating activities during the three months ended March 31, 2019, as compared to the same period in 2018, was primarily due to an increase of (i) $136 million in net sales of purchased oil and gas, primarily due to favorable downstream oil margins on the Company's Gulf Coast refinery and export sales and (ii) $76 million in incremental cash available from commodity derivatives, partially offset by decreases in the Company's oil and gas revenues in 2019 as a result of decreases in commodity prices.

Investing activities. Net cash used in investing activities during the three months ended March 31, 2019 was $695 million, as compared to $405 million during the same period in 2018. The increase of $290 million in net cash flow used in investing

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activities during the three months ended March 31, 2019, as compared to same period in 2018, is primarily due a decrease of $348 million in proceeds from sales of investments (commercial paper, corporate bonds and time deposits) net of investment purchases and an increase of $21 million in purchases of other assets, property and equipment, partially offset by a decrease of $77 million in additions to oil and gas properties. The Company's investing activities during the three months ended March 31, 2019 were primarily funded by net cash provided by operating activities.

Financing activities. Net cash used in financing activities during the three months ended March 31, 2019 was $223 million, as compared to $45 million during the same period in 2018. The increase in net cash used in financing activities during the three months ended March 31, 2019, as compared to the same period in 2018, is primarily due an increase of $177 million in repurchases of the Company's common stock.

Dividends/distributions. During February of 2019, the Company's board of directors declared a semiannual dividend of $0.32 per common share, as compared to a semiannual dividend of $0.16 per common share during February of 2018. In May 2019, the Company announced its intent to increase its dividend towards a one percent yield over time, subject to approval by the board of directors; however, 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 of the Company. As of March 31, 2019, the material off-balance sheet arrangements and transactions that the Company had entered into included (i) firm purchase, transportation 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. 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 and fractionation arrangements, in order to support the Company's business plans. See "Contractual obligations" below and Note 11 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, operating leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations, derivative obligations, firm transportation 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 purchase, transportation, fractionation, gathering and processing commitments represent take-or-pay agreements, which include (i) contractual commitments to purchase sand and water for use in the Company's drilling operations, (ii) estimated fees on production throughput commitments and demand fees associated with volume delivery commitments and (iii) contractual commitments for pressure pumping services. The Company does not expect to be able to fulfill all of its short-term and long-term volume delivery obligations from projected production of available reserves; consequently, the Company plans to purchase third party volumes to satisfy its commitments if it is economic to do so; otherwise, it will pay demand fees for any commitment shortfalls.

The Company's commodity derivative contracts are periodically measured and recorded at fair value and continue to be subject to market and credit risk. As of March 31, 2019, these contracts represented net assets of $8 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, 2019. 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."

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PIONEER NATURAL RESOURCES COMPANY



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 instruments. The following quantitative and qualitative information is provided about financial instruments to which the Company was a party as of March 31, 2019, 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 of March 31, 2019 the Company had no variable rate debt outstanding under its credit facility and therefore no related exposure to interest rate risk. As of March 31, 2019, the Company had $2.3 billion of fixed rate long-term debt outstanding with an weighted average interest rate of 5.3 percent. Although changes in interest rates may affect the fair value of the Company's fixed rate long-term debt, any changes would not expose the Company to the risk of earnings or cash flow losses. The Company has no interest rate derivative instruments outstanding; 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 in the price it receives from the sale of its oil, NGL 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 various index prices. Reducing the Company's exposure to price volatility helps secure funds to be used in its capital program. 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 if it is anticipated that the commodity price forecast is expected to improve. Such proceeds can be used for the purpose of funding the Company's capital program or for general working capital needs. 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 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 derivative contracts for only a small portion of its forecasted 2019 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.

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PIONEER NATURAL RESOURCES COMPANY

The average forward prices based on March 31, 2019 market quotes are as follows:



	2019
	Second Quarter			Third Quarter			Fourth Quarter
Average forward Brent oil price per Bbl	$	67.24		$	66.52		$	65.96
Average forward NYMEX gas price per MMBtu	$	2.69		$	2.79		$	2.90
Permian Basin gas index swap contracts:
Average forward basis differential price per MMBtu (a)	$	(2.37	)	$	(1.68	)	$	—
Southern California gas index swap contracts:
Average forward basis differential price per MMBtu (b)	$	1.65		$	1.80		$	0.87

The average forward prices based on May 6, 2019 market quotes are as follows:



	2019
	Second Quarter			Third Quarter			Fourth Quarter
Average forward Brent oil price per Bbl	$	70.81		$	69.16		$	67.92
Average forward NYMEX gas price per MMBtu	$	2.52		$	2.57		$	2.72
Permian Basin gas index swap contracts:
Average forward basis differential price per MMBtu (a)	$	(2.32	)	$	(1.73	)	$	—
Southern California gas index swap contracts:
Average forward basis differential price per MMBtu (b)	$	1.85		$	2.12		$	0.78

___________________


(a)	Based on market quotes for basis differentials between Permian Basin index prices and the NYMEX Henry Hub index prices. The Company currently has no Permian Basin index swap contracts covering the fourth quarter of 2019.


(b)	Based on market quotes for basis differentials between Permian Basin index prices and southern California index prices.

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.

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.

The Company's oil and gas is sold to various purchasers who must be prequalified under the Company's credit risk policies 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 or other credit support. Historically, the Company's credit losses on oil and gas receivables have not been material.

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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PIONEER NATURAL RESOURCES COMPANY



ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. The Company's management, with the participation of its principal executive officer and principal financial officer, have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report). Based on that evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective, as of the end of the period covered by this Report, in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including that such information is accumulated and communicated to the Company's management, including the principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2019 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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PIONEER NATURAL RESOURCES COMPANY

PART II. OTHER INFORMATION



ITEM 1.	LEGAL PROCEEDINGS

The Company is party to various proceedings and claims incidental to its business. While many of these matters involve inherent uncertainty, the Company believes that the amount of the liability, if any, ultimately incurred with respect to these proceedings and claims will not have a material adverse effect on the Company's consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations.



ITEM 1A.	RISK FACTORS

In addition to the information set forth in this report, the risks that are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, under the headings "Part I, Item 1. Business – Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" should be carefully considered, as such risks could materially affect the Company's business, financial condition or future results. There has been no material change in the Company's risk factors from those described in the Company's 2018 Annual Report on Form 10-K.

These risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may have a material adverse effect on the Company's business, financial condition or future results.



ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Purchases of the Company's common stock are as follows:



	Three Months Ended March 31, 2019
Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs	Approximate Dollar Amount of Shares that May Yet Be Purchased under Plans or Programs (b)
January 2019	1,374,057	$	139.32	1,335,176	$	1,686,232,673
February 2019	219,849	$	139.72	101,357	$	1,672,358,339
March 2019	143	$	139.29	—	$	1,672,358,339
	1,594,049			1,436,533

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(a)	Includes shares purchased from employees in order for employees to satisfy income tax withholding payments related to share-based awards that vested during the period.


(b)	In December 2018, the Company's board of directors authorized a $2 billion common stock repurchase program.



ITEM 4.	MINE SAFETY DISCLOSURES

The Company's sand mines are subject to regulation by the Federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006. Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Report.

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PIONEER NATURAL RESOURCES COMPANY



ITEM 6.	EXHIBITS

Exhibits



Exhibit Number		Description

10.1 (a)		Amendment No. 7 to the Company's Amended and Restated Executive Deferred Compensation Plan, executed March 5, 2019.

10.2 (a)		Indemnification Agreement, dated effective March 21, 2016, between the Company and Craig A. Kuiper, together a schedule identifying other substantially identical agreements between the Company and the executive officers identified on the schedule and identifying the material differences between each of those agreements and the filed Indemnification Agreement.

10.3 (a)		Change in Control Agreement, dated February 21, 2019, between the Company and Scott D. Sheffield, together with a schedule identifying other substantially identical agreements between the Company and the executive officers identified on the schedule and identifying the material differences between each of those agreements and the filed Change in Control Agreement.

10.4 (a)		Severance Agreement, dated February 21, 2019, between the Company and Scott D. Sheffield.

31.1 (a)		Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.

31.2 (a)		Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.

32.1 (a)		Chief Executive Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

32.2 (a)		Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

95.1 (a)		Mine Safety Disclosures.

101.INS (a)		XBRL Instance Document.

101.SCH (a)		XBRL Taxonomy Extension Schema.

101.CAL (a)		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF (a)		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB (a)		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE (a)		XBRL Taxonomy Extension Presentation Linkbase Document.

____________________


(a)	Filed herewith.


(b)	Furnished herewith.

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PIONEER NATURAL RESOURCES COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereto duly authorized.



	PIONEER NATURAL RESOURCES COMPANY

May 9, 2019	By:	/s/ Richard P. Dealy
		Richard P. Dealy
		Executive Vice President and Chief Financial Officer

May 9, 2019	By:	/s/ Margaret M. Montemayor
		Margaret M. Montemayor
		Vice President and Chief Accounting Officer