|
|
|
|
|
|
|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
December 31,
2020
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
93
|
|
|
$
|
1,442
|
|
|
Restricted cash
|
49
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
1,670
|
|
|
695
|
|
|
|
|
|
|
|
Income taxes receivable
|
1
|
|
|
4
|
|
|
Inventories
|
350
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
4
|
|
|
5
|
|
|
Investment in affiliate
|
152
|
|
|
123
|
|
|
Other
|
40
|
|
|
43
|
|
|
Total current assets
|
2,359
|
|
|
2,595
|
|
|
Oil and gas properties, using the successful efforts method of accounting:
|
|
|
|
|
Proved properties
|
34,572
|
|
|
23,934
|
|
|
Unproved properties
|
8,511
|
|
|
576
|
|
|
Accumulated depletion, depreciation and amortization
|
(11,154)
|
|
|
(10,071)
|
|
|
Total oil and gas properties, net
|
31,929
|
|
|
14,439
|
|
|
Other property and equipment, net
|
1,731
|
|
|
1,584
|
|
|
Operating lease right-of-use assets
|
346
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
261
|
|
|
261
|
|
|
Derivatives
|
2
|
|
|
3
|
|
|
Other assets
|
156
|
|
|
150
|
|
|
|
$
|
36,784
|
|
|
$
|
19,229
|
|
The financial information included as of June 30, 2021 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(in millions, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31,
2020
|
|
|
(Unaudited)
|
|
|
|
LIABILITIES AND EQUITY
|
|
Current liabilities:
|
|
|
|
|
Accounts payable:
|
|
|
|
|
Trade
|
$
|
2,293
|
|
|
$
|
928
|
|
|
Due to affiliates
|
158
|
|
|
102
|
|
|
Interest payable
|
52
|
|
|
35
|
|
|
Income taxes payable
|
18
|
|
|
4
|
|
|
Current portion of long-term debt
|
—
|
|
|
140
|
|
|
|
|
|
|
|
Derivatives
|
1,170
|
|
|
234
|
|
|
Operating leases
|
123
|
|
|
100
|
|
|
Other
|
459
|
|
|
363
|
|
|
Total current liabilities
|
4,273
|
|
|
1,906
|
|
|
Long-term debt
|
6,926
|
|
|
3,160
|
|
|
Derivatives
|
155
|
|
|
66
|
|
|
Deferred income taxes
|
1,541
|
|
|
1,366
|
|
|
Operating leases
|
238
|
|
|
110
|
|
|
Other liabilities
|
1,013
|
|
|
1,052
|
|
|
Equity:
|
|
|
|
|
Common stock, $0.01 par value; 500,000,000 shares authorized; 243,971,771 and 175,525,268 shares issued as of June 30, 2021 and December 31, 2020, respectively
|
2
|
|
|
2
|
|
|
Additional paid-in capital
|
19,088
|
|
|
9,323
|
|
|
Treasury stock at cost: 12,726 and 11,047,856 shares as of June 30, 2021 and December 31, 2020, respectively
|
(2)
|
|
|
(1,234)
|
|
|
Retained earnings
|
3,550
|
|
|
3,478
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
22,638
|
|
|
11,569
|
|
|
Commitments and contingencies
|
|
|
|
|
|
$
|
36,784
|
|
|
$
|
19,229
|
|
The financial information included as of June 30, 2021 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2021
|
|
Revised 2020
|
|
2021
|
|
Revised 2020
|
|
Revenues and other income:
|
|
|
|
|
|
|
|
|
Oil and gas
|
$
|
2,682
|
|
|
$
|
600
|
|
|
$
|
4,505
|
|
|
$
|
1,695
|
|
|
Sales of purchased commodities
|
1,587
|
|
|
541
|
|
|
2,828
|
|
|
1,456
|
|
|
Interest and other income (loss), net
|
(20)
|
|
|
48
|
|
|
40
|
|
|
(158)
|
|
|
Derivative gain (loss), net
|
(832)
|
|
|
(356)
|
|
|
(1,523)
|
|
|
100
|
|
|
Gain on disposition of assets, net
|
2
|
|
|
6
|
|
|
13
|
|
|
6
|
|
|
|
3,419
|
|
|
839
|
|
|
5,863
|
|
|
3,099
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Oil and gas production
|
316
|
|
|
167
|
|
|
568
|
|
|
343
|
|
|
Production and ad valorem taxes
|
153
|
|
|
47
|
|
|
266
|
|
|
120
|
|
|
Depletion, depreciation and amortization
|
648
|
|
|
416
|
|
|
1,121
|
|
|
850
|
|
|
Purchased commodities
|
1,627
|
|
|
572
|
|
|
2,882
|
|
|
1,600
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and abandonments
|
10
|
|
|
10
|
|
|
29
|
|
|
19
|
|
|
General and administrative
|
75
|
|
|
60
|
|
|
143
|
|
|
116
|
|
|
Accretion of discount on asset retirement obligations
|
2
|
|
|
2
|
|
|
3
|
|
|
5
|
|
|
Interest
|
41
|
|
|
33
|
|
|
81
|
|
|
60
|
|
|
Other
|
47
|
|
|
90
|
|
|
351
|
|
|
175
|
|
|
|
2,919
|
|
|
1,397
|
|
|
5,444
|
|
|
3,288
|
|
|
Income (loss) before income taxes
|
500
|
|
|
(558)
|
|
|
419
|
|
|
(189)
|
|
|
Income tax benefit (provision)
|
(120)
|
|
|
109
|
|
|
(109)
|
|
|
31
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
380
|
|
|
$
|
(449)
|
|
|
$
|
310
|
|
|
$
|
(158)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.62
|
|
|
$
|
(2.73)
|
|
|
$
|
1.39
|
|
|
$
|
(0.96)
|
|
|
Diluted
|
$
|
1.54
|
|
|
$
|
(2.73)
|
|
|
$
|
1.33
|
|
|
$
|
(0.96)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
234
|
|
|
165
|
|
|
222
|
|
|
165
|
|
|
Diluted
|
247
|
|
|
165
|
|
|
235
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
$
|
0.56
|
|
|
$
|
0.55
|
|
|
$
|
1.12
|
|
|
$
|
1.10
|
|
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.
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
|
|
|
|
Total Equity
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
164,477
|
|
|
$
|
2
|
|
|
$
|
9,323
|
|
|
$
|
(1,234)
|
|
|
$
|
3,478
|
|
|
|
|
$
|
11,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.56 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(122)
|
|
|
|
|
(122)
|
|
|
Cumulative effect of accounting change on convertible senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component
|
—
|
|
|
—
|
|
|
(230)
|
|
|
—
|
|
|
28
|
|
|
|
|
(202)
|
|
|
Deferred tax component
|
—
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|
(6)
|
|
|
|
|
44
|
|
|
Exercise of long-term incentive stock options
|
55
|
|
|
—
|
|
|
(2)
|
|
|
8
|
|
|
—
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
(99)
|
|
|
—
|
|
|
—
|
|
|
(13)
|
|
|
—
|
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued or reissued for acquisition
|
51,655
|
|
|
—
|
|
|
5,644
|
|
|
1,238
|
|
|
—
|
|
|
|
|
6,882
|
|
|
Stock-based compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested compensation awards, net
|
623
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Compensation costs included in net loss
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
|
|
19
|
|
|
Compensation costs included in net loss associated with acquisition
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
|
|
33
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(70)
|
|
|
|
|
(70)
|
|
|
Balance as of March 31, 2021
|
216,711
|
|
|
2
|
|
|
14,837
|
|
|
(1)
|
|
|
3,308
|
|
|
|
|
18,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.56 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(138)
|
|
|
|
|
(138)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued or reissued for acquisition
|
27,187
|
|
|
—
|
|
|
4,234
|
|
|
—
|
|
|
—
|
|
|
|
|
4,234
|
|
|
Stock-based compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested compensation awards, net
|
63
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Compensation costs included in net income
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
380
|
|
|
|
|
380
|
|
|
Balance as of June 30, 2021
|
243,959
|
|
|
$
|
2
|
|
|
$
|
19,088
|
|
|
$
|
(2)
|
|
|
$
|
3,550
|
|
|
|
|
$
|
22,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(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
|
|
Revised Retained
Earnings
|
|
|
|
Total Equity
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
165,547
|
|
|
$
|
2
|
|
|
$
|
9,161
|
|
|
$
|
(1,069)
|
|
|
$
|
4,042
|
|
|
|
|
$
|
12,136
|
|
|
Dividends declared ($0.55 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(91)
|
|
|
|
|
(91)
|
|
|
Exercise of long-term incentive stock options
|
8
|
|
|
—
|
|
|
(1)
|
|
|
1
|
|
|
—
|
|
|
|
|
—
|
|
|
Purchases of treasury stock
|
(1,007)
|
|
|
—
|
|
|
—
|
|
|
(122)
|
|
|
—
|
|
|
|
|
(122)
|
|
|
Stock-based compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested compensation awards, net
|
316
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Compensation costs included in net income
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
|
|
16
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
291
|
|
|
|
|
291
|
|
|
Balance as of March 31, 2020
|
164,864
|
|
|
$
|
2
|
|
|
$
|
9,176
|
|
|
$
|
(1,190)
|
|
|
$
|
4,242
|
|
|
|
|
$
|
12,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.55 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(91)
|
|
|
|
|
(91)
|
|
|
Convertible senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component
|
—
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
—
|
|
|
|
|
230
|
|
|
Capped call
|
—
|
|
|
—
|
|
|
(113)
|
|
|
—
|
|
|
—
|
|
|
|
|
(113)
|
|
|
Deferred tax provision
|
—
|
|
|
—
|
|
|
(25)
|
|
|
—
|
|
|
—
|
|
|
|
|
(25)
|
|
|
Purchases of treasury stock
|
(592)
|
|
|
—
|
|
|
—
|
|
|
(50)
|
|
|
—
|
|
|
|
|
(50)
|
|
|
Stock-based compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued awards
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
Compensation costs included in net loss
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
|
|
17
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(449)
|
|
|
|
|
(449)
|
|
|
Balance as of June 30, 2020
|
164,276
|
|
|
$
|
2
|
|
|
$
|
9,285
|
|
|
$
|
(1,240)
|
|
|
$
|
3,702
|
|
|
|
|
11,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
Revised 2020
|
|
Cash flows from operating activities:
|
|
|
|
|
Net income (loss)
|
$
|
310
|
|
|
$
|
(158)
|
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
Depletion, depreciation and amortization
|
1,121
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses, including dry holes
|
3
|
|
|
3
|
|
|
Deferred income taxes
|
91
|
|
|
(20)
|
|
|
Gain on disposition of assets, net
|
(13)
|
|
|
(6)
|
|
|
Loss on early extinguishment of debt
|
2
|
|
|
27
|
|
|
Accretion of discount on asset retirement obligations
|
3
|
|
|
5
|
|
|
Interest expense
|
12
|
|
|
18
|
|
|
Derivative-related activity
|
632
|
|
|
69
|
|
|
Amortization of stock-based compensation
|
69
|
|
|
33
|
|
|
Investment in affiliate valuation adjustment
|
(29)
|
|
|
101
|
|
|
South Texas contingent consideration valuation adjustment
|
—
|
|
|
64
|
|
|
South Texas deficiency fee obligation
|
—
|
|
|
69
|
|
|
Other
|
81
|
|
|
65
|
|
|
Change in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
Accounts receivable
|
(593)
|
|
|
468
|
|
|
Inventories
|
(102)
|
|
|
34
|
|
|
Other assets
|
23
|
|
|
26
|
|
|
Accounts payable
|
560
|
|
|
(313)
|
|
|
Interest payable
|
(54)
|
|
|
(27)
|
|
|
Other liabilities
|
(273)
|
|
|
(154)
|
|
|
Net cash provided by operating activities
|
1,843
|
|
|
1,154
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Proceeds from disposition of assets
|
32
|
|
|
7
|
|
|
Cash used in acquisitions, net of cash acquired
|
(826)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to oil and gas properties
|
(1,193)
|
|
|
(1,034)
|
|
|
Additions to other assets and other property and equipment
|
(55)
|
|
|
(79)
|
|
|
Net cash used in investing activities
|
(2,042)
|
|
|
(1,106)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from issuance of senior notes, net of discount
|
3,247
|
|
|
—
|
|
|
Proceeds from issuance of convertible senior notes
|
—
|
|
|
1,323
|
|
|
Purchase of derivatives related to issuance of convertible senior notes
|
—
|
|
|
(113)
|
|
|
Borrowings under credit facility
|
650
|
|
|
800
|
|
|
Repayment of credit facilities
|
(1,287)
|
|
|
(800)
|
|
|
Repayment of senior notes, including tender offer premiums
|
(3,371)
|
|
|
(1,198)
|
|
|
Payments of other liabilities
|
(147)
|
|
|
(154)
|
|
|
Payments of financing fees
|
(31)
|
|
|
(26)
|
|
|
Purchases of treasury stock
|
(14)
|
|
|
(172)
|
|
|
Exercise of long-term incentive plan stock options
|
6
|
|
|
—
|
|
|
Dividends paid
|
(213)
|
|
|
(164)
|
|
|
Net cash used in financing activities
|
(1,160)
|
|
|
(504)
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
(1,359)
|
|
|
(456)
|
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
1,501
|
|
|
705
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
142
|
|
|
$
|
249
|
|
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.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(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 "NYSE"). The Company is a large independent oil and gas exploration and production company that explores for, develops and produces oil, natural gas liquids ("NGLs") and gas 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 June 30, 2021 and for the three and six months ended June 30, 2021 and 2020 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 and six months ended June 30, 2021 are not necessarily indicative of results for a 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, 2020.
Correction of previously issued financial statements. During the Company's review of its marketing contracts during the fourth quarter of 2020, the Company identified two long-term marketing contracts that should have been accounted for as derivative contracts. The contracts were entered in October 2019, each with a January 1, 2021 contract commencement date and a December 31, 2026 contract termination date. In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the misstatements and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to the Company's June 30, 2020 consolidated financial statements; however, the Company determined that the impact of the misstatement to its interim period ending September 30, 2020 was material. In accordance with Accounting Standards Codification 250, Accounting Changes and Error Corrections, the Company has corrected the immaterial misstatement for the three and six months ended June 30, 2020 by revising the consolidated financial statements appearing herein. The net impact of these immaterial noncash corrections to the Company's previously reported consolidated financial statements for the three and six months ended June 30, 2020 is shown below (in millions, except for per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
Adjustments
|
|
As Revised
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas revenues
|
$
|
600
|
|
|
$
|
1,695
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
600
|
|
|
$
|
1,695
|
|
|
|
|
|
|
Derivative gain (loss), net
|
$
|
(336)
|
|
|
$
|
117
|
|
|
|
|
$
|
(20)
|
|
|
$
|
(17)
|
|
|
|
|
$
|
(356)
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues and other income
|
$
|
859
|
|
|
$
|
3,116
|
|
|
|
|
$
|
(20)
|
|
|
$
|
(17)
|
|
|
|
|
$
|
839
|
|
|
$
|
3,099
|
|
|
|
|
|
|
Total costs and expenses
|
1,397
|
|
|
3,288
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
1,397
|
|
|
3,288
|
|
|
|
|
|
|
Loss before income taxes
|
(538)
|
|
|
(172)
|
|
|
|
|
(20)
|
|
|
(17)
|
|
|
|
|
(558)
|
|
|
(189)
|
|
|
|
|
|
|
Income tax benefit
|
99
|
|
|
22
|
|
|
|
|
10
|
|
|
9
|
|
|
|
|
109
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(439)
|
|
|
$
|
(150)
|
|
|
|
|
$
|
(10)
|
|
|
$
|
(8)
|
|
|
|
|
$
|
(449)
|
|
|
$
|
(158)
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common stockholders
|
$
|
(2.66)
|
|
|
$
|
(0.91)
|
|
|
|
|
$
|
(0.07)
|
|
|
$
|
(0.05)
|
|
|
|
|
$
|
(2.73)
|
|
|
$
|
(0.96)
|
|
|
|
|
|
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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of oil and gas properties is calculated using estimates of proved oil and gas reserves. There are numerous uncertainties inherent in the
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
estimation of quantities of proved reserves, the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of goodwill and proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of proved, probable and possible reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
Adoption of new accounting standards. In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06"). ASU 2020-06 simplifies the accounting for certain convertible instruments by removing the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. Additionally, ASU 2020-06 amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The if-converted method assumes the conversion of convertible instruments occurs at the beginning of the reporting period and diluted weighted average shares outstanding includes the common shares issuable upon conversion of the convertible instruments. The Company early adopted ASU 2020-06 on January 1, 2021.
Upon issuance of the Company's $1.3 billion principal amount of 0.25% convertible senior notes due 2025 (the "Convertible Notes") in May 2020, the Company bifurcated the debt and equity components of the Convertible Notes to long-term debt and additional paid-in capital in its consolidated balance sheet. The amount recorded to additional paid in capital represented a debt discount that was being amortized to interest expense over the life of the Convertible Notes. As part of the adoption of ASU 2020-06, the Company (i) reversed the debt discount and related deferred income tax liability recorded to additional paid-in capital of $230 million and $50 million, respectively, (ii) recorded a cumulative effect of the adoption of ASU 2020-06 of $22 million to retained earnings, representing a reversal of $28 million of the debt discount that was amortized to interest expense, net of an associated deferred income tax impact of $6 million, in 2020 and (iii) recorded the respective offsets for items (i) and (ii) above, representing the unamortized debt discount attributable to the Convertible Notes of $202 million to long-term debt and the associated deferred tax impact of $44 million to deferred income tax liabilities. See Note 7 for additional information.
Additionally, upon adoption of ASU 2020-06, the treasury stock method utilized by the Company to calculate earnings per share through December 31, 2020 will no longer be allowed. As such, the Company has transitioned to the if-converted method utilizing the modified retrospective approach, resulting in 12 million incremental shares being included in the Company's weighted-average diluted shares outstanding as of June 30, 2021. See Note 16 for additional information.
NOTE 3. Acquisitions and Divestitures
Acquisitions.
DoublePoint Acquisition. On May 4, 2021, the Company acquired Double Eagle III Midco 1 LLC ("DoublePoint") pursuant to a definitive membership interest purchase agreement to acquire DoublePoint dated April 1, 2021 (the "DoublePoint Acquisition") in exchange for 27 million shares of Pioneer common stock and $1 billion of cash. The Pioneer stock consideration transferred had a fair value of $4 billion.
Parsley Acquisition. On January 12, 2021, the Company acquired Parsley Energy, Inc., a Delaware corporation that previously traded on the NYSE under the symbol "PE" ("Parsley"), pursuant to the Agreement and Plan of Merger, dated as of October 20, 2020, among Pioneer, certain of its subsidiaries, Parsley and Parsley's subsidiary, Parsley Energy, LLC (the "Parsley Acquisition"). On the closing date of the Parsley Acquisition, Parsley merged into a newly formed wholly-owned subsidiary of the Company, and the subsidiaries of Parsley, including Jagged Peak Energy LLC ("Jagged Peak"), became indirect subsidiaries of the Company.
As part of the Parsley Acquisition, each eligible share of Parsley Class A common stock and each membership interest unit of Parsley Energy, LLC were automatically converted into the right to receive 0.1252 (the "Exchange Ratio") shares of Pioneer common stock. As a result, the Company issued 52 million shares of Pioneer common stock upon the consummation of the Parsley Acquisition, representing total stock consideration transferred of approximately $7 billion.
Both the Parsley Acquisition and the DoublePoint Acquisition were accounted for using the acquisition method under ASC Topic 805, Business Combinations, which requires all assets acquired and liabilities assumed to be recorded at fair value at the acquisition date. Provisional fair value measurements were made for acquired assets and liabilities, and adjustments to
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
those measurements may be made in subsequent periods (up to one year from the acquisition date) as information necessary to complete the fair value analysis is obtained.
The following table summarizes the provisional fair values assigned to assets acquired and liabilities assumed (presented in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parsley Acquisition
|
|
DoublePoint Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 12, 2021
|
|
As of May 4, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
|
|
|
|
|
|
$
|
118
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
252
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
8
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
|
|
|
|
|
5,110
|
|
|
3,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved properties
|
|
|
|
|
|
|
5,622
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other property and equipment
|
|
|
|
|
|
|
117
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
|
|
|
|
201
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
22
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
|
|
|
|
11,450
|
|
|
6,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
|
335
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payable
|
|
|
|
|
|
|
49
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
|
|
|
|
317
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
|
|
201
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
127
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
3,238
|
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
300
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
|
|
|
|
4,567
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
|
$
|
6,883
|
|
|
$
|
5,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________
(a)Cash used in the acquisition of Parsley and DoublePoint includes $1 billion of cash used to acquire DoublePoint and $2 million of cash used in the settlement of partial shares related to the conversion of Parsley Class A common stock at the Exchange Ratio.
The following unaudited pro forma summary presents the results of operations as if the Parsley Acquisition and DoublePoint Acquisition had occurred on January 1, 2020. The pro forma summary uses estimates and assumptions based on information available at the time. Management believes the estimates and assumptions to be reasonable; however, actual results may have differed significantly from this pro forma financial information. The pro forma information does not reflect any synergy savings that might have been achieved from combining the operations and is not intended to reflect the actual results that would have occurred had the companies actually been combined during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other income
|
|
|
|
|
|
$
|
3,465
|
|
|
$
|
751
|
|
|
$
|
5,911
|
|
|
$
|
4,629
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
$
|
394
|
|
|
$
|
(909)
|
|
|
$
|
165
|
|
|
$
|
(3,830)
|
|
|
|
|
|
|
|
|
|
|
|
Divestitures.
•In March 2021, the Company sold its well services business to a third party for (i) net cash proceeds of $20 million and (ii) up to $4 million of additional cash proceeds to be earned over the next three years. The Company recorded a gain on sale of $9 million, which is reflected in net gain on disposition of assets in the consolidated statements of operations for the six months ended June 30, 2021.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
•In May 2020, the Company completed the sale of certain vertical wells and approximately 1,500 undeveloped acres in Upton County of the Permian Basin to an unaffiliated third party for net cash proceeds of $6 million. The Company recorded a gain of $6 million associated with the sale which is reflected in net gain on disposition of assets in the consolidated statements of operations for the six months ended June 30, 2020.
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
|
Fair Value Measurement
|
|
|
|
|
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Commodity price derivatives
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
Deferred compensation plan assets
|
72
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
Investment in affiliate
|
152
|
|
|
—
|
|
|
—
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
224
|
|
|
6
|
|
|
—
|
|
|
230
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Commodity price derivatives
|
—
|
|
|
1,230
|
|
|
—
|
|
|
1,230
|
|
|
Marketing derivatives
|
—
|
|
|
—
|
|
|
95
|
|
|
95
|
|
Total liabilities
|
—
|
|
|
1,230
|
|
|
95
|
|
|
1,325
|
|
|
Total recurring fair value measurements
|
$
|
224
|
|
|
$
|
(1,224)
|
|
|
$
|
(95)
|
|
|
$
|
(1,095)
|
|
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
Fair Value Measurement
|
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Commodity price derivatives
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
Deferred compensation plan assets
|
72
|
|
|
—
|
|
|
—
|
|
|
72
|
|
|
Investment in affiliate
|
123
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
Total assets
|
195
|
|
|
8
|
|
|
—
|
|
|
203
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Commodity price derivatives
|
—
|
|
|
209
|
|
|
—
|
|
|
209
|
|
|
Marketing derivatives
|
—
|
|
|
—
|
|
|
91
|
|
|
91
|
|
|
Total liabilities
|
—
|
|
|
209
|
|
|
91
|
|
|
300
|
|
|
Total recurring fair value measurements
|
$
|
195
|
|
|
$
|
(201)
|
|
|
$
|
(91)
|
|
|
$
|
(97)
|
|
Commodity price derivatives. The Company's commodity price derivatives represent oil, NGL and gas swap contracts, collar contracts, collar contracts with short puts, option contracts and basis swap contracts. The asset and liability measurements for the Company's commodity price derivative contracts are determined using Level 2 inputs. The Company utilizes discounted cash flow and option-pricing models for valuing its commodity price derivatives.
The asset and liability values attributable to the Company's commodity price 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, collar contracts with short puts and option contracts, which is based on active and independent market-quoted volatility factors.
Marketing derivatives. Under the contract terms of the marketing derivatives, the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day at an oil terminal in Midland, Texas for a six-year term that ends on December 31, 2026. The price the Company pays to purchase the oil volumes under the purchase contract is based on a Midland West Texas Intermediate ("WTI") price and the price the Company receives for the oil volumes sold is a weighted average sales price ("WASP") that the non-affiliated counterparty receives for selling oil through their Gulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. Based on the form of the marketing contracts, the Company determined that the marketing contracts should be accounted for as derivative instruments not designated as hedges. The asset and liability measurements for the Company's marketing derivative contracts are determined using both Level 2 and 3 inputs. The Company utilizes a discounted cash flow model for valuing its marketing derivatives.
The asset and liability values attributable to the Company's marketing derivatives were determined based on Level 2 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) stated contractual rates. The Level 3 inputs attributable to the Company's marketing derivatives include the historical monthly differential between Brent oil prices and the corresponding WASP of the counterparty to the marketing derivatives ("WASP Differential Deduction") and, to a lesser extent, an estimated annual cost inflation rate. The average WASP Differential Deduction used in the fair value determination as of June 30, 2021 and 2020 was $2.01 and $1.93 per barrel, respectively. The WASP Differential Deduction and the estimated annual cost inflation rate reflects management's best estimate of future results utilizing historical performance, but these estimates are not observable inputs by a market participant and contain a high degree of uncertainty. The Company could experience significant mark-to-market fluctuations in the fair value of its marketing derivatives based on changes in the WASP Differential Deduction if it deviates from historical levels. For example, a 10 percent increase or decrease in the WASP Differential Deduction would impact the fair value of the Company's marketing derivatives recorded by approximately $20 million as of June 30, 2021.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Deferred compensation plan assets. The Company's deferred compensation plan assets include investments in equity and mutual fund securities that are actively traded on major exchanges. The fair value of these investments is determined using Level 1 inputs based on observable prices on major exchanges.
Investment in affiliate. The Company elected the fair value option for measuring its equity method investment in ProPetro Holding Corp. ("ProPetro"). The fair value of its investment in ProPetro is determined using Level 1 inputs based on observable prices on a major exchange. See Note 11 and Note 13 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, goodwill and other long-lived assets that are written down to fair value when they are impaired or held for sale.
Parsley Acquisition and DoublePoint Acquisition. Both the Parsley Acquisition and DoublePoint Acquisition were accounted for using the acquisition method under ASC Topic 805, "Business Combinations", which requires all assets acquired and liabilities assumed in the acquisitions to be recorded at fair values at the acquisition date of each transaction. Oil and gas properties were valued based on income and market based approaches utilizing Level 3 inputs including internally generated development and production profiles and price and cost assumptions. Debt assumed in the acquisitions was valued based on Level 2 inputs that included using observable market prices to determine fair value. Net derivative liabilities assumed in the acquisitions were valued based on Level 2 inputs similar to the Company's other commodity price derivatives. See Note 3 for additional information.
South Texas Divestiture. The Company recorded a deficiency fee obligation and related deficiency fee receivable in conjunction with its 2019 divestiture of its South Texas assets (the "South Texas Divestiture"). The fair value of the deficiency fee obligation and deficiency fee receivable was determined using Level 3 inputs based on a probability-weighted forecast that considers historical results, market conditions and various development plans to arrive at the estimated present value of the deficiency payments and corresponding receipts. Changes to the Company's forecasted deficiency fee obligation resulted in the Company recording a charge of $69 million to other expense during the six months ended June 30, 2020. The present value of the estimated future cash payments and expected cash receipts were determined using a 3.6 percent and 3.2 percent discount rate, respectively, based on the estimated timing of future payments and receipts and the Company's counterparty credit risk assessments. See Note 10 and Note 14 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 June 30, 2021
|
|
As of December 31, 2020
|
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (a)
|
$
|
93
|
|
|
$
|
93
|
|
|
$
|
1,442
|
|
|
$
|
1,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash (a)
|
$
|
49
|
|
|
$
|
49
|
|
|
$
|
59
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt:
|
|
|
|
|
|
|
|
|
Senior notes (b)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
140
|
|
|
$
|
140
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Convertible Notes (b) (c)
|
$
|
1,304
|
|
|
$
|
2,099
|
|
|
$
|
1,100
|
|
|
$
|
1,756
|
|
|
Senior notes (b)
|
$
|
5,622
|
|
|
$
|
5,737
|
|
|
$
|
2,060
|
|
|
$
|
2,230
|
|
______________________
(a)Fair value approximates carrying value due to the short-term nature of the instruments.
(b)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. See Note 7 for additional information.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
(c)Upon issuance of the Convertible Notes, the debt discount and related deferred income tax liability were recorded to additional paid-in capital. As part of the Company's early adoption of ASU 2020-06 on January 1, 2021 (see Note 2), the Company reclassified the debt discount and related deferred income tax liability of $230 million and $50 million, respectively, from additional paid-in capital to the Convertible Notes reported in long-term debt and deferred income taxes, respectively, in the consolidated balance sheets.
The Company has other financial instruments consisting primarily of receivables, payables, 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.
NOTE 5. Derivative Financial Instruments
The Company primarily utilizes commodity swap contracts, collar contracts, collar contracts with short puts and basis swap contracts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's capital budgeting and expenditure plans and (iii) support the payment of contractual obligations and dividends.
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 correlated with, NYMEX WTI oil prices. The Company also enters into (i) pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from its areas of production and (ii) purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil sales to Gulf Coast refineries or international export markets at prices that are highly correlated to Brent oil prices. As a result, the Company uses a combination of Brent, Magellan East Houston ("MEH") and WTI derivative contracts to manage future oil price volatility.
The Company's outstanding oil derivative contracts as of June 30, 2021 and the weighted average oil prices per barrel for those contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
Year Ending December 31, 2022
|
|
|
|
|
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
17,000
|
|
|
17,000
|
|
|
—
|
|
|
Price per Bbl
|
|
|
|
|
$
|
44.45
|
|
|
$
|
44.45
|
|
|
$
|
—
|
|
|
MEH swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
43,000
|
|
|
43,000
|
|
|
2,055
|
|
|
Price per Bbl
|
|
|
|
|
$
|
40.52
|
|
|
$
|
40.52
|
|
|
$
|
42.80
|
|
|
Midland WTI swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
5,000
|
|
|
5,000
|
|
|
—
|
|
|
Price per Bbl
|
|
|
|
|
$
|
40.50
|
|
|
$
|
40.50
|
|
|
$
|
—
|
|
|
NYMEX WTI swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
15,000
|
|
|
15,000
|
|
|
—
|
|
|
Price per Bbl
|
|
|
|
|
$
|
52.85
|
|
|
$
|
52.85
|
|
|
$
|
—
|
|
|
NYMEX rollfactor swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
35,000
|
|
|
35,000
|
|
|
—
|
|
|
Price per Bbl
|
|
|
|
|
$
|
0.17
|
|
|
$
|
0.17
|
|
|
$
|
—
|
|
|
Midland WTI basis swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
37,000
|
|
|
37,000
|
|
|
26,000
|
|
|
Price per Bbl
|
|
|
|
|
$
|
0.89
|
|
|
$
|
0.89
|
|
|
$
|
0.50
|
|
|
Brent call contracts sold:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl) (a)
|
|
|
|
|
20,000
|
|
|
20,000
|
|
|
—
|
|
|
Price per Bbl
|
|
|
|
|
$
|
69.74
|
|
|
$
|
69.74
|
|
|
$
|
—
|
|
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brent collar contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
—
|
|
|
—
|
|
|
10,000
|
|
|
Price per Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60.32
|
|
|
Floor
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50.00
|
|
|
NYMEX WTI collar contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
16,000
|
|
|
6,000
|
|
|
—
|
|
|
Price per Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
64.66
|
|
|
$
|
55.54
|
|
|
$
|
—
|
|
|
Floor
|
|
|
|
|
$
|
56.25
|
|
|
$
|
50.00
|
|
|
$
|
—
|
|
|
Brent collar contracts with short puts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl) (b)
|
|
|
|
|
110,000
|
|
|
90,000
|
|
|
57,000
|
|
|
Price per Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
54.46
|
|
|
$
|
50.74
|
|
|
$
|
64.41
|
|
|
Floor
|
|
|
|
|
$
|
47.82
|
|
|
$
|
45.11
|
|
|
$
|
50.18
|
|
|
Short put
|
|
|
|
|
$
|
36.87
|
|
|
$
|
35.07
|
|
|
$
|
38.25
|
|
|
MEH collar contracts with short puts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
9,446
|
|
|
9,446
|
|
|
—
|
|
|
Price per Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
51.29
|
|
|
$
|
51.29
|
|
|
$
|
—
|
|
|
Floor
|
|
|
|
|
$
|
41.55
|
|
|
$
|
41.55
|
|
|
$
|
—
|
|
|
Short put
|
|
|
|
|
$
|
31.55
|
|
|
$
|
31.55
|
|
|
$
|
—
|
|
|
NYMEX WTI collar contracts with short puts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (Bbl)
|
|
|
|
|
—
|
|
|
—
|
|
|
12,000
|
|
|
Price per Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
65.86
|
|
|
Floor
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
52.50
|
|
|
Short put
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40.00
|
|
______________________
(a)The referenced call contracts were sold in exchange for higher ceiling prices on certain 2020 collar contracts with short puts.
(b)Between July 1, 2021 and July 30, 2021, the Company entered into additional derivative contracts for 10,000 Bbls per day of Brent collar contracts with short puts for January 2022 through December 2022 production with a ceiling price of $75.19 per Bbl, a floor price of $45.00 per Bbl and a short put price of $65.00 per Bbl.
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 volatility of NGL component product prices. As of June 30, 2021, 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 (e.g. WAHA, SoCal and Houston Ship Channel) where the gas is sold. To diversify the gas prices it receives to international market prices, the Company sells a portion of its gas production at Dutch Title Transfer Facility ("Dutch TTF") prices. 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. Between July 1, 2021 and July 30, 2021, the Company entered into NYMEX collar contracts with short puts of 100,000 MMBtu per day for the year ending December 2022 production with a ceiling price of $4.00 per MMBtu, a floor price of $2.50 per MMBtu and a short put price of $3.20 per MMBtu.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
The Company's outstanding gas derivative contracts as of June 30, 2021 and the weighted average gas prices per MMBtu for those contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
Year Ending December 31, 2022
|
|
|
|
|
|
|
Third Quarter
|
|
Fourth Quarter
|
|
|
NYMEX swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (MMBtu) (a)
|
|
|
|
|
60,000
|
|
|
60,000
|
|
|
—
|
|
|
Price per MMBtu
|
|
|
|
|
$
|
2.95
|
|
|
$
|
2.95
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dutch TTF swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (MMBtu) (b)
|
|
|
|
|
30,000
|
|
|
30,000
|
|
|
—
|
|
|
Price per MMBtu
|
|
|
|
|
$
|
5.07
|
|
|
$
|
5.07
|
|
|
$
|
—
|
|
|
WAHA swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (MMBtu)
|
|
|
|
|
116,304
|
|
|
116,304
|
|
|
4,932
|
|
|
Price per MMBtu
|
|
|
|
|
$
|
2.36
|
|
|
$
|
2.36
|
|
|
$
|
2.46
|
|
|
NYMEX collar contracts:
|
|
|
|
|
|
|
|
|
|
|
Volume per day (MMBtu)
|
|
|
|
|
247,000
|
|
|
247,000
|
|
|
1,726
|
|
|
Price per MMBtu:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
|
|
|
$
|
3.19
|
|
|
$
|
3.20
|
|
|
$
|
3.45
|
|
|
Floor
|
|
|
|
|
$
|
2.60
|
|
|
$
|
2.60
|
|
|
$
|
2.75
|
|
|
Basis swap contracts:
|
|
|
|
|
|
|
|
|
|
|
Permian Basin index swap volume per day (MMBtu) (b)
|
|
|
|
|
7,000
|
|
|
7,000
|
|
|
1,726
|
|
|
Price differential ($/MMBtu)
|
|
|
|
|
$
|
(0.39)
|
|
|
$
|
(0.39)
|
|
|
$
|
(0.39)
|
|
____________________
(a)Between July 1, 2021 and July 30, 2021, the Company entered into additional NYMEX swap contracts for 100,000 MMBtu per day of October 2021 through December 2021 production with an average fixed price of $4.04 per MMBtu.
(b)Between July 1, 2021 and July 30, 2021, the Company entered into additional Dutch TTF swap contracts for 30,000 MMBtu per day of January 2022 through December 2022 production with an average fixed price of $8.87 per MMBtu.
(c)The referenced basis swap contracts fix the basis differentials between the index price at which the Company sells a portion of its Permian Basin gas and the NYMEX index price used in swap contracts.
Marketing derivatives. The Company uses marketing derivatives to diversify its oil sales to Gulf Coast and international markets. The Company's marketing derivatives reflect two long-term marketing contracts that were entered in October 2019 whereby the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day at an oil terminal in Midland, Texas for a six-year term that began on January 1, 2021 and ends on December 31, 2026. The price the Company pays to purchase the oil volumes under the purchase contract is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a WASP that a non-affiliated counterparty receives for selling oil through their Gulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. Based on the form of the marketing contracts, the Company determined that the marketing contracts should be accounted for as derivative instruments. For the three and six months ended June 30, 2021, the Company recorded noncash marketing derivative gains of $17 million and noncash marketing derivative losses of $3 million, respectively, and cash payments of $13 million and $20 million, respectively, as compared to noncash marketing derivative losses of $21 million and $15 million, respectively, and no cash payments or receipts for the same respective periods in 2020.
Derivative accounting. 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 commodity price derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty.
Contingent consideration. The Company's right to receive contingent consideration in conjunction with the South Texas Divestiture was determined to be a derivative financial instrument that is not designated as a hedging instrument. Prior to its settlement in July 2020, the contingent consideration was revalued using an option pricing model each reporting period based on forecasted oil and NGL prices during each of the five years from 2020 to 2024. See Note 13 for additional information.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Noncash gains and losses associated with the Company's (i) commodity price derivatives and marketing derivatives and (ii) contingent consideration are separately presented in operating activities within the consolidated statements of cash flows.
Fair value. The fair value of derivative financial instruments not designated as hedging instruments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2021
|
|
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)
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity price derivatives
|
|
Derivatives - current
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
Commodity price derivatives
|
|
Derivatives - noncurrent
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity price derivatives
|
|
Derivatives - current
|
|
$
|
1,115
|
|
|
$
|
—
|
|
|
$
|
1,115
|
|
|
Marketing derivatives
|
|
Derivatives - current
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
Commodity price derivatives
|
|
Derivatives - noncurrent
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
Marketing derivatives
|
|
Derivatives - noncurrent
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
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)
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity price derivatives
|
|
Derivatives - current
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
Commodity price derivatives
|
|
Derivatives - noncurrent
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity price derivatives
|
|
Derivatives - current
|
|
$
|
198
|
|
|
$
|
—
|
|
|
$
|
198
|
|
|
Marketing derivatives
|
|
Derivatives - current
|
|
$
|
36
|
|
|
$
|
—
|
|
|
$
|
36
|
|
|
Commodity price derivatives
|
|
Derivatives - noncurrent
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
Marketing derivatives
|
|
Derivatives - noncurrent
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
55
|
|
Fair value. Gains and losses recorded on derivative financial instruments not designated as hedging instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location of Gain/(Loss) Recognized
in Earnings on Derivatives
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Commodity price derivatives
|
|
Derivative gain (loss), net
|
|
$
|
(836)
|
|
|
$
|
(335)
|
|
|
$
|
(1,500)
|
|
|
$
|
137
|
|
|
Marketing derivatives
|
|
Derivative gain (loss), net
|
|
$
|
4
|
|
|
$
|
(21)
|
|
|
$
|
(23)
|
|
|
$
|
(15)
|
|
|
Interest rate derivatives
|
|
Derivative gain (loss), net
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(22)
|
|
|
Contingent consideration
|
|
Interest and other income (loss), net
|
|
$
|
—
|
|
|
$
|
(1)
|
|
|
$
|
—
|
|
|
$
|
(64)
|
|
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.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
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 included 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.
The changes in capitalized exploratory well costs are as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
(in millions)
|
|
Beginning capitalized exploratory well costs
|
$
|
498
|
|
|
|
|
|
|
|
|
Additions to exploratory well costs pending the determination of proved reserves
|
1,279
|
|
|
Additions to capitalized exploratory well costs from acquisitions
|
235
|
|
|
|
|
|
|
|
|
Reclassification due to determination of proved reserves
|
(1,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending capitalized exploratory well costs
|
$
|
648
|
|
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
June 30, 2021
|
|
As of
December 31, 2020
|
|
|
|
|
|
|
|
(in millions, except well counts)
|
|
Capitalized exploratory well costs that have been suspended:
|
|
|
|
|
One year or less
|
$
|
648
|
|
|
$
|
495
|
|
|
More than one year
|
—
|
|
|
3
|
|
|
|
$
|
648
|
|
|
$
|
498
|
|
Number of wells or projects with exploratory well costs that have been
suspended for a period greater than one year
|
—
|
|
|
1
|
|
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
NOTE 7. Long-term Debt
The components of long-term debt, including the effects of issuance costs and issuance discounts, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2021
|
|
As of
December 31, 2020
|
|
|
|
|
|
|
|
(in millions)
|
|
Outstanding debt principal balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.45% senior notes due 2021
|
$
|
—
|
|
|
$
|
140
|
|
|
3.95% senior notes due 2022
|
244
|
|
|
244
|
|
|
0.55% senior notes due 2023
|
750
|
|
|
—
|
|
|
0.75% senior callable notes due 2024
|
750
|
|
|
—
|
|
|
0.25% convertible senior notes due 2025
|
1,323
|
|
|
1,323
|
|
|
1.125% senior notes due 2026
|
750
|
|
|
—
|
|
|
4.45% senior notes due 2026
|
500
|
|
|
500
|
|
|
5.625% senior notes due 2027
|
179
|
|
|
—
|
|
|
7.20% senior notes due 2028
|
241
|
|
|
241
|
|
|
4.125% senior notes due 2028
|
138
|
|
|
—
|
|
|
1.90% senior notes due 2030
|
1,100
|
|
|
1,100
|
|
|
2.15% senior notes due 2031
|
1,000
|
|
|
—
|
|
|
|
6,975
|
|
|
3,548
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance costs and discounts, net
|
(49)
|
|
|
(248)
|
|
|
Total debt
|
6,926
|
|
|
3,300
|
|
|
|
|
|
|
|
Less current portion of long-term debt
|
—
|
|
|
(140)
|
|
|
Long-term debt
|
$
|
6,926
|
|
|
$
|
3,160
|
|
Credit facility. The Company maintains a revolving corporate credit facility (the "Credit Facility") with a syndicate of financial institutions and has aggregate loan commitments of $2.0 billion. On January 12, 2021, Pioneer entered into the First Amendment to Credit Agreement (the "Amendment") with Wells Fargo Bank, National Association, as Administrative Agent, and the other agents and lenders party thereto. The primary changes attributable to the Amendment were to increase the aggregate loan commitments from $1.5 billion to $2.0 billion, extend the maturity of the Credit Facility to January 12, 2026 and to nominally adjust the drawn and undrawn pricing. As of June 30, 2021, the Company had no outstanding borrowings under the Credit Facility and was in compliance with its debt covenants.
Assumption of DoublePoint notes and payoff of DoublePoint credit facility. In connection with the completion of the DoublePoint Acquisition, the Company assumed DoublePoint's long-term debt of $650 million in aggregate principal amount (with a fair value of $735 million) and DoublePoint's credit facility with an outstanding balance of $240 million. The Company repaid and terminated the DoublePoint credit facility agreement on May 4, 2021.
Assumption of Parsley notes and payoff of Parsley credit facility. In connection with the completion of the Parsley Acquisition, the Company assumed Parsley's long-term debt of $2.7 billion in aggregate principal amount (with a fair value of $2.8 billion) and Parsley's credit facility with an outstanding balance of $397 million. The Company repaid and terminated the Parsley credit facility agreement on January 12, 2021.
Senior notes. In May 2021, the Company issued $750 million of 0.55% senior notes that will mature May 15, 2023 (the "May 2021 Senior Notes Offering"). The Company received proceeds, net of $4 million of issuance costs and discounts, of $746 million. Interest on the notes will be payable on May 15 and November 15 of each year. The senior notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company.
The Company used the proceeds from the May 2021 Senior Notes Offering to pay $731 million to redeem DoublePoint's 7.750% senior notes due 2025. Associated with the redemption, the Company recognized a $3 million gain on the early extinguishment of debt (see Note 14).
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
In January 2021, the Company issued $750 million of 0.750% senior callable notes that will mature January 15, 2024, $750 million of 1.125% senior notes that will mature January 15, 2026 and $1 billion of 2.150% senior notes that will mature January 15, 2031 (the "January 2021 Senior Notes Offering"). The Company received proceeds, net of $24 million of issuance costs and discounts, of $2.5 billion. Interest on each of the new notes will be payable on January 15 and July 15 of each year. The senior notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company.
The Company used the proceeds from the January 2021 Senior Notes Offering to pay (i) $1.6 billion to redeem Parsley's 5.250% senior notes due 2025, Parsley's 5.375% senior notes due 2025 and Jagged Peak's 5.875% senior notes due 2026 and (ii) $852 million to purchase a portion of Parsley's 5.625% senior notes due 2027 and Parsley's 4.125% senior notes due 2028 pursuant to a cash tender offer. In connection with the tender offers, the Company also obtained the requisite consents from holders of Parsley's 5.625% senior notes due 2027 and 4.125% senior notes due 2028 to amend the indentures pursuant to which the notes were issued to, among other things, (i) eliminate substantially all of the restrictive covenants and related provisions and certain events of default contained in each indenture and (ii) shorten the minimum notice requirement for optional redemptions to three days. Associated with the redemption and tenders, the Company recognized a $5 million loss on the early extinguishment of debt (see Note 14).
The Company's 3.45% senior notes with a debt principal balance of $140 million matured and were repaid in January 2021. The Company funded the repayment with cash on hand.
Convertible senior notes. In May 2020, the Company issued $1.3 billion principal amount of convertible senior notes due 2025. The Convertible Notes bear a fixed interest rate of 0.25% per year, with interest payable on May 15 and November 15 of each year. The Convertible Notes will mature on May 15, 2025, unless earlier redeemed, repurchased or converted. The Convertible Notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company.
The Convertible Notes are convertible into shares of the Company's common stock at a conversion rate of 9.111 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Rate"), which represents a conversion price of $109.76 per share (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Price"). Upon conversion, the Convertible Notes will be settled in cash, shares of the Company's common stock or a combination thereof, at the Company's election.
Holders of the Convertible Notes may convert their notes at their option prior to February 15, 2025 under the following circumstances:
•during the quarter following any quarter during which the last reported sales price of the Company's common stock for at least 20 of the last 30 consecutive trading days of such quarter exceeds 130 percent of the Conversion Price;
•during the five-day period following any five consecutive trading day period when the trading price of the Convertible Notes is less than 98 percent of the price of the Company's common stock times the Conversion Rate;
•upon notice of redemption by the Company; or
•upon the occurrence of specified corporate events, including certain consolidations or mergers.
On or after February 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. The Company may not redeem the Convertible Notes prior to May 20, 2023, and after such date, may redeem the Convertible Notes only if the last reported sale price of the Company's common stock has been at least 130 percent of the Conversion Price for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides the notice of redemption. The redemption price is equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.
During the last 30 consecutive trading days of the second quarter of 2021, the last reported sales prices of the Company's common stock exceeded 130 percent of the Conversion Price for at least 20 trading days, causing the Convertible Notes to become convertible at the option of the holders during the three month period ending September 30, 2021. As of June 30, 2021, if converted by the holder, the Company intends to settle the Convertible Notes in cash through borrowings under its Credit
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Facility. The Company reserves its right under the notes indenture to elect to settle the Convertible Notes in shares of the Company's common stock or a combination of cash and common stock.
The Company early adopted ASU 2020-06 on January 1, 2021. Upon issuance of the Convertible Notes in May 2020, the Company bifurcated the debt and equity components of the Convertible Notes between long-term debt and additional paid-in capital in its consolidated balance sheet. The amount recorded to additional paid-in capital represented a debt discount that was being amortized to interest expense over the life of the Convertible Notes. As part of the adoption of ASU 2020-06, the Company (i) reversed the debt discount and related deferred income tax liability recorded to additional paid-in capital of $230 million and $50 million, respectively, (ii) recorded a cumulative effect of the adoption of ASU 2020-06 of $22 million to retained earnings, representing the reversal of the $28 million debt discount that was amortized to interest expense, net of an associated deferred income tax impact of $6 million, in 2020 and (iii) recorded the respective offsets for items (i) and (ii) above, representing the unamortized debt discount attributable to the Convertible Notes of $202 million to long-term debt and the associated deferred tax impact of $44 million to deferred income tax liabilities. See Note 2 for additional information.
As of June 30, 2021, the Convertible Notes had an outstanding principal balance of $1.3 billion and unamortized issuance costs of $18 million. The effective interest rate related to interest expense to be recorded over the life of the Convertible Notes is 0.6 percent. See Note 2 for additional information regarding the effect of the early adoption of ASU 2020-06 on the debt discount on the Company's Convertible Notes.
The interest costs recognized on the Convertible Notes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Contractual coupon interest
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
Amortization of debt discount and issuance costs
|
1
|
|
|
8
|
|
|
2
|
|
|
8
|
|
|
|
$
|
2
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
9
|
|
Capped call transactions. In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain financial institution counterparties (the "Capped Call"), the purpose of which was to reduce the potential dilution to the Company's common stock upon conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of such converted notes, with such reduction and offset subject to a capped price. The Capped Call transactions have a strike price of $109.76 per share of common stock and a capped price of $156.19 per share of common stock. The net costs of $113 million incurred to purchase the Capped Call transactions were recorded as a reduction to additional paid-in capital. The closing price of the Company's common stock at June 30, 2021 was $162.52 which exceeded the capped price. Therefore, if the Convertible Notes were converted and settlement of the capped call transaction had occurred on June 30, 2021, the Company would have been entitled to receive $559 million in cash or 3.4 million shares of the Company's common stock, or a combination thereof.
NOTE 8. Incentive Plans
In connection with the Parsley Acquisition, the Company assumed all rights and obligations under the Amended and Restated Parsley Energy, Inc. 2014 Long Term Incentive Plan (the "2014 Parsley Plan") and the Jagged Peak Energy Inc. 2017 Long Term Incentive Plan (the "Jagged Peak Plan") and together with the 2014 Parsley Plan, (the "Parsley Plans"). The awards outstanding under the Parsley Plans were assumed by the Company and were automatically converted into an award with the right to receive a number of shares of Pioneer common stock that is equal to the product of the number of shares of Parsley common stock subject to such award under the Parsley Plans as of the acquisition date and the Exchange Ratio (0.1252). As a result, 37,299 shares of Pioneer common stock are issuable by the Company upon settlement of the outstanding awards granted under the 2014 Parsley Plan and 1,166 shares of Pioneer common stock are issuable by the Company upon settlement of the outstanding awards granted under the Jagged Peak Plan.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
The number of shares available for grant pursuant to the awards issued under the Company's Amended and Restated 2006 Long-Term Incentive Plan ("LTIP") is as follows:
|
|
|
|
|
|
|
|
|
As of
June 30, 2021
|
|
Approved and authorized awards
|
12,600,000
|
|
|
2014 Parsley Plan awards available to the LTIP (a)
|
879,575
|
|
|
Awards issued under the plan
|
(9,311,208)
|
|
|
Awards available for future grant
|
4,168,367
|
|
______________________
(a) Under New York Stock Exchange rules, the Company added the shares that were available under the 2014 Parsley Plan to the LTIP. These shares can only be used for grants to employees who were not employed or engaged by Pioneer or any of its subsidiaries immediately before the Parsley Acquisition and such awards may only be granted through May 22, 2024, the date that the 2014 Parsley Plan would have otherwise expired.
Stock-based compensation expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Restricted stock - equity awards
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
21
|
|
|
$
|
22
|
|
|
Restricted stock - liability awards (a)
|
4
|
|
|
3
|
|
|
9
|
|
|
3
|
|
|
Restricted stock and performance units - Parsley awards (b)
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
Performance unit awards
|
6
|
|
|
6
|
|
|
14
|
|
|
10
|
|
|
Employee stock purchase plan
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21
|
|
|
$
|
20
|
|
|
$
|
78
|
|
|
$
|
36
|
|
______________________
(a)Liability Awards are expected to be settled on their vesting date in cash. As of June 30, 2021 and December 31, 2020, accounts payable – due to affiliates included $10 million and $7 million, respectively, of liabilities attributable to Liability Awards.
(b)Represents the accelerated vesting of Parsley restricted stock equity awards and performance units upon completion of the Parsley Acquisition, which was recorded to other expense in the consolidated statements of operations.
As of June 30, 2021, there was $91 million of unrecognized stock-based compensation expense related to unvested share-based compensation awards, including $18 million attributable to stock-based awards that are expected to be settled on their vesting date in cash, rather than in equity shares. 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.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Activity for restricted stock awards, performance units and stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
Restricted
Stock Equity
Awards
|
|
Restricted
Stock Liability
Awards
|
|
Performance
Units
|
|
Stock Options
|
|
Beginning incentive compensation awards
|
765,981
|
|
|
221,353
|
|
|
207,430
|
|
|
86,332
|
|
|
Awards granted
|
127,370
|
|
|
3,085
|
|
|
173,423
|
|
|
—
|
|
|
Awards assumed (a) (c)
|
255,379
|
|
|
—
|
|
|
100,056
|
|
|
—
|
|
|
Awards forfeited
|
(4,049)
|
|
|
(4,227)
|
|
|
—
|
|
|
—
|
|
|
Awards vested (b) (c)
|
(417,749)
|
|
|
(42,761)
|
|
|
(100,056)
|
|
|
—
|
|
|
Options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
(55,173)
|
|
|
Options expired
|
—
|
|
|
—
|
|
|
—
|
|
|
(415)
|
|
|
Ending incentive compensation awards
|
726,932
|
|
|
177,450
|
|
|
380,853
|
|
|
30,744
|
|
______________________
(a)Awards assumed as a result of the Parsley Acquisition.
(b)Per the terms of award agreements and elections, the issuance of common stock may be deferred for certain restricted stock equity awards, performance units and stock options that vest during the period.
(c)The amounts presented include the assumption and accelerated vesting of 216,914 Parsley restricted stock equity awards and 100,056 of Parsley performance units, both of which vested upon completion of the Parsley Acquisition.
NOTE 9. Asset Retirement Obligations
The changes in asset retirement obligations are as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
(in millions)
|
|
Beginning asset retirement obligations
|
$
|
282
|
|
|
Liabilities assumed in the Parsley Acquisition
|
73
|
|
|
Liabilities assumed in the DoublePoint Acquisition
|
37
|
|
|
New wells placed on production
|
5
|
|
|
|
|
|
|
|
|
Changes in estimates (a)
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities settled
|
(15)
|
|
|
Accretion of discount
|
3
|
|
|
|
|
|
|
|
|
|
|
|
Ending asset retirement obligations
|
384
|
|
|
|
|
|
Less current portion of asset retirement obligations
|
(55)
|
|
|
Asset retirement obligations - noncurrent
|
$
|
329
|
|
______________________
(a)Changes in estimates are determined based on several factors, including updating abandonment cost estimates using recent actual costs incurred to abandon wells, credit-adjusted risk-free discount rates, economic well life estimates and forecasted timing of abandoning wells.
NOTE 10. 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.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Indemnifications. The Company has agreed to indemnify its directors and certain of its officers, employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.
Environmental. Environmental expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Environmental expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. Liabilities for expenditures that will not qualify for capitalization are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. Such liabilities are undiscounted unless the timing of cash payments for the liability is fixed or reliably determinable. Environmental liabilities normally involve estimates that are subject to revision until settlement or the remediation occurs.
Firm purchase, gathering, processing, transportation, fractionation and storage commitments. From time to time, the Company enters into, and as of June 30, 2021 was a party to, take-or-pay agreements, which include contractual commitments (i) to purchase sand, water and diesel for use in the Company's drilling and completion operations, (ii) with midstream service companies and pipeline carriers for future gathering, processing, transportation, fractionation and storage and (iii) with oilfield services companies that provide drilling and pressure pumping services. These commitments are normal and customary for the Company's business activities.
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, royalties and income taxes. Also associated with its divestiture transactions, the Company has issued and received guarantees to facilitate the transfer of contractual obligations, such as firm transportation agreements or gathering and processing arrangements. The Company does not recognize a liability if the fair value of the obligation is immaterial and the likelihood of making payments under these guarantees is remote.
South Texas Divestiture. In conjunction with the 2019 divestiture of the Company's South Texas assets, the Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC's") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC's from January 2019 through July 2022. The buyer is required to reimburse the Company for 18 percent of the deficiency fees paid by the Company from January 2019 through July 2022; such reimbursement will be paid by the buyer in installments beginning in 2023 through 2025. Assuming 100 percent of the MVC's are paid as deficiency fees, the maximum amount of future payments for this obligation would be approximately $260 million as of June 30, 2021. The Company's estimated deficiency fee obligation as of June 30, 2021 is $199 million, of which $135 million is included in other current liabilities in the consolidated balance sheets. The deficiency fee receivable from the buyer of $77 million is included in noncurrent other assets in the consolidated balance sheets. The Company has credit support for the deficiency fee receivable of up to $100 million.
Raton transportation commitments. In July 2018, the Company completed the sale of its gas field assets in the Raton Basin to an unaffiliated third party and transferred certain gas transportation commitments, which extend through 2032, to the buyer for which the Company has provided a guarantee. Assuming 100 percent of the remaining commitments are paid by the Company under its guarantee, the maximum amount of future payments would be approximately $74 million as of June 30, 2021. The Company has received credit support for the commitments of up to $50 million. The Company paid $3 million in gas transportation fees associated with the transferred commitment for the six months ended June 30, 2021 and was fully reimbursed.
West Eagle Ford Shale commitments. In April 2018, the Company completed the sale of its West Eagle Ford Shale gas and liquids field to an unaffiliated third party and transferred certain gas and liquids transportation commitments, which extend through 2022, to the buyer for which the Company has provided a guarantee. Assuming 100 percent of the remaining commitments are paid by the Company under its guarantee, the maximum amount of future payments would be approximately $17 million as of June 30, 2021. The Company has received credit support for the commitments of up to $17 million.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
Certain contractual obligations were retained by the Company after the South Texas Divestiture, the Raton Basin asset sale, the divestiture of the Company's pressure pumping assets and the decommissioning of the Company's sand mine operations in Brady, Texas. These contracts were primarily related to firm transportation and storage agreements in which the Company is unlikely to realize any benefit. The estimated obligations are included in other current or noncurrent liabilities in the consolidated balance sheets. The changes in contract obligations are as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
(in millions)
|
|
Beginning contract obligations
|
$
|
360
|
|
|
|
|
|
Liabilities settled
|
(152)
|
|
|
Accretion of discount
|
4
|
|
|
Changes in estimate (a)
|
(1)
|
|
|
Ending contract obligations
|
$
|
211
|
|
______________________
(a)Represents differences between estimated and actual liabilities settled.
NOTE 11. 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 cash that was received during the first quarter of 2019. ProPetro is considered a related party as the shares received represent 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.
In October 2019, Phillip A. Gobe, a nonemployee member of the Company's board of directors, was appointed by the board of directors of ProPetro to serve as its Executive Chairman, and in March 2020 he was appointed as Chief Executive Officer and Chairman of the Board of Directors. In July 2021, ProPetro announced that, effective August 31, 2021, Mr. Gobe would transition from ProPetro's Chairman and Chief Executive Officer to Executive Chairman. Mark S. Berg, the Company's Executive Vice President, Corporate Operations, serves as a member of the ProPetro board of directors under the Company's right to designate a director to the board of directors of ProPetro so long as the Company owns five percent or more of ProPetro's outstanding common stock.
Transactions and balances with ProPetro are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Pressure pumping and related services charges (a)
|
$
|
111
|
|
|
$
|
76
|
|
|
$
|
167
|
|
|
$
|
143
|
|
____________________
(a)Includes $1 million and $5 million of idle frac fleet fees for the three and six months ended June 30, 2021, respectively, as compared to $30 million of idle frac fleet fees for both the three and six months ended June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2021
|
|
As of
December 31, 2020
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Accounts payable - due to affiliate (a)
|
$
|
78
|
|
|
$
|
45
|
|
____________________
(a)Represents pressure pumping and related services provided by ProPetro as part of a long-term agreement.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
The Company discloses ProPetro's summarized financial information on a one-quarter lag as it enables the Company to report its quarterly results independent from the timing of when ProPetro reports its results. Summarized financial information for ProPetro is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
(in millions)
|
|
Revenue - Service revenue
|
$
|
161
|
|
|
$
|
395
|
|
|
Cost of services (exclusive of depreciation and amortization)
|
$
|
123
|
|
|
$
|
301
|
|
|
Net loss
|
$
|
(20)
|
|
|
$
|
(8)
|
|
NOTE 12. 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, NGLs, gas and purchased oil, gas and diesel are recognized when control of the product is transferred to the purchaser and payment can be reasonably assured. Sales prices for oil, NGLs, gas and diesel 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. Accordingly, the prices received by the Company for oil, NGLs, gas and diesel sales generally fluctuate similar to changes in the relevant market index prices.
Disaggregated revenue from contracts with purchasers by product type is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Oil sales
|
$
|
2,133
|
|
|
$
|
453
|
|
|
$
|
3,567
|
|
|
$
|
1,377
|
|
|
NGL sales
|
374
|
|
|
104
|
|
|
620
|
|
|
215
|
|
|
Gas sales
|
175
|
|
|
43
|
|
|
318
|
|
|
103
|
|
|
Total commodities sales
|
2,682
|
|
|
600
|
|
|
4,505
|
|
|
1,695
|
|
|
Sales of purchased oil
|
1,559
|
|
|
536
|
|
|
2,780
|
|
|
1,439
|
|
|
Sales of purchased gas
|
11
|
|
|
5
|
|
|
16
|
|
|
17
|
|
|
Sales of purchased diesel
|
17
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
Total sales of purchased commodities
|
1,587
|
|
|
541
|
|
|
2,828
|
|
|
1,456
|
|
|
Total revenue from contracts with purchasers
|
$
|
4,269
|
|
|
$
|
1,141
|
|
|
$
|
7,333
|
|
|
$
|
3,151
|
|
As of June 30, 2021 and December 31, 2020, the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was $1.6 billion and $661 million, respectively.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
NOTE 13. Interest and Other Income (Loss), Net
The components of net interest and other income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Investment in affiliate fair value adjustment (Note 4)
|
$
|
(25)
|
|
|
$
|
44
|
|
|
$
|
29
|
|
|
$
|
(101)
|
|
|
Deferred compensation plan income (loss)
|
4
|
|
|
—
|
|
|
8
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration fair value adjustment (Note 5)
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(64)
|
|
|
Other
|
1
|
|
|
5
|
|
|
3
|
|
|
10
|
|
|
|
$
|
(20)
|
|
|
$
|
48
|
|
|
$
|
40
|
|
|
$
|
(158)
|
|
NOTE 14. Other Expense
The components of other expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Parsley Acquisition transaction costs (a)
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
206
|
|
|
$
|
—
|
|
|
Winter Storm Uri gas commitments (b)
|
—
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
DoublePoint Acquisition transaction costs (c)
|
27
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
Unoccupied facility expense (d)
|
7
|
|
|
(1)
|
|
|
17
|
|
|
(1)
|
|
|
Transportation commitment charges (e)
|
3
|
|
|
5
|
|
|
10
|
|
|
8
|
|
|
Termination and idle drilling and frac equipment charges (f)
|
1
|
|
|
44
|
|
|
5
|
|
|
53
|
|
Loss (gain) on early extinguishment of debt (Note 7)
|
(3)
|
|
|
27
|
|
|
2
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas deficiency fee obligation (Note 4)
|
—
|
|
|
—
|
|
|
—
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vertical integration services loss (income), net (g)
|
(1)
|
|
|
5
|
|
|
(5)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
4
|
|
|
10
|
|
|
9
|
|
|
18
|
|
|
|
$
|
47
|
|
|
$
|
90
|
|
|
$
|
351
|
|
|
$
|
175
|
|
____________________
(a)Represents costs associated with the Parsley Acquisition, which includes $90 million of employee-related costs and $116 million of transaction-related fees during the six months ended June 30, 2021 and $9 million of transaction-related fees during the three months ended June 30, 2021.
(b)Represents costs related to the Company's fulfillment of certain firm gas commitments during Winter Storm Uri in February 2021.
(c)Represents transaction costs associated with the DoublePoint Acquisition.
(d)Primarily facilities expense associated with certain acquired Parsley offices that are no longer occupied.
(e)Primarily represents firm transportation payments on excess pipeline capacity commitments.
(f)Includes idle frac fleet fees, stacked drilling rig charges and drilling rig early termination charges.
(g)Primarily represents net margins (attributable to third party working interest owners) that result from Company-provided vertically integrated services, which are ancillary to and supportive of the Company's oil and gas joint operating activities, and do not represent intercompany transactions. The components of the vertical integration services net margins are as follows:
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Gross revenues
|
$
|
11
|
|
|
$
|
14
|
|
|
$
|
23
|
|
|
$
|
25
|
|
|
Gross costs and expenses
|
$
|
10
|
|
|
$
|
19
|
|
|
$
|
18
|
|
|
$
|
26
|
|
NOTE 15. Income Taxes
Income tax benefit (provision) and effective tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Current tax benefit (provision)
|
$
|
(11)
|
|
|
$
|
11
|
|
|
$
|
(18)
|
|
|
$
|
11
|
|
|
Deferred tax benefit (provision)
|
(109)
|
|
|
98
|
|
|
(91)
|
|
|
20
|
|
|
Income tax benefit (provision)
|
$
|
(120)
|
|
|
$
|
109
|
|
|
$
|
(109)
|
|
|
$
|
31
|
|
|
Effective tax rate
|
24
|
%
|
|
20
|
%
|
|
26
|
%
|
|
17
|
%
|
The Company evaluates and updates its annual effective income tax rate on an interim basis based on current and forecasted earnings and tax laws. The mix and timing of the Company's actual earnings compared to annual projections can cause interim effective tax rate fluctuations. The Company's interim effective tax rate for the three and six months ended June 30, 2021 differed from the U.S. statutory rate of 21 percent primarily due to forecasted state income taxes.
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 2018 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 June 30, 2021, 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.
DoublePoint Acquisition. The Company purchased all the membership interests of DoublePoint, a disregarded entity for federal income tax purposes. As a result, for tax purposes, the Company recorded the cost basis in the assets acquired equal to its purchase price (i.e. stepped-up basis).
Parsley Acquisition. For federal income tax purposes, the Parsley Acquisition qualified as a tax-free merger whereby the Company acquired carryover tax basis in Parsley's assets and liabilities. The Company recorded a deferred tax liability of $127 million associated with the acquired assets. Included in the deferred tax liability are deferred tax asset attributes acquired from Parsley, which primarily consist of net operating loss carryforwards of $2 billion that are subject to an annual limitation under Internal Revenue Code Section 382. The Company believes it is more likely than not that the acquired net operating loss carryforwards will be utilized before they expire. Offsetting the deferred tax assets attributes are deferred tax liability attributes, primarily related to the cost basis in oil and gas properties for tax purposes being less than the recorded book amounts.
Enactment of the Consolidated Appropriations Act, 2021. On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (the "Act"). The Act includes many tax provisions, including the extension of various expiring provisions and extensions and expansions of certain pandemic tax relief provisions, among other things. The Act did not have a material impact on the Company's current or prior year tax provision or the Company's consolidated financial statements.
Enactment of the Coronavirus Aid, Relief and Economic Security Act. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act did not have a material impact on the Company's current or prior year tax provision or the Company's consolidated financial statements.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
NOTE 16. Net Income (Loss) Per Share
The components of basic and diluted net income (loss) per share attributable to common stockholders are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Net income (loss) attributable to common stockholders
|
$
|
380
|
|
|
$
|
(449)
|
|
|
$
|
310
|
|
|
$
|
(158)
|
|
|
Participating share-based earnings (a)
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
Basic net income (loss) attributable to common stockholders
|
379
|
|
|
(449)
|
|
|
309
|
|
|
(158)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to after-tax interest expense to reflect the dilutive impact attributable to the Convertible Notes
|
1
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
Diluted net income (loss) attributable to common stockholders
|
$
|
380
|
|
|
$
|
(449)
|
|
|
$
|
312
|
|
|
$
|
(158)
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
234
|
|
|
165
|
|
|
222
|
|
|
165
|
|
|
Contingently issuable stock-based compensation
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Convertible Notes dilution (b)
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
Diluted weighted average shares outstanding
|
247
|
|
|
165
|
|
|
235
|
|
|
165
|
|
____________________
(a)Unvested restricted stock awards represent participating securities because they participate in non-forfeitable dividends with the common equity owners of the Company. Participating share based earnings represent the distributed and undistributed earnings of the Company attributable to the participating securities. Unvested restricted stock awards do not participate in undistributed net losses as they are not contractually obligated to do so. The dilutive effect of the reallocation of participating share-based earnings to diluted net income (loss) attributable to common stock holders was negligible.
(b)Diluted weighted average common shares outstanding have been increased to reflect the dilutive effect that would have resulted if the Company's Convertible Notes had been converted at the beginning of the three and six months ended June 30, 2021. If converted by the holder, the Company intends to settle the Convertible Notes in cash.
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 and may be modified, suspended or terminated at any time by the board of directors.
Expenditures to acquire shares under the share repurchase program are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Share repurchases (a)
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
160
|
|
____________________
(a)During the three and six months ended June 30, 2021, no shares were repurchased under the share repurchase program, as compared to 592,136 and 1,511,930 shares repurchased for the same respective periods in 2020.
As of June 30, 2021, $1.1 billion remains available for use to repurchase shares under the Company's common stock repurchase program.
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(Unaudited)
NOTE 17. Subsequent Events
Variable Dividend. In August 2021, the board of directors declared a cash dividend of $1.51 per share on the Company's outstanding common stock, payable September 17, 2021 to stockholders of record at the close of business on September 3, 2021.
PIONEER NATURAL RESOURCES COMPANY
|
|
|
|
|
|
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Parsley Acquisition and DoublePoint Acquisition
The Company regularly seeks to acquire or trade acreage that complements its operations, provides exploration and development opportunities, increases the lateral length of future horizontal wells and provides superior returns on investment (including opportunities to acquire particular oil and gas assets or entities owning oil and gas assets and opportunities to engage in mergers, consolidations or other business combinations with such entities).
On May 4, 2021, the Company completed the acquisition of Double Eagle III Midco 1 LLC ("DoublePoint") in exchange for 27 million shares of Pioneer common stock representing stock consideration transferred of $4 billion, $1 billion of cash and the assumption of $890 million of debt (the "DoublePoint Acquisition"). The DoublePoint Acquisition was accounted for as a business combination, with the fair value of the acquisition consideration allocated to the acquisition date fair value of assets acquired and liabilities assumed. DoublePoint's results of operations were included in the Company's interim consolidated financial statements beginning in May 2021. See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
The Company completed the acquisition of Parsley Energy, Inc., a Delaware corporation that previously traded on the NYSE under the symbol "PE" ("Parsley"), pursuant to the Agreement and Plan of Merger, dated as of October 20, 2020, among Pioneer, certain of its subsidiaries, Parsley and Parsley's subsidiary, Parsley Energy, LLC (the "Parsley Acquisition") on January 12, 2021. The Parsley Acquisition was accounted for as a business combination, with the fair value of the acquisition consideration allocated to the acquisition date fair value of assets acquired and liabilities assumed. Parsley's post-acquisition date results of operations were included in the Company's interim consolidated financial statements beginning on January 12, 2021. See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Financial and Operating Performance
The Company's financial and operating performance for the three months ended June 30, 2021 included the following highlights:
•Net income attributable to common stockholders for the three months ended June 30, 2021 was $380 million ($1.54 per diluted share) as compared to net loss of $449 million ($2.73 per diluted share) for the same period in 2020. The primary components of the $829 million increase in earnings attributable to common stockholders include:
•a $2.1 billion increase in oil and gas revenues due to a 166 percent increase in average realized commodity prices per BOE as a result of improved commodity prices due to the economic recovery from the COVID-19 pandemic and a 68 percent increase in daily sales volumes due to additional production from the Company's successful horizontal drilling program in the Permian Basin, the Parsley Acquisition and the DoublePoint Acquisition; and
•a $43 million decrease in other expense, primarily due to (i) a $43 million decrease in idle frac fleet fees, stacked drilling rig charges and drilling rig early termination charges and (ii) a $3 million gain on early extinguishment of debt for the three months ended June 30, 2021, as compared to a $27 million loss on early extinguishment of debt for the same period in 2020, partially offset by $36 million of transaction-related costs associated with the Parsley Acquisition and DoublePoint Acquisition;
partially offset by:
•a $476 million decrease in net derivative results, primarily due to changes in forward commodity prices and the cash settlement of derivative positions in accordance with their terms;
•a $255 million increase in production costs, including taxes, primarily attributable to (i) an increase in production taxes as a result of the aforementioned 166 percent increase in average realized commodity prices and (ii) increased costs attributable to production added from the Parsley Acquisition and the DoublePoint Acquisition;
•a $232 million increase in DD&A expense, primarily due to an increase in sales volumes from the Company's successful horizontal drilling program in the Permian Basin, the Parsley Acquisition and the DoublePoint Acquisition;
•a $229 million increase in the Company's income tax provision due to the increase in earnings during the three months ended June 30, 2021 as compared to the same period in 2020; and
PIONEER NATURAL RESOURCES COMPANY
•a $68 million decrease in net interest and other income (loss), primarily due to a noncash loss of $25 million attributable to the decrease in the fair value of the Company's investment in affiliate during the three months ended June 30, 2021 as compared to a noncash gain of $44 million for the same period in 2020.
•During the three months ended June 30, 2021, average daily sales volumes increased by 68 percent to 629,468 BOEPD, as compared to 374,563 BOEPD during the same period in 2020, due to additional production from Company's successful horizontal drilling program in the Permian Basin, the Parsley Acquisition and the DoublePoint Acquisition.
•Average oil and NGL prices per Bbl and average gas prices per Mcf increased to $64.55, $27.95 and $2.69, respectively, during the three months ended June 30, 2021 as compared to $23.16, $12.65 and $1.15, respectively, for the same period in 2020.
•Cash provided by operating activities increased during the three months ended June 30, 2021 to $1.5 billion as compared to $328 million for the same period in 2020. The increase was primarily due to an increase in oil and gas revenues due to the aforementioned increase in commodity prices and sales volumes partially offset by (i) additional cash used in derivative activities and (ii) an increase in production costs due to the aforementioned increase in production taxes attributable to the increase in commodity prices and costs attributable to the production added from the Parsley Acquisition and the DoublePoint Acquisition.
•As of June 30, 2021 and December 31, 2020, the Company's net debt to book capitalization was 23 percent and 14 percent, respectively.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil throughout the world, and created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil combined with pressures on the global supply-demand balance for oil and related products, resulted in oil prices declining significantly beginning in late February 2020. Although demand has shown signs of recovery, there is significant uncertainty regarding the long-term impact to global oil demand, which will ultimately depend on various factors and consequences beyond the Company's control, such as the duration and scope of the pandemic, the length and severity of the worldwide economic downturn, the ability of OPEC, Russia and other oil producing nations to manage the global oil supply, additional actions by businesses and governments in response to the pandemic, the economic downturn and the decrease in oil demand, the speed and effectiveness of responses to combat the virus, and the time necessary to balance oil supply and demand to restore oil pricing.
The Company continues to assess the global impacts of the COVID-19 pandemic and may modify its plans as the economic and health impacts of COVID-19 continue to evolve.
Third Quarter 2021 Outlook
The Company's operating and financial results for the third quarter of 2021 and beyond are uncertain and will depend on various factors beyond the Company's control, such as: the duration of the COVID-19 pandemic and the speed and effectiveness of vaccine distributions to combat the virus; environmental and trade policies; fiscal challenges facing the United States federal government; geopolitical issues globally, especially in the Middle East; the extent to which OPEC members and some nonmembers, including Russia, adhere to and agree to extend cuts to their oil production quotas; the timing and supply impact of any Iranian sanction relief on Iran's ability to export oil and the uncertainty in oil demand fundamentals associated with governmental policy aimed at redirecting fossil fuel consumption towards lower carbon energy.
PIONEER NATURAL RESOURCES COMPANY
Based on current estimates, the Company expects the following operating and financial results for the third quarter of 2021:
|
|
|
|
|
|
|
|
|
Three Months Ending September 30, 2021
|
|
|
Guidance
|
|
|
($ in millions, except per BOE amounts)
|
|
Average daily production (MBOE)
|
660 - 685
|
|
Average daily oil production (MBO)
|
380 - 395
|
|
Production costs per BOE
|
$7.25 - $8.75
|
|
DD&A per BOE
|
$10.75 - $12.75
|
|
Exploration and abandonments expense
|
$10 - $20
|
|
General and administrative expense
|
$67 - $77
|
|
Accretion of discount on asset retirement obligations
|
$2 - $5
|
|
Interest expense
|
$39 - $44
|
|
Other expense
|
$15 - $30
|
|
Cash flow impact from firm transportation (a)
|
$(65) - $(35)
|
|
Current income tax provision
|
$5 - $15
|
|
Effective tax rate
|
22% - 27%
|
______________________
(a)The cash flow impact from firm transportation is primarily based on the forecasted differential between WTI oil prices and Brent oil prices less the costs to transport purchased oil from the areas of the Company's production to the Gulf Coast. To the extent that the Company's Gulf Coast sales of purchased oil does not cover the purchase price and associated firm transport costs, the Company's results of operations will reflect the negative cashflow impact attributable to its firm transportation commitments. The cash flow impact from firm transportation does not include the expected cash flow impact from the Company's firm transportation marketing contracts that are accounted for as derivatives.
Operations and Drilling Highlights
Average daily oil, NGL and gas sales volumes are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
Oil (Bbls)
|
|
322,258
|
|
|
NGL (Bbls)
|
|
126,520
|
|
|
Gas (Mcf)
|
|
620,124
|
|
|
Total (BOE)
|
|
552,132
|
|
|
|
|
|
The Company's liquids production was 81 percent of total production, on a BOE basis, for the six months ended June 30, 2021.
Costs incurred are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Proved property acquisition costs (a)
|
|
|
$
|
9,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unproved property acquisitions (a)
|
|
|
8,054
|
|
|
|
|
|
|
|
|
|
Exploration/extension costs
|
|
|
1,173
|
|
|
|
|
|
|
|
|
|
Development costs
|
|
|
316
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,587
|
|
|
|
|
|
|
|
|
_____________________
(a)Includes proved and unproved acquisition costs related to the Parsley Acquisition of $5.1 billion and $5.6 billion, respectively, and proved and unproved acquisition costs related to the DoublePoint Acquisition of $3.9 billion and $2.4 billion, respectively.
PIONEER NATURAL RESOURCES COMPANY
Development and exploration/extension drilling activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
Development
|
|
Exploration/Extension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning wells in progress
|
|
|
9
|
|
|
210
|
|
|
Wells spud
|
|
|
11
|
|
|
227
|
|
|
Acquired wells in progress
|
|
|
4
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successful wells
|
|
|
(11)
|
|
|
(252)
|
|
|
|
|
|
|
|
|
|
Ending wells in progress
|
|
|
13
|
|
|
288
|
|
The Company is currently operating 24 drilling rigs and eight frac fleets in the Midland Basin. The Company plans to move four drilling rigs to the Delaware Basin during the third quarter of 2021. The Company will continue to evaluate its drilling and completions program with future activity levels assessed regularly.
During the six months ended June 30, 2021, the Company successfully completed 198 horizontal wells in the northern portion of the Midland Basin, 48 horizontal wells in the southern portion of the Midland Basin and 17 horizontal wells in the Delaware Basin. In the northern portion of the Midland Basin, 42 percent of the horizontal wells placed on production were Wolfcamp A interval wells, 30 percent were Wolfcamp B interval wells and the remaining 28 percent were primarily Spraberry and Wolfcamp D interval wells. In the southern portion of the Midland Basin, the majority of the wells placed on production were Wolfcamp A and B interval wells. In the Delaware Basin, approximately 35 percent were in the Bone Spring interval and the remaining 65 percent were Wolfcamp A and B interval wells.
Results of Operations
Oil and gas revenues.
Average daily sales volumes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
Oil (Bbls)
|
363,046
|
|
|
214,959
|
|
|
69
|
%
|
|
322,258
|
|
|
218,808
|
|
|
47
|
%
|
|
NGL (Bbls)
|
147,135
|
|
|
90,184
|
|
|
63
|
%
|
|
126,520
|
|
|
87,271
|
|
|
45
|
%
|
|
Gas (Mcf)
|
715,719
|
|
|
416,516
|
|
|
72
|
%
|
|
620,124
|
|
|
412,704
|
|
|
50
|
%
|
|
Total (BOEs)
|
629,468
|
|
|
374,563
|
|
|
68
|
%
|
|
552,132
|
|
|
374,863
|
|
|
47
|
%
|
The increase in average daily BOE sales volumes for the three and six months ended June 30, 2021, as compared to the same periods in 2020 was due to the Company's successful Spraberry/Wolfcamp horizontal drilling program, combined with the production added from the Parsley Acquisition and the DoublePoint Acquisition.
The oil, NGL and gas prices that the Company reports are based on the market prices received for each commodity. Commodity prices for the three and six months ended June 30, 2021, as compared to the same respective periods in 2020, increased due to the continued recovery in oil, NGL and gas demand from the COVID-19 pandemic. The average prices are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
|
|
|
|
Oil per Bbl
|
$
|
64.55
|
|
|
$
|
23.16
|
|
|
179
|
%
|
|
$
|
61.15
|
|
|
$
|
34.58
|
|
|
77
|
%
|
|
|
|
|
|
NGL per Bbl
|
$
|
27.95
|
|
|
$
|
12.65
|
|
|
121
|
%
|
|
$
|
27.10
|
|
|
$
|
13.55
|
|
|
100
|
%
|
|
|
|
|
|
Gas per Mcf
|
$
|
2.69
|
|
|
$
|
1.15
|
|
|
134
|
%
|
|
$
|
2.83
|
|
|
$
|
1.38
|
|
|
105
|
%
|
|
|
|
|
|
Total per BOE
|
$
|
46.82
|
|
|
$
|
17.61
|
|
|
166
|
%
|
|
$
|
45.08
|
|
|
$
|
24.85
|
|
|
81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased commodities. The Company enters into pipeline capacity commitments in order to secure available oil, NGLs and gas transportation capacity from the Company's areas of production and secure diesel supply from the Gulf Coast to the Company's operations in the Permian Basin. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil and gas sales to (i) Gulf Coast refineries, (ii) Gulf Coast and West Coast gas markets and (iii) international oil markets, and to satisfy unused gas pipeline capacity commitments.
Revenues and expenses from these transactions are generally presented on a gross basis in sales of purchased commodities and purchased commodities in the accompanying consolidated statements of operations as the Company acts as a principal in the transaction by assuming both the risks and rewards of ownership, including credit risk, of the commodities
PIONEER NATURAL RESOURCES COMPANY
purchased and the responsibility to deliver the commodities sold. The Company has also entered into long-term marketing contracts, which are accounted for as derivatives, to similarly diversify its oil sales to Gulf Coast and international markets. The marketing contracts were entered in October 2019, each with a January 1, 2021 contract commencement date and a December 31, 2026 contract termination date. The gains and losses associated with the Company's marketing derivatives are recognized in net derivative gains (losses) in the consolidated statements of operations. In conjunction with the Company's downstream sales, the Company also enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production to downstream sales points. The transportation costs associated with sales of purchased commodities are included in purchased commodities expense. See Consolidated Statements of Operations included in "Item 1. Financial Statements" for additional information.
The net effects of third party purchases and sales of commodities and associated marketing contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Sales of purchased commodities
|
$
|
1,587
|
|
|
$
|
541
|
|
|
$
|
1,046
|
|
|
$
|
2,828
|
|
|
$
|
1,456
|
|
|
$
|
1,372
|
|
|
Purchased commodities
|
1,627
|
|
|
572
|
|
|
1,055
|
|
|
2,882
|
|
|
1,600
|
|
|
1,282
|
|
|
Net effect
|
(40)
|
|
|
(31)
|
|
|
(9)
|
|
|
(54)
|
|
|
(144)
|
|
|
90
|
|
|
Realized marketing derivative loss
|
(13)
|
|
|
—
|
|
|
(13)
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
|
|
$
|
(53)
|
|
|
$
|
(31)
|
|
|
$
|
(22)
|
|
|
$
|
(74)
|
|
|
$
|
(144)
|
|
|
$
|
70
|
|
The change in net sales of purchased commodities for the three months ended June 30, 2021, as compared to the same period in 2020, was primarily due to a decrease in 2021 downstream oil margins on the Company's Gulf Coast refinery and export sales. The change in net sales of purchased commodities for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily due to a $74 million loss during the first quarter of 2020 attributable to oil that was purchased and in transit via pipeline to the Gulf Coast or in Gulf Coast storage at the end of January and February, which was subsequently sold in February 2020 and March 2020, respectively, at lower prices. This oil inventory is sold in the month following purchase at contracted prices that are generally tied to monthly average index oil prices (typically Brent oil prices).
The realized losses associated with the commencement of the marketing derivative contracts in 2021 were due to differences in the oil volumes purchased by the Company which were based on Midland WTI prices and sold at prices highly correlated to Brent pricing. See Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Firm transportation payments on excess pipeline capacity are included in other expense in the accompanying consolidated statements of operations. See Note 14 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Interest and other income (loss), net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Interest and other income (loss), net
|
$
|
(20)
|
|
|
$
|
48
|
|
|
$
|
(68)
|
|
|
$
|
40
|
|
|
$
|
(158)
|
|
|
$
|
198
|
|
The decrease in net interest and other income (loss) for the three months ended June 30, 2021, as compared to the same period in 2020, was primarily due to a noncash loss of $25 million attributable to the change in fair value of the Company's investment in affiliate in 2021 compared to a noncash gain of $44 million in 2020. The increase in net interest and other income (loss) for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily due to (i) a noncash gain of $29 million attributable to the change in fair value of the Company's investment in affiliate in 2021 compared to a noncash loss of $101 million in 2020 and (ii) a $64 million noncash loss attributable to the decrease in fair value of contingent consideration associated with the South Texas Divestiture.
See Note 13 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
PIONEER NATURAL RESOURCES COMPANY
Derivative gain (loss), net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash derivative loss, net
|
$
|
(279)
|
|
|
$
|
(463)
|
|
|
$
|
184
|
|
|
$
|
(629)
|
|
|
$
|
(54)
|
|
|
$
|
(575)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash receipts (payments) on settled derivative instruments, net
|
(557)
|
|
|
128
|
|
|
(685)
|
|
|
(871)
|
|
|
191
|
|
|
(1,062)
|
|
|
Total commodity derivative gain (loss), net
|
(836)
|
|
|
(335)
|
|
|
(501)
|
|
|
(1,500)
|
|
|
137
|
|
|
(1,637)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash derivative gain (loss), net
|
17
|
|
|
(21)
|
|
|
38
|
|
|
(3)
|
|
|
(15)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments on settled derivative instruments, net
|
(13)
|
|
|
—
|
|
|
(13)
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
|
Total marketing derivative gain (loss), net
|
4
|
|
|
(21)
|
|
|
25
|
|
|
(23)
|
|
|
(15)
|
|
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments on settled derivative instruments, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative gain (loss), net
|
$
|
(832)
|
|
|
$
|
(356)
|
|
|
$
|
(476)
|
|
|
$
|
(1,523)
|
|
|
$
|
100
|
|
|
$
|
(1,623)
|
|
The Company primarily utilizes commodity swap contracts, collar contracts, collar contracts with short puts and basis swap contracts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company's capital budgeting and expenditure plans and (iii) support the payment of contractual obligations and dividends. The Company uses marketing derivatives to diversify its oil sales to Gulf Coast and international markets. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness.
Commodity derivative settlements and the related price impact (per Bbl or Mcf) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2021
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
Net cash payments
|
|
Price impact
|
|
Net cash payments
|
|
Price impact
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil derivative payments (a)
|
$
|
(548)
|
|
|
$
|
(16.60)
|
|
per Bbl
|
|
$
|
(841)
|
|
|
$
|
(14.42)
|
|
per Bbl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas derivative payments
|
(9)
|
|
|
$
|
(0.13)
|
|
per Mcf
|
|
(17)
|
|
|
$
|
(0.14)
|
|
per Mcf
|
|
Total net commodity derivative payments
|
$
|
(557)
|
|
|
|
|
|
$
|
(858)
|
|
|
|
|
_____________________
(a)Excludes the effect of liquidating certain of the Company's 2022 WTI swap contracts for cash payments of $13 million during the six months ended June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
|
Net cash receipts
|
|
Price impact
|
|
Net cash receipts
|
|
Price impact
|
|
|
(in millions)
|
|
|
|
|
(in millions)
|
|
|
|
|
Oil derivative receipts (a)
|
$
|
96
|
|
|
$
|
4.91
|
|
per Bbl
|
|
$
|
159
|
|
|
$
|
4.00
|
|
per Bbl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________
(a)Excludes the effect of liquidating certain of the Company's Brent collar contracts with short puts and Brent swap contracts for cash receipts of $32 million for the three and six months ended June 30, 2020.
The Company's open derivative contracts are subject to continuing market risk. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" and Note 4 and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
PIONEER NATURAL RESOURCES COMPANY
Gain on disposition of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Gain on disposition of assets, net
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
(4)
|
|
|
$
|
13
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
|
|
|
|
The decrease in gain on disposition of assets for the three months ended June 30, 2021, as compared to the same period in 2020, was primarily due to the Company recognizing a $6 million gain on the sale of certain vertical wells and approximately 1,500 net acres in 2020. The increase in gain on disposition of assets for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily due to recognizing a gain of $9 million in 2021 associated with the sale of the Company's well services business to a third party for net cash proceeds of $20 million. See Note 3 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Oil and gas production costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Oil and gas production costs
|
$
|
316
|
|
|
$
|
167
|
|
|
$
|
149
|
|
|
$
|
568
|
|
|
$
|
343
|
|
|
$
|
225
|
|
|
|
|
|
|
Oil and gas production costs per BOE are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
|
|
|
|
Lease operating expense per BOE (a)
|
$
|
3.05
|
|
|
$
|
2.78
|
|
|
10
|
%
|
|
$
|
3.23
|
|
|
$
|
3.05
|
|
|
6
|
%
|
|
|
|
|
|
Gathering, processing and transportation expense per BOE (b)
|
2.66
|
|
|
2.38
|
|
|
12
|
%
|
|
2.83
|
|
|
2.45
|
|
|
16
|
%
|
|
|
|
|
|
Workover costs per BOE (a)
|
0.39
|
|
|
0.10
|
|
|
290
|
%
|
|
0.40
|
|
|
0.27
|
|
|
48
|
%
|
|
|
|
|
|
Net natural gas plant income per BOE (c)
|
(0.59)
|
|
|
(0.34)
|
|
|
74
|
%
|
|
(0.79)
|
|
|
(0.74)
|
|
|
7
|
%
|
|
|
|
|
|
|
$
|
5.51
|
|
|
$
|
4.92
|
|
|
12
|
%
|
|
$
|
5.67
|
|
|
$
|
5.03
|
|
|
13
|
%
|
|
|
|
|
_____________________
(a)Lease operating expense and workover expense represent the components of oil and gas production costs over which the Company has management control.
(b)Gathering, processing and transportation expense represents the costs to gather, process, transport and fractionate the Company's gas and NGLs to a point of sale.
(c)Net natural gas plant income represents the earnings from the Company's ownership share of gas processing facilities that gather and process the Company's and third party gas.
Although the Company continues to realize the benefit of lower production costs in 2021 due to the Company's cost saving initiatives, the Company realized higher than expected production costs during the three and six months ended June 30, 2021 compared to the same periods in 2020 due to the following:
•Lease operating expense per BOE increased for the three months ended June 30, 2021, as compared to the same period in 2020, due to higher cost Delaware Basin assets acquired in the Parsley Acquisition. Lease operating expense per BOE increased for the six months ended June 30, 2021, as compared to the same period in 2020 primarily due to (i) higher cost Delaware Basin assets acquired in the Parsley Acquisition and (ii) an increase in electricity costs and lower production associated with the impact Winter Storm Uri had on the Company's operations in February 2021;
•Gathering, processing and transportation expense per BOE increased for the three months ended June 30, 2021, as compared to the same period in 2020 primarily due to (i) transportation costs related to new pipeline takeaway capacity for the Company's gas and NGL production and (ii) increased gas and NGL prices during the second quarter of 2021 that resulted in increased gas processing costs for those contractual volumes retained by the processor as payment for their services. Gathering, processing and transportation expense per BOE increased for the six months ended June 30, 2021, as compared to the same period in 2020 primarily due to (i) transportation costs related to new pipeline takeaway capacity for the Company's gas and NGL production, (ii) increased gas processing and transportation costs as a result of higher electricity costs during Winter Storm Uri in February 2021
PIONEER NATURAL RESOURCES COMPANY
and (iii) increased gas and NGL prices during 2021 that resulted in increased gas processing costs for those contractual volumes retained by the processor as payment for their services;
•Workover costs per BOE increased for the three and six months ended June 30, 2021, as compared to the same periods in 2020, due to an increase in workover activity as a result of improved commodity prices being realized in 2021, which increased the economic benefit of repairing certain of the Company's oil and gas wells; and
•Net natural gas plant income per BOE increased for the three months ended June 30, 2021, as compared to the same period in 2020 primarily due to improved gas and NGL prices. Net natural gas plant income per BOE increased for the six months ended June 30, 2021, as compared to the same period in 2020 primarily due to improved gas and NGL prices, partially offset by a temporary decrease in volumes processed as a result of Winter Storm Uri's impact to the Company's processing facilities.
Production and ad valorem taxes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Production and ad valorem taxes
|
$
|
153
|
|
|
$
|
47
|
|
|
$
|
106
|
|
|
$
|
266
|
|
|
$
|
120
|
|
|
$
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In general, production taxes and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, whereas production taxes are based upon current year commodity prices.
Production and ad valorem taxes per BOE are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
|
|
|
|
Production taxes per BOE
|
$
|
2.15
|
|
|
$
|
0.70
|
|
|
207
|
%
|
|
$
|
2.07
|
|
|
$
|
1.07
|
|
|
93
|
%
|
|
|
|
|
|
Ad valorem taxes per BOE
|
0.52
|
|
|
0.65
|
|
|
(20
|
%)
|
|
0.58
|
|
|
0.69
|
|
|
(16
|
%)
|
|
|
|
|
|
|
$
|
2.67
|
|
|
$
|
1.35
|
|
|
98
|
%
|
|
$
|
2.65
|
|
|
$
|
1.76
|
|
|
51
|
%
|
|
|
|
|
The increase in production taxes per BOE for the three and six months ended June 30, 2021, as compared to the same periods in 2020, was primarily due to increases in oil, NGL and gas commodity prices. The decrease in ad valorem taxes per BOE for the three and six months ended June 30, 2021, as compared to the same periods in 2020, was primarily due to lower prior year commodity prices that are used to determine current year ad valorem taxes.
Depletion, depreciation and amortization expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Depletion, depreciation and amortization
|
$
|
648
|
|
|
$
|
416
|
|
|
$
|
232
|
|
|
$
|
1,121
|
|
|
$
|
850
|
|
|
$
|
271
|
|
|
|
|
|
|
|
Total DD&A and depletion expense per BOE is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
|
|
|
|
|
|
DD&A per BOE
|
$
|
11.31
|
|
|
$
|
12.21
|
|
|
(7
|
%)
|
|
$
|
11.22
|
|
|
$
|
12.46
|
|
|
(10
|
%)
|
|
|
|
|
|
|
|
Depletion expense per BOE
|
$
|
11.04
|
|
|
$
|
11.57
|
|
|
(5
|
%)
|
|
$
|
10.83
|
|
|
$
|
11.83
|
|
|
(8
|
%)
|
|
|
|
|
|
|
The decrease in DD&A per BOE and depletion expense per BOE was primarily due to incremental additions to proved reserves attributable to (i) new wells placed on production from the Company's successful Spraberry/Wolfcamp horizontal drilling program and (ii) improved commodity prices (which has the effect of extending the economic life of producing wells). In addition, the DD&A per BOE and depletion expense per BOE attributable to the Parsley Acquisition and the DoublePoint Acquisition were lower than the Company's respective 2020 per BOE amounts.
PIONEER NATURAL RESOURCES COMPANY
Exploration and abandonments expense. Geological and geophysical costs and lease abandonments and other exploration expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Geological and geophysical
|
$
|
10
|
|
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
26
|
|
|
$
|
16
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold abandonments and other
|
—
|
|
|
1
|
|
|
(1)
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
19
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in geological and geophysical costs for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily due to relicensing certain seismic data in connection with the Parsley Acquisition.
During the six months ended June 30, 2021, the Company drilled and evaluated 252 exploration/extension wells, of which 100 percent were successfully completed as discoveries. During the same period in 2020, the Company drilled and evaluated 156 exploration/extension wells, of which 100 percent were successfully completed as discoveries.
General and administrative expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Noncash general and administrative expense
|
$
|
12
|
|
|
$
|
10
|
|
|
$
|
2
|
|
|
$
|
24
|
|
|
$
|
15
|
|
|
$
|
9
|
|
|
Cash general and administrative expense
|
63
|
|
|
50
|
|
|
13
|
|
|
119
|
|
|
101
|
|
|
18
|
|
|
|
$
|
75
|
|
|
$
|
60
|
|
|
$
|
15
|
|
|
$
|
143
|
|
|
$
|
116
|
|
|
$
|
27
|
|
The change in noncash general and administrative expense for the three and six months ended June 30, 2021, as compared to the same periods in 2020, is primarily due to market fluctuations in the Company's deferred compensation obligation as a result of mark-to-market valuation changes attributable to the Company's deferred compensation plan assets.
The change in cash general and administrative expense for the three and six months ended June 30, 2021, as compared to the same periods in 2020, was primarily due to the reinstatement of certain employee benefits during 2021 that were temporarily suspended during 2020 in response to the COVID-19 pandemic.
Total general and administrative expense per BOE is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
% Change
|
|
2021
|
|
2020
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash general and administrative expense per BOE
|
$
|
0.21
|
|
|
$
|
0.29
|
|
|
(28
|
%)
|
|
$
|
0.24
|
|
|
$
|
0.22
|
|
|
9
|
%
|
|
Cash general and administrative expense per BOE
|
1.10
|
|
|
1.46
|
|
|
(25
|
%)
|
|
1.19
|
|
|
1.48
|
|
|
(20
|
%)
|
|
|
$
|
1.31
|
|
|
$
|
1.75
|
|
|
(25
|
%)
|
|
$
|
1.43
|
|
|
$
|
1.70
|
|
|
(16
|
%)
|
The decrease in general and administrative expense per BOE for the three and six months ended June 30, 2021, reflect the general and administrative synergies achieved from the Parsley Acquisition beginning in January 2021 and the DoublePoint Acquisition beginning in May 2021. The Company added the production volumes from the acquisitions, with limited associated general and administrative costs.
PIONEER NATURAL RESOURCES COMPANY
Interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash interest expense
|
$
|
7
|
|
|
$
|
13
|
|
|
$
|
(6)
|
|
|
$
|
12
|
|
|
$
|
18
|
|
|
$
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest expense
|
34
|
|
|
20
|
|
|
14
|
|
|
69
|
|
|
42
|
|
|
27
|
|
|
|
|
|
|
|
|
|
$
|
41
|
|
|
$
|
33
|
|
|
$
|
8
|
|
|
$
|
81
|
|
|
$
|
60
|
|
|
$
|
21
|
|
|
|
|
|
|
|
The Company early adopted Accounting Standard Update ("ASU") 2020-06 effective January 1, 2021, as a result of this early adoption, the Company reversed the debt discount recorded to additional paid-in capital upon issuance of the Company's Convertible Notes to long-term debt. Therefore, noncash interest expense during the three and six months ended June 30, 2021 decreased as compared to the same respective periods in 2020, primarily due to a $7 million decrease in amortization associated with the discount attributable to the issuance of the Convertible Notes prior to the adoption of ASU 2020-06. See Note 7 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.
The increase in cash interest expense during the three and six months ended June 30, 2021, as compared to the same respective periods in 2020, is primarily due to (i) the changes in long-term debt as a result of the Parsley Acquisition and DoublePoint Acquisition (see "Liquidity and Capital Resources" below for further information) and (ii) the issuance in May 2020 and August 2020, respectively, of $1.3 billion of the Convertible Notes and $1.1 billion of 1.90% senior notes due 2030, partially offset by (i) the partial repayment of $360 million of the Company's 3.45% senior notes due 2021, $356 million of its 3.95% senior notes due 2022 and $9 million of its 7.20% senior notes due 2028 as a result of the Company's tender offer for these notes in May 2020 and (ii) the repayment of its 3.45% senior notes that matured in January 2021.
The weighted average cash interest rate on the Company's indebtedness for the six months ended June 30, 2021 was 1.9 percent, as compared to 2.4 percent for the same period in 2020. See Note 7 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.
Other expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Other expense
|
$
|
47
|
|
|
$
|
90
|
|
|
$
|
(43)
|
|
|
$
|
351
|
|
|
$
|
175
|
|
|
$
|
176
|
|
|
|
|
|
|
|
The decrease in other expense during the three months and increase in the six months ended June 30, 2021, as compared to the same respective periods in 2020, was primarily due to the following:
•$36 million and $233 million of transaction-related costs for the three and six months ended June 30, 2021, respectively, associated with the Parsley Acquisition and DoublePoint Acquisition;
•$80 million of losses for the six months ended June 30, 2021 related to the Company's fulfillment of certain firm gas purchase commitments during Winter Storm Uri in February 2021; and
•$7 million and $17 million of costs primarily related to unoccupied facilities acquired through the Parsley Acquisition for the three and six months ended June 30, 2021, respectively; as compared to
•a $69 million charge for estimated deficiency payments related to the Company's South Texas Divestiture for the six months ended June 30, 2020;
•$44 million and $53 million of idle frac fleet fees, stacked drilling rig charges and drilling rig early termination charges for the three and six months ended June 30, 2020, respectively; and
•$27 million of early extinguishment of debt charges for the three and six months ended June 30, 2020 associated with the Company's refinancing activities during the second quarter of 2020.
See Note 14 of Notes to Consolidated Financial Statements in "Item 1. Financial Statements" for additional information.
PIONEER NATURAL RESOURCES COMPANY
Income tax benefit (provision).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Income tax benefit (provision)
|
$
|
(120)
|
|
|
$
|
109
|
|
|
$
|
(229)
|
|
|
$
|
(109)
|
|
|
$
|
31
|
|
|
$
|
(140)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
24
|
%
|
|
20
|
%
|
|
4
|
%
|
|
26
|
%
|
|
17
|
%
|
|
9
|
%
|
The change in income tax benefit (provision) during the three and six months ended June 30, 2021, as compared to the same periods in 2020, was primarily due to a $1.1 billion and $608 million increase, respectively, in income before income taxes. The Company evaluates and updates its annual effective income tax rate on an interim basis based on current and forecasted earnings and tax laws. The mix and timing of the Company's actual earnings compared to annual projections can cause interim effective tax rate fluctuations. The Company's interim effective tax rate for the three and six months ended June 30, 2021 differed from the U.S. statutory rate of 21 percent primarily due to forecasted state income taxes. See Note 15 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Liquidity and Capital Resources
Liquidity. The Company's primary sources of short-term liquidity are (i) cash and cash equivalents, (ii) net cash provided by operating activities, (iii) sales of investments, (iv) unused borrowing capacity under its Credit Facility, (v) issuances of debt or equity securities and (vi) other sources, such as sales of nonstrategic assets. In January 2021, Pioneer entered into the First Amendment to Credit Agreement, with the primary changes being to increase the aggregate loan commitments from $1.5 billion to $2.0 billion, extend the maturity of the Credit Facility to January 12, 2026 and to nominally adjust the drawn and undrawn pricing.
The Company's short-term and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) acquisitions of oil and gas properties, (iii) payments of contractual obligations, including debt maturities, (iv) dividends and share repurchases and (v) working capital obligations. Funding for these requirements may be provided by any combination of the Company's sources of liquidity. Although the Company expects that its sources of funding will be adequate to fund its 2021 liquidity requirements, no assurance can be given that such funding sources will be adequate to meet the Company's future needs.
During the six months ended June 30, 2021, the Company enhanced its liquidity position by refinancing a portion of the debt acquired in the Parsley Acquisition and the DoublePoint Acquisition, issuing new debt and increasing borrowing capacity under the Company's Credit Facility, with the combined objective of increasing liquidity, extending the Company's debt maturities and lowering the Company's future cash interest expense on long-term debt.
2021 revised capital budget. With the completion of the Parsley Acquisition and the DoublePoint Acquisition, the Company's capital budget for 2021 was revised and is expected to be in the range of $3.1 billion to $3.4 billion, consisting of $2.95 billion to $3.25 billion for drilling and completion related activities, including additional tank batteries, saltwater disposal facilities, water infrastructure additions and vehicles, and $150 million of estimated Parsley and DoublePoint integration costs. The Company's capital expenditures for the six months ended June 30, 2021 were $1.5 billion. The 2021 capital budget and actual capital expenditures for the six months ended June 30, 2021 excludes acquisitions, asset retirement obligations, capitalized interest, geological and geophysical general and administrative expense and corporate facilities.
Capital resources. As of June 30, 2021, the Company had no outstanding borrowings under its Credit Facility, leaving $2.0 billion of unused borrowing capacity. The Company was in compliance with all of its debt covenants as of June 30, 2021. The Company also had unrestricted cash on hand of $93 million as of June 30, 2021.
PIONEER NATURAL RESOURCES COMPANY
Cash flows from operating, investing and financing activities are summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Net cash provided by operating activities
|
$
|
1,843
|
|
|
$
|
1,154
|
|
|
$
|
689
|
|
|
Net cash used in investing activities
|
$
|
(2,042)
|
|
|
$
|
(1,106)
|
|
|
$
|
936
|
|
|
Net cash used in financing activities
|
$
|
(1,160)
|
|
|
$
|
(504)
|
|
|
$
|
656
|
|
Operating activities. The increase in net cash flow provided by operating activities for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily due to an increase in oil and gas revenues as a result of higher commodity prices and sales volumes partially offset by (i) additional cash used in derivative activities, (ii) an increase in production costs due to an increase in production taxes attributable to higher commodity prices and costs attributable to the production added from the from the Parsley Acquisition and the DoublePoint Acquisition, (iii) one-time cash Parsley and DoublePoint transaction-related costs and (iv) cash paid to fulfill certain gas commitments during Winter Storm Uri.
Investing activities. The increase in net cash used in investing activities for the six months ended June 30, 2021, as compared to the same period in 2020, was primarily a result of $943 million of net cash used in the DoublePoint Acquisition and an increase in additions to oil and gas properties of $159 million, partially offset by (i) $117 million of net cash acquired in the Parsley Acquisition, (ii) an increase in proceeds from disposition of assets of $25 million primarily related to the sale of the Company's well services business and (iii) a decrease in additions to other assets and other property and equipment of $24 million.
Financing activities. The Company's significant financing activities are as follows:
•2021: The Company (i) received proceeds from the May 2021 Senior Notes Offering, net of $4 million of issuance costs and discounts, of $746 million, (ii) received proceeds from the January 2021 Senior Notes Offering, net of $24 million of issuance costs and discounts, of $2.5 billion, (iii) borrowed and repaid $650 million on the Company's Credit Facility, (iv) repaid the Parsley and DoublePoint credit facilities, which had outstanding balances of $397 million and $240 million, respectively, (v) repaid $140 million associated with the maturity of its 3.45% senior notes due in January 2021, (vi) used proceeds from the May 2021 Senior Notes Offering to pay $731 million to redeem DoublePoint's 7.75% senior notes due 2023, (vii) used proceeds from the January 2021 Senior Notes Offering to pay $1.6 billion to redeem Parsley's 5.250% senior notes due 2025, Parsley's 5.375% senior notes due 2025 and Jagged Peak's 5.875% senior notes due 2026, (viii) paid $852 million to purchase a portion of Parsley's 5.625% senior notes due 2027 and Parsley's 4.125% senior notes due 2028 pursuant to a cash tender offer, (ix) paid $147 million of other liabilities and (x) paid dividends of $213 million.
•2020: The Company (i) received $1.3 billion from the issuance of the Convertible Notes, net of issuance fees, (ii) paid $113 million to enter into the Capped Call transactions associated with the Convertible Notes issuance, (iii) repaid an aggregate of $725 million associated with the early repayment of a portion of the 3.45% senior notes, 3.95% senior notes and 7.20% senior notes, (iv) repaid $450 million associated with the maturity of its 7.50% senior notes in January 2020, (v) purchased $172 million of treasury stock, (vi) paid dividends of $164 million and (vii) paid $154 million of other liabilities.
Dividends/distributions. During the six months ended June 30, 2021, the Company paid dividends of $213 million, or $1.11 per share. In May 2021, the board of directors declared a quarterly cash dividend of $0.56 per share on the Company's outstanding common stock, payable on July 14, 2021, to stockholders of record on June 30, 2021.
In addition to its base dividend program, the Company has initiated a variable dividend strategy whereby the Company may pay a quarterly variable dividend of up to 75 percent of the prior quarter free cash flow remaining after the payment of the base dividend. On August 2, 2021, the Company declared an inaugural variable dividend of $1.51 per share for shareholders of record on September 3, 2021, with a payment date of September 17, 2021.
Free cash flow is a non-GAAP financial measure. As used by the Company, free cash flow is defined as net cash provided by operating activities, adjusted for changes in operating assets and liabilities and cash transaction costs associated with acquisitions, less capital expenditures. The Company believes this non-GAAP measure is a financial indicator of the Company's ability to internally fund acquisitions, debt maturities, dividends and share repurchases after capital expenditures.
PIONEER NATURAL RESOURCES COMPANY
Capital expenditures exclude acquisitions, asset retirement obligations, capitalized interest, geological and geophysical general and administrative expenses, information technology capital and additions to corporate facilities.
Future base and variable 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 outlook for commodity prices, liquidity, debt levels, capital resources, free cash flow and other factors. The Company can provide no assurance that dividends will be authorized or declared in the future or as to the amount of any future dividends. Any future variable dividends, if declared and paid, will by their nature fluctuate based on the Company's free cash flow, which will depend on a number of factors beyond the Company's control, including commodities prices.
Off-balance sheet arrangements. From time to time, the Company enters into arrangements and transactions that can give rise to material off-balance sheet obligations. As of June 30, 2021, the material off-balance sheet arrangements and transactions that the Company had entered into included (i) firm purchase, transportation, storage and fractionation commitments, (ii) open purchase commitments and (iii) contractual obligations for which the ultimate settlement amounts are not fixed and determinable. The contractual obligations for which the ultimate settlement amounts are not fixed and determinable include (a) derivative contracts that are sensitive to future changes in commodity prices or interest rates, (b) gathering, processing (primarily treating and fractionation) and transportation commitments on uncertain volumes of future throughput and (c) indemnification obligations following certain divestitures.
In connection with its divestiture transactions, the Company may retain certain liabilities and provide the purchaser certain indemnifications, subject to defined limitations, which may apply to identified pre-closing matters, including matters of litigation, environmental contingencies, royalty and income taxes. Also associated with its divestiture transactions, the Company has issued and received guarantees to facilitate the transfer of contractual obligations, such as firm transportation agreements or gathering and processing arrangements. The Company does not recognize a liability if the fair value of the obligation is immaterial and the likelihood of making payments under these guarantees is remote.
Other than the off-balance sheet arrangements described above, the Company has no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company's liquidity or availability of or requirements for capital resources. The Company expects to enter into similar contractual arrangements in the future, including incremental derivative contracts and additional firm purchase, transportation, storage and fractionation arrangements, in order to support the Company's business plans. See "Contractual obligations" below and Note 10 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
Convertible senior notes. In May 2020, the Company issued $1.3 billion principal amount of convertible senior notes due 2025. The Convertible Notes bear a fixed interest rate of 0.25% per year, with interest payable on May 15 and November 15 of each year. The Convertible Notes will mature on May 15, 2025, unless earlier redeemed, repurchased or converted. The Convertible Notes are unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company.
The Convertible Notes are convertible into shares of the Company's common stock at a conversion rate of 9.111 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Rate"), which represents a conversion price of $109.76 per share (subject to adjustment pursuant to the terms of the notes indenture, the "Conversion Price"). As a result of the quarterly base dividends declared through March 31, 2021, the Conversion Rate increased from the initial rate of 9.1098 shares of the Company's common stock per $1,000 principal amount of the Convertible Notes and the Conversion Price decreased from $109.77. Future changes to the Company's base dividend program or the declaration of a variable dividend, as previously described, will cause an adjustment to the Conversion Rate and the Conversion Price pursuant to the terms of the notes indenture. Upon conversion, the Convertible Notes may be settled in cash, shares of the Company's common stock or a combination thereof, at the Company's election.
Holders of the Convertible Notes may convert their notes at their option prior to February 15, 2025 under the following circumstances:
•during the quarter following any quarter during which the last reported sales price of the Company's common stock for at least 20 of the last 30 consecutive trading days of such quarter exceeds 130 percent of the Conversion Price;
•during the five-day period following any five consecutive trading day period when the trading price of the Convertible Notes is less than 98 percent of the price of the Company's common stock times the Conversion Rate;
•upon notice of redemption by the Company; or
•upon the occurrence of specified corporate events, including certain consolidations or mergers.
PIONEER NATURAL RESOURCES COMPANY
On or after February 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. The Company may not redeem the Convertible Notes prior to May 20, 2023, and after such date, may redeem the Convertible Notes only if the last reported sale price of the Company's common stock has been at least 130 percent of the Conversion Price for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides the notice of redemption. The redemption price is equal to 100 percent of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.
During the last 30 consecutive trading days of the second quarter of 2021, the last reported sales prices of the Company's common stock exceeded 130 percent of the Conversion Price for at least 20 trading days, causing the Convertible Notes to become convertible at the option of the holders during the three month period ending September 30, 2021. If converted by the holder, the Company intends to settle the Convertible Notes in cash, although the Company reserves its right under the notes indenture to elect to settle the Convertible Notes in shares of the Company's common stock or a combination of cash and common stock.
Contractual obligations. The Company's contractual obligations include long-term debt, leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations, derivative obligations, firm transportation, storage and fractionation commitments, minimum annual gathering, processing and transportation commitments and other liabilities (including postretirement benefit obligations). Other joint owners in the properties operated by the Company could incur portions of the costs represented by these commitments.
The Company has short-term and long-term firm purchase, gathering, processing, transportation, fractionation and storage commitments representing take-or-pay agreements, which include contractual commitments (i) to purchase sand, water and diesel for use in the Company's drilling and completion operations, (ii) with midstream service companies and pipeline carriers for future gathering, processing, transportation, fractionation and storage and (iii) with oilfield services companies that provide drilling and pressure pumping services. The Company does not expect to be able to fulfill all of its short-term and long-term firm transportation volume obligations from projected production of available reserves; consequently, the Company plans to purchase third party volumes to satisfy its firm transportation commitments if it is economic to do so; otherwise, it will pay demand fees for any commitment shortfalls.
The Company's commodity and marketing derivative contracts are periodically measured and recorded at fair value and continue to be subject to market and credit risk. As of June 30, 2021, these contracts represented net liabilities of $1.3 billion. 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 June 30, 2021. See Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information.
New Accounting Pronouncements
The effects of new accounting pronouncements are discussed in Note 2 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements."
|
|
|
|
|
|
|
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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In the normal course of business, the Company's financial position is routinely subject to a variety of risks, including market risks associated with changes in commodity prices, interest rate movements on outstanding debt and credit risks. These risks are mitigated through the Company's risk management program, which includes the use of derivative financial instruments and selling purchased oil and gas outside of the Permian Basin. The following quantitative and qualitative information is provided about financial instruments to which the Company was a party as of June 30, 2021, and from which the Company may incur future gains or losses from changes in commodity prices or interest rates. The Company does not enter into any financial instruments, including derivatives, for speculative or trading purposes.
Interest rate risk. As of June 30, 2021, the Company had no variable rate debt outstanding under the Credit Facility and, consequently, no related exposure to interest rate risk. As of June 30, 2021, the Company had $6.9 billion of fixed rate long-term debt outstanding with a weighted average cash interest rate of 1.9 percent. Although changes in interest rates may affect the fair value of the Company's fixed rate long-term debt, any changes would not impact earnings or expose the Company to the risk of cash flow losses. The Company did not have any interest rate derivative instruments outstanding as of June 30, 2021; however, it may enter into such instruments in the future to mitigate interest rate risk. See Note 4 and Note 7 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.
PIONEER NATURAL RESOURCES COMPANY
Commodity price risk. The Company's primary market risk exposure is related to the price it receives from the sale of its oil, NGLs and gas production. Realized pricing is volatile and is determined by market prices that fluctuate with changes in supply and demand for these products throughout the world. The price the Company receives for its production depends on many factors outside of the control of the Company, including differences in commodity pricing at the point of sale versus market index prices. Reducing the Company's exposure to price volatility helps secure funds to be used in its capital program and to fund general working capital needs, debt obligations, dividends and share repurchases, among other uses. The Company mitigates its commodity price risk through the use of derivative financial instruments and sales of purchased oil and gas.
Derivative financial instruments. The Company's decision on the quantity and price at which it executes derivative contracts is based in part on its view of current and future market conditions. The Company may choose not to enter into derivative positions for expected production if the commodity price forecast for certain time periods is deemed to be unfavorable. Additionally, the Company may choose to liquidate existing derivative positions prior to the expiration of their contractual maturity in order to monetize gain positions or minimize loss positions if it is anticipated that the commodity price forecast is expected to improve. Proceeds, if any, can be used for the purpose of funding the Company's capital program, general working capital needs, debt obligations, dividends and share repurchases, among other uses. While derivative positions limit the downside risk of adverse price movements, they also limit future revenues from upward price movements. The Company manages commodity price risk with the following types of commodity derivative contracts:
•Swaps. The Company receives a fixed price and pays a floating market price to the counterparty on a notional amount of sales volumes, thereby fixing the price for the commodity sold.
•Collars. Collar contracts provide minimum ("floor" or "long put") and maximum ("ceiling") prices on a notional amount of sales volumes, thereby allowing some price participation if the relevant index price closes above the floor price but below the ceiling price.
•Collar contracts with short put options. Collar contracts with short put options differ from other collar contracts by virtue of the short put option price, below which the Company's realized price will exceed the variable market prices by the long put-to-short put price differential.
•Basis swaps. Basis swap contracts fix the basis differentials between the index price at which the Company sells its production and the index price used in swap or collar contracts.
•Rollfactor swaps. Rollfactor swaps are utilized to match the derivative contracts to the physical oil sales. Physical oil sales typically use trade month averages whereas derivative contracts utilize calendar month averages. The rollfactor swaps convert the calendar month into a trade month.
•Options. Selling individual call options can enhance the market price by the premium received or, alternatively, the premium received can be utilized to improve swap or collar contract prices. Purchased put options establish a minimum floor price (less any premiums paid) and allow participation in higher prices when prices close above the floor price.
The Company has entered into commodity derivative contracts for a portion of its forecasted 2021 and 2022 production; consequently, if commodity prices decline, the Company could realize lower prices for volumes not protected by the Company's derivative activities and could see a reduction in derivative contract prices on additional volumes in the future. As a result, the Company's internal cash flows will be negatively impacted by a reduction in commodity prices.
The average forward prices based on June 30, 2021 market quotes were as follows:
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2021
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Year Ending December 31, 2022
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Third
Quarter
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Fourth
Quarter
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Average forward Brent oil price
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$
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73.82
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$
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71.79
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$
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68.54
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Average forward WTI Midland oil price
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$
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71.76
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$
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69.43
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$
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65.48
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Average forward MEH oil price
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$
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72.14
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$
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69.91
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$
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66.15
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Average forward NYMEX gas price
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$
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3.64
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$
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3.67
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$
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3.17
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Average forward DUTCH TTF gas price
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$
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12.02
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$
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12.12
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$
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8.94
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Average forward WAHA gas price
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$
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3.57
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$
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3.56
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$
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2.83
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WTI Midland/Brent oil basis differentials:
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Average forward basis differential price (a)
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$
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(2.06)
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$
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(2.36)
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$
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(3.06)
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PIONEER NATURAL RESOURCES COMPANY
The average forward prices based on July 30, 2021 market quotes are as follows:
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2021
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Year Ending December 31, 2022
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Third
Quarter
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Fourth
Quarter
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Average forward Brent oil price
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$
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75.44
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$
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73.11
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$
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69.63
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Average forward WTI Midland oil price
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$
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73.11
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$
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70.86
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$
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66.63
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Average forward MEH oil price
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$
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73.54
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$
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71.34
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$
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67.28
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Average forward NYMEX gas price
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$
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3.91
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$
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4.00
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$
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3.46
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Average forward DUTCH TTF gas price
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$
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14.18
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$
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14.14
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$
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9.61
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Average forward WAHA gas price
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$
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3.68
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$
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3.79
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$
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3.14
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WTI Midland/Brent oil basis differentials:
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Average forward basis differential price (a)
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$
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(2.34)
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$
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(2.25)
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$
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(3.00)
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___________________
(a)Based on market quotes for basis differentials between Midland oil index prices and the Brent oil index price.
See Note 4 and Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for a description of the Company's open derivative positions and additional information.
Sales of purchased commodities. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to diversify a portion of the Company's oil and gas sales to (i) Gulf Coast refineries, (ii) Gulf Coast and West Coast gas markets and (iii) international oil markets and to satisfy unused gas pipeline capacity commitments. The Company also enters into pipeline capacity commitments to secure diesel supply from the Gulf Coast to the Company's operations in the Permian Basin. The Company enters into separate sales transactions with third parties related to diesel volumes that exceed the Company's operational needs.
Marketing derivatives. The Company's marketing derivatives reflect two long-term marketing contracts that were entered in October 2019 whereby the Company agreed to purchase and simultaneously sell 50 thousand barrels of oil per day at an oil terminal in Midland, Texas for a six-year term that began on January 1, 2021 and ends on December 31, 2026. The price the Company pays to purchase the oil volumes under the purchase contract is based on a Midland WTI price and the price the Company receives for the oil volumes sold is a WASP that a non-affiliated counterparty receives for selling oil through their Gulf Coast storage and export facility at prices that are highly correlated with Brent oil prices during the same month of the purchase. Based on the form of the marketing contracts, the Company determined that the marketing contracts should be accounted for as derivative instruments. Similar to sales of purchased commodities, these marketing derivatives allow the Company to diversify a portion of its oil sales from its area of production to Gulf Coast and international markets.
The average forward prices based on June 30, 2021 market quotes are as follows:
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Year Ending
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December 31, 2021
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December 31, 2022
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December 31, 2023
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December 31, 2024
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December 31, 2025
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December 31, 2026
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Average forward Brent oil price
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$
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72.81
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$
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68.54
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$
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64.59
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$
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61.77
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$
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59.96
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$
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59.11
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Average forward WTI Midland oil price
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70.60
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65.48
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60.86
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57.56
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55.48
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54.42
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Average forward basis differential price (a)
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$
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2.21
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$
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3.06
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$
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3.73
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$
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4.21
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$
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4.48
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$
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4.69
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The average forward prices based on July 30, 2021 market quotes are as follows:
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Year Ending
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December 31, 2021
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December 31, 2022
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December 31, 2023
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December 31, 2024
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December 31, 2025
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December 31, 2026
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Average forward Brent oil price
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$
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74.28
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$
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69.63
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$
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65.48
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$
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62.33
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$
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60.14
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$
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58.94
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Average forward WTI Midland oil price
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71.98
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66.63
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61.42
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57.68
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55.18
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53.72
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Average forward basis differential price (a)
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$
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2.30
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$
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3.00
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$
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4.06
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$
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4.65
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$
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4.96
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$
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5.22
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___________________
(a)Based on market quotes for basis differentials between Midland oil index prices and the Brent oil index price.
PIONEER NATURAL RESOURCES COMPANY
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 commodities are sold to various purchasers who must be prequalified under the Company's credit risk and procedures. The Company monitors exposure to counterparties primarily by reviewing credit ratings, financial criteria and payment history. Where appropriate, the Company obtains assurances of payment, such as a guarantee by the parent company of the counterparty, a letter of credit or other credit support. Historically, the Company's credit losses on commodities receivables have not been material.
The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.
The Company has entered into International Swap Dealers Association Master Agreements ("ISDA Agreements") with each of its derivative counterparties. The terms of the ISDA Agreements provide the Company and the counterparties with right of set off upon the occurrence of defined acts of default by either the Company or a counterparty to a derivative contract, whereby the party not in default may set off all derivative liabilities owed to the defaulting party against all derivative asset receivables from the defaulting party. See Note 5 of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.