UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/ x / Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31,June 30, 2000
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to ________
Commission File No. 1-13245
PIONEER NATURAL RESOURCES COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 75-2702753
----------------------------------------- ------------------------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 Williams Square West, 5205 N. O'Connor Blvd., Irving, Texas 75039
- ---------------------------------------------------------------- ------------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / x / No / /
Number of shares of Common Stock outstanding as of April 30, 2000............................................. 99,617,796July 31, 2000..... 99,256,386
PIONEER NATURAL RESOURCES COMPANY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31,June 30, 2000 and
December 31, 1999 ......................................1999.......................................... 3
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the three and six months ended
March 31,June 30, 2000 and 1999............................................1999..................................... 4
Consolidated Statement of Stockholders' Equity for the
threesix months ended March 31, 2000........................June 30, 2000............................. 5
Consolidated Statements of Cash Flows for the three and
six months ended March 31,June 30, 2000 and 1999.....................1999.................... 6
Notes to Consolidated Financial Statements..................Statements.................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................... 18Operations.................................. 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 25Risk.... 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 30Proceedings............................................. 31
Item 4. Submission of Matters to a Vote of Security Holders........... 31
Item 6. Exhibits and Reports on Form 8-K............................ 30
Signatures..................................................8-K.............................. 31
Signatures.................................................... 33
Exhibit Index................................................. 34
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31,June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
ASSETS
ASSETS
Current assets:
Cash and cash equivalents......................................equivalents................................ $ 33,13638,269 $ 34,788
Accounts receivable:
Trade, net.................................................. 135,483net............................................ 115,884 116,456
Affiliates.................................................. 2,413Affiliates............................................ 1,644 2,119
Inventories.................................................... 12,905Inventories.............................................. 14,702 13,721
Deferred income taxes.......................................... 5,800taxes.................................... 6,900 5,800
Other current assets........................................... 11,228assets..................................... 9,029 10,252
---------- ----------
Total current assets...................................... 200,965assets................................ 186,428 183,136
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties........................................... 3,062,829properties..................................... 3,112,696 2,997,335
Unproved properties......................................... 248,026properties................................... 224,761 257,583
Accumulated depletion, depreciation and amortization........... (799,602)amortization..... (851,515) (751,956)
---------- ----------
2,511,2532,485,942 2,502,962
---------- ----------
Deferred income taxes............................................ 83,400taxes...................................... 82,300 83,400
Other property and equipment, net................................ 40,633net.......................... 28,239 43,006
Other assets, net................................................ 133,640net.......................................... 150,296 116,969
---------- ----------
$ 2,969,8912,933,205 $ 2,929,473
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.........................debt..................... $ 505327 $ 828
Accounts payable:
Trade..................................................... 72,175Trade................................................. 69,060 86,442
Affiliates................................................ 498Affiliates............................................ 341 426
Interest payable............................................. 27,533payable......................................... 38,257 36,045
Other current liabilities.................................... 97,165liabilities................................ 108,130 73,072
---------- ----------
Total current liabilities.............................. 197,876liabilities........................... 216,115 196,813
---------- ----------
Long-term debt, less current maturities.......................... 1,745,818maturities.................... 1,702,662 1,745,108
Other noncurrent liabilities..................................... 167,997liabilities............................... 169,403 169,438
Deferred income taxes............................................ 41,600taxes...................................... 39,200 43,500
Stockholders' equity:
Preferred stock, $.01 par value; 100,000,000 shares
authorized; one share issued and outstanding..............outstanding.......... - -
Common stock, $.01 par value; 500,000,000 shares
authorized; 100,885,078100,920,391 and 100,876,789 shares
issued as of March 31,June 30, 2000 and December 31, 1999,
respectively..................respectively.......................................... 1,009 1,009
Additional paid-in-capital................................... 2,348,496paid-in-capital............................... 2,348,701 2,348,448
Treasury stock, at cost; 1,046,6251,268,183 and 537,206 shares
as of March 31,June 30, 2000 and December 31, 1999,
respectively........ (14,496)respectively.......................................... (16,691) (10,384)
Accumulated deficit.......................................... (1,560,114)deficit...................................... (1,576,175) (1,574,884)
Accumulated other comprehensive income:
Unrealized gain on available for sale securities.......... 31,742securities...... 43,207 -
Cumulative translation adjustment......................... 9,963adjustment..................... 5,774 10,425
---------- ----------
Total stockholders' equity............................. 816,600equity.......................... 805,825 774,614
Commitments and contingencies.................................... ---------- ----------contingencies..............................
$ 2,969,8912,933,205 $ 2,929,473
========== ==========
The financial information included as of March 31,June 30, 2000 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
3
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
Three months ended March 31,Six months ended
June 30, June 30,
--------------------- ---------------------
2000 1999 ---------- ----------2000 1999
--------- --------- --------- ---------
Revenues:
Oil and gas...........................................gas................................. $ 174,375197,947 $ 147,151174,231 $ 372,322 $ 321,382
Interest and other.................................... 3,755 45,973other.......................... 5,186 2,804 8,941 48,777
Gain (loss) on disposition of assets, net.................... 8,372 67
--------- ---------
186,502 193,191
--------- ---------net... (4,779) (42,291) 3,593 (42,224)
-------- -------- -------- --------
198,354 134,744 384,856 327,935
-------- -------- -------- --------
Costs and expenses:
Oil and gas production................................ 43,122 47,194production...................... 43,140 41,624 86,262 88,818
Depletion, depreciation and amortization.............. 51,908 69,372amortization.... 53,549 64,235 105,457 133,607
Impairment of oil and gas properties........ - 17,894 - 17,894
Exploration and abandonments.......................... 13,075 11,776abandonments................ 27,696 17,925 40,771 29,701
General and administrative............................ 9,759 10,249
Reorganization........................................administrative.................. 6,963 10,188 16,722 20,437
Reorganization.............................. - 5,529
Interest.............................................. 39,755 42,521
Other................................................. 14,413 8,651
--------- ---------
172,032 195,292
--------- ---------1,490 - 7,019
Interest.................................... 41,863 46,903 81,618 89,424
Other....................................... 30,486 9,601 44,899 18,252
-------- -------- -------- --------
203,697 209,860 375,729 405,152
-------- -------- -------- --------
Income (loss) before income taxes......................... 14,470 (2,101)taxes and
extraordinary item.......................... (5,343) (75,116) 9,127 (77,217)
Income tax (provision) benefit............................ 300 (400)
--------- ---------1,600 500 1,900 100
-------- -------- -------- --------
Income (loss) before extraordinary item....... (3,743) (74,616) 11,027 (77,117)
Extraordinary item - loss on early
extinguishment of debt, net of tax.......... (12,318) - (12,318) -
-------- -------- -------- --------
Net income (loss)......................................... 14,770 (2,501)loss...................................... (16,061) (74,616) (1,291) (77,117)
Other comprehensive income (loss):
Unrealized gain on available for sale
securities...... 31,742securities............................... 11,465 - 43,207 -
Translation adjustment................................ (462) 95
--------- ---------adjustment...................... (4,189) 5,734 (4,651) 5,829
-------- -------- -------- --------
Comprehensive income (loss).................................................. $ 46,050(8,785) $ (2,406)
========= =========(68,882) $ 37,265 $ (71,288)
======== ======== ======== ========
Net income (loss)loss per share:
Basic ................................................Basic:
Income (loss) before extraordinary item.. $ .15(.04) $ (.02)
========= =========
Diluted...............................................(.74) $ .15.11 $ (.02)
========= =========(.77)
Extraordinary item....................... (.12) - (.12) -
-------- -------- -------- --------
Net loss............................... $ (.16) $ (.74) $ (.01) $ (.77)
======== ======== ======== ========
Diluted:
Income (loss) before extraordinary item.. $ (.04) $ (.74) $ .11 $ (.77)
Extraordinary item....................... (.12) - (.12) -
-------- -------- -------- --------
Net loss............................... $ (.16) $ (.74) $ (.01) $ (.77)
======== ======== ======== ========
Weighted average basic shares outstanding................. 100,163outstanding..... 99,683 100,300 ========= =========99,923 100,300
======== ======== ======== ========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
4
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
Accumulated Other
Common Comprehensive Income
Stock Additional ----------------------------------------------- Total
Shares Common Paid-in Treasury Accumulated Investment Translation Stockholders'
Outstanding Stock Capital Stock Deficit Gains Adjustment Equity
----------- ------- ---------- -------- ----------- ---------- ----------- -------------------------
Balance as of January 1, 2000.......................2000...... 100,340 $ 1,009 $2,348,448 $(10,384) $(1,574,884) $ - $ 10,425 $ 774,614
Stock options exercised.... 8exercised.......... 43 - 48253 - - - - 48253
Treasury stock purchases... (510)purchases......... (731) - - (4,112)(6,307) - - - (4,112)(6,307)
Net income.................loss......................... - - - - 14,770(1,291) - - 14,770(1,291)
Other comprehensive income (loss):
Unrealized gain on available
for sale securitis.............securities......... - - - - - 31,74243,207 - 31,74243,207
Translation adjustment..adjustment........ - - - - - - (462) (462)(4,651) (4,651)
------- ------ -------- ------------- --------- -------- ---------- ------- -------- ---------
Balance as of March 31,
2000....................... 99,838June 30, 2000........ 99,652 $ 1,009 $2,348,496 $(14,496) $(1,560,114)$2,348,701 $(16,691) $(1,576,175) $ 31,74243,207 $ 9,9635,774 $ 816,600
========805,825
======= ====== ========= ======= ========== ======== ======= ======== =========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidatedfinancialconsolidated financial statements.
5
PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended March 31,
-----------------------Six months ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Cash flows from operating activities:
Net income (loss)...........................................loss........................................ $ 14,770(16,061) $ (2,501)(74,616) $ (1,291) $ (77,117)
Adjustments to reconcile net income (loss)loss to net
cash provided by operating activities:
Depletion, depreciation and amortization.................. 51,908 69,372amortization..... 53,549 64,235 105,457 133,607
Impairment of oil and gas properties......... - 17,894 - 17,894
Exploration expenses, including dry holes................. 9,732 10,310holes.... 20,320 14,721 30,052 25,031
Deferred income taxes..................................... (1,500) (100)
Gaintaxes........................ (2,400) (500) (3,900) (600)
(Gain) loss on disposition of assets, net........................ (8,372) (67)net.... 4,779 42,291 (3,593) 42,224
Extraordinary item, net of tax............... 12,318 - 12,318 -
Other noncash items....................................... 17,664 (30,286)non-cash items......................... 32,612 11,611 50,276 (18,675)
Changes in operating assets and liabilities:
Accounts receivable....................................... (18,950) 2,295
Inventory................................................. (190) 1,815receivable.......................... 19,857 (1,996) 907 299
Inventories.................................. (2,130) (545) (2,320) 1,270
Other current assets...................................... (649) (173)assets......................... 2,644 1,292 1,995 1,119
Accounts payable.......................................... (13,763) (26,514)payable............................. (697) 3,987 (14,460) (22,527)
Interest payable.......................................... (8,512) (11,090)payable............................. 10,724 14,936 2,212 3,846
Other current liabilities................................. 5,063 (4,770)liabilities.................... (13,350) (4,222) (8,287) (8,992)
-------- -------- -------- --------
Net cash provided by operating activities.............. 47,201 8,291activities.. 122,165 89,088 169,366 97,379
-------- -------- -------- --------
Cash flows from investing activities:
Proceeds from disposition of assets......................... 19,547 5,150assets............. 8,975 264,282 28,522 269,432
Additions to oil and gas properties......................... (60,034) (47,173)properties............. (52,221) (18,274) (112,255) (65,447)
Other property dispositions, net............................ 553 101net................ 325 971 878 1,072
-------- -------- -------- --------
Net cash used inprovided by (used in)
investing activities.................. (39,934) (41,922)activities..................... (42,921) 246,979 (82,855) 205,057
-------- -------- -------- --------
Cash flows from financing activities:
Borrowings under long-term debt............................. 30,839 307,217debt................. 845,836 12,123 876,675 319,340
Principal payments on long-term debt........................ (31,707) (279,741)debt............ (896,970) (292,530) (928,677) (572,271)
Payment of noncurrent liabilities........................... (3,909) (12,927)liabilities............... (7,093) (9,810) (11,002) (22,737)
Exercise of long-term incentive plan
stock options.......... 48options................................. 205 - 253 -
Purchase of treasury stock.................................. (4,112)stock...................... (2,195) - (6,307) -
Deferred loan fees/issuance costs........................... (71)costs............... (13,807) - (13,878) (6,891)
-------- -------- -------- --------
Net cash provided by (used in)used in financing activities.... (8,912) 7,658activities...... (74,024) (290,217) (82,936) (282,559)
-------- -------- -------- --------
Net decreaseincrease in cash and cash equivalents....................... (1,645) (25,973)equivalents......... 5,220 45,850 3,575 19,877
Effect of exchange rate changes on cash and
cash equivalents.... (7) 315equivalents................................ (87) (144) (94) 171
Cash and cash equivalents, beginning of period..................period.... 33,136 33,563 34,788 59,221
-------- -------- -------- --------
Cash and cash equivalents, end of period........................period.......... $ 33,13638,269 $ 33,56379,269 $ 38,269 $ 79,269
======== ======== ======== ========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these
consolidated financial statements.
6
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
NOTE A. Organization and Nature of Operations
Pioneer Natural Resources Company (the "Company") is a Delaware
corporation whose common stock is listed and traded on the New York Stock
Exchange and the Toronto Stock Exchange. The Company is an oil and gas
exploration and production company with ownership interests in oil and gas
properties located principally in the Mid Continent, Southwestern and onshore
and offshore Gulf Coast regions of the United States and in Argentina, Canada
and South Africa.
NOTE B. Basis of Presentation
In the opinion of management, the unaudited consolidated financial
statements of the Company as of March 31,June 30, 2000 and for the three and six month
periods ended March 31,June 30, 2000 and 1999 include all adjustments and accruals,
consisting only of normal recurring accrual adjustments, which are necessary for
a fair presentation of the results for the interim periods. These interim
results are not necessarily indicative of results for a full year. Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). These
consolidated financial statements should be read in connection with the
consolidated financial statements and notes thereto included in the Company's
1999 Annual Report on Form 10-K.
NOTE C. Long-term Debt
Senior notes. During April 2000, the Company issued $425.0 million of
9-5/8% Senior Notes Due April 1, 2010 (the "9-5/8% Senior Notes"). The 9-5/8%
Senior Notes were issued at a discount of .353 percent and resulted in net
proceeds to the Company, after underwriting discounts, commissions and costs of
issuance, of $415.4 million. The net proceeds from the issuance of the 9-5/8%
Senior Notes were used to reduce outstanding borrowings under the Company's
revolving credit facility. The 9-5/8% Senior Notes are unsecured senior
obligations of the Company, bear interest that is due semi-annually on April 1
and October 1, and contain various restrictive covenants, including restrictions
on the incurrance of additional indebtedness and certain payments defined within
the associated indenture. The principal and interest payments on the 9-5/8%
Senior Notes are unconditionally guaranteed by Pioneer Natural Resources USA,
Inc. ("Pioneer USA"). See Note K for a discussion of Pioneer USA debt guarantees
and Consolidating Financial Statements.
Credit facilities. On May 31, 2000, the Company entered into a $575.0
million credit agreement (the "Credit Agreement") with a syndication of banks
(the "Banks"). The Credit Agreement replaced the Company's prior revolving
credit facility that had a maturity date of August 7, 2002 (the "Prior Credit
Facility"). Advances under the Credit Agreement bear interest, at the option of
the Company, based on (a) a base rate equal to a base rate margin (the "Base
Rate Margin") of 37.5 basis points plus the higher of the Bank of America, N.A.
prime rate or a rate per annum based on the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System,
plus 50 basis points, (b) a Eurodollar rate, substantially equal to the London
Interbank Offered Rate ("LIBOR"), plus a Eurodollar margin (the "Eurodollar
Margin") equal to 162.5 basis points, or (c) a fixed rate (for aggregate
advances not exceeding $50 million) as quoted by the Banks pursuant to a request
by the Company. Effective December 1, 2000, the Base Rate Margin will equal the
Eurodollar Margin less 125 basis points and the Eurodollar Margin will be based
on a grid of the Company's debt ratings and ratio of total debt to earnings
before gain or loss on the disposition of assets; interest expense; income
taxes; depreciation, depletion and amortization and amortization expense;
exploration expense and other non-cash expenses (the "Total Leverage Ratio"). As
7
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
a result of the early extinguishment of the Prior Credit Facility, the Company
recognized an extraordinary loss of $12.3 million, net of taxes, during the
quarter ended June 30, 2000.
The Credit Agreement contains certain restrictive covenants on the
Company, including the maintenance of a Total Leverage Ratio not to exceed 4.00
to 1.00 through September 30, 2002 and 3.75 to 1.00, thereafter; maintenance of
an annual ratio of the net present value of the Company's oil and gas properties
to total debt of at least 1.25 to 1.00; a limitation on the Company's total
debt; and, restrictions on certain payments.
Interest rate swap agreements. During the quarter ended June 30, 2000,
the Company entered into interest rate swap agreements to hedge the fair value
of a portion of its fixed rate debt. The interest rate swap agreements are for
an aggregate notional amount of $150 million of debt; commenced on April 19,
2000 and mature on April 15, 2005; require the counterparties to pay the Company
a fixed annual rate of 8.875 percent on the notional amount; and, require the
Company to pay the counterparties a variable annual rate on the notional amount
equal to the three-month LIBOR plus a weighted average margin of 178.2 basis
points.
NOTE D. Commitments and Contingencies
Legal actions. The Company is party to various legal actions incidental
to its business, including, but not limited to, the proceedings described below.
The majority of these lawsuits primarily involve claims for damages arising from
oil and gas leases and ownership interest disputes. The Company believes that
the ultimate disposition of these legal actions will not have a material adverse
effect on the Company's consolidated financial position, liquidity, capital
resources or future results of operations. The Company will continue to evaluate
its litigation matters on a quarter-by- quarter basis and will adjust its
litigation reserves as appropriate to reflect the then current status of
litigation.
Masterson. In February 1992, the current lessors of an oil and gas lease
(the "Gas Lease") dated April 30, 1955, between R.B. Masterson et al., as
lessor, and Colorado Interstate Gas Company ("CIG"), as lessee, sued CIG in
Federal District Court in Amarillo, Texas, claiming that CIG had underpaid
royalties due under the Gas Lease. Under the agreements with CIG, the Company,
as successor to MESA Inc. ("Mesa"), has an entitlement to gas produced from the
Gas Lease. In August 1992, CIG filed a third-party complaint against the Company
for any such royalty underpayment which may be allocable to the Company.
Plaintiffs alleged that the underpayment was the result of CIG's use of an
improper gas sales price upon which to calculate royalties and that the proper
price should have been determined pursuant to a "favored-nations" clause in a
July 1, 1967, amendment to the Gas Lease. The plaintiffs also sought a
declaration by the court as to the proper price to be used for calculating
future royalties.
The plaintiffs alleged royalty underpayments of approximately $500
million (including interest at 10 percent) dating from July 1, 1967. In March
1995, the court made certain pretrial rulings that eliminated approximately $400
million of the plaintiff's claims (which related to periods prior to October 1,
1989), but which also reduced a number of the Company's defenses. The Company
and CIG filed stipulations with the court whereby the Company would have been
liable for between 50 percent and 60 percent, depending on the time period
covered, of an adverse judgment against CIG for post-February 1988 underpayments
of royalties.
7
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
On March 22, 1995, a jury trial began and on May 4, 1995, the jury
returned its verdict. Among its findings, the jury determined that CIG had
underpaid royalties for the period after September 30, 1989, in the amount of
approximately $140,000. Although the plaintiffs argued that the
"favored-nations" clause entitled them to be paid for all of their gas at the
highest price voluntarily paid by CIG to any other lessor, the jury determined
that the plaintiffs were estopped from claiming that the "favored-nations"
clause provides for other than a pricing-scheme to pricing- scheme comparison.
In light of this determination, and the plaintiff's stipulation that a
8
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
pricing-scheme to pricing-scheme comparison would not result in any "trigger
prices" or damages, defendants asked the court for a judgment that plaintiffs
take nothing. The court, on June 7, 1995, entered final judgment that plaintiffs
recover no monetary damages. The plaintiffs filed a motion for a new trial on
June 22, 1995. The court, on July 18, 1997, denied plaintiffs' motion. The
plaintiffs have appealed to the Fifth Circuit Court of Appeals, where oral
arguments were heard in December 1998. The Court's decision regarding this
litigation could be announced at any time.
On June 7, 1996, the plaintiffs filed a separate suit against CIG and the
Company in state court in Amarillo, Texas, similarly claiming underpayment of
royalties under the "favored-nations" clause, but based upon the above-
described pricing-scheme to pricing-scheme comparison on a well-by-well monthly
basis. The plaintiffs also claim underpayment of royalties since June 7, 1995,
under the "favored-nations" clause based upon either the pricing-scheme to
pricing-scheme method or their previously alleged higher price method. The
Company believes it has several defenses to this action and intends to contest
it vigorously. The Company has not yet determined the amount of damages, if any,
that would be payable if such action was determined adversely to the Company.
The federal court in the above-referenced first suit issued an order on
July 29, 1996, which stayed the state suit pending the plaintiffs' resolution of
the first suit.
Based on the jury verdict and final judgment, the Company does not
currently expect the ultimate resolution of either of these lawsuits to have a
material adverse effect on its financial position or results of operations.
Kansas ad valorem tax. The Natural Gas Policy Act of 1978 ("NGPA") allows
a "severance, production or similar" tax to be included as an add-on, over and
above the maximum lawful price for natural gas. Based on a Federal Energy
Regulatory Commission ("FERC") ruling that Kansas ad valorem tax was such a tax,
Mesa collected the Kansas ad valorem tax in addition to the otherwise maximum
lawful price. The FERC's ruling was appealed to the United States Court of
Appeals for the District of Columbia ("D.C. Circuit"), which held in June 1988
that the FERC failed to provide a reasoned basis for its findings and remanded
the case to the FERC for further consideration.
On December 1, 1993, the FERC issued an order reversing its prior ruling,
but limiting the effect of its decision to Kansas ad valorem taxes for sales
made on or after June 28, 1988. The FERC clarified the effective date of its
decision by an order dated May 18, 1994. The order clarified that the effective
date applies to tax bills rendered after June 28, 1988, not sales made on or
after that date. Numerous parties filed appeals on the FERC's action in the D.C.
Circuit. Various natural gas producers challenged the FERC's orders on two
grounds: (1) that the Kansas ad valorem tax, properly understood, does qualify
for reimbursement under the NGPA; and (2) the FERC's ruling should, in any
event, have been applied prospectively. Other parties challenged the FERC's
orders on the grounds that the FERC's ruling should have been applied
retroactively to December 1, 1978, the date of the enactment of the NGPA and
producers should have been required to pay refunds accordingly.
The D.C. Circuit issued its decision on August 2, 1996, which holds that
producers must make refunds of all Kansas ad valorem tax collected with respect
to production since October 4, 1983, as opposed to June 28, 1988. Petitions for
rehearing were denied on November 6, 1996. Various natural gas producers
subsequently filed a petition for writ of certiori with the United States
Supreme Court seeking to limit the scope of the potential refunds to tax bills
8
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
rendered on or after June 28, 1988 (the effective date originally selected by
the FERC). Williams Natural Gas Company filed a cross-petition for certiori
seeking to impose refund liability back to December 1, 1978. Both petitions were
denied on May 12, 1997.
The Company and other producers filed petitions for adjustment with the
FERC on June 24, 1997. The Company is seeking waiver or set-off from FERC with
respect to that portion of the refund associated with (i) non- recoupablenon-recoupable
9
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
royalties, (ii) non-recoupable Kansas property taxes based, in part, upon the
higher prices collected, and (iii) interest for all periods. On September 10,
1997, FERC denied this request, and on October 10, 1997, the Company and other
producers filed a request for rehearing. Pipelines were given until November 10,
1997 to file claims on refunds sought from producers and refunds totaling
approximately $30 million were made against the Company. The Company is unable
at this time to predict the final outcome of this matter or the amount, if any,
that will ultimately be refunded. As of March 31,June 30, 2000 and December 31, 1999, the
Company had set aside $31.7$32.2 million and $31.3 million, respectively, including
accrued interest, in an escrow account and had corresponding obligations for
this litigation recorded in other current liabilities in the accompanying
Consolidated Balance Sheets.
NOTE D.E. Commodity Hedge Derivatives
The Company utilizes various commodity swap and option contracts to (i)
reduce the effect of the volatility of price changes on the commodities the
Company produces and sells, (ii) support the Company's annual capital budgeting
and expenditure plans and (iii) lock in prices to protect the economics related
to certain capital projects.
Crude oil. All material sales contracts governing the Company's oil
production are tied directly or indirectly to the New York Mercantile Exchange
("NYMEX") prices. In addition to the oil hedge contracts set forth below, the
Company has deferred oil hedge losses of $17.6 million that will be recognized
during the following periods: $2.2 million during the second quarter of 2000,
$5.9 million during the third quarter of 2000, $5.9 million during the fourth
quarter of 2000 and $3.6 million during 2001. The following table sets forth the Company's outstanding oil
hedge contracts as of March 31,June 30, 2000:
Yearly
Second Third Fourth Outstanding
Quarter
Quarter Quarter Average
------------- ------------- -------------
-------------
Daily oil production:
2000 - Swap Contracts
Volume (Bbl).................... 6,571............... 478 435 2,480457
Price per Bbl................... $ 16.49Bbl.............. $ 15.76 $ 15.76 $ 16.0015.76
2000 - Collar Contracts*
Volume (Bbl).................... 7,714............... 7,898 7,977 7,8647,938
Price per Bbl................... $17.44-$20.66Bbl.............. $17.48-$20.71 $17.50-$20.74 $17.47-$20.70
- ----------
* Concurrent with the Company's purchase of the year 2000 collar contracts, the
Company sold year 2000 put contracts to the counterparties for average
notional contract volumes of 7,000 Bbls per day at a weighted average index
price of $14.29 per Bbl. Consequently, if the weighted average year 2000
index price falls below $14.29 per Bbl, the Company will receive the weighted
average index price for the notional contract volumes, plus $3.18 per Bbl.
The counterparties have the contractual right to extend contracts for
notional volumes of 5,000 Bbls per day through year 2001 at weighted average
per Bbl strike prices of $17.00-$20.09 for the collar contracts and $14.00
for the put contracts.
9
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,In addition to the oil hedge contracts set forth above, the Company has
deferred oil hedge losses of $15.4 million that will be recognized during the
following periods: $5.9 million during the third quarter of 2000, (Unaudited)$5.9 million
during the fourth quarter of 2000 and $3.6 million during 2001.
The Company reports average oil prices per Bbl including the effects of
oil quality, gathering and transportation costs and the net effect of the oil
hedges. The following table sets forth the Company's oil prices, both realized
and reported, and the net effects of settlements of oil price hedges to revenue:
Three months ended
March 31,
---------------------10
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
1999
-------- --------
Average price reported per Bbl.................. $ 22.44 $ 11.80
Average price realized per Bbl.................. $ 27.74 $ 11.02
Addition (reduction) to revenue (in millions)... $ (16.8) $ 3.5(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Average price reported per Bbl............... $ 22.59 $ 14.90 $ 22.51 $ 13.32
Average price realized per Bbl............... $ 27.28 $ 15.02 $ 27.52 $ 12.97
Addition (reduction) to revenue (in millions) $ (14.3) $ (.5) $ (31.0) $ 3.0
Natural Gas. The Company employs a policy of hedging gas production based
on the index price upon which the gas is actually sold in order to mitigate the
basis risk between NYMEX prices and actual index prices. The Company has
deferred gas hedge losses of $5.9 million that will be recognized during the
following periods: $1.1 million during the second quarter of 2000, $1.1 million
during the third quarter of 2000, $1.2 million during the fourth quarter of 2000
and $2.5 million during 2001. The following table
sets forth the Company's outstanding gas hedge contracts as of March 31,June 30, 2000
(prices included herein represent the Company's weighted average index price per
MMBtu):
Yearly
First Second Third Fourth Outstanding
Quarter Quarter Quarter Quarter Average
-------- ----------- ------------ ----------- ----------- -----------
Daily gas production:
2000 - Collar Contracts*
Volume (Mcf)................ 39,029 58,223 55,571 57,227
Index price per MMBtu....... $ $2.01-$2.58 $2.01-$2.58 $2.02-$2.61 $2.01-$2.59
2002 - Swap Contracts
Volume (Mcf)................ 10,000 10,000 10,000 10,000 10,000
Index price per MMBtu....... $ 2.42 $ 2.42 $ 2.42 $ 2.42 $ 2.42
- -------------------------
* Concurrent with the Company's purchase of the year 2000 collar contracts,
the Company sold year 2000 put contracts to the counterparties for an equal
volume at an average index price of $1.73 per MMBtu. Consequently, if the
weighted average year 2000 index price falls below $1.73 per MMBtu, the
Company will receive the weighted average index price for the notional
contract volumes, plus approximately $.28 per MMBtu.
In addition to the hedge contracts shown above, certainthe Company has deferred
gas hedge losses of $4.8 million that will be recognized during the following
periods: $1.1 million during the third quarter of 2000, $1.2 million during the
fourth quarter of 2000 and $2.5 million during 2001. Certain counterparties have
the contractual right to sell 2001, 2002 and 2003 swap contracts to the Company
for notional contract volumes of 49,233; 12,500; and 10,000 Mcf per day,
respectively, at weighted average index prices of $2.21, $2.52, and $2.58 per
MMBtu, respectively. Certain counterparties also have the contractual right to
sell 2001 and 2002 collar contracts with associated put contracts to the Company
for notional contract volumes of 54,482 and 60,000 Mcf per day, respectively, at
weighted average index prices of $2.09-$2.71 and $2.25-$2.64 per MMBtu,
respectively, for the collar contracts, and $1.80 and $1.95 per MMBtu,
respectively, for the associated put contracts.
The Company reports average gas prices per Mcf including the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of gas hedges. The following table sets forth the Company's
gas prices, both realized and reported, and the net effects of settlements of
gas price hedges to revenue:
10
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
Average price reported per Mcf............... $ 2.60 $ 1.88 $ 2.29 $ 1.80
Average price realized per Mcf............... $ 2.73 $ 1.80 $ 2.37 $ 1.65
Addition (reduction) to revenue (in millions) $ (4.7) $ 3.6 $ (5.5) $ 12.9
11
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
Three months ended
March 31,
------------------
2000 1999
------- -------
Average price reported per Mcf................... $ 1.97 $ 1.71
Average price realized per Mcf................... $ 1.99 $ 1.50
Addition (reduction) to revenue (in millions).... $ (.9) $ 9.3
NOTE E.F. Other Revenue
In December 1998, the Company announced the sale of an exclusive and
irrevocable option to a third party to purchase, on or before March 31, 1999,
certain oil and gas properties of the Company. In consideration for the option,
the third party paid an option fee of $41.3 million to the Company. The third party was unable to
complete the purchase of the Company's oil and gas properties. Accordingly, interestIn payment for
the option and related liquidation damages, the third party paid $41.8 million
of aggregate fees and damages to the Company during 1998 and 1999. Interest and
other revenue in the accompanying Consolidated Statement of Operations and
Comprehensive Income (Loss) for the three monthsand six month periods ended March 31,June 30,
1999 includesinclude other incomerevenue of $41.3 million.$.5 million and $41.8 million, respectively,
associated with these transactions. Other noncashnon-cash items in the accompanying
Consolidated Statement of Cash Flows for the three monthsand six month periods ended
March 31,June 30, 1999 includes a $41.3include $.5 million reductionand $41.8 million reductions, respectively,
for this
noncash componentthese non-cash components of earnings.
NOTE F.G. Asset Divestitures
During the quarter ended June 30, 2000, the Company sold an office
building in Midland, Texas that previously served as its headquarters. The
Company sold the building for gross proceeds of $4.5 million and recognized a
loss of $5.3 million on the sale of the building during the quarter ended June
30, 2000. Additionally, during the three and six month periods ended June 30,
2000, the Company realized gains on the sale of a portion of its investment in
common stock of a third party entity of $.4 million and $8.7 million,
respectively. See Note H for a discussion of the sales of the investment in
common stock.
During the three and six month periods ended June 30, 1999, the Company
completed the divestiture of certain United States and Canadian oil and gas
producing properties, gas plants and other assets for net cash proceeds of
$264.3 million and $269.4 million, respectively, and recognized net losses from
the dispositions of $42.3 million and $42.2 million during the respective three
and six month periods ended June 30, 1999. The net cash proceeds from the 1999
asset divestitures were used to reduce the Company's outstanding indebtedness.
NOTE H. Mark-to-Market Financial Instruments
Available for sale securities. On December 31, 1999, the Company owned
2,376.923 shares of Prize Energy Corp. ("Prize") six percent convertible
preferred stock ("Prize Preferred") having a liquidation preference of $30.0
million. Prior to February 9, 2000, Prize was a closely held, non-public entity
and the fair value of the Prize Preferred was not readily determinable. On
February 9, 2000, Prize merged with Vista Energy Resources Inc. and the common
stock of the merged Prize entity began to publicly trade on the American Stock
Exchange. Additionally, on February 9, 2000, the Company's Prize Preferred was
exchanged for 3,984,197 shares of Prize Series A 6% Convertible Preferred Stock
("Prize Senior A Preferred"), which was subsequently increased to 4,018,161
shares as a result of associated in- kind dividends. On March 31, 2000, the
Company and Prize converted the Company's 4,018,161 shares of Prize Senior A
Preferred to 4,018,161 shares of Prize common stock ("Prize Common") and sold to
Prize 1,380,446 shares of the Prize Common for $18.6 million. During the three
months ended June 30, 2000, the Company sold an additional 24,500 shares of
Prize Common for $.5 million. Associated with these transactions, the Company
recognized an $8.3$8.7 million gain on the Prize Common disposition that is included
in the accompanying Statement of Operations and Comprehensive Income (Loss) for
the threesix months ended March 31,June 30, 2000. The fair value of the Company's remaining
investment in 2,637,7152,613,215 shares of Prize Common was $51.4$62.7 million as of March 31,June 30,
2000, representing a $31.7$43.2 million unrealized gain on the Company's originalremaining
investment in the underlying shares.Prize Common. The Company has classified its investment in
Prize Common as available for sale securities and, accordingly, recognized
a $31.7 million unrealized gaingains on the securities in the stockholders' equity section of the accompanying Consolidated
Balance Sheet as of March 31, 2000, and in other comprehensive income in the
accompanying Consolidated Statement of Operations and Comprehensive Income
12
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(Loss) forof $11.5 million and $43.2 million during the three monthsand six month periods
ended March 31,June 30, 2000. These securities will continue to be marked-to-market at
the end of each reporting period. The related effects on the Company's future
comprehensive income (loss) could be significant.
Non-hedge commodity derivatives. During the first quarter of 1999, the
Company sold NYMEX crude oil call contracts for 8,000 barrels per day of oil, at
a weighted average strike price of $17.15 per barrel, for a nine month period
ending on December 31, 1999. Additionally, the Company sold calls that provide
the counter party an option to exercise call provisions on 10,000 barrels per
day of oil, at a strike price of $20.00 per barrel, for a twenty-one month
period that began on April 1, 1999 and ends on December 31, 2000, or to exercise
call provisions over that same time period on 100,000 MMBtu per day of natural
gas, at a weighted average price of $2.75 per MMBtu. These contracts do not
qualify for hedge accounting treatment. Other expenses in the accompanying
Consolidated Statement of Operations and Comprehensive Income (Loss) for the
three and six month periods ended March 31,June 30, 2000, and 1999, include noncash mark-
to-marketmark-to- market
increases to the liabilities recognized on these contracts of $14.1
11
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)$23.9 million and
$2.6$38.0 million, respectively. For the three and six month periods ended June 30,
1999, other expenses include mark-to-market increases to the liabilities
recognized on these contracts of $5.6 million and $8.2 million, respectively.
The Company's non-hedge commodity derivatives will continue to be
marked-to-market until they mature. The related effects on the Company's future results
of operations for the remainder of 2000 could be significant.
The Company is a party to certain BTU swap agreements that do not qualify
as hedges. Other expenses in the accompanying Consolidated Statement of
Operations and Comprehensive Income (Loss) for the three monthsand six month periods
ended March 31,June 30, 2000 include a noncash mark-to-market decrease of $.7 millionincreases to the liabilities
recognized for the BTU swap agreements; duringagreements of $3.4 million and $2.7 million,
respectively. During the three monthsand six month periods ended March 31,June 30, 1999, the
Company recorded a $2.0$1.2 million noncash mark-to- marketmark-to-market decrease and a $.9 million
increase, respectively, to other expenses and the BTU swap agreementsagreement
liabilities. These contracts will continue to be marked- to-marketmarked-to-market at the end of
each reporting period during their respective lives. The related effects on the
Company's future results of operations could be significant.
Foreign currency agreements. The Company has a series of forward foreign
exchange swap agreements to exchange Canadian dollars for United States dollars
at future dates for a fixed amount of the first currency. As these contracts do
not qualify as hedges, the Company recorded a $.1 million noncash mark-to-market increaseincreases to the
recognized liabilities associated with these agreements during the three monthsand six
month periods ended March 31, 2000. DuringJune 30, 2000 of $1.1 million and $1.3 million,
respectively; and for the three monthsand six month periods ended March 31,June 30, 1999,
the Company recorded a $2.6decreases of $3.4 million noncash market-to-market decrease to
the recognized liabilities associated with these agreements.and $5.9 million, respectively. These contracts will
continue to be marked-to-market until they mature at various dates during the
fourth quarter of 2000. The related effects on the Company's future results of
operations could be significant.
Trading securities. During the fourth quarter of 1998, the Company
received three million shares of common stock of a non-affiliated, publicly
traded entity in partial payment of option fees. During the three monthsand six month
periods ended March 31,June 30, 1999, the market quoted value of the three million shares
of common stock declined by $4.9$7.0 million to $7.1 million.and $11.9 million, respectively.
Accordingly, other expenses in the accompanying Consolidated Statement of
Operations and Comprehensive Income (Loss) for the three monthsand six month periods
ended March 31,June 30, 1999 includes a $4.9 million
noncash, mark-to-market decreaseinclude these mark-to- market decreases to the carrying
value of the investment. The investment in the common stock of the
non-affiliated entity was sold by the Company for $.7 million during the three
months ended June 30, 1999.
13
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE G.I. Reorganization
During 1998, the Company announced its intentions to reorganize its
operations to realize additional operational and administrative efficiencies.
During the three monthsand six month periods ended March 31,June 30, 1999, the Company recorded
severance,
relocation lease termination and certain other costs of $5.5$1.5 million and $7.0 million,
respectively, relating to the reorganization.
The $5.5 million of reorganization costs recognized during the
first quarter of 1999 primarily consisted of relocation costs that were related
to the Company's 1998 initiatives, but were not incurred until 1999.
NOTE H.J. Geographic Operating Segment Information
The Company has operations in only one industry segment, that being the
oil and gas exploration and production industry; however, the Company is
organizationally structured along geographic operating segments, or regions. The
Company has reportable operations in the United States, Argentina and Canada.
The following table providestables provide the Company's interim geographic operating
segment data. Geographic operating segment income tax benefits (provisions) have
been determined based on statutory rates existing in the various tax
jurisdictions where the Company has oil and gas producing activities. The
"Headquarters and other" table column includes revenues and expenses that are
not routinely included in the earnings measures internally reported to
management on a geographic operating segment basis.
12
United Other Headquarters Consolidated
States Argentina Canada Foreign and other Total
-------- --------- -------- --------- ------------ ------------
(in thousands)
Three months ended June 30, 2000:
Oil and gas revenue................... $149,894 $ 33,357 $ 14,696 $ - $ - $ 197,947
Interest and other.................... - - - - 5,186 5,186
Gain (loss) on disposition of asset... 33 - 245 - (5,057) (4,779)
------- ------- ------- -------- ------- --------
149,927 33,357 14,941 - 129 198,354
------- ------- ------- -------- ------- --------
Production costs...................... 36,222 5,596 1,322 - - 43,140
Depletion, depreciation and
amortization....................... 29,811 13,112 6,790 - 3,836 53,549
Exploration and abandonments.......... 11,346 11,847 2,306 2,197 - 27,696
General and administrative............ - - - - 6,963 6,963
Interest.............................. - - - - 41,863 41,863
Other ................................ - - - - 30,486 30,486
------- ------- ------- -------- ------- --------
77,379 30,555 10,418 2,197 83,148 203,697
------- ------- ------- -------- ------- --------
Income (loss) before income taxes
and extraordinary item............. 72,548 2,802 4,523 (2,197) (83,019) (5,343)
Income tax benefit (provision)........ (25,392) (981) (2,017) 769 29,221 1,600
------- ------- ------- -------- ------- --------
Net income (loss) before
extraordinary item................. $ 47,156 $ 1,821 $ 2,506 $ (1,428) $(53,798) $ (3,743)
======= ======= ======= ======== ======= ========
Three months ended June 30, 1999:
Oil and gas revenue................... $134,002 $ 19,803 $ 20,426 $ - $ - $ 174,231
Interest and other.................... - - - - 2,804 2,804
Loss on disposition of assets......... (40,339) - (1,897) - (55) (42,291)
------- ------- ------- -------- ------- --------
93,663 19,803 18,529 - 2,749 134,744
------- ------- ------- -------- ------- --------
Production costs...................... 31,275 3,924 6,425 - - 41,624
Depletion, depreciation and
amortization....................... 41,516 9,508 8,619 - 4,592 64,235
Impairment of oil and gas properties.. 17,894 - - - - 17,894
Exploration and abandonments.......... 11,422 4,067 1,433 1,003 - 17,925
General and administrative............ - - - - 10,188 10,188
Reorganization........................ - - - - 1,490 1,490
Interest.............................. - - - - 46,903 46,903
Other ................................ - - - - 9,601 9,601
------- ------- ------- -------- ------- --------
102,107 17,499 16,477 1,003 72,774 209,860
------- ------- ------- -------- ------- --------
Income (loss) before income taxes..... (8,444) 2,304 2,052 (1,003) (70,025) (75,116)
Income tax benefit (provision)........ 2,955 (806) (915) 351 (1,085) 500
------- ------- ------- -------- ------- --------
Net income (loss)..................... $ (5,489) $ 1,498 $ 1,137 $ (652) $(71,110) $ (74,616)
======= ======= ======= ======== ======= ========
14
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
United Other Headquarters Consolidated
States Argentina Canada Foreign and other Total
-------- --------- -------- ---------------- ------------ ------------
(in thousands)
ThreeSix months ended March 31,June 30, 2000:
Oil and gas revenue............. $132,442revenue................... $282,336 $ 31,11864,475 $ 10,81525,511 $ - $ - $ 174,375372,322
Interest and other..............other.................... - - - - 3,755 3,7558,941 8,941
Gain (loss) on disposition of assets....................... (10)asset... 23 - 6252 - 8,376 8,3723,318 3,593
------- ------- ------- ------ ------- -------- 132,432 31,118 10,821--------
282,359 64,475 25,763 - 12,131 186,50212,259 384,856
------- ------- ------- ------ ------- -------- --------
Production costs................ 34,413 5,400 3,309costs...................... 70,634 10,996 4,632 - - 43,12286,262
Depletion, depreciation and
amortization................. 30,989 11,180 5,729amortization....................... 60,800 24,292 12,519 - 4,010 51,9087,846 105,457
Exploration and abandonments.... 4,949 6,171 447 1,508abandonments.......... 16,296 18,017 2,753 3,705 - 13,07540,771
General and administrative......administrative............ - - - - 9,759 9,759
Interest........................16,722 16,722
Interest.............................. - - - - 39,755 39,75581,618 81,618
Other .......................................................... - - - - 14,413 14,41344,899 44,899
------- ------- ------- ------ ------- -------- 70,351 22,751 9,485 1,508 67,937 172,032--------
147,730 53,305 19,904 3,705 151,085 375,729
------- ------- ------- ------ ------- -------- --------
Income (loss) before income taxes
62,081 8,367 1,336 (1,508) (55,806) 14,470and extraordinary item............. 134,629 11,170 5,859 (3,705) (138,826) 9,127
Income tax benefit (provision).. (21,728) (2,928) (596) 528 25,024 300........ (47,120) (3,910) (2,613) 1,297 54,246 1,900
------- ------- ------- ------ ------- -------- --------
Net income (loss)............... before
extraordinary item................. $ 40,35387,509 $ 5,4397,260 $ 7403,246 $ (980) $(30,782)(2,408) $ 14,770(84,580) $ 11,027
======= ======= ======= ====== ======= ======== Three========
Six months ended March 31,June 30, 1999:
Oil and gas revenue............. $117,473revenue................... $251,475 $ 14,54734,350 $ 15,13135,557 $ - $ - $ 147,151321,382
Interest and other..............other.................... - - - - 45,973 45,973
Gain48,777 48,777
Loss on disposition of assets...assets......... (40,339) - (1,897) - 12 (42,224)
------- ------- ------- ------- -------- --------
211,136 34,350 33,660 - 48,789 327,935
------- ------- ------- ------- -------- --------
Production costs...................... 68,794 8,317 11,707 - - 88,818
Depletion, depreciation and
amortization....................... 90,503 17,709 16,200 - 9,195 133,607
Impairment of oil and gas properties.. 17,894 - - - - 67 67
------- ------- ------- ------ ------- --------
117,473 14,547 15,131 - 46,040 193,191
------- ------- ------- ------ ------- --------
Production costs................ 37,519 4,393 5,282 - - 47,194
Depletion, depreciation and
amortization................. 48,987 8,201 7,581 - 4,603 69,37217,894
Exploration and abandonments.... 7,857 819 1,811 1,289abandonments.......... 19,279 4,886 3,244 2,292 - 11,77629,701
General and administrative......administrative............ - - - - 10,249 10,249
Reorganization..................20,437 20,437
Reorganization........................ - - - - 5,529 5,529
Interest........................7,019 7,019
Interest.............................. - - - - 42,521 42,52189,424 89,424
Other .......................................................... - - - - 8,651 8,65118,252 18,252
------- ------- ------- ------ ------- -------- 94,363 13,413 14,674 1,289 71,553 195,292--------
196,470 30,912 31,151 2,292 144,327 405,152
------- ------- ------- ------ ------- -------- --------
Income (loss) before income taxes 23,110 1,134 457 (1,289) (25,513) (2,101)taxes..... 14,666 3,438 2,509 (2,292) (95,538) (77,217)
Income tax benefit (provision).. (8,551) (397) (204) 451 8,301 (400)........ (5,133) (1,203) (1,119) 802 6,753 100
------- ------- ------- ------ ------- -------- --------
Net income (loss).................................... $ 14,5599,533 $ 7372,235 $ 2531,390 $ (838) $(17,212)(1,490) $ (2,501)(88,785) $ (77,117)
======= ======= ======= ====== ======= ======== ========
NOTE I.K. Pioneer USA
Pioneer Natural Resources USA Inc. ("Pioneer USA") is a wholly-owned subsidiary of the Company that has fully
and unconditionally guaranteed certain debt securities of the Company. In
accordance with practices accepted by the SEC, the Company has prepared
Consolidating Financial Statements in order to quantify the assets of Pioneer
USA as a subsidiary guarantor. The following Consolidating Balance Sheets,
Consolidating Statements of Operations and Comprehensive Income (Loss) and
Consolidating Statements of Cash Flows present financial information for Pioneer
Natural Resources Company as the Parent on a stand-alone basis (carrying any
investments in subsidiaries under the equity method), financial information for
Pioneer USA on a stand-alone basis (carrying any investment in non-guarantor
subsidiaries under the equity method), the non-guarantor subsidiaries of the
Company on a consolidated basis, the consolidation and elimination entries
necessary to arrive at the information for the Company on a consolidated basis,
and the financial information for the Company on a consolidated basis. Pioneer
USA is not restricted from making distributions to the Company.
1315
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
CONSOLIDATING BALANCE SHEET
As of March 31,June 30, 2000
(in thousands)
(Unaudited)
ASSETS
Non-
Pioneer Guarantor The
Parent USA Subsidiaries Eliminations Company
---------- ----------- ------------ ------------ ----------
Current assets:
Cash and cash equivalents.............equivalents.............. $ 641- $ 17,35433,612 $ 15,1414,657 $ $ 33,13638,269
Other current assets.................. 2,159,934 (1,372,385) (619,720) 167,829assets................... 2,119,983 (1,362,127) (609,697) 148,159
--------- ---------- ------------------- --------- ---------
Total current assets............. 2,160,575 (1,355,031) (604,579) 200,965assets.............. 2,119,983 (1,328,515) (605,040) 186,428
--------- ---------- ----------------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties..................properties................... - 2,231,649 831,180 3,062,8292,261,061 851,635 3,112,696
Unproved properties................properties................. - 19,952 228,074 248,02618,983 205,778 224,761
Accumulated depletion, depreciation
and amortization....................amortization..................... - (643,507) (156,095) (799,602)(674,769) (176,546) (851,515)
--------- ---------- ----------------- ---------
- 1,608,094 903,159 2,511,2531,605,075 880,867 2,485,942
--------- ---------- ----------------- ---------
Deferred income taxes................... 83,400taxes.................... 82,300 - - 83,40082,300
Other property and equipment, net.......net........ - 25,787 14,846 40,63322,004 6,235 28,239
Other assets, net....................... 12,581 78,312 42,747 133,640net........................ 19,761 88,997 41,538 150,296
Investment in subsidiaries.............. 194,316 114,831 - (309,147)subsidiaries............... 200,835 107,141 611 (308,587) -
--------- ---------- -------- --------- $2,450,872---------
$2,422,879 $ 471,993494,702 $ 356,173 $2,969,891324,211 $2,933,205
========= ========== ================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debtdebt... $ - $ 505327 $ - $ 505$ 327
Other current liabilities............ 27,349 130,969 39,053 197,371liabilities.............. 38,097 149,608 28,083 215,788
--------- ---------- ----------------- --------- ---------
Total current liabilities....... 27,349 131,474 39,053 197,876liabilities......... 38,097 149,935 28,083 216,115
--------- ---------- ----------------- --------- ---------
Long-term debt, less current maturities 1,745,818maturities.. 1,702,662 - - 1,745,8181,702,662
Other noncurrent liabilities...........liabilities............. - 135,327 32,670 167,997136,891 32,512 169,403
Deferred income taxes..................taxes.................... - - 41,600 41,60039,200 39,200
Stockholders' equity................... 677,705 205,192 242,850 (309,147) 816,600equity..................... 682,120 207,876 224,416 (308,587) 805,825
Commitments and contingencies..........contingencies............ --------- ---------- ---------- -------- --------- $2,450,872---------
$2,422,879 $ 471,993494,702 $ 356,173 $2,969,891324,211 $2,933,205
========= ========== ================= =========
CONSOLIDATING BALANCE SHEET
As of December 31, 1999
(in thousands)
ASSETS
Non-
Pioneer Guarantor The
Parent USA Subsidiaries Eliminations Company
---------- ----------- ------------ ------------ ----------
Current assets:
Cash and cash equivalents............equivalents.............. $ 5 $ 22,699 $ 12,084 $ $ 34,788
Other current assets.................assets................... 2,160,134 (1,455,442) (556,344) 148,348
--------- ---------- ----------------- ---------
Total current assets............assets.............. 2,160,139 (1,432,743) (544,260) 183,136
--------- ---------- ----------------- ---------
Property, plant and equipment, at cost:
Oil and gas properties, using the
successful efforts method of
accounting:
Proved properties.................properties................... - 2,200,173 797,162 2,997,335
Unproved properties...............properties................. - 24,267 233,316 257,583
Accumulated depletion, depreciation
and amortization...................amortization..................... - (614,402) (137,554) (751,956)
--------- ---------- ----------------- ---------
- 1,610,038 892,924 2,502,962
--------- ---------- -------- --------- ----------
Deferred income taxes..................taxes.................... 83,400 - - 83,400
Other property and equipment, net......net........ - 28,144 14,862 43,006
Other assets, net......................net........................ 13,293 58,117 45,559 116,969
Investment in subsidiaries.............subsidiaries............... 190,293 161,061 - (351,354) -
--------- ---------- ----------------- ---------
$2,447,125 $ 424,617 $ 409,085 $2,929,473
========= ========== ================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debtdebt... $ - $ 828 $ - $ $ 828
Other current liabilities.........liabilities.............. 36,115 120,857 39,013 195,985
--------- ---------- ----------------- ---------
Total current liabilities....liabilities......... 36,115 121,685 39,013 196,813
--------- ---------- ----------------- ---------
Long-term debt, less current maturitiesmaturities.. 1,745,108 - - 1,745,108
Other noncurrent liabilities........liabilities............. - 137,848 31,590 169,438
Deferred income taxes...............taxes.................... - - 43,500 43,500
Stockholders' equity................equity..................... 665,902 165,084 294,982 (351,354) 774,614
Commitments and contingencies....... ----------contingencies............ --------- ---------- --------- ---------
$ 2,447,125$2,447,125 $ 424,617 $ 409,085 $2,929,473
========= ========== ========== ================= =========
1416
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the ThreeSix Months Ended March 31,June 30, 2000
(in thousands)
(Unaudited)
Non- Consolidated
Pioneer Guarantor Income The
Parent USA Subsidiaries Tax Benefit Eliminations Company
-------- ----------------- ------------ ------------ ------------ ------------------
Revenues:
Oil and gas..................... $ - $125,477 $ 48,898gas......................... $ - $ $174,375269,500 $ 102,822 $ - $ $ 372,322
Interest and other..............other.................. 18 2,060 1,6774,882 4,041 - 3,7558,941
Gain on disposition of assets, net...........................net.. - 8,337 357,341 (3,748) - 8,372
-------3,593
------- -------- ------ ---------------- -------- ---------
18 135,874 50,610281,723 103,115 - 186,502
-------384,856
------- -------- ------ ---------------- -------- ---------
Costs and expenses:
Oil and gas production..........production.............. - 33,745 9,37769,275 16,987 - 43,12286,262
Depletion, depreciation and
amortization..................amortization...................... - 32,771 19,13764,751 40,706 - 51,908105,457
Exploration and abandonments....abandonments........ - 5,664 7,41118,360 22,411 - 13,07540,771
General and administrative...... (196) 7,814 2,141administrative.......... 22 11,936 4,764 - 9,759
Interest........................ (11,621) 36,151 15,22516,722
Interest............................ (24,002) 74,288 31,332 - 39,75581,618
Equity income from subsidiaries. (2,927) (2,709)subsidiaries..... 13,016 (433) - - 5,636(12,583) -
Other...........................Other............................... - 14,071 34243,174 1,725 - 14,413
-------44,899
------- -------- ------ -------
(14,744) 127,507 53,633--------- -------- ---------
(10,964) 281,351 117,925 - 172,032
-------375,729
------- -------- ------ ---------------- -------- ---------
Income (loss) before income taxes
14,762 8,367 (3,023) - 14,470and extraordinary item............... 10,982 372 (14,810) 9,127
Income tax benefit.................benefit..................... - - 292 8 300
-------1,855 45 1,900
------- -------- ------ ---------------- -------- ---------
Net income (loss).................. 14,762 8,367 (2,731) 8 14,770 before
extraordinary item................... 10,982 372 (12,955) 45 11,027
Extraordinary item - loss on early
extinguishment of debt, net of tax... (12,318) - - - (12,318)
------- -------- --------- -------- ---------
Net income (loss)...................... (1,336) 372 (12,955) 45 (1,291)
Other comprehensive income (loss):
Unrealized gain on available for
sale securities...........securities................... - 31,74243,207 - - 31,74243,207
Translation adjustment..........adjustment.............. - - (462)(4,651) - (462)
-------(4,651)
------- -------- ------ ---------------- -------- ---------
Comprehensive income (loss).................... $ 14,762(1,336) $ 40,10943,579 $ (3,193)(17,606) $ 845 $ 46,050
=======37,265
======= ======== ====== ================ ======== =========
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the ThreeSix Months Ended March 31,June 30, 1999
(in thousands)
(Unaudited)
Non- Consolidated
Pioneer Guarantor Income The
Parent USA Subsidiaries Tax ProvisionBenefit Eliminations Company
-------- ----------------- ------------ ------------- ------------ ------------------- ----------
Revenues:
Oil and gas..................... $ - $110,082 $ 37,069gas......................... $ - $ $147,151232,882 $ 88,500 $ - $ $ 321,382
Interest and other..............other.................. 11 42,634 3,32844,123 4,643 - 45,97348,777
Gain on disposition of assets, net...........................net.. - 67(9,322) (32,902) - - 67
-------(42,224)
------- -------- ------ ---------------- -------- ---------
11 152,783 40,397267,683 60,241 - 193,191
-------327,935
------- -------- ------ ---------------- -------- ---------
Costs and expenses:
Oil and gas production..........production.............. - 36,046 11,14865,607 23,211 - 47,19488,818
Depletion, depreciation and
amortization..................amortization...................... - 48,099 21,27388,986 44,621 - 69,372133,607
Impairment of oil and gas
properties........................ - 17,894 - - 17,894
Exploration and abandonments....abandonments........ - 8,889 2,88719,793 9,908 - 11,77629,701
General and administrative...... 320 7,460 2,469administrative.......... 536 14,293 5,608 - 10,249
Reorganization..................20,437
Reorganization...................... - 5,5297,019 - - 5,529
Interest........................ (9,619) 39,338 12,8027,019
Interest............................ (16,675) 78,161 27,938 - 42,52189,424
Equity (income) loss from
subsidiaries.................. 11,255 (273)subsidiaries...................... 92,699 (758) - - (10,982)(91,941) -
Other........................... 544 9,959 (1,852)Other............................... 568 22,628 (4,944) - 8,651
-------18,252
------- -------- ------ -------
2,500 155,047 48,727--------- -------- ---------
77,128 313,623 106,342 - 195,292
-------405,152
------- -------- ------ ---------------- -------- ---------
Loss before income taxes........... (2,489) (2,264) (8,330) (2,101)taxes............... (77,117) (45,940) (46,101) (77,217)
Income tax (provision) benefit.....benefit......... - (483) 95 (12) (400)
-------- 594 (494) 100
------- -------- ------ ---------------- -------- ---------
Net loss........................... (2,489) (2,747) (8,235) (12) (2,501)loss............................... (77,117) (45,940) (45,507) (494) (77,117)
Other comprehensive income:
Translation adjustment..........adjustment.............. - - 955,829 - 95
-------5,829
------- -------- ------ --------------- -------- ---------
Comprehensive loss.................loss..................... $(77,117) $ (2,489)(45,940) $ (2,747)(39,678) $ (8,140)(494) $ (12) $ (2,406)
=======(71,288)
======= ======== ====== ================ ======== =========
1517
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2000
(Unaudited)
CONSOLIDATING STATEMENT OF CASH FLOWS
For the ThreeSix Months Ended March 31,June 30, 2000
(in thousands)
(Unaudited)
Non-
Pioneer Guarantor The
Parent USA Subsidiaries Company
--------- ----------------- ------------ -------------------
Cash flows from operating activities:
Net cash provided by operating activities....activities..... $ 5,31671,428 $ 4,45059,414 $ 37,43538,524 $ 47,201169,366
-------- ------- -------- -------- ---------
Cash flows from investing activities:
Proceeds from disposition of assets..........assets........... - 18,885 662 19,54722,622 5,900 28,522
Additions to oil and gas properties..........properties........... - (22,925) (37,109) (60,034)(58,391) (53,864) (112,255)
Other property (additions) dispositions, net.net.. - (1,767) 2,320 553(2,451) 3,329 878
-------- ------- -------- -------- ---------
Net cash used in investing activities.....activities...... - (5,807) (34,127) (39,934)(38,220) (44,635) (82,855)
-------- ------- -------- -------- ---------
Cash flows from financing activities:
Borrowings under long-term debt.............. 30,839debt............... 876,675 - - 30,839876,675
Principal payments on long-term debt......... (31,384) (323)debt.......... (928,176) (501) - (31,707)(928,677)
Payment of noncurrent liabilities............liabilities............. - (3,665) (244) (3,909)(9,780) (1,222) (11,002)
Exercise of long-term incentive plan
stock options............................. 48options.............................. 253 - - 48253
Purchase of treasury stock................... (4,112)stock.................... (6,307) - - (4,112)(6,307)
Deferred loan fees/issuance costs............ (71)costs............. (13,878) - - (71)(13,878)
-------- ------- -------- -------- ---------
Net cash used in financing activities..... (4,680) (3,988) (244) (8,912)activities...... (71,433) (10,281) (1,222) (82,936)
-------- ------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 636 (5,345) 3,064 (1,645)equivalents.................................. (5) 10,913 (7,333) 3,575
Effect of exchange rate changes on
cash and cash equivalents...................equivalents.................... - - (7) (7)(94) (94)
Cash and cash equivalents,
beginning of period.........................period.......................... 5 22,699 12,084 34,788
-------- ------- -------- -------- ---------
Cash and cash equivalents, end
of period...................................period.................................... $ 641- $ 17,35433,612 $ 15,1414,657 $ 33,13638,269
======== ======= ======== ======== =========
CONSOLIDATING STATEMENT OF CASH FLOWS
For the ThreeSix Months Ended March 31,June 30, 1999
(in thousands)
(Unaudited)
Non-
Pioneer Guarantor The
Parent USA Subsidiaries Company
--------- ----------------- ------------ -------------------
Cash flows from operating activities:
Net cash provided by (used
in) operating activities.................. $(299,916)activities................... $ 26,977(32,267) $(156,606) $ 281,230286,252 $ 8,29197,379
-------- ------- -------- -------- ---------
Cash flows from investing activities:
Proceeds from disposition of assets..........assets........... - 3,286 1,864 5,150234,428 35,004 269,432
Additions to oil and gas properties..........properties........... - (24,798) (22,375) (47,173)(42,093) (23,354) (65,447)
Other property (additions) dispositions, net.net.. - (1,890) 1,991 101
-------- -------(2,316) 3,388 1,072
-------- -------- -------- ---------
Net cash used inprovided by
investing activities....................activities..................... - (23,402) (18,520) (41,922)190,019 15,038 205,057
-------- ------- -------- -------- ---------
Cash flows from financing activities:
Borrowings under long-term debt.............. 306,925debt............... 319,048 - 292 307,217319,340
Principal payments on long-term debt......... (3,226) (290) (276,225) (279,741)debt.......... (283,049) (696) (288,526) (572,271)
Payment of noncurrent liabilities............liabilities............. - (10,847) (2,080) (12,927)(19,332) (3,405) (22,737)
Deferred loan fees/issuance costs............costs............. (6,891) - - (6,891)
-------- ------- -------- -------- ---------
Net cash provided by
(used in) financing
activities.............................. 296,808 (11,137) (278,013) 7,658activities............................... 29,108 (20,028) (291,639) (282,559)
-------- ------- -------- -------- ---------
Net decrease in cash and cash
equivalents................................. (3,108) (7,562) (15,303) (25,973)equivalents.................................. (3,159) 13,385 9,651 19,877
Effect of exchange rate changes on
cash and cash equivalents...................equivalents.................... - - 315 315171 171
Cash and cash equivalents,
beginning of period.........................period.......................... 3,161 37,932 18,128 59,221
-------- ------- -------- -------- ---------
Cash and cash equivalents, end
of period...................................period.................................... $ 532 $ 30,37051,317 $ 3,14027,950 $ 33,56379,269
======== =============== ======== =================
16
PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE J. Subsequent Events
Senior notes. During April 2000, the Company issued $425 million of
9-5/8% Senior Notes Due April 1, 2010 (the "9-5/8% Senior Notes"). The 9-5/8%
Senior Notes were issued at a discount of .353 percent and resulted in net
proceeds to the Company, after underwriting discounts, commissions and costs of
issuance, of approximately $413.5 million. The proceeds were used to reduce
outstanding borrowings under the Company's existing revolving credit facility.
The 9-5/8% Senior Notes are unsecured senior obligations of the Company, bear
interest that is due semi- annually on April 1 and October 1, and impose certain
restrictive covenants on the Company, including restrictions on the incurrence
of additional indebtedness and restricted payments. The principal and interest
payments on the 9-5/8% Senior Notes are unconditionally guaranteed by Pioneer
USA.
Asset sale. During April 2000, the Company sold an office building in
Midland, Texas that served as its headquarters prior to the Company's relocation
to Irving, Texas during 1998. The Company sold the building for gross proceeds
of $4.5 million and will recognize a loss on the sale of the office building of
approximately $5.3 million during the second quarter of 2000.
1718
PIONEER NATURAL RESOURCES COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations(1)
Financial Performance
The Company's financial performance during the three and six month
periods ended June 30, 2000 was highlighted by significant increases in
operating cash flows; further reductions in outstanding borrowings; and, a
substantial enhancement of the Company's financial flexibility and liquidity
through the issuance of $425 million of 9- 5/8% Senior Notes (the "9-5/8% Senior
Notes") due April 1, 2010 and the replacement of the Company's prior credit
facility (the "Prior Credit Facility") due August 7, 2002 with a new $575
million credit agreement (the "Credit Agreement") due March 1, 2005 (see
"Capital Commitments, Capital Resources and Liquidity", below). These results
have allowed the Company to increase its capital expenditures budget for 2000 to
$290 million from the $250 million budget originally established (see "Drilling
Highlights - Budgeted capital expenditures", below).
Primarily as a result of favorable commodity prices, continuation of the
Company's cost containment strategy and increases in Argentine production
volumes (see "Results of Operations", below), the Company's net cash provided by
operating activities grew to $122.2 million and $169.4 million during the three
and six month periods ended June 30, 2000, respectively, representing increases
of 37 percent and 74 percent, as compared to net cash provided by operating
activities of $89.1 million and $97.4 million for the same respective periods in
1999. During the three and six month periods ended June 30, 2000, the Company
used its net cash provided by operating activities to fund additions to oil and
gas properties, to reduce outstanding indebtedness by $51.1 million and $52.0
million, respectively, and for other general corporate needs.
The Company's reported results for the three and six month periods ended
June 30, 2000 include net incomelosses of $14.8$16.1 million ($.15.16 per share) and $1.3
million ($.01 per share) for the three monthsand six month periods ended March 31,June 30,
2000, respectively, as compared to a net losslosses of $2.5$74.6 million ($.02.74 per share)
and $77.1 million ($.77 per share) for the same periodrespective periods in 1999.
The Company's results forDuring the three months ended March 31,June 30, 2000, were significantly impacted by increases inthe positive impacts of favorable
commodity prices and cost reductions (see "Trends and Uncertainties" and
"Results of Operations", below) were offset by $28.5 million of derivative
mark-to-market charges to other costs and expenses (see "Results of Operations -
Other costs and expenses", below), a $4.8 million loss on the disposition of
assets primarily associated with the sale of an $8.3office building (see "Results of
Operations - Gain (loss) on disposition of assets", below) and a $12.3 million
extraordinary item - loss on early extinguishment of debt (see "Capital
Commitments, Capital Resources and Liquidity - Capital resources", below). The
Company's results for the six months ended June 30, 2000 were significantly
impacted by $42.0 million of derivative mark-to-market charges to other costs
and expenses; a $3.6 million gain on the disposition of assets, including an
$8.7 million gain on the sale of a portion of the Company's investment in the
common stock of a non-affiliated entity (see Note F.non- affiliated entity; and, the $12.3 million extraordinary
item - loss on early extinguishment of Notes
to Consolidated Financial Statements included in "Item 1. Financial Statements")
and $14.4 million of derivative mark-to-market charges to other costs and
expenses (see "Results of Operations - Other Costs and Expenses", below).debt. The net incomelosses for the three and
six months ended March 31,June 30, 1999 includes $41.3include $42.3 million and $42.2 million,
respectively, of net losses from the divestment of certain United States and
Canadian oil and gas properties, gas plants and other income related to option fees received for a terminated property sales
agreement. See Note E of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements".
Net cash provided by operating activities was $47.2 million during the
three ended March 31, 2000, as compared to net cash provided by operating
activities of $8.3 million for the same period in 1999. The increase in net cash
provided by operating activities during the three months ended March 31, 2000,
as compared to the first quarter of 1999, is primarily attributable to increases
in commodity prices and declines in cash expenses, partially offset by
production declines due primarily to 1999 property dispositions (see "Results of
Operations", below).assets.
The Company strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. The Company's total book capitalization at March 31,June 30, 2000
was $2.5 billion, consisting of total debt of $1.7 billion and stockholders'
equity of $.8 billion. Debt as a percentage of total book capitalization was 68
percent at March 31,June 30, 2000, as compared to 69 percent at December 31, 1999. The
Company intends to continue reducing its outstanding indebtedness during 2000
and 2001 through the use of funds generated by the individual or combined
sources of operating activities and asset dispositions.
Drilling Highlights
During the first quartersix months of 2000, the Company spent $60.0$112.3 million on
capital projects, including $44.6$71.9 million for development activities, $10.8$32.5
million for exploration activities and $4.6$7.9 million on acquisitions. The Company
completed 92122 development wells and 1028 exploratory wells, plugged and abandoned
sixfive development wells and twoeight exploratory wells, and temporarily abandoned
six development wells. As of March 31,June 30, 2000, the Company had 2726 development wells
and twoseven exploratory wells in progress.
19
Domestic. The Company expended $23.2$49.9 million during the first quartersix months
of 2000 on drilling activities in the Gulf Coast, Permian Basin and Mid
Continent areas of the United States.
Gulf Coast area. In the Gulf Coast area, the Company expended $12.9$32.0
million of drilling capital during the first quartersix months of 2000, successfully
completed twothree exploratory wells and three development wells, plugged and
abandoned one exploratory well and one development well.well, and began drilling nine
wells that remain in progress on June 30, 2000. The Company's successful
completions wereincluded the Devil's Tower prospect on Mississippi Canyon 773 and
the Aconcagua appraisal well on Mississippi Canyon 305. The Mississippi Canyon
773 well was drilled to a total depth of 15,625 feet and encountered a
significant number of hydrocarbon-bearing sands. The Company has a 15.8 percent
working interest in the discovery. The firstCompany has drilled one successful
appraisal well on the Devil's Tower prospect is scheduled to spud during May 2000.that extended the field into an
adjacent fault block and confirmed commercial quantities of proved reserves. A
sidetrack well was also successful and further delineated the accumulation. The
Aconcagua appraisal well was drilled to a total depth of 14,113 feet and
encountered over 250 net feet of gas pay. The Company has a 25 percent working
interest in the discovery. During July 2000, the Company also announced a new
pool gas discovery on its Fiji prospect on Brazos A-7 in the Big Hum trend
offshore the Texas Coast. The Fiji prospect well is flowing at a rate of 8 MMcf
per day from a secondary objective at 12,300 feet. The deeper, primary objective
sands were present but non- productive. The Company's unsuccessful Gulf Coast
area exploratory wells include the South Louisiana Amoco Fee, that was an
onshore prospect that was abandoned during the second quarter of 2000, and an
offshore Miocene prospect well that was determined to be unsuccessful during the
third quarter of 2000. Associated with the offshore Miocene prospect well,
approximately $5.8 million of third quarter 2000 dry hole costs will be
recognized by the Company. The Company has a 50 percent working interest in the
Fiji prospect. In the East Texas Bossier field, the Company currently has twofour
drilling rigs contracted and operating, and planswith a fifth to add two
additional rigs during the second quarter of 2000. As of March 31, 2000, the
Company has four Gulf Coast area wellsbe added in progress.August.
Permian Basin area. In the Permian Basin area, the Company expended $8.9$15.0
million of drilling capital during the first quartersix months of 2000 and successfully
completed 3454 development wells, of which 2123 were in progress at December 31,
1999. During the first quartersix months of 2000, the wells drilled in the Permian
Basin
18
area were primarily located in the Company's core Spraberry field, where
the Company currently has threeseven drilling rigs contracted and operating. As of
March
31,June 30, 2000, the Company has 15nine development wells in progress in the
Spraberry field.
Mid Continent area. In the Mid Continent area, the Company expended $1.4$2.9
million of drilling capital during the first quartersix months of 2000, successfully
completed 2033 development wells, 1214 of which were in progress at December 31,
1999, and temporarily abandoned six development wells. The Company's development
drilling in the Mid Continent area is focused on West Panhandle gas prospects,
where the Company currently has threetwo drilling rigs contracted and operating. As
of March 31,June 30, 2000, the Company has sixfour development wells in progress in the Mid
Continent area.
Argentina. In Argentina, the Company expended $11.3$23.0 million of drilling
capital during the first quartersix months of 2000, successfully completed 1731 wells, eight14
of which were exploratory wells and nine17 of which were development wells, and
plugged and abandoned twofour exploratory wells and onetwo development well.wells. Included
in the first quartersix months well completions were four exploratory wells and one
development well that were in progress at December 31, 1999. During February
2000, the Company announced its first discovery on new Neuquen Basin acreage
acquired during 1999. The Borde Colorado 1006 well was drilled in the Al Sur de
la Dorsal block, where the Company has a 100 percent working interest, on a
structure defined by 3-D seismic. The well was drilled to a depth of
approximately 1,500 meters and initially flowed at a rate of 450 barrels of oil
per day. The Company currently has four drilling rigs contracted and operating
in Argentina. As of March 31,June 30, 2000, the Company has onetwo exploratory wellwells and
threefive development wells in progress in Argentina.
Canada. In Canada, the Company expended $19.8$26.3 million of drilling capital
during the first quartersix months of 2000, successfully completed 2917 development wells
and 12 exploratory wells, of which three exploratory wells were in progress at
December 31, 1999, and plugged and abandoned fourtwo development wells and two
exploratory wells. During the first quarter of 2000, the Company completed its
annual winter drilling program in the Chinchaga, North Chinchaga and Martin
Creek areas that are only accessible to drilling operations during the winter.
Additionally, the Company installed new pipeline infrastructure in field
extension areas that have follow-up drilling scheduled for next winter and
increased compressor capacity to accommodate production from new wells.
20
Africa. In South Africa and Gabon, the Company expended $1.0$5.2 million
during the first quartersix months of 2000, which was primarily incurred to participate
in the third appraisal well on the Sable oil field project. The appraisal well
encountered a thin oil column in an accumulation separate from the main Sable
field formation. A 3-D seismic survey is planned to further establish the areal
extent of the Western extension of this reservoir. The Company has scheduled one
additional exploratory well to be spud in South Africa during the third quarter
of 2000.
Budgeted capital expenditures. The Company is experiencing stronger than
anticipated operating cash flows during 2000 as a result of the favorable
commodity price environment. In response thereto, the Company has revised its
2000 capital expenditures budget to $290 million from the $250 million budget
originally established. Approximately 25 percent of the budget will be expended
on exploration activities and 75 percent on exploitation and development
activities.
Events, Trends and Uncertainties
Second quarter 2000 financing activities. During April 2000, the Company
executed plans to increase its liquidity, extend its debt maturities and improve
the terms of its debt obligations. The Company issued $425 million of 9-5/8%
Senior Notes Due April 1, 2010 (the "9-5/8% Senior Notes"). The 9-5/8% Senior
Notes were issued at a discount of .353 percent and resulted in net proceeds to
the Company, after underwriting discounts, commissions and costs of issuance, of
approximately $413.5 million. The net proceeds from the issuance of the 9-5/8%
Senior Notes were used to reduce outstanding borrowings under the Company's
existing revolving credit facility.
The Company also obtained commitments for a new five-year $600 million
senior credit facility to replace its existing revolving credit facility. If
consummated, the proposed credit facility would extend the maturity of the
Company's debt, enhance liquidity and provide flexibility in support of the
Company's business strategies. The Company intends to finalize the proposed
senior credit facility during the second quarter of 2000; however, no assurances
can be given that the proposed senior credit facility will be consummated as
planned. If the Company replaces its existing credit facility, approximately $12
million of associated unamortized debt costs would be charged to earnings as an
extraordinary loss from early extinguishment of debt during the second quarter.
During April 2000, the Company entered into certain interest rate swap
agreements to hedge the fair value of a portion of its fixed rate debt. The
interest rate swap agreements are for an aggregate notional amount of $150
million of debt; commenced on April 19, 2000 and mature on April 15, 2005;
require the counterparties to pay the Company a fixed annual rate of 8.875
percent on the notional amount; and require the Company to pay the
counterparties a variable annual rate on the notional amount equal to the
periodic three-month London Interbank Offered Rate plus a weighted average
margin rate of 178.2 basis points.
19
Second quarter asset disposition. During April 2000, the Company sold an
office building in Midland, Texas that served as its headquarters prior to the
Company's relocation to Irving, Texas during 1998. The Company sold the building
for gross proceeds of $4.5 million. The Company will continue to maintain
certain administrative and operating functions in the office building under an
operating lease negotiated with the purchasers. A loss on the sale of the office
building of approximately $5.3 million will be recognized during the second
quarter of 2000.
Commodity prices. The oil and gas prices that the Company reports are
based on the market prices received for the commodities adjusted by the results
of the Company's hedging activities. Historically, worldwide oil and gas prices
have been extremely volatile and subject to significant changes in response to
real and perceived conditions in world politics, weather patterns and other
fundamental supply and demand variables.
During the first quarter of 1999, the Organization of Petroleum Exporting
Countries ("OPEC") and certain other crude oil exporting nations reduced their
oil export volumes. The export volume reductions initiated by OPEC and other
crude oil exporting nations, and strong North American natural gas market
fundamentals have sustained a favorable oil and gas commodity price environment
through 1999 and into the secondthird quarter of 2000. No assurances can be given as
to the duration of the current commodity price environment.
The benchmark daily average NYMEX West Texas Intermediate closing price
increased 12062 percent during the three months ended March 31,June 30, 2000, in comparison
with the three months ended March 31,June 30, 1999. The benchmark daily average NYMEX
Henry Hub closing price increased 4261 percent during the three months ended March 31,June
30, 2000, as compared to the three months ended March 31,June 30, 1999.
To mitigate the impact of changing prices on the Company's results of
operations, cash flows and financial condition, the Company from time to time
enters into commodity derivative contracts as hedges against oil and gas price
risk (see Note DE of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements").
Market sensitive financial instruments. The Company is a party to various
financial instruments that, by their terms, cause the Company to be at risk from
future changes in commodity prices, interest and foreign exchange rates, and
other market sensitivities. See "Item 3. Quantitative and Qualitative
Disclosures About Market Risk" for specific information concerning market risk
associated with financial instruments that the Company is a party to.
20Accounting for derivatives. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain qualifications
are met, a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency- denominated forecasted
transaction.
In June 1999, the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - and amendment of FASB Statement 133"
("SFAS 137"). SFAS 137 defers the effective date for SFAS 133 to fiscal years
beginning after June 15, 2000.
21
The Company intends to adopt the provisions of SFAS 133 effective on
January 1, 2001. The Company currently records its derivative instruments that
do not qualify for hedge accounting treatment at fair market value. Upon the
adoption of SFAS 133, the Company will record all of its derivative instruments
at fair market value, as assets or liabilities in the Company's Consolidated
Balance Sheet, based on market quoted values and the Company's portfolio of
derivative instruments as of January 1, 2001. Subsequent to the adoption of the
provisions of SFAS 133, the Company will adjust the carrying values of all of
its derivative instruments to fair market value on an ongoing basis. The initial
adoption of the provisions of SFAS 133 and the ongoing valuation of the
Company's portfolio of derivative instruments are expected to add an element of
volatility to the Company's financial position and results of operations,
measured under generally accepted accounting principles. The Company is unable
at this time to predict the market quoted values that will exist for its
derivative instruments on January 1, 2001.
Results of Operations
Oil and gas revenues. Revenues from oil and gas operations totaled $174.4$197.9
million and $372.3 million for the three monthsand six month periods ended March 31,June 30,
2000, respectively, compared to $147.2$174.2 million and $321.4 million for the same
periodrespective periods in 1999. The increase in revenues is reflective of commodity
price increases which more than offset decreased production volumes due toresulting
from the 1999 asset dispositions.
Three Months Ended March 31,
-----------------------------
2000 1999
--------- --------
Production:
Oil (MBbls).................... 3,163 4,537
NGLs (MBbls)................... 2,063 2,478
Gas (MMcf)..................... 32,688 43,714
Total (MBOE)................... 10,674 14,301
Average daily production:
Oil (Bbls)..................... 34,759 50,407
NGLs (Bbls).................... 22,667 27,539
Gas (Mcf)...................... 359,208 485,707
Total (BOE).................... 117,294 158,897
Average prices:
Oil (per Bbl) (1).............. $ 22.44 $ 11.80
NGL (per Bbl) (2).............. $ 19.00 $ 7.63
Gas (per Mcf) (3).............. $ 1.97 $ 1.71
- ----------
(1) The Company'sfollowing table provides volume and average per Bbl reported oil prices by geographic area
were $20.02, $29.44 and $29.12price statistics for the
United States, Argentina and
Canada, respectively,Company during the three monthsand six month periods ended March 31, 2000;June 30, 2000 and $12.19, $11.08 and $10.46 for the United States, Argentina and Canada,
respectively, during the three months ended March 31, 1999.
(2) The Company's average per Bbl reported NGL prices by geographic area
were $18.86, $19.41 and $22.52 for the United States, Argentina and
Canada, respectively, during the three months ended March 31, 2000; and
$7.68, $6.58 and $6.78 for the United States, Argentina and Canada,
respectively, during the three months ended March 31, 1999.
(3) The Company's average per Mcf reported gas prices by geographic area
were $2.29, $1.11 and $1.92 for the United States, Argentina and
Canada, respectively, during the three months ended March 31, 2000; and
$1.88, $1.09 and $1.62 for the United States, Argentina and Canada,
respectively, during the three months ended March 31, 1999.1999:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Production:
Oil (MBbls)................... 3,040 4,346 6,203 8,883
NGLs (MBbls).................. 2,140 2,383 4,203 4,861
Gas (MMcf).................... 34,716 45,712 67,403 89,426
Total (MBOE).................. 10,966 14,348 21,640 28,648
Average daily production:
Oil (Bbls).................... 33,404 47,759 34,082 49,076
NGLs (Bbls)................... 23,520 26,184 23,093 26,858
Gas (Mcf)..................... 381,490 502,331 370,349 494,065
Total (BOE)................... 120,505 157,665 118,900 158,278
Average prices:
Oil (per Bbl):
United States............... $ 20.86 $ 14.75 $ 20.43 $ 13.44
Argentina................... $ 27.38 $ 16.95 $ 28.40 $ 13.99
Canada...................... $ 25.35 $ 14.02 $ 27.28 $ 12.21
Worldwide................... $ 22.59 $ 14.90 $ 22.51 $ 13.32
NGLs (per Bbl):
United States............... $ 18.12 $ 9.87 $ 18.48 $ 8.75
Argentina................... $ 23.58 $ 7.80 $ 21.72 $ 7.19
Canada...................... $ 20.99 $ 10.70 $ 21.67 $ 9.03
Worldwide................... $ 18.37 $ 9.86 $ 18.68 $ 8.72
Gas (per Mcf):
United States............... $ 3.24 $ 2.16 $ 2.76 $ 2.01
Argentina................... $ 1.20 $ 1.11 $ 1.16 $ 1.10
Canada...................... $ 2.55 $ 1.72 $ 2.26 $ 1.67
Worldwide................... $ 2.60 $ 1.88 $ 2.29 $ 1.80
As is discussed above, oil and gas revenues for the quarterthree and six months
ended March
31,June 30, 2000 were significantly impacted by commodity price increases. As
compared to the first quarter ofthree months ended June 30, 1999, the average oil price for the
three months ended March 31,June 30, 2000 increased 9052 percent; the average NGL price
increased 14986 percent; and the average gas price increased 1528 percent. As
compared to the six months ended June 30, 1999, the average oil price for the
six months ended June 30, 2000 increased 69 percent; the average NGL price
increased 114 percent; and the average gas price increased 27 percent.
22
On a BOE basis, production decreased by 2524 percent for each of the three
monthsand six month periods ended March 31,June 30, 2000, as compared to the same periodperiods in
1999. Production,During the three and six month periods ended June 30, 2000, as compared to
the same periods in 1999, production declined on a BOE basis declined 28by 26 percent and
27 percent in the United States and 50by 49 percent and 20 percent in Canada,
where the Company completed asset dispositions during 1999,1999; while production in
Argentina increased by 12 percent.11 percent in each respective period.
Hedging activities
The oil and gas prices that the Company reports are based on the market
price received for the commodities adjusted by the results of the Company's
hedging activities. The Company utilizes commodity derivative contracts (swaps,
futures and options) in order to (i) reduce the effect of the volatility of
price changes on the commodities the Company produces and sells, (ii) support
the Company's annual capital budgeting and expenditure plans and (iii) lock in
prices to protect the economics related to certain capital projects. During the
three months ended March 31, 2000, the Company's hedging activities decreased
the average price received for oil and gas sales 19 percent and one percent,
respectively. During the three months ended March 31, 1999, the Company's
hedging activities increased the average prices received for oil and gas sales
by seven percent and 14 percent, respectively.
21
Crude oil. All material sales contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The average oil
price per Bbl that the Company reports includes the effects of oil quality,
gathering and transportation costs and the net effect of the oil hedges. The
Company's average realized price for physical oil sales (excluding hedge
results) for the three months ended March 31, 2000 was $27.74 per Bbl, while, as
a point of reference, the comparable daily average NYMEX closing per Bbl was
$28.73 per Bbl. The Company recorded a net decrease to oil revenues of $16.8
million during the three months ended March 31, 2000, as a result of its
commodity hedges.
During the three months ended March 31, 1999, the Company realized an
average price for physical oil sales (excluding hedge results) of $11.02 per
Bbl, while, as a point of reference, the comparable daily average NYMEX closing
per Bbl for the same periods was $13.05 per Bbl. The Company recorded a net
increase to oil revenues of $3.5 million for the three months ended March 31,
1999, as a result of its commodity hedges.
Natural gas. The Company hedges gas production based on the index price
upon which the gas is actually sold in order to mitigate the basis risk between
NYMEX prices and actual index prices. The average gas price per Mcf that the
Company reports includes the effects of Btu content, gathering and
transportation costs, gas processing and shrinkage and the net effect of the gas
hedges. The Company's average realized price for physical gas sales (excluding
hedge results) for the three months ended March 31, 2000, was $1.99 per Mcf,
while, as a point of reference, the comparable daily average NYMEX closing for
the same period was $2.49 per Mcf. The Company recorded a net decrease to gas
revenues of $.9 million for the three months ended March 31, 2000, as a result
of its commodity hedges.
During the three months ended March 31, 1999, the Company realized an
average price for physical gas sales (excluding hedge results) of $1.50 per Mcf,
while, as a point of reference, the comparable daily average NYMEX closing was
$1.75 per Mcf. The Company recorded a net increase to gas revenues of $9.3
million for the three months ended March 31, 1999, as a result of its commodity
hedges.
See Note DE
of Notes to Consolidated Financial Statements included in "Item 1. Financial
Statements" for information concerningregarding the Company's deferred
hedge losses and open hedge positions and related contract prices as of March
31, 2000.hedging activities.
Interest and other revenue. During the three and six months ended March 31,June
30, 2000, and 1999, the Company'sCompany recorded interest and other revenue totaled $3.8of $5.2 million and
$46.0$8.9 million, respectively.respectively, as compared to $2.8 million and $48.8 million,
respectively, during the same periods in 1999. Other revenue during the first
quartersix months of 1999 includes $41.3 million of option fees received by the Company
from a third party. See Note E of Notes to Consolidated Financial Statements
included in "Item 1. Financial Statements" for a discussion of transactions that
gave rise to the 1999 option fee revenue.
Gain (loss) on disposition of assets. During the three and six months
ended March 31,June 30, 2000, and 1999, the Company recorded gainsa loss on the disposition of assets of
$8.4$4.8 million and $.1a gain on the disposition of assets of $3.6 million,
respectively.respectively, as compared to net losses of $42.3 million and $42.2 million
during the same periods in 1999. The gainloss recognized during the three months
ended June 30, 2000, is primarily associated with the sale of an office building
in Midland, Texas that previously served as the Company's headquarters. During
the first quarter of 2000, is primarily comprised ofthe Company recorded an $8.3 million gain from the
sale of 1,380,446 sharesa portion of Prize Energy Corp.the Company's investment in common stock (see Note Fof a publicly
traded entity.
During the three and six month periods ended June 30, 1999, the Company
completed the divestiture of certain United States and Canadian oil and gas
producing properties, gas plants and other assets for net cash proceeds of
$264.3 million and $269.4 million, respectively, and recognized net losses from
the dispositions of $42.3 million and $42.2 million, respectively. The net cash
proceeds from the 1999 asset divestitures were used to reduce outstanding
indebtedness.
See Notes G and H of Notes to Consolidated Financial Statements included
in "Item 1. Financial Statements").
The fair value for additional information regarding the
Company's 1999 and 2000 asset divestitures and the investment in the common
stock of the Company's remaining investment in 2,637,715 shares of
Prize Energy Corp. common stock was $51.4 million as of March 31, 2000.public traded entity.
Production costs. During the three and six month periodperiods ended March 31,June 30,
2000, total production costs per BOE averaged $4.03,$3.93 and $3.99, respectively,
representing an increaseincreases of $.72$1.03 and $.89 per BOE, respectively, as compared to
production costs per BOE of $3.31 during the same periodperiods in 1999. The increase in
production costs per BOE during the three months ended June 30, 2000, as
compared to the same period in 1999, is comprised of a $.40 per BOE
increase in production taxes, a $.23 per BOE increase in workover costs and a
$.09$.78 per BOE increase in
lease operating expenses.expense; a $.29 per BOE increase in production taxes; and a $.04
per BOE decrease in workover costs. As compared to the six months ended June 30,
1999, the increase in total production costs during the six months ended June
30, 2000 is comprised of a $.44 per BOE increase in lease operating expenses; a
$.35 per BOE increase in production taxes; and a $.10 per BOE increase in
workover costs. Per BOE lease operating expenses increased during 2000 primarily
as a result of increases in field fuel costs related to higher natural gas
prices. The increase in per BOE production taxes during 2000 was caused by
the quarter-to-quarter increaseincreases in oil and gas commodity prices.
Three Months Ended March 31,
---------------------------
2000 1999
-------- --------
(per BOE)
Lease operating expense............... $ 3.08 $ 2.99
Production taxes...................... .67 .27
Workover costs........................ .28 .05
------- -------
Total production costs............. $ 4.03 $ 3.31
======= =======
2223
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
(per BOE)
Lease operating expense........... $ 3.20 $ 2.42 $ 3.15 $ 2.71
Production taxes.................. .67 .38 .67 .32
Workover costs.................... .06 .10 .17 .07
----- ----- ----- -----
Total production costs...... $ 3.93 $ 2.90 $ 3.99 $ 3.10
===== ===== ===== =====
Depletion expense. Depletion expense per BOE was $4.49 per BOE$4.53 and $4.51 during
the three monthsand six month periods ended March 31,June 30, 2000, respectively, as compared
to $4.53 per BOE$4.16 and $4.34 during the same periodrespective periods in 1999. The declineincrease in
depletion expense per BOE during 2000 is primarily associated with the dispositiondecreases in
1999 of higherlower cost basis non-core
propertiesUnited States production relative to combined Argentine and
upward reserve revisions as of December 31, 1999, on retained
properties.Canadian production.
Exploration and abandonments/geological and geophysical costs.
Exploration and abandonments/geological and geophysical costs increased to $13.1$27.7
million and $40.8 million during the three monthsand six month periods ended March 31,June 30,
2000, respectively, from $11.8$17.9 million and $29.7 million during the same
periodrespective periods in 1999. The increase isincreases are largely the result of $3.8 millionUnited
States Gulf Coast area geological and geophysical costs that are supportive of
future exploratory drilling; dry hole costs in the United States Gulf Coast area
and the Argentine Rio Grande Sur, Aquada Villanueva and Al Norte de la Dorsal
areas; and Argentine unproved leasehold abandonments inassociated with the
Rio Grande Sur area of Argentina, whereexploratory dry holes.
The following table provides the Company completed an unsuccessfulCompany's geological and geophysical
costs, exploratory well duringdry hole expense, lease abandonments expense and other
exploration expense for the first quarter
of 2000.three and six month periods ended June 30, 2000 and
1999:
United Other
States Argentina Canada Foreign Total
------- --------- ------------- ------- --------
(in thousands)
Three months ended March 31,June 30, 2000:
Geological and geophysical costs..... $ 3,6596,831 $ 7841,086 $ 265274 $ 1,5012,197 $ 6,20910,388
Exploratory dry holes................ 291 1,510 (13)3,366 2,669 873 - 1,7886,908
Leasehold abandonments and other..... 999 3,877 195 7 5,0781,149 8,092 1,159 - 10,400
------ ------ ----------- ------ -------
$11,346 $11,847 $2,306 $ 4,9492,197 $ 6,171 $ 447 $ 1,508 $ 13,07527,696
====== ====== =========== ====== =======
Three months ended March 31,June 30, 1999:
Geological and geophysical costs..... $ 4,1763,975 $ 752352 $ 165(126) $ 966984 $ 6,0595,185
Exploratory dry holes................ 2,747 67 734 269 3,8175,871 3,608 191 65 9,735
Leasehold abandonments and other..... 934 - 912 54 1,9001,576 107 1,368 (46) 3,005
------ ------ ----- ------ -------
$11,422 $ 4,067 $1,433 $ 1,003 $ 17,925
====== ====== ===== ====== =======
Six months ended June 30, 2000:
Geological and geophysical costs..... $10,490 $ 1,870 $ 539 $ 3,698 $ 16,597
Exploratory dry holes................ 3,657 4,180 860 - 8,697
Leasehold abandonments and other..... 2,149 11,967 1,354 7 15,477
------ ------ ----- ------ -------
$16,296 $18,017 $2,753 $ 7,8573,705 $ 819 $ 1,811 $ 1,289 $ 11,77640,771
====== ====== ===== ====== =======
Six months ended June 30, 1999:
Geological and geophysical costs..... $ 8,151 $ 1,104 $ 39 $ 1,950 $ 11,244
Exploratory dry holes................ 8,245 3,656 925 334 13,160
Leasehold abandonments and other..... 2,883 126 2,280 8 5,297
------ ------ ----- ------ -------
$19,279 $ 4,886 $3,244 $ 2,292 $ 29,701
====== ====== ===== ====== =======
24
General and administrative expense. General and administrative expense
was $9.8$7.0 million and $16.7 million for the three and six months ended March 31,June 30,
2000, respectively, as compared to $10.2 million and $20.4 million for the same
period ended March 31,periods in 1999, representing a decreasedecreases of five percent.31 percent and 18 percent,
respectively. On a per BOE basis, general and administrative expense increased
from $.72 per BOEwas $.71
during each of the three and six month periods ended June 30, 1999, as compared
to $.63 and $.77 during the first quarter of 1999 to $.91 per BOE during the
first quarter of 2000, primarily due to a $2.1 million increase in employee
bonuses.three and six months ended June 30, 2000.
Reorganization costs for the three monthsand six month periods ended March 31,June 30,
1999, totaled $5.5 million.$1.5 million and $7.0 million, respectively. During 1998 and 1999,
the Company consolidated its six domestic operating divisions; relocated most of
its administrative services to Dallas, Texas; closed its regional offices in
Corpus Christi, Texas; Houston, Texas and Oklahoma City, Oklahoma; and,
eliminated approximately 350 employee positions. The Company does not expect to
recognize any additional reorganization charges during 2000.
Interest expense. Interest expense for the quarterthree and six months ended
March 31,June 30, 2000 was $39.8$41.9 million and $81.6 million, respectively, as compared to
$42.5$46.9 million and $89.4 million, respectively, for the same periodperiods in 1999. The
$2.7$5.0 million decreaseand $7.8 million decreases in interest expense during the first quarter ofthree and
six month periods ended June 30, 2000, as compared to the first quarter ofsame periods in 1999,
isare reflective of a $426.1decreases of $421.9 million decreaseand $424.4 million, respectively,
in the Company's average debt outstanding due to the application of net cash
provided by 2000 operating activities and to 1999 net proceeds from asset
dispositions, partially offset by a 96 basis point increaseincreases of 83 and 127,
respectively, in the Company's weighted average interest rate on debt.
During the three monthsand six month periods ended March 31,June 30, 2000 and 1999, the
Company was a party to interest rate swap agreements that resulted inhedge a decrease inportion of the
Company's fixed rate debt. During the three month periods ended June 30, 2000
and 1999, the interest rate swap agreements decreased the Company's interest
expense of
$543 thousand.by $.2 million and $.3 million, respectively. The interest rate swap
agreements matureddecreased the Company's interest expense by $.2 million and $.8
million during the second
quarter of 1999.six month periods ended June 30, 2000 and 1999, respectively.
Other costs and expenses. Other costs and expenses for the three monthsand six
month periods ended March 31,June 30, 2000 and 1999 were $14.4$30.5 million and $8.7$44.9 million,
respectively.respectively, compared to $9.6 million and $18.3 million for the same respective
periods in 1999. The increase in other costs and expenses is primarily
attributable to fluctuations in mark-to-market provisions on financial
instruments. Mark-to-market provisions during the first quarter ofthree and six month periods
ended June 30, 2000 included a $14.1
million increaseincreases in the liabilities associated with
non-hedge commodity call contracts of $23.9 million and a $.1$38.0 million,
increaserespectively; increases in the liabilities associated with the Company's BTU
swap agreements of $3.4 million and $2.7 million, respectively; and, increases
in the liabilities associated with forward foreign currency swap agreements partially offset by a $.7of
$1.1 million decrease in
23
the liabilities associated with the Company's BTU swap agreements.and $1.3 million, respectively. During the quarterthree and six month
periods ended March 31,June 30, 1999, mark-to-marketmark-to- market provisions included a $4.9decreases of
$7.0 million decreaseand $11.9 million, respectively, in the fair value of the Company's
investment in three million shares of a non-affiliated entity, a $2.6 million increaseentity; increases in the
liabilities associated with non- hedgenon-hedge commodity call contracts of $5.6 million
and $8.2 million, respectively; a $2.0 million increasedecrease in the liabilities associated with
the Company's BTU swap agreements partially
offset by a $2. 6of $1.2 million decreaseduring the three months ended
June 30, 1999, and an increase of $.9 million during the six months ended June
30, 1999; and, decreases of $3.4 million and $5.9 million, respectively, in the
liabilities associated with forward foreign currency swap agreements. See Note H
of Notes to Consolidated Financial Statements included in "Item 1. Financial
Statements" for additional information pertaining to the Company's investment and liabilitiesfinancial
instruments that are recorded at fair value. Investments and non-hedge
derivative contracts that are recorded at fair
value are marked-to-market at the end of each reporting period in whichas
long as the Company maintains an ownership ofin the investment or the non-hedge
derivative contract has not been liquidated or matured. The related effects on
the Company's future results of operations and comprehensive income (loss) could
be significant.
Income tax provisions (benefits). During the three month periods ended
March 31,June 30, 2000 and 1999, the Company recognized an income tax benefitbenefits of $.3$1.6
million and an income$1.9 million, respectively, as compared to tax provisionbenefits of $.4$.5
million and $.1 million for the three and six month periods ended June 30, 1999,
respectively. The Company's first quarter 2000 income tax benefit isbenefits for the three and six month
periods ended June 30, 2000 are associated with the tax attributes of the
Company's operations in Argentina. Due to continuing uncertainties regarding the
likelihood that certain of the Company's net operating loss carryforwards and
other credit carryforwards may expire unused, the Company has established
valuation reserves to reduce the carrying value of its deferred tax assets. The
Company's deferred tax valuation reserves are reduced when the Company's
financial results establish that deferred tax assets previously reserved will be
used prior to their expiration.
25
Extraordinary item - loss on early extinguishment of debt. During the
three months ended March 31,second quarter of 2000, the Company reducedreplaced its Prior Credit Facility with the
Credit Agreement. Associated therewith, the Company recognized a $12.3 million
extraordinary loss, comprised of deferred tax asset valuation reserves by $2.5 million.
The income tax provision recognized during the first quarter 1999 was primarily
due to state taxescosts associated with a 1998 property divestiture.the Prior Credit
Facility. See Note C of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements" for additional information regarding this
transaction.
Capital Commitments, Capital Resources and Liquidity
Capital commitments. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations.
The Company's cash expenditures for additions to oil and gas properties
totaled $60.0$112.3 million during the first quarterhalf of 2000. This amount includes $4.6$7.9
million for the acquisition of prospects and properties and $55.4$104.4 million for
development and exploratory drilling. Drilling expenditures during the first
quarterhalf of 2000 included $23.2$50.0 million in the United States, $19.8$26.3 million in
Canada, $11.4$23.0 in Argentina and $1.0$5.2 million in other international areas. See
"Drilling Highlights", above, for a specific discussion of capital investments
made during the first quarterhalf of 2000.
Funding for the Company's working capital obligations is provided by
internally-generated cash flow. Funding for the repayment of principal and
interest on outstanding debt may be provided by any combination of internally-
generated cash flows, proceeds from the disposition of non-core assets or
alternative financing sources as discussed in "Capital Resources"resources" below.
Capital resources. The Company's primary capital resources are net cash
provided by operating activities, proceeds from financing activities and
proceeds from asset dispositions. The Company expects that its capital resources
will be sufficient to fund its remaining capital commitments in 2000 and allow
for further reductions in debt during the remainder of 2000.
Operating activities. Net cash provided by operating activities was
$47.2$122.2 million and $169.4 million during the three and six months ended March 31,June 30,
2000, respectively, as compared to net cash provided by operating activities of
$8.3$89.1 million and $97.4 million for the same periodperiods in 1999. The increase in
net cash provided by operating activities wasis primarily attributable to increases
in commodity prices and cost reductions partially
offset by declines in production volumescash costs (see "Oil and gas revenues,"
above).
Financing activities. The Company had an outstanding balance under its
credit facility agreementsCredit Agreement at March 31,June 30, 2000 of $850.5$377.0 million (including outstanding,
undrawn letters of credit of $26.1$27.0 million), leaving approximately $89.1$198.0
million of unused borrowing capacity immediately available.
During the second quarter of 2000, the Company issued $425 million ofthe 9-5/8% Senior
Notes and obtained commitmentsreplaced its Prior Credit Facility that was to mature on August 7,
2002, with the Credit Agreement that has a March 1, 2005 maturity. See Note C of
Notes to Consolidated Financial Statements included in "Item 1. Financial
Statements" for a proposed $600 million senior
credit facility to replace its existing revolving credit facility. The net
24
proceeds from the issuance ofadditional information regarding the 9-5/8% Senior Notes were used to repay
outstanding borrowings underand the
Company's existing revolving credit facility.
See "Events, Trends and Uncertainties", above, for information regarding these
financing activities.Credit Agreement.
As the Company pursues its strategy, it may utilize various financing
sources, including fixed and floating rate debt, convertible securities,
preferred stock or common stock. The Company may also issue securities in
exchange for oil and gas properties, stock or other interests in other oil and
gas companies or related assets. Additional securities may be of a class
preferred to common stock with respect to such matters as dividends and
liquidation rights and may also have other rights and preferences as determined
by the Company's Board of Directors.
Asset dispositions. During the three and six months ended March 31,June 30, 2000, and
1999,
proceeds from asset dispositions totaled $19.5$9.0 million and $5.2$28.5 million,
respectively. Duringrespectively, as compared to $264.3 million and $269.4 million for the same
periods in 1999. The primary source of proceeds from asset dispositions during
the three months ended March 31,June 30, 2000 was the sale of an office building in
Midland, Texas. During the six months ended June 30, 2000, the sale of 1,380,446the
Midland office building and the sale of 1,404,946 shares of Prize Common for
$18.626
$19.1 million waswere the primary sourcesources of the Company's proceeds from asset
dispositions. The proceeds from these dispositions were used to reduce the
Company's outstanding bank indebtedness and for general working capital
purposes.
Liquidity. At March 31,June 30, 2000, the Company had $33.1$38.3 million of cash and
cash equivalents on hand, compared to $34.8 million at December 31, 1999. The
Company's ratio of current assets to current liabilities was 1.02.86 to 1 at March
31,June
30, 2000 and .93 to 1 at December 31, 1999.
Other Items
Year 2000 project. During 1998, the Company established a "Year 2000"
project that assessed the Company's internal Year 2000 problem; took remedial
actions necessary to minimize the Year 2000 risk exposure to the Company and
third parties; and, tested the Company's systems and processes once remedial
actions were taken.
The Company has closely monitored its information and non-information
technology systems since the beginning of 2000 and has identified no significant
Year 2000 failures or problems.
Accounting for derivatives. In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
In June 1999, the FASB issued Statement of Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - and amendment of FASB Statement 133"
("SFAS 137"). SFAS 137 defers the effective date for SFAS 133 to fiscal years
beginning after June 15, 2000. The Company has not determined what effect, if
any, SFAS 133 will have on its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk (1)
The following quantitative and qualitative disclosures about market risk
are supplementary to the quantitative and qualitative disclosures provided in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999. As such, the information contained herein should be read in conjunction
with the related disclosures in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
The following disclosures provide specific information about material
changes that have occurred since December 31, 1999 in the Company's portfolio of
financial instruments. The Company may recognize future earnings gains or losses
25
on these instruments from changes in market interest rates, foreign exchange
rates, commodity prices or common stock prices.
Interest rate sensitivity. On April 7, 2000, the Company announced the
sale of $425 million of 9-5/8% Senior Notes Due April 1, 2010 ("9-5/8% Senior
Notes"). Net proceeds of approximately $413.5$415.4 million from the sale of the
9-5/8% Senior Notes were used by the Company to reduce borrowings under its
variable interest rate revolving credit facilitythe
Prior Credit Facility that matures in 2002 (see Note
J. of Noteswas to Consolidated Financial Statements included in "Item 1. Financial
Statements").mature on August 7, 2002. Also in April 2000,
the Company entered into certain interest rate swap agreements to hedge the fair
value of a portion of its fixed rate debt. The interest rate swap agreements are
for an aggregate notional amount of $150 million of debt; commence on April 19,
2000 and mature on April 15, 2005; require the counterparties to pay the Company
a fixed annual rate of 8.875 percent on the notional amount; and, require the
Company to pay the counterparties a variable annual rate on the notional amount
equal to the periodic three-month London Interbank Offered Rate plus a weighted average
margin rate of 178.2 basis points. As of June 30, 2000, the fair market value of the
Company's interest rate swap agreements was a liability of $.7 million.
Effective May 31, 2000, the Company replaced its Prior Credit Facility with the
Credit Agreement that matures on March 1, 2005. See Note C of Notes to
Consolidated Financial Statements included in "Item 1. Financial Statements" for
interest rate terms available to the Company under the Credit Agreement.
Foreign exchange rate sensitivity. During the threesix months ended March
31,June 30,
2000, there were no material changes to the Company's foreign exchange
exposures.
Commodity price sensitivity. During the first quartersix months of 2000, the
Company terminated certain crude oil and natural gas hedge derivatives. The
following tables provide information about the Company's crude oil and natural
gas derivative financial instruments that the Company was a party to as of March
31,June
30, 2000. The tables segregate hedge derivative contracts from those that do not
qualify as hedges.
See Notes DE and FH of Notes to Consolidated Financial Statements included
in"Item 1. Financial Statements" for information regarding the terms of the
Company's derivative financial instruments that are sensitive to changes in
natural gas and crude oil commodity prices.
2627
Pioneer Natural Resources Company
Crude Oil Price Sensitivity
Derivative Financial Instruments as of March 31,June 30, 2000
2000 2001 2002 2003 2004 Fair Value
-------- -------- -------- -------- -------- ------------------ ------- ------- ------- ------- ----------
(in thousands, except volumes and prices)
Crude Oil Hedge Derivatives:
Average daily notional Bbl volumes (1):
Swap contracts........................... 2,480457 $ (18,952)(1,212)
Weighted average per Bbl fixed
price................................. $ 16.0015.76
Collar contracts........................... 864938 $ (686)(1,180)
Weighted average short call per Bbl
ceiling price......................... $ 23.00
Weighted average long put per Bbl
floor price........................... $ 19.00
Collar contracts with short put (2)........ 7,000 $ (15,420)$(22,534)
Weighted average short call per Bbl
ceiling price......................... $ 20.42
Weighted average long put per Bbl
floor price........................... $ 17.29
Weighted average short put per Bbl
price below which floor becomes
variable.............................. $ 14.29
Crude Oil Non-Hedge Derivatives (3):
Daily notional crude oil Bbl volumes
under optional calls sold (4)............ 10,000 $ (19,386)$(33,731)
Weighted average short call per Bbl
ceiling price......................... $ 20.00
Average forward NYMEX crude
oil price per Bbl (5)................. $ 24.5127.67
Daily notional MMBtu volumes under
swap of NYMEX gas price for 10
percent of NYMEX WTI price............... 13,036 13,036 13,036 13,036 13,036 $ (11,936)$(14,814)
Average forward NYMEX gas
prices (5)............................ $ 3.123.93 $ 2.923.68 $ 2.773.46 $ 2.773.32 $ 2.793.29
Average forward NYMEX oil
prices (5)............................ $ 24.5127.67 $ 22.2925.69 $ 20.4423.49 $ 19.6021.88 $ 19.2820.91
- ---------------
(1) See Note DE of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for hedge volumes and weighted average prices by
calendar quarter.
(2) Certain counterparties to the 2000 collar contracts with short put have
the contractual right to extend 5,000 Bbls per day through year 2001 at
strike prices of $20.09 per Bbl for the short call ceiling price, $17.00
per Bbl for the long put floor price and $14.00 per Bbl for the short put
price below which the floor becomes variable.
(3) Since the crude oil non-hedge derivatives are sensitive to changes in both
crude oil and natural gas market prices, they are presented in both the
Crude Oil Price Sensitivity table and the accompanying Natural Gas Price
Sensitivity table.
(4) The counterparties to the 2000 and 2001 optional call contracts have the
contractual right to elect to call either crude volumes or gas volumes at
the indicated prices. See the "Natural Gas Price Sensitivity" table for
the optional natural gas volumes and call prices available to the
counterparties.
(5) Average forward NYMEX oil and gas prices are as of AprilJuly 28, 2000.
2728
Pioneer Natural Resources Company
Natural Gas Price Sensitivity
Derivative Financial Instruments as of March 31,June 30, 2000
2000 2001 2002 2003 2004 Fair Value
-------- -------- -------- -------- --------------- ------- ------- ------- ----------
(in thousands, except volumes and prices)
Natural Gas Hedge Derivatives (1):
Average daily notional MMBtu volumes (2):
Swap contracts (3)......................... 10,000 $ (9,829)(23,485)
Weighted average MMBtu fixed
price................................. $ 2.42
Collar contracts with short puts (4)....... 57,227 $(15,374)$ (43,576)
Weighted average short call MMBtu
ceiling price......................... $ 2.59
Weighted average long put MMBtu
contingent floor price............... $ 2.01
Weighted average short put MMBtu
price below which floor becomes
variable.............................. $ 1.73
Natural Gas Non-hedge Derivatives (5):
Daily nominal gas MMBtu volumes
under optional calls sold (6)............ 100,000 $(19,386)$ (33,731)
Weighted average short call per
MMBtu ceiling price................... $ 2.75
Average forward NYMEX gas
price per MMBtu (7)................... $ 3.123.93
Daily notional MMBtu volumes under
agreement to swap NYMEX gas
price for 10 percent of NYMEX
WTI price................................ 13,036 13,036 13,036 13,036 13,036 $(11,936)$ (14,814)
Average forward NYMEX gas
prices (7)............................ $ 3.123.93 $ 2.923.68 $ 2.773.46 $ 2.773.32 $ 2.793.29
Average forward NYMEX oil
prices (7)............................ $ 24.5127.67 $ 22.2925.69 $ 20.4423.49 $ 19.6021.88 $ 19.2820.91
- ---------------
(1) When necessary, to minimize basis risk, the Company enters into natural
gas basis swaps to connect the index price of the hedging instrument from
a NYMEX index to an index which reflects the geographic area of
production. The Company considers these basis swaps as part of the
associated swap and option contracts and, accordingly, the effects of the
basis swaps have been presented together with the associated contracts.
(2) See Note DE of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for hedge volumes and weighted average prices by
calendar quarter.
(3) Certain counterparties have the contractual right to sell year 2001, 2002
and 2003 swap contracts to the Company for notional daily volumes of
49,233; 12,500; and 10,000 MMBtu per day, respectively, at average strike
prices of $2.21; $2.52 and $2.58 per MMBtu, respectively.
(4) Certain counterparties have the contractual right to sell year 2001 and
2002 collar contracts with short puts to the Company for notional daily
contract volumes of 54,482 and 60,000 MMBtu, respectively, at weighted
average index prices of $2.71 and $2.64 per MMBtu for the short call
ceiling prices, respectively; $2.09 and $2.25 per MMBtu for the long put
floor prices, respectively; and $1.80 and $1.95 per MMBtu for the short
put prices below which the floors become variable.
(5) Since the natural gas non-hedge derivatives are sensitive to changes in
both natural gas and crude oil market prices, they are presented in both
the Natural Gas Sensitivity table and the accompanying Crude Oil Price
Sensitivity table.
(6) The counterparties to the 2000 and 2001 optional call contracts have the
contractual right to elect to call either crude volumes or gas volumes at
the indicated prices See the "Crude Oil Price Sensitivity" table for the
optional crude oil volume and call prices available to the counterparties.
(7) Average forward NYMEX oil and gas prices are as of AprilJuly 28, 2000.
2829
Other price sensitivity. On December 31, 1999, the Company owned
2,376.923 shares of Prize Energy Corp. ("Prize") six percent convertible
preferred stock ("Prize Preferred") having a liquidation preference of $30.0
million. Prior to February 9, 2000, Prize was a closely held, non-public entity
and the fair value of the Prize Preferred was not readily determinable. On
February 9, 2000, Prize merged with Vista Energy Resources Inc. and the common
stock of the merged Prize entity began to publicly trade on the American Stock
Exchange. At that time, the Company's Prize Preferred was exchanged for
3,984,197 shares of Prize Series A 6% Convertible Preferred Stock ("Prize Senior
Preferred"), which was subsequently increased to 4,018,161 shares as a result of
associated in-kind dividends. On March 31, 2000, the Company and Prize converted
the Company's 4,018,161 shares of Prize Senior A Preferred to 4,018,161 shares
of Prize common stock ("Prize Common") and sold to Prize 1,380,446 shares of the
Prize Common for $18.6 million. During the three months ended June 30, 2000, the
Company sold an additional 24,500 shares of Prize Common for $.5 million. The
fair value of the Company's remaining investment in 2,637,7152,613,215 shares of Prize
Common was $51.4$62.7 million as of March 31,June 30, 2000, representing a $31.7$43.2 million
unrealized gain on the Company's originalremaining investment in the underlying shares.Prize Common.
- ---------------
(1) The information in this document includes forward-looking statements that
are made pursuant to the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, and the
business prospects of Pioneer Natural Resources Company, are subject to a
number of risks and uncertainties which may cause the Company's actual
results in future periods to differ materially from the forward-looking
statements. These risks and uncertainties include, among other things,
volatility of oil and gas prices, product supply and demand, competition,
government regulation or action, litigation, the costs and results of
drilling and operations, the Company's ability to replace reserves or
implement its business plans, access to and cost of capital,
uncertainties about estimates of reserves, quality of technical data and
environmental risks. These and other risks are described in the Company's
1999 Annual Report on Form 10-K which is available from the United States
Securities and Exchange Commission.
2930
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Note CD of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements", the Company is a party to various legal actions
incidental to its business. The probable damages from such legal actions are not
expected to be in excess of 10 percent of the Company's current assets and the
Company believes none of these actions to be material.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 18, 2000 in
Dallas, Texas. At the meeting, two proposals were submitted for vote of
stockholders (as described in the Company's Proxy Statement dated April 10,
2000). The following is a brief description of the proposal and results of the
stockholders' votes.
Election of Directors. Prior to the meeting, the Company's Board of
Directors designated two nominees as Class III directors with their terms to
expire at the annual meeting in 2003 when their successors are elected and
qualified. Messrs. Jones and Ramsey were, at the time of such nomination and at
the time of the meeting, directors of the Company. Each nominee was re-elected
as a director of the Company, with the results of the stockholder voting being
as follows:
Authority Broker
For Withheld Abstain Non-Votes
---------- --------- ------- ---------
Jerry P. Jones 86,077,317 1,377,620 - -
Charles E. Ramsey, Jr. 86,090,725 1,364,212 - -
Messrs. I. Jon Brumley, Kenneth A. Hersh and Philip B. Smith resigned
their positions as directors of the Company in 1999 and Mr. Richard E. Rainwater
resigned his position as a director of the Company in 2000. The term of office
for the following directors continues as of June 30, 2000: Scott D. Sheffield,
James R. Baroffio, R. Hartwell Gardner, James L. Houghton, Jerry P. Jones,
Charles E. Ramsey, Jr., and Robert L. Stillwell.
Ratification of selection of auditors. The engagement of Ernst & Young
LLP as the Company's independent auditors for 2000 was submitted to the
stockholders for ratification. Such election was ratified, with the results of
the stockholder voting being as follows:
For 87,177,801
Against 226,170
Abstain 50,966
Broker non-votes -
Item 6. Exhibits and Reports on Form 8-K
Exhibits
10.1 - Second Supplemental Indenture, dated as of April 11, 2000,
among the Company, Pioneer USA, as the subsidiary guarantor and
the Bank of New York, as trustee, with respect to the Indenture,
dated January 13, 1998, between the Company and The Bank of New
York, as trustee.trustee (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q, filed with the SEC
on May 11, 2000).
10.2 - Form of 9-5/8% Senior Notes Due April 1, 2010, dated as of
April 11, 2000, in the aggregate principal amount of
$425,000,000, together with Trustee's Certificate of
Authentication dated April 11, 2000, establishing the terms of
the 9-5/8% Senior Notes Due April 1, 2010 pursuant to the Second
Supplemental Indenture identified above as Exhibit 10.1.10.1
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q, filed with the SEC on May 11,
2000).
31
Exhibits
10.3 - Guarantee, dated as of April 11, 2000, by Pioneer USA as the
subsidiary guarantor relating to the $425,000,000 aggregate
principal amount of 9-5/8% Senior Notes Due April 1, 2010 issued
under the Second Supplemental Indenture identified above as
Exhibit 10.1 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q, filed with the SEC on
May 11, 2000).
10.4 - $575,000,000 Credit Agreement dated as of May 31, 2000, among
the Company, as the borrower, Bank of America, N.A., as the
Administrative Agent, Credit Suisse First Boston, as the
Documentation Agent, the Chase Manhattan Bank, as the Syndicated
Agent and certain Lenders.
27.1 - Financial Data Schedule
Reports on Form 8-K
On March 14,During the quarter ended June 30, 2000, the Company filed with the Securities and Exchange
Commission (the "SEC") adid not file any
Current ReportReports on Form 8-K to report, under Items 5.
and 7., information to supplement its Current Report on Form 8-K filed with the
SEC on December 13, 1999.
308-K.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
PIONEER NATURAL RESOURCES COMPANY
Date: May 11,August 9, 2000 By: /s/ Timothy L. Dove
-------------------------------------------------------------------
Timothy L. Dove
Executive Vice President and Chief
Financial Officer
Date: May 11,August 9, 2000 By: /s/ Rich Dealy
-------------------------------------------------------------------
Rich Dealy
Vice President and Chief
Accounting Officer
33
PIONEER NATURAL RESOURCES COMPANY
Exhibit Index Page
10.1 - Second Supplemental Indenture, dated as of April 11, 2000,
among the Company, Pioneer USA, as the subsidiary guarantor
and the Bank of New York, as trustee, with respect to the
Indenture, dated January 13, 1998, between the Company and
The Bank of New York, as trustee (incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q, filed with the SEC on May 11, 2000).
10.2 - Form of 9-5/8% Senior Notes Due April 1, 2010, dated as of
April 11, 2000, in the aggregate principal amount of
$425,000,000, together with Trustee's Certificate of
Authentication dated April 11, 2000, establishing the terms
of the 9-5/8% Senior Notes Due April 1, 2010 pursuant to
the Second Supplemental Indenture identified above as
Exhibit 10.1 (incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q, filed with the
SEC on May 11, 2000).
10.3 - Guarantee, dated as of April 11, 2000, by Pioneer USA as
the subsidiary guarantor relating to the $425,000,000
aggregate principal amount of 9-5/8% Senior Notes Due
April 1, 2010 issued under the Second Supplemental
Indenture identified above as Exhibit 10.1 (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q, filed with the SEC on May 11, 2000).
10.4* - $575,000,000 Credit Agreement dated as of May 31, 2000,
among the Company, as the borrower, Bank of America, N.A.,
as the Administrative Agent, Credit Suisse First Boston, as
the Documentation Agent, the Chase Manhattan Bank, as the
Syndicated Agent and certain Lenders.
27.1* - Financial Data Schedule
- ---------------
* Filed herewith
34