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PXD > SEC Filings for PXD > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for PIONEER NATURAL RESOURCES CO

Form 10-Q for PIONEER NATURAL RESOURCES CO


9-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial and Operating Performance
The Company's financial and operating performance for the first quarter of 2014 included the following highlights:
Net income attributable to common stockholders for the first quarter of 2014 was $123 million ($0.85 per diluted share), as compared to net income of $101 million ($0.75 per diluted share) for the first quarter of 2013. The increase in net income attributable to common stockholders is comprised of a $64 million increase in net income from continuing operations offset by a $42 million decrease in income from discontinued operations, net of tax.

The primary components of the increase in net income from continuing operations include:

            a $181 million increase in oil and gas revenues as a result of an
             eight percent increase in total sales volumes and a 15 percent
             increase in the average commodity prices received per BOE; partially
             offset by


            a $62 million increase in net derivative losses, primarily as a
             result of increases in forward commodity prices and changes in the
             Company's portfolio of derivatives;


            a $20 million increase in total oil and gas production costs and
             production and ad valorem taxes, primarily associated with the eight
             percent increase in sales volumes; and


            a $19 million increase in general and administrative expense,
             primarily due to increased personnel, occupancy, information
             technology and legal costs resulting from the growth in employee
             headcount in support of the Company's capital expansion initiatives.

The primary components of the decrease in income from discontinued operations, net of tax, include:

            a $111 million impairment charge to reduce the carrying values of
             Pioneer Alaska and the Company's Barnett Shale field assets to their
             estimated fair value less costs to sell; partially offset by


            a $19 million decrease in depletion, depreciation and amortization
             due to the assets of Pioneer Alaska and the Barnett Shale field
             being classified as held for sale at December 31, 2013; and


            an $18 million increase in revenues and other income due to
             increased production and higher Alaskan PPT credits on qualifying
             capital expenditures.


      During the first quarter of 2014, average daily sales volumes from
       continuing operations increased by eight percent to 171,944 BOEPD, as
       compared to 158,683 BOEPD during the first quarter of 2013. The increase
       in first quarter 2014 average daily sales volumes, as compared to the
       first quarter of 2013, is primarily due to the Company's successful
       Spraberry/Wolfcamp and Eagle Ford Shale horizontal drilling programs.


      Average oil, NGL and gas prices increased during the first quarter of 2014
       to $92.38 per BBL, $33.38 per BBL and $4.81 per MCF, respectively, as
       compared to $87.67 per BBL, $30.86 per BBL and $3.17 per MCF,
       respectively, in the first quarter of 2013.


      Average oil and gas production costs per BOE increased to $10.65 for the
       first quarter of 2014, as compared to $10.47 for the first quarter of
       2013, primarily due to an increase in lease operating expenses as a result
       of increased fuel and labor costs, offset by lower net natural gas plant
       charges due to increased gathering and processing revenues from processing
       third-party gas in Company-owned facilities.


      Net cash provided by operating activities increased to $466 million for
       the three months ended March 31, 2014, as compared to $360 million for the
       three months ended March 31, 2013. The $106 million increase in net cash
       provided by operating activities is primarily due to an increase in sales
       volumes and commodity prices, partially offset by a decrease in realized
       derivative gains.


      As of March 31, 2014, the Company's net debt to book capitalization
       increased to 27 percent, as compared to 25 percent as of December 31,
       2013, principally reflective of a decrease in cash and cash equivalents of
       $136 million, an increase in long-term debt of $53 million and net income
       of $123 million for the three months ended March 31, 2014.

Recent Developments
During the fourth quarter of 2013, the Company committed to a plan to sell 100 percent of the capital stock in Pioneer Alaska. In April 2014, the Company completed the sale of Pioneer Alaska to an unaffiliated third party pursuant to an amended purchase and sale agreement for $300 million before normal closing and other adjustments.


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PIONEER NATURAL RESOURCES COMPANY

Second Quarter 2014 Outlook
Based on current estimates, the Company expects the following operating and financial results from continuing operations for the quarter ending June 30, 2014:
Production is forecasted to average 173,000 to 178,000 BOEPD.
Production costs (including production and ad valorem taxes and transportation costs) are expected to average $13.50 to $15.50 per BOE based on current NYMEX strip commodity prices. DD&A expense is expected to average $13.50 to $15.50 per BOE.
Total exploration and abandonment expense is expected to be $25 million to $35 million. General and administrative expense is expected to be $80 million to $85 million. Interest expense is expected to be $47 million to $52 million, and other expense is expected to be $25 million to $35 million. Accretion of discount on asset retirement obligations is expected to be $3 million to $5 million.
The Company's effective income tax rate is expected to range from 35 percent to 40 percent assuming current capital spending plans and no significant mark-to-market changes in the Company's derivative position. Cash income taxes are expected to range from $10 million to $15 million and are primarily attributable to federal alternative minimum tax and state taxes. Operations and Drilling Highlights
The following table summarizes the Company's average daily oil, NGL, gas and total production by asset area during the three months ended March 31, 2014:

                                             Oil (BBLs)     NGLs (BBLs)     Gas (MCF)     Total (BOE)
Permian Basin                                   58,356          17,100        70,314          87,175
South Texas - Eagle Ford Shale                  16,787          12,017        82,849          42,611
Raton Basin                                          -               -       126,451          21,075
Mid-Continent                                    3,066           6,636        38,268          16,080
South Texas - Other                                380               7        27,597           4,987
Other                                                -               3            70              16
  Total continuing operations                   78,589          35,763       345,549         171,944
Barnett Shale                                    2,163           3,157        24,909           9,472
Alaska                                           4,058               -             -           4,058
  Total including discontinued operations       84,810          38,920       370,458         185,474

During 2014 and 2013, the Company has focused its capital budgets and expenditures on oil and liquids-rich gas drilling activities due to relatively lower gas prices. As a result of these capital activities, the Company's total liquids production from continuing operations increased to 67 percent of total production, on a BOE basis, for the three months ended March 31, 2014, as compared to 62 percent for the same period last year. The Company's liquids revenue as a percent of total commodity sales decreased to 84 percent for the three months ended March 31, 2014, as compared to 86 percent for the same period last year, due to a 52 percent increase in the average gas price relative to increases of five percent and eight percent in the average oil and NGL prices, respectively.


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                       PIONEER NATURAL RESOURCES COMPANY

 The following table summarizes by geographic area the Company's finding and
development costs incurred during the three months ended March 31, 2014:
                                                                                                      Asset
                                    Acquisition Costs           Exploration      Development       Retirement
                                  Proved          Unproved         Costs            Costs          Obligations        Total
                                                                       (in millions)
Permian Basin                $       -          $        3     $       181     $         272     $        (1 )     $      455
South Texas - Eagle Ford
Shale                                -                   -              93                64               -              157
Raton Basin                          -                   -               1                 4               -                5
Mid-Continent                        -                   -               1                 1               -                2
South Texas - Other                  -                   -               5                 3               -                8
Other                                -                   1               3                 -               -                4
  Total continuing
operations                           -                   4             284               344              (1 )            631
Barnett Shale                        2                   1              48                11               -               62
Alaska                               -                   -              (1 )              48               4               51
  Total including
discontinued operations      $       2          $        5     $       331     $         403     $         3       $      744

The following table summarizes the Company's development and exploration/extension drilling activities for the three months ended March 31, 2014:

                                                              Development Drilling
                                        Beginning                                               Ending
                                          Wells         Wells      Successful      Wells         Wells
                                       in Progress      Spud         Wells         Sold       in Progress
Permian Basin                                  59          72             77           4              50
South Texas - Eagle Ford Shale                 16           8             13           -              11
  Total continuing operations                  75          80             90           4              61
Barnett Shale                                   1           -              1           -               -
Alaska                                          4           1              -           -               5
  Total including discontinued
operations                                     80          81             91           4              66



                                                                  Exploration/Extension Drilling
                                                                                                               Ending
                                              Beginning Wells          Wells      Successful      Wells         Wells
                                                in Progress            Spud         Wells         Sold       in Progress
Permian Basin                                  31                         48             22           1              56
South Texas - Eagle Ford Shale                 24                         25             19           -              30
South Texas - Other                             -                          2              1           -               1
Other                                           3                          -              -           -               3
  Total continuing operations                  58                         75             42           1              90
Barnett Shale                                  17                         18             15           -              20
Alaska                                          2                          -              -           -               2
Total including discontinued operations        77                         93             57           1             112

Permian Basin area. The Company successfully completed 99 wells in the Permian Basin area during the first three months of 2014. During 2014, the Company expects to drill approximately 200 vertical wells and 255 horizontal wells, with the horizontal wells being drilled in the Spraberry/Wolfcamp Shale horizons. The Company expects to spend $2.4 billion of drilling capital in the Spraberry/Wolfcamp area during 2014.
The Company believes it has significant resource potential within its acreage based on its extensive geologic data covering the Spraberry and Wolfcamp A, B, C and D intervals and its drilling results to-date. During 2014, the Company expects to drill 140 horizontal wells in the northern portion of the play and 115 horizontal wells in the southern portion of the play, where the Company has its joint venture with Sinochem. The wells in these areas are expected to be drilled on three-well pads to gain efficiencies; therefore, the wells will not be completed until after the last well on each pad is drilled and, accordingly, production from these wells is not expected until all wells on the pad are ready to produce. With the addition of drilling rigs during the first


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PIONEER NATURAL RESOURCES COMPANY

quarter of 2014, combined with the effects of pad drilling, the Company continues to expect production growth to be weighted towards the second half of 2014.
The Company continues to drill vertically to deeper intervals in the Spraberry field below the Wolfcamp interval, including the Strawn and Atoka intervals. The Company expects to drill approximately 200 vertical wells predominately targeting deeper intervals during 2014. These wells are being drilled to meet continuous drilling obligations.
The Company continues to benefit from its integrated services to control drilling and operating costs and support the execution of its drilling and production activities in the Spraberry field. The Company is currently utilizing seven Company-owned fracture stimulation fleets totaling approximately 200,000 horsepower in the Spraberry field. To support its operations, the Company also owns other field service equipment, including pulling units, fracture stimulation tanks, water transport trucks, hot oilers, blowout preventers, construction equipment and fishing tools. In addition, Premier Silica (the Company's wholly-owned sand mining subsidiary) is supplying brown sand for proppant, which is being used by the Company to fracture stimulate vertical and horizontal wells in the Spraberry and Wolfcamp Shale intervals.
During April 2014, the Company extended its gas processing agreement with Atlas Pipeline Partners, L.P. ("Atlas") for an additional 10 years (through 2032) to help ensure adequate gas processing capacity across the Spraberry/Wolfcamp area as the Company increases its drilling activities. Associated with the agreement, Atlas is adding 400 million cubic feet per day of new processing capacity by the second half of 2015, with half of the new capacity coming online during the fourth quarter of 2014 and the other half coming online during the second half of 2015. The Company owns a 27 percent interest in the Atlas gas processing facilities and will fund its share of capital to build these new facilities. Eagle Ford Shale area. The Company's drilling activities in the South Texas area during 2014 continue to be primarily focused on delineation and development of Pioneer's substantial acreage position in the Eagle Ford Shale play. The 2014 drilling program has been focused on liquids-rich drilling, with no wells currently planned to be drilled in dry gas acreage.
The Company completed 32 horizontal Eagle Ford Shale wells during the first three months of 2014, all of which were successful, with average lateral lengths of approximately 5,500 feet and, on average, 19-stage fracture stimulations. Of the 32 Eagle Ford Shale wells that were placed on production during the first three months of 2014, the Company placed six Upper Eagle Ford Shale wells on production and estimates that approximately 25 percent of the Company's acreage is prospective for this interval in the Eagle Ford Shale play. The Company plans to spend $545 million of drilling capital in 2014 to drill approximately 110 Eagle Ford Shale wells. The Company is operating two Pioneer-owned fracture stimulation fleets during 2014 in the Eagle Ford Shale play.
The Company's drilling operations in the Eagle Ford Shale continue to focus on improving drilling efficiencies. In 2013, the Company added approximately 300 drilling locations in the liquids-rich area of the play as a result of downspacing from 1,000 feet between wells (120-acre spacing) to 500 feet (60-acre spacing) between wells. Further downspacing and staggered testing to 175 feet between wells is underway in the liquids-rich areas where the 500-foot spacing was successful. Some areas will include testing of the Lower Eagle Ford Shale interval only, while others will include a combination of the Lower and Upper Eagle Ford Shale intervals. Early results from the initial 300-foot downspacing and staggered test in the Lower Eagle Ford Shale continue to be encouraging with six downspaced wells performing consistently with offset 500-foot spaced wells. In 2014, most Eagle Ford Shale wells will be drilled utilizing three-well and four-well pads. Pad sizes generally range from two to five wells, which are not completed until all of the wells on the pad are drilled. The time it takes to complete the pad is dependent upon how many wells are drilled on each pad. Pad drilling saves the Company a significant amount of capital costs per well, as compared to drilling single-well locations. Over the past two years, the Company has been testing the use of lower-cost white sand instead of ceramic proppant to fracture stimulate wells drilled in shallower areas of the field. The Company is expanding the use of white sand proppant to deeper areas of the field to further define its performance limits. Early well performance has been similar to direct offset ceramic-stimulated wells. The Company is continuing to monitor the performance of these wells and expects that the majority of its 2014 drilling program in the Eagle Ford Shale area will use lower-cost white sand proppant.

Barnett Shale. During the fourth quarter of 2013, the Company committed to a plan to divest of its net assets in the Barnett Shale field in North Texas. The plan is expected to result in the sale of the Barnett Shale net assets during 2014. The Company classified the Barnett Shale field assets and liabilities as held for sale in the Company's accompanying consolidated balance sheet as of March 31, 2014 and December 31, 2013. Results of operations from the Company's Barnett Shale field are reported as discontinued operations, net of tax in the Company's accompanying consolidated statements of operations.
See Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information about the Company's plan to sell its Barnett Shale assets.


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PIONEER NATURAL RESOURCES COMPANY

The Company continues to pursue the sale of the Barnett Shale net assets. No assurance can be given that the sale will be completed in accordance with the Company's plans.
Alaska. During the fourth quarter of 2013, the Company committed to a plan to sell 100 percent of the capital stock in Pioneer Alaska. In April 2014, the Company completed the sale of Pioneer Alaska to an unaffiliated third party pursuant to an amended purchase and sale agreement. The assets and liabilities of Pioneer Alaska are classified as held for sale in the Company's accompanying consolidated balance sheet as of March 31, 2014 and December 31, 2013. Pioneer Alaska's results of operations are reported as discontinued operations, net of tax in the Company's accompanying consolidated statements of operations. See Notes C and F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information about the Company's divestiture and exploration projects in Alaska, respectively. Results of Operations from Continuing Operations Oil and gas revenues. Oil and gas revenues totaled $910 million for the three months ended March 31, 2014, as compared to $729 million for the same period in 2013.

The increase in oil and gas revenues during the three months ended March 31, 2014, as compared to the same period in 2013, reflected 14 percent and 19 percent increases in daily oil and NGL sales volumes, respectively, and five percent, eight percent and 52 percent increases in average oil, NGL and gas prices, respectively. Partially offsetting the effects of these increases was a four percent decline in gas sales volumes.
The following table provides average daily sales volumes for the three months ended March 31, 2014 and 2013:

Three Months Ended
March 31,
                   2014          2013
Oil (BBLs)        78,589        68,786
NGLs (BBLs)       35,763        29,951
Gas (MCF)        345,549       359,677
Total (BOEs)     171,944       158,683

Average daily BOE sales volumes increased by eight percent for the three months ended March 31, 2014, as compared to the same period in 2013, principally due to the Company's successful Spraberry/Wolfcamp and Eagle Ford Shale drilling programs.
The oil, NGL and gas prices that the Company reports are based on the market prices received for each commodity. The following table provides the Company's average prices for the three months ended March 31, 2014 and 2013:

Three Months Ended
                           March 31,
                        2014           2013
Oil (per BBL)     $    92.38         $ 87.67
NGL (per BBL)     $    33.38         $ 30.86
Gas (per MCF)     $     4.81         $  3.17
Total (per BOE)   $    58.83         $ 51.01

Sales of purchased oil and gas. The Company periodically enters into pipeline capacity commitments in order to secure available oil, NGL and gas transportation capacity from the Company's areas of production. The Company enters into purchase transactions with third parties and separate sale transactions with third parties to satisfy unused pipeline capacity commitments and to diversify a portion of the Company's WTI oil sales to a Gulf Coast oil price. Revenues and expenses from these transactions are presented on a gross basis as the Company acts as a principal in the transaction by assuming the risk and rewards of ownership, including credit risk, of the commodities purchased and assuming responsibility to deliver the commodities sold. Deficiency payments on excess pipeline capacity commitments are included in other expense in the accompanying consolidated statements of operations. See Note L of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for further information on transportation commitment charges.

Interest and other income. Interest and other income for the three months ended March 31, 2014 was $4 million, as compared to a nominal amount for the same period in 2013. The increase in interest and other income for the three months ended March 31, 2014, as compared to the same period in 2013, is primarily due to a decrease of $5 million in the net loss from vertical integration


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PIONEER NATURAL RESOURCES COMPANY

services between the quarters. See Note K of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information.

Derivative losses, net. The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts to (i) reduce the effect of price volatility on the commodities the Company produces, sells and consumes,
(ii) support the Company's annual capital budgeting and expenditure plans and
(iii) reduce commodity price risk associated with certain capital projects. During the three months ended March 31, 2014, the Company recorded $104 million of net derivative losses on commodity price and interest rate derivatives, of which $18 million represented net cash payments. During the three months ended March 31, 2013, the Company recorded $42 million of net derivative losses, which was net of $54 million of cash receipts. Derivative gains and losses result from changes in the fair values of the Company's derivative contracts. See Notes D and E of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information regarding the Company's derivative activities and market risks associated with those activities. Gain on disposition of assets, net. The Company recorded net gains on the disposition of assets of $6 million for the three months ended March 31, 2014, as compared to $24 million for the same period in 2013.
The net gain for the three months ended March 31, 2014 included the Company's February 2014 sale of proved and unproved properties in Gaines and Dawson counties in the Spraberry field in West Texas for net cash proceeds of $68 million, which resulted in a gain of $3 million. The Company also recognized a $1 million gain during the first quarter of 2014 associated with the sale of Sendero.
The net gain for the three months ended March 31, 2013 is primarily associated with the sale of the Company's interest in unproved oil and gas properties adjacent to the Company's West Panhandle field operations for net cash proceeds of $38 million, which resulted in a gain of $22 million. See Note C of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Company's gains and losses on the disposition of assets.
Oil and gas production costs. The Company recorded oil and gas production costs of $165 million during the three months ended March 31, 2014, as compared to $150 million during the same period in 2013. Lease operating expenses and workover costs represent the components of oil and gas production costs over which the Company has management control, while third-party transportation charges represent the cost to transport volumes produced to a sales point. Net natural gas plant charges represent the net costs to gather and process the Company's gas, reduced by net revenues earned from the gathering and processing of third-party gas in Company-owned facilities.
Total oil and gas production costs per BOE for the three months ended March 31, . . .

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