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 June 30, 1998

                                       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, 5202 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 July 31, 1998....100,423,593







<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY

                                TABLE OF CONTENTS




                                                                           Page


                          PART I. FINANCIAL INFORMATION


Item 1.    Financial Statements

           Consolidated Balance Sheets as of June 30, 1998 and
              December 31, 1997 ...........................................  3

           Consolidated Statements of Operations and Comprehensive Income
            for the three and six months ended June 30, 1998 and 1997......  5

           Consolidated Statement of Stockholders' Equity for the six
             months ended June 30, 1998....................................  6

           Consolidated Statements of Cash Flows for the three and six
             months ended June 30, 1998 and 1997...........................  7

           Notes to Consolidated Financial Statements......................  8


Item 2.    Management's Discussion and Analysis of Financial
             Condition and Results of Operations........................... 18



                           PART II. OTHER INFORMATION


Item 1.    Legal Proceedings............................................... 29


Item 4.    Submission of Matters to a Vote of Security Holders............. 29


Item 6.    Exhibits and Reports on Form 8-K................................ 30

           Signatures...................................................... 31

           Exhibit Index................................................... 32


                                        2


<PAGE>




                          PART I. FINANCIAL INFORMATION



Item 1.      Financial Statements

                        PIONEER NATURAL RESOURCES COMPANY

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

                                                       June 30,     December 31,
                                                         1998           1997
                                                      ----------    -----------
                                                     (Unaudited)
                                     ASSETS
Current assets:
  Cash and cash equivalents                           $   45,693    $   71,713
  Restricted cash                                            348         1,695
  Accounts receivable:
    Trade, net                                            59,124        75,432
    Oil and gas sales                                     98,666       116,500
  Inventories                                             20,752        13,576
  Deferred income taxes                                   18,500        16,900
  Other current assets                                     9,888        12,372
                                                       ---------     ---------
          Total current assets                           252,971       308,188
                                                       ---------     ---------
Property, plant and equipment, at cost:
  Oil and gas properties, using the successful
    efforts method of accounting:
       Proved properties                               3,839,245     3,575,971
       Unproved properties                               466,699       545,074
  Accumulated depletion, depreciation and
    amortization                                        (764,414)     (605,203)
                                                       ---------     ---------
                                                       3,541,530     3,515,842
                                                       ---------     ---------
Deferred income taxes                                     70,300           -
Other property and equipment, net                         48,708        44,017
Other assets, net                                         84,912        78,543
                                                       ---------     ---------
                                                      $3,998,421    $3,946,590
                                                       =========     =========

   The financial information included as of June 30, 1998 has been prepared by
           management without audit by independent public accountants.

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

                                        3


<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY

                     CONSOLIDATED BALANCE SHEETS (continued)
                        (in thousands, except share data)

                                                       June 30,     December 31,
                                                         1998           1997
                                                      ----------    -----------
                                                      (Unaudited)

                    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term debt               $    3,772    $    5,791
   Undistributed unit purchases                              348         1,695
   Accounts payable: 
      Trade                                              115,464       176,697
      Affiliates                                           2,788         9,994
   Other current liabilities                              88,070        67,375
                                                       ---------     ---------
            Total current liabilities                    210,442       261,552
                                                       ---------     ---------
Long-term debt, less current maturities                2,139,084     1,943,718
Other noncurrent liabilities                             178,398       180,275
Deferred income taxes                                        -          12,200
Stockholders' equity:
 Preferred stock, $.01 par value; 100,000,000 shares
  authorized; one share issued and outstanding at
  June 30, 1998 and December 31, 1997                        -             -
 Common stock, $.01 par value; 500,000,000 shares
  authorized; 100,745,293 and 101,037,562 shares
  issued at June 30, 1998 and December 31, 1997,
  respectively                                             1,007         1,010
 Additional paid-in capital                            2,350,912     2,359,992
 Treasury stock, at cost; 300,700 and 591 shares
  at June 30, 1998 and December 31, 1997,
  respectively                                            (6,799)          (21)
 Unearned compensation                                   (11,212)      (16,196)
 Retained deficit                                       (860,649)     (795,940)
 Accumulated other comprehensive loss:
  Cumulative translation adjustment                       (2,762)          -
                                                       ---------     ---------
          Total stockholders' equity                   1,470,497     1,548,845

Commitments and contingencies (Note D)
                                                       ---------     ---------
                                                      $3,998,421    $3,946,590
                                                       =========     =========

   The financial information included as of June 30, 1998 has been prepared by
           management without audit by independent public accountants.

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

                                        4


<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                      (in thousands, except per share data)
                                   (Unaudited)

<TABLE>
                                           Three months ended       Six months ended
                                                June 30,                 June 30,
                                         ---------------------   ---------------------
                                            1998        1997        1998        1997
                                         ---------   ---------   ---------   ---------
<S>                                      <C>         <C>         <C>         <C>
Revenues:
   Oil and gas                           $ 183,647   $  94,847   $ 381,016   $ 198,626
   Interest and other                        1,145         680       2,323       2,833
   Gain on disposition of assets, net          315       1,862         325       2,637
                                          --------    --------    --------    --------
                                           185,107      97,389     383,664     204,096
                                          --------    --------    --------    --------
Costs and expenses:
   Oil and gas production                   56,613      24,958     111,755      49,671
   Depletion, depreciation and
     amortization                           83,808      30,879     160,058      59,509
   Exploration and abandonments             26,573      10,800      50,522      18,415
   General and administrative               17,387       8,270      37,412      14,990
   Reorganization                            3,372         -        20,549         -
   Interest                                 41,017      10,259      80,495      20,154
   Other                                     6,846         410      13,626         831
                                          --------    --------    --------    --------
                                           235,616      85,576     474,417     163,570
                                          --------    --------    --------    --------
Income (loss) before income taxes          (50,509)     11,813     (90,753)     40,526
Income tax benefit (provision)              17,700      (4,400)     31,100     (14,500)
                                          --------    --------    --------    --------
Net income (loss)                          (32,809)      7,413     (59,653)     26,026
                                          --------    --------    --------    --------
Other comprehensive loss:
   Translation adjustment                   (3,702)        -        (2,762)        -
                                          --------    --------    --------    ------
Comprehensive income (loss)              $ (36,511)  $   7,413   $ (62,415)  $  26,026
                                          ========    ========    ========    ========
Net income (loss) per share:
     Basic                               $    (.33)  $     .21   $    (.60)  $     .74
                                          ========    ========    ========    ========
     Diluted                             $    (.33)  $     .21   $    (.60)  $     .71
                                          ========    ========    ========    ========
Dividends declared per share             $     -     $     -     $     .05   $     .05
                                          ========    ========    ========    ========
Weighted average shares outstanding         99,939      35,028     100,003      35,038
                                         =========   =========   =========   =========
</TABLE>

         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.

                                        5


<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                        (in thousands, except share data)
                                   (Unaudited)

<TABLE>
                               Common                                                                  Accumulated
                               Stock                Additional                                            Other           Total
                               Shares      Common    Paid-in     Treasury     Unearned     Retained    Comprehensive   Stockholders'
                             Outstanding   Stock     Capital       Stock    Compensation    Deficit        Loss           Equity
                             -----------   ------   ----------   --------   ------------   ---------   -------------   ------------
<S>                          <C>           <C>      <C>          <C>        <C>            <C>         <C>             <C>
Balance at January 1, 1998   101,036,971   $1,010   $2,359,992   $    (21)  $  (16,196)    $(795,940)  $       -       $  1,548,845
Common stock issued:
  Adjustment to acquisition
    of Chauvco Resources,
    Ltd.                        (401,755)      (4)     (11,095)       -            -             -             -            (11,099)
Tax provision related to
  restricted stock                   -        -           (500)       -            -             -             -               (500)
Purchase of treasury stock      (300,109)     -            -       (6,778)         -             -             -             (6,778)
Shares awarded                   109,486        1        2,515        -           (697)          -             -              1,819
Amortization of unearned
  compensation                       -        -            -          -          5,681           -             -              5,681
Dividends ($.05 per share)           -        -            -          -            -          (5,056)          -             (5,056)
Net loss                             -        -            -          -            -         (59,653)          -            (59,653)
Other comprehensive loss:
  Translation adjustment             -        -            -          -            -             -          (2,762)          (2,762)
                            ------------    -----    ---------    -------     --------      --------     ---------       ----------
Balance at June 30, 1998     100,444,593   $1,007   $2,350,912   $ (6,799)  $  (11,212)    $(860,649)  $    (2,762)    $  1,470,497
                            ============    =====    =========    =======    =========      ========    ==========      ===========

</TABLE>


         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


<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)

<TABLE>
                                                        Three months ended       Six months ended
                                                             June 30,                June 30,
                                                      ---------------------   ---------------------
                                                         1998        1997        1998        1997
                                                      ---------   ---------   ---------   ---------
<S>                                                   <C>         <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss)                                   $ (32,809)  $   7,413   $ (59,653)  $  26,026
  Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
       Depletion, depreciation and amortization          83,808      30,879     160,058      59,509
       Exploration expenses, including dry holes         19,811       8,168      35,645      14,191
       Deferred income taxes                            (15,700)      2,600     (28,400)     11,400
       Gain on disposition of assets, net                  (315)     (1,862)       (325)     (2,637)
       Other noncash items                               12,676       1,733      25,813       2,180
  Change in operating assets and liabilities,
     net of effects from acquisitions:
       Accounts receivable                               31,873      (2,478)     37,302      12,024
       Inventory                                           (682)     (1,048)        143      (1,851)
       Other current assets                               7,462        (153)     (1,329)        680
       Accounts payable                                 (16,891)      6,006     (24,723)      3,099
       Accrued income taxes and other current
         liabilities                                      2,136        (128)     15,889         (28)
                                                       --------    --------    --------    --------
         Net cash provided by operating activities       91,369      51,130     160,420     124,593
                                                       --------    --------    --------    --------
Cash flows from investing activities:
  Payment for acquisitions, net of cash acquired              5         -          (424)        -
  Proceeds from disposition of assets                     3,238       6,572      16,122      12,278
  Additions to oil and gas properties                  (134,763)    (92,902)   (330,072)   (169,500)
  Other property additions, net                         (13,535)     (3,766)    (17,405)       (750)
                                                       --------    --------    --------    --------
         Net cash used in investing activities         (145,055)    (90,096)   (331,779)   (157,972)
                                                       --------    --------    --------    --------
Cash flows from financing activities:
  Borrowings under long-term debt                        53,018      41,543     826,201      41,543
  Principal payments on long-term debt                  (15,506)     (2,230)   (631,225)    (12,802)
  Payment of noncurrent liabilities                     (10,881)       (327)    (32,315)       (707)
  Dividends                                                 -           -        (5,056)     (1,754)
  Purchase of treasury stock                             (1,206)       (347)     (6,778)     (2,932)
  Deferred loan fees/issuance costs                        (144)        -        (5,434)        -
  Exercise of long-term incentive plan stock options        -           745         -         1,163
                                                       --------    --------    --------    --------
         Net cash provided by financing activities       25,281      39,384     145,393      24,511
                                                       --------    --------    --------    --------
Effect of exchange rate changes on cash and cash
  equivalents                                              (54)        -           (54)        -
Net increase (decrease) in cash and cash equivalents    (28,405)        418     (25,966)     (8,868)
Cash and cash equivalents, beginning of period           74,152       9,425      71,713      18,711
                                                       --------    --------    --------    --------
Cash and cash equivalents, end of period              $  45,693   $   9,843   $  45,693   $   9,843
                                                       ========    ========    ========    ========
</TABLE>

         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.

                                        7


<PAGE>



                        PIONEER NATURAL RESOURCES COMPANY


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1998
                                   (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 was formed by the merger of
Parker & Parsley  Petroleum  Company ("Parker & Parsley") and MESA Inc. ("Mesa")
on August 7, 1997.  The Company  was  significantly  expanded by the  subsequent
acquisition  of the  Canadian  and  Argentine  oil and gas  business  of Chauvco
Resources Ltd  ("Chauvco"),  a publicly  traded  independent oil and gas company
based in Calgary,  Canada,  on December 18, 1997.  The Company is an oil and gas
exploration  and  production  company  with  ownership  interests in oil and gas
properties located principally in the MidContinent, Southwestern and onshore and
offshore Gulf Coast regions of the United States, and in Canada and Argentina.

       In accordance with the provisions of Accounting  Principles Board No. 16,
"Business  Combinations",  both the  merger  with  Mesa and the  acquisition  of
Chauvco have been accounted for as purchases by the Company  (formerly  Parker &
Parsley).  As a result, the historical  financial statements for the Company are
those of Parker & Parsley,  and the Company's  financial  statements present the
addition of Mesa's and Chauvco's assets and liabilities as an acquisition by the
Company  in  August  and  December   1997,   respectively.   Specifically,   the
accompanying  Consolidated Statements of Operations and Comprehensive Income and
Consolidated  Statements of Cash Flows include the financial results of Mesa and
Chauvco for the three and six months  ended June 30,  1998 but only  include the
financial  results of Parker & Parsley  for the three and six months  ended June
30, 1997.

NOTE B.     Basis of Presentation

       In the  opinion  of  management,  the  unaudited  consolidated  financial
statements  of the  Company as of June 30, 1998 and for the three and six months
ended June 30, 1998 and 1997 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.   These
consolidated  financial  statements  should  be  read  in  connection  with  the
consolidated  financial  statements and notes thereto  included in the Company's
1997 Annual Report on Form 10-K.

       Effective  January 1, 1998,  the Company  adopted  Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") which
establishes  standards for reporting and display of comprehensive  income (loss)
and its  components  in a full  set of  general  purpose  financial  statements.
Comprehensive  income (loss) includes net income (loss) and other  comprehensive
income  (loss),  which  includes,  but is not limited to,  unrealized  gains for
marketable  securities  and  future  contracts,   foreign  currency  translation
adjustments  and  minimum  pension  liability   adjustments.   The  accompanying
consolidated  financial  statements for the Company reflect other  comprehensive
income (loss) consisting of foreign currency translation adjustments.

NOTE C.     Senior Note Issuances

       During January 1998, the Company  completed the issuance of the following
two series of senior notes for total net proceeds of $593 million.  The proceeds
were used primarily to repay the Company's bank indebtedness.

                                        8


<PAGE>



       6.5% senior notes due 2008. $350 million aggregate  principal amount 6.5%
senior notes dated January 13, 1998, due January 15, 2008.  Interest on the 6.5%
senior  notes is payable  semi-annually  on January 15 and July 15 of each year,
commencing July 15, 1998.

       7.2% senior notes due 2028. $250 million aggregate  principal amount 7.2%
senior  notes dated  January 13, 1998,  due July 15, 2028.  Interest on the 7.2%
senior  notes is payable  semi-annually  on January 15 and July 15 of each year,
commencing July 15, 1998.

       Both senior note  issuances  are  governed  by an  Indenture  between the
Company  and The Bank of New York dated  January  13,  1998.  Both  senior  note
issuances are general  unsecured  obligations of the Company  ranking equally in
right of payment with all other senior unsecured indebtedness of the Company and
are  senior  in  right  of  payment  to all  existing  and  future  subordinated
indebtedness of the Company.

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  reserve as  appropriate  to reflect the then  current  status of its
litigation.

       The Company  believes that the costs for  compliance  with  environmental
laws  and  regulations  have not and will  not  have a  material  effect  on the
Company's financial position or results of operations.

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,
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%)  covering the period from July 1, 1967, to
the  present.  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% and 60%, depending on
the time period covered,  of an adverse judgment  against CIG for  post-February
1988 underpayments of royalties.

        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
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 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 a  decision  is
currently pending.
                                        9


<PAGE>



        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  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
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-recoupable
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 June 30, 1998, the Company has paid $1.2
million and has set aside  approximately $28.8 million in an escrow account with
a  similar   provision  for  such  litigation   recorded  in  the   accompanying
Consolidated Balance Sheet as of June 30, 1998.

                                       10


<PAGE>



NOTE 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 purchase  contracts  governing the Company's oil
production are tied directly or indirectly to NYMEX prices.  The following table
sets forth the Company's outstanding oil hedge contracts as of June 30, 1998.

<TABLE>
                                First    Second       Third         Fourth         Yearly
                               Quarter   Quarter     Quarter        Quarter        Average
                               -------   -------   ------------   ------------   ------------
<S>                            <C>       <C>       <C>            <C>            <C>
Daily oil production:
   1998 - Swap Contracts
     Volume (Bbl)                  -         -            8,900          8,900          8,900
     Price per Bbl             $   -     $   -     $      19.75   $      19.74   $      19.74

   1998 - Collar Options
     Volume (Bbl)                  -         -            2,000          2,000          2,000
     Price per Bbl             $   -     $   -     $18.70-20.65   $18.70-20.65   $18.70-20.65

   1998 - Put Options
     Volume (Bbl)                  -         -            2,000          2,000          2,000
     Price per Bbl             $   -     $   -     $      18.40   $      18.40   $      18.40

   1999 - Swap Contracts
     Volume (Bbl)                7,500     7,500          7,500          7,500          7,500
     Price per Bbl             $ 17.96   $ 17.96   $      17.96   $      17.96   $      17.96

   2000 - Swap Contracts
     Volume (Bbl)                2,000     2,000          2,000          2,000          2,000
     Price per Bbl             $ 18.00   $ 18.00   $      18.00   $      18.00   $      18.00
</TABLE>


      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
(excluding  hedge  results) and reported,  and net effects of settlements of oil
price hedges to revenue:
                                        Three months ended    Six months ended
                                             June 30,             June 30,
                                          ---------------      ---------------
                                           1998     1997        1998     1997
                                          ------   ------      ------   ------

  Average price reported per Bbl          $13.06   $18.41      $13.52   $19.20
  Average price realized per Bbl          $11.97   $18.62      $12.54   $20.24
  Addition/(reduction) to revenue
    (in millions)                         $  6.2   $  (.6)     $ 11.0   $ (6.0)

      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  following  table
sets forth the Company's  outstanding  gas hedge  contracts as of June 30, 1998.
Prices included herein represent the Company's  weighted average index price per
MMBtu and, as an additional  point of reference,  the weighted average price for
the portion of the Company's gas which is hedged based on NYMEX.

                                       11


<PAGE>



<TABLE>
                                 First       Second        Third       Fourth       Yearly
                                Quarter      Quarter      Quarter      Quarter      Average
                               ----------   ----------   ----------   ----------   ----------
<S>                            <C>          <C>          <C>          <C>          <C>
Daily gas production:
   1998 - Swap Contracts
     Volume (Mcf)                     -            -         85,000       51,848       68,424
     Index price per MMBtu     $      -     $      -     $     2.07   $     2.00   $     2.04
     NYMEX price per MMBtu     $      -     $      -     $     2.26   $     2.30   $     2.27

   1998 - Put Options
     Volume (Mcf)                     -            -        297,500      254,402      275,951
     Index price per MMBtu     $      -     $      -     $     1.90   $     1.91   $     1.91
     NYMEX price per MMBtu     $      -     $      -     $     2.26   $     2.30   $     2.27

   1999 - Swap Contracts
     Volume (Mcf)                  92,500      114,945      110,000       88,451      101,486
     Index price per MMBtu     $     2.05   $     2.11   $     2.12   $     2.13   $     2.10
     NYMEX price per MMBtu     $     2.38   $     2.38   $     2.39   $     2.39   $     2.38

   1999 - Collar Contracts
     Volume (Mcf)                  97,500       97,500       97,500       97,500       97,500
     Index price per MMBtu     $2.11-2.76   $2.11-2.76   $2.11-2.76   $2.11-2.76   $2.11-2.76
     NYMEX price per MMBtu     $     2.38   $     2.38   $     2.39   $     2.39   $     2.38
</TABLE>

      In  addition  to the open  positions  above,  Pioneer  has sold  short put
options  for  45,000  Mcf of gas per day for  1999.  Consequently,  there  is no
effective  minimum price to be realized  from the collar  contracts if the NYMEX
price falls below $2.00.

      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 the gas  hedges.  The  following  table  sets  forth the
Company's gas prices, both realized (excluding hedge results) and reported,  and
net effects of settlements of gas price hedges to revenue:

                                       Three months ended     Six months ended
                                            June 30,               June 30,
                                        ---------------        ---------------
                                         1998     1997          1998     1997
                                        ------   ------        ------   ------

     Average price reported per Mcf     $ 1.81   $ 2.07        $ 1.94   $ 2.26
     Average price realized per Mcf     $ 1.88   $ 2.05        $ 1.91   $ 2.42
     Addition/(reduction) to revenue
       (in millions)                    $ (3.2)  $   .5        $  2.3   $ (6.1)

NOTE F.     Other Derivatives

        During 1996, Mesa entered into Btu swap agreements covering 13,036 MMBtu
per day from January 1, 1997 through December 31, 2004. Under the terms of these
agreements,  the  Company  will  receive a premium of $.52 per MMBtu over market
natural gas prices from  January 1, 1997 through  December  31, 1998.  Following
this  two-year  period,  the Company will receive 10% of the NYMEX oil price for
the volumes covered for a six-year period  beginning  January 1, 1999 and ending
December 31, 2004. As these derivative contracts do not qualify as hedges, other
expenses in the  accompanying  Consolidated  Statement of Operations for the six
months ended June 30, 1998 include a $5.8 million noncash pre-tax mark-to-market
adjustment to the carrying value of the Btu swap  agreements.  Other expenses in
the accompanying  Consolidated  Statement of Operations for the six months ended
June 30, 1998 also  include  mark-to-market  adjustments  totaling  $5.9 million
relating to certain  derivative  contracts  acquired  from  Chauvco  that do not
qualify as hedges.  These contracts will continue to be  marked-to-market at the
end of each reporting  period during their  respective  lives and the effects on
the Company's results of operations in future periods could be significant.

NOTE G.     Reorganization

        In  February  1998,  the  Company  announced  its plans to sell  certain
nonstrategic  fields for estimated  proceeds of $375 to $550 million  during the
latter  part  of  1998.  The  proceeds  will be used  to  reduce  the  Company's
outstanding indebtedness and to fund the Company's capital expenditures program.

                                       12


<PAGE>



Coincidentally with the property  divestiture program, the Company announced its
intentions to reorganize its operations by combining its six domestic  operating
regions  into  three  geographic   regions:   the  Permian  Basin  region,   the
MidContinent region and the onshore and offshore Gulf Coast region. In addition,
most of the Company's  administrative services are being relocated from Midland,
Texas to Dallas,  Texas.  Shortly after the  announcement,  the Company formally
notified the employees  affected by the  reorganization  whether they were to be
severed or relocated. During the six months ended June 30, 1998, the Company has
recorded   severance,   relocation,   lease   termination  and  other  costs  of
approximately  $20.5  million  relating to this  reorganization.  The  Company's
additional  reorganization  costs incurred  throughout the remainder of 1998 are
expected to be minimal.

        The  consummation  of the Company's 1998  divestiture  plans is entirely
dependent  on  finding  one or  more  willing  buyers  who  have  the  financial
wherewithal  to  complete  such a  purchase.  Until  such a buyer is found,  the
Company may  reevaluate  its portfolio of properties  and at any time may adjust
its plans concerning  divestitures.  As a result, there can be no assurance that
the divestiture of any or all of these  properties will be completed or that the
estimated proceeds will be realized.

NOTE H.     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.  The  Company  has  not  prepared  financial
statements and related  disclosures for Pioneer USA under separate cover because
management of the Company has determined  that such  information is not material
to investors.  In accordance with practices accepted by the U.S.  Securities and
Exchange Commission ("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 Sheet, Consolidating Statement of
Operations  and   Consolidating   Statement  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),  financial
information for 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,  including its consolidated  subsidiaries.  Pioneer
USA is not restricted from making distributions to the Company.

      Pioneer USA's guarantees of the Company's debt securities were executed as
a result of the merger with Mesa in August 1997. Consequently, the Consolidating
Statements of Operations and  Consolidating  Statement of Cash Flows for the six
months ended June 30, 1997 have not been presented.

                                       13


<PAGE>



                           CONSOLIDATING BALANCE SHEET
                               As of June 30, 1998
                                 (in thousands)
                                   (Unaudited)

                                     ASSETS

<TABLE>
                                         Pioneer
                                         Natural
                                         Resources                     Non-
                                         Company       Pioneer      Guarantor                       The
                                         (Parent)        USA       Subsidiaries   Eliminations    Company
                                        ----------   -----------   ------------   ------------   ----------
<S>                                     <C>          <C>           <C>            <C>            <C>
Current assets:
  Cash and cash equivalents             $    3,192   $    26,229   $    16,272    $              $   45,693
  Restricted cash                              -             348           -                            348
  Accounts receivable:
    Trade, net                                  55        45,747        13,322                       59,124
    Affiliates                                 -           3,379        (3,379)                         -
    Oil and gas sales                          -          75,226        23,440                       98,666
  Intercompany notes receivable          2,212,719    (1,798,260)     (414,459)                         -
  Inventories                                  -          10,606        10,146                       20,752
  Deferred income taxes                     17,300           -           1,200                       18,500
  Other current assets                         111         6,746         3,031                        9,888
                                         ---------     ---------    ----------                    ---------
      Total current assets               2,233,377     (1,629,979)    (350,427)                     252,971
                                         ---------     ----------   ----------                    ---------
Property, plant and equipment, at cost:
  Oil and gas properties, using the
    successful efforts method of
    accounting:
      Proved properties                        -       2,588,514     1,250,731                    3,839,245
      Unproved properties                      -         119,904       346,795                      466,699
  Accumulated depletion, depreciation
    and amortization                           -        (609,833)     (154,581)                    (764,414)
                                         ---------     ---------    ----------                    ---------
                                               -       2,098,585     1,442,945                    3,541,530
                                         ---------     ---------    ----------                    ---------
Deferred income taxes                      242,715           -        (172,415)                      70,300
Other property and equipment, net              -          30,523        18,185                       48,708
Other assets, net                            9,347        41,169        34,396                       84,912
Investment in subsidiaries                 571,960       309,507        (2,494)     (878,973)           -
                                         ---------     ---------    ----------                    ---------
                                        $3,057,399   $   849,805   $   970,190                   $3,998,421
                                         =========    ==========    ==========                    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term debt  $      -     $       662   $     3,110    $              $    3,772
  Undistributed unit purchases                 -             348           -                            348
  Accounts payable:
    Trade                                      675        87,404        27,385                      115,464
    Affiliates                                 104         2,684           -                          2,788
  Other current liabilities                 25,715        59,630         2,725                       88,070
                                         ---------     ---------    ----------                    ---------
      Total current liabilities             26,494       150,728        33,220                      210,442
                                         ---------     ---------    ----------                    ---------
Long-term debt, less current maturities  1,847,600           126       291,358                    2,139,084
Other noncurrent liabilities                   -         138,003        40,395                      178,398

Stockholders' equity:
  LP Capital                                   -             -              22           (22)           -
  Common stock                                 898             1           109            (1)         1,007
  Additional paid-in capital             2,049,855     2,033,188       793,563    (2,525,694)     2,350,912
  Treasury stock, at cost                   (6,799)          -             -                         (6,799)
  Unearned compensation                        -         (11,212)          -                        (11,212)
  Retained deficit                        (860,649)   (1,461,029)     (185,715)    1,646,744       (860,649)
  Accumulated other comprehensive loss:
    Cumulative translation adjustment          -             -          (2,762)                      (2,762)
                                         ---------     ---------    ----------                    ---------
      Total stockholders' equity         1,183,305       560,948       605,217                    1,470,497

Commitments and contingencies
                                         ---------    ----------    ----------                    ---------
                                        $3,057,399   $   849,805   $   970,190                   $3,998,421
                                         =========    ==========    ==========                    =========
</TABLE>

                                       14


<PAGE>



                           CONSOLIDATING BALANCE SHEET
                             As of December 31, 1997
                                 (in thousands)


                                     ASSETS

<TABLE>
                                         Pioneer
                                         Natural
                                         Resources                     Non-
                                         Company       Pioneer      Guarantor                       The
                                         (Parent)        USA       Subsidiaries   Eliminations    Company
                                        ----------   -----------   ------------   ------------   ----------
<S>                                     <C>          <C>           <C>            <C>            <C>
Current assets:
  Cash and cash equivalents             $       41   $    49,033   $    22,639   $               $   71,713
  Restricted cash                              -           1,695           -                          1,695
  Accounts receivable:
    Trade, net                                   5        56,424        19,003                       75,432
    Oil and gas sales                          -          82,145        34,355                      116,500
  Intercompany notes receivable          2,088,082    (1,673,443)     (414,639)                         -
  Inventories                                  -          11,677         1,899                       13,576
  Deferred income taxes                     16,700           -             200                       16,900
  Other current assets                         -           9,293         3,079                       12,372
                                         ---------    ----------    ----------                    ---------
      Total current assets               2,104,828    (1,463,176)    (333,464)                      308,188
                                         ---------    ----------    ---------                     ---------
Property, plant and equipment, at cost:
  Oil and gas properties, using the
    successful efforts method of
    accounting:
      Proved properties                        -       2,453,750     1,122,221                    3,575,971
      Unproved properties                      -          98,664       446,410                      545,074
  Accumulated depletion, depreciation
    and amortization                           -        (504,628)     (100,575)                    (605,203)
                                         ---------    ----------    ----------                    ---------
                                               -       2,047,786     1,468,056                    3,515,842
                                         ---------    ----------    ----------                    ---------
Other property and equipment, net              -          26,096        17,921                       44,017
Other assets, net                            4,705        68,715        28,098        (22,975)       78,543
Investment in subsidiaries                 645,113       284,046           -         (929,159)          -
                                         ---------    ----------    ----------                    ---------
                                        $2,754,646   $   963,467   $ 1,180,611                   $3,946,590
                                         =========    ==========    ==========                    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term debt  $      -     $       538   $    28,228   $    (22,975)   $    5,791
  Undistributed unit purchases                 -           1,695           -                          1,695
  Accounts payable:
    Trade                                      663       113,432        62,602                      176,697
    Affiliates                                  90         9,904           -                          9,994
  Other current liabilities                  5,771        59,953         1,651                       67,375
                                         ---------    ----------    ----------                    ---------
      Total current liabilities              6,524       185,522        92,481                      261,552
                                         ---------    ----------    ----------                    ---------
Long-term debt, less current maturities  1,700,500           565       242,653                    1,943,718
Other noncurrent liabilities                   -         140,668        39,607                      180,275
Deferred income taxes                     (216,253)          -         228,453                       12,200

Stockholders' equity:
  GP Capital                                   -             -               4             (4)          -
  LP Capital                                   -             -             397           (397)          -
  Common stock                                 901             1           110             (2)        1,010
  Additional paid-in capital             2,058,935     2,049,072       739,518     (2,487,533)    2,359,992
  Treasury stock, at cost                      (21)          -             -                            (21)
  Unearned compensation                        -         (16,196)          -                        (16,196)
  Retained deficit                        (795,940)   (1,396,165)     (162,612)     1,558,777      (795,940)
                                         ---------    ----------    ----------                    ---------
      Total stockholders' equity         1,263,875       636,712       577,417                    1,548,845

Commitments and contingencies
                                         ---------    ----------    ----------                    ---------
                                        $2,754,646   $   963,467   $ 1,180,611                   $3,946,590
                                         =========    ==========    ==========                    =========
</TABLE>

                                       15


<PAGE>



<TABLE>
                        CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
                                    For the Six Months Ended June 30, 1998
                                                (in thousands)
                                                  (Unaudited)


                                  Pioneer
                                  Natural
                                 Resources                   Non-       Consolidated
                                  Company     Pioneer     Guarantor        Income                        The
                                  (Parent)      USA      Subsidiaries    Tax Benefit   Eliminations    Company
                                 ---------   ---------   ------------   ------------   ------------   ---------
<S>                              <C>         <C>         <C>            <C>            <C>            <C>
Revenues:
  Oil and gas                    $     -     $ 280,382   $  100,634     $       -      $              $ 381,016
  Interest and other                    38       2,173          763             -             (651)       2,323
  Gain on disposition of assets,
    net                                -           325          -               -                           325
                                  --------    --------    ---------      ----------                    --------
                                        38     282,880      101,397             -                       383,664
                                  --------    --------    ---------      ----------                    --------
Costs and expenses:
  Oil and gas production               -        81,490       30,265             -                       111,755
  Depletion, depreciation and
    amortization                       -       103,475       56,583             -                       160,058
  Exploration and abandonments         -        28,171       22,351             -                        50,522
  General and administrative         1,048      29,011        7,353             -                        37,412
  Reorganization                       -        20,549          -               -                        20,549
  Interest                          (8,479)     78,593       11,032             -             (651)      80,495
  Equity (income) loss from
    subsidiary                      86,243      (2,459)         -               -          (83,784)         -
  Other                                 14       6,421        7,191             -                        13,626
                                  --------    --------    ---------      ----------                    --------
                                    78,826     345,251      134,775             -                       474,417
                                  --------    --------    ---------      ----------                    --------
Loss before income taxes           (78,788)    (62,371)     (33,378)                                    (90,753)
Income tax benefit                     -           -         11,965          19,135                      31,100
                                  --------    --------    ---------      ----------                    --------
Net loss                           (78,788)    (62,371)     (21,413)         19,135                     (59,653)

Other comprehensive loss:
  Translation adjustment               -           -         (2,762)            -                        (2,762)
                                  --------    --------    ---------      ----------                    --------
    Comprehensive loss           $ (78,788)  $ (62,371)  $  (24,175)    $    19,135                   $ (62,415)
                                  ========    ========    =========      ==========                    ========
</TABLE>

                                                        16


<PAGE>



                      CONSOLIDATING STATEMENT OF CASH FLOWS
                     For the Six Months ended June 30, 1998
                                 (in thousands)
                                   (Unaudited)

<TABLE>
                                      Pioneer
                                      Natural
                                     Resources                   Non-       Consolidated
                                      Company     Pioneer     Guarantor        Income                        The
                                      (Parent)      USA      Subsidiaries    Tax Benefit   Eliminations    Company
                                     ---------   ---------   ------------   ------------   ------------   ---------
<S>                                  <C>         <C>         <C>            <C>            <C>            <C>
Cash flows from operating activities:
  Net loss                           $ (78,788)  $ (62,371)  $  (21,413)    $    19,135     $  83,784     $ (59,653)
  Adjustments to reconcile net loss
    to net cash provided by
    operating activities:
      Depletion, depreciation and
        amortization                       -       103,475       56,583            -                        160,058
      Exploration and abandonments         -        17,395       18,250            -                         35,645
      Deferred income taxes                -           -        (11,965)       (16,435)                     (28,400)
      Gain on disposition of
        assets, net                        -          (325)         -              -                           (325)
      Other noncash items               91,484      11,065        7,048            -          (83,784)       25,813
  Change in working capital           (134,928)    126,964       37,946         (2,700)                      27,282
                                      --------    --------    ---------      ---------                     --------
          Net cash provided by (used
            in) operating activities  (122,232)    196,203       86,449            -                        160,420
                                      --------    --------    ---------      ---------                     --------
Cash flows from investing activities:
  Payment for acquisitions, net of
    cash acquired                          -          (424)         -              -                           (424)
  Proceeds from disposition of assets      -        13,930        2,192            -                         16,122
  Additions to oil and gas properties      -      (192,581)    (137,491)           -                       (330,072)
  Other property additions, net            -        (9,777)      (7,628)           -                        (17,405)
                                      --------    --------    ---------      ---------                     --------
          Net cash used in
            investing activities           -      (188,852)    (142,927)           -                       (331,779)
                                      --------    --------    ---------      ---------                     --------
Cash flows from financing activities:
  Borrowings under long-term debt      770,890         -         55,311            -                        826,201
  Principal payments on long-term
    debt                              (628,239)       (319)      (2,667)           -                       (631,225)
  Payment of noncurrent liabilities        -       (29,836)      (2,479)           -                        (32,315)
  Dividends                             (5,056)        -            -              -                         (5,056)
  Purchase of treasury stock            (6,778)        -            -              -                         (6,778)
  Deferred loan fees/issuance costs     (5,434)        -            -              -                         (5,434)
                                      --------    --------    ---------      ---------                     --------
          Net cash provided by
            (used in) financing
            activities                 125,383     (30,155)      50,165            -                        145,393
                                      --------    --------    ---------      ---------                     --------
Effect of exchange rate changes on
  cash and cash equivalents                -           -            (54)           -                            (54)
Net increase (decrease) in cash and
  cash equivalents                       3,151     (22,804)      (6,313)           -                        (25,966)
Cash and cash equivalents,
  beginning of period                       41      49,033       22,639            -                         71,713
                                      --------    --------    ---------      ---------                     --------
Cash and cash equivalents, end
  of period                          $   3,192   $  26,229   $   16,272     $      -                      $  45,693
                                      ========    ========    ==========     =========                     ========
</TABLE>

                                       17


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY




I
tem 2.     Management's Discussion and Analysis of Financial Condition and
              Results of Operations(1)

The Formation of Pioneer

       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 was formed by the merger of
Parker & Parsley  Petroleum  Company ("Parker & Parsley") and MESA Inc. ("Mesa")
on August 7, 1997.  The Company  was  significantly  expanded by the  subsequent
acquisition  of the  Canadian  and  Argentine  oil and gas  business  of Chauvco
Resources Ltd  ("Chauvco"),  a publicly  traded  independent oil and gas company
based in Calgary,  Canada,  on December 18, 1997.  The Company is an oil and gas
exploration  and  production  company  with  ownership  interests in oil and gas
properties located principally in the MidContinent, Southwestern and onshore and
offshore Gulf Coast regions of the United States, and in Canada and Argentina.

       In accordance with the provisions of Accounting  Principles Board No. 16,
"Business  Combinations",  both the  merger  with  Mesa and the  acquisition  of
Chauvco have been accounted for as purchases by the Company  (formerly  Parker &
Parsley).  As a result, the historical  financial statements for the Company are
those of Parker & Parsley,  and the Company's  financial  statements present the
addition of Mesa's and Chauvco's assets and liabilities as an acquisition by the
Company  in  August  and  December   1997,   respectively.   Specifically,   the
accompanying  Consolidated Statements of Operations and Comprehensive Income and
Consolidated  Statements of Cash Flows include the financial results of Mesa and
Chauvco for the three and six months  ended June 30,  1998 but only  include the
financial  results of Parker & Parsley  for the three and six months  ended June
30, 1997.

Financial Performance

       The  Company  reported a net loss of $32.8  million  ($.33 per share) and
$59.7 million ($.60 per share) for the three and six months ended June 30, 1998,
as compared  to net income of $7.4  million  ($.21 per share) and $26.0  million
($.74 per share) for the same periods in 1997.  The three and six month  periods
ended June 30, 1998 were  negatively  impacted by a decline in the average price
received for oil and gas (see "Results of Operations"  below) and reorganization
costs totaling $3.4 million and $20.5 million,  respectively (see "1998 Outlook"
below).  The Company's  financial  performance during the first half of 1998 was
positively  affected by increases  in oil and gas  production  and  decreases in
production costs per BOE due to ongoing cost reduction  efforts (see "Results of
Operations" below).

       Net cash  provided by operating  activities  was $91.4 million and $160.4
million  during the three and six months ended June 30, 1998, as compared to net
cash provided by operating  activities  of $51.1 million and $124.6  million for
the same periods in 1997.  These  increases are primarily  attributable  to cash
flows generated by the oil and gas properties  acquired from Mesa and Chauvco in
1997,  offset,  to some extent,  by decreased  commodity prices and increases in
interest expense, general and administrative expenses and reorganization costs.

       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 June 30, 1998
was  $3.6  billion,  consisting  of total  long-term  debt of $2.1  billion  and
stockholders'  equity  of $1.5  billion.  Debt as a  percentage  of  total  book
capitalization  was 59% at June 30,  1998,  as compared  to 56% at December  31,
1997.

Drilling Results

       During the first half of 1998, the Company participated in the completion
of 36 gross  exploration and 336 gross development  wells,  including 193 in the
Permian  Basin  region,  26 in the Gulf  Coast  region,  58 in the  MidContinent
region,  46 in Argentina,  48 in Canada and two in South Africa. Of these wells,
129 were in progress  at December  31,  1997.  Of the 372 total wells  completed
during the six months ended June 30, 1998, 347 were completed successfully which
resulted in a 93% success rate. In addition to the wells  completed in the first
half of 1998, the Company had 91 wells in progress at June 30, 1998.

                                       18


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


       During the second quarter,  Pioneer completed its development  program on
the Eugene Island 208 block in the Gulf of Mexico. Pioneer operates the property
with a 75% working interest.  Two new wells and one recompleted well were placed
on production at a combined rate of 3,900 BOE per day. Pioneer will continue its
Gulf of Mexico drilling  program,  and is preparing to drill a development  well
targeting natural gas reserves on the Pioneer operated Vermilion 348 block where
the Company holds a 100% interest.

       In the West Panhandle  field,  Pioneer  drilled 41 wells during the first
half of the year with 100%  success.  Through June 30,  1998,  fourteen of these
wells have been connected and are producing at a combined gross rate of 3.4 MMcf
per day.  Pioneer holds a 77% interest and plans to drill an additional 15 wells
this year.

       In the 100% owned Timbalier Bay field in South Louisiana,  four new wells
and one recompletion  resulted in new production of 1,400 barrels of oil per day
and 1.2 MMcf of gas per day. The Company  continues  to evaluate  this large oil
field with 3-D seismic data to unlock  additional  development  and  large-scale
exploration  opportunities.  In the Lopeno  field in South  Texas,  the  Company
completed six new wells increasing  production more than 30 MMcf of gas per day.
Pioneer's  activity in the South Texas  Lopeno and Pawnee  fields is expected to
increase  during  the  third  quarter.   The  Company  anticipates  a  three-rig
development program targeting natural gas reserves in these operated fields.

       In the Neuquen Basin of Argentina,  the Company has drilled 37 wells of a
60-well drilling  program with initial  production rates from 26 completed wells
of approximately 4,000 BOE per day. The Company's Dorsal gas gathering expansion
was completed on schedule in June.  Gas sales have  increased by 7 MMcf per day,
with an additional 4 MMcf per day anticipated by the end of July.

       In the Chinchaga gas field in Northeast British  Columbia,  Pioneer's net
production  is  currently  averaging 23 MMcf per day, an increase of 16 MMcf per
day from 1997 year-end  levels.  Pioneer  drilled 19  development  wells and six
delineation  wells and installed a 50 MMcf per day gas  processing  facility and
gathering system during its winter-access program, more than tripling production
from the field. As of June 30, 1988,  production has increased by 16 MMcf of gas
per day to 23 MMcf of gas per day,  net to the  Company's  interest  compared to
January 1, 1998.

       The Company also completed two infill development wells in the Bear Creek
field,  a water flood unit in Dunn County,  North Dakota.  The two new wells are
producing  at a combined  rate of over 715 barrels of oil per day and 230 Mcf of
gas per day, net to the Company's interest. The field was discovered in 1982 and
water flooding commenced in 1992.

1998 Outlook

       In February 1998, the Company announced plans to accelerate its portfolio
management  initiatives  through a  divestiture  program  focused  on  improving
operating  efficiency  and  profitability.  The  Company  plans to sell  certain
nonstrategic  fields for estimated  proceeds of $375 to $550 million  during the
latter  part  of  1998.  The  proceeds  will be used  to  reduce  the  Company's
outstanding indebtedness and to fund the Company's capital expenditures program.
This will  leave the  Company  with  approximately  25  domestic  fields,  which
represent  its  core  producing   assets  and   complementary   development  and
exploration opportunities.

       The  consummation  of the Company's  1998  divestiture  plans is entirely
dependent  on  finding  one or  more  willing  buyers  who  have  the  financial
wherewithal  to  complete  such a  purchase.  Until  such a buyer is found,  the
Company may  reevaluate  its portfolio of properties  and at any time may adjust
its plans concerning  divestitures.  As a result, there can be no assurance that
the divestiture of any or all of these  properties will be completed or that the
estimated proceeds will be realized.

       Coincidentally  with  the  property   divestiture  program,  the  Company
announced its  intentions to reorganize  its operations to take advantage of the
economies of scale provided by the  concentration  of reserves in a small number
of fields.  Consequently,  the Company  combined its six  domestic  regions into
three geographic regions:  the Permian Basin region, the MidContinent region and
the onshore and offshore Gulf Coast region.  In addition,  most of the Company's
administrative  services  are being  relocated  from  Midland,  Texas to Dallas,
Texas.  Shortly  after  the  announcement,  the  Company  formally  notified the

                                       19


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


Company formally notified the employees affected by the  reorganization  whether
they were to be severed or relocated. During the six months ended June 30, 1998,
the Company has recorded  severance,  relocation,  lease  termination  and other
costs of  approximately  $20.5  million  relating  to this  reorganization.  The
Company's  additional  reorganization costs incurred throughout the remainder of
1998 are expected to be minimal.

       During the second half of 1998, the Company will continue its emphasis on
core development, exploration and production activities, with a primary focus on
the exploitation of its current portfolio of drilling locations.  This portfolio
was significantly  enhanced and expanded by the major acquisitions  completed in
1997. In addition,  the Company's  1996 and 1997 drilling  programs have added a
large number of new locations to which proved  reserves have been assigned.  The
Company believes that its current  portfolio of undeveloped  prospects  provides
attractive development and exploration opportunities for at least the next three
to five years. The Company's 1998 capital  expenditure budget has been decreased
to $440 million from its previous  budget of $500 million.  The Company  budgets
its capital expenditures based on projected  internally-generated cash flows and
routinely  adjusts  the  level  of  its  capital  expenditures  in  response  to
anticipated  changes in cash flows.  The decrease in the Company's  1998 capital
expenditure  budget is a direct  result of the decrease in operating  cash flows
due to declines in commodity prices. Of the total capital  expenditure budget of
$440 million, the Company has allocated $265 million to exploitation activities,
$115 million to  exploration  activities and $60 million to oil and gas property
acquisitions. The Company anticipates that the $440 million budget will be spent
geographically as follows: $85 million in the Permian Basin, $145 million in the
onshore and offshore Gulf Coast, $40 million in the MidContinent, $70 million in
Canada,   $75  million  in  Argentina  and  $25  million  in  Africa  and  other
international areas.

       During  most of 1996 and 1997,  the  Company  benefitted  from higher oil
prices as compared  to previous  years.  However,  during the fourth  quarter of
1997,  oil prices began a downward  trend that has continued into August 1998. A
continuation of the oil price environment experienced thus far in 1998 will have
an adverse effect on the Company's  revenues and operating  cash flows,  and may
result in further  downward  adjustments  to the Company's  current 1998 capital
budget of $440 million. Also, a continuing decline in oil prices could result in
additional  decreases  in the  carrying  value  of the  Company's  oil  and  gas
properties.

       The forward looking statements in these projections, including statements
relating to capital budget, production,  cash flows and drilling activities, are
based upon a number of assumptions,  including among others,  limited changes in
oil and gas  prices  and the  accuracy  of reserve  engineering  studies.  These
assumptions may prove not to have been accurate.

       Information  Systems for the Year 2000.  The Company  will be required to
modify its information  systems in order to accurately  process data referencing
the year 2000.  Because of the importance of occurrence dates in the oil and gas
industry,  the  consequences of not pursuing these  modifications  could be very
significant to the Company's ability to manage and report operating  activities.
The  Company  has  contracted  with  a  third  party  to  perform  the  software
programming changes necessary to correct any existing deficiencies.  The Company
currently  believes  the  total  cost to make  the  necessary  software  program
modifications  will be  approximately  $3 million  and has spent  $317  thousand
through June 30, 1998. Such programming  changes are anticipated to be completed
and tested by June 30, 1999.

       On a daily basis, the Company exchanges date-specific  information with a
multitude of suppliers  and  purchasers.  If these other parties do not properly
address the year 2000 in their data exchange  processes,  the adverse  effect to
the Company  could be  significant.  At this time,  the extent of the  potential
impact to the Company cannot be determined.

       Accounting  for  Derivatives.  In June  1998,  the  Financial  Accounting
Standards Board 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

                                       20


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


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.

       SFAS 133 is effective for all fiscal  quarters of fiscal years  beginning
after June 15, 1999.  The Company has not determined  what effect,  if any, SFAS
133 will have on its consolidated financial statements.



                                       21


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


Results of Operations

Oil and Gas Production.

     The following  tables  reflect the activities for the Company's oil and gas
properties for the six months ended June 30, 1998 and 1997:

<TABLE>
                                                             Six Months Ended June 30, 1998
                                              ----------------------------------------------------------
                                               United                              Other
                                               States      Canada    Argentina   Foreign (b)    Total
                                              ---------   --------   ---------   ----------   ----------
<S>                                           <C>         <C>        <C>         <C>          <C>
Revenues:
  Oil and gas                                 $ 315,092   $ 33,401   $  32,523   $      -     $ 381,016
  Gain on disposition of oil and gas
    properties, net (a)                             274        -          -             -           274
                                               --------    -------    --------    ---------    --------
                                                315,366     33,401      32,523          -       381,290
                                               --------    -------    --------    ---------    --------
Costs and expenses:
  Oil and gas production                        (88,480)   (12,373)    (10,902)         -      (111,755)
  Depletion                                    (114,621)   (19,373)    (19,532)         -      (153,526)
  Exploration and abandonments                   (6,757)    (3,990)     (5,326)      (3,936)    (20,009)
  Geological and geophysical                    (17,604)    (7,953)     (2,905)      (2,051)    (30,513)
                                               --------    -------    --------    ---------    --------
                                               (227,462)    (43,689)   (38,665)      (5,987)   (315,803)
                                               --------    --------   --------    ---------    --------
    Operating profit (loss) (excluding
       general and administrative expenses
       and income taxes)                      $  87,904   $(10,288)  $  (6,142)  $   (5,987)  $  65,487
                                               ========    =======    ========    =========    ========
Production:
  Oil (MBbls)                                     7,822      1,757       1,634          -        11,213
  NGLs (MBbls)                                    5,027        131         112          -         5,270
  Gas (MMcf)                                     71,280     8,330       11,651          -        91,261
  Total (MBOE)                                   24,729      3,276       3,688          -        31,693
Average daily production:
  Oil (Bbls)                                     43,217      9,705       9,031          -        61,953
  NGLs (Bbls)                                    27,774        723         617          -        29,114
  Gas (Mcf)                                     393,811     46,025      64,370          -       504,206
Average oil price (per Bbl)                   $   14.44   $  11.64   $   11.14   $      -     $   13.52
Average NGL price (per Bbl)                   $    9.93   $  11.00   $   12.20   $      -     $   10.00
Average gas price (per Mcf)                   $    2.14   $   1.38   $    1.11   $      -     $    1.94
Costs (per BOE):
  Lease operating expense                     $    2.92   $   3.73   $    2.79   $      -     $    2.99
  Production taxes                            $     .52   $    -     $     .17   $      -     $     .42
  Workover costs                              $     .14   $    .05   $     -     $      -     $     .12
                                               --------    -------    --------    ---------    --------
    Total production costs                    $    3.58   $   3.78   $    2.96   $      -     $    3.53
                                               ========    =======    ========    =========    ========
  Depletion                                   $    4.64   $   5.91   $    5.30   $      -     $    4.84

                                                             Six Months Ended June 30, 1997
                                              ---------------------------------------------------------
                                               United                              Other
                                               States      Canada    Argentina   Foreign (b)    Total
                                              ---------   --------   ---------   -----------  ---------
Revenues:
  Oil and gas                                 $ 197,083   $    -     $   1,543   $      -     $ 198,626
  Gain on disposition of oil and gas
    properties, net (a)                           1,071        -           -            -         1,071
                                               --------    -------    --------    ---------    --------
                                                198,154        -         1,543          -       199,697
                                               --------    -------    --------    ---------    --------
Costs and expenses:
  Oil and gas production                        (49,211)       -          (460)         -       (49,671)
  Depletion                                     (55,459)       -          (713)         -       (56,172)
  Exploration and abandonments                  (11,029)       -          (220)         -       (11,249)
  Geological and geophysical                     (5,790)       -          (934)        (442)     (7,166)
                                               --------    -------    --------    ---------    --------
                                               (121,489)       -        (2,327)        (442)   (124,258)
                                               --------    -------    --------    ---------    --------
    Operating profit (loss) (excluding
       general and administrative expenses
       and income taxes)                      $  76,665   $    -     $    (784)  $     (442)  $  75,439
                                               ========    =======    ========    =========    ========
Production:
  Oil (MBbls)                                     5,679        -            74          -         5,753
  Gas (MMcf)                                     38,957        -           -            -        38,957
  Total (MBOE)                                   12,172        -            74          -        12,246
Average daily production:
  Oil (Bbls)                                     31,376        -           411          -        31,787
  Gas (Mcf)                                     215,230        -           -            -       215,230
Average oil price (per Bbl)                   $   19.18   $    -     $   20.76   $      -     $   19.20
Average gas price (per Mcf)                   $    2.26   $    -     $     -     $      -     $    2.26
Costs (per BOE):
  Lease operating expense                     $    2.77   $    -     $    5.96   $      -     $    2.79
  Production taxes                            $     .92   $    -     $     .23   $      -     $     .91
  Workover costs                              $     .35   $    -     $     -     $      -     $     .35
                                               --------    -------    --------    ---------    --------
    Total production costs                    $    4.04   $    -     $    6.19   $      -     $    4.05
                                               ========    =======    ========    =========    ========
  Depletion                                   $    4.56   $    -     $    9.59   $      -     $    4.59
</TABLE>

                                       22


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


<TABLE>
                                                           Three Months Ended June 30, 1998
                                              ---------------------------------------------------------
                                               United                              Other
                                               States      Canada    Argentina   Foreign (b)    Total
                                              ---------   --------   ---------   ----------   ---------
<S>                                           <C>         <C>        <C>         <C>          <C>
Revenues:
  Oil and gas                                 $ 150,389   $ 16,959   $  16,299   $      -     $ 183,647
  Gain on disposition of oil and gas
    properties, net (a)                             274        -          -             -           274
                                               --------    -------    --------    ---------    --------
                                                150,663     16,959      16,299          -       183,921
                                               --------    -------    --------    ---------    --------
Costs and expenses:
  Oil and gas production                        (44,135)    (6,698)     (5,780)         -       (56,613)
  Depletion                                     (59,847)   (10,432)    (10,092)         -       (80,371)
  Exploration and abandonments                   (2,781)      (735)     (3,118)      (2,249)     (8,883)
  Geological and geophysical                    (11,153)    (3,365)     (1,914)      (1,258)    (17,690)
                                               --------    -------    --------    ---------    --------
                                               (117,916)   (21,230)    (20,904)      (3,507)   (163,557)
                                               --------    --------   --------    ---------    --------
    Operating profit (loss) (excluding
       general and administrative expenses
       and income taxes)                      $  32,747   $ (4,271)  $  (4,605)  $   (3,507)  $  20,364
                                               ========    =======    ========    =========    ========

Production:
  Oil (MBbls)                                     3,956        872         792          -         5,620
  NGLs (MBbls)                                    2,614         69          58          -         2,741
  Gas (MMcf)                                     36,280      4,757       6,194          -        47,231
  Total (MBOE)                                   12,617      1,734       1,882          -        16,233
Average daily production:
  Oil (Bbls)                                     43,479      9,577       8,706          -        61,762
  NGLs (Bbls)                                    28,723        753         634          -        30,110
  Gas (Mcf)                                     398,677     52,278      68,067          -       519,022
Average oil price (per Bbl)                   $   13.81   $  11.45   $   11.11   $      -     $   13.06
Average NGL price (per Bbl)                   $    8.91   $  10.08   $   10.44   $      -     $    8.97
Average gas price (per Mcf)                   $    2.00   $   1.32   $    1.11   $      -     $    1.81
Costs (per BOE):
  Lease operating expense                     $    2.89   $   3.79   $    2.89   $      -     $    2.99
  Production taxes                            $     .48   $    -     $     .18   $      -     $     .40
  Workover costs                              $     .12   $    .07   $     -     $      -     $     .10
                                               --------    -------    --------    ---------    --------
    Total production costs                    $    3.49   $   3.86   $    3.07   $      -     $    3.49
                                               ========    =======    ========    =========    ========

  Depletion                                   $    4.74   $   6.02   $    5.36   $      -     $    4.95

                                                           Three Months Ended June 30, 1998
                                              ---------------------------------------------------------
                                               United                              Other
                                               States      Canada    Argentina   Foreign (b)    Total
                                              ---------   --------   ---------   ----------   ---------
Revenues:
  Oil and gas                                 $  94,113   $    -     $     734   $      -     $  94,847
  Gain on disposition of oil and gas
    properties, net (a)                           1,122        -           -            -         1,122
                                               --------     ------    --------    ---------    --------
                                                 95,235        -           734          -        95,969
                                               --------     ------    --------    ---------    --------
Costs and expenses:
  Oil and gas production                        (24,797)       -          (161)         -       (24,958)
  Depletion                                     (28,872)       -          (294)         -       (29,166)
  Exploration and abandonments                   (6,021)       -           174          -        (5,847)
  Geological and geophysical                     (3,999)       -          (512)        (442)     (4,953)
                                               --------     ------    --------    ---------    --------
                                                (63,689)       -          (793)        (442)    (64,924)
                                               --------     ------    --------    ---------    --------
    Operating profit (loss) (excluding
       general and administrative expenses
       and income taxes                       $  31,546   $    -     $     (59)  $     (442)  $  31,045
                                               ========    =======    ========    =========    ========

Production:
  Oil (MBbls)                                     2,841        -            40          -         2,881
  Gas (MMcf)                                     20,221        -           -            -        20,221
  Total (MBOE)                                    6,211        -            40          -         6,251
Average daily production:
  Oil (Bbls)                                     31,219        -           444          -        31,663
  Gas (Mcf)                                     222,210        -           -            -       222,210
Average oil price (per Bbl)                   $   18.41   $    -     $   18.17   $      -     $   18.41
Average gas price (per Mcf)                   $    2.07   $    -     $     -     $      -     $    2.07
Costs (per BOE):
  Lease operating expense                     $    2.89   $    -     $    3.56   $      -     $    2.89
  Production taxes                            $     .79   $    -     $     .42   $      -     $     .79
  Workover costs                              $     .31   $    -     $     -     $      -     $     .31
                                               --------    -------    --------    ---------    --------
    Total production costs                    $    3.99   $    -     $    3.98   $      -     $    3.99
                                               ========    =======    ========    =========    ========

  Depletion                                   $    4.65   $    -     $    7.28   $      -     $    4.67
</TABLE>

- ---------------
(a) The 1997 amounts do not include the gain related to the  disposition  of the
    Company's  subsidiary  which owned an interest in oil and gas  properties in
    Turkey.
(b) Other  foreign  amounts  primarily  relate  to  exploratory  activities  in
    Guatemala and South Africa.
                                       23


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


       Oil and Gas Revenues. Revenues from oil and gas operations totaled $183.6
million  and $381.0  million  for the three and six months  ended June 30,  1998
compared  to $94.8  million  and $198.6  million  for the same  periods in 1997,
representing an increase of 94% and 92%, respectively. The increase is primarily
attributable  to oil and gas  production  added from the oil and gas  properties
acquired  from Mesa and Chauvco and the results of the  Company's  1998 drilling
program, offset by declines in commodity prices.

       Parker  &  Parsley  historically  accounted  for  processed  natural  gas
production as wellhead  production  on a wet gas basis while Mesa  accounted for
processed natural gas production in two components:  natural gas liquids and dry
residue gas. The combined  entities own three major gas  processing  facilities,
and the  majority  of the gas  processed  by  these  facilities  is owned by the
Company and produced by Company-operated properties.  Consequently,  the Company
now accounts for natural gas production as processed natural gas liquids and dry
residue gas, and separate  product  volumes will not be  comparable  for periods
prior  to  September  30,  1997.  Also,  prices  for gas  products  will  not be
comparable  as the price per Mcf for  natural  gas for the three and six  months
ended June 30, 1998 is the price  received for dry residue gas and the price per
Mcf for natural gas for the three and six months  ended June 30, 1997 is a price
for natural gas liquids combined with dry residue gas.

       On a BOE basis,  production  increased by 160% and 159% for the three and
six months ended June 30, 1998, respectively, as compared to the same periods in
1997. The additional  production  volumes from the Mesa  properties  contributed
approximately  92% of production growth and the Chauvco  properties  contributed
approximately  57% for each of the three and six months ended June 30, 1998. The
remainder of the increases are a direct result of the successes of the Company's
exploration  and   exploitation   efforts.   Such   production   growth  becomes
particularly  evident in light of the fact that a portion of the  average  daily
oil and gas production for 1997 related to properties  included in the 1997 sale
of certain nonstrategic  domestic assets.  Excluding production  associated with
assets sold during 1997 and the Mesa and Chauvco properties acquired in 1997, on
a BOE basis, production increased 18% and 20% for the three and six months ended
June 30, 1998 as compared to the same periods in 1997.

       The  average oil price for the six months  ended June 30, 1998  decreased
30% (from  $19.20 to $13.52  for the six months  ended  June 30,  1997 and 1998,
respectively)  and the average gas price  decreased 14% (from $2.26 to $1.94 for
the six months  ended June 30,  1997 and 1998,  respectively).  During the three
months ended June 30, 1998, the average price of oil and gas received  decreased
29% (from $18.41  during the second  quarter of 1997 to $13.06 during the second
quarter of 1998) and 13% (from $2.07 during the second  quarter of 1997 to $1.81
during the second quarter of 1998), respectively.  The average NGL price for the
three and six months ended June 30, 1998 was $8.97 and $10.00, respectively.

       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  from  time to  time  enters  into  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 first half of 1998, the Company's hedging
activities increased the average price received for oil and gas sales 8% and 2%,
respectively, as discussed below.

       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 and six months ended June 30, 1998 was $11.97 per Bbl and
$12.54 per Bbl,  respectively,  while,  as a point of reference,  the comparable
average  NYMEX prompt month  closing per Bbl for the same periods was $14.67 per
Bbl and $15.28 per Bbl, respectively.  The Company recorded net increases to oil
revenues of $6.2 million and $11 million for the three and six months ended June
30, 1998, respectively, as a result of its commodity hedges.

                                       24


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


     During the three and six months ended June 30, 1997,  the Company  realized
an average price for physical oil sales  (excluding hedge results) of $18.62 per
Bbl and  $20.24  per Bbl,  respectively,  while,  as a point of  reference,  the
comparable  average  NYMEX prompt month closing per Bbl for the same periods was
$19.94  per Bbl and $21.36  per Bbl,  respectively.  The  Company  recorded  net
reductions to oil revenues of $606 thousand and $6 million for the three and six
months ended June 30, 1997, respectively, as a result of its commodity hedges.

     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 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 and six months ended June 30, 1998 was
$1.88 per Mcf and $1.91 per Mcf,  respectively,  while as a point of  reference,
the comparable average NYMEX prompt month closing for the same periods was $2.26
and $2.24 per Mcf,  respectively.  The Company  recorded a net  reduction to gas
revenues of $3.2  million  during the three months ended June 30, 1998 and a net
increase to gas revenues of $2.3 million for the six months ended June 30, 1998,
as a result of its commodity hedges.

     During the three and six months ended June 30, 1997,  the Company  realized
an average price for physical gas sales  (excluding  hedge results) of $2.05 per
Mcf and  $2.42  per  Mcf,  respectively,  while  as a point  of  reference,  the
comparable average NYMEX prompt month closing for the same periods was $2.14 and
$2.25 per Mcf,  respectively.  The Company recorded net increase to gas revenues
of $471  thousand  and a net  reduction  to gas revenues of $6.1 million for the
three and six  months  ended  June 30,  1997,  respectively,  as a result of its
commodity hedges.

     See Note E of Notes to Consolidated  Financial Statements included in "Item
1. Financial  Statements"  for  information  concerning the Company's open hedge
positions at June 30, 1998 and the related prices to be realized.

     Production Costs.  Total production costs per BOE decreased to $3.53 during
the six months  ended June 30, 1998 as compared to  production  costs per BOE of
$4.05  during the same  period in 1997.  The  decrease  is due to  decreases  in
domestic  production  taxes caused by lower  commodity  prices and  decreases in
workover expense,  offset by increases in lease operating  expenses.  During the
three months ended June 30, 1998 production costs per BOE decreased 13% to $3.49
from $3.99 during the same periods in 1997.

     Depletion  Expense.  Depletion expense per BOE increased to $4.95 and $4.84
during the three and six months ended June 30, 1998,  respectively,  as compared
to $4.67 and $4.59 per BOE during  the same  periods in 1997.  The  increase  in
depletion  expense per BOE during 1998 is  primarily  associated  with the value
allocated  to Chauvco's  reserves  and  decreases in oil and gas reserves due to
declines in oil and gas prices from June 30, 1997 to June 30, 1998.

     Exploration and  Abandonments/Geological and Geophysical Costs. Exploration
and abandonments/geological and geophysical costs increased to $26.6 million and
$50.5 million during the three and six months ended June 30, 1998, respectively,
from  $10.8  million  and $18.4  million  during the same  periods in 1997.  The
increase is largely the result of increased geological and geophysical activity,
both in  domestic  and  international  activity,  resulting  from the  Company's
increased focus on exploration activities.
                                          Three months          Six months
                                         ended June 30,        ended June 30,
                                      -------------------   -------------------
                                        1998       1997       1998       1997
                                      --------   --------   --------   --------
                                                   (in thousands)
   Exploratory dry holes:
     United States                    $  1,055   $  5,183   $  2,801   $  9,701
     Foreign                             3,965       (174)     7,547        219
   Geological and geophysical costs:
     United States                      11,153      3,999     17,604      5,790
     Foreign                             6,537        954     12,909      1,376
   Leasehold abandonments and other      3,863        838      9,661      1,329
                                       -------    -------    -------    -------

                                      $ 26,573   $ 10,800   $ 50,522   $ 18,415
                                       =======    =======    =======    =======

                                       25


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY



        Approximately  26% of the Company's 1998 capital budget will be spent on
exploratory  projects  (compared to 25% in 1997 and 16.7% in 1996).  The Company
currently  anticipates that its 1998 exploration efforts will be concentrated in
the Gulf Coast region,  Canada and  Argentina.  The Company  continues to review
opportunities  involving exploration joint ventures in domestic or international
areas outside the Company's existing core operating areas.

  General and Administrative Expense

        General and  administrative  expense was $17.4 million and $37.4 million
for the three and six months ended June 30, 1998,  respectively,  as compared to
$8.3  million  and $15  million  for the  same  periods  ended  June  30,  1997,
representing  an increase of $9.1 million and $22.4 million,  respectively.  The
increase is primarily due to the acquisitions of Mesa and Chauvco.

        Reorganization  costs for the six  months  ended June 30,  1998  totaled
$20.5 million.  As announced in February 1998, the Company has  consolidated its
six domestic operating divisions into three geographic regions and is relocating
most of its  administrative  services  to Dallas,  Texas.  During the six months
ended June 30,  1998,  the Company has  recorded  severance,  relocation,  lease
termination  and other costs of  approximately  $20.5  million  relating to this
reorganization.   The  Company's   additional   reorganization   costs  incurred
throughout the remainder of 1998 are expected to be minimal.

  Interest Expense

        During the three months ended June 30, 1998,  interest expense increased
$30.7  million to $41.0  million  from $10.3  million for the second  quarter of
1997. Interest expense for the six months ended June 30, 1998 increased to $80.5
million as compared to $20.2  million for the same period in 1997.  The increase
is due to an  increase  of $1.7  billion  in the  weighted  average  outstanding
balance of the Company's  indebtedness for the six months ended June 30, 1998 as
compared to the six months  ended June 30,  1997.  The  increase in the weighted
average  outstanding  balance of the  Company's  indebtedness  was primarily the
result of the additional  debt assumed from Mesa,  and to a lesser extent,  from
Chauvco.  This increase is slightly offset by a decrease in the weighted average
interest rate on the Company's  indebtedness from 7.83% during the first half of
1997 to 7.45% during the first half of 1998.

        During the three and six months ended June 30,  1998,  the Company was a
party to various  interest rate swap  agreements that resulted in an increase in
interest expense of $78 thousand and $73 thousand, respectively. During the same
periods in 1997, such agreements  resulted in a reduction in interest expense of
$310 thousand and $700 thousand, respectively.

  Income Taxes

        The Company's  income tax benefit of $17.7 million and $31.1 million for
the three and six months ended June 30, 1998, respectively, and the provision of
$4.4 million and $14.5 million for the three and six months ended June 30, 1997,
respectively,  reflect the net benefit and provision resulting from the separate
tax  calculation  prepared  for each tax  jurisdiction  in which the  Company is
subject to income taxes.  At June 30, 1998,  the Company has a current  deferred
tax asset of $18.5 million and a noncurrent deferred tax asset of $70.3 million.
Management  believes  that it is more likely than not that the net  deferred tax
asset is realizable;  however,  realization is contingent upon future profitable
operations and is not assured.

  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.
                                       26


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


        The  Company's  cash  expenditures  during  the  first  half of 1998 for
additions to oil and gas properties totaled $330.1 million. This amount includes
$35.3  million  for  the  acquisition  of  properties  and  $294.8  million  for
development and exploratory  drilling.  Significant drilling expenditures in the
first half of 1998 included  $86.9  million in the Permian  Basin region,  $97.9
million in the Gulf Coast  region,  $19.9  million in the  MidContinent  region,
$53.1  million  in  Canada,  $31.6  in  Argentina  and  $5.4  million  in  other
international areas.

        The  Company's  1998  capital  expenditure  budget  has been set at $440
million,  reflecting  planned  expenditures  of $265  million  for  exploitation
activities,  $115 million for exploration activities and $60 million for oil and
gas property  acquisitions in the Company's core areas.  The Company budgets its
capital  expenditures  based on  projected  internally-generated  cash flows and
routinely  adjusts  the  level  of  its  capital  expenditures  in  response  to
anticipated changes in cash flows.

        Funding for the Company's  working  capital  obligations  is provided by
internally-generated  cash flows.  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 nonstrategic
assets or  alternative  financing  sources as discussed  in "Capital  Resources"
below.

        Capital Resources.  The Company's primary capital resources are net cash
provided  by  operating  activities,  proceeds  from  financing  activities  and
proceeds  from sales of  nonstrategic  assets.  The Company  expects  that these
resources will be sufficient to fund its capital commitments in 1998.

        Net cash provided by operating  activities  was $91.4 million and $160.4
million  during the three and six months ended June 30, 1998, as compared to net
cash provided by operating  activities  of $51.1 million and $124.6  million for
the same periods in 1997.  These  increases are primarily  attributable  to cash
flows generated by the oil and gas properties  acquired from Mesa and Chauvco in
1997,  offset,  to some extent,  by decreased  commodity prices and increases in
interest expense, general and administrative expenses and reorganization costs.

        Financing  Activities.  The Company had an outstanding balance under its
bank facilities at June 30, 1998 of $1.2 billion (including outstanding, undrawn
letters of credit of $28.0  million),  leaving  approximately  $217.7 million of
unused borrowing base immediately  available.  At June 30, 1998, the Company had
four other outstanding  significant debt issuances.  Such debt issuances consist
of (i) $150  million of 8-7/8%  senior  notes due in 2005,  (ii) $150 million of
8-1/4% senior notes due in 2007,  (iii) $350 million of 6.5% senior notes due in
2008 and (iv)  $250  million  of 7.2%  senior  notes due in 2028.  The  weighted
average  interest  rate for the six months ended June 30, 1998 on the  Company's
indebtedness  was 7.45% as compared  to 7.83% for the six months  ended June 30,
1997 (taking into account the effect of interest rate swaps).

        During  January  1998,  the Company  completed  the issuance of the 6.5%
senior  notes due 2008 and the 7.2% senior notes due 2028 for total net proceeds
of $593 million.  The proceeds were used  primarily to repay the Company's  bank
indebtedness.   Interest  on  the  6.5%  and  7.2%   senior   notes  is  payable
semi-annually on January 15 and July 15 of each year,  commencing July 15, 1998.
These two senior note issuances are governed by an Indenture between the Company
and The Bank of New York dated January 13, 1998.  Both senior note issuances are
general unsecured obligations of the Company ranking equally in right of payment
with all other senior  unsecured  indebtedness  of the Company and are senior in
right of payment to all existing  and future  subordinated  indebtedness  of the
Company.

        As the Company pursues its strategy, it will continue to 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.

        Sales of Nonstrategic Assets.  During the six months ended June 30, 1998
and 1997,  proceeds from the sale of domestic  nonstrategic assets totaled $16.1
million and $12.3  million,  respectively.  The  proceeds  from these sales were
utilized to reduce the Company's  outstanding bank  indebtedness and for general
working capital purposes. In February 1998, the Company announced its intentions

                                       27


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


to sell domestic nonstrategic  properties for proceeds ranging from $375 to $550
million.  These  properties  represent an estimated  10% to 12% of the Company's
reserves at December 31, 1997. The Company plans to complete this divestiture in
the latter part of 1998. The Company  anticipates  that it will continue to sell
nonstrategic  properties  from  time  to  time  to  increase  capital  resources
available  for other  activities  and to achieve  operating  and  administrative
efficiencies and improved profitability.

        The  consummation  of the Company's 1998  divestiture  plans is entirely
dependent  on  finding  one or  more  willing  buyers  who  have  the  financial
wherewithal  to  complete  such a  purchase.  Until  such a buyer is found,  the
Company may  reevaluate  its portfolio of properties  and at any time may adjust
its plans concerning  divestitures.  As a result, there can be no assurance that
the divestiture of any or all of these  properties will be completed or that the
estimated proceeds will be realized.

        Liquidity.  At June 30, 1998,  the Company had $45.7 million of cash and
cash  equivalents  on hand,  compared to $71.7 million at December 31, 1997. The
Company's  ratio of current assets to current  liabilities  was 1.20 at June 30,
1998 and 1.18 at December 31, 1997.

- ---------------

(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  1997 Annual Report on
     Form 10-K which is available from the United States Securities and Exchange
     Commission.

                                       28


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY



 
                          PART II. OTHER INFORMATION


Item 1.     Legal Proceedings

As discussed in Note D 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 claims for damages from such legal actions are
not in excess of 10% 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 21, 1998 in Dallas,
Texas. At the meeting, two proposals were submitted for vote of stockholders (as
described in the Company's Proxy Statement dated April 13, 1998).  The following
is a brief description of the proposals and results of the stockholder votes.

Election of Directors.  Prior to the meeting,  the Company's  Board of Directors
designated  four nominees as Class I directors with their terms to expire at the
annual meeting in 2001 when their successors are elected and qualified.  Messrs.
Gardner, Houghton and Smith were, at the time of such nomination and at the time
of the meeting,  directors of the Company.  Mr. Turcotte was a new candidate for
director of the Company.  Each nominee was reelected or elected as a director of
the Company, with the results of the stockholder voting being as follows:

                                            Authority                Broker
                                 For        Withheld     Abstain    Non-Votes
                              ----------    ---------    -------    ---------
   R. Hartwell Gardner        88,327,027    1,702,497        -          -
   James L. Houghton          88,327,235    1,702,289        -          -
   Philip B. Smith            88,286,594    1,742,930        -          -
   Guy J. Turcotte            88,239,904    1,789,620        -          -

The term of office for the following directors continues as of June 30, 1998: I.
Jon Brumley, Scott D. Sheffield, James R. Baroffio, R. Hartwell Gardner, Kenneth
A. Hersh,  James L.  Houghton,  Jerry P.  Jones,  T. Boone  Pickens,  Richard E.
Rainwater,  Charles E. Ramsey, Jr., Philip B. Smith, Robert L. Stillwell and Guy
J. Turcotte.

Ratification  of selection of auditors.  The  engagement of Ernst & Young LLP as
the Company's  independent auditors for 1998 was approved by the Company's Board
of Directors on December 5, 1997.  At the annual  meeting of  stockholders,  the
selection  of  Ernst  &  Young  LLP  was  submitted  to  the   stockholders  for
ratification.  Such selection was ratified,  with the results of the stockholder
voting being as follows:

               For                               89,783,181
               Against                              111,026
               Abstain                              135,317
               Broker non-votes                         -

                                       29


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY



Item 6.     Exhibits and Reports on Form 8-K

Exhibits

    27.1 Financial Data Schedule

Reports on Form 8-K

During the quarter ended June 30, 1998, the Company filed the following  Current
Reports on Form 8-K:

    (1)  On June 2, 1998,  the Company filed a Current  Report on Form 8-K dated
         May 29, 1998, reporting under Item 5 (Other Events), the resignation of
         Arthur L. Smith as a member of the Board of  Directors.  Mr.  Smith has
         resigned as a result of accepting the position of Chairman and CEO with
         Torch Energy Advisors Incorporated.

                                       30


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY


                               S I G N A T U R E S



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 thereto duly authorized.


                                         PIONEER NATURAL RESOURCES COMPANY




Date:     August 7, 1998             By:     /s/ Scott D. Sheffield
                                         ---------------------------------
                                             Scott D. Sheffield
                                             President


Date:     August 7, 1998             By:     /s/ M. Garrett Smith
                                         ---------------------------------
                                             M. Garrett Smith
                                             Executive Vice President and
                                             Chief Financial Officer


Date:     August 7, 1998             By:     /s/ Rich Dealy
                                         ---------------------------------
                                             Rich Dealy
                                             Vice President and Chief
                                             Accounting Officer


                                       31


<PAGE>


                        PIONEER NATURAL RESOURCES COMPANY

Exhibit Index                                                            Page

    27.1   Financial Data Schedule



                                       32


<PAGE>








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<ARTICLE> 5
<CIK> 0001038357
<NAME> PNR J10Q
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-END>                               JUN-30-1998
<CASH>                                          46,041
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<CURRENT-ASSETS>                               252,971
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<CURRENT-LIABILITIES>                          210,442
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<SALES>                                        381,016
<TOTAL-REVENUES>                               383,664
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<OTHER-EXPENSES>                               282,167
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<INTEREST-EXPENSE>                              80,495
<INCOME-PRETAX>                               (90,753)
<INCOME-TAX>                                  (31,100)
<INCOME-CONTINUING>                           (59,653)
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<NET-INCOME>                                  (59,653)
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Copyright West LLC. Minimum 15 minutes delayed.