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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
______________________________
FORM 10-Q 
______________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
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 Number: 1-13245
______________________________ 
PIONEER NATURAL RESOURCES COMPANY
(Exact name of Registrant as specified in its charter)
______________________________
Delaware 75-2702753
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5205 N. O'Connor Blvd., Suite 200
Irving, Texas 75039
(Address of principal executive offices and zip code)
(972) 444-9001
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $.01 per sharePXDNew York Stock Exchange
Not applicable
(Former name, former address and former fiscal year, if changed since last report) 
______________________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes       No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No  
Number of shares of Common Stock outstanding as of November 4, 2019     165,646,527


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PIONEER NATURAL RESOURCES COMPANY
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Table of Contents
PIONEER NATURAL RESOURCES COMPANY
Cautionary Statement Concerning Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "continue," "may," "will," "could," "should," "future," "potential," "estimate" or the negative of such terms and similar expressions as they relate to Pioneer Natural Resources Company ("Pioneer" or the "Company") are intended to identify forward-looking statements, which are generally not historical in nature. The forward-looking statements are based on the Company's current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable as and when made, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company's control.
These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, completion of planned divestitures, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to perform the Company's drilling and operating activities, access to and availability of transportation, processing, fractionation, refining and export facilities, Pioneer's ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer's credit facility, investment instruments and derivative contracts and purchasers of Pioneer's oil, NGL and gas production, uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impacts of climate change, cybersecurity risks, ability to implement planned stock repurchases, the risks associated with the ownership and operation of the Company's oilfield services businesses and acts of war or terrorism. These and other risks are described in the Company's Annual Report on Form 10-K, this and other Quarterly Reports on Form 10-Q and other filings with the United States Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part 1, Item 3. Quantitative and Qualitative Disclosures About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no duty to publicly update these statements except as required by law.
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PIONEER NATURAL RESOURCES COMPANY
Definitions of Certain Terms and Conventions Used Herein
Within this Report, the following terms and conventions have specific meanings:
"Bbl" means a standard barrel containing 42 United States gallons.
"Bcf" means one billion cubic feet and is a measure of gas volume.
"BOE" means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.
"BOEPD" means BOE per day.
"Brent" means Brent oil price, a major trading classification of light sweet oil that serves as a benchmark price for oil worldwide.
"Btu" means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.
"DD&A" means depletion, depreciation and amortization.
"GAAP" means accounting principles generally accepted in the United States of America.
"HH" means Henry Hub, a distribution hub in Louisiana that serves as the delivery location for gas futures contracts on the NYMEX.
"MBbl" means one thousand Bbls.
"MBOE" means one thousand BOEs.
"Mcf" means one thousand cubic feet and is a measure of gas volume.
"MMBtu" means one million Btus.
"Mont Belvieu" means the daily average natural gas liquids components as priced in OPIS in the table "U.S. and Canada LP – Gas Weekly Averages" at Mont Belvieu, Texas.
"NGLs" means natural gas liquids, which are the heavier hydrocarbon liquids that are separated from the gas stream; such liquids include ethane, propane, isobutane, normal butane and natural gasoline.
"NYMEX" means the New York Mercantile Exchange.
"Pioneer" or the "Company" means Pioneer Natural Resources Company and its subsidiaries.
"Proved reserves" mean those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons ("LKH") as seen in a well penetration unless geoscience, engineering or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil ("HKO") elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering or performance data and reliable technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered
by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.
"SEC" means the United States Securities and Exchange Commission.
"U.S." means United States.
"WTI" means West Texas Intermediate, a light sweet blend of oil produced from fields in western Texas and is a grade of oil used as a benchmark in oil pricing.
With respect to information on the working interest in wells, drilling locations and acreage, "net" wells, drilling locations and acres are determined by multiplying "gross" wells, drilling locations and acres by the Company's working interest in such wells, drilling locations or acres. Unless otherwise specified, wells, drilling locations and acreage statistics quoted herein represent gross wells, drilling locations or acres.
All currency amounts are expressed in U.S. dollars.
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PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions)
 
September 30, 2019December 31,
2018
 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$437  $825  
Restricted cash76    
Short-term investments  443  
Accounts receivable:
Trade, net848  694  
Due from affiliates5  120  
Income taxes receivable6  7  
Inventories246  242  
Derivatives133  52  
Investment in affiliate151  172  
Other21  25  
Total current assets1,923  2,580  
Oil and gas properties, successful efforts method of accounting:
Proved properties21,948  21,165  
Unproved properties604  601  
Accumulated depletion, depreciation and amortization(8,281) (8,218) 
Total oil and gas properties, net14,271  13,548  
Other property and equipment, net1,056  1,291  
Operating lease right-of-use assets320    
Long-term investments  125  
Goodwill261  264  
Derivatives16    
Other assets
231  95  
$18,078  $17,903  








The financial information included as of September 30, 2019 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
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PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(in millions, except share data) 

September 30, 2019December 31,
2018
 (Unaudited)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade$1,202  $1,441  
Due to affiliates215  183  
Interest payable25  53  
Income taxes payable  2  
Current portion of long-term debt450    
Derivatives6  27  
Operating leases139    
Other423  112  
Total current liabilities2,460  1,818  
Long-term debt1,838  2,284  
Deferred income taxes1,279  1,152  
Operating leases183    
Other liabilities462  538  
Equity:
Common stock, $0.01 par value; 500,000,000 shares authorized; 174,963,254 and 174,321,171 shares issued as of September 30, 2019 and December 31, 2018, respectively
2  2  
Additional paid-in capital9,142  9,062  
Treasury stock at cost: 9,319,989 and 4,822,069 shares as of September 30, 2019 and December 31, 2018, respectively
(1,043) (423) 
Retained earnings3,755  3,470  
Total equity11,856  12,111  
Commitments and contingencies
$18,078  $17,903  











The financial information included as of September 30, 2019 has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
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PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited) 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2019201820192018
Revenues and other income:
Oil and gas$1,235  $1,317  $3,567  $3,869  
Sales of purchased oil and gas1,171  1,141  3,463  3,306  
Interest and other income (loss), net(222) 10  (42) 40  
Derivative gain (loss), net121  (135) 150  (701) 
Gain (loss) on disposition of assets, net20  143  (477) 226  
2,325  2,476  6,661  6,740  
Costs and expenses:
Oil and gas production227  198  667  654  
Production and ad valorem taxes86  83  223  229  
Depletion, depreciation and amortization438  394  1,271  1,130  
Purchased oil and gas1,125  941  3,184  3,021  
Impairment of oil and gas properties      77  
Exploration and abandonments11  20  46  83  
General and administrative72  96  246  282  
Accretion of discount on asset retirement obligations2  3  7  11  
Interest29  30  88  97  
Other32  182  390  316  
2,022  1,947  6,122  5,900  
Income before income taxes303  529  539  840  
Income tax provision(72) (118) (127) (188) 
Net income231  411  412  652  
Net loss attributable to noncontrolling interests      3  
Net income attributable to common stockholders$231  $411  $412  $655  
Net income per share attributable to common stockholders:
Basic$1.38  $2.40  $2.44  $3.82  
Diluted$1.38  $2.39  $2.44  $3.82  
Basic and diluted weighted average shares outstanding167  171  168  171  
Dividends declared per share$0.44  $0.16  $0.76  $0.32  











The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
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PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except share data and dividends per share)
(Unaudited)
 
  Equity Attributable To Common Stockholders 
 Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Total Equity
(in thousands) 
Balance as of December 31, 2018169,499  $2  $9,062  $(423) $3,470  $12,111  
Dividends declared ($0.32 per share)
—  —  —  —  (54) (54) 
Exercise of long-term incentive stock options
10  —  (1) 1  —    
Purchases of treasury stock(1,594) —  —  (222) —  (222) 
Stock-based compensation costs:
Issued awards507  —  —  —  —    
Compensation costs included in net income—  —  24  —  —  24  
Net income—  —  —  —  350  350  
Balance as of March 31, 2019168,422  2  9,085  (644) 3,766  12,209  
Purchases of treasury stock(1,349) —  —  (202) —  (202) 
Stock-based compensation costs:
Issued awards49  —  —  —  —    
Compensation costs included in net loss—  —  38  —  —  38  
Net loss—  —  —  —  (169) (169) 
Balance as of June 30, 2019167,122  2  9,123  (846) 3,597  11,876  
Dividends declared ($0.44 per share)
—  —  —  —  (73) (73) 
Exercise of long-term incentive stock options and employee stock purchases54  —    6  —  6  
Purchases of treasury stock(1,619) —  —  (203) —  (203) 
Stock-based compensation costs:
Issued awards86  —  —  —  —    
Compensation costs included in net income—  —  19  —  —  19  
Net income—  —  —  —  231  231  
Balance as of September 30, 2019165,643  $2  $9,142  $(1,043) $3,755  $11,856  
The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
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PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(in millions, except share data and dividends per share)
(Unaudited)
  Equity Attributable To Common Stockholders  
 Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Noncontrolling
Interests
Total Equity
(in thousands)
Balance as of December 31, 2017170,189  $2  $8,974  $(249) $2,547  $5  $11,279  
Dividends declared ($0.16 per share)
—  —  —  —  (27) —  (27) 
Purchases of treasury stock(262) —  —  (45) —  —  (45) 
Stock-based compensation costs:
Issued awards492  —  —  —  —  —    
Compensation costs included in net income—  —  17  —  —  —  17  
Net income—  —  —  —  178  —  178  
Balance as of March 31, 2018170,419  2  8,991  (294) 2,698  5  11,402  
Exercise of long-term incentive stock options7  —  —  1  —  —  1  
Purchases of treasury stock(31) —  —  (6) —  —  (6) 
Stock-based compensation costs:
Issued awards6  —  —  —  —  —    
Compensation costs included in net income—  —  24  —  —  —  24  
Net income—  —  —  —  66  (3) 63  
Balance as of June 30, 2018170,401  2  9,015  (299) 2,764  2  11,484  
Dividends declared ($0.16 per share)
—  —  —  —  (28) —  (28) 
Exercise of long-term incentive stock options and
employee stock purchases
51  —  4  3  —  —  7  
Purchases of treasury stock(3) —  —  —  —  —    
Stock-based compensation costs:
Issued awards13  —  —  —  —  —    
Compensation costs included in net income—  —  22  —  —  —  22  
Sale of noncontrolling interest—  —  —  —  —  (2) (2) 
Net income—  —  —  —  411  —  411  
Balance as of September 30, 2018170,462  $2  $9,041  $(296) $3,147  $  $11,894  
The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.
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PIONEER NATURAL RESOURCES COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 Nine Months Ended
September 30,
 20192018
Cash flows from operating activities:
Net income  $412  $652  
Adjustments to reconcile net income to net cash provided by operating activities:
Depletion, depreciation and amortization1,271  1,130  
Impairment of oil and gas properties  77  
Impairment of inventory and other property and equipment34  9  
Exploration expenses, including dry holes6  12  
Deferred income taxes127  186  
(Gain) loss on disposition of assets, net477  (226) 
Accretion of discount on asset retirement obligations7  11  
Interest expense4  4  
Derivative-related activity(116) 307  
Amortization of stock-based compensation81  63  
Investment in affiliate mark-to-market adjustment22    
Contingent consideration valuation adjustment61    
Other96  176  
Change in operating assets and liabilities:
Accounts receivable(47) (233) 
Inventories(55) (70) 
Investments  4  
Other current assets(15) (1) 
Accounts payable1  305  
Interest payable(29) (34) 
Other current liabilities(50) (44) 
Net cash provided by operating activities2,287  2,328  
Cash flows from investing activities:
Proceeds from disposition of assets, net of cash sold82  383  
Proceeds from investments568  1,140  
Purchases of investments  (618) 
Additions to oil and gas properties(2,380) (2,495) 
Additions to other assets and other property and equipment(184) (187) 
Net cash used in investing activities(1,914) (1,777) 
Cash flows from financing activities:
Principal payments on long-term debt  (450) 
Purchases of treasury stock(627) (51) 
Exercise of long-term incentive plan stock options and employee stock purchases6  8  
Payments of other liabilities(10) (8) 
Dividends paid(54) (27) 
Net cash used in financing activities(685) (528) 
Net increase (decrease) in cash, cash equivalents and restricted cash(312) 23  
Cash, cash equivalents and restricted cash, beginning of period825  896  
Cash, cash equivalents and restricted cash, end of period$513  $919  




The financial information included herein has been prepared by management
without audit by independent registered public accountants.
The accompanying notes are an integral part of these consolidated financial statements.

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PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
NOTE 1. Organization and Nature of Operations
Pioneer Natural Resources Company ("Pioneer" or the "Company") is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. The Company is a large independent oil and gas exploration and production company that explores for, develops and produces oil, natural gas liquids ("NGLs") and gas in the Permian Basin in West Texas.
NOTE 2. Basis of Presentation
Presentation. In the opinion of management, the unaudited interim consolidated financial statements of the Company as of September 30, 2019 and for the three and nine months ended September 30, 2019 and 2018 include all adjustments and accruals, consisting only of normal, recurring adjustments and accruals necessary for a fair presentation of the results for the interim periods in conformity with generally accepted accounting principles in the United States ("GAAP"). The operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of results for a full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These unaudited interim consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
Certain reclassifications have been made to prior period amounts to conform to the current period's presentation.
Use of estimates in the preparation of financial statements. Preparation of the Company's unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of oil and gas properties and evaluations for impairment of goodwill and proved and unproved oil and gas properties, in part, is determined using estimates of proved, probable and possible oil and gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
Adoption of new accounting standards. In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" ("ASC 842"), which supersedes the lease recognition requirements in Accounting Standards Codification ("ASC") 840, "Leases" ("ASC 840"), and requires lessees to recognize lease assets and lease liabilities for those leases previously classified as operating leases. The Company adopted ASC 842 as of January 1, 2019 using the modified retrospective transition method. The Company elected to apply the transition guidance under ASU 2018-11, "Leases (Topic 842) Targeted Improvements," in which ASC 842 is applied at the adoption date, while the comparative periods continue to be reported in accordance with historic accounting under ASC 840. This standard does not apply to leases to explore for or use minerals, oil or gas resources, including the right to explore for those natural resources and rights to use the land in which those natural resources are contained.
ASC 842 allowed for the election of certain practical expedients at adoption to ease the burden of implementation. At implementation, the Company elected to (i) maintain the historical lease classification for leases prior to January 1, 2019, (ii) maintain the historical accounting treatment for land easements that existed at adoption, (iii) use historical practices in assessing the lease term of existing contracts at adoption, (iv) combine lease and non-lease components of a contract as a single lease and (v) not record short-term leases in the consolidated balance sheet, all in accordance with ASC 842.
The adoption of ASC 842 did not have a material impact on the consolidated statements of operations and had no impact on the Company's cash flows. The Company did not record a change to its opening retained earnings as of January 1, 2019, as there was no material change to the timing or pattern of recognition of lease costs due to the adoption of ASC 842.
As of December 31, 2018, the Company was the deemed owner of the Company's new corporate headquarters (for accounting purposes) during the construction period and was following the build-to-suit accounting guidance under ASC 840. On January 1, 2019, upon the adoption of ASC 842, the Company derecognized $217 million of other property and equipment
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PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
and $219 million of build-to-suit lease liability costs associated with the building as this contract no longer qualifies for capitalization. The contract will be evaluated and recorded in the consolidated balance sheets upon lease commencement, which is expected to occur during the fourth quarter of 2019.
See Note 10 for additional information.
New accounting pronouncements. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowances for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. Entities will use the modified retrospective approach to apply the standard's provisions and record a cumulative-effect adjustment to retained earnings for additional receivable loss allowances, if any, as of the beginning of the first reporting period in which the guidance is adopted. The Company continues to evaluate ASU 2016-13, but does not expect that it will have a material impact on its consolidated financial statements.
NOTE 3. Divestitures, Decommissioning and Restructuring Activities
Divestitures
In July 2019, the Company completed the sale of certain vertical wells and approximately 1,400 undeveloped acres in Martin County of the Permian Basin to an unaffiliated third party for net cash proceeds of $27 million, after normal closing adjustments. The Company recorded a gain of $26 million associated with the sale.
In June 2019, the Company completed the sale of certain vertical wells and approximately 1,900 undeveloped acres in Martin County of the Permian Basin to an unaffiliated third party for net cash proceeds of $38 million, after normal closing adjustments. The Company recorded a gain of $31 million associated with the sale.
In May 2019, the Company announced its plans to divest of its ownership interest in certain gas gathering and processing assets operated by a third party. The Company's divestiture process is ongoing, but no assurance can be given that this divestiture will be completed in accordance with the Company's plans or on terms and at a price that is acceptable to the Company as a result of the current weakness in NGL and gas prices.
In May 2019, the Company completed the sale of its Eagle Ford assets and other remaining assets in South Texas (the "South Texas Divestiture") to an unaffiliated third party in exchange for total consideration having an estimated fair value of $210 million, after normal closing adjustments. The fair value of the consideration included (i) net cash proceeds of $2 million, (ii) $136 million in contingent consideration and (iii) a $72 million receivable associated with estimated deficiency fees to be paid by the buyer. Of the total consideration, $208 million is considered a noncash investing activity for the nine months ended September 30, 2019. The Company recorded a loss of $525 million and recognized employee-related charges of $20 million associated with the sale.
Contingent Consideration. Per the terms of the purchase and sale agreement, the Company is entitled to receive contingent consideration of up to $450 million based on future annual oil and NGL prices during each of the years from 2020 to 2024. The Company determined the fair value of the contingent consideration as of the date of the sale to be $136 million using an option pricing model. The contingent consideration is included in noncurrent other assets in the consolidated balance sheets. The Company revalues the contingent consideration each reporting period and records the resulting valuation changes in net interest and other income (loss) in the consolidated statements of operations. See Note 4, Note 5 and Note 14 for additional information.
Deficiency Fee Obligation. The Company transferred its long-term midstream agreements and associated minimum volume commitments ("MVC") to the buyer. However, the Company retained the obligation to pay 100 percent of any deficiency fees associated with the MVC from January 2019 through July 2022. The Company determined the fair value of the deficiency fee obligation as of the date of the sale to be $348 million using a probability weighted present value model. The deficiency fee obligation is included in current or noncurrent liabilities in the consolidated balance sheets, depending on the timing of payments. See Note 4 for additional information.
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PIONEER NATURAL RESOURCES COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
Deficiency Fee Receivable. The buyer is required to reimburse the Company for up to 20 percent of the deficiency fees paid under the transferred midstream agreements from January 2019 through July 2022. Such reimbursement will be paid by the buyer in installments beginning in 2023 through 2025. The Company determined the fair value of the deficiency fee receivable as of the date of the sale to be $72 million using a credit risk-adjusted valuation model. The deficiency fee receivable is included in noncurrent other assets in the consolidated balance sheets. See Note 4 for additional information.
Restricted Cash. As of the date of the sale, the Company deposited $75 million into an escrow account to be used to fund future deficiency fee payments. Accordingly, $76 million, including $1 million of interest income, is included in restricted cash in the consolidated balance sheet as of September 30, 2019. Beginning in 2021, the required escrow balance will decline to $50 million and, to the extent that there is any remaining balance after the payment of deficiency fees, the balance will become unrestricted and revert to the Company on March 31, 2023.
In December 2018, the Company completed the sale of its pressure pumping assets to ProPetro Holding Corp. ("ProPetro") in exchange for total consideration of $282 million, comprised of 16.6 million shares of ProPetro's common stock, which was delivered as of the date of the sale and had a fair value of $172 million, and $110 million in cash, which was received during the first quarter of 2019.
During 2018, the Company recorded a gain of $30 million, employee-related charges of $19 million, contract termination charges of $13 million and other divestiture related charges of $6 million associated with the sale. See Note 12 for additional information.
During the nine months ended September 30, 2019, the Company reduced the gain associated with the sale by $10 million and recorded additional employee-related charges of $1 million.
In August 2018, the Company completed the sale of its assets in the West Panhandle gas and liquids field to an unaffiliated third party for net cash proceeds of $170 million, after normal closing adjustments. During 2018, the Company recorded a gain of $127 million and employee-related charges of $7 million associated with the sale.
In July 2018, the Company completed the sale of its gas field assets in the Raton Basin to an unaffiliated third party for net cash proceeds of $54 million, after normal closing adjustments. The Company recorded a noncash impairment charge of $77 million in June 2018 to reduce the carrying value of its Raton Basin assets to their estimated fair value less costs to sell as the assets were considered held for sale. During 2018, the Company recorded a gain of $2 million and other divestiture-related charges of $