PIONEER NATURAL RESOURCES COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2005 2004 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $64,508 $7,257 Accounts receivable, net 257,957 209,936 Inventories 65,094 40,332 Prepaid expenses 18,504 10,822 Deferred income taxes 233,562 115,206 Other current assets, net 10,011 9,872 ------------- ------------ Total current assets 649,636 393,425 ------------- ------------ Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting 8,599,553 8,124,616 Accumulated depletion, depreciation and amortization (2,478,043) (2,243,549) ------------- ------------ Total property, plant and equipment 6,121,510 5,881,067 ------------- ------------ Deferred income taxes -- 2,963 Goodwill 306,666 315,880 Other assets, net 149,801 135,132 ------------- ------------ $7,227,613 $6,728,467 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $273,541 $216,051 Interest payable 21,493 45,735 Income taxes payable 19,125 13,520 Deferred revenue 165,063 -- Other current liabilities 652,954 269,153 ------------- ------------ Total current liabilities 1,132,176 544,459 ------------- ------------ Long-term debt 1,939,296 2,385,950 Deferred income taxes 618,343 607,415 Deferred revenue 711,669 -- Other liabilities and minority interests 701,879 358,863 Stockholders' equity 2,124,250 2,831,780 ------------- ------------ $7,227,613 $6,728,467 ============= ============ PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per share data) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------- ----------------------- 2005 2004 2005 2004 --------- --------- ----------- ----------- Revenues and other income: Oil and gas $558,382 $425,575 $1,593,470 $1,265,744 Interest and other 9,460 1,212 85,689 4,557 Gain (loss) on disposition of assets, net 394 215 2,763 (30) --------- --------- ----------- ----------- 568,236 427,002 1,681,922 1,270,271 --------- --------- ----------- ----------- Costs and expenses: Oil and gas production 118,422 75,095 330,871 222,707 Depletion, depreciation and amortization 136,367 135,459 431,760 405,758 Impairment of long- lived assets 21 34,825 644 34,825 Exploration and abandonments 64,198 32,882 183,671 152,233 General and administrative 32,749 19,431 91,551 54,846 Accretion of discount on asset retirement obligations 1,968 2,030 6,210 6,012 Interest 29,268 24,827 92,731 67,805 Other 38,173 2,486 67,475 10,982 --------- --------- ----------- ----------- 421,166 327,035 1,204,913 955,168 --------- --------- ----------- ----------- Income from continuing operations before income taxes 147,070 99,967 477,009 315,103 Income tax provision (42,483) (22,893) (193,722) (113,688) --------- --------- ----------- ----------- Income from continuing operations 104,587 77,074 283,287 201,415 Income from discontinued operations, net of tax 18,986 3,842 110,502 9,391 --------- --------- ----------- ----------- Net income $123,573 $80,916 $393,789 $210,806 ========= ========= =========== =========== Basic earnings per share: Income from continuing operations $.76 $.65 $2.02 $1.70 Income from discontinued operations, net of tax .14 .03 .78 .08 --------- --------- ----------- ----------- Net income $.90 $.68 $2.80 $1.78 ========= ========= =========== =========== Diluted earnings per share: Income from continuing operations $.74 $.64 $1.97 $1.67 Income from discontinued operations, net of tax .14 .03 .77 .08 --------- --------- ----------- ----------- Net income $.88 $.67 $2.74 $1.75 ========= ========= =========== =========== Weighted average shares outstanding: Basic 137,655 118,663 140,436 118,745 ========= ========= =========== =========== Diluted 141,786 120,297 144,770 120,321 ========= ========= =========== =========== PIONEER NATURAL RESOURCES COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------- ----------------------- 2005 2004 2005 2004 --------- --------- ----------- ----------- Cash flows from operating activities: Net income $123,573 $80,916 $393,789 $210,806 Depletion, depreciation and amortization 136,367 135,459 431,760 405,758 Impairment of long-lived assets 21 34,825 644 34,825 Exploration expenses, including dry holes 52,817 13,975 157,604 125,415 Deferred income taxes 30,485 15,377 157,283 94,500 Loss (gain) on disposition of assets, net (394) (215) (2,763) 30 Loss on debt extinguishment 18,633 -- 25,975 -- Accretion of discount on asset retirement obligations 1,968 2,030 6,210 6,012 Discontinued operations (15,256) 5,249 (84,118) 15,778 Interest expense 1,898 (1,094) 4,270 (12,457) Commodity hedge related activity 1,658 (11,311) (9,069) (33,844) Amortization of stock- based compensation 6,449 2,928 19,619 7,794 Amortization of deferred revenue (21,882) -- (53,956) -- Other noncash items 3,950 788 10,777 6,492 Changes in operating assets and liabilities, net of effects from acquisition: Accounts receivable, net 9,044 13,450 (45,255) (45,090) Inventories (8,964) (5,572) (21,667) (9,752) Prepaid expenses (13,513) (6,881) (7,705) (2,034) Other current assets, net 405 380 (124) 1,137 Accounts payable 27,730 (23,019) 37,294 (27,773) Interest payable (21,593) (14,526) (25,957) (14,440) Income taxes payable (6,314) (1,460) 5,605 2,995 Other current liabilities (9,350) (2,160) (15,039) (8,679) --------- --------- ----------- ----------- Net cash provided by operating activities 317,732 239,139 985,177 757,473 Net cash provided by (used in) investing activities (364,909) (975,756) 240,445 (1,340,290) Net cash provided by (used in) financing activities 52,616 723,739 (1,171,751) 566,205 --------- --------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 5,439 (12,878) 53,871 (16,612) Effect of exchange rate changes on cash and cash equivalents 618 615 3,380 262 Cash and cash equivalents, beginning of period 58,451 15,212 7,257 19,299 --------- --------- ----------- ----------- Cash and cash equivalents, end of period $64,508 $2,949 $64,508 $2,949 ========= ========= =========== =========== PIONEER NATURAL RESOURCES COMPANY SUMMARY PRODUCTION AND PRICE DATA (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 2005 2004 2005 2004 --------- -------- -------- -------- Average Daily Sales Volumes from Continuing Operations: Oil (Bbls) -- U.S. 24,133 25,930 25,059 23,681 Argentina 7,930 9,316 7,972 8,827 Canada 209 25 194 27 Africa 9,666 8,733 10,686 10,986 --------- -------- -------- -------- Worldwide 41,938 44,004 43,911 43,521 ========= ======== ======== ======== Natural gas liquids (Bbls) -- U.S. 18,176 18,825 16,835 19,790 Argentina 1,917 1,727 1,814 1,549 Canada 502 381 510 415 --------- -------- -------- -------- Worldwide 20,595 20,933 19,159 21,754 ========= ======== ======== ======== Gas (Mcf) -- U.S. 460,372 472,133 512,834 506,166 Argentina 142,399 137,971 136,023 119,440 Canada 37,562 22,058 36,160 23,627 --------- -------- -------- -------- Worldwide 640,333 632,162 685,017 649,233 ========= ======== ======== ======== Average Daily Sales Volumes from Discontinued Operations: Oil (Bbls) U.S. 1,066 1,850 1,709 2,587 Canada -- 70 38 70 --------- -------- -------- -------- Worldwide 1,066 1,920 1,747 2,657 ========= ======== ======== ======== Natural gas liquids (Bbls) U.S. 131 49 87 80 Canada 2 478 149 525 --------- -------- -------- -------- Worldwide 133 527 236 605 ========= ======== ======== ======== Gas (Mcf) U.S. 3,447 5,245 5,529 7,407 Canada 347 16,779 8,676 16,418 --------- -------- -------- -------- Worldwide 3,794 22,024 14,205 23,825 ========= ======== ======== ======== Average Reported Prices (a): Oil (per Bbl) -- U.S. $32.87 $30.67 $30.41 $29.45 Argentina $40.59 $32.25 $35.62 $26.96 Canada $68.77 $36.57 $51.73 $42.76 Africa $59.57 $42.17 $51.40 $35.43 Worldwide $40.66 $33.29 $36.56 $30.46 Natural gas liquids (per Bbl) -- U.S. $34.40 $26.50 $29.78 $23.37 Argentina $31.73 $29.62 $31.02 $28.71 Canada $49.93 $33.68 $43.22 $29.42 Worldwide $34.53 $26.89 $30.26 $23.87 Gas (per Mcf) -- U.S. $7.07 $5.12 $6.43 $5.13 Argentina $.83 $.63 $.86 $.62 Canada $7.51 $4.39 $6.57 $4.33 Worldwide $5.70 $4.11 $5.33 $4.27 (a) Average prices are attributable to continuing operations and include the results of hedging activities. PIONEER NATURAL RESOURCES COMPANY SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (in thousands) (Unaudited) EBITDAX and discretionary cash flow ("DCF") (as defined below) are presented herein, and reconciled to the generally accepted accounting principle ("GAAP") measures of net income and net cash provided by operating activities because of their wide acceptance by the investment community as financial indicators of a company's ability to internally fund exploration and development activities and to service or incur debt. The Company also views the non-GAAP measures of EBITDAX and DCF as useful tools for comparisons of the Company's financial indicators with those of peer companies that follow the full cost method of accounting. EBITDAX and DCF should not be considered as alternatives to net income or net cash provided by operating activities, as defined by GAAP. Three months ended Nine months ended September 30, September 30, ------------------- -------------------- 2005 2004 2005 2004 --------- --------- ---------- --------- Net income $123,573 $80,916 $393,789 $210,806 Depletion, depreciation and amortization 136,367 135,459 431,760 405,758 Impairment of long-lived assets 21 34,825 644 34,825 Exploration and abandonments 64,198 32,882 183,671 152,233 Loss on debt extinguishment 18,633 -- 25,975 -- Accretion of discount on asset retirement obligations 1,968 2,030 6,210 6,012 Interest expense 29,268 24,827 92,731 67,805 Income tax provision 42,483 22,893 193,722 113,688 Loss (gain) on disposition of assets, net (394) (215) (2,763) 30 Discontinued operations (15,256) 5,249 (84,118) 15,778 Current income taxes on discontinued operations -- -- 2,869 -- Commodity hedge related activity 1,658 (11,311) (9,069) (33,844) Amortization of stock-based compensation 6,449 2,928 19,619 7,794 Amortization of deferred revenue (21,882) -- (53,956) -- Other noncash items 3,950 788 10,777 6,492 --------- --------- ---------- --------- EBITDAX (a) 391,036 331,271 1,211,861 987,377 Less: Cash interest expense (27,370) (25,921) (88,461) (80,262) Current income taxes (11,998) (7,516) (39,308) (19,188) --------- --------- ---------- --------- Discretionary cash flow (b) 351,668 297,834 1,084,092 887,927 Less: Cash exploration expense (11,381) (18,907) (26,067) (26,818) Changes in operating assets and liabilities (22,555) (39,788) (72,848) (103,636) --------- --------- ---------- --------- Net cash provided by operating activities $317,732 $239,139 $985,177 $757,473 ========= ========= ========== ========= (a) "EBITDAX" represents earnings before depletion, depreciation and amortization expense; impairment of long-lived assets; exploration and abandonments; loss on debt extinguishment; accretion of discount on asset retirement obligations; interest expense; income taxes; gain or loss on the disposition of assets; noncash effects from discontinued operations; commodity hedge related activity; amortization of stock-based compensation; amortization of deferred revenue; and other noncash items. (b) Discretionary cash flow equals cash flows from operating activities before changes in operating assets and liabilities and before cash exploration expense. PIONEER NATURAL RESOURCES COMPANY SUPPLEMENTAL INFORMATION As of November 2, 2005 Open Commodity Hedge Positions 2005 --------- Fourth Quarter 2006 2007 2008 --------- --------- --------- -------- Average Daily Oil Production Hedged: Swap Contracts: Volume (Bbl) 27,000 10,000 13,000 17,000 NYMEX price (Bbl) $27.97 $31.69 $30.89 $29.21 Collar Contracts: Volume (Bbl) -- 9,129 4,500 -- NYMEX price (Bbl) Ceiling $-- $74.92 $90.43 $-- Floor $-- $44.25 $50.00 $-- Average Daily Gas Production Hedged: Swap Contracts: Volume (MMBtu) 253,535 73,842 29,195 5,000 NYMEX price (MMBtu) (a) $5.20 $4.30 $4.30 $5.40 Collar Contracts: Volume (MMBtu) -- 183,685 215,000 -- NYMEX price (MMBtu) Ceiling $-- $14.55 $11.95 $-- Floor $-- $7.00 $6.70 $-- (a) Approximate, based on historical differentials to index prices. Amortization of Volumetric Production Payment Proceeds and Net Derivative Losses (in thousands) 2005 -------- Fourth Quarter 2006 Thereafter Total -------- --------- ---------- --------- VPP proceeds, net of transaction costs $21,061 $184,099 $635,594 $840,754 Net hedge obligations assigned 757 6,248 28,973 35,978 -------- --------- ---------- --------- Total deferred revenue (a) 21,818 190,347 664,567 876,732 Less net derivative losses to be recognized in pretax earnings (b) (2,307) (4,860) (20,657) (27,824) -------- --------- ---------- --------- Total VPP impact to pretax earnings $19,511 $185,487 $643,910 $848,908 ======== ========= ========== ========= (a) Deferred revenue will be amortized as increases to oil and gas revenues during the indicated future periods. (b) Represents the remaining pretax earnings impact of the derivatives assigned in the VPPs.