-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NdJf2IT0fd4DKy0HRbgzeqgNOarR72XELRBZLkB7Ld96Iihi/C/1j3bix9QGLxUM Q67cssaNZoh5WVLpuonCAg== 0001038357-05-000126.txt : 20050506 0001038357-05-000126.hdr.sgml : 20050506 20050506113419 ACCESSION NUMBER: 0001038357-05-000126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER NATURAL RESOURCES CO CENTRAL INDEX KEY: 0001038357 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 752702753 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13245 FILM NUMBER: 05806087 BUSINESS ADDRESS: STREET 1: 900 WILLIAMS SQUARE WEST STREET 2: 5205 N OCONNOR BLVD CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 9724449001 MAIL ADDRESS: STREET 1: 900 WILLIAMS SQUARE WEST STREET 2: 5205 N OCONNOR BLVD CITY: IRVING STATE: TX ZIP: 75039 10-Q 1 pnr1mar05q.txt PIONEER 3/31/05 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q / x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 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 (I.R.S. Employer incorporation or organization) Identification No.) 5205 N. O'Connor Blvd., Suite 900, Irving, Texas 75039 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) (972) 444-9001 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 / / Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes / x / No / / Number of shares of Common Stock outstanding as of May 2, 2005...... 143,985,774 PIONEER NATURAL RESOURCES COMPANY TABLE OF CONTENTS Page Definitions of Oil and Gas Terms and Conventions Used Herein............. 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004...................................... 4 Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004............. 6 Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2005.................. 7 Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004............. 8 Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2005 and 2004..... 9 Notes to Consolidated Financial Statements................ 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 27 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 38 Item 4. Controls and Procedures................................... 40 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................... 41 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds........................................ 41 Item 6. Exhibits.................................................. 42 Signatures .......................................................... 43 Exhibit Index .......................................................... 44 Cautionary Statement Concerning Forward-Looking Statements The information included 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 ("Pioneer" or the "Company") are subject to a number of risks and uncertainties that 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, international operations and associated international political and economic instability, litigation, the costs and results of drilling and operations, the Company's ability to replace reserves, implement its business plans, or complete its development projects as scheduled, access to and cost of capital, uncertainties about estimates of reserves, quality of technical data, environmental and weather risks, acts of war or terrorism. These and other risks are described in the Company's 2004 Annual Report on Form 10-K, as amended, and other filings with the SEC. 2 Definitions of Oil and Gas Terms and Conventions Used Herein Within this Report, the following oil and gas terms and conventions have specific meanings: o "Bbl" means a standard barrel containing 42 United States gallons. o "Bcf" means billion cubic feet. o "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 6.0 Mcf of gas to 1.0 Bbl of oil or natural gas liquid. o "BOEPD" means BOE per day. o "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. o "LIBOR" means London Interbank Offered Rate, which is a market rate of interest. o "Mcf" means one thousand cubic feet and is a measure of natural gas volume. o "MMBbl" means one million Bbls. o "MMBOE" means one million BOEs. o "MMBtu" means one million Btus. o "NGL" means natural gas liquid. o "NYMEX" means the New York Mercantile Exchange. o "proved reserves" mean the estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon future conditions. (i) Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. (ii) Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based. (iii) Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; (C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilsonite and other such sources. o "SEC" means the United States Securities and Exchange Commission. o 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. o Unless otherwise indicated, all currency amounts are expressed in U.S. dollars. 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 2005 2004 ----------- ----------- (Unaudited) ASSETS Current assets: Cash and cash equivalents........................................ $ 16,039 $ 7,257 Accounts receivable: Trade, net of allowance for doubtful accounts of $7,348 as of March 31, 2005 and December 31, 2004.................. 222,742 207,696 Due from affiliates........................................... 2,132 2,583 Inventories...................................................... 41,256 40,332 Prepaid expenses................................................. 8,355 10,822 Deferred income taxes............................................ 188,124 115,206 Other current assets: Derivatives................................................... 157 209 Other, net of allowance for doubtful accounts of $4,486 as of March 31, 2005 and December 31, 2004.................. 9,056 9,320 ---------- ---------- Total current assets..................................... 487,861 393,425 ---------- ---------- Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties............................................. 7,861,900 7,654,181 Unproved properties........................................... 476,705 470,435 Accumulated depletion, depreciation and amortization............. (2,395,972) (2,243,549) ---------- ---------- Total property, plant and equipment...................... 5,942,633 5,881,067 ---------- ---------- Deferred income taxes.............................................. 2,038 2,963 Goodwill........................................................... 307,951 315,880 Other property and equipment, net.................................. 82,244 78,696 Other assets: Derivatives...................................................... 1,595 - Other, net of allowance for doubtful accounts of $92 as of March 31, 2005 and December 31, 2004.......................... 58,015 56,436 ---------- ---------- $ 6,882,337 $ 6,728,467 ========== ==========
The financial information included as of March 31, 2005 has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 4 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED BALANCE SHEETS (Continued) (in thousands, except share data)
March 31, December 31, 2005 2004 ----------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade........................................................... $ 279,580 $ 205,153 Due to affiliates............................................... 3,274 10,898 Interest payable................................................... 29,976 45,735 Income taxes payable............................................... 16,295 13,520 Other current liabilities: Derivatives..................................................... 438,969 224,612 Deferred revenue................................................ 84,469 - Other........................................................... 70,436 44,541 ---------- ---------- Total current liabilities.................................. 922,999 544,459 ---------- ---------- Long-term debt....................................................... 1,831,938 2,385,950 Derivatives.......................................................... 382,700 182,803 Deferred income taxes................................................ 518,291 607,415 Deferred revenue..................................................... 545,811 - Other liabilities and minority interests............................. 173,658 176,060 Stockholders' equity: Common stock, $.01 par value; 500,000,000 shares authorized; 146,798,361 and 145,644,828 shares issued at March 31, 2005 and December 31, 2004, respectively............................. 1,468 1,456 Additional paid-in capital......................................... 3,761,660 3,705,286 Treasury stock, at cost; 2,896,434 and 813,166 shares at March 31, 2005 and December 31, 2004, respectively.............. (118,215) (27,793) Deferred compensation.............................................. (64,750) (22,558) Accumulated deficit................................................ (600,361) (634,146) Accumulated other comprehensive income (loss): Net deferred hedge losses, net of tax........................... (522,124) (241,350) Cumulative translation adjustment............................... 49,262 50,885 ---------- ---------- Total stockholders' equity................................. 2,506,940 2,831,780 Commitments and contingencies ---------- ---------- $ 6,882,337 $ 6,728,467 ========== ==========
The financial information included as of March 31, 2005 has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 5 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited)
Three months ended March 31, ----------------------- 2005 2004 --------- --------- Revenues and other income: Oil and gas.............................................. $ 520,312 $ 435,527 Interest and other....................................... 28,333 1,735 Gain (loss) on disposition of assets, net................ 2,221 (13) -------- -------- 550,866 437,249 -------- -------- Costs and expenses: Oil and gas production................................... 113,962 78,212 Depletion, depreciation and amortization................. 156,151 136,499 Impairment of long-lived assets.......................... 152 - Exploration and abandonments............................. 67,385 80,506 General and administrative............................... 29,585 18,329 Accretion of discount on asset retirement obligations.... 2,140 1,966 Interest................................................. 33,251 21,576 Other.................................................... 11,720 196 -------- -------- 414,346 337,284 -------- -------- Income before income taxes................................... 136,520 99,965 Income tax provision......................................... (51,863) (39,777) -------- -------- Net income................................................... $ 84,657 $ 60,188 ======== ======== Net income per share: Basic.................................................... $ .59 $ .51 ======== ======== Diluted.................................................. $ .58 $ .50 ======== ======== Weighted average shares outstanding: Basic.................................................... 142,898 118,719 ======== ======== Diluted.................................................. 147,345 120,264 ======== ======== Dividends declared per share................................. $ .10 $ .10 ======== ========
The financial information included herein has been prepared by management without audit by independent public accountants. The accompanying notes are an integral part of these consolidated financial statements. 6 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except per share data) (Unaudited)
Accumulated Other Comprehensive Income (Loss) --------------------------- Net Deferred Additional Hedge Cumulative Total Common Paid-in Treasury Deferred Accumulated Losses, Translation Stockholders' Stock Capital Stock Compensation Deficit Net of Tax Adjustment Equity ------ ---------- -------- ------------ ----------- ----------- ----------- ------------ Balance as of January 1, 2005.... $1,456 $3,705,286 $(27,793) $ (22,558) $(634,146) $ (241,350) $ 50,885 $2,831,780 Dividends declared ($.10 per common share)................ - - - - (14,394) - - (14,394) Exercise of long-term incentive plan stock options........... - - 61,464 - (36,478) - - 24,986 Purchase of treasury stock..... - - (151,886) - - - - (151,886) Tax benefits related to stock-based compensation..... - 8,711 - - - - - 8,711 Deferred compensation: Compensation deferred........ 12 48,597 - (48,609) - - - - Deferred compensation included in net income..... - - - 5,152 - - - 5,152 Forfeitures of deferred compensation............... - (934) - 1,265 - - - 331 Net income..................... - - - - 84,657 - - 84,657 Other comprehensive income (loss): Net deferred hedge losses, net of tax: Net deferred hedge losses.. - - - - - (524,596) - (524,596) Net hedge losses included in net income............ - - - - - 52,322 - 52,322 Tax benefits related to net hedge losses......... - - - - - 191,500 - 191,500 Translation adjustment....... - - - - - - (1,623) (1,623) ----- --------- -------- ---------- -------- --------- ------- --------- Balance as of March 31, 2005..... $1,468 $3,761,660 $(118,215) $ (64,750) $(600,361) $(522,124) $ 49,262 $2,506,940 ====== ========== ========= =========== ======== ======== ======= =========
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 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
Three months ended March 31, -------------------------- 2005 2004 --------- --------- Cash flows from operating activities: Net income...................................................... $ 84,657 $ 60,188 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization...................... 156,151 136,499 Impairment of long-lived assets............................... 152 - Exploration expenses, including dry holes..................... 58,445 78,820 Deferred income taxes......................................... 42,972 32,720 Loss (gain) on disposition of assets, net..................... (2,221) 13 Accretion of discount on asset retirement obligations......... 2,140 1,966 Noncash interest expense...................................... 696 (6,370) Commodity hedge related activity.............................. (3,061) (11,392) Amortization of stock-based compensation...................... 5,152 1,979 Amortization of deferred revenue.............................. (11,625) - Other noncash items........................................... 4,678 (658) Changes in operating assets and liabilities, net of effects from acquisition: Accounts receivable, net...................................... (12,033) (33,737) Inventories................................................... (1,315) (19) Prepaid expenses.............................................. 2,449 917 Other current assets, net..................................... (198) 757 Accounts payable.............................................. 17,593 (6,002) Interest payable.............................................. (16,259) 693 Income taxes payable.......................................... 2,775 3,058 Other current liabilities..................................... 3,736 (5,802) -------- -------- Net cash provided by operating activities.................. 334,884 253,630 -------- -------- Cash flows from investing activities: Payments for acquisition, net of cash acquired.................. (965) - Proceeds from disposition of assets............................. 600,096 285 Additions to oil and gas properties............................. (226,170) (167,226) Other property additions, net................................... (11,062) (5,360) -------- -------- Net cash provided by (used in) investing activities........ 361,899 (172,301) -------- -------- Cash flows from financing activities: Borrowings under long-term debt................................. 155,713 56,083 Principal payments on long-term debt............................ (708,713) (146,083) Payment of other liabilities.................................... (8,302) (4,355) Exercise of long-term incentive plan stock options.............. 24,986 8,495 Purchase of treasury stock...................................... (151,886) (5,566) -------- --------- Net cash used in financing activities...................... (688,202) (91,426) -------- -------- Net increase (decrease) in cash and cash equivalents................ 8,581 (10,097) Effect of exchange rate changes on cash and cash equivalents........ 201 (180) Cash and cash equivalents, beginning of period...................... 7,257 19,299 -------- -------- Cash and cash equivalents, end of period............................ $ 16,039 $ 9,022 ======== ========
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. 8 PIONEER NATURAL RESOURCES COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands) (Unaudited)
Three months ended March 31, -------------------------- 2005 2004 --------- --------- Net income................................................. $ 84,657 $ 60,188 -------- -------- Other comprehensive loss: Net deferred hedge losses, net of tax: Net deferred hedge losses............................ (524,596) (117,392) Net hedge losses included in net income.............. 52,322 30,772 Tax benefits related to net hedge losses............. 191,500 31,871 Translation adjustment................................. (1,623) (2,241) -------- -------- Other comprehensive loss.......................... (282,397) (56,990) -------- -------- Comprehensive income (loss)................................ $(197,740) $ 3,198 ======== ========
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. 9 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE A. Organization and Nature of Operations Pioneer 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 with operations in the United States, Argentina, Canada, Equatorial Guinea, Nigeria, South Africa and Tunisia. NOTE B. Basis of Presentation Presentation. In the opinion of management, the unaudited consolidated financial statements of the Company as of March 31, 2005 and for the three-month periods ended March 31, 2005 and 2004 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. On September 28, 2004, the Company completed a merger with Evergreen Resources, Inc. ("Evergreen"), as set forth in the Agreement and Plan of Merger dated May 3, 2004, that added to the Company's United States and Canadian asset base and expanded its portfolio of development and exploration opportunities in North America. Evergreen's operations were primarily focused on developing and expanding its coal bed methane production from the Raton Basin in southern Colorado. In accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS 141"), the merger has been accounted for as a purchase of Evergreen by Pioneer. As a result, the historical financial statements for the Company are those of Pioneer prior to September 28, 2004. The accompanying Consolidated Statements of Operations and Cash Flows for the three months ended March 31, 2005 include the financial results of the net assets acquired in the Evergreen merger. See Note C for additional information regarding the Evergreen merger. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. These consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K, as amended, as of and for the year ended December 31, 2004. Inventories. Inventories were comprised of $38.7 million and $37.9 million of materials and supplies and $2.6 million and $2.4 million of commodities as of March 31, 2005 and December 31, 2004, respectively. The Company's materials and supplies inventory is primarily comprised of oil and gas drilling or repair items such as tubing, casing, chemicals, operating supplies and ordinary maintenance materials and parts. The materials and supplies inventory are primarily acquired for use in future drilling operations or repair operations and are carried at the lower of cost or market, on a first-in, first-out basis. Commodities inventory is carried at the lower of average cost or market, on a first-in, first- out basis. As of March 31, 2005 and December 31, 2004, the Company's materials and supplies inventory were net of $.4 million of valuation reserve allowances. Goodwill. As is described in Note C, the Company recorded $323.0 million of goodwill associated with the Evergreen merger. The goodwill was recorded to the Company's United States reporting unit and is subject to change during the six-month period ending September 30, 2005 if the settlement values of monetary assets acquired and liabilities assumed in the merger differ from their estimated values as of the merger date. In accordance with Emerging Issues Task 10 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) Force Abstract Issue No. 00-23, "Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and Financial Accounting Standards Board ("FASB") Interpretation No. 44", the Company has reduced goodwill by $15.0 million since September 28, 2004, including $6.0 million during the three months ended March 31, 2005, for certain tax benefits associated with the exercise of fully-vested stock options assumed in conjunction with the Evergreen merger. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill is not amortized to earnings but is assessed for impairment whenever events or circumstances indicate that impairment of the carrying value of goodwill is likely, but no less often than annually. If the carrying value of goodwill is determined to be impaired, it is reduced for the impaired value with a corresponding charge to pretax earnings in the period in which it is determined to be impaired. Stock-based compensation. The Company has a long-term incentive plan (the "Long-Term Incentive Plan") under which the Company grants stock-based compensation. The Company accounts for stock-based compensation granted under the Long-Term Incentive Plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. The Company did not grant any stock options under the Long-Term Incentive Plan during the three months ended March 31, 2005. Stock-based compensation expense associated with option grants was not recognized in the determination of the Company's net income during the three-month periods ended March 31, 2005 and 2004, as all options granted under the Long-Term Incentive Plan had exercise prices equal to the market value of the underlying common stock on the dates of grant. Stock-based compensation expense associated with restricted stock awards is deferred and amortized to earnings ratably over the vesting periods of the awards. See "New accounting pronouncement" below for information regarding the Company's adoption of SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"). The following table illustrates the pro forma effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") to stock-based compensation during the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, --------------------- 2005 2004 -------- -------- (in thousands, except per share amounts) Net income, as reported................................ $ 84,657 $ 60,188 Plus: Stock-based compensation expense included in net income for all awards, net of tax (a)........ 3,271 1,257 Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of tax (a)...................................... (4,242) (3,115) ------- ------- Pro forma net income................................... $ 83,686 $ 58,330 ======= ======= Net income per share: Basic - as reported................................. $ .59 $ .51 ======= ======= Basic - pro forma................................... $ .58 $ .49 ======= ======= Diluted - as reported............................... $ .58 $ .50 ======= ======= Diluted - pro forma................................. $ .57 $ .49 ======= ======= - ----------- (a) For the three-month periods ended March 31, 2005 and 2004, stock-based compensation expense included in net income is net of tax benefits of $1.9 million and $.7 million, respectively. Similarly, stock-based compensation expense determined under the fair value based method for the three-month periods ended March 31, 2005 and 2004 is net of tax benefits of $2.4 million and $1.8 million, respectively. See Note D for additional information regarding the Company's income taxes.
11 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) New accounting pronouncements. The following discussions provide information about new accounting pronouncements that have been issued by the FASB: SFAS 123(R). On December 16, 2004, the FASB issued SFAS 123(R), which is a revision of SFAS 123. SFAS 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows". Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) will require all share-based payments to employees, including grants of employee stock options, to be recognized in the Company's Consolidated Statements of Operations based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) must be adopted no later than January 1, 2006 and permits public companies to adopt its requirements using one of two methods: o A "modified prospective" method in which compensation cost is recognized beginning with the effective date based on the requirements of SFAS 123(R) for all share-based payments granted after the adoption date and based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the adoption date. o A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate either all prior periods presented or prior interim periods of the year of adoption based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures. The Company has elected to adopt the provisions of SFAS 123(R) on January 1, 2006 using the modified prospective method. As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using the intrinsic value method prescribed by APB 25 and related interpretations. As such, the Company generally did not recognize compensation expenses associated with employee stock option grants. The Company has not issued stock options to employees since the year ended December 31, 2003. Consequently, the adoption of SFAS 123(R)'s fair value method will not have a significant impact on the Company's future results of operations or financial position. Had the Company adopted SFAS 123(R) in prior periods, the impact would have approximated the impact of SFAS 123 as described in the pro forma net income and earnings per share disclosures above. The adoption of SFAS 123(R) will have no effect on the Company's unvested outstanding restricted stock awards. The Company estimates that the adoption of SFAS 123(R), based on estimated outstanding unvested stock options, will result in future compensation charges to general and administrative expenses of approximately $1.1 million during 2006. The Company has an Employee Stock Purchase Plan (the "ESPP") that allows eligible employees to annually purchase the Company's common stock at a discount. The provisions of SFAS 123(R) will cause the ESPP to be a compensatory plan. However, the change in accounting for the ESPP is not expected to have a material impact on the Company's financial position, future results of operations or liquidity. Historically, the ESPP compensatory amounts have been nominal. SFAS 123(R) also requires the current tax benefits in excess of recognized compensation expenses to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement may serve to reduce the Company's future cash flows provided by operating activities and increase future cash flows provided by financing activities, to the extent of associated tax benefits that may be realized in the future. 12 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) FSP FAS 19-1. In April 2005, the FASB issued Staff Position No. FAS 19-1, "Accounting for Suspended Well Costs ("FSP FAS 19-1"). FSP FAS 19-1 amends SFAS No. 19, "Financial Accounting and Reporting by Oil and Gas Producing Companies" ("SFAS 19"), to allow continued capitalization of exploratory well costs beyond one year from the date drilling was completed under circumstances where the well has found a sufficient quantity of reserves to justify its completion as a producing well and the enterprise is making sufficient progress assessing the reserves and the economic and operating viability of the project. FSP FAS 19-1 also amends SFAS 19 to require enhanced disclosures of suspended exploratory well costs in the notes to the financial statements for annual and interim periods when there has been a significant change from the previous disclosure. The guidance in FSP FAS 19-1 is effective for the first reporting period beginning after April 4, 2005. The Company will adopt the new requirements and include any required disclosures in its Form 10-Q for the period ended June 30, 2005. The adoption of FSP FAS 19-1 is not expected to have a material impact on the Company's consolidated financial position or results of operations. NOTE C. Evergreen Merger On September 28, 2004, Pioneer completed its merger with Evergreen with Pioneer being the surviving corporation for accounting purposes. The transaction was accounted for as a purchase of Evergreen by Pioneer in accordance with SFAS 141. The merger with Evergreen was accomplished through the issuance of 25.4 million shares of Pioneer common stock and $851.1 million of cash paid, net of $12.1 million of acquired cash, to the Evergreen shareholders at closing. The cash consideration paid in the merger was financed through borrowings on the Company's $900 million 364-day senior unsecured revolving credit facility (the "364-Day Credit Agreement"). See Note E for additional information on the 364-Day Credit Agreement. Evergreen was a publicly-traded independent oil and gas company primarily engaged in the production, development, exploration and acquisition of North American unconventional gas and was one of the leading developers of coal bed methane reserves in the United States. Evergreen's operations were principally focused on developing and expanding its coal bed methane field located in the Raton Basin in southern Colorado. Evergreen also had operations in the Piceance Basin in western Colorado, the Uinta Basin in eastern Utah and the Western Canada Sedimentary Basin. The Company recorded $323.0 million of goodwill associated with the Evergreen merger, which amount represents the excess of the purchase consideration over the net fair value of the identifiable net assets acquired. The following unaudited pro forma combined condensed financial data for the three-month period ended March 31, 2004 was derived from the historical financial statements of Pioneer and Evergreen giving effect to the Evergreen merger as if it had occurred on January 1, 2004. The unaudited pro forma combined condensed financial data have been included for comparative purposes only and are not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2004 and are not intended to be a projection of future results. Revenues (in thousands)................ $ 499,426 ========= Net income (in thousands).............. $ 67,009 ========= Net income per share: Basic............................... $ .47 ========= Diluted............................. $ .45 =========
NOTE D. Income Taxes The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires that the Company continually assess both positive and negative evidence to determine 13 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) whether it is more likely than not that deferred tax assets can be realized prior to their expiration. Pioneer monitors Company-specific, oil and gas industry and worldwide economic factors and assesses the likelihood that the Company's net operating loss carryforwards and other deferred tax attributes in the United States, state, local and foreign tax jurisdictions will be utilized prior to their expiration. As of March 31, 2005, the Company's valuation allowances related to foreign and domestic tax jurisdictions were $109.5 million and $.2 million, respectively. On October 22, 2004, the American Jobs Creation Act (the "AJCA") was signed into law. The AJCA includes a deduction of 85 percent of certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings repatriations in 2005. The Company is evaluating the effects of the repatriation provision; however, the Company does not expect to be able to complete this evaluation until after Congress or the Treasury Department provide additional clarifying language on key elements of the provision. The Company expects to complete its evaluation of the effects of the repatriation provision within a reasonable period of time following the publication of the additional clarifying language. The range of possible amounts that the Company is considering for repatriation under section 965 of the Internal Revenue Code is between zero and $80 million with a related potential range of income tax between zero and $5 million, excluding the effects of potential repatriation of funds that may occur as a result of the Canadian asset divestiture referred to in Note N. Until the Company decides to repatriate any foreign earnings, it will continue to treat them as permanently invested. Income tax provision (benefit) attributable to net income consisted of the following for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ---------------------- 2005 2004 -------- -------- (in thousands) Current: U.S. federal....................... $ - $ 1,000 Foreign............................ 8,891 6,057 ------- ------- 8,891 7,057 ------- ------- Deferred: U.S. federal....................... 41,532 34,080 U.S. state and local............... 1,147 1,429 Foreign............................ 293 (2,789) ------- ------- 42,972 32,720 ------- ------- $ 51,863 $ 39,777 ======= =======
NOTE E. Long-term Debt Lines of credit. During January 2005, the Company entered into a second amendment (the "Second Amendment") to the Company's $700 million 5-Year Revolving Credit Agreement (the "Revolving Credit Agreement") and a first amendment (the "First Amendment") to the 364-Day Credit Agreement. The Second Amendment and the First Amendment amended certain sections of the Revolving Credit Agreement and the 364-Day Credit Agreement, respectively, to (i) provide for the Company's ability to enter into volumetric production payment ("VPP") agreements and (ii) clarify certain definitional matters. See Notes L and N for additional discussion regarding the Company's entrance into VPP agreements. During February 2005, the Company reduced the loan commitments under the 364-Day Credit Agreement by $250 million. During April 2005, the Company reduced its loan commitments by an additional $200 million under the 364-Day Credit Agreement to $450 million. 14 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) As of March 31, 2005, the Company was in compliance with all of its debt covenants. Senior notes. During April 2005, $131 million of the Company's 8-7/8% senior notes due 2005 (the "8-7/8% Notes") matured. The Company utilized unused borrowing capacity under its 364-Day Credit Agreement to repay the 8-7/8% Notes. See Note N for information regarding the Company's redemption of a portion of its outstanding 9-5/8% senior notes due 2010 (the "9-5/8% Notes") during April 2005. NOTE F. Derivative Financial Instruments Fair value hedges. The Company monitors the debt capital markets and interest rate trends to identify opportunities to enter into and terminate interest rate swap contracts with the objective of minimizing costs of capital. During the three months ended March 31, 2004, the Company, from time to time, entered into interest rate swap contracts to hedge a portion of the fair value of its senior notes. The terms of the interest rate swap contracts were for notional amounts that matched the scheduled maturity of the hedged senior notes, required the counterparties to pay the Company a fixed annual interest rate equal to the stated bond coupon rates on the notional amounts and required the Company to pay the counterparties variable annual interest rates on the notional amounts equal to the periodic LIBOR plus a weighted average annual margin. During the three months ended March 31, 2004, settlements of open fair value hedges reduced the Company's interest expense by $.2 million. As of March 31, 2005 and December 31, 2004, the Company was not a party to any open fair value hedges. As of March 31, 2005, the carrying value of the Company's long-term debt in the accompanying Consolidated Balance Sheets included a $5.7 million reduction in the carrying value attributable to net deferred hedge losses on terminated fair value hedges that are being amortized as net increases to interest expense over the original terms of the terminated agreements. The amortization of net deferred hedge gains on terminated interest rate swaps reduced the Company's reported interest expense by $2.2 million and $7.3 million during the three-month periods ended March 31, 2005 and 2004, respectively. The following table sets forth, as of March 31, 2005, the scheduled amortization of net deferred hedge gains (losses) on terminated interest rate hedges (including terminated fair value and cash flow hedges) that will be recognized as increases in the case of losses, and decreases in the case of gains, to the Company's future interest expense:
2005 2006 2007 2008 2009 Thereafter ------ ------ ------- ------- ------- ---------- (in thousands) Net deferred hedge gains (losses) $1,205 $ 625 $(2,222) $(1,937) $(2,351) $(5,913) ====== ===== ====== ====== ====== ======
Cash flow hedges. The Company utilizes commodity swap and collar contracts to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. The Company also, from time to time, utilizes interest rate contracts to reduce the effect of interest rate volatility on the Company's indebtedness and forward currency exchange agreements to reduce the effect of U.S. dollar to Canadian dollar exchange rate volatility. 15 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) Oil prices. All material physical sales contracts governing the Company's United States oil production have been tied directly or indirectly to NYMEX prices. As of March 31, 2005, all of the Company's commodity hedges are designated as hedges of United States forecasted sales. The following table sets forth the volumes hedged in Bbls underlying the Company's outstanding oil hedge contracts and the weighted average NYMEX prices per Bbl for those contracts as of March 31, 2005:
First Second Third Fourth Outstanding Quarter Quarter Quarter Quarter Average ------------- ------------- ------------- ------------- ------------- Average daily oil production hedged (a): 2005 - Swap Contracts Volume (Bbl).................... 27,000 27,000 27,000 27,000 Price per Bbl................... $ 27.97 $ 27.97 $ 27.97 $ 27.97 2006 - Swap Contracts Volume (Bbl).................... 11,973 11,973 11,973 11,973 11,973 Price per Bbl................... $ 35.43 $ 35.43 $ 35.43 $ 35.43 $ 35.43 2006 - Collar Contracts Volume (Bbl).................... 3,500 3,500 3,500 3,500 3,500 Price per Bbl................... $35.00-$41.95 $35.00-$41.95 $35.00-$41.95 $35.00-$41.95 $35.00-$41.95 2007 - Swap Contracts Volume (Bbl).................... 13,000 13,000 13,000 13,000 13,000 Price per Bbl................... $ 30.89 $ 30.89 $ 30.89 $ 30.89 $ 30.89 2008 - Swap Contracts Volume (Bbl).................... 20,278 20,278 20,278 20,278 20,278 Price per Bbl................... $ 32.46 $ 32.46 $ 32.46 $ 32.46 $ 32.46 2009 - Swap Contracts Volume (Bbl).................... 1,643 1,643 1,643 1,643 1,643 Price per Bbl................... $ 47.25 $ 47.25 $ 47.25 $ 47.25 $ 47.25 2010 - Swap Contracts Volume (Bbl).................... 1,643 1,643 1,643 1,643 1,643 Price per Bbl................... $ 46.40 $ 46.40 $ 46.40 $ 46.40 $ 46.40 - --------------- (a) Subsequent to March 31, 2005, the Company conveyed to the purchaser of its April VPP the following oil swap contracts which were included in the schedule above: (i) 1,973 Bbls per day of 2006 oil sales at a weighted average fixed price per Bbl of $54.40, (ii) 3,278 Bbls per day of 2008 oil sales at a weighted average fixed price per Bbl of $49.28, (iii) 1,643 Bbls per day of 2009 oil sales at a weighted average fixed price per Bbl of $47.25 and (iv) 1,643 Bbls per day of 2010 oil sales at a weighted average fixed price per Bbl of $46.40. See Note N for additional information regarding the Company's April VPP.
16 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) The Company reports average oil prices per Bbl including the effects of oil quality adjustments and the net effect of oil hedges. The following table sets forth the Company's oil prices, both reported (including hedge results) and realized (excluding hedge results), and the net effect of settlements of oil price hedges on oil revenue for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ------------------ 2005 2004 ------- ------- Average price reported per Bbl................... $ 33.27 $ 28.31 Average price realized per Bbl................... $ 43.29 $ 32.12 Reduction to oil revenue (in millions)........... $ (44.3) $ (16.5)
Natural gas liquids prices. During the three-month periods ended March 31, 2005 and 2004, the Company did not enter into any NGL hedge contracts. There were no outstanding NGL hedge contracts at March 31, 2005. Gas prices. The Company employs a policy of hedging a portion of its 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, or based on NYMEX prices if NYMEX prices are highly correlated with the index price. The following table sets forth the volumes hedged in MMBtus underlying the Company's outstanding gas hedge contracts and the weighted average index prices per MMBtu for those contracts as of March 31, 2005:
First Second Third Fourth Outstanding Quarter Quarter Quarter Quarter Average ----------- ----------- ----------- ----------- ----------- Average daily gas production hedged (a): 2005 - Swap Contracts Volume (MMBtu)........................ 286,703 290,000 260,000 278,873 Index price per MMBtu................. $ 5.20 $ 5.23 $ 5.22 $ 5.22 2006 - Swap Contracts Volume (MMBtu)........................ 80,000 80,000 80,000 80,000 80,000 Index price per MMBtu................. $ 4.50 $ 4.50 $ 4.50 $ 4.50 $ 4.50 2006 - Collar Contracts Volume (MMBtu)........................ 55,000 5,000 5,000 5,000 17,329 Index price per MMBtu................. $7.07-$9.70 $5.25-$7.15 $5.25-$7.15 $5.25-$7.15 $6.67-$9.14 2007 - Swap Contracts Volume (MMBtu)........................ 35,000 35,000 35,000 35,000 35,000 Index price per MMBtu................. $ 4.63 $ 4.63 $ 4.63 $ 4.63 $ 4.63 2008 - Swap Contracts Volume (MMBtu)........................ 5,000 5,000 5,000 5,000 5,000 Index price per MMBtu................. $ 5.38 $ 5.38 $ 5.38 $ 5.38 $ 5.38 - -------------- (a) Subsequent to March 31, 2005, the Company conveyed to the purchaser of its April VPP the following gas swap contracts which were included in the schedule above: (i) 5,841 MMBtu per day of 2005 gas sales at a weighted average fixed price per MMBtu of $7.14, (ii) 6,158 MMBtu per day of 2006 gas sales at a weighted average fixed price per MMBtu of $6.90 and (iii) 5,805 MMBtu per day of 2007 gas sales at a weighted average fixed price per MMBtu of $6.35. See Note N for additional information regarding the Company's April VPP.
17 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) The Company reports average gas prices per Mcf including the effects of Btu content, gas processing, shrinkage adjustments and the net effect of gas hedges. The following table sets forth the Company's gas prices, both reported (including hedge results) and realized (excluding hedge results), and the net effect of settlements of gas price hedges on gas revenue for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, --------------------- 2005 2004 ------- -------- Average price reported per Mcf................... $ 5.04 $ 4.38 Average price realized per Mcf................... $ 5.16 $ 4.62 Reduction to gas revenue (in millions)........... $ (8.0) $ (14.2)
Hedge ineffectiveness. During the three-month periods ended March 31, 2005 and 2004, the Company recognized other expense of $6.8 million and $44,000, respectively, related to the ineffective portions of its cash flow hedging instruments. Accumulated other comprehensive income (loss) - net deferred hedge losses, net of tax ("AOCI - Hedging"). As of March 31, 2005 and December 31, 2004, AOCI - - Hedging represented net deferred losses of $522.1 million and $241.4 million, respectively. The AOCI - Hedging balance as of March 31, 2005 was comprised of $788.5 million of net deferred losses on the effective portions of open cash flow hedges, $49.8 million of net deferred losses on terminated cash flow hedges (including $4.9 million of net deferred losses on terminated cash flow interest rate hedges) and $316.2 million of associated net deferred tax benefits. The increase in AOCI - Hedging during the three months ended March 31, 2005 was primarily attributable to increases in future commodity prices relative to the commodity prices stipulated in the hedge contracts, partially offset by the reclassification of net deferred hedge losses to net income as derivatives matured by their terms. The net deferred losses associated with open cash flow hedges remain subject to market price fluctuations until the positions are either settled under the terms of the hedge contracts or terminated prior to settlement. The net deferred losses on terminated cash flow hedges are fixed. During the twelve months ending March 31, 2006, based on current estimates of future commodity prices, the Company expects to reclassify $434.5 million of net deferred losses associated with open commodity hedges and $9.2 million of net deferred losses on terminated commodity hedges from AOCI - Hedging to oil and gas revenues. The Company also expects to reclassify approximately $162.1 million of net deferred income tax benefits associated with commodity hedges during the twelve months ending March 31, 2006 from AOCI - Hedging to income tax benefit. The following table sets forth, as of March 31, 2005, the scheduled amortization of net deferred losses on terminated commodity hedges that will be recognized as decreases to the Company's future oil and gas revenues:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- --------- (in thousands) 2005 net deferred hedge losses.... $ (677) $ (934) $(1,936) $ (3,547) 2006 net deferred hedge losses.... $(5,625) $(1,676) $(1,521) $(2,205) (11,027) 2007 net deferred hedge losses.... $(4,051) $ (936) $ (734) $(1,450) (7,171) 2008 net deferred hedge losses.... $(3,570) $ (872) $ (855) $(1,487) (6,784) 2009 net deferred hedge losses.... $(2,817) $ (748) $ (785) $(1,409) (5,759) 2010 net deferred hedge losses.... $(1,012) $ (995) $ (980) $ (961) (3,948) 2011 net deferred hedge losses.... $ (873) $ (889) $ (902) $ (907) (3,571) 2012 net deferred hedge losses.... $ (810) $ (791) $ (783) $ (772) (3,156) ------- $(44,963) =======
18 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE G. Asset Retirement Obligations The Company's asset retirement obligations primarily relate to the future plugging and abandonment of proved properties and related facilities. The Company does not provide for a market risk premium associated with asset retirement obligations because a reliable estimate cannot be determined. The Company has no assets that are legally restricted for purposes of settling asset retirement obligations. The following table summarizes the Company's asset retirement obligation transactions recorded in accordance with the provisions of SFAS No. 143, "Accounting for Asset Retirement Obligations" during the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, --------------------- 2005 2004 -------- -------- (in thousands) Beginning asset retirement obligations............ $120,879 $105,036 New wells placed on production and changes in estimates......................... 1,445 2,732 Liabilities settled............................ (2,400) (2,597) Accretion of discount.......................... 2,140 1,966 Currency translation........................... (127) (103) ------- ------- Ending asset retirement obligations .............. $121,937 $107,034 ======= =======
The Company records the current and noncurrent portions of asset retirement obligations in other current liabilities and other liabilities and minority interests, respectively, in the accompanying Consolidated Balance Sheets. NOTE H. Postretirement Benefit Obligations As of March 31, 2005 and December 31, 2004, the Company had recorded $15.7 million and $15.5 million, respectively, of unfunded accumulated postretirement benefit obligations, the current and noncurrent portions of which are included in other current liabilities and other liabilities and minority interests, respectively, in the accompanying Consolidated Balance Sheets. The following table reconciles changes in the Company's unfunded accumulated postretirement benefit obligations during the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ------------------- 2005 2004 ------- ------- (in thousands) Beginning accumulated postretirement benefit obligations...... $15,534 $15,556 Benefit payments........................................... (186) (339) Service costs.............................................. 81 58 Accretion of discounts..................................... 225 226 ------ ------ Ending accumulated postretirement benefit obligations......... $15,654 $15,501 ====== ======
19 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE I. Commitments and Contingencies Legal actions. The Company is party to various legal actions incidental to its business, including, but not limited to, the proceedings described below. The majority of these lawsuits primarily involve claims for damages arising from oil and gas leases and ownership interest disputes. The Company believes that the ultimate disposition of these legal actions will not have a material adverse effect on the Company's consolidated financial position, liquidity, capital resources or future results of operations. The Company will continue to evaluate its litigation matters on a quarter-by- quarter basis and will adjust its litigation reserves as appropriate to reflect the then current status of litigation. Alford. The Company is party to a 1993 class action lawsuit filed in the 26th Judicial District Court of Stevens County, Kansas by two classes of royalty owners, one for each of the Company's gathering systems connected to the Company's Satanta gas plant. The case was relatively inactive for several years. In early 2000, the plaintiffs amended their pleadings and the case now contains two material claims. First, the plaintiffs assert that they were improperly charged expenses (primarily field compression), which are a "cost of production", and for which the plaintiffs, as royalty owners, are not responsible. Second, the plaintiffs claim they are entitled to 100 percent of the value of the helium extracted at the Company's Satanta gas plant. If the plaintiffs were to prevail on the above two claims in their entirety, it is possible that the Company's liability (both for periods covered by the lawsuit and from the last date covered by the lawsuit to the present - because the deductions continue to be taken and the plaintiffs continue to be paid for a royalty share of the helium) could reach approximately $30 million related to the cost of production claim and approximately $40 million related to the helium claim, plus prejudgment interest. However, the Company believes it has valid defenses to the plaintiffs' claims, has paid the plaintiffs properly under their respective oil and gas leases and other agreements, and intends to vigorously defend itself. The Company does not believe the costs it has deducted are a "cost of production". The costs being deducted are post production costs incurred to transport the gas to the Company's Satanta gas plant for processing, where the valuable hydrocarbon liquids and helium are extracted from the gas. The plaintiffs benefit from such extractions and the Company believes that charging the plaintiffs with their proportionate share of such transportation and processing expenses is consistent with Kansas law and with the parties' agreements. The Company has also vigorously defended against plaintiffs' claims to 100 percent of the value of the helium extracted, and believes that in accordance with applicable law, it has properly accounted to the plaintiffs for their fractional royalty share of the helium under the specified royalty clauses of the respective oil and gas leases. The Company has not established a provision for the helium claim. The factual evidence in the case was presented to the 26th Judicial District Court without a jury in December 2001. Oral arguments were heard by the court in April 2002, and although the court has not yet entered a judgment or findings, it could do so at any time. The Company strongly denies the existence of any material underpayment to the plaintiffs and believes it presented strong evidence at trial to support its positions. However, either through a negotiated settlement or court ruling, the Company could have to pay some part of the cost of production claim and, accordingly, the Company has established a partial reserve for this claim. Although the amount of any resulting liability, to the extent that it exceeds the Company's provision, could have a material adverse effect on the Company's results of operations for the quarterly reporting period in which such liability is recorded, the Company does not expect that any such additional liability will have a material adverse effect on its consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations. MOSH Holding. The Company and its principal U.S. subsidiary, Pioneer Natural Resources USA, Inc., were named as defendants in a case styled MOSH Holding, L.P. v Pioneer Natural Resources Company; Pioneer Natural Resources USA, Inc.; Woodside Energy (USA) Inc.; and JPMorgan Chase Bank, NA, as Trustee of the Mesa Offshore Trust, which was filed on April 11, 2005, in the District Court of Travis County, Texas (250th Judicial District). The plaintiff is a 20 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) unitholder in the Mesa Offshore Trust, which was created in 1982 as the sole limited partner in a partnership that holds an overriding royalty interest in certain oil and gas leases offshore Louisiana and Texas. The plaintiff alleges that the Company, together with Woodside Energy (USA) Inc., concealed the value of the royalty interest, worked to terminate the Mesa Offshore Trust prematurely, and to capture for itself and Woodside Energy (USA) Inc. profits that belong to the Mesa Offshore Trust. The plaintiff also alleges breaches of fiduciary duty, misapplication of trust property, common law fraud, gross negligence, and breach of the conveyance agreement for the overriding royalty interest. The claims appear to relate principally to farmout arrangements established in 2003 for two offshore properties, the Brazos Area Block A-7 and Brazos Area Block A-39. The relief sought by the plaintiff includes monetary and punitive damages and certain equitable relief, including an accounting of expenses, a setting aside of certain farmouts, and a temporary and permanent injunction. The Company believes the claims are without merit and intends to defend the lawsuit vigorously. Argentine Environmental. The Company's subsidiary in Argentina is involved in various administrative proceedings with the Neuquen Province environmental authorities relating to the permitting and discharges from operations in that province. In general, the Company's subsidiary is cooperating with the proceedings, although it from time to time challenges whether certain assessed fines are appropriate. The Company estimates that fines assessed in these proceedings will be immaterial, but in the aggregate could exceed $100,000. NOTE J. Net Income Per Share Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. The computation of diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock that are dilutive to net income were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the earnings of the Company. The following table is a reconciliation of basic net income to diluted net income for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, -------------------- 2005 2004 -------- -------- (in thousands) Basic net income....................................... $ 84,657 $ 60,188 Interest expense on convertible notes, net of tax...... 802 - ------- ------- Diluted net income..................................... $ 85,459 $ 60,188 ======= =======
21 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) The following table is a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, -------- -------- 2005 2004 -------- -------- (in thousands) Weighted average common shares outstanding: Basic................................................ 142,898 118,719 Dilutive common stock options (a).................... 1,293 1,177 Restricted stock awards.............................. 827 368 Convertible notes dilution (b)....................... 2,327 - -------- -------- Diluted.............................................. 147,345 120,264 ======== ======== - --------------- (a) Common stock options to purchase 30,712 shares of common stock were outstanding but not included in the computations of diluted net income per share for the three-month periods ended March 31, 2005 and 2004 because the exercise prices of the options were greater than the average market price of the common shares and would be anti-dilutive to the computations. (b) Associated with the Evergreen merger, the Company assumed convertible notes eligible for 2.3 million shares of the Company's common stock upon conversion.
NOTE K. Geographic Operating Segment Information The Company has operations in only one industry segment, that being the oil and gas exploration and production industry; however, the Company is organizationally structured along geographic operating segments, or regions. The Company has reportable operations in the United States, Argentina, Canada and Africa and Other. Africa and Other is primarily comprised of operations in Equatorial Guinea, Gabon, Nigeria, South Africa and Tunisia. The following tables provide the Company's interim geographic operating segment data for the three-month periods ended March 31, 2005 and 2004. Geographic operating segment income tax benefits (provisions) have been determined based on statutory rates existing in the various tax jurisdictions where the Company has oil and gas producing activities. The "Headquarters" table column includes revenues and expenses that are not routinely included in the earnings measures internally reported to management on a geographic operating segment basis. 22 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited)
United Africa Consolidated States Argentina Canada and Other Headquarters Total -------- --------- -------- --------- ------------ ------------ (in thousands) Three months ended March 31, 2005: Revenues and other income: Oil and gas revenues............ $403,833 $ 38,030 $ 30,758 $ 47,691 $ - $ 520,312 Interest and other.............. - - - - 28,333 28,333 Gain on disposition of assets, net................... 2,032 - - - 189 2,221 ------- ------- ------- ------- ------- -------- 405,865 38,030 30,758 47,691 28,522 550,866 ------- ------- ------- ------- ------- -------- Costs and expenses: Oil and gas production.......... 86,144 8,507 11,544 7,767 - 113,962 Depletion, depreciation and amortization.................. 114,446 17,932 9,593 9,377 4,803 156,151 Impairment of long-lived assets. - - - 152 - 152 Exploration and abandonments.... 39,479 2,584 4,037 21,285 - 67,385 General and administrative...... - - - - 29,585 29,585 Accretion of discount on asset retirement obligations........ - - - - 2,140 2,140 Interest........................ - - - - 33,251 33,251 Other........................... - - - - 11,720 11,720 ------- ------- ------- ------- ------- -------- 240,069 29,023 25,174 38,581 81,499 414,346 ------- ------- ------- ------- ------- -------- Income (loss) before income taxes.. 165,796 9,007 5,584 9,110 (52,977) 136,520 Income tax benefit (provision)..... (60,516) (3,152) (2,108) (2,060) 15,973 (51,863) ------- ------- ------- ------- ------- -------- Net income (loss).................. $105,280 $ 5,855 $ 3,476 $ 7,050 $(37,004) $ 84,657 ======= ======= ======= ======= ======= ======== Three months ended March 31, 2004: Revenues and other income: Oil and gas revenues............ $346,309 $ 30,883 $ 18,219 $ 40,116 $ - $ 435,527 Interest and other.............. - - - - 1,735 1,735 Gain (loss) on disposition of assets, net................... 51 - - - (64) (13) ------- ------- ------- ------- ------- -------- 346,360 30,883 18,219 40,116 1,671 437,249 ------- ------- ------- ------- ------- -------- Costs and expenses: Oil and gas production.......... 55,020 6,759 7,949 8,484 - 78,212 Depletion, depreciation and amortization.................. 97,371 12,542 7,475 16,396 2,715 136,499 Exploration and abandonments.... 53,556 3,550 12,976 10,424 - 80,506 General and administrative...... - - - - 18,329 18,329 Accretion of discount on asset retirement obligations........ - - - - 1,966 1,966 Interest........................ - - - - 21,576 21,576 Other........................... - - - - 196 196 ------- ------- ------- ------- ------- -------- 205,947 22,851 28,400 35,304 44,782 337,284 ------- ------- ------- ------- ------- -------- Income (loss) before income taxes.. 140,413 8,032 (10,181) 4,812 (43,111) 99,965 Income tax benefit (provision)..... (51,251) (2,811) 3,843 (1,162) 11,604 (39,777) ------- ------- ------- ------- ------- -------- Net income (loss).................. $ 89,162 $ 5,221 $ (6,338) $ 3,650 $(31,507) $ 60,188 ======= ======= ======= ======= ======= ========
23 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE L. Volumetric Production Payments During January 2005, the Company sold two percent of its total proved reserves, or 20.5 MMBOE of proved reserves, by means of two VPPs for net proceeds of $592.3 million, including the assignment of the Company's obligations under certain derivative hedge agreements. Proceeds from the VPPs were initially used to pay down indebtedness. The first VPP sold 58 Bcf of Hugoton field gas volumes over an expected five-year term that began in February 2005 for $275.2 million. The second VPP sold 10.8 MMBbls of oil volumes over an expected seven-year term beginning in January 2006 for $317.1 million. The Company's VPPs represent limited-term overriding royalty interests in oil and gas reserves which: (i) entitle the purchaser to receive production volumes over a period of time from specific lease interests; (ii) are free and clear of all associated future production costs and capital expenditures; (iii) are nonrecourse to the Company (i.e., the purchaser's only recourse is to the assets acquired); (iv) transfers title to the purchaser and (v) allows the Company to retain the assets after the VPPs volumetric quantities have been delivered. Under SFAS 19, a VPP is considered a sale of proved reserves and the related future production of those proved reserves. As a result, the Company (i) removes the proved reserves associated with the VPPs; (ii) recognizes the VPP proceeds as deferred revenue which will be amortized on a unit-of-production basis to future oil and gas revenues over the terms of the VPPs; (iii) retains responsibility for 100 percent of the production costs and capital costs related to VPP interests and (iv) no longer recognizes production associated with the VPP volumes. The following table represents the breakdown of the components of the VPPs:
Hugoton Spraberry Field (Gas) Field (Oil) Total ---------- ---------- ---------- (in thousands) VPP proceeds, net of transaction costs.... $ 275,163 $ 317,123 $ 592,286 Fair value of derivatives conveyed (a).... 12,860 36,759 49,619 --------- --------- --------- Deferred revenue.......................... 288,023 353,882 641,905 Less first quarter 2005 amortization...... (11,625) - (11,625) --------- --------- --------- Deferred revenue March 31, 2005...... $ 276,398 $ 353,882 $ 630,280 ========= ========= ========= - ----------- (a) Represents the fair value of the derivative obligations conveyed as part of the VPP transaction. The fair value was deferred in AOCI-Hedging until the delivery of the VPP volumes occurs at which time the fair value of the derivative obligations attributable to the delivered volumes will be recognized as a decrease to oil and gas revenues. See Note F for additional discussion regarding the Company's hedge positions.
The above deferred revenue amounts will be recognized in oil and gas revenues in the Consolidated Statements of Operations as noted below, assuming the related VPP production volumes are delivered as scheduled (in thousands): Remaining 2005......................... $ 54,176 2006................................... 120,219 2007................................... 115,363 2008................................... 108,168 2009................................... 100,381 2010................................... 44,952 2011................................... 44,952 2012................................... 42,069 --------- $ 630,280 =========
24 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) NOTE M. Business Interruption Insurance Claims During September 2004, the Company sustained damages as a result of Hurricane Ivan at its Devils Tower and Canyon Express platform facilities in the deepwater Gulf of Mexico. The damages delayed scheduled well completions and interrupted production during the second half of 2004 and during the first quarter 2005. The Company maintains business interruption insurance coverage for such circumstances and events and has filed claims with its insurance providers. Based on the terms of the insurance coverage, the Company estimates its losses since the occurrence and through March 31, 2005 to be approximately $32.4 million. The Company recorded $7.6 million and $24.8 million of the estimated claims in the fourth quarter of 2004 and in the first quarter of 2005, respectively, in interest and other income in the Company's Consolidated Statements of Operations. In March 2005, the Company received a $14.3 million partial payment from its insurance providers related to its Devils Tower claim. NOTE N. Subsequent Events VPP transaction. During April 2005, the Company sold less than one percent of its total proved reserves, or 7.3 MMBOE of proved reserves, by means of a new VPP for net proceeds of $300.4 million, including the value attributable to certain derivative hedge agreements assigned to the buyer of the April VPP. Proceeds from the April VPP were initially used to pay down indebtedness. The April VPP sold 6.0 Bcf of Spraberry field gas volumes over an expected 32-month term beginning in May 2005 and 6.2 MMBbls of Spraberry field oil volumes over an expected five-year term beginning in January 2006. The following table represents the breakdown of the components of the April VPP:
Spraberry Spraberry Field (Gas) Field (Oil) Total ---------- ---------- ---------- (in thousands) VPP proceeds, net of transaction costs.... $ 37,613 $ 262,790 $ 300,403 Fair value of derivatives conveyed (a).... (526) (11,076) (11,602) --------- --------- --------- Deferred revenue.......................... $ 37,087 $ 251,714 $ 288,801 ========= ========= ========= - ----------- (a) Represents the fair value of the derivative agreements conveyed as part of the VPP transaction. The fair value will be deferred in AOCI-Hedging until the delivery of the VPP volumes occurs at which time the fair value of the derivative agreements attributable to the delivered volumes will be recognized as an increase to oil and gas revenues.
The above deferred revenue amounts will be recognized in oil and gas revenues in the Consolidated Statements of Operations as noted below, assuming the related April VPP production volumes are delivered as scheduled (in thousands): Remaining 2005......................... $ 9,973 2006................................... 70,132 2007................................... 65,891 2008................................... 49,986 2009................................... 47,540 2010................................... 45,279 -------- $ 288,801 ========
Asset divestitures. During April 2005, the Company announced the signing of a definitive agreement for the sale of three non-strategic Canadian properties and completed the sale of certain East Texas properties for expected aggregate sales proceeds of approximately $232 million. 25 PIONEER NATURAL RESOURCES COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2005 (Unaudited) Canadian divestiture. The Company's Canadian divestiture includes all of the Company's interests in Martin Creek, Conroy Black and Lookout Butte oil and gas properties for expected proceeds of approximately $207 million, subject to normal closing adjustments. The Canadian divestiture is expected to be completed during the second quarter of 2005, although no assurances can be given that the transaction will be completed as planned. East Texas divestiture. During April 2005, the Company completed the aforementioned divestiture of East Texas properties for approximately $25 million of net cash proceeds. Debt redemption. During April 2005, the Company redeemed $32.4 million principal amount of its 9-5/8% Notes. The Company will recognize a pretax loss on the redemption of the 9-5/8% Notes of $7.3 million during the second quarter of 2005. 26 PIONEER NATURAL RESOURCES COMPANY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial and Operating Performance During 2005, the Company announced the following significant events and initiatives: o Production resumed in mid-February from Canyon Express after hurricane related repairs were completed. o The Company sold two VPPs during the first quarter of 2005 for net proceeds of $592.3 million, including the assignment of $49.6 million of the Company's derivative hedge obligations. o The Company sold a third VPP during April 2005 for net proceeds of $300.4 million. o During April 2005, the Company announced the signing of a definitive agreement for the sale of three non-strategic Canadian properties and completed the sale of certain East Texas properties for expected aggregate sales proceeds of approximately $232 million. o In Alaska, the Company acquired a 20 percent interest in approximately 452,000 additional acres and gained the rights to extensive seismic and geologic data in the National Petroleum Reserve - Alaska (the "NPR-A") Northeast Planning Area. The Company also participated in the NPR-A Northwest Planning Area lease sale and acquired working interests ranging from 20 percent to 30 percent in approximately 808,000 acres. o The Company acquired 13 blocks, all in the deepwater Gulf of Mexico, for $7.5 million. o The Company executed a multi-year service contract with Doyon Drilling, Inc. and Akita Drilling, Ltd. who will build and operate a new drilling rig designed for exploration drilling on the Company's Alaskan North Slope properties. o The Company joined Oranto Petroleum and Orandi Petroleum in an existing production sharing contract on Block 320 in deepwater Nigeria gaining exploration rights from the Nigerian National Petroleum Corporation. o The Company's board of directors approved a 2005 capital program providing for total capital expenditures of $900 million to $950 million. o The board of directors approved a new share repurchase program authorizing the purchase of up to $300 million of the Company's common stock. o The board of directors declared a semiannual cash dividend of $.10 per share to common stockholders of record at the close of business on March 31, 2005. The dividend was paid on April 15, 2005. The Company's financial and operating performance for the first quarter of 2005 included the following highlights: o Average daily sales volumes, on a BOE basis, increased four percent during the first quarter of 2005 as compared to the first quarter of 2004. o Oil and gas revenues increased 19 percent during the first quarter of 2005 as compared to the same period in 2004 as a result of the increased production volumes and increases in worldwide oil and gas prices. o Interest and other income increased by $26.6 million during the first quarter of 2005 as compared to the first quarter of 2004, primarily due to business interruption insurance claims related to Hurricane Ivan. o Income before income taxes increased by 37 percent to $136.5 million during the first quarter of 2005 from $100.0 million during the first quarter of 2004. o Net income increased to $84.7 million ($.58 per diluted share) for the first quarter of 2005, as compared to $60.2 million ($.50 per diluted share) for the same period in 2004. o Net cash provided by operating activities increased by 32 percent to $334.9 million during the first quarter of 2005 from $253.6 million during the first quarter of 2004. o Outstanding debt decreased by $554.0 million, or 23 percent, as of March 31, 2005 as compared to debt outstanding as of December 31, 2004. 27 PIONEER NATURAL RESOURCES COMPANY Volumetric Production Payments During January 2005, the Company sold two percent of its total proved reserves, or 20.5 MMBOE of proved reserves, by means of two VPPs for net proceeds of $592.3 million, including the assignment of the Company's obligations under certain derivative hedge agreements. Proceeds from the VPPs were initially used to pay down indebtedness. The first VPP sold 58 Bcf of Hugoton field gas volumes over an expected five-year term beginning in February 2005 for $275.2 million. The second VPP sold 10.8 MMBbls of Spraberry field oil volumes over an expected seven-year term beginning in January 2006 for $317.1 million. During April 2005, the Company sold less than one percent of its total proved reserves, or 7.3 MMBOE of proved reserves, by means of another VPP for net proceeds of $300.4 million, including the value of certain derivative hedge agreements assigned to the buyer of the VPP. Proceeds from the VPP were initially used to pay down indebtedness. The VPP sold 6.0 Bcf of Spraberry field gas volumes over an expected 32-month term beginning in May 2005 and 6.2 MMBbls of Spraberry field oil volumes over an expected five-year term beginning in January 2006. See Notes L and N of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Company's VPPs. Asset Divestitures During April 2005, the Company announced the signing of a definitive agreement for the sale of three non- strategic Canadian properties and completed the sale of certain East Texas properties for expected aggregate sales proceeds of approximately $232 million. Canadian divestiture. The Company's Canadian divestiture includes all of the Company's interests in Martin Creek, Conroy Black and Lookout Butte oil and gas properties for expected proceeds of approximately $207 million, subject to normal closing adjustments. As of March 1, 2005, the Company's net proved reserves in these properties were estimated to be approximately 9 MMBOE. The Company's current net production from the properties averages approximately 3,000 BOEPD. The Canadian divestiture is expected to be completed during the second quarter of 2005, although no assurances can be given that the transaction will be completed as planned. East Texas divestiture. During April 2005, the Company completed the aforementioned divestiture of East Texas properties for approximately $25 million of net cash proceeds. As of March 31, 2005, the Company's net proved reserves in these properties were estimated to be approximately 2.5 MMBOE. The Company's net production from the properties averaged approximately 400 BOEPD. The net cash proceeds from this divestiture were used to reduce outstanding indebtedness. Second Quarter 2005 Outlook Based on current estimates, the Company expects that second quarter 2005 production will average 185,000 to 205,000 BOEPD, including a full quarter of production from Canyon Express, continued ramp up of production from Devils Tower, typical variability in the timing of oil cargo shipments in South Africa and Tunisia and the impact of a full quarter of VPP volumes sold. Second quarter production costs (including production and ad valorem taxes) are expected to average $6.25 to $6.75 per BOE based on current NYMEX strip prices for oil and gas. DD&A expense is expected to average $9.10 to $9.60 per BOE during the second quarter of 2005. Total exploration and abandonment expense is expected to be $50 million to $70 million and includes carryover costs associated with unsuccessful wells that were in progress at the end of the first quarter of 2005, plans to drill two deepwater Gulf of Mexico exploration wells and the acquisition of additional seismic data. General and administrative expense is expected to be $27 million to $29 million. Interest expense is expected to be $29 million to $32 million, and accretion of discount on asset retirement obligations is expected to be approximately $2 million to $3 million. 28 PIONEER NATURAL RESOURCES COMPANY The Company's second quarter 2005 effective income tax rate is expected to range from 36 percent to 39 percent based on current capital spending plans, including cash income taxes of $5 million to $10 million that are principally related to Argentine and Tunisian income taxes and nominal alternative minimum tax in the U.S. Other than in Argentina and Tunisia, the Company continues to benefit from the carryforward of net operating losses and other positive tax attributes. Acquisition and Drilling Highlights During the first quarter of 2005, the Company incurred $285.5 million in finding and development costs including $149.5 million for development activities, $101.7 million for exploration activities and $34.3 million on acquisitions. The majority of the Company's development and exploration expenditures were spent on drilling wells, acquiring seismic data and constructing infrastructure for the Company's development projects. The following tables summarize the Company's development and exploration/extension drilling activities for the three months ended March 31, 2005:
Development Drilling --------------------------------------------------------------------------- Beginning Wells Wells Successful Unsuccessful Ending Wells in Progress Spud Wells Wells In Progress --------------- --------- ---------- ------------ ------------ United States................. 32 101 109 1 23 Argentina..................... 6 22 20 2 6 Canada........................ 2 28 25 - 5 ------ ------ ------ ------ ------ Total Worldwide......... 40 151 154 3 34 ====== ====== ====== ====== ======
Exploration/Extension Drilling --------------------------------------------------------------------------- Beginning Wells Wells Successful Unsuccessful Ending Wells in Progress Spud Wells Wells In Progress --------------- --------- ---------- ------------ ------------ United States................ 9 6 4 1 10 Argentina.................... 8 - 6 1 1 Canada....................... 21 16 22 5 10 Africa....................... 4 3 - 2 5 ------ ------ ------ ------ ------ Total Worldwide......... 42 25 32 9 26 ====== ====== ====== ====== ======
Domestic. The Company spent $153.3 million during the first quarter of 2005 on acquisition, drilling and seismic activities in the Gulf of Mexico, onshore Gulf Coast, Permian Basin, Mid-Continent, Rocky Mountain and Alaska areas of the United States. Gulf of Mexico area. In the Gulf of Mexico area, the Company spent $47.8 million of drilling, construction, acquisition and seismic capital during the first quarter of 2005. In the first quarter the Company was awarded leases on three Gulf of Mexico deepwater blocks covering approximately 17,000 acres. The Company was also the high bidder and is currently awaiting Mineral Management Services approval on ten additional deepwater blocks covering approximately 46,000 acres. The following are updates of four projects in the deepwater Gulf of Mexico: o Canyon Express - Production from the Canyon Express gas system was shut in in early December 2004 as a result of damage caused by Hurricane Ivan to the methanol delivery system. In mid-February 2005, repair activities were completed and production operations were resumed. Pioneer maintains business interruption insurance on the Canyon Express project and as a result of the damage caused by Hurricane Ivan, the Company has accrued $9.7 million in the first quarter for its estimated claim for production loss. The Company has the potential to recover an additional amount under its business interruption policy depending on the outcome of the determination of the timing of the waiting period under the policy. o Falcon Corridor - During the first quarter of 2005, production activities in the Falcon Corridor occurred as expected. The Raptor well was shut in in early March 2005 as the production volumes had declined to a level that 29 PIONEER NATURAL RESOURCES COMPANY made it difficult to produce without substantially limiting production from the Company's Falcon wells. Sidetrack operations are planned for the Raptor field during the second quarter of 2005 to further increase reserve recovery. The Company drilled an exploration well on the Hellcat prospect, a Falcon Corridor satellite prospect, during the first quarter of 2005, but the well was determined to be noncommercial. o Devils Tower Area - The Devils Tower facilities sustained significant damage in mid-September 2004 due to Hurricane Ivan, and production from the three wells producing at that time did not resume until late October 2004. A fourth well began producing at the end of November. The damage to the platform rig sustained during Hurricane Ivan delayed completion activities related to the four additional wells previously drilled to develop the field. Rig repairs took over 120 days, and completion activities for continued field development began late in January 2005. Pioneer maintains business interruption insurance and has filed a claim related to (a) production lost from its productive wells and (b) four wells that were expected to be completed but were delayed due to the effects of Hurricane Ivan. In the first quarter of 2005, the Company received a partial payment of $14.3 million of estimated business interruption recovery related to its claim. In the fourth quarter of 2004 and the first quarter of 2005, the Company recorded $7.6 million and $15.1 million of estimated business interruption recovery, respectively, related to its claim. The Company expects to have additional business interruption insurance recoveries related to future periods as a result of losses associated with delays in completing certain wells. In addition, three subsea tie-back wells in the Goldfinger and Triton satellite discoveries in the Devils Tower area are expected to be jointly tied back to the Devils Tower spar with first production expected in late 2005. Production is expected to continue to increase as the remaining wells are completed and certain other wells are recompleted to new zones. The Company holds a 25 percent working interest in each of the above projects. o Thunder Hawk - During 2004, the Company participated in a successful exploration well on the Dominion- operated Thunder Hawk prospect located in Mississippi Canyon Block 734. The well encountered in excess of 300 feet of net oil pay in two high-quality reservoir zones. Murphy Exploration and Production Company is now the operator and has commenced drilling an additional well to further delineate the field. The Company owns a 12.5 percent working interest in the discovery. Onshore Gulf Coast area. In the Onshore Gulf Coast area, the Company spent $11.2 million of drilling, construction, acquisition and seismic capital during the first quarter of 2005. The Company has focused its drilling efforts in this area on the Pawnee field in the Edwards Reef trend in South Texas. The Company plans to drill approximately 12 wells in this area during 2005. Permian Basin area. The Company spent $25.5 million of capital during the first quarter of 2005 primarily on development drilling in the Spraberry oil trend where the Company plans to drill approximately 175 wells during 2005. Mid-Continent area. The Company spent $7.0 million of capital during the first quarter of 2005 primarily in the West Panhandle field in Texas where the Company plans to drill approximately 90 wells during 2005. The Company also plans to drill approximately 20 wells during 2005 in the Hugoton field in Kansas. Rocky Mountain area. The Company spent $25.2 million of capital during the first quarter of 2005 primarily on development drilling in the Raton Basin in Colorado. The Company plans on drilling approximately 300 wells during 2005 in the Rocky Mountain area. Alaska area. The Company spent $36.6 million of acquisition, drilling and seismic capital during the first quarter of 2005 to drill wells, add to its leasehold position and expand its North Slope seismic data coverage. During the first quarter of 2005, the Company participated in three exploration wells. Two wells were drilled in the NPR-A and the results are currently being evaluated. The third well was drilled on the Tuvaaq prospect operated by Kerr-McGee. The Tuvaaq well encountered wet sands in the primary Ivishak objective and hydrocarbon-bearing sands in the Schrader Bluff interval. The Company elected to assign its interest in the well to Kerr-McGee in lieu of payment of its capital costs rather than participate in the Schrader Bluff interval due to the Company's small working interest in any potential development. 30 PIONEER NATURAL RESOURCES COMPANY Pioneer also holds a 50 percent working interest in a 130,000-acre position adjacent to and south of the giant Prudhoe Bay and Kuparuk Units, and during the first quarter of 2005, shot a new 3-D seismic survey over the area. International. The Company's international operations are located in the Neuquen and Austral Basins areas of Argentina, the Chinchaga, Martin Creek, Lookout Butte and Carbon areas of Canada, the Sable oil field offshore South Africa and in southern Tunisia. Additionally, the Company has other development and exploration activities in Equatorial Guinea, Nigeria, South Africa and Tunisia. Argentina. The Company spent $26.1 million of acquisition, drilling and seismic capital during the first quarter of 2005. Canada. The Company spent $54.7 million of acquisition, drilling and seismic capital during the first quarter of 2005, primarily in the Chinchaga and Carbon areas that are only accessible for drilling during the winter months. During April 2005, the Company announced the signing of a definitive agreement for the sale of three non- strategic Canadian properties in Martin Creek, Conroy Black and Lookout Butte for expected proceeds of approximately $207 million, subject to normal closing adjustments. The Canadian divestiture is expected to be completed during the second quarter of 2005. See Note N of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements". Africa. The Company spent $51.4 million of acquisition, drilling and seismic capital during the first quarter of 2005, primarily in Equatorial Guinea, Gabon, Nigeria, South Africa and Tunisia. Equatorial Guinea. The Company spent $.5 million of seismic and drilling capital during the first quarter of 2005 in Block H offshore Equatorial Guinea. The Company has several other prospects on the block that are being evaluated for future drilling, one of which is expected to be drilled during 2005. Gabon. The Company spent $.5 million of capital during the first quarter of 2005. In 2004 the Company drilled five exploration wells, one of which was initially evaluated as successful in extending the planned development area to the south. The remaining four wells were unsuccessful. Despite the successful extension well, in October 2004 the Company canceled the development of the Olowi field due to a substantial increase in projected development costs which resulted in the project not offering competitive returns. The Company's current Gabonese permit was extended to January 2006 to allow more time for the Company to determine if it has any viable options to monetize its investment prior to abandoning the project and exiting Gabon. During the first quarter of 2005, the Company recognized an additional impairment charge of $.2 million. Nigeria. The Company spent $43.1 million of acquisition, drilling and seismic capital during the first quarter of 2005. The Company joined Oranto Petroleum and Orandi Petroleum in an existing production sharing contract on Block 320 in deepwater Nigeria gaining exploration rights from the Nigerian National Petroleum Corporation. The 442,000 acre block is located about 90 miles southeast of Lagos in water depths ranging between 6,900 to 8,900 feet. The Company owns a 51 percent working interest and is the technical operator. Under terms of an existing production sharing contract, Pioneer and the other participants will carry out a work program that includes acquiring a minimum of 1,790 square kilometers of 3-D seismic data and drilling at least one exploration well by February of 2007. The Company farmed-in to the Devon-operated Block 256 during the first quarter and participated in an unsuccessful exploration well. South Africa. The Company spent $.3 million of drilling and seismic capital during the first quarter of 2005. During 2005, the Company currently plans to spend approximately $1 million in South Africa for production enhancement opportunities at Sable. Tunisia. The Company spent $5.0 million of drilling and seismic capital during the first quarter of 2005 primarily to drill one exploration well in its partner-operated Adam oil field and one unsuccessful exploration well in its Company- operated El Hamra permit. The remaining capital budget for Tunisia in 2005 includes two appraisal wells on the Anaguid permit. 31 PIONEER NATURAL RESOURCES COMPANY Results of Operations Oil and gas revenues. Revenues from oil and gas operations totaled $520.3 million for the three months ended March 31, 2005 as compared to $435.5 million for the same period in 2004, representing a 19 percent increase. The revenue increase from 2004 to 2005 was due to a four percent increase in average daily BOE sales volumes, an 18 percent increase in oil prices, a 21 percent increase in NGL prices and a 15 percent increase in gas prices, including the effects of commodity price hedges. The following table provides average daily sales volumes, by geographic area and in total, for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ---------------------- 2005 2004 -------- -------- Average daily sales volumes: Oil (Bbls) United States.......................... 28,723 24,971 Argentina.............................. 8,191 8,628 Canada................................. 230 100 Africa................................. 11,967 14,034 -------- -------- Worldwide.............................. 49,111 47,733 ======== ======== NGLs (Bbls) United States.......................... 17,543 20,936 Argentina.............................. 1,572 1,424 Canada................................. 601 1,046 -------- -------- Worldwide.............................. 19,716 23,406 ======== ======== Gas (Mcf) United States.......................... 538,285 527,630 Argentina.............................. 130,351 97,818 Canada................................. 49,546 40,019 -------- -------- Worldwide.............................. 718,182 665,467 ======== ======== Total (BOE) United States.......................... 135,980 133,845 Argentina.............................. 31,488 26,355 Canada................................. 9,089 7,816 Africa................................. 11,967 14,034 -------- -------- Worldwide.............................. 188,524 182,050 ======== ========
Worldwide average daily sales volumes on a BOE basis increased four percent during the first quarter of 2005 as compared to the first quarter of 2004. On a quarter-to-quarter comparison, average daily BOE sales volumes increased by two percent in the United States, by 19 percent in Argentina and by 16 percent in Canada and decreased by 15 percent in Africa. The increase in daily sales volumes in the United States was principally due to production from the properties acquired in the Evergreen merger on September 28, 2004 and production from the Devils Tower oil field which first began producing during May 2004, partially offset by approximately 4,000 BOEPD of Hugoton VPP volumes sold during the first quarter of 2005 which are not included in the Company's reported sales volumes, production lost at Canyon Express associated with the aforementioned hurricane damage and normal production declines. Canadian sales volumes increased due to new production from Canadian properties acquired in the Evergreen merger and the influx of production from new wells drilled during the winter drilling seasons. On a quarter-to-quarter comparison, Argentine average daily BOE sales volumes increased as a result of increases in wells drilled. The Company has continued to increase capital expenditures in Argentina as the stability of the Argentine peso and the general economic outlook for Argentina has improved. 32 PIONEER NATURAL RESOURCES COMPANY The following table provides average reported prices, including the results of hedging activities, and average realized prices, excluding the results of hedging activities, by geographic area and in total, for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ---------------------- 2005 2004 -------- -------- Average reported prices: Oil (per Bbl): United States...................... $ 28.96 $ 26.67 Argentina.......................... $ 31.75 $ 27.93 Canada............................. $ 53.81 $ 35.00 Africa............................. $ 44.28 $ 31.41 Worldwide.......................... $ 33.27 $ 28.31 NGLs (per Bbl): United States...................... $ 26.15 $ 21.52 Argentina.......................... $ 30.35 $ 29.16 Canada............................. $ 39.07 $ 26.51 Worldwide.......................... $ 26.88 $ 22.21 Gas (per Mcf): United States...................... $ 5.94 $ 5.10 Argentina.......................... $ .88 $ .58 Canada............................. $ 6.17 $ 4.22 Worldwide.......................... $ 5.04 $ 4.38 Average realized prices: Oil (per Bbl): United States...................... $ 46.08 $ 32.72 Argentina.......................... $ 31.75 $ 30.67 Canada............................. $ 53.81 $ 35.00 Africa............................. $ 44.28 $ 31.91 Worldwide.......................... $ 43.29 $ 32.12 NGLs (per Bbl): United States...................... $ 26.15 $ 21.52 Argentina.......................... $ 30.35 $ 29.16 Canada............................. $ 39.07 $ 26.51 Worldwide.......................... $ 26.88 $ 22.21 Gas (per Mcf): United States...................... $ 6.10 $ 5.32 Argentina.......................... $ .88 $ .58 Canada............................. $ 6.19 $ 5.21 Worldwide.......................... $ 5.16 $ 4.62
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 cash flow hedging activities. The Company utilizes commodity swap and collar contracts in order to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company's annual capital budgeting and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects. During the first quarter of 2005, the Company's commodity price hedges decreased oil and gas revenues by $52.3 million, as compared to $30.7 million during the same period in 2004. See Note F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for specific information regarding the Company's hedging activities during the three-month periods ended March 31, 2005 and 2004. Argentina commodity prices. Argentine commodity prices have been significantly below those in the world markets for a period of time. In May 2004, pursuant to a decree, the Argentine government approved measures to permit producers to renegotiate gas sales contracts, excluding those that could affect small residential customers. Pursuant to that decree, wellhead prices are scheduled to rise from a 2004 year end range of $.61 to $.78 per Mcf to a range of $.87 to $1.04 per Mcf after July 2005, depending on the region where the gas is produced. No further gas price increases beyond July 2005 were allowed for in the decree. Also, due to the Argentine export tax (expires in February 2007) and price caps required by the Argentine government on oil prices paid by Argentine refiners, the price of Argentine oil has been below that realized in world markets. For additional information regarding the suppressed Argentine commodity prices see the Company's 2004 Form 10-K, as amended. At the present time, no 33 PIONEER NATURAL RESOURCES COMPANY specific predictions can be made about future commodity prices in Argentina. However, in the short term, the Company expects Argentine commodity price realizations to be less than those in the United States. Interest and other income. Interest and other income for the three-month periods ended March 31, 2005 and 2004 was $28.3 million and $1.7 million, respectively. The increase in interest and other income is attributable to the recognition of $24.8 million in business interruption insurance claims associated with lost production as a result of the damage caused by Hurricane Ivan to the Devils Tower facilities and the Canyon Express methanol delivery system. See Note M of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Company's business interruption insurance claims. Oil and gas production costs. The Company recorded production costs of $114.0 million and $78.2 million during the three-month periods ended March 31, 2005 and 2004, respectively. In general, lease operating expenses and workover expenses represent the components of oil and gas production costs over which the Company has management control, while production taxes and ad valorem taxes are directly related to commodity price changes. Total production costs per BOE increased by 42 percent during the three months ended March 31, 2005 as compared to the same respective period in 2004 primarily due to (i) an increase in ad valorem taxes, (ii) additional workover activities performed during Canada's winter access season, (iii) the retention of operating costs related to VPP volumes sold, and (iv) new production added from the Evergreen merger which represent higher operating cost properties than the Company's other United States properties. The following tables provide the components of the Company's total production costs per BOE and total production costs per BOE by geographic area for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ------- ------- 2005 2004 ------- ------- Lease operating expense................ $ 5.01 $ 3.43 Taxes: Ad valorem.......................... .58 .47 Production.......................... .78 .59 Workover costs......................... .35 .23 ------ ------ Total production costs.............. $ 6.72 $ 4.72 ====== ======
Three months ended March 31, ------------------- 2005 2004 ------- ------- Total production costs: United States....................... $ 7.04 $ 4.52 Argentina........................... $ 3.00 $ 2.82 Canada.............................. $ 14.11 $ 11.18 Africa ............................. $ 7.21 $ 6.64 Worldwide........................... $ 6.72 $ 4.72
Depletion, depreciation and amortization expense. The Company's total DD&A expense was $9.20 and $8.24 per BOE for the three-month periods ended March 31, 2005 and 2004, respectively. Depletion expense, the largest component of DD&A expense, increased to $8.92 per BOE for the three months ended March 31, 2005, as compared to $8.08 during the same respective period in 2004. The increase in per BOE depletion expense during the three months ended March 31, 2005, as compared to the same period in 2004, is primarily due to new Rocky Mountain area production acquired in the Evergreen merger and a higher depletion rate for the Hugoton field as a result of the VPP volumes sold. Additionally, the Company's depletion expense per BOE increased in Argentina and declined in Africa on quarter-to- quarter comparisons due to net downward reserve revisions in Argentina and upward reserve revisions in South Africa and Tunisia during 2004. 34 PIONEER NATURAL RESOURCES COMPANY The following table provides depletion expense per BOE by geographic area for the three-month periods ended March 31, 2005 and 2004:
Three months ended March 31, ------------------- 2005 2004 ------- ------- Depletion expense: United States......................... $ 9.35 $ 7.99 Argentina............................. $ 6.33 $ 5.23 Canada................................ $ 11.73 $ 10.51 Africa ............................... $ 8.71 $ 12.84 Worldwide............................. $ 8.92 $ 8.08
Exploration, abandonments, geological and geophysical costs. Exploration, abandonments, geological and geophysical costs were $67.4 million during the three months ended March 31, 2005, as compared to $80.5 million during the same period of 2004. The following table provides the Company's geological and geophysical costs, exploratory dry hole expense, lease abandonments and other exploration expense by geographic area for the three-month periods ended March 31, 2005 and 2004:
Africa United and States Argentina Canada Other Total ------- --------- ------- ------- --------- (in thousands) Three months ended March 31, 2005: Geological and geophysical............ $25,722 $ 1,675 $ 986 $ 9,410 $ 37,793 Exploratory dry holes................. 11,516 889 2,865 11,556 26,826 Leasehold abandonments and other...... 2,241 20 186 319 2,766 ------ ------ ------ ------ ------- $39,479 $ 2,584 $ 4,037 $21,285 $ 67,385 ====== ====== ====== ====== ======= Three months ended March 31, 2004: Geological and geophysical............ $15,769 $ 3,130 $ 1,147 $ 1,733 $ 21,779 Exploratory dry holes................. 36,968 405 8,170 8,684 54,227 Leasehold abandonments and other...... 819 15 3,659 7 4,500 ------ ------ ------ ------ ------- $53,556 $ 3,550 $12,976 $10,424 $ 80,506 ====== ====== ====== ====== =======
The decrease in exploration, abandonments, geological and geophysical costs during the first quarter of 2005, as compared to the first quarter of 2004, is primarily comprised of a $27.4 million decrease in dry hole expense, offset by a $16.0 million increase in geological and geophysical expense. Significant components of the Company's dry hole expense during the first quarter of 2005 included $9.1 million associated with an unsuccessful Nigerian well, $9.0 million associated with an unsuccessful well testing a satellite prospect in the Falcon Corridor and $2.4 million on an unsuccessful well on the Company's El Hamra permit in Tunisia. During the first three months of 2005, the Company drilled and evaluated 41 exploration/extension wells, 32 of which were successfully completed as discoveries. During the same period in 2004, the Company drilled and evaluated 52 exploration/extension wells, 26 of which were successfully completed as discoveries. General and administrative expense. General and administrative expense for the three-month periods ended March 31, 2005 and 2004 was $29.6 million and $18.3 million, respectively. The increase in general and administrative expense was primarily due to increases in administrative staff, including staff increases associated with the Evergreen merger, and performance-related compensation costs including the amortization of restricted stock awarded to officers, directors and employees during the quarter ended March 31, 2005, as compared to the same period of 2004. Accretion of discount on asset retirement obligations. During the three-month periods ended March 31, 2005 and 2004, accretion of discount on asset retirement obligations was $2.1 million and $2.0 million, respectively. The increase in accretion of discount on asset retirement obligations is primarily due to the increase in future plugging and abandonment obligations related to new wells in the deepwater Gulf of Mexico, Tunisia and South Africa and accretion of discount on asset retirement obligations assumed with the Evergreen merger. See Note G of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Company's asset retirement obligations. 35 PIONEER NATURAL RESOURCES COMPANY Interest expense. Interest expense was $33.3 for the three months ended March 31, 2005, as compared to $21.6 million for the same periods in 2004. The weighted average interest rates on the Company's indebtedness for the three months ended March 31, 2005 was 6.0 percent, as compared to 5.3 percent for the same period in 2004, taking into account the effect of interest rate derivatives. The increase in interest expense was primarily due to a $5.2 million decrease in interest rate hedge gains, a $.9 million decrease in capitalized interest as the Company completed its major development projects in the Gulf of Mexico and South Africa, increased borrowings under the Company's lines of credit, primarily as a result of the Evergreen merger, and the assumption of $300 million of notes in connection with the Evergreen merger. Other expenses. Other expenses for the three-month periods ended March 31, 2005 and 2004 were $11.7 million and $.2 million, respectively. The increase in other expenses is primarily attributable to a $6.8 million increase in hedge ineffectiveness, a $2.8 million increase in legal and environmental accruals and $.8 million of non-compete agreement amortization associated with the Evergreen merger. Income tax provision. During the three months ended March 31, 2005, the Company recognized income tax provisions of $51.9 million, as compared to $39.8 million for the same period in 2004. The Company's first quarter of 2005 effective tax rate of 38.0 percent is higher than the combined United States federal and state statutory rate of approximately 36.5 percent primarily due to foreign tax rates, statutes that differ from those in the United States and expenses for unsuccessful well costs in foreign locations where the Company receives no expected income tax benefits. 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 contractual obligations and working capital obligations. Funding for exploration, development and acquisitions of oil and gas properties and repayment of contractual obligations may be provided by any combination of internally-generated cash flow, proceeds from the disposition of non-strategic assets or alternative financing sources as discussed in "Capital resources" below. Generally, funding for the Company's working capital obligations is provided by internally-generated cash flow. Oil and gas properties. The Company's cash expenditures for additions to oil and gas properties during the three- month periods ended March 31, 2005 and 2004 totaled $226.2 million and $167.2 million, respectively. The expenditures for additions to oil and gas properties were internally funded by $334.9 million and $253.6 million, respectively, of net cash provided by operating activities. Contractual obligations, including off-balance sheet obligations. The Company's contractual obligations include long-term debt, operating leases, drilling commitments, derivative obligations, other liabilities and VPP obligations. From time-to-time, the Company enters into off-balance sheet arrangements and transactions that can give rise to material off-balance sheet obligations of the Company. As of March 31, 2005, the material off-balance sheet arrangements and transactions that the Company has entered into include (i) $54.7 million of undrawn letters of credit, (ii) operating lease agreements, (iii) drilling commitments, (iv) VPP obligations (to physically deliver volumes and pay related costs in the future) and (v) contractual obligations for which the ultimate settlement amounts are not fixed and determinable such as derivative contracts that are sensitive to future changes in commodity prices and gas transportation commitments. Since December 31, 2004, the material changes in the Company's contractual obligations were changes in the Company's derivative obligations and the aforementioned sale of VPPs. There have been no other material changes in the Company's contractual obligations since December 31, 2004. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for a table of changes in the fair value of the Company's open derivative contract liabilities during the three months ended March 31, 2005. Capital resources. The Company's primary capital resources are net cash provided by operating activities, proceeds from financing activities and proceeds from sales of non-strategic assets. The Company expects that these resources will be sufficient to fund its capital commitments during the remainder of 2005. 36 PIONEER NATURAL RESOURCES COMPANY Operating activities. Net cash provided by operating activities during the three-month periods ended March 31, 2005 and 2004 were $334.9 million and $253.6 million, respectively. The increase in net cash provided by operating activities was primarily due to increased production volumes and higher commodity prices. Investing activities. Net cash provided by investing activities during the three months ended March 31, 2005 was $361.9 million as compared to net cash used in investing activities of $172.3 million during the same respective period in 2004. The increase in net cash provided by investing activities was primarily due to the $592.3 million of net proceeds from VPPs. As previously discussed, the Company received $300.4 million of net proceeds from a third VPP transaction completed during April 2005. See Notes L and N of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for more information regarding the Company's VPP transactions completed during 2005. Financing activities. Net cash used in financing activities during the three months ended March 31, 2005 was $688.2 million, as compared to $91.4 million during the same period in 2004. The Company had net repayments on long- term debt of $553.0 million, as compared to $90.0 million during the same period in 2004. During February 2005, the Company's board of directors declared a semiannual dividend of $.10 per common share, payable on April 15, 2005 to shareholders of record on March 31, 2005. Associated therewith, the Company distributed $14.7 million of aggregate dividends during April 2005. The Company's board of directors may change the current dividend amount in the future if warranted by future liquidity and capital resource attributes. During April 2005, $131.0 million of the Company's 8-7/8% Notes matured and were repaid. The Company also redeemed $32.4 million principal amount of its 9-5/8% Notes. The Company will recognize a pretax loss on the redemption of the 9-5/8% Notes of $7.3 million during the second quarter of 2005. The Company utilized unused borrowing capacity under its 364-Day Credit Agreement to fund these financing activities. During the three months ended March 31, 2005, the Company expended $151.9 million to acquire 3.7 million shares of treasury stock. During January 2005, the Company's board of directors approved a share repurchase program authorizing the purchase of $300 million of the Company's common stock. Based on current expectations, the Company intends to expend the remaining $148.1 million authorized under the share repurchase program during the remainder of 2005. As the Company pursues its strategy, it may utilize various financing sources, including fixed and floating rate debt, convertible securities, preferred stock or common stock. The Company may also issue securities in exchange for oil and gas properties, stock or other interests in other oil and gas companies or related assets. Additional securities may be of a class preferred to common stock with respect to such matters as dividends and liquidation rights and may also have other rights and preferences as determined by the Company's board of directors. Liquidity. The Company's principal source of short-term liquidity is its revolving lines of credit. Outstanding borrowings under the lines of credit totaled $275 million as of March 31, 2005. Including $49.3 million of undrawn and outstanding letters of credit under the lines of credit, the Company had $1.0 billion of unused borrowing capacity as of March 31, 2005. During April 2005, the Company reduced the loan commitments under the 364-Day Credit Agreement by $200 million to $450 million, which reduces the Company's total borrowing capacity under its lines of credit to $1.15 billion. Book capitalization and current ratio. The Company's book capitalization at March 31, 2005 was $4.3 billion, consisting of debt of $1.8 billion and stockholders' equity of $2.5 billion. Consequently, the Company's debt to book capitalization decreased to 42 percent at March 31, 2005 from 46 percent at December 31, 2004. The Company's ratio of current assets to current liabilities was .53 to 1.00 at March 31, 2005 as compared to .72 to 1.00 at December 31, 2004. The decline in the Company's ratio of current assets to current liabilities was primarily due to increases in its current derivative liabilities as a result of higher commodity prices and in current deferred revenues as a result of the VPPs. 37 PIONEER NATURAL RESOURCES COMPANY Item 3. Quantitative and Qualitative Disclosures About Market Risk The following quantitative and qualitative disclosures about market risk are supplementary to the quantitative and qualitative disclosures provided in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. As such, the information contained herein should be read in conjunction with the related disclosures in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2004. Although certain derivative contracts that the Company has been a party to did not qualify as hedges, the Company does not enter into derivative or other financial instruments for trading purposes. The following table reconciles the changes that occurred in the fair values of the Company's open derivative contracts during the first quarter of 2005:
Derivative Contract Net Liabilities --------------------------------------- Interest Commodities Rate Total ----------- -------- ---------- (in thousands) Fair value of contracts outstanding as of December 31, 2004............... $ (406,546) $ - $ (406,546) Changes in contract fair values (a)...... (516,615) (1,563) (518,178) Contract maturities...................... 55,899 - 55,899 Contract terminations.................... 48,057 1,563 49,620 --------- ------- --------- Fair value of contracts outstanding as of March 31, 2005.................. $ (819,205) $ - $ (819,205) ========= ======= ========= - --------------- (a) At inception, new derivative contracts entered into by the Company have no intrinsic value.
Interest rate sensitivity. The following table provides information about other financial instruments the Company was a party to as of March 31, 2005 and that are sensitive to changes in interest rates. For debt obligations, the table presents maturities by expected maturity dates, the weighted average interest rates expected to be paid on the debt given current contractual terms and market conditions and the debt's estimated fair value. For fixed rate debt, the weighted average interest rate represents the contractual fixed rates that the Company was obligated to periodically pay on the debt as of March 31, 2005. For variable rate debt, the average interest rate represents the average rates being paid on the debt projected forward proportionate to the forward yield curve for LIBOR on May 3, 2005. Interest Rate Sensitivity Debt Obligations and Derivative Financial Instruments as of March 31, 2005
Nine months Liability ending Year ending December 31, Fair Value at December 31, ----------------------------------------------------- March 31, 2005 2006 2007 2008 2009 Thereafter Total 2005 ----------- ------- -------- -------- -------- ---------- --------- ----------- (in thousands, except interest rates) Total Debt: Fixed rate principal maturities (a).............. $130,950 $ - $ 32,075 $350,000 $ - $1,151,579 $1,664,604 $(1,823,784) Weighted average interest rate (%).......... 6.28 6.40 6.39 7.04 7.04 7.04 Variable rate maturities..... $ - $ - $ - $275,000 $ - $ - $ 275,000 $ (275,000) Average interest rate (%).. 3.73 4.25 4.44 4.57 - - - ------------- (a) Represents maturities of principal amounts excluding (i) debt issuance discounts and premiums and (ii) deferred fair value hedge gains and losses.
38 PIONEER NATURAL RESOURCES COMPANY Commodity price sensitivity. The following tables provide information about the Company's oil and gas derivative financial instruments that were sensitive to changes in oil or gas prices as of March 31, 2005. As of March 31, 2005, all of the Company's oil and gas derivative financial instruments qualified as hedges. See Note F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for information regarding the terms of the Company's derivative financial instruments that are sensitive to changes in oil and gas prices. Oil Price Sensitivity Derivative Financial Instruments as of March 31, 2005
Nine months Liability ending Year ending December 31, Fair Value at December 31, ---------------------------------------------------- March 31, 2005 2006 2007 2008 2009 2010 2005 ----------- -------- -------- -------- -------- -------- ----------- (in thousands) Oil Hedge Derivatives (a): Average daily notional Bbl volumes: Swap contracts (b)................ 27,000 11,973 13,000 20,278 1,643 1,643 $(506,128) Weighted average fixed price per Bbl......................... $ 27.97 $ 35.43 $ 30.89 $ 32.46 $ 47.25 $ 46.40 Collar contracts.................. - 3,500 - - - - $ (17,229) Weighted average ceiling price per Bbl......................... $ - $ 41.95 $ - $ - $ - $ - Weighted average floor price per Bbl......................... $ - $ 35.00 $ - $ - $ - $ - Average forward NYMEX oil prices (c)...................... $ 52.82 $ 53.40 $ 51.80 $ 49.59 $ 48.74 $ 48.14 - --------------- (a) See Note F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter. (b) Subsequent to March 31, 2005, the Company conveyed to the purchaser of its April VPP the following oil swap contracts which were included in the schedule above: (i) 1,973 Bbls per day of 2006 oil sales at a weighted average fixed price per Bbl of $54.40, (ii) 3,278 Bbls per day of 2008 oil sales at a weighted average fixed price per Bbl of $49.28, (iii) 1,643 Bbls per day of 2009 oil sales at a weighted average fixed price per Bbl of $47.25 and (iv) 1,643 Bbls per day of 2010 oil sales at a weighted average fixed price per Bbl of $46.40. (c) The average forward NYMEX oil prices are based on May 3, 2005 market quotes.
39 PIONEER NATURAL RESOURCES COMPANY Gas Price Sensitivity Derivative Financial Instruments as of March 31, 2005
Nine months Liability ending Year ending December 31, Fair Value at December 31, -------------------------------- March 31, 2005 2006 2007 2008 2005 ----------- -------- -------- -------- ------------- (in thousands) Gas Hedge Derivatives (a): Average daily notional MMBtu volumes (b): Swap contracts (c)........................ 278,873 80,000 35,000 5,000 $(292,303) Weighted average fixed price per MMBtu... $ 5.22 $ 4.50 $ 4.63 $ 5.38 Collar contracts.......................... - 17,329 - - $ (3,545) Weighted average ceiling price per MMBtu.............................. $ - $ 9.14 $ - $ - Weighted average floor price per MMBtu.............................. $ - $ 6.67 $ - $ - Average forward NYMEX gas prices (d)....... $ 7.05 $ 7.22 $ 6.82 $ 6.41 - --------------- (a) To minimize basis risk, the Company enters into basis swaps for a portion of its gas hedges to connect the index price of the hedging instrument from a NYMEX index to an index which reflects the geographic area of production. The Company considers these basis swaps as part of the associated swap and collar contracts and, accordingly, the effects of the basis swaps have been presented together with the associated contracts. (b) See Note F of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for hedge volumes and weighted average prices by calendar quarter. (c) Subsequent to March 31, 2005, the Company conveyed to the purchaser of its April VPP the following gas swap contracts which were included in the schedule above: (i) 5,841 MMBtu per day of 2005 gas sales at a weighted average fixed price per MMBtu of $7.14, (ii) 6,158 MMBtu per day of 2006 gas sales at a weighted average fixed price per MMBtu of $6.90 and (iii) 5,805 MMBtu per day of 2007 gas sales at a weighted average fixed price per MMBtu of $6.35. (d) The average forward NYMEX gas prices are based on May 3, 2005 market quotes.
Item 4. Controls and Procedures Evaluation of disclosure controls and procedures. The Company's principal executive officer and principal financial officer have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on that evaluation, the principal executive officer and principal financial officer concluded that the design and operation of the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Changes in internal control over financial reporting. There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company's last fiscal quarter that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting. 40 PIONEER NATURAL RESOURCES COMPANY PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is party to various legal proceedings, which are described under "Legal actions" in Note I of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements". The Company is also party to other litigation incidental to its business. Except for the specific legal actions described in Note I of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements", the Company believes that the probable damages from such other legal actions will not be in excess of ten percent of the Company's current assets. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table summarizes the Company's purchases of treasury stock during the three months ended March 31, 2005:
Total Number of Shares (or Units) Purchased Total Number of Average Price as Part of Publicly Shares (or Units) Paid per Share Announced Plans Period Purchased (or Unit) or Programs ------ ----------------- -------------- ---------------------- January 2005................ 75,000 $ 38.177 75,000 February 2005............... 2,214,700 $ 39.141 2,214,700 March 2005.................. 1,450,400 $ 42.979 1,450,400 ------------ ------------ Total............... 3,740,100 $ 40.610 3,740,100 ============ ============
During January 2005, the Company's board of directors approved a share repurchase program authorizing the purchase of up to $300 million of the Company's common stock. 41 PIONEER NATURAL RESOURCES COMPANY Item 6. Exhibits Exhibits 10.1 Production Payment Purchase and Sale Agreement dated as of January 26, 2005 among the Company, as the Seller, and Royalty Acquisition Company, LLC, as the Buyer (related to Hugoton gas) (incorporated by reference to exhibit 99.2 to the Company's current report on Form 8-K, File No. 1-13245, filed with the SEC on February 1, 2005). 10.2 Production Payment Purchase and Sale Agreement dated as of January 26, 2005 among the Company, as the Seller, and Royalty Acquisition Company, LLC, as the Buyer (related to Spraberry oil) (incorporated by reference to exhibit 99.3 to the Company's current report on Form 8-K, File No. 1-13245, filed with the SEC on February 1, 2005). 10.3 Second Amendment to 5-Year Revolving Credit Agreement dated as of January 21, 2005 among the Company, as the Borrower; JPMorgan Chase Bank as the Administrative Agent; JPMorgan Chase Bank and Bank of America, N.A., as the Issuing Banks; Wachovia Bank, National Association as the Syndication Agent; Bank of America, N.A., Bank One, N.A., Fleet National Bank and Wells Fargo Bank, National Association, as the Co-Documentation Agents; J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as the Co-Arrangers and Joint Bookrunners; and certain other lenders (incorporated by reference to exhibit 99.1 to the Company's current report on Form 8-K, File No. 1-13245, filed with the SEC on January 27, 2005). 10.4 First Amendment to 364-Day Credit Agreement dated as of January 21, 2005 among the Company, as the Borrower; JPMorgan Chase Bank as the Administrative Agent; Bank of America, N.A., Barclays Bank PLC, Wells Fargo Bank, National Association and Wachovia Bank, National Association as the Co-Documentation Agents; J.P. Morgan Securities Inc. as the Lead Arranger and Sole Bookrunner; and certain other lenders (incorporated by reference to exhibit 99.2 to the Company's current report on Form 8-K, File No. 1-13245, filed with the SEC on January 27, 2005). 10.5G Fourth Amendment to the Company's Long-Term Incentive Plan, effective as of November 20, 2003. 10.6G Fifth Amendment to the Company's Long-Term Incentive Plan, effective as of May 12, 2004. 10.7G Sixth Amendment to the Company's Long-Term Incentive Plan, effective as of December 17, 2004. 10.8G Third Amendment to the Company's Employee Stock Purchase Plan, dated August 21, 2000. 10.9G Fourth Amendment to the Company's Employee Stock Purchase Plan, dated February 19, 2003. 10.10G First Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective January 10, 2003. 10.11G Second Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective April 16, 2003. 10.12G Third Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective June 16, 2003. 10.13G Fourth Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective December 24, 2003. 10.14G Fifth Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective September 28, 2004. 10.15G The Company's Executive Deferred Compensation Retirement Plan, Amended and Restated Effective as of August 1, 2002. 10.16 Production Payment Purchase and Sale Agreement dated as of April 19, 2005 among the Company, as the Seller, and Wolfcamp Oil and Gas Trust, as the Buyer (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K, File No. 1-13245, filed with the SEC on April 21, 2005). 10.17G Form of Omnibus Nonstatutory Stock Option Agreement for Non-employee Directors. 10.18(a) Purchase and Sale Agreement dated as of April 28, 2005 among Pioneer Natural Resources Canada Inc., as the Vendor, and Ketch Resources Ltd., as the Purchaser. 10.19G Form of Restricted Stock Award Agreement. 10.20G Form of Omnibus Nonstatutory Stock Option Agreement for Option Award Participants (Group 1). 10.21G Offer of Employment Letter dated as of April 8, 2005 among the Company and Mark S. Berg. 31.1(a) Chief Executive Officer certification under Section 302 of Sarbanes- Oxley Act of 2002. 31.2(a) Chief Financial Officer certification under Section 302 of Sarbanes- Oxley Act of 2002. 32.1(b) Chief Executive Officer certification under Section 906 of Sarbanes- Oxley Act of 2002. 32.2(b) Chief Financial Officer certification under Section 906 of Sarbanes- Oxley Act of 2002. - --------------- (a) Filed herewith. (b) Furnished herewith. G Executive Compensation Plan or Arrangement filed herewith pursuant to Item 14(c). 42 PIONEER NATURAL RESOURCES COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. PIONEER NATURAL RESOURCES COMPANY Date: May 6, 2005 By: /s/ Richard P. Dealy ---------------------------------- Richard P. Dealy Executive Vice President and Chief Financial Officer Date: May 6, 2005 By: /s/ Darin G. Holderness ---------------------------------- Darin G. Holderness Vice President and Chief Accounting Officer 43 PIONEER NATURAL RESOURCES COMPANY Exhibit Index 10.1 Production Payment Purchase and Sale Agreement dated as of January 26, 2005 among the Company, as the Seller, and Royalty Acquisition Company, LLC, as the Buyer (related to Hugoton gas) (incorporated by reference to exhibit 99.2 to the Company's current report on Form 8-K, File No. 1- 13245, filed with the SEC on February 1, 2005). 10.2 Production Payment Purchase and Sale Agreement dated as of January 26, 2005 among the Company, as the Seller, and Royalty Acquisition Company, LLC, as the Buyer (related to Spraberry oil) (incorporated by reference to exhibit 99.3 to the Company's current report on Form 8-K, File No. 1- 13245, filed with the SEC on February 1, 2005). 10.3 Second Amendment to 5-Year Revolving Credit Agreement dated as of January 21, 2005 among the Company, as the Borrower; JPMorgan Chase Bank as the Administrative Agent; JPMorgan Chase Bank and Bank of America, N.A., as the Issuing Banks; Wachovia Bank, National Association as the Syndication Agent; Bank of America, N.A., Bank One, N.A., Fleet National Bank and Wells Fargo Bank, National Association, as the Co-Documentation Agents; J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as the Co-Arrangers and Joint Bookrunners; and certain other lenders (incorporated by reference to exhibit 99.1 to the Company's current report on Form 8-K, File No. 1- 13245, filed with the SEC on January 27, 2005). 10.4 First Amendment to 364-Day Credit Agreement dated as of January 21, 2005 among the Company, as the Borrower; JPMorgan Chase Bank as the Administrative Agent; Bank of America, N.A., Barclays Bank PLC, Wells Fargo Bank, National Association and Wachovia Bank, National Association as the Co-Documentation Agents; J.P. Morgan Securities Inc. as the Lead Arranger and Sole Bookrunner; and certain other lenders (incorporated by reference to exhibit 99.2 to the Company's current report on Form 8-K, File No. 1-13245, filed with the SEC on January 27, 2005). 10.5G Fourth Amendment to the Company's Long-Term Incentive Plan, effective as of November 20, 2003. 10.6G Fifth Amendment to the Company's Long-Term Incentive Plan, effective as of May 12, 2004. 10.7G Sixth Amendment to the Company's Long-Term Incentive Plan, effective as of December 17, 2004. 10.8G Third Amendment to the Company's Employee Stock Purchase Plan, dated August 21, 2000. 10.9G Fourth Amendment to the Company's Employee Stock Purchase Plan, dated February 19, 2003. 10.10G First Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective January 10, 2003. 10.11G Second Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective April 16, 2003. 10.12G Third Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective June 16, 2003. 10.13G Fourth Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective December 24, 2003. 10.14G Fifth Amendment to the Company's Pioneer Natural Resources USA, Inc. 40l(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002), effective September 28, 2004. 10.15G The Company's Executive Deferred Compensation Retirement Plan, Amended and Restated Effective as of August 1, 2002. 10.16 Production Payment Purchase and Sale Agreement dated as of April 19, 2005 among the Company, as the Seller, and Wolfcamp Oil and Gas Trust, as the Buyer (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K, File No. 1-13245, filed with the SEC on April 21, 2005). 10.17G Form of Omnibus Nonstatutory Stock Option Agreement for Non-employee Directors. 10.18(a) Purchase and Sale Agreement dated as of April 28, 2005 among Pioneer Natural Resources Canada Inc., as the Vendor, and Ketch Resources Ltd., as the Purchaser. 10.19G Form of Restricted Stock Award Agreement. 10.20G Form of Omnibus Nonstatutory Stock Option Agreement for Option Award Participants (Group 1). 10.21G Offer of Employment Letter dated as of April 8, 2005 among the Company and Mark S. Berg. 31.1(a) Chief Executive Officer certification under Section 302 of Sarbanes- Oxley Act of 2002. 31.2(a) Chief Financial Officer certification under Section 302 of Sarbanes- Oxley Act of 2002. 32.1(b) Chief Executive Officer certification under Section 906 of Sarbanes- Oxley Act of 2002. 32.2(b) Chief Financial Officer certification under Section 906 of Sarbanes- Oxley Act of 2002. - --------------- (a) filed herewith. (b) furnished herewith. G Executive Compensation Plan or Arrangement filed herewith pursuant to Item 14(c). 44 EX-10 2 exh105.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.5 EXHIBIT 10.5 Amendment No. 4 to PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN This Amendment (this "Amendment") to the Long-Term Incentive Plan (the "Plan") of Pioneer Natural Resources Company, a Delaware corporation (the "Company"), is adopted by the Board of Directors of the Company on November 20, 2003. Terms having their initial letters capitalized but not defined in this Amendment have the meaning ascribed those terms in the Plan. RECITALS A. On August 7, 1997, the stockholders of the Company approved the adoption of the Plan. The Stock of the Company was then and is still listed for trading on the New York Stock Exchange. B. In 2003, the New York Stock Exchange adopted amendments to its corporate governance standards, including an amendment to Section 303A of the Listed Company Manual to require shareholders to vote on equity-compensation plans and material revisions to those plans, with limited exceptions. For purposes of the new shareholder approval rule, an automatic increase in the shares available under a plan pursuant to a formula set forth in the plan (sometimes referred to as an "evergreen" formula) is considered a material revision unless the term of the plan is limited to a specified period of time not in excess of ten years. C. Under Section 2.1 of the Plan, the number of shares of Stock available for award under the Plan is based on a percentage of Common Stock Equivalents outstanding from time to time. Under Section 12.1 of the Plan, no Awards may be granted under the Plan after the date that is ten years from the date that the last amendment to the Plan involving an increase in authorized shares is approved by the stockholders of the Company. D. The Board of Directors interprets Section 12.1 to mean that no Awards may be granted after August 7, 2007, since that is the tenth anniversary of the date of the last stockholder vote with respect to the Plan. In order to clarify the term of the Plan, and to assure that increases in authorized shares under the Plan are not considered material revisions under Section 303A of the Listed Company Manual of the New York Stock Exchange, the Board of Directors has adopted this clarifying amendment to the Plan pursuant to its authority to do so in Section 12.2 of the Plan. AMENDMENT NOW, THEREFORE, Section 12.1 of the Plan is hereby amended to read in its entirety as follows: "Section 12.1 Duration. No Awards may be granted hereunder after the date that is ten (10) years from August 7, 1997." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer, to be effective as of November 20, 2003. PIONEER NATURAL RESOURCES COMPANY By: /s/ Mark L. Withrow --------------------------------------- Mark L. Withrow Executive Vice President and General Counsel EX-10 3 exh106.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.6 EXHIBIT 10.6 Amendment No. 5 to PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN AMENDMENT NO. 5 (this "Amendment") to that certain Long-Term Incentive Plan (the "Plan") of Pioneer Natural Resources Company (the "Company") is effective as of May 12, 2004. Terms having their initial letter capitalized but not defined in this Amendment have the meaning ascribed those terms in the Plan. RECITALS WHEREAS, on August 7, 1997, the stockholders of the Company approved the adoption of the Plan and the stock of the Company was then and is still listed for trading on the New York Stock Exchange: and WHEREAS, the Board of Directors of the Company has approved an amendment to the Plan, which amendment is memorialized below in this Amendment. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 1.3 of the Plan is hereby amended by adding "Restricted Stock Units" to the definition of "Award". 2. Section 1.37(a) is hereby added to the Plan as follows: "Restricted Stock Unit" means the grant of a right to receive shares of Stock in the future, on the terms and conditions that the Committee determines, with shares of Stock subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee." IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer to be effective as of May 12, 2004. PIONEER NATURAL RESOURCES COMPANY By: /s/ Mark L. Withrow ----------------------------------- Name: Mark L. Withrow Title: Executive Vice President and General Counsel EX-10 4 exh107.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.7 EXHIBIT 10.7 AMENDMENT NO. 6 TO THE PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN AMENDMENT NO. 6 (this "Amendment") to that certain Long-Term Incentive Plan (the "Plan") of Pioneer Natural Resources Company (the "Company") is effective as of December 17, 2004. RECITALS WHEREAS, the Company has adopted the Plan; and WHEREAS, the Board of Directors of the Company has approved an amendment to the Plan, which amendment is memorialized below in this Amendment. NOW THEREFORE, the Plan is hereby amended as follows: 1. Section 1.32 of the Plan is replaced in its entirety to read as follows: 1.32 "Performance Period" means a period established by the Committee for which Performance Units are granted and over which performance is measured, for the purpose of determining the payment value of Performance Units. A Performance Period shall not exceed ten years. 2. Section 1.33 of the Plan is replaced in its entirety to read as follows: 1.33 "Performance Unit" means a unit representing a contingent right to receive a specified amount of cash or shares of Stock at the end of a Performance Period. A Performance Unit the value of which is determined by reference to Common Stock may be referred to as a Restricted Stock Unit in any applicable Award Agreement. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer to be effective as of December 17, 2004. PIONEER NATURAL RESOURCES COMPANY By: /s/ Mark L. Withrow ----------------------------------- Name: Mark L. Withrow Title: Executive Vice President and General Counsel EX-10 5 exh108.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.8 EXHIBIT 10.8 Amendment No. 3 to PIONEER NATURAL RESOURCES COMPANY EMPLOYEE STOCK PURCHASE PLAN AMENDMENT NO. 3 (this "Amendment") to that certain Employee Stock Purchase Plan (the "Plan") of Pioneer Natural Resources Company (the "Company") executed August 7, 1997. RECITALS WHEREAS, the Company has adopted the Plan; and WHEREAS, the Board of Directors of the Company, acting through the Compensation Committee of the Board of Directors of the Company (which administers the Plan), has authorized amendments to the Plan, which amendments are memorialized below in this Amendment. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Amendment of Subparagraph 7(c). Subparagraph 7(c) of the Plan is hereby amended in its entirety to read as follows: "(c) Delivery of Stock. As soon as practicable after each date of exercise, the Company shall deposit into each Participant's brokerage account maintained for the purposes of holding Stock under this Plan and other employee benefit plans of the Company, the number of whole shares of Stock purchased by such Participant upon exercise of his or her options granted hereunder. Except as provided in the immediately following sentence, shares of Stock purchased upon exercise of options granted hereunder shall be uncertificated and evidenced by book entry into the brokerage accounts described above. Upon written request made by any Participant to the Company, the Company shall arrange, as soon as practicable after receipt of any such request, to deliver to such Participant a certificate representing any or all such uncertificated shares of Stock. In the event the Company is required to obtain from any commission or agency authority to issue any shares of Stock hereunder, the Company shall seek to obtain such authority. Inability of the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary for the lawful issuance of any shares of Stock shall relieve the Company from liability to any Participant in the Plan except to return to the Participant the amount of the balance in the Participant's account. The Company may cause any Stock certificates issued in connection with the exercise of options under the Plan to bear such legend or legends, and the Company may take such other actions, as it deems appropriate in order to reflect the provisions of this subparagraph 7(c) and to assure compliance with applicable securities laws. Neither the Company nor the Committee shall have any liability with respect to a delay in the delivery of Stock or a certificate pursuant to this subparagraph 7(c)." 2. Amendment of Paragraph 11. Paragraph 11 of the Plan is hereby amended in its entirety to read as follows: "11. No Rights of Stockholder Until Stock Issued. With respect to shares of Stock subject to an option, a Participant shall not be deemed to be a stockholder, and he shall not have any of the rights or privileges of a stockholder, until, (a) shares of Stock are deposited into his brokerage account, as described in subparagraph 7(c) hereof, or (b) a certificate for shares of Stock is issued on his behalf, whichever occurs first." 3. Confirmation of the Plan. Except as to the extent modified by this Amendment, the Plan is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer as of this 21st day of August 2000. PIONEER NATURAL RESOURCES COMPANY By: /s/Mark L. Withrow ------------------------------------------------ Name: Mark L. Withrow Title: Executive Vice President & General Counsel EX-10 6 exh109.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.9 EXHIBIT 10.9 Amendment No. 4 to PIONEER NATURAL RESOURCES COMPANY EMPLOYEE STOCK PURCHASE PLAN AMENDMENT NO. 4 (this "Amendment") to that certain Employee Stock Purchase Plan (the "Plan") of Pioneer Natural Resources Company (the "Company") executed August 7, 1997. RECITALS WHEREAS, the Company has adopted the Plan; and WHEREAS, the Board of Directors of the Company, acting through the Compensation Committee of the Board of Directors of the Company (which administers the Plan), has authorized the amendment to subparagraph 7(a) of the Plan as set forth below; NOW, THEREFORE, the Plan is hereby amended as follows: 1. Amendment of subparagraph 7(a). Subparagraph 7(a) of the Plan is hereby amended in its entirety to read as follows: "(a) General Statement. Each Eligible Employee who is a participant in the Plan, automatically and without any act on his part, shall be deemed to have exercised his option on each date of exercise to the extent that the cash balance then in his account under the Plan is sufficient to purchase at the "option price" (as defined in subparagraph 7(b)) whole shares of Stock. Any balance remaining in his account after payment of the purchase price of those whole shares may, at the discretion of the Company, either be refunded to him as soon as practicable after each date of exercise, or carried forward and used towards the purchase of whole shares in the next following option period. 2. Confirmation of the Plan. Except as to the extent modified by this Amendment, the Plan is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officer as of this 19th day of February 2003. PIONEER NATURAL RESOURCES COMPANY By: /s/ Mark L. Withrow ------------------------------------------ Name: Mark L. Withrow Title: Executive Vice President & General Counsel EX-10 7 exh1010.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.10 EXHIBIT 10.10 AMENDMENT NO. 1 TO THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN (Amended and Restated Effective as of January 1, 2002) ------------------------------------------------------ Pursuant to the provisions of Section 8.1 thereof, the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan (Amended and Restated Effective as of January 1, 2002) (the "Plan") is hereby amended in the following respects only: FIRST: Effective January 1, 2002, the first two sentences of Section 4.2 of the Plan are hereby amended by restatement as three sentences which shall read as follows: For investment purposes the Trust shall be divided into the Pioneer Stock Investment Fund, which shall be a common fund invested in Pioneer Stock, and such number and kind of other separate and distinct Investment Funds as the Committee shall determine in its absolute discretion. The Trust assets allocated to a particular Investment Fund other than the Pioneer Stock Investment Fund shall be invested by the Trustee and/or one or more investment managers duly appointed in accordance with the provisions of the Trust, as the case may be, in such type of property, whether real, personal or mixed, as the Trustee is directed to acquire and hold for such Investment Fund. Dividends and other amounts received with respect to Pioneer Stock held in the Pioneer Stock Investment Fund shall be invested in Pioneer Stock. SECOND: Effective January 1, 2002, the third sentence of Section 4.3 of the Plan is hereby deleted in its entirety. THIRD: Effective January 1, 2002, Section 6.1(c) of the Plan is hereby amended by restatement in its entirety to read as follows: (c) Subject to the provisions of this Article requiring that distributions and withdrawals be made in the form of an annuity contract, distributions and withdrawals shall be made in cash, except that amounts credited to an Account that are invested in the Pioneer Stock Investment Fund may, at the election of the Participant, be distributed in the form of Pioneer Stock with cash in lieu of fractional shares. FOURTH: Effective October 1, 2002, Section 6.6(a) of the Plan is hereby amended by restatement in its entirety to read as follows: (a) A Participant in the employ of an Employer may make -- (i) a withdrawal of all or a portion (in multiples of 10% or in whole dollar amounts) of the total amount credited to his or her After-Tax Account, Mesa After-Tax Account or Rollover Account; (ii) if the Participant has attained the age of 59 1/2, a withdrawal of all or a portion (in multiples of 10% or in whole dollar amounts) of the total vested amount credited to his or her Accounts (other than his or her Matching Plan Account and Mesa Premium Account); or (iii) a hardship withdrawal of such amount as the Committee shall determine to be necessary to satisfy an immediate and heavy financial need of such Participant from his or her Pre-Tax Account and Prior Plan Pre-Tax Account, other than earnings credited to either such Account for any period of time after December 31, 1988, and qualified nonelective contributions allocated to either such Account; provided, however, that (i) no withdrawal may be made unless notice of such withdrawal is delivered to or in the manner prescribed by the Committee by the withdrawing Participant within such period of time prior to the effective date thereof as the Committee may prescribe in its discretion, (ii) no withdrawal may be made by a Participant to whom a loan from the Trust is then outstanding unless the Committee is satisfied that such loan will remain nontaxable and fully secured by the withdrawing Participant's Vested Interest following such withdrawal, and (iii) withdrawals from the Prior Plan Pre-Tax Account and Prior Plan Employer Account may be made only pursuant to the notice and consent requirements of Section 6.2(b). The Committee shall direct the Trustee to distribute any withdrawn amount to such Participant as soon as practicable following the effective date of the withdrawal. Any withdrawal from an Account pursuant to this Section shall be taken proportionally from each Investment Fund in which such Account is invested; provided, however, that a Participant may elect in the manner prescribed by the Committee to have his or her withdrawal taken from the portion of such Account that is invested in one or more Investment Fund(s). The Committee may prescribe uniform and nondiscriminatory rules and procedures limiting the number of times that a Participant may make withdrawals during a Plan Year and the minimum amount that a Participant may withdraw on any single occasion. -2- IN WITNESS WHEREOF, this Amendment has been executed as of this 10th day of January, 2003. PIONEER NATURAL RESOURCES USA INC. By /s/ Larry Paulsen --------------------------------- Larry Paulsen, Vice President -3- EX-10 8 exh1011.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.11 EXHIBIT 10.11 AMENDMENT NO. 2 TO THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN ------------------------------------------------------------ Pursuant to the provisions of Section 8.1 thereof, the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective as of January 1, 2002, Section 1.1(i) of the Plan is hereby amended by adding to the end thereof a sentence to read as follows: A leased employee means any person who is not an employee of the recipient of the services performed and who provides services to the recipient if (i) such services are provided pursuant to an agreement between the recipient and any other person, (ii) such person has performed such services for the recipient (or for the recipient and related persons) on a substantially full-time basis for a period of at least one year, and (iii) such services are performed under primary direction or control by the recipient. SECOND: Effective as of January 1, 2002, Section 6.11 of the Plan is hereby amended by restating the first sentence thereof in its entirety to read as follows: If a Participant is entitled to receive an eligible rollover distribution (as defined in Section 402(c) of the Code and the regulations thereunder, which exclude, among other distributions, any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code) from the Plan, such Participant may elect to have the Committee direct the Trustee to transfer the entire amount of such distribution directly to any of the following specified by such Participant: an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code (other than an endowment contract), a defined contribution plan qualified under Section 401(a) of the Code the terms of which permit rollover contributions or an annuity plan described in Section 403(a) of the Code. IN WITNESS WHEREOF, this Amendment is executed this 16th day of April, 2003. PIONEER NATURAL RESOURCES USA., INC. By /s/ Larry Paulsen --------------------------------- Name: Title: EX-10 9 exh1012.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.12 EXHIBIT 10.12 AMENDMENT NO. 3 TO THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN ------------------------------------------------------------ Pursuant to the provisions of Section 8.1 thereof, the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective January 1, 2002, Section 1.1(kk) of the Plan is hereby amended by restatement in its entirety to read as follows: (kk) "Pre-Tax Account" means the account established and maintained under this Plan by the Committee to record a Participant's interest under this Plan attributable to (i) Pre-Tax Contributions, Pre-Tax Bonus Contributions and Catch-Up Contributions made by an Employer on behalf of such Participant and (ii) any amounts credited to his or her Employee Pre-Tax Contribution Account under the Superseded Plan as in effect on September 30, 1997. SECOND: Effective January 1, 2003, Section 3.1(e) of the Plan is hereby amended by restating the last sentence thereof in its entirety to read as follows: If any portion of a Pre-Tax Contribution or Pre-Tax Bonus Contribution is distributed or recharacterized pursuant to this subsection, any portion of a Matching Contribution (along with any income allocable thereto) made to this Plan for such Participant that matches the distributed or recharacterized Pre-Tax Contribution or Pre-Tax Bonus Contribution shall be forfeited. THIRD: Effective January 1, 2003, Section 3.2 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 3.2 Matching Contributions. (a) For each pay period an Employer shall make to the Plan for each Participant in its employ a Matching Contribution equal to 200 percent of the Pre-Tax Contributions made by the Employer on such Participant's behalf during such pay period which are not in excess of five percent of such Participant's Basic Compensation for such pay period. (b) As of the end of each Plan Year, an Employer shall make to the Plan for each Participant in its employ on the last day of such Plan Year an additional Matching Contribution equal to A minus B, where A is equal to 200 percent multiplied by the lesser of (i) the Participant's Total Pre-Tax Contributions for the Plan Year or (ii) five percent of the Participant's Basic Compensation for the Plan Year, and B is equal to the total amount of Matching Contributions made for the Participant for the Plan Year pursuant to Section 3.2(a). (c) The Committee shall establish and maintain an Employer Account for each Participant. All Matching Contributions made for a Participant pursuant to this Section shall be credited to such Participant's Employer Account. FOURTH: Effective January 1, 2002, Section 3.3 of the Plan is hereby amended to add the following new sentence to the end thereof: All Catch-Up Contributions made by an Employer on behalf of a Participant pursuant to this Section 3.1 shall be credited to such Participant's Pre-Tax Account. FIFTH: Effective January 1, 2003, Section 3.5 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 3.5 Payment of Contributions. Pre-Tax Contributions, Catch- Up Contributions and After-Tax Contributions made to the Plan by an Employer for or on behalf of Participants for a pay period shall be paid to the Trustee in cash as soon as practicable after such pay period ends, but no later than the 15th business day after the end of the month in which such pay period ends. Pre-Tax Bonus Contributions made to the Plan on behalf of Participants shall be paid to the Trustee in cash as soon as practicable after the bonus payment is made, but no later than the 15th day of the month after the end of the month in which such bonus payment is made. Matching Contributions made to the Plan for a pay period pursuant to Section 3.2(a) shall be paid to the Trustee as soon as practicable, but no later than 30 days after the end of the month in which such pay period ends. Matching Contributions made to the Plan for a Plan Year pursuant to Section 3.2(b) shall be paid to the Trustee no later than the time prescribed by law, including extensions thereof, for the filing of such Employer's federal income tax return for such year. SIXTH: Effective January 1, 2003, the last sentence of Section 3.7(b) is hereby amended by restatement in its entirety to read as follows: If any portion of a Pre-Tax Contribution or Pre-Tax Bonus Contribution made by an Employer on behalf of a Participant is distributed to such Participant or is treated as a Catch-Up Contribution pursuant to the foregoing provisions of this subsection (b), any portion of a Matching Contribution (along with any income allocable thereto) made for such 2 Participant that matches the distributed Pre-Tax Contribution or Pre-Tax Bonus Contribution or recharacterized Catch-Up Contribution shall be forfeited. SEVENTH: Effective July 30, 2002, Section 6.9 of the Plan is hereby amended to add a new subsection to the end thereof to read as follows: (d) Plan loans to directors and executive officers of an Employer may be denied in the event that the Committee determines that loans may not be made to such persons under the Sarbanes-Oxley Act of 2002 or other federal law. EIGHTH: Effective January 1, 2003, Section 10.3 of the Plan is hereby amended by restating the last three sentences thereof in their entirety to read as follows: Any Matching Contributions corresponding to any distributed Pre-Tax Contributions and Pre-Tax Bonus Contributions shall be credited to a suspense account and thereafter reallocated (prior to the allocation of subsequent forfeitures and the making of any additional contributions to the Plan) to reduce the earliest subsequent Matching Contributions an Employer would otherwise be required to make to the Plan pursuant to Section 3.2 for such year and the next succeeding Plan Year. No adjustment shall be made to such suspense account to reflect income, profits and losses, expenses or other transactions affecting the Plan. Any Pre-Tax Contributions or Pre-Tax Bonus Contributions distributed to a Participant pursuant to this Section shall not be taken into account in determining such Participant's actual deferral percentage for purposes of Section 3.7. IN WITNESS WHEREOF, this Amendment has been executed on this 16th day of June, 2003. PIONEER NATURAL RESOURCES USA, INC. By /s/ Larry Paulsen -------------------------------- Larry Paulsen, Vice President 3 EX-10 10 exh1013.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.13 EXHIBIT 10.13 AMENDMENT NO. 4 TO THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN ------------------------------------------------------------ Pursuant to the provisions of Section 8.1 thereof, the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective as of January 1, 2003, Section 6.1(b) of the Plan is hereby amended by adding the following two sentences to the end thereof: For a Participant who is a five-percent owner (as defined in Section 416(i) of the Code), the "required beginning date" is April 1 of the calendar year following the calendar year such Participant attains age 70 1/2. For a Participant who is not a five-percent owner (as defined in Section 416(i) of the Code), the "required beginning date" is April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or retires. SECOND: Effective as of January 1, 2003, the Plan is hereby amended by adding the following new Article XI to the end thereof: ARTICLE XI. MINIMUM DISTRIBUTION REQUIREMENTS Section 1. General Rules. 1.1. Effective Date. The provisions of this Article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year. 1.2. Precedence. The requirements of this Article will take precedence over any inconsistent provisions of the Plan. 1.3. Requirements of Treasury Regulations Incorporated. All distributions required under this Article will be determined and made in accordance with the Treasury regulations under section 401(a)(9) of the Internal Revenue Code. 1.4. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Article, distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the provisions of the Plan that relate to section 242(b)(2) of TEFRA. Section 2. Time and Manner of Distribution. 2.1. Required Beginning Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's required beginning date. 2.2. Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows: (a) If the Participant's surviving spouse is the Participant's sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later. (b) If the Participant's surviving spouse is not the Participant's sole designated beneficiary, then distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died. (c) If there is no designated beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (d) If the Participant's surviving spouse is the Participant's sole designated beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this section 2.2, other than section 2.2(a), will apply as if the surviving spouse were the Participant. For purposes of this section 2.2 and section 4, unless section 2.2(d) applies, distributions are considered to begin on the Participant's required beginning date. If section 2.2(d) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under section 2.2(a). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant's required beginning date (or to the Participant's surviving spouse before the date distributions are required to begin to the surviving spouse under section 2.2(a)), the date distributions are considered to begin is the date distributions actually commence. 2.3. Forms of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with sections 3 and 4 of this Article. If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of section 401(a)(9) of the Code and the Treasury regulations. Section 3. Required Minimum Distributions During Participant's Lifetime. 3.1. Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of: (a) the quotient obtained by dividing the Participant's account balance by the distribution period in the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant's age as of the Participant's birthday in the distribution calendar year; or (b) if the Participant's sole designated beneficiary for the distribution calendar year is the Participant's spouse, the quotient obtained by dividing the Participant's account balance by the number in the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Participant's and spouse's attained ages as of the Participant's and spouse's birthdays in the distribution calendar year. 3.2. Lifetime Required Minimum Distributions Continue Through Year of Participant's Death. Required minimum distributions will be determined under this section 3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant's date of death. Section 4. Required Minimum Distributions After Participant's Death. 4.1. Death On or After Date Distributions Begin. (a) Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant's designated beneficiary, determined as follows: (1) The Participant's remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. (2) If the Participant's surviving spouse is the Participant's sole designated beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant's death using the surviving spouse's age as of the spouse's birthday in that year. For distribution calendar years after the year of the surviving spouse's death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year. (3) If the Participant's surviving spouse is not the Participant's sole designated beneficiary, the designated beneficiary's remaining life expectancy is calculated using the age of the beneficiary in the year following the year of the Participant's death, reduced by one for each subsequent year. (b) No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no designated beneficiary as of September 30 of the year after the year of the Participant's death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's account balance by the Participant's remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. 4.2. Death Before Date Distributions Begin. (a) Participant Survived by Designated Beneficiary. If the Participant dies before the date distributions begin and there is a designated beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant's death is the quotient obtained by dividing the Participant's account balance by the remaining life expectancy of the Participant's designated beneficiary, determined as provided in section 4.1. (b) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death. (c) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin. If the Participant dies before the date distributions begin, the Participant's surviving spouse is the Participant's sole designated beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under section 2.2(a), this section 4.2 will apply as if the surviving spouse were the Participant. Section 5. Definitions. 5.1. Designated beneficiary. The individual who is designated as the beneficiary under Section 6.2 of the Plan and is the designated beneficiary under section 401(a)(9) of the Internal Revenue Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations. 5.2. Distribution calendar year. A calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant's required beginning date. For distributions beginning after the Participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin under section 2.2. The required minimum distribution for the Participant's first distribution calendar year will be made on or before the Participant's required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant's required beginning date occurs, will be made on or before December 31 of that distribution calendar year. 5.3. Life expectancy. Life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury regulations. 5.4. Participant's account balance. The account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year. 5.5 Required beginning date. The date specified in Section 6.1(b) of the Plan. IN WITNESS WHEREOF, this Amendment has been executed on this 24th day of December, 2003. PIONEER NATURAL RESOURCES USA, INC. By /s/ Larry Paulsen --------------------------------- Larry Paulsen, Vice President EX-10 11 exh1014.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.14 EXHIBIT 10.14 AMENDMENT NO. 5 TO THE PIONEER NATURAL RESOURCES USA, INC. 401(k) AND MATCHING PLAN ------------------------------------------------------------ Pursuant to the provisions of Section 8.1 thereof, the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan (the "Plan") is hereby amended in the following respects only: FIRST: Effective September 28, 2004, Section 1.1(ee) of the Plan is hereby amended to add the following provision to the end of the first paragraph thereof: Solely for the purpose of determining the Period of Service completed by a Covered Employee who was in the employ of Evergreen Resources, Inc. (or a subsidiary thereof) on September 27, 2004, and who becomes an employee of an Employer on September 28, 2004 and a Participant in this Plan on October 1, 2004, service with Evergreen Resources, Inc. or a subsidiary thereof (or a predecessor of any such entity) prior to September 28, 2004, that is taken into account for purposes of determining such Employee's service for vesting purposes under the Evergreen Resources, Inc. 401(k) Profit Sharing Plan shall be considered to be service with an Employer. SECOND: Effective October 1, 2004, Sections 1.1(tt) and (uu) of the Plan are hereby amended by restatement in their entirety to read as follows: (tt) "Rollover Account" means the account established and maintained under this Plan by the Committee to record a Participant's interest under this Plan attributable to (i) Rollover Contributions made by such Participant to this Plan pursuant to Section 3.9, (ii) any amounts credited to his or her Rollover Contribution Account under the Superseded Plan as in effect on September 30, 1997, and (iii) any amounts credited to his or her Rollover Account under the Mesa Profit-Sharing Plan as in effect on September 30, 1997. (uu) "Rollover Contribution" means a contribution made to this Plan pursuant to Section 3.9. THIRD: Effective October 1, 2004, Section 3.9 of the Plan is hereby amended by restatement in its entirety to read as follows: Section 3.9 Rollover Contributions. With the consent of and subject to such reasonable limitations as may be imposed by the Committee or its delegate, a Covered Employee may make a Rollover Contribution to the Plan as follows: (a) a direct rollover of an eligible rollover distribution from: (i) a qualified plan described in section 401(a) or 403(a) of the Code, including after tax employee contributions, (ii) an annuity contract described in section 403(b) of the Code, excluding after tax employee contributions, or (iii) an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state; or (b) a contribution by the Covered Employee of an eligible rollover distribution from: (i) a qualified plan described in section 401(a) or 403(a) of the Code, (ii) an annuity contract described in section 403(b) of the Code, or (iii) an eligible plan under section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state; or (c) a contribution by the Covered Employee of the portion of a distribution from an individual retirement account or annuity described in section 408(a) or 408(b) of the Code that is eligible to be rolled over and would otherwise be includible in gross income of the Covered Employee. Each Rollover Contribution shall be credited to a separate Rollover Account to be established and maintained for the benefit of the contributing Covered Employee. A Covered Employee who is not a Participant, but for whom a Rollover Account is being maintained, shall be accorded all of the rights and privileges of a Participant under the Plan except that no contributions shall be made to the Plan by or for such Employee until he or she meets the eligibility and participation requirements of Article II. IN WITNESS WHEREOF, this Amendment has been executed on this 28th day of September 2004. PIONEER NATURAL RESOURCES USA, INC. By /s/ Larry Paulsen ------------------------------- Larry Paulsen, Vice President 2 EX-10 12 exh1015.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.15 EXHIBIT 10.15 PIONEER NATURAL RESOURCES COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN (Amended and Restated Effective as of August 1, 2002) PIONEER NATURAL RESOURCES COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN ------------------------------------ (Amended and Restated Effective as of August 1, 2002) TABLE OF CONTENTS Page ARTICLE I. Definitions and Construction................................1 1.1 Definitions........................................1 1.2 Number and Gender..................................3 1.3 Headings...........................................3 ARTICLE II. Eligibility and Participation...............................3 2.1 Eligibility........................................3 2.2 Participation......................................3 ARTICLE III. Account Credits and Allocations of Income or Loss...........4 3.1 Member Deferrals...................................4 3.2 Matching Credits...................................5 3.3 Allocation of Net Income or Loss and Changes in Value Among Accounts............................6 ARTICLE IV. Deemed Investment of Accounts...............................6 ARTICLE V. Determination of Vested Interest............................7 ARTICLE VI. Withdrawals.................................................7 6.1 General............................................7 6.2 Unforeseeable Financial Emergency..................7 6.3 Early Withdrawal...................................7 ARTICLE VII. Termination Benefits........................................8 7.1 Amount of Benefit..................................8 7.2 Time of Payment....................................8 7.3 Alternative Forms of Benefit Payments..............8 7.4 Designation of Beneficiaries.......................9 7.5 Payment of Benefits................................9 7.6 Unclaimed Benefits.................................9 7.7 Accelerated Pay-Out Due to Change of Control.......9 7.8 Accelerated Payment of Reclassified Amounts........9 7.9 Payment of Member Accounts Incident to Divorce....10 ARTICLE VIII. Administration of the Plan.................................10 8.1 Appointment of Plan Administrator.................10 8.2 Records and Procedures............................10 8.3 Self-Interest of Plan Administrator...............10 8.4 Compensation and Bonding..........................10 8.5 Plan Administrator Powers and Duties..............10 8.6 Company to Supply Information.....................11 8.7 Claims Review.....................................11 8.8 Indemnity.........................................12 ARTICLE IX. Administration of Trust Fund...............................12 9.1 Payment of Expenses...............................12 9.2 Trust Fund Property...............................12 ARTICLE X. Nature of the Plan.........................................12 ARTICLE XI. Adopting Entities..........................................13 ARTICLE XII. Miscellaneous..............................................13 12.1 Not Contract of Employment........................13 12.2 Alienation of Interest Forbidden..................13 12.3 Withholding.......................................14 12.4 Amendment and Termination.........................14 12.5 Severability......................................14 12.6 Loans.............................................14 12.7 Governing Laws....................................14 PIONEER NATURAL RESOURCES COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN ------------------------------------ (Amended and Restated Effective as of August 1, 2002) WITNESSETH: WHEREAS, PIONEER NATURAL RESOURCES COMPANY ("Pioneer") heretofore established the PIONEER NATURAL RESOURCES COMPANY DEFERRED COMPENSATION RETIREMENT PLAN (the "Plan"), effective August 8, 1997, for the benefit of its eligible employees and the eligible employees of its participating affiliates; and WHEREAS, Pioneer now desires to amend and restate the Plan in its entirety to change the Plan name and make certain other changes; NOW, THEREFORE, pursuant to the authority reserved in the Compensation Committee pursuant to Section 12.4, the Plan is hereby renamed and amended and restated in its entirety, effective August 1, 2002, as the PIONEER NATURAL RESOURCES COMPANY EXECUTIVE DEFERRED COMPENSATION PLAN to read as follows: ARTICLE I. Definitions and Construction ---------------------------- 1.1 Definitions. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary: (a) Account(s): A Member's Matching Account and/or General Account, as applicable, including the amounts credited thereto. (b) Affiliate: Each trade or business (whether or not incorporated) which together with the Company would be deemed to be a "single employer" within the meaning of subsections (b), (c), (m) or (o) of section 414 of the Code. (c) Change of Control: The meaning given that term in Section 1.7 of the Pioneer Natural Resources Company Long-term Incentive Plan, as approved by the shareholders of the Company on August 7, 1997. (d) Code: The Internal Revenue Code of 1986, as amended. (e) Company: Pioneer, Pioneer Natural Resources USA, Inc. and any other entity which adopts the Plan pursuant to the provisions of Article XI. (f) Directors: The Board of Directors of Pioneer. (g) Effective Date: August 1, 2002. (h) Eligible Employee: Any individual who is employed by a Company and is (a) an officer or (b) a member of a select group of management or highly compensated employees who is designated by the Plan Administrator from time to time as being eligible to participate in the Plan. (i) Entry Date: The first day of each Plan Year. -1- (j) General Account: A bookkeeping account established for each Member to which is credited his Member Deferrals pursuant to Section 3.1 and which is credited (or debited) for such account's allocation of net income (or net loss) as provided in Section 3.3. (k) Hypothetical Investments: The investment funds and other securities designated from time to time by the Plan Administrator for the deemed investment of Accounts pursuant to Article IV. (l) Matching Account: A bookkeeping account established for each Member to which is credited the Matching Credits made on his behalf pursuant to Section 3.2(a) and which is credited (or debited) for such account's allocation of net income (or net loss) as provided in Section 3.3. (m) Matching Credits: Matching credits made by the Company on a Member's behalf pursuant to Section 3.2. (n) Member: Each Eligible Employee who has met the eligibility requirements for participation in the Plan and who has become a Member pursuant to Article II. (o) Member Deferrals: Deferrals made by a Member pursuant to Section 3.1. (p) Pay: The total of all amounts paid by the Company to or for the benefit of a Member for services rendered or labor performed, which are required to be reported on such Member's federal income tax withholding statement(s) (Form W-2 or its subsequent equivalent), plus any amounts such Member could have received in cash in lieu of Member Deferrals pursuant to Section 3.1. (q) Pioneer: Pioneer Natural Resources Company, a Delaware corporation, and its successors. (r) Plan: This Pioneer Natural Resources Company Executive Deferred Compensation Plan, as amended from time to time. (s) Plan Administrator: The Compensation Committee of the Directors, which may act through its delegate. (t) Plan Year: The calendar year. (u) Trust: The trust established under the Trust Agreement. (v) Trust Agreement: The agreement entered into between Pioneer and the Trustee pursuant to Article X. (w) Trust Fund: The funds and properties, if any, held pursuant to the provisions of the Trust Agreement, together with all income, profits and increments thereto. (x) Trustee: The trustee or trustees appointed by the Compensation Committee of the Directors who are qualified and acting under the Trust Agreement at any time. (y) Unforeseeable Financial Emergency: An unexpected need of a Member for cash that (i) arises from an illness, casualty loss, sudden financial reversal, or such other unforeseeable occurrence that is caused by an event beyond the control of such Member, (ii) would result in severe financial hardship to such Member if his compensation deferral election was not canceled pursuant to Section 3.1(f) and /or if a -2- withdrawal or benefit payment pursuant to Article VI was not permitted, and (iii) is not reasonably satisfiable from other resources of such Member. Cash needs arising from foreseeable events, such as the purchase of a house or education expenses for children, shall not be considered to be the result of an Unforeseeable Financial Emergency. (z) Valuation Date: Each business day. (aa) Vested Interest: The portion of the amounts credited to a Member's Accounts which, pursuant to the Plan, is nonforfeitable. 1.2 Number and Gender. Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 1.3 Headings. The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control. ARTICLE II. Eligibility and Participation ----------------------------- 2.1 Eligibility. Any Eligible Employee shall be eligible to become a Member of the Plan for any Plan Year by electing to make Member Deferrals pursuant to Section 3.1(a). 2.2 Participation. (a) Prior to each Entry Date, the Plan Administrator shall notify those Eligible Employees who are determined by the Plan Administrator to be eligible to initially become Members pursuant to Section 2.1 as of such Entry Date. Any such Eligible Employee may become a Member for the Plan Year beginning on such Entry Date by making, prior to such Entry Date and within the time period prescribed by the Plan Administrator, a Member Deferral election on a form prescribed by and filed with the Plan Administrator. Notwithstanding any provision herein to the contrary, an Eligible Employee who first becomes an Eligible Employee on other than the first day of a Plan Year may become a Member on the date he first becomes an Eligible Employee for the remainder of such Plan Year with respect to Member Deferrals pursuant to Section 3.1(a) by making, prior to or within 30 days after the date he first becomes an Eligible Employee and within the time period prescribed by the Plan Administrator, a Member Deferral election on a form prescribed by and filed with the Plan Administrator. (b) Notwithstanding any provision herein to the contrary, an Eligible Employee who has become a Member of the Plan shall cease to be entitled to make Member Deferrals hereunder or receive Matching Credits hereunder effective as of any date designated by the Plan Administrator. Any such Plan Administrator action shall be communicated to the affected individual prior to the effective date of such action. Any such Eligible Employee may again become entitled to make Member Deferrals hereunder and receive Matching Credits hereunder for any subsequent Plan Year selected by the Plan Administrator in its sole discretion. -3- ARTICLE III. Account Credits and Allocations of Income or Loss ------------------------------------------------- 3.1 Member Deferrals. (a) A Member meeting the eligibility requirements of Section 2.1 may, in accordance with rules established from time to time by the Plan Administrator, (1) elect to defer from his Pay a percentage or dollar amount of his salary for a Plan Year; and/or (2) elect to defer from his Pay a percentage or dollar amount of his bonus which is payable in cash for a Plan Year. The maximum Member deferral for a Plan Year under Section 3.1(a)(1) shall be 25% of the Member's base salary for the Plan Year and under Section 3.1(a)(2) shall be 100% of the Member's cash bonus for the Plan Year. Notwithstanding the foregoing, with respect to an Eligible Employee who first becomes a Member on other than an Entry Date, any such Member Deferrals pursuant to Section 3.1(a)(1) shall apply only for the portion of such Plan Year commencing with the date he first becomes a Member and ending on the last day of such Plan Year. (b) A Member's election to defer an amount of his Pay pursuant to this Section shall be made by making, on a form prescribed by and filed with the Plan Administrator, a Member Deferral election pursuant to which the Member authorizes the Company to reduce his Pay in the elected amount and the Company, in consideration thereof, agrees to credit an equal amount to such Member's General Account maintained pursuant to the Plan. The reduction in a Member's Pay pursuant to his Member Deferral election shall be effected by Pay reductions as determined by the Plan Administrator following the effective date of such election. Such Pay reductions shall be within the Plan Year to which the Member Deferral election relates, except that Pay reductions attributable to elections pursuant to Section 3.1(a)(2) may be made within the next following Plan Year if the bonus to which the Member Deferral election relates is paid in such next following Plan Year. Member Deferrals made by a Member shall be credited to such Member's General Account as of a date determined in accordance with procedures established from time to time by the Plan Administrator; provided, however, that such Member Deferrals shall be credited to the Member's General Account no later than 30 days after the date upon which the Pay deferred would have been received by such Member in cash if he had not elected to defer such amount pursuant to this Section 3.1. (c) A Member Deferral election pursuant to Section 3.1(a) shall become effective as of the Entry Date (or later initial eligibility date, if applicable) which is on or after the date the election is made by the Member. A Member Deferral election shall remain in force and effect for the entire (or partial, if applicable) Plan Year to which such election relates. A Member Deferral election pursuant to Section 3.1(a) shall remain in force and effect for each subsequent Plan Year (following the Member's initial year of participation in the Plan) for which he satisfies the eligibility requirements set forth in Section 2.1, unless and until such election is changed or revoked by such Member prior to the Entry Date for the subsequent Plan Year to which such change or revocation relates. (d) A Member Deferral election shall indicate the applicable time and form of payment, as provided in Sections 7.2 and 7.3, for the Pay deferred thereunder for such Plan Year and the net income (or net loss) allocated with respect thereto. Such time and form of payment election -4- for such Plan Year shall also apply to any Matching Credits for such Plan Year and the net income (or net loss) allocated with respect thereto. Each Member's Accounts shall be divided into subaccounts to reflect such Member's various elections respecting time and form of payment. (e) A Member who has made a Member Deferral election pursuant to Section 3.1(a) may change or cancel his election, as of the Entry Date for any subsequent Plan Year, by making a new Member Deferral election prior to such Entry Date and within the time period prescribed by the Plan Administrator. A Member who cancels his Member Deferral election may again make a new Member Deferral election for a subsequent Plan Year, if he satisfies the eligibility requirements set forth in Section 2.1, by making a new Member Deferral election prior to the Entry Date for such Plan Year and within the time period prescribed by the Plan Administrator. (f) In the event that the Plan Administrator, upon written request of a Member, determines in its sole discretion that such Member has suffered an Unforeseeable Financial Emergency, the Member Deferral election of such Member then in effect, if any, shall be terminated as soon as administratively practicable after such determination. A Member whose Member Deferral election has been so terminated may again make a new Member Deferral election for a subsequent Plan Year that is at least twelve months after the effective date of such termination, if he satisfies the eligibility requirements set forth in Section 2.1, by making a new Member Deferral election for such Plan Year and within the time period prescribed by the Plan Administrator. (g) If a Member takes a hardship withdrawal from the Pioneer Natural Resources USA, Inc. 401(k) and Matching Plan or any other qualified cash or deferred arrangement (within the meaning of Section 401(k) of the Code) maintained by a Company or an Affiliate, the Member's Member Deferral election shall be suspended and the Member shall not be allowed to make Member Deferrals for a period of six months after receipt of such hardship withdrawal. 3.2 Matching Credits. (a) For each payroll period, the Company shall defer on a Member's behalf an amount which equals 100% of the Member Deferrals made pursuant to Section 3.1(a)(1) and (2) by such Member during such payroll period. Notwithstanding the preceding sentence, in no event shall the Matching Credit on a Member's behalf for a Plan Year exceed 8% of the Member's base salary for the Plan Year. For officers of the Company, 10% shall be substituted for 8% in the preceding sentence. (b) Matching Credits made on a Member's behalf pursuant to Section 3.2(a) shall be credited to his Matching Account in accordance with the procedures established from time to time by the Plan Administrator. (c) A Member who does not have a time and form of payment election in effect pursuant to Section 3.l(d) for any Plan Year shall make a time and form of payment election, as provided in Sections 7.2 and 7.3, for Matching Credits pursuant to Sections 3.2(a) for such Plan Year. Such election shall be made on a form prescribed by and filed with the Plan Administrator. Such election shall remain in force and effect for each subsequent Plan Year (following such initial election) unless or until such election is changed by a new election hereunder or pursuant to Section 3.1(d) prior to the Entry Date of a subsequent Plan Year to which such change relates. A Member who makes a time and form of payment election pursuant to this Section 3.2(c) may change his election, as of the Entry Date of any subsequent Plan Year, by making a new election prior to such Entry Date and within the time period -5- prescribed by the Plan Administrator. Each Member's Accounts shall be divided into subaccounts to reflect such Member's various elections respecting time and form of payment. 3.3 Allocation of Net Income or Loss and Changes in Value Among Accounts. (a) As of each Valuation Date, the Plan Administrator shall determine the net income (or net loss) of each Hypothetical Investment for the period elapsed since the next preceding Valuation Date. The net income (or net loss) of each Hypothetical Investment since the next preceding Valuation Date shall be ascertained by the Plan Administrator in such manner as it deems appropriate, which may include expenses of administering the Hypothetical Investment, the Trust and the Plan. (b) For purposes of allocations of net income (or net loss), each Member's Accounts shall be divided into subaccounts to reflect such Member's deemed investment in a particular Hypothetical Investment pursuant to Article IV. As of each Valuation Date, the net income (or net loss) of each Hypothetical Investment, separately and respectively, shall be allocated among the corresponding subaccounts of the Members who had such corresponding subaccounts invested in such Hypothetical Investments since the next preceding Valuation Date. (c) So long as there is an amount credited to any Account, such Account shall continue to receive allocations pursuant to this Section. ARTICLE IV. Deemed Investment of Accounts ----------------------------- Each Member shall designate, in accordance with the procedures established from time to time by the Plan Administrator, the manner in which the amounts allocated to his Accounts shall be deemed to be invested from among the Hypothetical Investments made available from time to time for such purpose by the Plan Administrator. Such Member may designate one of such Hypothetical Investments for the deemed investment of all the amounts allocated to his Accounts or he may split the deemed investment of the amounts allocated to his Accounts between such Hypothetical Investments in such increments as the Plan Administrator may prescribe. If a Member fails to make a proper designation, then his Accounts shall be deemed to be invested in the Hypothetical Investment or Investments designated by the Plan Administrator from time to time in a uniform and nondiscriminatory manner. A Member may change his deemed investment designation for future amounts to be allocated to his Accounts. Any such change shall be made in accordance with the procedures established by the Plan Administrator, and the frequency of such changes may be limited by the Plan Administrator. A Member may elect to convert his deemed investment designation with respect to the amounts already allocated to his Accounts. Any such conversion shall be made in accordance with the procedures established by the Plan Administrator, and the frequency of such conversions may be limited by the Plan Administrator. -6- ARTICLE V. Determination of Vested Interest -------------------------------- A Member shall have a 100% Vested Interest in his General Account and Matching Account at all times. ARTICLE VI. Withdrawals ----------- 6.1 General. Except as provided in Sections 6.2 and 6.3, Members shall not be permitted to make withdrawals from the Plan prior to termination of employment with the Company and its Affiliates. Members shall not, at any time, be permitted to borrow from the Trust Fund. 6.2 Unforeseeable Financial Emergency. In the event that the Plan Administrator, upon written request of a Member on a form prescribed by and filed with the Plan Administrator, determines in its sole discretion that such Member has suffered an Unforeseeable Financial Emergency, such Member shall be entitled to a benefit in an amount not to exceed the lesser of (1) the amount determined by the Plan Administrator as necessary to meet such Member's needs created by the Unforeseeable Financial Emergency, or (2) the then value of such Member's Vested Interest in his Accounts. Such withdrawal benefit shall be paid in a single lump sum, cash payment as soon as administratively practicable after the Plan Administrator has made its determinations with respect to the availability and amount of such benefit. If a Member's Account(s) are deemed to be invested in more than one Hypothetical Investment, such withdrawal shall be deemed to be paid pro rata from the Hypothetical Investments designated by the Member in which such Account(s) are deemed to be invested. If a Member's Account(s) contain more than one subaccount, such withdrawal benefit shall be considered to have been paid, first, from the subaccount with respect to which the earliest payment would be made, then, from the subaccount with respect to which the next earliest payment would be made, and continuing in such a manner until all of such subaccounts have been exhausted to satisfy the withdrawal benefit. 6.3 Early Withdrawal. Benefit payments may be made to a Member of some or all of his or her Vested Interest in the form of an early withdrawal. An early withdrawal may be requested by a Member once per year, unless the Plan Administrator determines otherwise. The minimum amount eligible for an early withdrawal shall equal twenty-five percent (25%) of the amount credited to the Member's Account(s). To request an early withdrawal, a Member shall file a written request on a form prescribed by and filed with the Plan Administrator at least thirty (30) days in advance of the proposed early withdrawal date and the Plan Administrator shall determine in its sole discretion whether to grant such request. If a Member's Account(s) are deemed to be invested in more than one Hypothetical Investment, such early withdrawal shall be deemed to be paid pro rata from the Hypothetical Investments designated by the Member in which such Account(s) are deemed to be invested. If a Member's Account(s) contain more than one subaccount, such withdrawal shall be considered to have been paid first, from the subaccount with respect to which the earliest payment would be made, then, from the subaccount with respect to which the next earliest payment would be made, and continuing in such a manner until all of such subaccounts have been exhausted to satisfy the withdrawal benefit. Notwithstanding any provision of this Plan to the contrary, any Member who receives an early withdrawal shall forfeit from the amount withdrawn an amount equal to ten percent (10%)of the amount withdrawn; provided, however, that the amount forfeited shall not exceed $50,000. The Member shall not have any right or claim to the forfeited amount, and the Company shall have no obligation whatsoever to the Member, or any other person with regard to the forfeited amount. -7- ARTICLE VII. Termination Benefits -------------------- 7.1 Amount of Benefit. Upon termination of employment of a Member with the Company and its Affiliates for any reason, the Member, or, in the event of the death of the Member while employed by the Company or an Affiliate, the Member's designated beneficiary, shall be entitled to a benefit equal in value to the Member's Vested Interest in his Accounts as of the Valuation Date next preceding the date the payment of such benefit plus any Member Deferrals and Matching Credits credited to and less any benefit payments or withdrawals made from such Accounts since such Valuation Date. The amount of each payment made with respect to a Member's Accounts and any forfeiture amounts applied pursuant to Section 6.3 shall be deducted from the amount credited to such Accounts at the time of payment or forfeiture. 7.2 Time of Payment. Payment of a Member's benefit under Section 7.1 shall be made, with respect to such Member's Accounts, or with respect to such Member's subaccounts established pursuant to Section 3.1(d) and/or 3.2(c), separately and respectively, as soon as administratively practicable after the Valuation Date coinciding with or next following a date elected by the Member pursuant to Section 3.1(d) or 3.2(c), which date shall be either (i) the date of the Member's termination of employment with the Company and its Affiliates or (ii) the first day of the Plan Year next following the date of the Member's termination of employment with the Company and its Affiliates. With respect to any portion of a Member's benefit for which no time of payment election is in effect, payment of such amount shall be made as soon as administratively practicable after the Valuation Date coinciding with or next following the date on which the Member terminates employment with the Company and its Affiliates. 7.3 Alternative Forms of Benefit Payments. A Member's benefit under Section 7.1 shall be paid, with respect to such Member's Accounts, or with respect to such Member's subaccounts established pursuant to Section 3.1(d) and/or 3.2(c) separately and respectively, in one of the following forms irrevocably elected (except as provided below) by such Member pursuant to Section 3.1(d) and/or 3.2(c): (a) a single lump sum, cash payment; or (b) if the amount payable from a subaccount is $10,000 or more as of the date of the Member's termination of employment, annual installment payments for a term certain of either 5 or 10 years payable to the Member or, in the event of such Member's death prior to the end of such term certain, to his designated beneficiary as provided in Section 7.4, with each annual installment equal to the amount credited to the Member's Account multiplied by a fraction the numerator of which is one and the denominator of which is the number of payments remaining. If the amount payable from a subaccount is less than $10,000 as of the date of the Member's termination of employment, such amount shall be paid in a single lump sum, cash payment. With respect to any portion of a Member's benefit for which no form of payment election is in effect, such amount shall be paid in a single lump sum, cash payment. If a Member dies prior to the date the payment of his benefit begins and if no form of payment election is in effect for any portion of such Member's benefit, such amount shall be paid to the Member's designated beneficiary in the form described in the preceding sentence. If a Member dies prior to the date the payment of his benefit begins with a form of payment election in effect, then benefit payments shall be made to the Member's designated beneficiary in the form elected by the Member. A Member may elect to change a prior payment election, provided that any such change in election may be made only once each calendar year and that such -8- change shall not be effective unless it is made at least one full calendar year preceding the date that benefits otherwise would have commenced under the prior payment election. 7.4 Designation of Beneficiaries. (a) Each Member shall have the right to designate the beneficiary or beneficiaries to receive payment of his benefit in the event of his death. Each such designation shall be made by executing the beneficiary designation form prescribed by the Plan Administrator and filing same with the Plan Administrator. Any such designation may be changed at any time by execution of a new designation in accordance with this Section. (b) If no such designation is on file with the Plan Administrator at the time of the death of the Member or such designation is not effective for any reason as determined by the Plan Administrator, then the designated beneficiary or beneficiaries to receive such benefit shall be as follows: (1) if a Member leaves a surviving spouse, his benefit shall be paid to such surviving spouse; or (2) if a Member leaves no surviving spouse, his benefit shall be paid to such Member's estate or to his heirs at law if there is no administration of such Member's estate. 7.5 Payment of Benefits. To the extent the Trust Fund has sufficient assets, the Trustee shall pay benefits to Members or their beneficiaries except to the extent the Company pays the benefits directly and provides adequate evidence of such payment to the Trustee. To the extent the Trustee does not or cannot pay benefits out of the Trust Fund, the benefits shall be paid by the Company. Any benefit payments made to a Member or for his benefit pursuant to any provision of the Plan shall be debited to such Member's Accounts. All benefit payments shall be made in cash to the fullest extent practicable. To the extent that the Company (rather than the Trustee) pays benefits to Members or their beneficiaries, then the Trustee shall reimburse the Company for such payments, provided the Trust Fund has sufficient assets. 7.6 Unclaimed Benefits. In the case of a benefit payable on behalf of a Member, if the Plan Administrator is unable to locate the Member or beneficiary to whom such benefit is payable upon the Plan Administrator's determination thereof, such benefit shall be forfeited to the Company. Notwithstanding the foregoing, if subsequent to any such forfeiture the Member or beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be restored to the Plan by the Company. 7.7 Accelerated Pay-Out Due to Change of Control. Notwithstanding a Member's elections with respect to time and form of payment of Plan benefits, upon a Change of Control the entire amount credited to a Member's Accounts shall be paid to such Member in a single sum cash payment as soon as administratively feasible. The Plan Administrator shall immediately update the value of each Member's Accounts and direct the Trustee to make such payments to the Members. In the event the Plan Administrator does not immediately update the value of each Member's Accounts and direct the Trustee to make such payments, the Trustee shall promptly update the value of the Accounts and make the payments to the Members. 7.8 Accelerated Payment of Reclassified Amounts. In the event that the Internal Revenue Service formally assesses a deficiency against a Member on the grounds that an amount credited to such Members's Accounts under the Plan is subject to federal income tax (the "Reclassified Amount") earlier than the time payment otherwise would be made to the Member pursuant to this Plan, then the Plan Administrator shall immediately update the value of each Member's Accounts -9- and direct the Trustee to make such payments to the Member and deduct from such Accounts the Reclassified Amount. 7.9 Payment of Member Accounts Incident to Divorce. Any provision of this Plan to the contrary notwithstanding, in the event that a court shall order the division of a Member's Accounts in a manner that the Plan Administrator determines satisfies the requirements of a qualified domestic relations order within the meaning of Section 414(p) of the Code, then the portion of the Member's Accounts awarded to the alternate payee pursuant to such order shall be paid to the alternate payee at the same time and in the same manner as the Accounts of the Member; provided, however, that the Plan Administrator, in its sole discretion, may require that the portion of the Member's Accounts awarded to the alternate payee pursuant to such order be paid to the alternate payee in a single lump sum, cash payment as soon as practicable. ARTICLE VIII. Administration of the Plan -------------------------- 8.1 Appointment of Plan Administrator. The general administration of the Plan shall be vested in the Plan Administrator. 8.2 Records and Procedures. The Plan Administrator shall keep appropriate records of its proceedings and the administration of the Plan and shall make available for examination during business hours to any Member or beneficiary such records as pertain to that individual's interest in the Plan. The Plan Administrator shall designate the person or persons who shall be authorized to sign for the Plan Administrator and, upon such designation, the signature of such person or persons shall bind the Plan Administrator. 8.3 Self-Interest of Plan Administrator. No delegate of the Plan Administrator shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a delegate of the Plan Administrator is so disqualified to act, the Directors shall decide the matter in which he is disqualified. 8.4 Compensation and Bonding. The Plan Administrator shall not receive compensation with respect to its services as Plan Administrator. To the extent required by applicable law, or required by the Company, the Plan Administrator shall furnish bond or security for the performance of its duties hereunder. 8.5 Plan Administrator Powers and Duties. The Plan Administrator shall supervise the administration and enforcement of the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power, authority, and duty: (a) to make rules, regulations and bylaws for the administration of the Plan which are not inconsistent with the terms and provisions hereof, provided such rules, regulations and bylaws are evidenced in writing and copies thereof are delivered to the Trustee and to the Company; (b) to construe all terms, provisions, conditions and limitations of the Plan; (c) to correct any defect or supply any omission or reconcile any inconsistency that may appear in the Plan, in such manner and to such extent as it shall deem expedient to carry the Plan into effect for the greatest benefit of all interested parties; -10- (d) to employ and compensate such accountants, attorneys, investment advisors and other agents and employees as the Plan Administrator may deem necessary or advisable in the proper and efficient administration of the Plan; (e) to determine all questions relating to eligibility; (f) to determine the amount, manner and time of payment of any benefits and to prescribe procedures to be followed by distributees in obtaining benefits; (g) to make a determination as to the right of any person to a benefit under the Plan; and (h) to receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements 8.6 Company to Supply Information. The Company shall supply full and timely information to the Plan Administrator relating to the Member's retirement, death or other termination of employment and such other pertinent facts as the Plan Administrator may require. The Company shall advise the Trustee of such of the foregoing facts as are deemed necessary for the Trustee to carry out the Trustee's duties under the Plan. When making a determination in connection with the Plan, the Plan Administrator shall be entitled to rely upon the aforesaid information furnished by the Company. 8.7 Claims Review. In any case in which a claim for Plan benefits of a Member or beneficiary is denied or modified, the Plan Administrator shall furnish written notice to the claimant within ninety days (or within 180 days if additional information requested by the Plan Administrator necessitates an extension of the ninety-day period), which notice shall: (a) state the specific reason or reasons for the denial or modification; (b) provide specific reference to pertinent Plan provisions on which the denial or modification is based; (c) provide a description of any additional material or information necessary for the Member, his beneficiary, or representative to perfect the claim and an explanation of why such material or information is necessary; and (d) explain the Plan's claim review procedure as contained herein In the event a claim for Plan benefits is denied or modified, if the Member, his beneficiary, or a representative of such Member or beneficiary desires to have such denial or modification reviewed, he must, within sixty days following receipt of the notice of such denial or modification, submit a written request for review by the Plan Administrator of its initial decision. In connection with such request, the Member, his beneficiary, or the representative of such Member or beneficiary may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within sixty days following such request for review the Plan Administrator shall, after providing a full and fair review, render its final decision in writing to the Member, his beneficiary or the representative of such Member or beneficiary stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special circumstances require an extension of such sixty-day period, the Plan Administrator's decision shall be rendered as soon as possible but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Member, beneficiary, or the representative of such Member or beneficiary prior to the commencement of the extension period. -11- 8.8 Indemnity. To the extent permitted by applicable law the Company shall indemnify and save harmless the Compensation Committee of the Directors, the Plan Administrator and any individual acting as Plan Administrator (or as its delegate) against any and all expenses, liabilities and claims (including legal fees incurred to defend against such liabilities and claims) arising out of their discharge in good faith of responsibilities under or incident to the Plan. Expenses and liabilities arising out of willful misconduct shall not be covered under this indemnity. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, as such indemnities are permitted under applicable law. ARTICLE IX. Administration of Trust Fund ---------------------------- 9.1 Payment of Expenses. All expenses incident to the administration of the Plan and Trust, including but not limited to, legal, accounting, Trustee fees, and expenses of the Plan Administrator, may be paid by the Company and, if not paid by the Company, shall be paid by the Trustee from the Trust Fund. 9.2 Trust Fund Property. All income, profits, recoveries, contributions, forfeitures and any and all moneys, securities and properties of any kind at any time received or held by the Trustee shall be held for investment purposes as a commingled Trust Fund pursuant to the terms of the Trust Agreement. The Plan Administrator shall maintain one or more Accounts in the name of each Member, but the maintenance of an Account designated as the Account of a Member shall not mean that such Member shall have a greater or lesser interest than that due him by operation of the Plan and shall not be considered as segregating any funds or property from any other funds or property contained in the commingled fund. No Member shall have any title to any specific asset in the Trust Fund. ARTICLE X. Nature of the Plan ------------------ The Company intends and desires by the adoption of the Plan to recognize the value to the Company of the past and present services of employees covered by the Plan and to encourage and assure their continued service with the Company by making more adequate provision for their future retirement security. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation for a select group of management or highly compensated employees of the Company. Plan benefits herein provided are to be paid out of the Company's general assets. Nevertheless, subject to the terms hereof and of the Trust Agreement, the Company may transfer money or other property to the Trustee and the Trustee shall pay Plan benefits to Members and their beneficiaries out of the Trust Fund. To the extent the Company transfers assets to the Trustee pursuant to the Trust Agreement, the Plan Administrator may, but need not, establish procedures for the Trustee to invest the Trust Fund in accordance with each Member's designated deemed investments pursuant to Article IV respecting the portion of the Trust Fund assets equal to such Member's Account(s). The Compensation Committee of the Directors shall establish the Trust and direct the Company to enter into the Trust Agreement. In such event, the Company shall remain the owner of all assets in the Trust Fund and the assets shall be subject to the claims of Company creditors if the Company ever becomes insolvent. For purposes hereof, the Company shall be considered "insolvent" if (a) the Company is unable to pay its debts as they become due, or (b) the Company is subject to a pending proceeding as a debtor under the United States -12- Bankruptcy Code (or any successor federal statute). The chief executive officer of the Company and its board of directors shall have the duty to inform the Trustee in writing if the Company becomes insolvent. Such notice given under the preceding sentence by any party shall satisfy all of the parties' duty to give notice. When so informed, the Trustee shall suspend payments to the Members and hold the assets for the benefit of the Company's general creditors. If the Trustee receives a written allegation that the Company is insolvent, the Trustee shall suspend payments to the Members and hold the Trust Fund for the benefit of the Company's general creditors and shall determine within the period specified in the Trust Agreement whether the Company is insolvent. If the Trustee determines that the Company is not insolvent, the Trustee shall resume payments to the Members. No Member or beneficiary shall have any preferred claim to, or any beneficial ownership interest in, any assets of the Trust Fund. ARTICLE XI. Adopting Entities ----------------- It is contemplated that other corporations, associations, partnerships or proprietorships may adopt this Plan and thereby become a Company hereunder. Any such entity, whether or not presently existing, may become a party hereto by appropriate action of its officers without the need for approval of its board of directors or noncorporate counterpart or of the Directors; provided, however, that such entity must be an Affiliate. The provisions of the Plan shall apply separately and equally to each Company and its employees in the same manner as is expressly provided for Pioneer and its employees and benefit payments made under the Plan with respect to a Member's Accounts shall be the obligation solely of the Company maintaining such Accounts. Transfer of employment among Companies and Affiliates shall not be considered a termination of employment hereunder. Any Company may, by appropriate action of its officers without the need for approval of its board of directors or noncorporate counterpart or the Directors, terminate its participation in the Plan. Moreover, the Directors may, in their discretion, terminate a Company's Plan participation at any time. ARTICLE XII. Miscellaneous ------------- 12.1 Not Contract of Employment. The adoption and maintenance of the Plan shall not be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time nor shall the Plan be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person's right to terminate his employment at any time. 12.2 Alienation of Interest Forbidden. The interest of a Member or his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities engagements or torts of any person to whom such benefits or funds are payable, nor shall they be an asset in bankruptcy or subject to garnishment, attachment or other legal or equitable proceedings. -13- 12.3 Withholding. All deferrals and payments provided for hereunder shall be subject to applicable withholding and other deductions as shall be required of the Company under any applicable local, state or federal law. 12.4 Amendment and Termination. The Compensation Committee of the Directors may from time to time, in its discretion, amend, in whole or in part, any or all of the provisions of the Plan; provided, however, that no amendment may be made that would impair the rights of a Member with respect to amounts already allocated to his Accounts. The Compensation Committee of the Directors may terminate the Plan at any time. In the event that the Plan is terminated, the amounts credited to a Member's Accounts shall be paid to such Member or his designated beneficiary in the manner specified by the Plan Administrator, which may include the payment of a single lump sum, cash payment in full satisfaction of all of such Member's or beneficiary's benefits hereunder. 12.5 Severability. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 12.6 Loans. Loans shall not be permitted under the Plan and Members shall not be eligible to borrow from any Account hereunder. 12.7 Governing Laws. All provisions of the Plan shall be construed in accordance with the laws of Texas except to the extent preempted by federal law. IN WITNESS WHEREOF, this amended and restated Plan has been executed as of this 18th day of July, 2002, to be effective as of the Effective Date. PIONEER NATURAL RESOURCES COMPANY By: /s/ Larry Paulsen ---------------------------------- Name: Larry Paulsen ---------------------------- Title: Vice President ---------------------------- -14- EX-10 13 exh1017.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.17 EXHIBIT 10.17 PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN OMNIBUS NONSTATUTORY STOCK OPTION AGREEMENT (Group 1) To: Option Award Participant PIONEER NATURAL RESOURCES COMPANY, a Delaware corporation (the "Corporation"), may from time to time grant you a Nonstatutory Option (the "Option") to purchase shares of the Corporation's authorized common stock, par value $.01 per share. The number of shares subject to this Option and the Exercise Price per share will be set forth in separate memoranda (each a "Notice of Grant"). The Options, if granted, will be granted under Section 6 of the Pioneer Natural Resources Company Long-Term Incentive Plan dated August 7, 1997, as amended (the "Plan"), a copy of which has been furnished to you, and which Plan is expressly incorporated herein and shall be applicable for all purposes. All terms of this Omnibus Nonstatutory Stock Option Agreement (collectively with each Notice of Grant, this "Agreement") are governed by the Plan and if any provision of this Agreement (other than paragraph 6 hereof) conflicts with the expressly applicable terms of the Plan, the provisions of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended to comply with the Plan. All capitalized terms shall have the meanings given them in the Plan unless otherwise defined in this Agreement or unless the context requires otherwise. This Agreement does not obligate the Corporation to grant any Options to you. This Agreement does, however, set forth the terms of the agreement between you and the Corporation with respect to any and all Options which may be granted to you. By accepting any grant of Options, you agree to be bound by all of the terms hereof. 1. Vesting and Exercisability. You cannot exercise the Options and acquire Stock until your right to exercise has vested. Options will vest and be exercisable at the times and with respect to the number of shares of Stock indicated in the applicable Notice of Grant. Options will vest only if you have been an Eligible Individual continuously since the date of grant of such Options through the vesting date. You may exercise your Options for vested portions at any time before the time the Options terminate. The termination time is described in paragraph 3 hereof. 2. Method of Exercise. You may exercise your Options only by written or recorded electronic notice delivered to the Corporation's Office of the General Counsel or designee, in accordance with instructions generally applicable to all option holders, during the term of the Options. The notice must: a. State the number of shares of Stock being purchased; b. Be signed or otherwise given by you (or by the person authorized by the Plan in case of your death or Disability); c. Be accompanied by payment of the Exercise Price for all shares of Stock being purchased (unless you have provided for payment through a brokerage firm or other means when the Plan so permits); and d. Be accompanied by payment of the amount that the Corporation is required to withhold for federal income or other tax purposes (unless you have provided for payment of those taxes to the Corporation in another manner permitted under the Plan). No Options will be deemed to have been exercised unless all of these requirements are satisfied. However, this provision may be waived by the Corporation by a written document signed by a duly authorized officer of the Corporation. 3. Termination. With respect to the number of shares for which an Option has vested and become exercisable pursuant to paragraph 1 above, the Option will terminate on the fifth anniversary of the date such Option vested, unless it terminates earlier according to any of the provisions of the Plan, or unless otherwise provided in the Notice of Grant under which such Option was granted. 4. Incorporation of Plan. All Options are subject to the Plan. Except for the provisions of paragraph 6 hereof, in the event of a difference between a mandatory provision of the Plan and any provision of this Agreement, the Plan's terms govern. The following paragraphs of the Plan are hereby incorporated into this Agreement: a. The terms and provisions contained in Paragraph 6.5 of the Plan (concerning method of exercise). b. The terms and provisions contained in Paragraph 6.7 of the Plan (concerning medium and time of payment of Exercise Price). c. The terms and provisions contained in Paragraph 6.8 of the Plan (concerning payment of Exercise Price with sale proceeds). d. The terms and provisions contained in Paragraph 6.12 of the Plan (concerning modification, extension and renewal of Options). e. The terms and provisions contained in Paragraph 10.1 of the Plan (concerning adjustment of the Exercise Price and the number of shares of Stock subject to Options upon certain events). f. As of November 30, 2000, the terms and provisions contained in Paragraph 10.2 of the Plan (concerning potential changes in the terms and provisions of the Options upon the occurrence of a Change in Control of the Corporation), including the terms and provisions of Paragraph 10.2(a), shall be in effect. g. The terms and provisions contained in Paragraph 10.3 of the Plan (concerning a Restructure without a Change in Control of the Corporation). h. The terms and provisions contained in Paragraph 11.1 of the Plan (concerning termination of your employment). i. The terms and provisions contained in Paragraph 11.3 of the Plan (concerning your death). j. The terms and provisions contained in Paragraph 11.4 of the Plan (concerning your Normal Retirement). k. The terms and provisions contained in Paragraph 11.5 of the Plan (concerning your Disability). l. The terms and provisions contained in Paragraph 11.6 of the Plan (concerning your leave of absence). m. The terms and provisions contained in Paragraph 11.7 of the Plan (concerning transferability of Options). n. The terms and provisions contained in Paragraph 11.9 of the Plan (concerning delivery of certificates of Stock upon exercise of Options). o. The terms and provisions contained in Paragraph 11.10 of the Plan (concerning conditions to delivery of the certificates of Stock upon compliance with applicable securities laws). p. The terms and provisions contained in Paragraph 11.11 of the Plan (concerning exercisability of Options by persons subject to the Exchange Act Section 16(b)). q. The terms and provisions contained in Paragraph 11.14 of the Plan (concerning your rights as a stockholder of the Corporation). r. The terms and provisions contained in Paragraph 11.15 of the Plan (concerning certain information to be furnished by you to the Corporation). s. The terms and provisions contained in Paragraph 11.16 of the Plan (concerning the absence of any obligation on your part to exercise Options). t. The terms and provisions contained in Paragraph 11.17 of the Plan (concerning the power and authority of the Committee to amend the terms and conditions of this Agreement). u. The terms and provisions contained in Paragraph 11.18 of the Plan (concerning remedies available to the Corporation in connection with the enforcement of the terms and provisions of this Agreement). v. The terms and provisions contained in Paragraph 11.19 of the Plan (concerning your confidentiality obligation with respect to this Agreement). w. The terms and provisions contained in Paragraph 11.20 of the Plan (concerning consideration to be paid by you). x. The terms and provisions contained in Paragraph 11.21 of the Plan (concerning payment of taxes by you upon exercise of the Option). y. The terms and provisions contained in Section 12 of the Plan (concerning duration and amendment of the Plan and this Agreement). z. The terms and provisions contained in Section 13 of the Plan (concerning general matters relating to the Plan). 5. Notice. Notices will be given and deemed delivered in accordance with Paragraph 13.14 of the Plan. The Corporation, the Committee and the Holder agree that any notices shall be given to the Corporation or the Holder at the following addresses: Corporation or Pioneer Natural Resources Company Committee: 1400 Williams Square West 5205 North O'Connor Boulevard Irving, Texas 75039 Attn: General Counsel Holder: At the Holder's current address as shown in the Corporation's records. 6. Forfeiture. If you are an Employee and that employment relationship is voluntarily terminated by you for any reason (your "Voluntary Termination"), certain of the proceeds (gain) you receive from exercising any Option are subject to forfeiture, in accordance with the following provisions of this paragraph 6, if you compete against the Corporation. If you, directly or indirectly, either alone or with other persons or entities, do any of the following during the six-month period following the effective date of your Voluntary Termination (the "Voluntary Termination Date"): a. on behalf of or for the benefit of any Person other than the Corporation, recruit, hire, discuss or recommend for employment, any Person who at the time is, or within the preceding 12 months was, an Employee, or b. compete with the Corporation or any of its Subsidiaries, then you agree on demand (i) to sell to the Corporation all shares of Stock purchased upon exercise of any Options within 90 days prior to the Voluntary Termination Date which are then owned or held by you at a sale price per share equal to the Exercise Price, and (ii) with respect to shares of Stock purchased upon exercise of any Options within 90 days prior to the Voluntary Termination Date but which are no longer owned or held by you, to pay to the Corporation an amount equal to the difference between (A) the price at which you sold or otherwise disposed of such shares of Stock, and (B) the Exercise Price of such shares of Stock. Waiver of this forfeiture provision by the Corporation may be done only by a written document signed by a duly authorized officer of the Corporation. 7. Governing Law. This Agreement and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed accordingly, without giving effect to principles of conflicts of laws. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by its duly authorized officer as of [date]. PIONEER NATURAL RESOURCES COMPANY By: ----------------------------------------- EX-10 14 exh1018.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.18 EXHIBIT 10.18 PURCHASE AND SALE AGREEMENT LOOKOUT BUTTE AREA, ALBERTA MARTIN CREEK AREA, B.C. THIS AGREEMENT made this 28th day of April, 2005 BETWEEN: PIONEER NATURAL RESOURCES CANADA INC., a body corporate having an office in Calgary, Alberta ("Pioneer Can" or the "Vendor") - and - KETCH RESOURCES LTD., a body corporate having an office in Calgary, Alberta (the "Purchaser") WHEREAS the Vendor has agreed to sell the Assets to the Purchaser and the Purchaser has agreed to purchase the Assets from the Vendor on the terms and conditions set forth herein; NOW THEREFORE in consideration of the premises and the mutual covenants and warranties herein contained, the parties hereto agree as follows: 1. INTERPRETATION -------------- 1.01 Definitions In this Agreement, including the recitals and the schedules attached hereto, the following terms shall have the following meanings: (a) "Affiliate" or "Affiliates" have the same meaning as ascribed to such terms in the Business Corporations Act (Alberta); (b) "Agreement" means this document, together with the Schedules attached hereto and made a part hereof; (c) "Assets" means the Petroleum and Natural Gas Rights, the Tangibles and the Miscellaneous Interests; (d) "Base Price" has the meaning set forth in Subclause 3.01(a); (e) "Burden" means a royalty, net profits interest, carried working interest or similar encumbrance; a right to convert a royalty to a working interest at payout of a well; a mortgage, lien or charge; an option to purchase; a farmout agreement under which earning has not occurred; a penalty or forfeiture arising as a result of an election prior to the Effective Time not to participate in a drilling or other operation; and any other similar encumbrance, but does not include a right of first refusal, preemptive purchase right or similar right; -2- (f) "Business Day" means a day other than a Saturday, Sunday or statutory holiday in Calgary, Alberta; (g) "Claim" means any claim, demand, lawsuit, legal proceeding, arbitration or governmental investigation; (h) "Closing" means the consummation of the purchase and sale of the Assets by the Purchaser and the Vendor as contemplated in this Agreement; (i) "Closing Time" means 10:00 a.m. on May 31, 2005 or such other date or time as may be agreed to in writing by the Parties; (j) "Competition Act Approval" means that (i) the Commissioner of Competition (the "Commissioner") appointed under the Competition Act has issued an advance ruling certificate pursuant to section 102 of the Competition Act in respect of the transactions contemplated herein on terms and conditions satisfactory to the Parties, acting reasonably; or (ii) notification of the transactions contemplated herein pursuant to section 114 of the Competition Act has been given and either (A) the applicable waiting period under section 123 of the Competition Act has expired without the Commissioner having advised the Parties that he intends to apply to the Competition Tribunal established pursuant to subsection 3(1) of the Competition Tribunal Act (Canada) for an order under section 92 or section 100 of the Competition Act in respect of the transactions contemplated herein; or (B) the Commissioner has advised Purchaser that the Commissioner does not intend to apply to the Competition Tribunal for an order under section 92 of the Competition Act in respect of the transactions contemplated herein. (k) "Competition Act" means the Competition Act R.S.C. 1985, c. C-34; (l) "Confidentiality Agreement" means the Confidentiality Agreement dated April 1, 2005 between the Vendor and the Purchaser; (m) "Conveyance" means the Conveyance Agreement attached as Schedule "G" hereto; (n) "Data Room" means the data room established by or on behalf of the Vendor in connection with the sale process that resulted in this Agreement; (o) "Deposit Amount" means the payment set forth in Clause 3.04 plus interest at the Prime Rate from (and including) the date hereof until (but excluding) the Closing Date; -3- (p) "Effective Time" means 8:00 a.m. on the first day of March, 2005; (q) "Environment" includes the components of the earth and the atmosphere and includes all layers of the atmosphere, ambient air, the soil, the surface and sub-surface strata of land, groundwater and surface water (including lakes, rivers, streams, oceans and aquifers), all organic and inorganic matter and living organisms, and the interacting natural systems that include such components; (r) "Environmental Law" means any Regulation intended to protect or preserve the Environment and any Regulation relating to the production, manufacture, storage, handling, transportation, use, spill, release or emission of toxic or hazardous substances; (s) "Environmental and Reclamation Liabilities" means (i) all of the Environmental Liabilities (whether arising or accruing prior to, on or after the Effective Date) relating to the Assets or arising in connection with operations relating to the Assets and (ii) all obligations to abandon the Wells and restore and reclaim the surface sites thereof, to decommission and remove the facilities and equipment comprised in the Tangibles and restore and reclaim the surface sites thereof and to reclaim and restore the lands to which the Surface Rights relate, including such obligations relating to Wells which were abandoned prior to the Effective Time; (t) "Environmental Liabilities" means any and all Liabilities in respect of the Environment, including: (i) Liabilities in respect of contamination, pollution or other damage to the Environment; (ii) Liabilities in respect of damage caused by the production, manufacture, presence, storage, transportation, release, spill or emission of any toxic or hazardous substance (including any form of energy), including, without limitation, corrosion or deterioration of structures or other property and death or injury to human beings, plants or animals; (iii) Liabilities for the remediation, restoration or reclamation of the Environment; and (iv) Liabilities under Environmental Laws; (u) "EUB" means the Alberta Energy and Utilities Board; (v) "EUB License Transfers" means transfers in suitable form for registration with the EUB of the well licenses for the Wells and facilities comprised in the Tangibles which are registered in the name of the Vendor; (w) "Field Employees" means those individuals which are employed by the Vendor who normally work in the field at or near the Assets and whose names are listed in Schedule "H"; -4- (x) "Files and Records" means well files, agreement files, lease files, surface rights files, production records and other files, records, data and information directly pertaining to the Assets and in the possession or control of Vendor excluding historical information not relevant to future operations such as accounting source information and also excluding Seismic Data, income tax and financial information, evaluations, geological maps and interpretations; (y) "GST" means the Goods and Services Tax payable under the Excise Tax Act, 1980 R.S.C., c. E-15, as amended and the schedules and regulations thereunder; (z) Indemnity Threshold" means an amount equal to one percent (1%) of the Base Price; (aa) "Interim Period Pre-Tax Income" means the revenues and costs of every kind and nature (whether incurred or accrued, paid or received or payable or receivable) in respect of the Assets between the Effective Time and the Closing Date calculated on an accrual basis in accordance with normal industry practices, excluding income taxes; (bb) "Investment Canada Act" means the Investment Canada Act, R.S.C. 1985, c. 28 (1st Suppl.); (cc) "Joint Seismic Data" means the Seismic Data which is beneficially owned by the Vendor jointly with one or more third parties and is associated with the seismic lines listed in Schedule "J"; (dd) "knowledge", "aware of" and similar terms mean, when used in a representation or warranty by the Vendor, the actual knowledge or awareness, as the case may be, of the officers of the Vendor and the seven (7) employees of the Vendor who are currently designated as "Managers", without specific inquiry or investigation in connection herewith; (ee) "Lands" means the lands described in Schedule "A", insofar as rights pertaining to the Petroleum Substances underlying those lands, are granted by the Leases; (ff) "Leases" means the leases, licences, permits and other documents of title described in Schedule "A" by virtue of which the holder thereof is entitled to drill for, win, take, own and/or remove the Petroleum Substances within, upon or under the Lands or by virtue of which the holder thereof is entitled to a share of Petroleum Substances removed from the Lands or lands pooled or unitized therewith and includes, if applicable, all renewals and extensions of such documents and all documents issued in substitution therefor; -5- (gg) "Liabilities" means all liabilities and obligations, whether under common law, in equity, under the Regulations, under contract or otherwise, whether torts, contractual, statutory or otherwise, whether absolute or contingent and whether based on fault, strict liability or otherwise; (hh) "Losses" means, for purposes of the indemnification of a person in respect of a matter, all losses, costs, liabilities, taxes (excluding GST and other refundable taxes) and damages which such person suffers, sustains, pays or incurs in connection with such matter and includes reasonable costs of legal counsel (on a full indemnity basis) and other consultants and reasonable costs of investigating and defending Claims arising from such matter, regardless of whether such Claims are sustained but do not include consequential or indirect losses or loss of future profits; (ii) "Miscellaneous Interests" means the Vendor's Interest in all property, assets, interests and rights (other than the Petroleum and Natural Gas Rights and the Tangibles) directly related to the Petroleum and Natural Gas Rights or the Tangibles including, without limitation, any and all of the following: (i) the Title and Operating Documents to the extent related to the Petroleum and Natural Gas Rights or the Tangibles; (ii) rights to use or occupy the surface of lands which are used exclusively in connection with the Petroleum and Natural Gas Rights or the Tangibles, including rights to enter upon and occupy the surface of lands on which the Tangibles and the Wells are located and rights to use the surface of lands to gain access thereto, excluding any such rights that pertain only to a well or wells other than the Wells; (iii) all Files and Records; and (iv) the Wells, including well bores and casing, but specifically excludes the 3-32 Well and the well bore thereof and casing therein, the Seismic Data, income tax and financial information, evaluations, geological maps and interpretations; (jj) "Other Indemnitees" means, in respect of a Party, its Affiliates and its and its Affiliates' directors, officers and employees; (kk) "Party" means the Vendor or the Purchaser; (ll) "Permitted Encumbrances" means: (i) easements, rights of way, servitudes or other similar rights in land including, without limiting the generality of the foregoing, rights of way and servitudes for railways, sewers, -6- drains, gas and oil pipelines, gas and water mains and electric light, power, telephone, telegraph or cable television conduits, poles, wires or cables; (ii) the right reserved to or vested in any government or other public authority, by the terms of the Leases or by statute, to terminate any of the Leases or to require annual or other periodic payments as a condition of the continuance thereof; (iii) taxes on Petroleum Substances or the income or revenue therefrom; (iv) all Regulations respecting the operation of the Assets, including, without limitation, regulations regarding the rate of production of Petroleum Substances from the Wells; (v) the terms and conditions of the Title and Operating Documents, excluding Burdens which are not listed in Schedule "A"; (vi) any liens in favour of a person conducting the operation of any of the Assets securing the portion of the costs and expenses of such operation payable by the Vendor; (vii) mechanics', builders' or materialmen's liens and similar liens in respect of services rendered or goods supplied for which payment is not due; (viii) the reservations, limitations, provisos and conditions in any original grants from the Crown of any of the Lands or interests therein and statutory exceptions to title, which do not materially adversely effect the use of the Assets affected thereby in the oil and gas business; (ix) liens granted in the ordinary course of business to a public utility, municipality or governmental authority in connection with operations conducted with respect to the Assets; (x) any security held by any third party encumbering the Vendor's interest in and to the Assets or any part or portion thereof, in respect of which the Vendor delivers a discharge to the Purchaser at or prior to Closing; (xi) the Burdens set forth in Schedule "A"; and (xii) the ROFRs listed in Schedule "A"; (mm) "Personal Information" means information about an identifiable individual which has been disclosed to the Purchaser or to any of its representatives in connection with the transaction contemplated by this Agreement, but does not include the name, title, business address or telephone number of an employee of an organization; -7- (nn) "Petroleum and Natural Gas Rights" means the Vendor's Interest as set forth in Schedule "A" hereto in and to the Lands and, insofar as they pertain to the Lands, the Leases; (oo) "Petroleum Substances" means petroleum, natural gas, sulphur and related hydrocarbons and every other mineral or substance, whether liquid or solid and whether hydrocarbon or not, or any of them, the right to explore for which, or an interest in which, is granted pursuant to the Leases, insofar only as they pertain to the Lands; (pp) "Place of Closing" shall mean the offices of the Vendor; (qq) "Prime Rate" means the annual rate of interest announced from time to time by the Royal Bank of Canada as the reference rate which is used by such bank for determining interest rates on Canadian dollar commercial loans made by it in Canada, as varied by such bank from time to time; (rr) "Proprietary Seismic Data" means the Seismic Data which is 100% beneficially owned by the Vendor which is associated with the seismic lines listed in Schedule "I"; (ss) "Purchase Price" means the amount payable by the Purchaser to the Vendor pursuant to Clause 3.01; (tt) "Regulations" means all statutes, laws, rules, orders and regulations in effect from time to time and made by governments or governmental boards or agencies having jurisdiction over the Assets; (uu) "Restricted Joint Seismic Data" means Joint Seismic Data which is not Unrestricted Joint Seismic Data; (vv) "ROFR" has the meaning specified in Clause 7.01; (ww) "Seismic Data" means all records, books, documents, licences, reports and data associated with seismic lines which the Vendor has possession or to which the Vendor and its Affiliates have access, excluding interpretations, but including, without limitation: (i) all permanent records of basic field data including, but not limited to, any and all microfilm or paper copies of seismic driller's reports, monitor records, observer's reports and survey notes and any and all copies of magnetic field tapes or conversions thereof; (ii) all permanent records of the processed field data including, but not limited to, any and all microfilm or paper copies of shot point maps, pre-and post-stacked record sections including amplitude, phase, structural displays or other interpretative processes, post-stack data manipulations including filters, -8- migrations and wavelet enhancements, and any and all copies of final stacked tapes and any manipulations and conversions thereof; and (iii) in the case of 3D seismic, in addition to the foregoing, all permanent records or bin locations, bin fold, static corrections, surface elevations and any other relevant information; (xx) "Seismic License" means a perpetual, non-exclusive, non-transferable licence to use the Proprietary Seismic Data and the Joint Seismic Data which is Unrestricted Joint Seismic Data at the Closing Time which will be granted by the Vendor to the Purchaser at Closing and which will contain generally accepted industry terms; (yy) "Tangibles" means the Vendor's Interest in all tangible, depreciable property and assets that are: (i) located in, on or appurtenant to the Lands and used, or intended for use, by the Vendor exclusively in connection with production, processing, gathering, storage, treatment or transportation operations respecting the Petroleum and Natural Gas Rights, including, without limitation, the well equipment, if any, relating to the Wells; and (ii) any additional items, whether located on or off the Lands, that are indicated in Schedule "B" to be specifically included as Tangibles; (zz) "3-32 Well" means the well located at 3-32-1-28W4M; (aaa) "Title and Operating Documents" means (i) the Leases (ii) all agreements relating to the ownership or operation of the Assets entered into in the normal course of the upstream oil and gas business, including, without limitation, joint operating agreements; unit agreements and unit operating agreements; agreements for the construction, ownership and operation of gas plants, pipelines, gas gathering systems and similar facilities; pooling agreements, royalty agreements, farmin agreements, farmout agreements and participation agreements; contracts for the processing, compressing, treatment, gathering, transportation or sale of Petroleum Substances; common stream agreements; well operating contracts; and easements, surface leases, rights of way, road use agreements, pipeline crossing agreements and other surface rights agreements; and (iii) all permits, licences and approvals issued or granted by governmental authorities pertaining to the ownership or operation of the Assets; (bbb) "Title Defect" means a defect, deficiency or discrepancy in or affecting the title of the Vendor to any of the Assets which would not be acceptable to a ready, willing and able buyer of the Assets affected thereby, excluding Permitted Encumbrances, and matters specifically disclosed herein or in Schedule "A"; -9- (ccc) "Trade Seismic Data" means Seismic Data that is not Proprietary Seismic Data or Joint Seismic Data; (ddd) "Unrestricted Joint Seismic Data" means Joint Seismic Data which the Vendor is entitled to license to the Purchaser without the Vendor being in breach of any agreement or obligation or being obligated to compensate any third party or share with any third party the proceeds of such license; (eee) "Vendor's Interest" means the entire interest of the Vendor at the Effective Time; and (fff) "Wells" means the wells located in or on the Lands or lands pooled or unitized therewith including, producing, shut-in, suspended, capped, abandoned and injection wells, if any, listed in Schedule "E"", provided that the "Wells" do not include the 3-32 Well. 1.02 The following Schedules pertaining to the following matters are attached to and are made part of this Agreement: Schedule "A" - Lands, Leases, Petroleum and Natural Gas Rights, Burdens and ROFRs Schedule "B" - Tangibles Schedule "C" - Production Sale Contracts Schedule "D" - Financial Commitments Schedule "E" - Wells Schedule "F" - Units Schedule "G" - Conveyance Schedule "H" - Field Employees Schedule "I" - Proprietary Seismic Data Lines Schedule "J" - Joint Seismic Data Lines 1.03 The headings in this Agreement are inserted for convenience of reference only and shall not be used in any way in construing or interpreting any provision hereof. 1.04 Whenever the singular or masculine or neuter is used in this Agreement or in Schedules attached hereto, it shall be interpreted as meaning the plural or feminine or body politic or corporate, and vice versa, as the context requires. 1.05 If there is any conflict or inconsistency between a provision of the body of this Agreement and that of a Schedule or any document prepared to convey the Assets to the Purchaser, the provision of the body of this Agreement shall prevail. 1.06 All monetary references in this Agreement are expressed in Canadian dollars. Except as otherwise provided in this Agreement, all payments made pursuant hereto shall be made in Canadian dollars. -10- 1.07 For purposes of this Agreement, interest for a period will accrue on a daily basis from and including the first day of the period to but excluding the last day of the period and will not be compounded. 1.08 Unless otherwise stated, references in this Agreement to a Clause, Subclause or Schedule is a reference to a clause, subclause or schedule of this Agreement. 1.09 A term which has a generally accepted meaning in the upstream oil and gas industry in western Canada has the same meaning in this Agreement, unless the context otherwise requires or the term is otherwise defined in this Agreement. 2. PURCHASE AND SALE ----------------- 2.01 The Vendor agrees to sell and convey the Assets to the Purchaser and grant the Seismic License to the Purchaser and the Purchaser agrees to purchase, receive and pay for the Assets and the Seismic License, all in accordance with and subject to the terms and conditions of this Agreement. 3. PURCHASE PRICE AND ALLOCATION ----------------------------- 3.01 The Purchase Price to be paid by the Purchaser to the Vendor for the Assets and the Seismic License, subject to adjustments, shall be: (a) $255,700,000.00 (the "Base Price"); plus (b) an amount equal to interest on the Base Price at the Prime Rate from the Effective Time to the Closing Time (the "Notional Interest"). 3.02 The Base Price shall be allocated among the Assets as follows: (a) To Petroleum and Natural Gas Rights $ 179,049,990.00 (b) To Tangibles $ 74,650,000.00 (c) To the Seismic License $ 2,000,000.00 (d) To Miscellaneous Interests $ 10.00 --------------- Base Price $ 255,700,000.00
The Notional Interest shall be allocated to the Petroleum and Natural Gas Rights. 3.03 The Purchase Price does not include GST, sales taxes or similar taxes. At Closing the Purchaser shall pay to the Vendor an amount equal to 7% of the portion of the Purchase Price allocated to the Tangibles and the Seismic License pursuant to Clause 3.02. The Vendor's GST Registration number is R132693219. -11- The Purchaser shall be solely liable for any and all sales and similar taxes imposed by provincial or federal legislation in respect of the acquisition of the Assets pursuant hereto (including, if applicable, British Columbia Social Services Tax). If the Vendor is required by law to collect such taxes, the Purchaser shall pay such taxes to the Vendor at Closing. The Vendor shall remit the taxes collected by it pursuant to this Clause to the appropriate authorities in accordance with the applicable legislation. After Closing, the Purchaser will be responsible for, and indemnify and save the Vendor harmless in respect of, any amounts of GST and sales and similar taxes (including interest and penalties) which the Purchaser is liable to pay in respect of the acquisition of the Assets pursuant hereto which are in excess of the amounts collected by the Vendor from the Purchaser at Closing on account of such taxes. 3.04 The Vendor acknowledges that the Purchaser has paid the Vendor a deposit of five (5%) percent of the Base Price which shall be deemed to accrue interest at the Prime Rate from (and including) the date hereof to (but excluding) the Closing Date. The Deposit Amount shall be applied in accordance with the following terms: (a) if Closing occurs, the Deposit Amount paid shall be applied to payment of the Purchase Price; (b) if Closing does not occur due to a breach of this Agreement by the Purchaser, the Deposit Amount shall be forfeited to the Vendor on account of the damages suffered by the Vendor as a consequence of such breach. The Parties agree that an amount equal to ten percent (10%) of the Base Price constitutes their genuine pre-estimate of the damages which will be suffered by the Vendor by virtue of such breach; and (c) if Closing does not occur for any reason or circumstance other than that described in Subclause 3.04(b), the Vendor shall refund the Deposit Amount to the Purchaser. 3.05 The Purchase Price and the GST and other taxes payable at Closing pursuant to Clause 3.03 less the Deposit Amount shall be paid by the Purchaser to the Vendor at the Closing Time, per the written instructions of Vendor, by wire transfer of immediately available funds to the Vendor. 4. EFFECTIVE TIME AND ADJUSTMENTS ------------------------------ 4.01 The transfer and assignment of the Assets by the Vendor to the Purchaser shall occur at the Closing Time and be effective as of the Effective Time. The Vendor will be responsible to cause the payment of all costs incurred prior to the Effective Time and the Purchaser will be responsible to cause the payment of all costs incurred on or after the Effective Time. 4.02 Except as otherwise provided in this Agreement, all costs relating to the Assets (including, without limitation, maintenance, development, capital and operating costs) and all revenues attributable to the Assets shall be -12- apportioned between the Parties as of the Effective Time on an accrual basis, provided that: (a) except as otherwise provided in this Clause, costs, expenses and revenues shall be deemed to accrue in accordance with generally accepted accounting principles; (b) costs of work done, services provided and goods supplied shall be deemed to accrue when the work is done or the goods or services are provided; (c) Petroleum Substances produced prior to the Effective Time (including those in tanks at the Effective Time) and the revenues therefrom shall be credited to the Vendor and Petroleum Substances produced after the Effective Time and the revenues therefrom shall be credited to the Purchaser; (d) fees payable to the Vendor as owner of the Tangibles in respect of the custom processing, compression, treatment, gathering or transportation of Petroleum Substances therein shall be revenues attributable to the Assets which accrue at the time that the Petroleum Substances are processed, compressed, treated, gathered or transported therein; (e) amounts payable by the Parties on account of royalties and similar Burdens in respect of Petroleum Substances produced from the Lands or lands pooled or unitized therewith and fees payable by the Parties in respect of the custom processing, compression, treatment, gathering or transportation of Petroleum Substances produced from the Lands or lands pooled or unitized therewith shall be charged to the Party to whom the revenues from the Sale of the Petroleum Substances are credited; (f) other than as provided in Subclauses (j) and (k), rentals and similar payments in respect of the Leases or surface rights comprised in the Assets, taxes levied with respect to the Assets or operations in respect thereof and prepaid expenses will be costs attributable to the Assets and will be apportioned on a per diem basis as of the Effective Time; (g) amounts payable by a Party to an operator under a joint operating agreement on account of the operator's recoverable overhead (including, where a Party is the operator, the amount of the recoverable overhead attributable to such Party's working interest) shall be costs related to the Assets which accrue in the period to which the recoverable overhead is attributable under the applicable joint operating agreement; (h) except as provided in Subclause (g), no adjustment shall be made in respect of general administrative and overhead costs; (i) no adjustments shall be made in respect of overhead recovered by a Party in its capacity as an operator under a joint operating agreement; -13- (j) Alberta Royalty Tax Credits will not be considered to be revenue attributable to the Assets and no adjustments shall be made in respect thereof; (k) there shall be an adjustment in favor of the Vendor equal to 15% of the Pre-Tax Interim Period Income on account of the income taxes payable by the Vendor in respect thereof.; and (l) except as provided in paragraph(k), no adjustments shall be made in respect of income taxes or capital taxes. 4.03 An interim accounting of the adjustments required under Clause 4.02 in respect of the period from the Effective Time to the Closing Date will be made at Closing, based on the Vendor's good faith estimate of costs paid by the Vendor prior to Closing and revenues received by the Vendor prior to Closing. The Vendor shall provide a statement setting forth such estimates not later than three (3) Business Days prior to Closing and shall assist the Purchaser in verifying the amounts set forth in such statement. 4.04 The Parties shall make further adjustments in accordance with Clause 4.02 following the Closing as and when they are ascertained. The Parties shall meet approximately one hundred and twenty (120) days after the Closing Date to finalize, to the extent reasonably possible, the adjustments pursuant to Clause 4.03. In any event, subject to Clause 4.05, the Parties shall not be obligated to make an adjustment in accordance with Clause 4.02 more than one (1) year after Closing unless such adjustment has been specifically requested, by written notice, within such period. 4.05 During the one (1) year period following the Closing Date, a Party may audit the books, records and accounts of the other Party respecting the Assets, for the purpose of effecting adjustments pursuant to this Article. Such audits shall be conducted upon reasonable notice to the Party being audited and at the cost of the auditing Party. 4.06 Notwithstanding Clause 4.04, the Parties will be required to make an adjustment in accordance with Clause 4.02 more than one (1) year after Closing if: (a) the adjustment is required by a Crown royalty audit commenced prior to or within four (4) years after Closing and a written request for the adjustment is given by one Party to the other Party within 120 days of its receipt of the results of the audit; (b) the adjustment is required by a joint venture audit commenced within the term permitted under the governing Title and Operating Document and a written request for the adjustment is given by one Party to the other Party within one hundred and twenty (120) days of its receipt of the final results of the audit; or (c) the adjustment is required by a 13 month adjustment generated within the term permitted under the governing Title and Operating Documents and written request for such adjustment is given by one Party to the other Party within one hundred and twenty (120) days of its receipt of the notice of the 13 month adjustment (for purposes of the foregoing, a "13 month adjustment" is a payment or -14- refund which arises when payments or revenues under an agreement are initially based upon an estimate of annual costs or revenues or both and an adjustment is made following the annual period to reflect differences between the estimates and actual amounts). 4.07 An adjustment payable by a Party after Closing pursuant hereto which is not paid within thirty (30) days of a written request for payment from the other Party, shall bear interest at the Prime Rate payable by the paying Party to the other Party from the end of such thirty (30) day period until the adjustment is paid. 4.08 The Vendor shall continue to invoice joint interest owners for billable costs attributable to the operations pertaining to the Assets for periods prior to the Closing Date and for the month in which Closing occurs and the Vendor shall be entitled to overhead recoveries in its capacity as an operator for such periods (including the month in which Closing occurs). Subsequent joint interest billings shall be prepared and distributed by the Purchaser. For a period of one year after Closing, the Parties shall provide reasonable assistance to each other in the collection or recoupment of any overpayment or underpayment of joint operations accounts receivable and royalties. 4.09 The Assets do not include deposits made by the Vendor which relate to the Assets or cash call advances, operating fund payments or similar advances made by the Vendor to an operator under a joint operating agreement. Such amounts shall either be returned to the Vendor and (if required) replaced by the Purchaser or be transferred by the Vendor to the Purchaser, in which event the Purchaser shall reimburse the amount thereof to the Vendor. 4.10 No item of cost or revenue will be accounted for more than once in the adjustments made pursuant to this Article. 4.11 After Closing, either Party may, at any time, refer to arbitration a dispute between the Parties respecting the requirement for or the amount of an adjustment pursuant to the provisions of this Article 4. 5. CLOSING ------- 5.01 Closing shall take place at the Place of Closing at the Closing Time. 5.02 The Vendor shall prepare, at its cost, and table at Closing, all conveyances, assignments, transfers, notice of assignments, novations and other documents and instruments the Vendor determines are reasonably required or desirable, in accordance with normal oil and gas industry practices in western Canada, to convey, assign and transfer the Vendor's title to the Assets to the Purchaser and to novate the Purchaser into the Title and Operating Documents in the place and stead of the Vendor with respect to the Assets. The Purchaser shall bear all costs incurred in registering such conveyances and registering any further assurances required to convey the Vendor's title to the Assets to the Purchaser. -15- 5.03 The Vendor shall provide the Purchaser with originals of the Files and Records within one (1) day following the Closing Time. The Vendor shall have the right to retain copies of Files and Records and to have access to the originals after Closing for purposes arising as a result of its prior ownership or operation thereof, including joint venture audits, tax matters, litigation and claims. 5.04 The Purchaser shall retain the Files and Records in good order and good condition and in a reasonably accessible location for a period of seven (7) years after the Closing Date, provided that the Purchaser may destroy or give up possession of any of such information or materials if it first offers the Vendor the opportunity (by delivery of at least sixty (60) days' prior written notice to the Vendor containing a detailed listing of the information and materials proposed to be destroyed), to obtain a copy of so much of such information or materials as the Vendor, in its sole discretion, desires at the Vendor's expense, without any payment to the Purchaser. 6. PURCHASER'S TITLE REVIEW ------------------------ 6.01 Between the date this Agreement is fully executed and the Closing Time, subject to contractual and fiduciary obligations and limits, the Vendor shall provide the Purchaser and its nominees reasonable access to the Vendor's records, files and documents directly relating to the Assets, at the Vendor's office during normal business hours, for the purpose of the Purchaser's review of the Assets and the Vendor's title thereto, including, without limitation, the Title and Operating Documents. 6.02 The Purchaser shall conduct its review of the Vendor's title to the Assets with reasonable diligence. Not later than ten (10) days prior to the Closing Time (determined without reference to any change in the Closing Time pursuant to Clause 6.04), the Purchaser shall give the Vendor written notice (the "Purchaser's Title Defects Notice") of Title Defects which the Purchaser does not waive. Such notice shall specify such Title Defects in reasonable detail, the Assets directly affected thereby, the Purchaser's requirements for the rectification or curing thereof and the Purchaser's estimate of the reduction in the value of the Assets resulting therefrom. The Vendor shall thereupon diligently make reasonable efforts to cure or remove such Title Defects not later than the Closing Time (determined without reference to any change in the Closing Time pursuant to Clause 6.04). 6.03 Insofar as the Title Defects described in the Purchaser's Title Defects Notice have not been cured by the Closing Time to the Purchaser's reasonable satisfaction, the Purchaser may elect, subject to Clause 6.04, at or before the Closing Time (determined without reference to any change in the Closing Time pursuant to Clause 6.04), by notice to the Vendor, to do one of the following: (a) waive the uncured Title Defects and proceed with the completion of the transaction; (b) if the reduction in the value of the Assets resulting from the uncured Title Defects which it does not waive is more than 5% of the Base Price, require that the Base Price be reduced by the -16- amount that the reduction in the value of the Assets resulting from such uncured and unwaived Title Defects is greater than 5% of the Base Price and, in such event, the Base Price shall be reduced by such amount, provided that if the reduction in the value of the Assets resulting from the uncured, unwaived Title Defects exceeds 20% of the Base Price, the Vendor will have the right, at or before the Closing Time, to terminate this Agreement in its entirety in accordance with Article 13 and the Deposit Amount shall be returned to the Purchaser; or (c) if the reduction in the value of the Assets resulting from the uncured Title Defects that the Purchaser does not waive is in excess of 20% of the Base Price, terminate this Agreement in its entirety in accordance with Article 13 and the Deposit Amount shall be returned to the Purchaser. Failure by the Purchaser to make such election at or before the Closing Time shall be deemed to be an election pursuant to Subclause 6.03(a). If the reduction in the value of the Assets resulting from the uncured and unwaived Title Defects is equal to or less than 5% of the Base Price, the Purchaser shall be deemed to have waived the Title Defects. 6.04 If there is a dispute in relation to Clause 6.03 regarding the existence of a Title Defect, whether it has been cured or the reduction in the value of the Assets resulting from a Title Defect, either Party may, at any time prior to the occurrence of Closing as then scheduled, refer the determination thereof to arbitration in accordance with Article 14 and the following: (a) if the arbitration is with respect to the existence of a Title Defect, the arbitrator shall be a recognized oil and gas lawyer in private practice in Calgary, Alberta who does not represent either Party; (b) if the arbitration is with respect to the reduction in the value of the Assets resulting from a Title Defect, the arbitrator shall be a firm of recognized, independent reservoir engineering consultants carrying on business in Calgary, Alberta; (c) each Party shall be required to submit a written statement respecting the matter to the arbitrator not later than two Business Days after the arbitrator is appointed, including such Party's proposed resolution and if a Party fails to do so, the arbitrator shall be required to accept the proposal of the other Party; (d) the Purchaser's submissions to the arbitrator shall be consistent with the elections and notices provided by it pursuant to Clauses 6.02 and 6.03, both as to the existence of Title Defects and the reductions in the value of the Assets resulting therefrom; (e) the arbitrator shall be instructed to render its decision not later than five (5) Business Days after its appointment; -17- (f) the Closing Time shall be postponed until 10:00 a.m. on the third Business Day after the decision of the arbitrator is rendered to the Parties; (g) if, after application of the decision of the arbitrator, the reduction in the value of the Assets resulting from the uncured Title Defects which the Purchaser does not waive at or before the Closing Time (determined without reference to any change in the Closing Time pursuant to Clause 6.04) is greater than 20% of the Base Price and at or before the Closing Time (determined without reference to any change in the Closing Time pursuant to Clause 6.04) a Party had elected pursuant to Subclause 6.04(c), to terminate this Agreement in its entirety, this Agreement shall terminate in its entirety in accordance with Article 13 and the Deposit Amount shall be returned to the Purchaser; and (h) if the arbitrator accepts the proposal of the Vendor, the Notional Interest shall be computed until the date upon which the Closing actually occurs and the Purchaser shall pay the fees and expenses of the arbitrator and if the arbitrator selects the proposal of the Purchaser, the Notional Interest shall be calculated only until the date that the Closing would have occurred but for such arbitration and the Vendor shall pay the fees and expenses of the arbitrator. 7. ROFRS, CONSENTS AND COMPETITION ACT APPROVAL -------------------------------------------- 7.01 If the sale of any of the Assets pursuant hereto is subject to a right of first refusal, preferential right of purchase or similar restriction (a "ROFR") or requires the consent of any third party, the Vendor shall promptly serve all notices as are required in respect of the ROFR or consent requirement. Unless otherwise agreed by the Purchaser, each such notice shall include a request for a waiver of the ROFR and a request for consent to the sale of the Assets in question to the Purchaser. 7.02 The Purchaser, acting reasonably and in good faith, shall allocate the Base Price to Assets which are subject to a ROFR and shall advise the Vendor in writing of such allocation within two (2) Business Days after the execution hereof. Such allocations shall be used for the purposes of ROFRs. The Purchaser will indemnify the Vendor and save the Vendor harmless from all Losses that the Vendor suffers as a consequence of using such allocations for purposes of the ROFRs. 7.03 The Assets which are subject to ROFRs which are validly exercised shall not be sold to the Purchaser pursuant hereto but shall be deleted from and cease to be subject to this Agreement and: (a) the terms "Assets", "Lands", "Leases", "Miscellaneous Interests", "Petroleum and Natural Gas Rights" and "Tangibles" shall be deemed to be revised to reflect the deletion of such Assets; (b) the Base Price shall be reduced by the amount allocated to such Assets pursuant to Clause 7.02; and -18- (c) subject to the other provisions of this Agreement, the Parties shall complete the sale of the balance of the Assets pursuant hereto. 7.04 The Purchaser shall promptly file a request for an advance ruling certificate under the Competition Act in respect of the transactions herein, and the applicable filing fee and all Taxes thereon shall be payable by the Parties in equal shares. The Vendor shall co-operate with and provide reasonable assistance to the Purchaser in the preparation of such request. The Purchaser shall provide to the Vendor in advance copies of all applications and filings for approval by the Vendor, not to be unreasonably withheld. The Purchaser shall provide the Vendor with a copy of the Competition Act Approval immediately upon receipt of same. 8. REPRESENTATIONS AND WARRANTIES ------------------------------ 8.01 Each Party represents and warrants to the other Party that: (a) Incorporation: It is a corporation duly organized, validly subsisting and in good standing under the laws of the jurisdiction of its incorporation, continuance or amalgamation (as the case may be) and is duly registered and authorized to carry on business in Alberta; (b) Authorization: All necessary corporate action has been taken by it to authorize the execution, delivery and performance of this Agreement and all other documents, instruments and agreements contemplated by this Agreement; (c) Enforceability: This Agreement has been, and each other document, instrument and agreement executed by it pursuant to this Agreement will be, duly executed and delivered by it and, if properly executed and delivered by the other parties thereto, constitutes or will constitute its valid and binding obligation enforceable in accordance with its terms; (d) s. 116 Tax Act: It is not a non-resident of Canada within the meaning of section 116 of the Income Tax Act R.S.C. 1985, c. 1 (5th Supplement) as amended; (e) Finders' Fees: It has not incurred any obligation or liability, contingent or otherwise, for brokers' or finders' fees in respect of this transaction for which the other Party shall have any obligation or liability; (f) Licensee Liability Rating: It is a registrant with the EUB and its Licensee Liability Rating: (i) is greater than or equal to one (1); (ii) shall, as a result of the consummation of the Transaction, be greater than or equal to one (1); and -19- (iii) shall be greater than or equal to one (1) at the time the EUB considers approval of any EUB License Transfers pursuant to this Agreement; and (g) No Violation of Agreements or Regulations: The execution and delivery of this Agreement and the completion of the purchase and sale of the Assets in accordance with the terms of this Agreement are not and will not be in violation or breach of, or be in conflict with: (i) any term or provision of its charter, by-laws or other governing documents; or (ii) any agreement, instrument, permit or authority to which it is a party or by which it is bound; or (iii) any judicial order, award, judgement or decree applicable to it; 8.02 The Vendor represents and warrants to the Purchaser that: (a) Title: Except for the Permitted Encumbrances, the Assets are free and clear of all Burdens and ROFRs created by, through or under the Vendor or of which the Vendor otherwise has knowledge and the Vendor is not aware of there having been committed any act or omission whereby the interest of the Vendor in and to the Assets or any part or portion thereof may be cancelled or determined, provided that except as set forth in this Subclause (a), the Vendor does not warrant its title to the Assets; (b) Payment of Rents and Royalties: To the knowledge of the Vendor, all royalties, rentals and other payments due under each of the Leases have been properly and timely paid, and all conditions necessary to keep each of the Leases in force have been fully performed; (c) No Breaches of the Regulations: The Vendor has no knowledge of any breach of the Regulations with respect to the Assets which has not been remedied as of the Effective Time which has had or could reasonably be expected to have a materially adverse effect on the Assets or the owner thereof; (d) Judgements and Claims: There are no judgements against the Vendor relating to the Assets, the Vendor has not received written notice of any Claim relating to the Assets and, to the Vendor's knowledge, there are no other judgements or Claims in existence, contemplated or threatened against or with respect to the Assets or the interests of the Vendor therein nor any circumstances which the Vendor reasonably believes will give rise to a Claim relating to the Assets which, in the case of any of the foregoing, has had or could reasonably be expected to have a materially adverse effect on the Assets or the owner thereof; -20- (e) Good Standing Under Agreements: To the Vendor's knowledge, neither the Vendor nor any other party to the Title and Operating Documents is in breach of any term or provision thereof which has had or could reasonably be expected to have a materially adverse effect on the Assets or the owner thereof, provided that the Vendor shall have no liability hereunder with respect to title matters or environmental matters; (f) Assessments: To the Vendor's knowledge, all ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property or the production of Petroleum Substances or the receipt of proceeds therefrom in respect of the Assets which have become due and payable prior to the Effective Time (including all prior years) have been properly and fully paid and discharged; (g) Take or Pay, Gas Balancing and Production Sales Contracts: Except as specifically identified in Schedule "C", the Petroleum and Natural Gas Rights are not subject to any take or pay obligations, any gas balancing agreement or any agreement for the sale of Petroleum Substances that is not terminable on notice of thirty (30) days or less without an early termination penalty or other cost; (h) Financial Commitments: Except as disclosed in Schedule "D", there are no financial commitments in excess of $50,000.00 in any single case and which are due as of the date hereof or which may become due by virtue of matters occurring or arising prior to the date hereof; (i) Hedging Contracts: there are no interest rate swaps, foreign exchange swaps, commodity price hedging contracts or similar derivative contracts relating to the Assets for which the Purchaser will acquire any liability pursuant hereto or which will apply to the Assets after the Closing Date or which will affect the adjustments made pursuant to Article 4 hereof; (j) Environmental Matters: To the knowledge of the Vendor, the Vendor has not received notice from any governmental agency of: (i) any non-compliance with any Environmental Law which has not been remedied in all material respects; or (ii) any Claim of damage to, or contamination or pollution of, the environment or the release, emission, or escape of any toxic or hazardous substance occurring in connection with the operation or development of the Assets; (k) Authorizations or Approvals: No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body exercising jurisdiction over the Assets is required for the due execution, delivery and performance by the Vendor of this Agreement, other than authorizations, approvals or exemptions from requirement therefor, previously obtained and currently in force, approvals of the EUB, and under the Competition Act; -21- (l) ROFR's: Except as may be set out in Schedule "A", none of the interest of Vendor in and to the Assets is subject to any ROFR created by, through or under Vendor or of which Vendor is aware, that become operative by virtue of this Agreement or the transaction to be effected by it; (m) Adverse Claims: To the knowledge of the Vendor, the Vendor has not received notice from any third party claiming an interest in and to the Assets adverse to the interest of the Vendor; (n) Compliance by the Vendor: To the knowledge of the Vendor, the Vendor has not failed to comply with, perform, observe or satisfy any term, condition, obligation or liability which has heretofore arisen under the provisions of any of the Title and Operating Documents or any other agreements and documents to which the Assets are subject which has had or could reasonably be expected to have a materially adverse effect on the Assets or the owner thereof, provided that the Vendor shall have no liability hereunder with respect to title matters or environmental matters; (o) Licences and Permits: To the knowledge of the Vendor, in respect of the Assets that are operated by the Vendor, the Vendor holds all material licenses, permits and similar rights and privileges that are required and necessary under applicable law to operate the Assets as presently operated; (p) Operations: To the knowledge of the Vendor, in all material respects, any and all operations in respect of the Assets, have been conducted in accordance with good oil and gas industry practices and in material compliance with all applicable laws, rules, regulations, orders and directions of governmental and other competent authorities; (q) Tangibles: To the knowledge of the Vendor, the Tangibles operated by the Vendor, if any, are in good and operable condition for the purpose for which they are being used, reasonable wear and tear excepted, and to the knowledge of the Vendor, the Vendor has not received any notice that the Tangibles operated by third parties, if any, are not in good and operable condition for the purpose for which they are being used, reasonable wear and tear excepted; (r) Drilling Obligations: To the knowledge of the Vendor, no material obligations have accrued pursuant to the Title and Operating Documents that may be satisfied by the drilling of a well, the payment of compensatory royalty or the surrender of some or all of the interests granted, reserved or otherwise conferred pursuant to the Title and Operating Documents, other than obligations that have been satisfied (by means other than by the payment of compensatory royalties) or have been permanently waived; (s) Areas of Mutual Interest: There are no active area of mutual interest provisions in any of the Title and Operating Documents or other agreements or documents to which the Assets are subject; and -22- (t) Production or Other Penalties: Excepting production limits of general application in the oil and gas industry, none of the Wells is subject to production or other penalties imposed by the Title and Operating Documents or by any other agreements and documents to which the Assets are subject, or by the Regulations,. 8.03 The Purchaser represents and warrants to the Vendor that: (a) Investment Canada: the Purchaser is a Canadian for purposes of the Investment Canada Act.; and (b) Financial Capacity: the Purchaser has made necessary arrangements so that at the Closing Time the Purchaser will have available sufficient funds so that it is able to pay the amounts payable by it at Closing pursuant to this Agreement. 8.04 The Vendor makes no representations or warranties to the Purchaser other than those expressly enumerated in Clauses 8.01 and 8.02. The Vendor does not warrant or make representations or warranties with respect to: (a) except as specifically set forth in Subclause (a) of Clause 8.02, title to the Assets; (b) the quantity or quality of Petroleum Substances recoverable from the Lands; (c) any estimates of the value of the Assets or the revenues applicable to future production from the Lands; (d) any engineering, geological or other interpretations or economic evaluations respecting the Assets; (e) the rates of production of Petroleum Substances from the Lands; (f) the quality, condition or serviceability of any of the Assets or the suitability of their use for any purpose ; or (g) except as set forth in Subclause 8.02(j), any Environmental Liabilities. Further without restricting the generality of the foregoing, the Purchaser acknowledges that it has made its own independent investigation, analysis, evaluation and inspection of the Assets and the state and condition thereof and that it has relied solely on such investigation, analysis, evaluation and inspection as to its assessment of the condition, quantum and value of the Assets and is purchasing the Assets on an "as is, where is" basis. 8.05 Each Party acknowledges that the other may rely on the representations and warranties made by such Party pursuant to Clauses 8.01, 8.02 and 8.03. The representations and warranties contained in Clauses 8.01, 8.02 and 8.03 shall be true at the Effective Time and at the Closing Time, and the representations and warranties of both the Vendor and the -23- Purchaser shall continue to be in full force and effect and shall survive the Effective Time for a period of one (1) year, for the benefit of the Party for which such representations and warranties were made. In the absence of fraud, however, no claim or action shall be commenced with respect to a breach of any such representation or warranty, unless, within such period, written notice specifying such breach in reasonable detail has been provided to the Party which made such representation or warranty. 9. LIABILITY AND INDEMNIFICATION ----------------------------- 9.01 Subject to other provisions of this Article 9 and provided Closing has occurred and the Vendor has received payment from the Purchaser of the Purchase Price, as adjusted, pursuant to Clause 4., the Vendor shall: (a) indemnify and save harmless the Purchaser and its Other Indemnitees from and against all Losses and Liabilities which the Purchaser and its Other Indemnitees suffer, sustain, pay or incur as a consequence of a breach of a representation and warranty made by the Vendor in Clause 8.01 or 8.02 or a breach by the Vendor of any of the covenants made by it in this Agreement; and (b) be liable for, and indemnify and save harmless the Purchaser and its Other Indemnitees from and against, all Claims made against the Purchaser and its Other Indemnitees as a consequence of a breach of a representation and warranty made by the Vendor in Clause 8.01 or 8.02 or a breach by the Vendor of any of the covenants made by it in this Agreement and all Losses and Liabilities which the Purchaser and its Other Indemnitees suffer, sustain, pay or incur as a consequence of such Claims; except to the extent reimbursed (or reimbursable) by insurance maintained by the Purchaser or caused by the gross negligence or wilful misconduct of the Purchaser or its Other Indemnitees. The indemnity granted by the Vendor herein, however, is not a title warranty and shall not provide any remedy in respect of Losses suffered by the Purchaser or its Other Indemnitees or its successors or assigns as a result of a failure of title to the Assets or an encumbrance or Burden on the Assets. 9.02 The Purchaser shall: (a) indemnify and save harmless the Vendor and its Other Indemnitees from and against all Losses and Liabilities which the Vendor and its Other Indemnitees suffer, sustain, pay or incur as a consequence of a breach of a representation and warranty made by the Purchaser in Clause 8.01 or 8.03 or a breach by the Purchaser of any of the covenants made by it in this Agreement; (b) be liable for, and indemnify and save harmless the Vendor and its Other Indemnitees from and against, all Claims made against the Vendor and its Other Indemnitees as a consequence of a breach of a representation and warranty made by the Purchaser in Clause 8.01 or 8.03 or a breach by the Purchaser of any of the covenants made by it in this Agreement and all Losses and Liabilities which the -24- Vendor and its Other Indemnitees suffer, sustain, pays or incur as a consequence of such Claims; and (c) if Closing occurs, be liable for, and indemnify and save harmless the Vendor and its Other Indemnitees from and against, all Claims made against the Vendor and its Other Indemnitees by a person (other than a Party) in respect of a matter relating to the Assets which occurs on or after the Closing Date and all Losses and Liabilities which the Vendor and its Other Indemnitees suffer, sustain, pay or incur as a consequence of such Claims other than anything directly related to or connected with the 3-32 Well; except to the extent reimbursed (or reimbursable) by insurance maintained by the Vendor or caused by the gross negligence or wilful misconduct of the Vendor. 9.03 The Purchaser is not relying upon any representation or warranty of the Vendor as to the condition, environmental or otherwise, of the Assets, except as is specifically made pursuant to Subclause 8.02(j). Notwithstanding Clause 9.01, but subject to the Purchaser's right under this Article 9 in respect of the representation and warranty in Subclause 8.02(j), the Purchaser further agrees that, if Closing occurs, the Purchaser shall: (a) be solely liable and responsible for; and (b) indemnify and save the Vendor and its Other Indemnitees harmless from any and all Losses they suffer, sustain, pay or incur in respect of all Environmental and Reclamation Liabilities (whether related to acts or omissions occurring before, on or after the Effective Time), including, without limitation, damage from or removal of hazardous or toxic substances, pollution, clean-up, abandonment of the Wells and reclamation , but excluding anything directly related to or connected with the 3-32 Well. 9.04 The indemnification obligations of Vendor under Clause 9.01 are subject to the following restrictions and limitations: (a) The Purchaser shall not be entitled to seek indemnification from the Vendor pursuant to Clause 9.01 in respect of any act, omission, circumstance or other matter actually known to the Purchaser prior to or at Closing or any matter disclosed in the Data Room. (b) No claim by the Purchaser shall be made against the Vendor pursuant to Clause 9.01 in respect of Vendor's breach of any representation or warranty in Clause 8.01 or 8.02 or a covenant contained in Clause 10.01, 10.02 10.03 or unless the aggregate of all of Purchaser's Losses in respect of all of breaches of the Vendor's representations or warranties in Clauses 8.01 and 8.02 and the covenants contained in Clauses 10.01, 10.02 and 10.03 exceeds the Indemnity Threshold. If the total amount of all such Losses exceeds the Indemnity Threshold, then the Vendor's obligations for -25- Purchaser's Losses under Clause 9.01 shall be limited to the amount by which the aggregate amount of all of such Losses exceeds the Indemnity Threshold. (c) In no event shall the Vendor be liable for Purchaser's Losses pursuant to Clause 9.01 after Closing in respect of all of breaches of the Vendor's representations and warranties in Clauses 8.01 and 8.02 and the covenants contained in Clauses 10.01, 10.02 and 10.03 on an aggregate basis for more than the Base Price. (d) The Purchaser shall not be entitled to seek indemnification from the Vendor pursuant to Clause 9.01 in respect of a breach of the Vendor's representations or warranties in Clause 8.01 or 8.02 or a covenant contained in Clause 10.01, 10.02 or 10.03 unless the Purchaser shall have provided the Vendor with a notice of its claim in respect thereof within 12 months after the Closing Date. 9.05 The Vendor shall not be entitled to seek indemnification from the Purchaser pursuant to Clause 9.02 in respect of breaches of the Purchaser's representations or warranties in Clause 8.01 unless the Vendor shall have provided the Purchaser with a notice of its claim in respect thereof within 12 months after the Closing Date. 9.06 Notwithstanding anything to the contrary set forth in this Agreement, neither Party shall have any liability to the other Party for any incidental, special, indirect or consequential damages suffered by the other Party or its successors or assigns. 9.07 A Party's sole remedy for a misrepresentation or breach of a warranty, covenant or other agreement contained in this Agreement is limited to the indemnity contained in Clause 9.01 or 9.02 (as applicable) as limited by the other provisions of this Article 9. 9.08 The following procedures shall be applicable to any claim by a Party or any of its Additional Indemnitees (the "Indemnitee") for indemnification pursuant to this Agreement from the other Party (the "Indemnitor") in respect of a claim by a third party: (a) upon the third party claim being made against or commenced against the Indemnitee, the Indemnitee shall within 10 Business Days of its receipt thereof provide notice thereof to the Indemnitor. The notice shall describe the third party claim in reasonable detail and indicate the estimated amount, if practicable, of the indemnifiable Losses that has been or may be sustained by the Indemnitee in respect thereof. If the Indemnitee does not provide notice to the Indemnitor within such 10 Business Day period, then such failure shall only lessen or limit the Indemnitee's rights to indemnity hereunder to the extent that the defence of the third party claim was prejudiced by such lack of timely notice; (b) if the Indemnitor acknowledges to the Indemnitee in writing that the Indemnitor is responsible to indemnify the Indemnitee in respect of the third party claim pursuant hereto, the Indemnitor shall have the right to do either or both of the following: (i) assume carriage of the defence of the third party claim using legal counsel of its choice and at its sole cost; and/or -26- (ii) settle the third party claim provided the Indemnitor pays the full monetary amount of the settlement and the settlement does not impose any restrictions or obligations on the Indemnitee; (c) the Indemnitee and the Indemnitor shall co-operate with the other in the defence of the third party claim, including making available to the other Party, its directors, officers, employees and consultants whose assistance, testimony or presence is of material assistance in evaluation and defending the third party claim; (d) the Indemnitee shall not enter into any settlement, consent order or other compromise with respect to the third party claim without the prior written consent of the Indemnitor (which consent shall not be unreasonably withheld or delayed), unless the Indemnitee waives its rights to indemnification in respect of the third party claim; (e) upon payment of the third party claim, the Indemnitor shall be subrogated to all claims the Indemnitee may have relating thereto. The Indemnitee shall give such further assurances and co-operate with the Indemnitor to permit the Indemnitor to pursue such subrogated claims as reasonably requested by it; and (f) if the Indemnitor has paid an amount pursuant to the indemnification obligations herein and the Indemnitee shall subsequently be reimbursed from any source in respect of the third party claim from any other Person, the Indemnitee shall promptly pay the amount of the reimbursement (including interest actually received) to the Indemnitor, net of Taxes required to be paid by the Indemnitee as a result of any such receipt. 10. MAINTENANCE OF BUSINESS ----------------------- 10.01 Between the date hereof and the Closing Time, the Vendor shall, to the extent that the nature of its interests permit and subject to the Title and Operating Documents: (a) maintain the Assets in a proper and prudent manner in accordance with good oil and gas industry practices and in material compliance with the Regulations; (b) pay or cause to be paid all costs relating to the Assets as they become due; (c) perform and comply with all covenants and conditions contained in the Title and Operating Documents and any other agreements and documents to which the Assets are subject; (d) not enter into or authorize any material contractual commitment or transaction or any material variation of existing commitments or transactions pertaining to the Assets; and -27- (e) conduct its business relating to the Assets in the normal course, consistent with its past practices. During the period between the Effective Time and the Closing Time the Vendor shall maintain the property damage insurance respecting of the Assets currently in effect and all other insurance it is required to maintain pursuant to the Title and Operating Documents. 10.02 During the period from the date of execution of this Agreement until Closing Time, the Vendor shall not, without the prior written consent of the Purchaser, assume any obligations or commitments or propose or initiate any operations (in either event to the extent exceeding $50,000 for any one item) with respect to the Assets, unless and to the extent that the Vendor reasonably determines that such expenditures or actions are necessary for the protection of life or property, in which case the Vendor shall promptly notify the Purchaser of such intention or actions and the Vendor's estimate of the costs and expenses associated therewith. 10.03 The Vendor shall permit the Purchaser and its legal counsel and authorized representatives to have access to the Assets to the extent the Vendor has the right to provide such access and to the Vendor's books, records and files, in each case, upon reasonable notice and during normal business hours prior to-Closing for purposes of performing due diligence with respect to the Assets for purposes hereof. The provisions of the Confidentiality Agreement shall continue to be applicable to any information made available by the Vendor pursuant to the provisions of this Agreement. 10.04 Following Closing: (a) the Vendor shall hold its title to an Asset in trust for the Purchaser until all necessary notifications, registrations and other steps required to transfer such title to the Purchaser have been completed; and (b) the Vendor shall represent the Purchaser in all matters arising under a Title and Operating Document until the Purchaser is substituted as a party thereto in the place of the Vendor, whether by novation, notice of assignment or otherwise and, in furtherance thereof: (i) all payments relating to the Assets received by the Vendor pursuant to the Title and Operating Document, other than those to which the Vendor is entitled under Article 4, shall be received and held by the Vendor as a trustee for the Purchaser and the Vendor promptly remitted to the Purchaser; (ii) the Vendor shall forward all statements, notices and other information received by it pursuant to such Title and Operating Documents that pertain to the Assets to the Purchaser promptly following their receipt by the Vendor; and -28- (iii) the Purchaser shall forward to other parties to the Title and Operating Documents such notices and elections pursuant to such Title and Operating Documents pertaining to the Assets as the Vendor may reasonably request. 10.05 If Closing occurs, the Vendor shall be deemed to have been the agent of the Purchaser with respect to the maintenance of the Assets pursuant to this Article and the Purchaser shall be deemed to have ratified all actions which the Vendor takes or refrains from taking as authorized hereunder, with the intention that all such actions shall be deemed to be those of the Purchaser. 10.06 If Closing occurs, the Purchaser be liable for, and indemnify and save harmless the Vendor and its Other Indemnitees from and against, all Claims made against the Vendor and its Other Indemnitees resulting from the maintenance of the Assets by the Vendor pursuant to this Article and all Losses and Liabilities which the Vendor and its Other Indemnitees suffer, sustain, pay or incur as a consequence of such Claims, insofar as such Claims and Losses are not a direct result of the gross negligence or wilful misconduct of the Vendor or its Other Indemnitees. An action or omission of the Vendor or its Other Indemnitees shall not be regarded as gross negligence or wilful misconduct, however, to the extent it was done or omitted to be done in accordance with the instructions of or with the concurrence of the Purchaser. 10.07 If Closing occurs, Vendor will commence the abandonment of the 3-32 Well within six (6) months after the Closing Date and thereafter diligently abandon the 3-32 Well and reclaim the surface location thereof in accordance with the Regulations and good oilfield practices all at Vendor's sole cost and risk. 11. PURCHASER'S CLOSING CONDITIONS ------------------------------ 11.01 The Purchaser's obligation to purchase the Assets pursuant hereto is subject to the satisfaction of the following conditions, which are for the exclusive benefit of the Purchaser and may be waived by the Purchaser, in whole or in part: (a) Representations True and Obligations Performed: Except to the extent which, in the aggregate, does not have a material adverse effect on the Purchaser: (i) the representations and warranties made by the Vendor in Clauses 8.01 and 8.02 shall be true when made and as of the Closing Time; and (ii) the Vendor shall have observed and performed in a timely manner all of its obligations under this Agreement which it was required to observe and perform prior to or at Closing; (b) Regulatory Approvals: All approvals to the sale of the Assets pursuant hereto required under the Regulations, except those customarily obtained after closing in accordance with normal oil and gas industry practices in western Canada, shall have been obtained on terms satisfactory to the Vendor acting reasonably; -29- (c) Closing Certificate: If requested by the Purchaser, the Vendor shall have furnished to the Purchaser at Closing a certificate of a senior officer of the Vendor dated the date the Closing occurs certifying on behalf of the Vendor and without personal liability that the covenants and representations and warranties made by the Vendor in Clauses 8.01 and 8.02 hereof are true and correct at the Effective Time and the Closing Time; (d) No Material Adverse Change: No material adverse change of any kind to the Petroleum and Natural Gas Rights or the Tangibles shall have occurred without the Purchaser having agreed thereto between the date hereof and the Closing Time except: (i) depreciation of equipment through ordinary wear and tear; (ii) depletion of reserves through normal production at allowable rates; (iii) changes in prices of Petroleum Substances, changes in tax laws and other circumstances generally affecting the oil and gas industry in the province in which the Assets affected thereby are located; (iv) changes in the rate or quality of production of Petroleum Substances from the Wells unless caused by a breach by the Vendor of its obligations under this Agreement; and (v) damage to the Assets which is substantially covered by insurance, in which event the insurance proceeds shall be paid to the Purchaser at Closing or when received, whichever is later; and (e) Title: Neither Party shall have elected to terminate this Agreement pursuant to Clause 6.03. If any of the foregoing conditions have not been complied with, or waived by the Purchaser at or before the Closing Time, the Purchaser may, in addition to any other remedies which it may have available to it, terminate this Agreement by written notice to the Vendor specifying what conditions have not been satisfied and, in such event, Clause 13.01 will be applicable. 12. VENDOR'S CLOSING CONDITIONS --------------------------- 12.01 The Vendor's obligation to sell the Assets pursuant hereto is subject to the satisfaction of the following conditions, which are for the exclusive benefit of the Vendor and may be waived by the Vendor, in whole or in part: (a) Representations True and Obligations Performed: Except to the extent which, in the aggregate, does not have a material adverse effect on the Vendor: -30- (i) the representations and warranties made by the Purchaser in Clause 8.01 shall be true when made and as of the Closing Time; and (ii) the Purchaser shall have observed and performed in a timely manner all of its obligations under this Agreement which it was required to observe and perform prior to or at Closing; (b) Regulatory Approvals: All approvals to the sale of the Assets pursuant hereto required under the Regulations, except those customarily obtained after closing in accordance with normal oil and gas industry practices in western Canada, shall have been obtained on terms satisfactory to the Vendor acting reasonably. (c) Closing Certificate: If requested by the Vendor, the Purchaser shall have furnished to the Vendor at Closing a certificate of a senior officer of the Purchaser dated the date the Closing occurs certifying on behalf of the Purchaser and without personal liability that the covenants and representations and warranties made by the Purchaser in Clause 8.01 hereof are true and correct at the Effective Time and the Closing Time; (d) Transfers of Well Licenses and Pipeline Permits: The Vendor shall be reasonably satisfied at the Closing Time that the transfers of well licences and pipeline permits to the Purchaser pursuant hereto, if any, will be accepted by the appropriate regulatory authorities; and (e) Title: Neither Party shall have elected to terminate this Agreement pursuant to Clause 6.03. If any of the foregoing conditions has not been complied with, or waived by the Vendor at or before the Closing Time, the Vendor may, in addition to any other remedies which it may have available to it, terminate this Agreement by written notice to the Purchaser specifying what conditions have not been satisfied and, in such event, Clause 13.01 will be applicable. 13. TERMINATION ----------- 13.01 In the event that this Agreement is terminated pursuant to Article 6.00, 11.00 or 12.00, each Party shall be released from all obligations hereunder except its obligations under Clause 3.04 and Article 9. 14. ARBITRATION ----------- 14.01 If any matter upon which the Parties do not agree is referred to arbitration pursuant to a right to refer the matter to arbitration contained in this Agreement or if the Parties agree to refer any matter arising hereunder to arbitration, the arbitration shall be before a single arbitrator. Any such arbitration, including the selection of the arbitrator, shall be governed by the Arbitration Act (Alberta). The decision of any such arbitrator shall be final and binding on the -31- Parties and except as specifically provided for in Subclause 6.04(h), the costs and fees relating thereto shall be borne and paid in the manner the arbitrator determines to be fair and equitable. 14.02 If a dispute is referred to arbitration pursuant to Clause 4.11 or Clause 6.04, each Party shall be required to submit to the arbitrator such Parties' proposed resolution of the dispute. The arbitrator will be required to select one of such submissions to be its ruling on the dispute. 15. OPERATORSHIP AND SIGNS ---------------------- 15.01 The Purchaser acknowledges that the Vendor may not be able to transfer operatorship of some or all of the Assets to the Purchaser at or after Closing. The Vendor covenants to do such reasonable things as the Purchaser may request in order to obtain the appropriate consents and approvals for the assignment and transfer (conditional on Closing occurring) to the Purchaser of operatorship of those of the Assets which the Vendor currently operates. 15.02 After Closing, the Vendor may remove any signs which indicate its ownership or operation of the Assets. The Purchaser will be responsible to erect or install signs required by governmental agencies to indicate that the Purchaser is the operator of the Assets and to notify other working interest owners, gas purchasers, suppliers, contractors, governmental agencies and other third party of the Purchaser's interest in the Assets on and after Closing. 16. NOTICE ------ 16.01 Notwithstanding anything to the contrary contained herein, all notices required or permitted hereunder shall be in writing. Any notice to be given hereunder shall be deemed to be served properly if served in any of the following modes: (a) by telecopier directed to the Party on which it is to be served at that Party's fax number for service. A notice so served shall be deemed to be received by the addressee when actually received by it, if received within normal business hours on any Business Day and otherwise at the commencement of the next ensuing Business Day following transmission; or (b) by mailing it first class (air mail if to or from a location outside of Canada) registered post, postage prepaid, directed to the Party on which it is to be served at that Party's address for service. Notices so served shall be deemed to be received by the addressee at noon, local time, on the earlier of the actual date of receipt or the fourth (4th) day (excluding Saturdays, Sundays and statutory holidays in Alberta) following the mailing thereof. However, if postal service is (or is reasonably anticipated to be) interrupted or operating with unusual delay, notice shall not be served by such means during such interruption or period of delay; or (c) by delivering the notice to the Party on which it is to be served at that Party's address for service. -32- 16.02 The address and fax number for service of notices hereunder of each of the Parties shall be as follows: VENDOR: Pioneer Natural Resources Canada Inc. 2900, 255 - 5th Avenue S.W. Calgary, Alberta T2P 3G6 Attn: Land Department Fax: (403) 231-3276 PURCHASER: Ketch Resources Ltd. 300, 440 - 2nd Avenue S.W. Calgary, Alberta T2P 5E9 Attn: Land Department Fax: (403) 781-8585 A Party may change its address or fax number for service by notice to the other Party, and such changed address for service thereafter shall be effective for all purposes of this Agreement. 17 EUB LICENSE TRANSFERS --------------------- 17.01 Prior to Closing, the Vendor shall prepare and where applicable, electronically submit an application to the EUB for the EUB License Transfers and the Purchaser shall electronically ratify and sign such application. 17.02 Should the EUB deny a EUB License Transfer because of misdescription or other minor deficiencies in the application the Vendor shall within five (5) Business Days correct the application and amend and re-submit an application for the EUB License Transfer and the Purchaser shall electronically ratify and sign such application. 17.03 If, for any reason, the EUB requires a Party to make a deposit or furnish any other form of security in order to approve a EUB License Transfer, such Party shall and covenants to immediately (i) make such deposit and (ii) furnish such other form of security as the EUB requires. 17.04 If a Party (the "Defaulting Party") fails to make a deposit or furnish security it is required to make or furnish under Clause 17.03 within ten (10) days of the Defaulting Party's receipt of notification from the EUB that such deposit or security is required, the other Party (the "Non-Defaulting Party") shall have the right to make such deposit or furnish such security. In such event, the Defaulting Party shall (as applicable) reimburse the amount of such deposit or the costs of such security to the Non-Defaulting Party plus interest thereon at the Prime -33- Rate plus 2% from the date such deposit or security is made or furnished by the Non-Defaulting Party until such reimbursement is made and, in the case of security, cause the security to be returned to the Non-Defaulting Party as soon as possible and indemnify the Non- Defaulting Party for the amount and costs of any draws on the security plus interest thereon at the Prime Rate plus 2% from the date such draw is made until such indemnification is made. In addition to all other rights to enforce such reimbursement otherwise available to the Non- Defaulting Party, it shall have the right to set-off the amount of such reimbursement or indemnification (including interest) against other monies due to the Defaulting Party pursuant to this Agreement. 17.05 Should the Purchaser fail to perform the obligations requested, ordered or directed by a governmental authority respecting Environmental Liabilities within the time specified by the governmental authority and the EUB declines to approve a EUB License Transfer as a result thereof, the Vendor shall be entitled to enter upon and access the Assets to perform such obligations for and on behalf of the Purchaser, without liability to the Purchaser for trespass or otherwise and the Purchaser shall reimburse the Vendor for all costs, charges and expenses incurred by the Vendor in the performance of such obligations, by payment thereof to the Vendor, within thirty (30) days of the Vendor' delivery to the Purchaser of an invoice for such costs, charges and expenses together with interest thereon at the Prime Rate plus 2% from the date such costs, charges or expenses are paid by the Vendor until such reimbursement is made. 18 EMPLOYEES --------- 18.01 Prior to Closing, Purchaser shall provide an offer of employment to each Field Employee, substantially the same in aggregate as the Field Employee's current employment by the Vendor, which will be conditional on Closing occurring. 18.02 Purchaser covenants and agrees to use and disclose Personal Information only for those purposes for which the Personal Information was initially collected from or in respect of the individual to which such Personal Information relates, unless: (a) Vendor or Purchaser has first notified such individual of such additional purpose, and where required by the Regulations, obtained the consent of such individual to such additional purpose; or (b) such use or disclosure is permitted or authorized by the Regulations, without notice to, or consent from, such individual. 19 SEISMIC DATA ------------ 19.01 The Vendor shall use commercially reasonable efforts to obtain the third party consents and waivers necessary to cause the Joint Seismic Data which is Restricted Joint Seismic Data on the date hereof to be Unrestricted Joint Seismic Data at the Closing Time. 19.02 The Purchaser acknowledges that it will acquire the Seismic Data License without representation and warranty (including, without limitation, any -34- representation and warranty as to its accuracy or quality), and without reliance on any information provided by the Vendor or its Affiliates. 19.03 Under no circumstances shall the Purchaser sell, license, distribute or otherwise transfer to a third party any of the Seismic Data that is licensed to the Purchaser pursuant to the Seismic Data License or any copies thereof, in whole or in part, provided that the Purchaser shall be permitted to display such Seismic Data to its joint venture partners holding interests in the Purchaser's joint properties on a view-only basis. The Purchaser shall take all reasonable actions to prevent the disclosure to third parties of the Seismic Data that is licensed to the Purchaser pursuant to the Seismic Data License. The Purchaser shall be liable to the Vendor and its Affiliates for and shall, in addition, indemnify the Vendor and its Affiliates from and against all Losses and third party liability in respect of the Purchaser's disclosure to third parties of the Seismic Data that is licensed to the Purchaser pursuant to the Seismic Data License. 19.04 The Purchaser shall be responsible for payment of all costs of copying the Seismic Data that is licensed to the Purchaser pursuant to the Seismic Data License. 20 GENERAL ------- 20.01 Each Party shall from time to time execute and deliver all such further documents and instruments and do all acts and things as the other Party may, either before or after the Closing Date, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement. 20.02 Unless and until Closing occurs, the Confidentiality Agreement shall be binding upon the Purchaser. If Closing occurs, thereafter, the Confidentiality Agreement shall cease to be applicable with respect to information directly related to the Assets, but will continue to be binding upon the Purchaser and in full force and effect with respect to all other information. 20.03 No public announcement or press release concerning the sale and purchase of the Assets shall be made by a Party without the prior written consent and approval of the other Party; provided that nothing contained herein shall prevent a Party at any time furnishing any information to any governmental authority or to the public if required by the Regulations or the rules of a stock exchange. A Party which proposes to make such a public disclosure shall, to the extent reasonably possible, provide the other Party with a draft of such statement in sufficient time prior to its release to enable such other Party to review such draft and advise that Party of any comments it may have with respect thereto, it being understood that, upon signing this Agreement, the Vendor will be permitted to immediately issue a press release announcing the transaction provided such press release has been reviewed by the Purchaser. 20.04. This Agreement shall be governed by, construed and enforced in accordance with the laws in effect in the Province of Alberta. Each Party accepts the jurisdiction of the courts of the Province of Alberta and all courts of appeal therefrom. -35- 20.05 No waiver by any Party of any breach (whether actual or anticipated) of any of the terms, conditions, representations or warranties contained herein shall take effect or be binding upon that Party unless the waiver is expressed in writing in accordance with the terms hereof. Any waiver so given shall extend only to the particular breach so waived and shall not limit or affect any rights with respect to any other or future breach. 20.06 Time shall be of the essence in this Agreement. 20.07 The representations, warranties, liabilities and indemnities created in this Agreement shall be deemed to apply to all assignments, conveyances, transfers and other documents conveying any of the Assets from the Vendor to the Purchaser. There shall not be any merger of any of such representations, warranties, liabilities or indemnities in such assignments, transfers or other documents. 20.08 This Agreement supersedes all other agreements between the Parties with respect to the sale of the Assets other than the Confidentiality Agreement and this Agreement and the Confidentiality Agreement express the entire agreement of the Parties with respect to the transactions contained herein. 20.09 No Person other than the Parties and their successors and permitted assigns and the Other Indemnitees shall be entitled to any rights or benefits hereunder. 20.10 This Agreement may be amended only by written instrument executed by the Vendor and the Purchaser. 20.11 This Agreement shall enure to the benefit of and be binding upon the Parties hereto and their respective successors and permitted assigns. 20.12 This Agreement may be executed in two or more counterparts by the Parties hereto, each of which counterpart shall be deemed an original but all of which together shall constitute one and the same agreement. 20.13 (a) Upon the written request of the Purchaser, and only to the extent necessary to comply with the Securities Requirements, the Vendor shall: (i) provide the Purchaser or an independent auditing firm selected by the Purchaser (who provide a signed confidentiality undertaking in favour of the Vendor consistent with that required pursuant to the Confidentiality Agreement), with the Historical Information as reasonably requested by the Purchaser; and (ii) provide reasonable access during normal business hours to its personnel who are responsible for Historical Information. (b) Subject to Clause 20.13(d), the Vendor hereby consents to the use by the Purchaser or its Affiliates of the Historical Information (including the Audited Net Operating Statements) and any -35- information derived therefrom in any public disclosure required by the Purchaser or its Affiliates to comply with Securities Requirements. (c) The obligations of the Vendor to disclose or provide reasonable access to any Historical Information pursuant to this clause 20.13 shall terminate December 31, 2008. (d) Except in such form as may be required for Securities Requirements, the Purchaser shall and shall cause its Affiliates to keep all Historical Information confidential and shall not disclose such Historical Information to any of its Affiliates except any of the foregoing who have a need to know such Historical Information for the purposes set forth in this Clause. The Purchaser shall be liable for and in addition, indemnify the Vendor and its Other Indemnitees for any and all Losses suffered, sustained, paid or incurred by the Vendor or its Other Indemnitees directly or indirectly in the event of a breach of this Clause by the Purchaser or any Claim arising out of any use whatsoever of the Historical Information including a preliminary prospectus, final prospectus or other disclosure document that incorporates such Historical Information. (e) The Historical Information shall be provided by the Vendor to the Purchaser or its Affiliates pursuant to this Clause on the condition that the Vendor assumes no liability whatsoever to the Purchaser or its Affiliates or their respective successors and assigns or any other Person in respect of such Historical Information, or the accuracy or sufficiency thereof or in connection with any claim arising out of the Historical Information and Purchaser acknowledges for itself, its Other Indemnitees, its Affiliates' unitholders and trustees, and on behalf of its respective successors and assigns that the Vendor make no representation or warranty with respect to any of the Historical Information and expressly disclaims any implied or constructive representation or warranty. (f) In this Clause: (i) "Historical Information" means historical financial information relating to the Assets, including (i) source records, books, general ledger, invoices, operating statements in the Vendor's possession or to which it has reasonable access, and (ii) the Audited Net Operating Statements; (ii) "Audited Net Operating Statements" means the historical audited net operating statements in respect of the Assets for the 12 month periods ended December 31, 2003 and December 31, 2004 that were in the Data Room; and (iii) "Securities Requirements" means the legal requirements in existence related to alternative disclosure for acquisitions under Section 5.3 of the Companion Policy 44-101 CP to National Instrument 44-101 and Section 8.10 of National Instrument 51-102 and any amendments thereto or any additional requirements under applicable securities laws that the Purchaser or its Affiliates may be required -37- to comply with by a securities commission or similar securities regulatory authority in connection with the filing by the Purchaser or its Affiliates of a prospectus or other public disclosure documents. IN WITNESS WHEREOF the Parties have duly executed this Agreement as of the date first above written. KETCH RESOURCES LTD. PIONEER NATURAL RESOURCES CANADA INC. Per: /s/ Russell J. Tripp Per: /s/ Todd A. Dillabough ------------------------------- ----------------------------- Todd A. Dillabough President & C.E.O. Per: /s/ Korby D. Zimmerman Per: /s/ Cindy L. Rainsford ------------------------------- ----------------------------- Cindy L. Rainsford Controller This is the Execution Page to the Purchase and Sale Agreement dated April 28, 2005 between Pioneer Natural Resources Canada Inc. and Ketch Resources Ltd.. Schedule "A" to a Purchase and Sale Agreement dated April 28, 2005 between Pioneer Natural Resources Canada Inc., as Vendor, and Ketch Resources Ltd., as Purchaser. Schedule "G" to a Purchase and Sale Agreement dated April 28, 2005 between Pioneer Natural Resources Canada Inc., as Vendor, and Ketch Resources Ltd., as Purchaser. CONVEYANCE AGREEMENT THIS AGREEMENT made this 31st day of May, 2005 BETWEEN: PIONEER NATURAL RESOURCES CANADA INC., a body corporate having an office in Calgary, Alberta (the "Vendor") - and - KETCH RESOURCES LTD., a body corporate having an office in Calgary, Alberta (the "Purchaser") WHEREAS the Vendor has agreed to sell and convey the Assets to the Purchaser and the Purchaser has agreed to purchase and receive the Assets from the Vendor; NOW THEREFORE for the consideration provided in the Purchase and Sale Agreement and in consideration of the premises hereto and the covenants and agreements hereinafter set forth and contained, the parties hereto agree as follows: 1.00 DEFINITIONS ----------- In this Agreement, including the premises hereto: (a) "Purchase and Sale Agreement" means the Purchase and Sale Agreement dated April 28, 2005, and made between Pioneer Natural Resources Canada Inc., as Vendor and o, as Purchaser. In addition, the definitions provided for in the Purchase and Sale Agreement are adopted herein by this reference. 2.00 CONVEYANCE ---------- The Vendor, pursuant to and for the consideration provided for in the Purchase and Sale Agreement, the receipt and sufficiency of such consideration being hereby acknowledged by the Vendor, hereby sells, assigns, transfers, conveys and sets over to the Purchaser the entire right, title, estate and interest of the Vendor in and to the Assets, to have and to hold the same absolutely, together with all benefit and advantage to be derived therefrom. 3.00 EFFECTIVE TIME -------------- This conveyance shall be effective as of the Effective Time. 4.00 SUBORDINATE DOCUMENT -------------------- This Agreement is executed and delivered by the Parties hereto pursuant to and for the purposes of the provisions of the Purchase and Sale Agreement and the provisions of the Purchase and Sale Agreement shall prevail and govern in the event of a conflict between the provisions of the Purchase and Sale Agreement and this Agreement. 5.00 ENUREMENT --------- This Agreement shall be binding upon and shall enure to the benefit of each of the Parties hereto and their respective trustees, receivers, receiver-managers, successors and assigns. 6.00 FURTHER ASSURANCES ------------------ Each Party hereto will, from time to time and at all times hereafter, at the request of the other Party but without further consideration, do all such further acts and execute and deliver all such further documents as shall be reasonably required in order to fully perform and carry out the terms hereof. IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date first above written. KETCH RESOURCES LTD. PIONEER NATURAL RESOURCES CANADA INC. Per: Per: ------------------------------- ----------------------------- Per: Per: ------------------------------- ----------------------------- This is an execution page to a Conveyance Agreement dated May 31, 2005 between Pioneer Natural Resources Canada Inc., as Vendor, and Ketch Resources Ltd., as Purchaser. EX-10 15 exh1019.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.19 EXHIBIT 10.19 PIONEER NATURAL RESOURCES COMPANY RESTRICTED STOCK AWARD AGREEMENT [DATE] To [NAME]: 1. Restricted Stock Award. Pioneer Natural Resources Company (the "Company"), a Delaware corporation, hereby grants to you an aggregate of [SHARES GRANTED] shares of Common Stock, par value $.01 per share, of the Company (the "Restricted Shares"). This award is subject to your acceptance of and agreement to all of the applicable terms, conditions and restrictions described in the Company's Long-Term Incentive Plan (the "Plan"), a copy of which is on file with, and may be obtained from, the Secretary of the Company, and to your acceptance of and agreement to the further terms, conditions and restrictions described in this Restricted Stock Award Agreement (this "Award Agreement"). To the extent that any provision of this Award Agreement conflicts with the expressly applicable terms of the Plan, it is hereby acknowledged and agreed that those terms of the Plan shall control and, if necessary, the applicable provisions of this Award Agreement shall be hereby deemed amended so as to carry out the purpose and intent of the Plan. Terms that have their initial letter capitalized but that are not otherwise defined in this Agreement shall have the meaning given them in the Plan in effect as of the date of this Agreement. 2. Escrow of Restricted Shares. The Company shall, at its sole election, either issue in your name a certificate for the Restricted Shares and retain that certificate for the period during which the restrictions described in Section 3(a) are in effect, or, issue the Restricted Shares in your name electronically and control the Shares electronically during the period of restriction. You shall, if requested, execute and deliver to the Company a stock power in blank for the Restricted Shares. You hereby agree that the Company shall hold the certificate for, or control electronically, the Restricted Shares and the related stock power pursuant to the terms of this Award Agreement until such time as the restrictions described in Section 3(a) lapse as described in Section 4, or the Restricted Shares are canceled pursuant to the terms of Section 3(b). 3. Restrictions. Until the restrictions set forth in this Section 3 shall lapse pursuant to the terms of Section 4, below, the Restricted Shares shall: (a) Not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of; and (b) Be cancelled and returned to the Company at the time of your "Termination of Employment" (as defined in Section 11.1 of the Plan), other than a Termination of Employment that is described in Section 4(b) or 4(c) below, and you shall forfeit the Restricted Shares to the Company and all of your rights thereto shall terminate without any payment of consideration by the Company. 4. Lapse of Restrictions. The restrictions described in Section 3 shall lapse in accordance with the terms of this Section. Following the lapse of such restrictions with respect to any Restricted Shares, such Restricted Shares shall no longer be subject to such restrictions. [INSERT LAPSE OF RESTRICTION TERMS HERE] 5. Ownership of Restricted Shares. You are entitled to all the rights of absolute ownership of the Restricted Shares, including the right to vote those shares and to receive dividends thereon, if, as, and when declared by the Board of Directors of the Company, subject, however, to the terms, conditions and restrictions described in the Plan and in this Agreement. 6. Agreement With Respect to Taxes. With regard to all taxes associated with this award, you agree that: (a) You will pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state or local taxes of any kind required by law to be withheld by the Company with respect to the Restricted Shares; provided, however, the Company, at its sole election, shall be entitled or permitted to satisfy this obligation by: (1) The Company's withholding of stock that is subject to this Agreement; or (2) Accepting your transfer of other shares of stock to the Company. (b) The Company shall, to the extent permitted by law, have the right to deduct from any payments of any kind otherwise due to you any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Shares. 7. Adjustment of Shares. The number of shares of Restricted Stock subject to this Agreement shall be adjusted as provided in Section 10.1 of the Plan. 8. Agreement With Respect to Securities Matters. You agree that you will not sell or otherwise transfer any Restricted Shares except pursuant to an effective registration statement under the Securities Act of 1933, as amended, or pursuant to an applicable exemption from such registration. 9. Restrictive Legend. You hereby acknowledge that the certificate for the Restricted Shares, at the Company's sole discretion, may bear a legend noted conspicuously thereon referring to the terms, conditions and restrictions described in the Plan and in this Agreement. Any attempt to dispose of any Restricted Shares in contravention of the terms, conditions and restrictions described in the Plan or in this Agreement shall be ineffective. 10. Governing Law. This Award Agreement and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed accordingly, without giving effect to principles of conflicts of laws. If you accept this Restricted Stock Award and agree to the foregoing terms and conditions, please so confirm by signing and returning the duplicate copy of this Award Agreement enclosed for that purpose. PIONEER NATURAL RESOURCES COMPANY By: --------------------------------- Name: Title: EX-10 16 exh1020.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.20 EXHIBIT 10.20 PIONEER NATURAL RESOURCES COMPANY LONG-TERM INCENTIVE PLAN OMNIBUS NONSTATUTORY STOCK OPTION AGREEMENT (Non-employee Directors) To: Non-employee Director PIONEER NATURAL RESOURCES COMPANY, a Delaware corporation (the "Corporation"), may from time to time, as payment for your services as a director of the Corporation, grant you a Nonstatutory Option (the "Option") to purchase shares of the Corporation's authorized common stock, par value $.01 per share. The number of shares subject to this Option and the Exercise Price per share will be set forth in separate memoranda (each a "Notice of Grant"). The Options, if granted, will be granted under Section 6 of the Pioneer Natural Resources Company Long-Term Incentive Plan dated August 7, 1997 (as amended, the "Plan"), a copy of which has been furnished to you, and which Plan is expressly incorporated herein and shall be applicable for all purposes. All terms of this Omnibus Nonstatutory Stock Option Agreement (collectively with each Notice of Grant, this "Agreement") are governed by the Plan and if any provision of this Agreement conflicts with the expressly applicable terms of the Plan, the provisions of the Plan shall control and, if necessary, the applicable provisions of this Agreement shall be deemed to be amended to comply with the Plan. All capitalized terms shall have the meanings given them in the Plan unless otherwise defined in this Agreement or unless the context requires otherwise. This Agreement does not obligate the Corporation to grant any Options to you. This Agreement does, however, set forth the terms of the agreement between you and the Corporation with respect to any and all Options which may be granted to you. By accepting any grant of Options, you agree to be bound by all of the terms hereof. 1. Vesting and Exercisability. You cannot exercise the Options and acquire Stock until your right to exercise has vested. Options will vest and be exercisable at the times and with respect to the number of shares of Stock indicated in the applicable Notice of Grant. Options will vest only if you have been a director of the Corporation continuously since the date of grant of such Options through the vesting date. You may exercise your Options for vested portions at any time before the time the Options terminate. The termination time is described in paragraph 3 hereof. 2. Method of Exercise. You may exercise your Options only by written or recorded electronic notice delivered to the Corporation's Office of the General Counsel or designee, in accordance with instructions generally applicable to all option holders, during the term of the Options. The notice must: 1 a. State the number of shares of Stock being purchased; b. Be signed or otherwise given by you (or by the person authorized by the Plan in case of your death or Disability); c. Be accompanied by payment of the Exercise Price for all shares of Stock being purchased (unless you have provided for payment through a brokerage firm or other means when the Plan so permits); and d. Be accompanied by payment of the amount that the Corporation is required to withhold for federal income or other tax purposes (unless you have provided for payment of those taxes to the Corporation in another manner permitted under the Plan). No Options will be deemed to have been exercised unless all of these requirements are satisfied. However, this provision may be waived by the Corporation by a written document signed by a duly authorized officer of the Corporation. 3. Termination. With respect to the number of shares for which an Option has vested and become exercisable pursuant to paragraph 1 above, the Option will terminate on the fifth anniversary of the date such Option vested, unless it terminates earlier according to any of the provisions of the Plan, or unless otherwise provided in the Notice of Grant under which such Option was granted. 4. Incorporation of Plan. All Options are subject to the Plan. Except for the provisions of paragraph 6 hereof, in the event of a difference between a mandatory provision of the Plan and any provision of this Agreement, the Plan's terms govern. The following paragraphs of the Plan are hereby incorporated into this Agreement: a. The terms and provisions contained in Paragraph 6.5 of the Plan (concerning method of exercise). b. The terms and provisions contained in Paragraph 6.7 of the Plan (concerning medium and time of payment of Exercise Price). c. The terms and provisions contained in Paragraph 6.8 of the Plan (concerning payment of Exercise Price with sale proceeds). d. The terms and provisions contained in Paragraph 6.12 of the Plan (concerning modification, extension and renewal of Options). e. The terms and provisions contained in Paragraph 10.1 of the Plan (concerning adjustment of the Exercise Price and the number of shares of Stock subject to Options upon certain events). 2 f. The terms and provisions contained in Paragraph 10.2 of the Plan (concerning potential changes in the terms and provisions of the Options upon the occurrence of a Change in Control of the Corporation), including the terms and provisions of Paragraph 10.2(a). g. The terms and provisions contained in Paragraph 10.3 of the Plan (concerning a Restructure without a Change in Control of the Corporation). h. The terms and provisions contained in Paragraph 11.2 of the Plan (concerning your loss of eligibility). i. The terms and provisions contained in Paragraph 11.3 of the Plan (concerning your death). j. The terms and provisions contained in Paragraph 11.7 of the Plan (concerning transferability of Options). k. The terms and provisions contained in Paragraph 11.9 of the Plan (concerning delivery of certificates of Stock upon exercise of Options). l. The terms and provisions contained in Paragraph 11.10 of the Plan (concerning conditions to delivery of the certificates of Stock upon compliance with applicable securities laws). m. The terms and provisions contained in Paragraph 11.11 of the Plan (concerning exercisability of Options by persons subject to the Exchange Act Section 16(b)). n. The terms and provisions contained in Paragraph 11.14 of the Plan (concerning your rights as a stockholder of the Corporation). o. The terms and provisions contained in Paragraph 11.15 of the Plan (concerning certain information to be furnished by you to the Corporation). p. The terms and provisions contained in Paragraph 11.16 of the Plan (concerning the absence of any obligation on your part to exercise Options). q. The terms and provisions contained in Paragraph 11.17 of the Plan (concerning the power and authority of the Committee to amend the terms and conditions of this Agreement). r. The terms and provisions contained in Paragraph 11.18 of the Plan (concerning remedies available to the Corporation in connection with the enforcement of the terms and provisions of this Agreement). 3 s. The terms and provisions contained in Paragraph 11.19 of the Plan (concerning your confidentiality obligation with respect to this Agreement). t. The terms and provisions contained in Paragraph 11.20 of the Plan (concerning consideration to be paid by you). u. The terms and provisions contained in Paragraph 11.21 of the Plan (concerning payment of taxes by you upon exercise of the Option). v. The terms and provisions contained in Section 12 of the Plan (concerning duration and amendment of the Plan and this Agreement). w. The terms and provisions contained in Section 13 of the Plan (concerning general matters relating to the Plan). 5. Notice. Notices will be given and deemed delivered in accordance with Paragraph 13.14 of the Plan. The Corporation, the Committee and the Holder agree that any notices shall be given to the Corporation or the Holder at the following addresses: Corporation or Pioneer Natural Resources Company Committee: 1400 Williams Square West 5205 North O'Connor Boulevard Irving, Texas 75039 Attn: General Counsel Holder: At the Holder's current address as shown in the Corporation's records. 6. Governing Law. This Agreement and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Delaware and construed accordingly, without giving effect to principles of conflicts of laws. IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed by its duly authorized officer as of [date]. PIONEER NATURAL RESOURCES COMPANY By: ----------------------------------------- 4 EX-10 17 exh1021.txt PIONEER 3/31/05 FORM 10-Q EXH. 10.21 EXHIBIT 10.21 April 8, 2005 Mr. Mark S. Berg Re: Offer of Employment Dear Mark: It is my pleasure to memorialize the terms of our offer for the position of EVP, General Counsel and Secretary in the Legal Department at Pioneer Natural Resources USA, Inc. This position will report to Scott Sheffield, Chairman & CEO and will include an initial base salary of $27,500.00 per month and an initial annual target bonus of 65 percent based on your individual performance, the Company meeting prescribed goals annually and approval by the Company's Board of Directors. In addition, you will be eligible for restricted shares equivalent to a value of $550,000. The bonus and restricted stock award will be based upon a full year and will not be prorated. You will receive 4 weeks vacation annually. The attached "Compensation/Benefits Package" covers the features of these programs in more detail and is considered a part of our employment offer. As a regular employee of Pioneer Natural Resources, you will be eligible for participation in the Company's group insurance and other employee benefit programs. As stated in the Company's Employee Handbook, the Company reserves the right to amend, modify, or discontinue specific employee benefits and personnel policies at any time, and your rights and benefits will be governed by the policies as they exist from time to time. In accepting this offer of employment, you will be accepting responsibility for protecting information proprietary to Pioneer Natural Resources and its affiliated entities and to use such information exclusively for Company purposes, and during your employment, you agree to forego any and all gainful employment which would in any way adversely impinge upon the business interest of Pioneer Natural Resources or your ability to perform your job. Your acceptance of this offer places you in the Company's regular employment status with the presumption that you will remain a Pioneer employee for an indefinite period. It must, however, be understood that you will be on an "employment at will" status, meaning that your employment by Pioneer may be terminated at any time by either you or the Company for no reason or any reason not prohibited by law. Offer of Employment April 8, 2005 Page 2 Please execute in the space below to indicate your agreement and acceptance of the terms of the offer outlined in this letter. Sincerely, /s/ Scott D. Sheffield ------------------------- Scott Sheffield Chairman & CEO Accepted: /s/ Mark S. Berg - ------------------------------ Mr. Mark S. Berg COMPENSATION/BENEFITS PACKAGE Mr. Mark S. Berg Title: EVP, General Counsel and Secretary Base Salary: $330,000 per year Annual Bonus: Initial target bonus of 65 percent of base salary. Long-term Incentive: Eligible for Annual Restricted Stock subject to Board approval, individual performance and share availability. Your Executive Officer position is currently eligible for Restricted Stock with a value of approximately $550,000 and subject to 3 year cliff vesting period. You will receive a full annual award for 2005 of 16,000 shares. Retirement Plan: 401(k) Plan - Employee may defer up to 30% pre-tax and up to 20% post-tax. Company match is $2 for $1 - up to 5% of base salary. Non-Qualified Deferred Compensation Plan: Retirement plan on a pre-tax basis allowing deferral of up to 25 percent of annual salary and 100% of bonus each year. The Company provides a matching contribution of up to 10% of base salary. Club Membership: Eligible for fees related to initiation, dues and membership. Vacation: 4 weeks annually Health Insurance: Medical/Dental/Prescription coverage - Employee pays $22 per month for employee coverage and the employee pays portion of dependent cost. Life Insurance: Company pays for 2x base salary life insurance and 2x base salary AD&D insurance. Company also provides business travel life insurance. Long Term Disability: Company pays premium for disability insurance that provides 60% income replacement. Holidays: Nine (9) scheduled holidays plus one floating holiday. Additional Company Paid Benefits: Short-term Disability, Sick Leave, Tuition Reimbursement Relocation Package: Per Company policy (existing employee policy). You will not be required to reimburse relocation benefits under the policy as a result of termination of your employment where you would be entitled to severance payments from the Company. Change In Control and Severance Agreement: 2.99 X base salary and bonus in the event of CIC followed by termination within one year of CIC. Form of agreement is being reviewed by Board for approval, but you will be entitled to the same form of CIC and severance agreement as other similarly situated executive officers serving on the Management Committee. EX-31 18 exh311.txt PIONEER 3/31/05 FORM 10-Q EXH. 31.1 EXHIBIT 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Scott D. Sheffield, certify that: I have reviewed this quarterly report on Form 10-Q of Pioneer Natural Resources Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 6, 2005 /s/ Scott D. Sheffield ------------------------------------ Scott D. Sheffield, Chairman and Chief Executive Officer EX-31 19 exh312.txt PIONEER 3/31/05 FORM 10-Q EXH. 31.2 EXHIBIT 31.2 CHIEF FINANCIAL OFFICER CERTIFICATION I, Richard P. Dealy, certify that: I have reviewed this quarterly report on Form 10-Q of Pioneer Natural Resources Company; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 6, 2005 /s/ Richard P. Dealy ------------------------------------------ Richard P. Dealy, Executive Vice President and Chief Financial Officer EX-32 20 exh321.txt PIONEER 3/31/05 FORM 10-Q EXH. 32.1 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF PIONEER NATURAL RESOURCES COMPANY PURSUANT TO 18 U.S.C. ss. 1350 I, Scott D. Sheffield, Chairman, President and Chief Executive Officer of Pioneer Natural Resources Company (the "Company"), hereby certify that the accompanying report on Form 10-Q for the quarterly period ended March 31, 2005 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Report") by the Company fully complies with the requirements of that section. I further certify that the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company. /s/ Scott D. Sheffield ------------------------------------ Name: Scott D. Sheffield, Chairman and Chief Executive Officer Date: May 6, 2005 EX-32 21 exh322.txt PIONEER 3/31/05 FORM 10-Q EXH. 32.2 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF PIONEER NATURAL RESOURCES COMPANY PURSUANT TO 18 U.S.C. ss. 1350 I, Richard P. Dealy, Executive Vice President and Chief Financial Officer of Pioneer Natural Resources Company (the "Company"), hereby certify that the accompanying report on Form 10-Q for the quarterly period ended March 31, 2005, and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the "Report") by the Company fully complies with the requirements of that section. I further certify that the information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company. /s/ Richard P. Dealy ---------------------------------------- Name: Richard P. Dealy, Executive Vice President and Chief Financial Officer Date: May 6, 2005 -----END PRIVACY-ENHANCED MESSAGE-----