NOTE J. Commitments and Contingencies

Severance agreements. The Company has entered into severance and change in control agreements with its officers and certain key employees. The current annual salaries for the officers and key employees covered under such agreements total $43.2 million.

Indemnifications. The Company has agreed to indemnify its directors and certain of its officers, employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.

Legal actions. The Company is party to various proceedings and claims incidental to its business. While many of these matters involve inherent uncertainty, the Company believes that the amount of the liability, if any, ultimately incurred with respect to such other proceedings and claims will not have a material adverse effect on the Company's consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations. The Company records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated.

Lawsuits filed in state and federal courts in Texas relating to the Pioneer Southwest merger. On May 15, 2013, David Flecker, a purported unitholder of Pioneer Southwest, filed a class action petition on behalf of Pioneer Southwest's unitholders and a derivative suit on behalf of Pioneer Southwest against the Company, Pioneer USA, the General Partner and the directors of the General Partner, in the 134th Judicial District of Dallas County, Texas (the "Flecker Lawsuit"). A similar class action petition and derivative suit was filed against the same defendants on May 20, 2013, in the 160th Judicial District of Dallas County, Texas, by purported unitholder Vipul Patel (the "Patel Lawsuit"). On September 3, 2013, the court consolidated the Patel Lawsuit into the Flecker Lawsuit (as consolidated, the "Texas State Court Lawsuit"), and the plaintiffs filed a consolidated derivative and class action petition on September 5, 2013.

The Texas State Court Lawsuit alleges, among other things, that the consideration offered by the Company in the Pioneer Southwest merger was unfair and inadequate and that, by pursuing a transaction that was the result of an allegedly conflicted and unfair process, the defendants breached their duties under Pioneer Southwest's partnership agreement as well as the implied covenant of good faith and fair dealing, and engaged in self-dealing. Specifically, the lawsuit alleges that the director defendants: (i) engaged in self-dealing, failed to act in good faith toward Pioneer Southwest, and breached their duties owed to Pioneer Southwest; (ii) failed to properly value Pioneer Southwest and its various assets and operations and ignored or failed to protect against the numerous conflicts of interest arising out of the proposed transaction; and (iii) breached the implied covenant of good faith and fair dealing by engaging in a flawed merger process. The Texas State Court Lawsuit also alleges that the Company, Pioneer USA and the General Partner aided and abetted the director defendants in their purported breach of fiduciary duties. Based on these allegations, the plaintiffs in the Texas State Court Lawsuit seek to have the Pioneer Southwest merger rescinded. The plaintiffs also seek money damages and attorneys' fees. The defendants have filed a motion to dismiss the Texas State Court Lawsuit based on improper forum.

In September 2013, representatives of the plaintiffs in the Texas State Court Lawsuit and the defendants entered into a memorandum of understanding (the "Memorandum of Understanding") to settle the claims and allegations made in the lawsuit. The Memorandum of Understanding provided the plaintiffs with a period of confirmatory discovery during which the plaintiffs could confirm the fairness and reasonableness of the settlement contemplated by the Memorandum of Understanding. As part of the consideration for the settlement, the Merger Agreement was amended to provide for contractual appraisal rights for the unitholders. The parties to the Memorandum of Understanding agreed to use their reasonable best efforts to obtain the agreement of any plaintiffs filing similar lawsuits to become party to the Memorandum of Understanding and the related settlement, and it is a condition to the consummation of the final settlement that any such plaintiffs join the settlement or such similar lawsuits otherwise be dismissed with prejudice prior to the final approval of the settlement.

On January 7, 2014, the defendants and representatives of the plaintiffs in the Texas State Court Lawsuit entered into a stipulation of settlement (the "Stipulation of Settlement"). The Stipulation of Settlement provides for a full and complete discharge, dismissal with prejudice, settlement and release of all claims, suits and causes of action by the plaintiffs (other than appraisal rights under the Merger Agreement) against the defendants and their representatives arising out of or relating to the allegations made in the Texas State Court Lawsuit and the Federal Lawsuits (as defined below), the Pioneer Southwest merger or any deliberations, negotiations, disclosures, omissions, press releases, statements or misstatements in connection therewith, any fiduciary or other obligations in respect of the merger or any alternative transaction or under Pioneer Southwest's partnership agreement, or any costs and expenses associated with settlement other than as provided in the Stipulation of Settlement.

On January 11, 2014, the 134th Judicial District, Dallas County, Texas (the "Court") entered a Preliminary Approval Order providing for, among other things, the scheduling of a settlement hearing to be held before the Court, George L. Allen, Sr. Courts Building, 600 Commerce Street, 6th Floor West (Old), Dallas, TX 75202, on March 17, 2014, at 9:30 a.m; the certification, for settlement purposes only, of a Class consisting of all persons who held Pioneer Southwest common units, either of record or beneficially, at any time during the period from and including May 6, 2013 to and including December 17, 2013, the date of consummation of the Pioneer Southwest merger, including any and all of their respective successors-in-interest, predecessors, representatives, trustees, executors, administrators, heirs, assigns, or transferees, and any person or entity acting for or on behalf of, or claiming under, any of them, and specifically including plaintiffs, but excluding defendants, their subsidiary companies, affiliates, assigns, members of their immediate families, and the legal representatives, heirs, successors, or assigns of any such excluded person. All proceedings relating to the allegations made in the Texas State Court Lawsuit other than with respect to the settlement have been stayed, and the Court entered an injunction against the commencement or prosecution of any action by any member of the Class asserting any of the claims subject to the settlement. There can be no assurance that a final settlement will be approved.

Former lawsuits relating to the Pioneer Southwest merger that have been dismissed

United States District Court for the Northern District of Texas. On August 21, 2013, Allan H. Beverly, a purported unitholder, filed a class action complaint against Pioneer Southwest, the Company, Pioneer USA, MergerCo and the directors of the General Partner in the United States District Court for the Northern District of Texas (the "Beverly Lawsuit"). On September 13, 2013, Douglas Shelton, another purported unitholder, filed a class action complaint against the same defendants in the Beverly Lawsuit (as well as the General Partner) in the same court as the Beverly Lawsuit (the "Shelton Lawsuit" and with the Beverly Lawsuit, the “Federal Lawsuits”). The Beverly Lawsuit alleged that the defendants breached their fiduciary duties by agreeing to the merger by means of an unfair process and for an unfair price. Specifically, the lawsuit alleged that the director defendants: (i) failed to maximize the value of Pioneer Southwest to its public unitholders and took steps to avoid competitive bidding; (ii) failed to properly value Pioneer Southwest; and (iii) ignored or failed to protect against the numerous conflicts of interest arising out of the proposed transaction. The Beverly Lawsuit also alleged that the Company, Pioneer USA and MergerCo aided and abetted the director defendants in their purported breach of fiduciary duties. The Shelton Lawsuit made similar allegations to the Beverly Lawsuit, specifically: (i) that the Company, as controlling unitholder, failed to fulfill its fiduciary duties in connection with the merger because it purportedly could not establish that the proposed merger was the result of a fair process that would return a fair price to the unaffiliated unitholders of Pioneer Southwest; (ii) that the director defendants breached their fiduciary duties by failing to exercise due care and diligence in connection with the proposed merger because the proposed merger was purportedly not the result of a fair process that will return a fair price to the unaffiliated unitholders; and (iii) that the non-director defendants aided and abetted the director defendants in their purported breach of fiduciary duties. The plaintiffs in the Federal Lawsuits sought the same remedies as the plaintiffs in the Texas State Court Lawsuit. The representatives of the plaintiffs in the Federal Lawsuits are also parties to the Memorandum of Understanding. In accordance with the Memorandum of Understanding, the plaintiffs in the Beverly Lawsuit voluntarily dismissed all claims in the lawsuit on October 15, 2013, and the plaintiffs in the Shelton Lawsuit voluntarily dismissed all claims in the lawsuit on October 16, 2013.

Delaware Court of Chancery. On September 23, 2013, Patrick Wilson, another purported unitholder, filed a class action petition on behalf of the unitholders against Pioneer USA, MergerCo, Pioneer Southwest, the General Partner and the directors of the General Partner in the Court of Chancery of the State of Delaware (the "Wilson Lawsuit"). The Wilson Lawsuit alleged that the director defendants breached their purported fiduciary obligations to the unitholders by engaging in a process that undervalued Pioneer Southwest and which allegedly constituted gross negligence, recklessness, willful misconduct, bad faith or knowing violations of law. Additionally, the Wilson Lawsuit alleged that the non-director defendants aided and abetted the purported breaches of fiduciary duties of the director defendants. The Wilson Lawsuit sought the same remedies as the plaintiffs in the Texas State Court Lawsuit and the Federal Lawsuits. The plaintiff in the Wilson Lawsuit voluntarily dismissed that action on January 2, 2014. After participating in and receiving confirmatory discovery, the plaintiff in the Wilson Action has informed representatives of the plaintiffs in the Texas State Court Lawsuit that he intends to participate as a class member in the settlement.

The Company cannot predict the outcome of these or any other lawsuits that might be filed subsequent to the date of the filing of this Report, nor can the Company predict the amount of time and expense that will be required to resolve these lawsuits. See Note C for a description of the Merger Agreement.

Obligations following divestitures. In April 2006, the Company provided the purchaser of its Argentine assets certain indemnifications. The Company remains responsible for certain contingent liabilities related to such indemnifications, subject to defined limitations, including matters of litigation, environmental contingencies, royalty obligations and income taxes. The Company has also retained certain liabilities and indemnified buyers for certain matters in connection with other divestitures, including the sale of its Canadian assets in 2007, the sale of Pioneer Tunisia in February 2011, the sale of Pioneer South Africa in August 2012, the planned sale of Alaska in 2014 and in connection with sales of joint interests. The Company does not believe that these obligations are probable of having a material impact on its liquidity, financial position or future results of operations.

Drilling commitments. The Company periodically enters into contractual arrangements under which the Company is committed to expend funds to drill wells in the future. The Company also enters into agreements to secure drilling rig services, which require the Company to make future minimum payments to the rig operators. The Company records drilling commitments in the periods in which the well is drilled or rig services are performed.

Lease agreements. The Company leases equipment and office facilities under operating leases. Rent expense for the years ended December 31, 2013, 2012 and 2011 were $57.9 million, $48.0 million and $35.2 million, respectively. These payments include $9.8 million, $7.9 million and $5.7 million associated with discontinued operations for the years ended December 31, 2013, 2012 and 2011, respectively, which are included in earnings from discontinued operations, net of tax, in the accompanying consolidated statements of operations.

Future minimum lease commitments under noncancelable operating leases at December 31, 2013 are as follows (in thousands):



2014	$	25,305
2015	$	18,495
2016	$	16,135
2017	$	15,637
2018	$	15,418
Thereafter	$	26,569

Gathering, processing, transportation and fractionation agreements. The Company from time to time enters into, and as of December 31, 2013 is a party to, contractual commitments with midstream service companies and pipeline carriers for future gathering, processing, transportation and fractionation. These commitments are normal and customary for the Company's business activities. Future minimum gathering, processing, transportation and fractionation commitments at December 31, 2013 are as follows (in thousands):



2014	$	353,167
2015	$	404,493
2016	$	418,665
2017	$	282,077
2018	$	245,250
Thereafter	$	773,868

Certain future minimum gathering, processing, transportation and fractionation fees are based upon rates and tariffs subject to change over the lives of the commitments. The above commitments include demand fees associated with volume delivery commitments of up to 50,000 BOEPD through August 2017 that are related to the Company's Permian Basin operations. The Company does not expect to be able to fulfill all of its short-term and long-term delivery obligations from projected production of available reserves; consequently, the Company plans to purchase third party volumes to satisfy its commitment if it is economical to do so; otherwise, it will pay demand fees for commitment shortfalls.