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 September 30, 2010

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 1-13245

PIONEER NATURAL RESOURCES COMPANY

(Exact name of Registrant as specified in its charter)

Delaware	75-2702753
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5205 N. O’Connor Blvd., Suite 200, Irving, Texas	75039
(Address of principal executive offices)	(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of Common Stock outstanding as of October 27, 2010                                                                           116,096,190

PIONEER NATURAL RESOURCES COMPANY

TABLE OF CONTENTS

		Page
Cautionary Statement Concerning Forward-Looking Statements			3
Definitions of Certain Terms and Conventions Used Herein			4
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009		5
	Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009		7
	Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2010		8
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009		9
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2010 and 2009		10
	Notes to Consolidated Financial Statements		11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53
Item 4.	Controls and Procedures		56
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		57
Item 1A.	Risk Factors		57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		57
Item 6.	Exhibits		58
Signatures			59
Exhibit Index			60

2

PIONEER NATURAL RESOURCES COMPANY

Cautionary Statement Concerning Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q (the “Report”) contains forward-looking statements that involve risks and uncertainties. When used in this document, the words “believes,” “plans,” “expects,” “anticipates,” “intends,” “continue,” “may,” “will,” “could,” “should,” “future,” “potential,” “estimate” or the negative of such terms and similar expressions as they relate to Pioneer Natural Resources Company (“Pioneer” or the “Company”) are intended to identify forward-looking statements. The forward-looking statements are based on the Company’s current expectations, assumptions, estimates and projections about the Company and the industry in which the Company operates. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Company’s control.

These risks and uncertainties include, among other things, volatility of commodity prices, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, international operations and associated international political and economic instability, litigation, the costs and results of drilling and operations, availability of equipment, services and personnel required to complete the Company’s operating activities, access to and availability of transportation, processing and refining facilities, Pioneer’s ability to replace reserves, implement its business plans or complete its development activities as scheduled, access to and cost of capital, the financial strength of counterparties to Pioneer’s credit facility and derivative contracts and the purchasers of Pioneer’s oil, NGL and gas production, uncertainties about estimates of reserves and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data, environmental and weather risks, including the possible impact of climate change, and acts of war or terrorism. These and other risks are described in the Company’s Annual Report on Form 10-K, this and other Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. In addition, the Company may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 3. Quantitative and Qualitative Disclosures About Market Risk” and “Part II, Item 1A. Risk Factors” in this Report and “Part I, Item 1. Business — Competition, Markets and Regulations,” “Part I, Item 1A. Risk Factors,” “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 for a description of various factors that could materially affect the ability of Pioneer to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Company undertakes no duty to publicly update these statements except as required by law.

3

PIONEER NATURAL RESOURCES COMPANY

Definitions of Certain Terms and Conventions Used Herein

Within this Report, the following terms and conventions have specific meanings:

• “Bbl” means a standard barrel containing 42 United States gallons.

• “Bcf” means one billion cubic feet.

• “BOE” means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.

• “BOEPD” means BOE per day.

• “Btu” means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.

• “DD&A” means depletion, depreciation and amortization.

• “GAAP” means accounting principles that are generally accepted in the United States of America.

• “LIBOR” means London Interbank Offered Rate, which is a market rate of interest.

• “MBbl” means one thousand Bbls.

• “MBOE” means one thousand BOEs.

• “Mcf” means one thousand cubic feet and is a measure of gas volume.

• “MMBbl” means one million Bbls.

• “MMBOE” means one million BOEs.

• “MMBtu” means one million Btus.

• “MMcf” means one million cubic feet.

• “MMcfpd” means one million cubic feet per day.

• “Mont Belvieu–posted-price” means the daily average natural gas liquids components as priced in Oil Price Information Service (“OPIS”) in the table “U.S. and Canada LP – Gas Weekly Averages” at Mont Belvieu, Texas.

• “NGL” means natural gas liquid.

• “NYMEX” means the New York Mercantile Exchange.

• “NYSE” means the New York Stock Exchange.

• “Pioneer” or the “Company” means Pioneer Natural Resources Company and its subsidiaries.

• “Pioneer Southwest” means Pioneer Southwest Energy Partners L.P. and its subsidiaries.

• “Proved reserves” means the quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geosciences and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program is based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

• “SEC” means the United States Securities and Exchange Commission.

• “Standardized Measure” means the after-tax present value of estimated future net cash flows of proved reserves, determined in accordance with the rules and regulations of the SEC, using prices and costs employed in the determination of proved reserves and a ten percent discount rate.

• “U.S.” means United States.

• “VPP” means volumetric production payment.

• 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.

• Unless otherwise indicated, all currency amounts are expressed in U.S. dollars.

4

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	78,165		$	27,368
Accounts receivable:
Trade, net of allowance for doubtful accounts of $2,294 and $1,310 as of September 30, 2010 and December 31, 2009, respectively		211,066			330,711
Due from affiliates		650			1,037
Income taxes receivable		8,333			25,022
Inventories		182,238			139,177
Prepaid expenses		17,868			9,011
Deferred income taxes		—			26,857
Other current assets:
Derivatives		189,635			48,713
Other, net of allowance for doubtful accounts of $0 and $5,689 as of September 30, 2010 and December 31, 2009, respectively		1,521			8,222
Total current assets		689,476			616,118
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties		10,794,371			10,276,244
Unproved properties		184,837			236,660
Accumulated depletion, depreciation and amortization		(3,312,709	)		(2,946,048	)
Total property, plant and equipment		7,666,499			7,566,856
Deferred income taxes		15,045			387
Goodwill		298,413			309,259
Other property and equipment, net		257,413			154,830
Other assets:
Derivatives		210,823			43,631
Other, net of allowance for doubtful accounts of $11,157 and $7,300 as of September 30, 2010 and December 31, 2009, respectively		159,451			176,184
	$	9,297,120		$	8,867,265

The financial information included as of September 30, 2010 has been prepared by management

without audit by independent registered public accountants.

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

5

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED BALANCE SHEETS (continued)

(in thousands, except share data)

	September 30, 2010			December 31, 2009
	(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable:
Trade	$	321,256		$	221,359
Due to affiliates		42,538			32,224
Interest payable		33,798			47,009
Income taxes payable		18,718			17,411
Deferred income taxes		52,043			128
Other current liabilities:
Derivatives		34,730			116,015
Deferred revenue		56,097			90,215
Other		37,041			46,830
Total current liabilities		596,221			571,191
Long-term debt		2,539,416			2,761,011
Derivatives		31,477			133,645
Deferred income taxes		1,694,575			1,470,899
Deferred revenue		53,400			87,021
Other liabilities		224,193			200,467
Stockholders’ equity:
Common stock, $.01 par value; 500,000,000 shares authorized; 126,193,615 and 125,203,502 shares issued at September 30, 2010 and December 31, 2009, respectively		1,262			1,252
Additional paid-in capital		3,015,986			2,981,450
Treasury stock, at cost: 10,929,778 and 10,828,171 at September 30, 2010 and December 31, 2009, respectively		(422,107	)		(415,211	)
Retained earnings		1,430,566			917,688
Accumulated other comprehensive income–deferred hedge gains, net of tax		17,675			51,009
Total stockholders’ equity attributable to common stockholders		4,043,382			3,536,188
Noncontrolling interests in consolidating subsidiaries		114,456			106,843
Total stockholders’ equity		4,157,838			3,643,031
Commitments and contingencies
	$	9,297,120		$	8,867,265

The financial information included as of September 30, 2010 has been prepared by management

without audit by independent registered public accountants.

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

6

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Revenues and other income:
Oil and gas	$	471,372		$	409,969		$	1,441,310		$	1,148,512
Interest and other		11,864			503			51,930			99,761
Derivative gains (losses), net		127,581			(15,222	)		570,585			(85,583	)
Gain (loss) on disposition of assets, net		2,383			(385	)		26,971			(447	)
Hurricane activity, net		3,452			(1,830	)		5,678			(18,280	)
		616,652			393,035			2,096,474			1,143,963
Costs and expenses:
Oil and gas production		104,339			90,394			291,348			285,617
Production and ad valorem taxes		33,045			28,089			85,444			79,503
Depletion, depreciation and amortization		152,838			162,605			453,920			509,422
Impairment of oil and gas properties		—			—			—			21,091
Exploration and abandonments		22,963			25,073			70,883			77,861
General and administrative		44,759			34,799			128,081			102,728
Accretion of discount on asset retirement obligations		2,626			2,754			8,218			8,259
Interest		45,002			43,438			137,893			128,051
Other		20,927			21,363			52,228			89,467
		426,499			408,515			1,228,015			1,301,999
Income (loss) from continuing operations before income taxes		190,153			(15,480	)		868,459			(158,036	)
Income tax benefit (provision)		(76,661	)		5,206			(331,828	)		47,671
Income (loss) from continuing operations		113,492			(10,274	)		536,631			(110,365	)
Income from discontinued operations, net of tax		1,082			12,107			27,238			13,868
Net income (loss)		114,574			1,833			563,869			(96,497	)
Net income attributable to the noncontrolling interests		(2,538	)		(8,998	)		(39,003	)		(12,269	)
Net income (loss) attributable to common stockholders	$	112,036		$	(7,165	)	$	524,866		$	(108,766	)
Basic earnings per share:
Income (loss) from continuing operations attributable to common stockholders	$	0.94		$	(0.17	)	$	4.23		$	(1.07	)
Income from discontinued operations attributable to common stockholders		0.01			0.11			0.23			0.12
Net income (loss) attributable to common stockholders	$	0.95		$	(0.06	)	$	4.46		$	(0.95	)
Diluted earnings per share:
Income (loss) from continuing operations attributable to common stockholders	$	0.93		$	(0.17	)	$	4.20		$	(1.07	)
Income from discontinued operations attributable to common stockholders		0.01			0.11			0.23			0.12
Net income (loss) attributable to common stockholders	$	0.94		$	(0.06	)	$	4.43		$	(0.95	)
Weighted average shares outstanding:
Basic		115,191			114,123			114,985			114,118
Diluted		116,021			114,123			115,832			114,118
Dividends declared per share	$	0.04		$	0.04		$	0.08		$	0.08
Amounts attributable to common stockholders:
Income (loss) from continuing operations	$	110,954		$	(19,272	)	$	497,628		$	(122,634	)
Income from discontinued operations, net of tax		1,082			12,107			27,238			13,868
Net income (loss)	$	112,036		$	(7,165	)	$	524,866		$	(108,766	)

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

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

7

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands, except dividends per share)

(Unaudited)

				Stockholders’ Equity Attributable To Common Stockholders
	Shares Outstanding			Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
Balance as of December 31, 2009		114,375		$	1,252	$	2,981,450		$	(415,211	)	$	917,688		$	51,009		$	106,843		$	3,643,031
Dividends declared ($0.08 per share)		—			—		—			—			(9,469	)		—			—			(9,469	)
Exercise of long-term incentive plan stock options and employee stock purchases		236			1		2,577			6,677			(2,519	)		—			—			6,736
Treasury stock purchases		(275	)		—		—			(13,573	)		—			—			(203	)		(13,776	)
Tax benefit related to stock-based compensation		—			—		4,032			—			—			—			—			4,032
Compensation costs:
Vested compensation awards, net		928			9		(8	)		—			—			—			—			1
Compensation costs included in net income		—			—		27,935			—			—			—			964			28,899
Cash contributions from noncontrolling interests		—			—		—			—			—			—			1,151			1,151
Cash distributions to noncontrolling interests		—			—		—			—			—			—			(20,160	)		(20,160	)
Net income		—			—		—			—			524,866			—			39,003			563,869
Other comprehensive loss:
Deferred hedging activity, net of tax:
Net hedge gains included in continuing operations		—			—		—			—			—			(33,334	)		(13,142	)		(46,476	)
Balance as of September 30, 2010		115,264		$	1,262	$	3,015,986		$	(422,107	)	$	1,430,566		$	17,675		$	114,456		$	4,157,838

The financial information included herein has been prepared by management without audit by independent registered public accountants.

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

8

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	563,869		$	(96,497	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depletion, depreciation and amortization		453,920			509,422
Impairment of oil and gas properties		—			21,091
Exploration expenses, including dry holes		16,771			40,699
Hurricane activity, net		3,500			16,200
Deferred income taxes		300,303			(67,397	)
(Gain) loss on disposition of assets, net		(26,971	)		447
Accretion of discount on asset retirement obligations		8,218			8,259
Discontinued operations		8,626			(5,373	)
Interest expense		22,567			20,694
Derivative related activity		(549,387	)		48,305
Amortization of stock-based compensation		28,631			29,319
Amortization of deferred revenue		(67,739	)		(110,901	)
Other noncash items		9,620			30,664
Change in operating assets and liabilities
Accounts receivable, net		97,873			71,074
Income taxes receivable		16,689			44,762
Inventories		(6,459	)		(52,069	)
Prepaid expenses		(8,975	)		(6,900	)
Other current assets		2,162			98,532
Accounts payable		62,349			(94,238	)
Interest payable		(13,211	)		(14,766	)
Income taxes payable		1,307			9,127
Other current liabilities		(21,941	)		(89,629	)
Net cash provided by operating activities		901,722			410,825
Cash flows from investing activities:
Proceeds from disposition of assets		297,742			24,247
Additions to oil and gas properties		(714,014	)		(319,928	)
Additions to other assets and other property and equipment, net		(147,930	)		(17,310	)
Net cash used in investing activities		(564,202	)		(312,991	)
Cash flows from financing activities:
Borrowings under long-term debt		199,784			386,269
Principal payments on long-term debt		(438,894	)		(434,269	)
Contributions from noncontrolling interests		1,151			150
Distributions to noncontrolling interests		(20,160	)		(15,042	)
Payments of other liabilities		(20,668	)		(1,069	)
Exercise of long-term incentive plan stock options		6,736			7,955
Purchases of treasury stock		(13,776	)		(21,813	)
Excess tax (costs) benefits from share-based payment arrangements		4,032			(3,583	)
Payment of financing fees		(145	)		(4,475	)
Dividends paid		(4,783	)		(4,679	)
Net cash used in financing activities		(286,723	)		(90,556	)
Net increase in cash and cash equivalents		50,797			7,278
Cash and cash equivalents, beginning of period		27,368			48,337
Cash and cash equivalents, end of period	$	78,165		$	55,615

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

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

9

PIONEER NATURAL RESOURCES COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net income (loss)	$	114,574		$	1,833		$	563,869		$	(96,497	)
Other comprehensive loss:
Hedge fair value changes, net		—			—			—			12,974
Net hedge gains included in continuing operations		(21,913	)		(24,640	)		(63,536	)		(90,280	)
Income tax provision		5,988			6,025			17,060			38,999
Other comprehensive loss		(15,925	)		(18,615	)		(46,476	)		(38,307	)
Comprehensive income (loss)		98,649			(16,782	)		517,393			(134,804	)
Comprehensive (income) loss attributable to noncontrolling interest		1,898			(3,417	)		(25,860	)		853
Comprehensive income (loss) attributable to common stockholders	$	100,547		$	(20,199	)	$	491,533		$	(133,951	)

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

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

10

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

NOTE A.     Organization and Nature of Operations

Pioneer Natural Resources Company (“Pioneer” or the “Company”) is a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. The Company is a large independent oil and gas exploration and production company with continuing operations in the United States, South Africa and Tunisia.

NOTE B.     Basis of Presentation

Presentation. In the opinion of management, the consolidated financial statements of the Company as of September 30, 2010 and for the three and nine months ended September 30, 2010 and 2009 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 information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted in this Report pursuant to the rules and regulations of the United States Securities and Exchange Commission (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 for the year ended December 31, 2009.

Discontinued operations. During June and August 2009, the Company sold its oil and gas properties in Mississippi and substantially all of its shelf properties in the Gulf of Mexico, respectively. In accordance with GAAP, the Company classified the results of operations of the Mississippi and shelf properties in the Gulf of Mexico as discontinued in its accompanying consolidated statements of operations for the three and nine months ended September 30, 2009.

During the fourth quarter of 2009, the Company recorded a $119.3 million receivable from the United States Department of Interior Minerals Management Service (the “MMS,” now the Bureau of Ocean Energy Management, Regulation, and Enforcement) for the recovery of excess royalties paid by the Company on qualifying deepwater leases in the Gulf of Mexico. During the nine months ended September 30, 2010, the MMS paid the Company the $119.3 million receivable plus an additional $35.3 million of associated interest on the excess royalty payments. The properties that were the source of these royalty and interest recoveries were sold by the Company during 2006. Accordingly, the interest income was recorded as a component of income from discontinued operations, net of tax in the accompanying consolidated statement of operations for the nine months ended September 30, 2010. See Note S for additional information about discontinued operations.

Allowances for doubtful accounts. As of September 30, 2010 and December 31, 2009, the Company’s allowances for doubtful accounts totaled $13.5 million and $14.3 million, respectively. Changes in the Company’s allowance for doubtful accounts during the three and nine months ended September 30, 2010 are summarized in the following table:

	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
	(in thousands)
Beginning allowance for doubtful accounts balance	$	13,104		$	14,299
Amount recorded in other expense for bad debt expense		358			328
Other net decreases		(11	)		(1,176	)
Ending allowance for doubtful accounts balance	$	13,451		$	13,451

Inventories. Inventories consisted of $205.9 million and $205.6 million of materials and supplies and $3.9 million and $3.2 million of commodities as of September 30, 2010 and December 31, 2009, respectively. As of September 30, 2010 and December 31, 2009, the Company’s materials and supplies inventory was net of $7.1 million and $5.2 million, respectively, of valuation reserve allowances. As of September 30, 2010 and December 31, 2009, the Company estimated that $27.6 million and $69.6 million, respectively, of its materials and supplies inventory would not be utilized or sold within one year. Accordingly, those inventory values have been classified as other noncurrent assets in the accompanying consolidated balance sheets.

11

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Derivatives and hedging. Changes in the fair values of derivative instruments are recognized as gains or losses in the earnings of the period in which they occur. Effective February 1, 2009, the Company discontinued hedge accounting on all of its then-existing hedge contracts. Changes in the fair value of effective cash flow hedges prior to the Company’s discontinuance of hedge accounting were recorded as a component of accumulated other comprehensive income – deferred hedge gains, net of tax (“AOCI – Hedging”), in the stockholders’ equity section of the accompanying consolidated balance sheets, and are being transferred to earnings during the same periods in which the hedged transactions are recognized in the Company’s earnings. Since February 1, 2009, the Company has recognized all changes in the fair values of its derivative contracts as gains or losses in the earnings of the periods in which they occur.

The Company classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and master netting counterparty. Net derivative asset values are determined, in part, by utilization of the derivative counterparties’ credit-adjusted risk-free rate curves and net derivative liabilities are determined, in part, by utilization of the Company’s and Pioneer Southwest Energy Partners L.P.’s (“Pioneer Southwest,” a majority-owned and consolidated subsidiary) credit-adjusted risk-free rate curves. The credit-adjusted risk-free rate curves for the Company and the counterparties are based on their independent market-quoted credit default swap rate curves plus the United States Treasury Bill yield curve as of the valuation date. Pioneer Southwest’s credit-adjusted risk-free rate curve is based on independent market-quoted forward London Interbank Offered Rate (“LIBOR”) curves plus 250 basis points, representing Pioneer Southwest’s estimated borrowing rate.

Goodwill. During June 2010, the Company sold 45 percent of its interests in South Texas Eagle Ford Shale oil and gas properties and substantially all of its oil and gas properties in the Uinta/Piceance area. Associated therewith, the Company reduced its goodwill attributable to the sold properties by $10.7 million. Tax benefits associated with the exercise of fully-vested stock options assumed in conjunction with the business combination for which the goodwill is attributable also reduced its carrying value by $222 thousand during 2010. Goodwill 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. During the third quarter of 2010, the Company performed its annual assessment of goodwill impairment and determined that there was no impairment.

Noncontrolling interest in consolidated subsidiaries. The Company owns a 0.1 percent general partner interest and a 61.9 percent limited partner interest in Pioneer Southwest. Pioneer Southwest owns interests in certain oil and gas properties previously owned by the Company in the Spraberry field in the Permian Basin of West Texas. The financial position, results of operations and cash flows of Pioneer Southwest are consolidated with those of the Company.

During January 2010, Pioneer Natural Resources USA, Inc. (“PNR USA,” a wholly-owned subsidiary of the Company) formed Sendero Drilling Company, LLC (“Sendero”). Sendero was formed to own and operate land-based drilling rigs in the United States. As of September 30, 2010, Sendero owns nine drilling rigs operating under contract to PNR USA in the Spraberry field in the West Texas Permian Basin. PNR USA is the majority owner of Sendero.

In addition to Pioneer Southwest and Sendero, the Company owns the majority interests in certain other subsidiaries with operations in the United States. Noncontrolling interest in the net assets of consolidated subsidiaries totaled $114.5 million and $106.8 million as of September 30, 2010 and December 31, 2009, respectively. The Company recorded net income attributable to the noncontrolling interests of $2.5 million and $39.0 million for the three and nine months ended September 30, 2010, respectively (principally related to Pioneer Southwest), compared to $9.0 million and $12.3 million for the three and nine months ended September 30, 2009, respectively.

Investment in unconsolidated affiliate. During the second quarter of 2010, the Company formed EFS Midstream LLC (“EFS Midstream”) to own and operate natural gas and liquids gathering, treating and transportation assets in the Eagle Ford Shale area of South Texas. During June 2010, the Company sold a 49.9 percent member interest in EFS Midstream to an unaffiliated third party for $46.4 million of cash proceeds. Associated therewith, the Company recorded a $46.3 million deferred gain that will be amortized as a reduction in production costs over a 20 year period, representing the term of a continuing commitment of Pioneer to deliver production volumes through EFS Midstream handling and gathering facilities. The deferred gain is included in other current and noncurrent liabilities in the Company’s accompanying consolidated balance sheet as of September 30, 2010.

12

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The Company does not have voting control of EFS Midstream. Consequently, the Company accounts for this investment under the equity method of accounting for investments in unconsolidated affiliates. Under the equity method, the Company’s investment in unconsolidated affiliates is increased for investments made and the investor’s share of the investee’s net income, and decreased for distributions received, the carrying value of member interests sold and the investor’s share of the investee’s net losses. The Company’s investment in unconsolidated affiliates is included in other noncurrent assets in the accompanying consolidated balance sheets.

Stock-based compensation. For stock-based compensation equity awards, compensation expense is being recognized in the Company’s financial statements on a straight line basis over the awards’ vesting periods based on their fair values on the dates of grant. The amount of compensation expense recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date. The Company utilizes (i) the Black-Scholes option pricing model to measure the fair value of stock options, (ii) the prior day’s closing stock price on the date of grant for the fair value of restricted stock awards, (iii) the Monte Carlo simulation method for the fair value of performance unit awards and (iv) a probabilistic forecasted fair value method for series B unit awards issued by Sendero.

Stock-based compensation liability awards are awards that are expected to be settled wholly or partially in cash on their vesting dates, rather than in equity shares or units. Stock-based liability awards are recorded as accounts payable – affiliates based on the vested portion of the fair value of the awards on the balance sheet date. The fair values of liability awards are updated at each balance sheet date and changes in the fair values of the vested portions of the awards are recorded as increases or decreases to compensation expense. During February and August of 2010, the Company issued 208,620 and 20,935 restricted stock awards, respectively, to employees that represent liability awards, of which 11,161 liability awards have been forfeited or lapsed since the award dates. As of September 30, 2010, account payable – affiliates includes $2.6 million of liabilities attributable to the liability awards.

For the three and nine months ended September 30, 2010, the Company recorded $11.0 million and $31.6 million, respectively, of stock-based compensation costs for all plans, as compared to $10.1 million and $29.3 million for the same respective periods of 2009.

In accordance with GAAP, the Company’s issued shares, as reflected in the consolidated balance sheets at September 30, 2010 and December 31, 2009, do not include 827,861 and 979,493 common shares, respectively, associated with unvested stock-based compensation awards that have voting rights.

The following table summarizes all Pioneer equity and liability stock-based awards, lapses, exercises and forfeitures that occurred during the nine months ended September 30, 2010:

	Restricted Stock Awards			Performance Units		Stock Options
Outstanding at December 31, 2009		2,999,370			347,031		596,033
Awards (a)		741,131			74,482		116,120
Lapsed restrictions		(827,229	)		—		—
Exercises		—			—		(173,441	)
Forfeitures		(84,356	)		—		(1,799	)
Outstanding at September 30, 2010		2,828,916			421,513		536,913

(a) Restricted stock awards include 218,394 of liability awards.

13

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Subsidiary issuances of unit-based compensation. During the nine months ended September 30, 2010, Pioneer Natural Resources GP LLC (the “General Partner”), the general partner of Pioneer Southwest, awarded phantom units to certain members of management of the General Partner under Pioneer Southwest’s long-term incentive plan (the “Phantom Units”). The Phantom Units entitle the recipients to receive 35,118 common units of Pioneer Southwest after a three-year vesting period. Associated therewith, Pioneer Southwest and the Company recorded $147 thousand of compensation expense during the nine months ended September 30, 2010. During the nine months ended September 30, 2010, the General Partner awarded 8,744 Pioneer Southwest restricted common units to the independent directors of the General Partner and restrictions on 13,653 Pioneer Southwest common unit director awards lapsed. There were no forfeitures of Pioneer Southwest restricted common units during the nine months ended September 30, 2010.

During the nine months ended September 30, 2010, Sendero entered into Restricted Unit Agreements with two key employees, relating to series B units in Sendero. The series B unit awards vest over a five-year period and do not earn equity rights unless certain defined performance conditions are achieved by Sendero. Associated therewith, the Company recorded $765 thousand of compensation expense during the nine months ended September 30, 2010.

As of September 30, 2010, there was $62.6 million of unrecognized compensation expense related to unvested share- and unit-based compensation plan awards, including $11.8 million attributable to liability awards. This compensation will be recognized over the remaining vesting periods of the awards, which on a weighted average basis is a period of less than three years.

New accounting pronouncements. Effective December 31, 2009, the Company adopted the SEC’s final rule on “Modernization of Oil and Gas Reporting” (the “Reserve Ruling”) and the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) 2010-03, which conforms ASC 932 to the Reserve Ruling. Among the items, the Reserve Ruling and ASU 2010-03 require companies to report oil and gas reserves using an average price based upon the prior 12-month period rather than a period-end price.

During February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855).” ASU No. 2010-09 amends Accounting Standards Codification (“ASC”) Topic 855 to include the definition of “SEC filer” and alleviate the obligation of SEC filers to disclose the date through which subsequent events have been evaluated. ASU No. 2010-09 became effective during February 2010. See Note T for the Company’s disclosure about subsequent events.

During January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820).” ASU No. 2010-06 amends ASC Topic 820 to (i) require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, (ii) require separate disclosure of purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3), (iii) clarify the level of disaggregation for fair value measurements of assets and liabilities and (iv) clarify disclosures about inputs and valuation techniques used to measure fair values for both recurring and nonrecurring fair value measurements. The Company adopted the provisions of ASU No. 2010-06 on January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. See Note D for the Company’s disclosures about fair value measurements.

During July 2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310).” ASU No. 2010-20 amends ASC Topic 310 to provide enhanced disclosures related to (i) the nature of credit risk inherent in an entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. ASU No. 2010-20 is effective for interim and annual reporting periods ending on or after December 15, 2010. The Company is currently assessing the impact that adoption of ASU No. 2010-20 will have on its disclosures.

NOTE C.     Exploratory Costs

The Company capitalizes exploratory well and project costs until a determination is made that the well or project has either found proved reserves or is impaired. The Company’s capitalized exploratory well and project costs are presented in proved properties in the consolidated balance sheets. If the exploratory well or project is determined to be impaired, the impaired costs are charged to exploration and abandonments expense.

14

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following table reflects the Company’s capitalized exploratory well and project activity during the three and nine months ended September 30, 2010:

	Three Months Ended September 30, 2010			Nine Months Ended September 30, 2010
	(in thousands)
Beginning capitalized exploratory costs	$	151,431		$	127,574
Additions to exploratory costs pending the determination of proved reserves		50,177			164,302
Reclassification due to determination of proved reserves		(57,321	)		(132,063	)
Disposition of assets sold		—			(15,526	)
Ending capitalized exploratory costs	$	144,287		$	144,287

The following table provides an aging, as of September 30, 2010 and December 31, 2009 of capitalized exploratory costs and the number of projects for which exploratory costs have been capitalized for a period greater than one year, based on the date drilling was completed:

	September 30, 2010		December 31, 2009
	(in thousands, except project counts)
Capitalized exploratory costs that have been suspended:
One year or less	$	40,696	$	21,634
More than one year		103,591		105,940
	$	144,287	$	127,574
Number of projects with exploratory costs that have been suspended for a period greater than one year		4		8

The following table provides an aging of capitalized costs of exploration projects that have been suspended for more than one year as of September 30, 2010:

	Total		2010		2009		2008		2007			2006
	(in thousands)
U.S. – Cosmopolitan Unit	$	78,033	$	11,119	$	8,253	$	6,344	$	51,488		$	829
Tunisia		25,558		209		274		21,145		(15	)		3,945
Total	$	103,591	$	11,328	$	8,527	$	27,489	$	51,473		$	4,774

Cosmopolitan Unit. The Company owns a 100 percent working interest in, and is the operator of, the Cosmopolitan Unit in the Cook Inlet of Alaska. The Company drilled a lateral sidetrack during 2007 from an existing wellbore on an onshore site to further appraise the resource potential of the unit. The initial unstimulated production test results were encouraging. The Company performed casing repair workover operations on the well during the fourth quarter of 2009, fracture-stimulated the well during the first quarter of 2010 and concluded flow testing during the second quarter of 2010. The Company will continue to conduct permitting activities and facilities planning and may drill another appraisal well during 2011.

Tunisia – Cherouq. The Company has $17.8 million of suspended well costs recorded for the Hayatt #1 well in the Company’s Cherouq production concession area, which is operated by the Company. The Hayatt #1 well began drilling in April 2008 to test several targeted formations. Mechanical failures were encountered during the testing of the well that did not allow completion of the formation assessments. The Company has project personnel at appropriate levels committed to and actively participating in analyzing seismic and other data to determine the optimal plan forward for completing the well, which may utilize the existing wellbore or a new wellbore adjacent to the existing well. The Company expects to finalize its Hayatt #1 completion plans in early 2011 and execute the well completion during 2011.

15

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Tunisia – Borj El Khadra. The Company has $7.8 million of suspended well costs attributable to the Nahkil #1 and Abir #1 wells in the Borj El Khadra exploration permit area, which is operated by a third-party. The Nahkil #1 well encountered oil-bearing sands and the Abir #1 well encountered gas-bearing sands. The third-party operator and the Company have project personnel at appropriate levels committed to and actively participating in infrastructure planning and assessment of the area. During the first nine months of 2010, a $13.8 million 3-D seismic program was initiated and future plans include the drilling of an additional exploration well in the area during the fourth quarter of 2010. Additionally, project personnel are evaluating the feasibility of using production handling facilities on a nearby production concession to transport Abir #1 production to sales markets.

NOTE D.     Disclosures About Fair Value Measurements

In accordance with GAAP, fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. These two types of inputs are further prioritized into the following fair value input hierarchy:

• Level 1 – quoted prices for identical assets or liabilities in active markets.

• Level 2 – quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.

• Level 3 – unobservable inputs for the asset or liability.

16

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2010, for each of the fair value hierarchy levels:

	Fair Value Measurements at Reporting Date Using						Fair Value at September 30, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Assets:
Trading securities	$	298	$	102	$	—	$	400
Commodity derivatives		—		367,783		502		368,285
Interest rate derivatives		—		32,173		—		32,173
Deferred compensation plan assets		32,896		—		—		32,896
Total assets	$	33,194	$	400,058	$	502	$	433,754
Liabilities:
Commodity derivatives	$	—	$	59,665	$	4,835	$	64,500
Interest rate derivatives		—		1,707		—		1,707
Pioneer Southwest credit facility		—		71,019		—		71,019
5.875% senior notes due 2016		470,185		—		—		470,185
6.65% senior notes due 2017		511,781		—		—		511,781
6.875% senior notes due 2018		478,718		—		—		478,718
7.50% senior notes due 2020		496,687		—		—		496,687
7.20% senior notes due 2028		255,000		—		—		255,000
2.875% senior convertible notes due 2038 (a)		601,200		—		—		601,200
Total liabilities	$	2,813,571	$	132,391	$	4,835	$	2,950,797

(a) The fair value of the 2.875% senior convertible notes includes the fair value of the conversion privilege. On the issuance date, the conversion privilege was valued at $81.1 million.

The following tables present the changes in the fair values of the Company’s natural gas liquid (“NGL”) derivative liabilities classified as Level 3 in the fair value hierarchy:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)	Three Months Ended September 30, 2010
	NGL Swap Contracts
	(in thousands)
Beginning asset balance	$	4,639
Total gains and losses:
Net unrealized losses included in earnings (a)		(7,131	)
Net realized losses transferred to earnings (a)		(566	)
Settlement receipts		(1,275	)
Ending liability balance	$	(4,333	)

(a) The hedge-effective portions of realized gains and losses on commodity derivatives in AOCI – Hedging are included in oil and gas revenues, while non-hedge derivatives or ineffective portions of realized and unrealized hedge gains and losses are included in net derivative gains or losses in the accompanying consolidated statements of operations.

17

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)	Nine Months Ended September 30, 2010
	NGL Swap Contracts			Notes Receivable			Total
	(in thousands)
Beginning asset (liability) balance	$	(12,904	)	$	4,727		$	(8,177	)
Total gains and losses:
Net unrealized gains included in earnings (a)		14,073			—			14,073
Net realized losses transferred to earnings (a)		(4,417	)		—			(4,417	)
Notes receivable valuation allowance recoveries included in earnings (b)		—			187			187
Settlement receipts (c)		(1,085	)		(4,914	)		(5,999	)
Ending asset balance	$	(4,333	)	$	—		$	(4,333	)

(a) The hedge-effective portions of realized gains and losses on commodity derivatives in AOCI – Hedging are included in oil and gas revenues, while non-hedge derivatives or ineffective portions of realized and unrealized hedge gains and losses are included in net derivative gains or losses in the accompanying consolidated statements of operations.

(b) The valuation allowance recoveries associated with the Company’s notes receivable are included in other expense in the accompanying consolidated statements of operations.

(c) During the first quarter of 2010, the Company took possession of a drilling rig that represented $3.0 million of collateral value associated with its notes receivable.

The following table presents the carrying amounts and fair values of the Company’s financial instruments as of September 30, 2010 and December 31, 2009:

	September 30, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets:
Commodity price derivatives	$	368,285	$	368,285	$	84,080	$	84,080
Interest rate derivatives	$	32,173	$	32,173	$	8,264	$	8,264
Trading securities	$	400	$	400	$	335	$	335
Deferred compensation plan assets	$	32,896	$	32,896	$	27,890	$	27,890
Notes receivable	$	—	$	—	$	4,727	$	4,727
Liabilities:
Commodity price derivatives	$	64,500	$	64,500	$	223,555	$	223,555
Interest rate derivatives	$	1,707	$	1,707	$	26,105	$	26,105
Pioneer credit facility	$	—	$	—	$	240,000	$	259,461
Pioneer Southwest credit facility	$	74,000	$	71,019	$	67,000	$	61,718
5.875 % senior notes due 2012	$	—	$	—	$	6,168	$	6,154
5.875 % senior notes due 2016	$	394,871	$	470,185	$	389,109	$	437,170
6.65 % senior notes due 2017	$	484,011	$	511,781	$	483,914	$	472,546
6.875 % senior notes due 2018	$	449,184	$	478,718	$	449,161	$	438,402
7.50 % senior notes due 2020	$	446,366	$	496,687	$	446,172	$	449,566
7.20 % senior notes due 2028	$	249,925	$	255,000	$	249,924	$	230,868
2.875% senior convertible notes due 2038 (a)	$	441,058	$	601,200	$	429,563	$	508,320

(a) The fair value of the 2.875% senior convertible notes includes the fair value of the conversion privilege. On the issuance date, the conversion privilege was valued at $81.1 million.

18

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Trading securities and deferred compensation plan assets. The Company’s trading securities represent securities that are both actively traded and not actively traded on major exchanges. The Company’s deferred compensation plan assets represent investments in equity and mutual fund securities that are actively traded on major exchanges plus unallocated contributions as of the measurement date. As of September 30, 2010, all significant inputs to these asset exchange values represented Level 1 independent active exchange market price inputs except inputs for certain trading securities that are not actively traded on major exchanges, which were provided by broker quotes representing Level 2 inputs.

Interest rate derivatives. The Company’s interest rate derivative assets and liabilities as of September 30, 2010 represent (i) swap contracts for $189 million notional amount of debt, whereby the Company pays a fixed rate of interest and the counterparty pays a variable LIBOR-based rate and (ii) swap contracts for $470 million notional amount of debt, whereby the Company pays a variable LIBOR-based rate and the counterparty pays a fixed rate of interest. The net derivative asset values attributable to the Company’s interest rate derivative contracts as of September 30, 2010 are based on (i) the contracted notional amounts, (ii) LIBOR rate yield curves provided by counterparties and corroborated with forward active market-quoted LIBOR rate yield curves and (iii) the applicable credit-adjusted risk-free rate yield curve. The Company’s interest rate derivative asset and liability measurements represent Level 2 inputs in the hierarchy priority.

Commodity derivatives. The Company’s commodity derivatives represent oil, NGL and gas swap contracts, collar contracts and collar contracts with short puts (which are also known as three-way collar contracts). The Company’s oil and gas swap, collar and three-way collar derivative contract asset and liability measurements represent Level 2 inputs in the hierarchy priority and NGL derivative contract asset and liability measurements represent Level 3 inputs in the hierarchy priority.

Oil derivatives. The Company’s oil derivatives are swap, collar and three-way collar contracts for notional barrels (“Bbls”) of oil at fixed (in the case of swap contracts) or interval (in the case of collar and three-way collar contracts) New York Mercantile Exchange (“NYMEX”) West Texas Intermediate (“WTI”) oil prices and Dated Brent oil prices. The asset and liability values attributable to the Company’s oil derivatives as of September 30, 2010 are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for WTI oil, (iii) independent active market-quoted futures Dated Brent price quotes, (iv) the applicable estimated credit-adjusted risk-free rate yield curve and (v) the implied rate of volatility inherent in the collar and three-way collar contracts. The implied rates of volatility inherent in the Company’s collar contracts were determined based on average volatility factors provided by certain independent brokers who are active in buying and selling oil options and were corroborated by market-quoted volatility factors.

NGL derivatives. The Company’s NGL derivatives include swap and collar contracts for notional blended Bbls of Mont Belvieu-posted-price NGLs or NGL component prices per Bbl. The asset and liability values attributable to the Company’s NGL derivatives as of September 30, 2010 are based on (i) the contracted notional volumes, (ii) independent active market-quoted NGL component prices and (iii) the applicable credit-adjusted risk-free rate yield curve. The implied rates of volatility inherent in the Company’s collar contracts were determined based on average volatility factors provided by certain independent brokers who are active in buying and selling NGL options and were corroborated by market-quoted volatility factors. As of December 31, 2009, the Company’s NGL component price inputs were obtained from independent brokers active in buying and selling NGL derivative contracts.

Gas derivatives. The Company’s gas derivatives are swap, collar and three-way collar contracts for notional volumes of gas (expressed in millions of British thermal units “MMBtus”) contracted at various posted price indexes, including NYMEX Henry Hub (“HH”) swap contracts coupled with basis swap contracts that convert the HH price index point to other price indexes. The asset and liability values attributable to the Company’s gas derivative contracts as of September 30, 2010 are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for HH gas, (iii) independent market-quoted forward index prices, (iv) the applicable credit-adjusted risk-free rate yield curve and (v) the implied rate of volatility inherent in the collar and three-way collar contracts. The implied rates of volatility inherent in the Company’s collar contracts and three-way collar contracts were determined based on average volatility factors provided by certain independent brokers who are active in buying and selling gas options and were corroborated by market-quoted volatility factors.

19

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Credit facilities. The fair value of Pioneer Southwest’s credit facility is based on (i) forecasted contractual interest and fee payments, (ii) forward active market-quoted LIBOR rate yield curves and (iii) the applicable credit-adjusted risk-free rate yield curve. Since there are no outstanding borrowings on Pioneer’s credit facility, the fair value is nil at September 30, 2010.

Senior notes. The Company’s senior notes represent debt securities that are actively traded on major exchanges. The fair values of the Company’s senior notes are based on their periodic values as quoted on the major exchanges.

NOTE E.     Income Taxes

The Company accounts for income taxes in accordance with the provisions of ASC Topic 740, which requires that the Company continually assess both positive and negative evidence to determine 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 to assess the likelihood that the Company’s net operating loss carry forwards (“NOLs”) and other deferred tax attributes in the U.S., state, local and foreign tax jurisdictions will be utilized prior to their expiration. As of September 30, 2010 and December 31, 2009, the Company’s valuation allowances (relating primarily to foreign tax jurisdictions) were $38.9 million and $44.2 million, respectively.

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2010, the Company had no significant unrecognized tax benefits. The Company’s policy is to account for interest charges with respect to income taxes as interest expense and any penalties, with respect to income taxes, as other expense in the consolidated statements of operations. The Company files income tax returns in the U.S. federal and various state and foreign jurisdictions. With few exceptions, the Company believes that it is no longer subject to examinations by tax authorities for years before 2004. As of September 30, 2010, no adjustments had been proposed in any jurisdiction that would have a significant effect on the Company’s liquidity, future results of operations or financial position.

Income tax (provisions) benefits. The Company’s income tax (provisions) benefits attributable to income from continuing operations consisted of the following for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Current:
U.S. federal	$	(1,550	)	$	(1,335	)	$	(4,850	)	$	(934	)
U.S. state		(1,520	)		(2,206	)		(4,644	)		(9,142	)
Foreign		(16,340	)		(8,708	)		(22,031	)		(9,650	)
		(19,410	)		(12,249	)		(31,525	)		(19,726	)
Deferred:
U.S. federal		(66,125	)		15,273			(268,921	)		68,796
U.S. state		(6,854	)		3,696			(23,354	)		9,460
Foreign		15,728			(1,514	)		(8,028	)		(10,859	)
		(57,251	)		17,455			(300,303	)		67,397
Income tax (provision) benefit	$	(76,661	)	$	5,206		$	(331,828	)	$	47,671

NOTE F.     Long-term Debt

Senior notes redemption. On March 15, 2010, the Company redeemed for cash all of its outstanding 5.875% senior notes due 2012 for $6.3 million, which represented the outstanding principal plus accrued and unpaid interest.

20

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Credit facility repayment. During the second quarter of 2010, the Company repaid its outstanding borrowings under the Pioneer credit facility.

As of September 30, 2010, the Company and Pioneer Southwest were in compliance with all of their debt covenants.

NOTE G.    Derivative Financial Instruments

The Company uses financial derivative contracts to manage exposures to commodity price, interest rate and foreign currency exchange rate fluctuations. The Company generally does not enter into derivative financial instruments for speculative or trading purposes. The Company may also enter into physical delivery contracts to effectively provide commodity price protection. Because these contracts are not expected to be net cash settled, they are considered to be normal sales contracts and not derivatives. Therefore, physical delivery contracts are not accounted for as derivative financial instruments in the financial statements.

All derivatives are recorded on the balance sheet at estimated fair value. Fair value is generally determined based on the credit-adjusted present value difference between the fixed contract price and the underlying market price at the determination date. The Company accounts for derivative instruments under mark-to-market accounting rules, which require that all changes in the fair values of the Company’s derivative contracts be recognized as gains or losses in the earnings of the period in which they occur.

Changes in the fair value of effective cash flow hedges prior to the Company’s February 1, 2009 discontinuance of hedge accounting were recorded as a component of AOCI – Hedging, which is being transferred to earnings when the hedged transaction is recognized in earnings. Any ineffective portion of changes in the fair value of hedge derivatives prior to February 1, 2009 was recorded in the earnings of the period of change. The ineffective portion was calculated as the difference between the change in fair value of the hedge derivative and the estimated change in cash flows from the item hedged.

Fair value derivatives. The Company monitors the debt capital markets and interest rate trends to identify opportunities to enter into and terminate interest rate derivative contracts, with the objective of reducing the Company’s costs of capital. As of September 30, 2010 and December 31, 2009, the Company was not a party to any fair value hedges.

Cash flow derivatives. The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts 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 rate agreements to reduce the effect of exchange rate volatility.

21

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Oil prices. All material physical sales contracts governing the Company’s oil production are tied directly or indirectly to NYMEX WTI or Dated Brent oil prices. The following table sets forth the volumes in Bbls outstanding as of September 30, 2010 under the Company’s oil derivative contracts and the weighted average NYMEX or Dated Brent prices per Bbl for those contracts:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Outstanding Average
Average daily oil production derivatives (a):
2010 – Swap contracts
Volume (Bbl)								2,500		2,500
Price per Bbl							$	93.34	$	93.34
2010 – Collar contracts with short puts
Volume (Bbl)								30,250		30,250
Price per Bbl:
Ceiling							$	85.09	$	85.09
Floor							$	68.38	$	68.38
Short put							$	55.23	$	55.23
2011 – Swap contracts
Volume (Bbl)		750		750		750		750		750
Price per Bbl	$	77.25	$	77.25	$	77.25	$	77.25	$	77.25
2011 – Collar contracts
Volume (Bbl)		2,000		2,000		2,000		2,000		2,000
Price per Bbl:
Ceiling	$	170.00	$	170.00	$	170.00	$	170.00	$	170.00
Floor	$	115.00	$	115.00	$	115.00	$	115.00	$	115.00
2011 – Collar contracts with short puts
Volume (Bbl)		32,000		32,000		32,000		32,000		32,000
Price per Bbl:
Ceiling	$	99.33	$	99.33	$	99.33	$	99.33	$	99.33
Floor	$	73.75	$	73.75	$	73.75	$	73.75	$	73.75
Short put	$	59.31	$	59.31	$	59.31	$	59.31	$	59.31
2012 – Swap contracts
Volume (Bbl)		3,000		3,000		3,000		3,000		3,000
Price per Bbl	$	79.32	$	79.32	$	79.32	$	79.32	$	79.32
2012 – Collar contracts with short puts
Volume (Bbl)		31,000		31,000		31,000		31,000		31,000
Price per Bbl:
Ceiling	$	119.70	$	119.70	$	119.70	$	119.70	$	119.70
Floor	$	80.48	$	80.48	$	80.48	$	80.48	$	80.48
Short put	$	65.00	$	65.00	$	65.00	$	65.00	$	65.00
2013 – Swap contracts
Volume (Bbl)		3,000		3,000		3,000		3,000		3,000
Price per Bbl	$	81.02	$	81.02	$	81.02	$	81.02	$	81.02
2013 – Collar contracts with short puts
Volume (Bbl)		21,250		21,250		21,250		21,250		21,250
Price per Bbl:
Ceiling	$	117.38	$	117.38	$	117.38	$	117.38	$	117.38
Floor	$	80.18	$	80.18	$	80.18	$	80.18	$	80.18
Short put	$	65.18	$	65.18	$	65.18	$	65.18	$	65.18

(a) Subsequent to September 30, 2010, the Company entered into additional collar contracts with short puts for 6,000 Bbls per day of the Company’s 2012 production with a ceiling price of $111.33 per Bbl, a floor price of $80.00 per Bbl and a short put price of $65.00 per Bbl.

22

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Natural gas liquids prices. All material physical sales contracts governing the Company’s NGL production are tied directly or indirectly to either Mont Belvieu or Conway fractionation facilities’ NGL product component prices. The following table sets forth the volumes in Bbls outstanding as of September 30, 2010 under the Company’s NGL derivative contracts and the weighted average NGL prices per Bbl for those contracts:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Outstanding Average
Average daily NGL production derivatives:
2010 – Swap contracts
Volume (Bbl)								1,650		1,650
Price per Bbl							$	40.85	$	40.85
2010 – Collar contracts
Volume (Bbl)								2,000		2,000
Price per Bbl:
Ceiling							$	49.98	$	49.98
Floor							$	41.58	$	41.58
2010 – Collar contracts with short puts
Volume (Bbl)								2,000		2,000
Price per Bbl:
Ceiling							$	58.92	$	58.92
Floor							$	47.64	$	47.64
Short put							$	38.71	$	38.71
2011 – Swap contracts
Volume (Bbl)		750		750		750		750		750
Price per Bbl	$	34.65	$	34.65	$	34.65	$	34.65	$	34.65
2011 – Collar contracts
Volume (Bbl)		1,000		1,000		1,000		1,000		1,000
Price per Bbl:
Ceiling	$	50.93	$	50.93	$	50.93	$	50.93	$	50.93
Floor	$	42.21	$	42.21	$	42.21	$	42.21	$	42.21
2012 – Swap contracts
Volume (Bbl)		750		750		750		750		750
Price per Bbl	$	35.03	$	35.03	$	35.03	$	35.03	$	35.03

Gas prices. All material physical sales contracts governing the Company’s gas production are tied directly or indirectly to regional index prices where the gas is sold. The Company uses derivative contracts to manage gas price volatility and reduce basis risk between NYMEX Henry Hub prices and actual index prices upon which the gas is sold. The following table sets forth the volumes in MMBtus outstanding as of September 30, 2010 under the Company’s gas derivative contracts and the weighted average index prices per MMBtu for those contracts:

23

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Outstanding Average
Average daily gas production derivatives:
2010 – Swap contracts
Volume (MMBtu)											167,500			167,500
Price per MMBtu										$	6.26		$	6.26
2010 – Collar contracts
Volume (MMBtu)											40,000			40,000
Price per MMBtu:
Ceiling										$	7.19		$	7.19
Floor										$	5.75		$	5.75
2010 – Collar contracts with short puts
Volume (MMBtu)											95,000			95,000
Price per MMBtu:
Ceiling										$	7.94		$	7.94
Floor										$	6.00		$	6.00
Short put										$	5.00		$	5.00
2010 – Basis swap contracts
Volume (MMBtu)											245,109			245,109
Price per MMBtu										$	(0.69	)	$	(0.69	)
2011 – Swap contracts
Volume (MMBtu)		117,500			117,500			117,500			117,500			117,500
Price per MMBtu	$	6.13		$	6.13		$	6.13		$	6.13		$	6.13
2011 – Collar contracts with short puts
Volume (MMBtu)		200,000			200,000			200,000			200,000			200,000
Price per MMBtu:
Ceiling	$	8.55		$	8.55		$	8.55		$	8.55		$	8.55
Floor	$	6.32		$	6.32		$	6.32		$	6.32		$	6.32
Short put	$	4.88		$	4.88		$	4.88		$	4.88		$	4.88
2011 – Basis swap contracts
Volume (MMBtu)		133,500			133,500			133,500			133,500			133,500
Price per MMBtu	$	(0.58	)	$	(0.58	)	$	(0.58	)	$	(0.58	)	$	(0.58	)
2012 – Swap contracts
Volume (MMBtu)		105,000			105,000			105,000			105,000			105,000
Price per MMBtu	$	5.82		$	5.82		$	5.82		$	5.82		$	5.82
2012 – Collar contracts
Volume (MMBtu)		65,000			65,000			65,000			65,000			65,000
Price per MMBtu:
Ceiling	$	6.60		$	6.60		$	6.60		$	6.60		$	6.60
Floor	$	5.00		$	5.00		$	5.00		$	5.00		$	5.00
2012 – Collar contracts with short puts
Volume (MMBtu)		190,000			190,000			190,000			190,000			190,000
Price per MMBtu:
Ceiling	$	7.96		$	7.96		$	7.96		$	7.96		$	7.96
Floor	$	6.12		$	6.12		$	6.12		$	6.12		$	6.12
Short put	$	4.55		$	4.55		$	4.55		$	4.55		$	4.55
2012 – Basis swap contracts
Volume (MMBtu)		116,000			116,000			116,000			116,000			116,000
Price per MMBtu	$	(0.37	)	$	(0.37	)	$	(0.37	)	$	(0.37	)	$	(0.37	)
2013 – Swap contracts
Volume (MMBtu)		67,500			67,500			67,500			67,500			67,500
Price per MMBtu	$	6.11		$	6.11		$	6.11		$	6.11		$	6.11

24

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

2013 – Collar contracts
Volume (MMBtu)		100,000			100,000			100,000			100,000			100,000
Price per MMBtu:
Ceiling	$	6.50		$	6.50		$	6.50		$	6.50		$	6.50
Floor	$	5.00		$	5.00		$	5.00		$	5.00		$	5.00
2013 – Collar contracts with short puts
Volume (MMBtu)		45,000			45,000			45,000			45,000			45,000
Price per MMBtu:
Ceiling	$	7.49		$	7.49		$	7.49		$	7.49		$	7.49
Floor	$	6.00		$	6.00		$	6.00		$	6.00		$	6.00
Short put	$	4.50		$	4.50		$	4.50		$	4.50		$	4.50
2013 – Basis swap contracts
Volume (MMBtu)		32,500			32,500			32,500			32,500			32,500
Price per MMBtu	$	(0.34	)	$	(0.34	)	$	(0.34	)	$	(0.34	)	$	(0.34	)
2014 – Swap contracts
Volume (MMBtu)		50,000			50,000			50,000			50,000			50,000
Price per MMBtu	$	6.05		$	6.05		$	6.05		$	6.05		$	6.05
2014 – Collar contracts
Volume (MMBtu)		20,000			20,000			20,000			20,000			20,000
Price per MMBtu:
Ceiling	$	7.20		$	7.20		$	7.20		$	7.20		$	7.20
Floor	$	5.00		$	5.00		$	5.00		$	5.00		$	5.00
2014 – Collar contracts with short puts
Volume (MMBtu)		50,000			50,000			50,000			50,000			50,000
Price per MMBtu:
Ceiling	$	8.08		$	8.08		$	8.08		$	8.08		$	8.08
Floor	$	6.00		$	6.00		$	6.00		$	6.00		$	6.00
Short put	$	4.50		$	4.50		$	4.50		$	4.50		$	4.50
2014 – Basis swap contracts
Volume (MMBtu)		10,000			10,000			10,000			10,000			10,000
Price per MMBtu	$	(0.16	)	$	(0.16	)	$	(0.16	)	$	(0.16	)	$	(0.16	)

Interest rates. The following table sets forth as of September 30, 2010 the notional amount of the Company’s debt under outstanding variable-for-fixed and fixed-for-variable interest rate swap contracts, the weighted average fixed annual interest rate and termination date for those contracts:

Type	Notional Amount		Weighted Average Fixed Interest Rate		Termination Date
	(in thousands)
Variable-for-fixed	$	189,000		3.0 percent		February 2011
Fixed-for-variable	$	400,000		2.87 percent		July 2016
Fixed-for-variable	$	70,000		3.23 percent		March 2017

Tabular disclosure of derivative financial instruments. All of the Company’s derivatives are accounted for as non-hedge derivatives as of September 30, 2010 and December 31, 2009, except for $4.4 million and $17.9 million of net obligations on terminated hedges, respectively. The following tables provide disclosure of the Company’s derivative instruments:

25

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Fair Value of Derivative Instruments as of September 30, 2010
	Asset Derivatives (a)			Liability Derivatives (a)
Type	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(in thousands)			(in thousands)
Derivatives not designated as hedging instruments
Commodity price derivatives	Derivatives - current	$	201,339	Derivatives - current	$	51,612
Interest rate derivatives	Derivatives - current		11,739	Derivatives - current		2,149
Commodity price derivatives	Derivatives - noncurrent		206,342	Derivatives - noncurrent		47,872
Interest rate derivatives	Derivatives - noncurrent		22,599	Derivatives - noncurrent		1,723
Total derivatives not designated as hedging instruments			442,019			103,356
Derivatives designated as hedging instruments (b)
Commodity price derivatives	Derivatives - current		118	Derivatives - current		4,530
Total derivatives designated as hedging instruments			118			4,530
Total derivatives		$	442,137		$	107,886

Fair Value of Derivative Instruments as of December 31, 2009
	Asset Derivatives (a)			Liability Derivatives (a)
Type	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
		(in thousands)			(in thousands)
Derivatives not designated as hedging instruments
Commodity price derivatives	Derivatives - current	$	66,442	Derivatives - current	$	120,112
Interest rate derivatives	Derivatives - current		9,450	Derivatives - current		5,169
Commodity price derivatives	Derivatives - noncurrent		48,341	Derivatives - noncurrent		116,233
Interest rate derivatives	Derivatives - noncurrent		2,192	Derivatives - noncurrent		24,314
Total derivatives not designated as hedging instruments			126,425			265,828
Derivatives designated as hedging instruments (b)
Commodity price derivatives	Derivatives - current		—	Derivatives - current		17,913
Total derivatives designated as hedging instruments			—			17,913
Total derivatives		$	126,425		$	283,741

(a) Derivative assets and liabilities shown in the tables above are presented as gross assets and liabilities, without regard to master netting arrangements which are considered in the presentations of derivative assets and liabilities in the accompanying consolidated balance sheets.

(b) Represent derivative obligations under terminated hedge arrangements.

Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in AOCI on Effective Portion
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Interest rate derivatives	$	—	$	—	$	—	$	(433	)
Commodity price derivatives		—		—		—		13,407
Total	$	—	$	—	$	—	$	12,974

26

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Derivatives in Cash Flow Hedging Relationships	Location of Gain/(Loss) Reclassified from AOCI into Earnings	Amount of Gain/(Loss) Reclassified from AOCI into Earnings
		Three Months Ended September 30,						Nine Months Ended September 30,
		2010			2009			2010			2009
		(in thousands)
Interest rate derivatives	Interest expense	$	(63	)	$	(1,621	)	$	(1,633	)	$	(5,893	)
Interest rate derivatives	Derivative gains (losses), net		—			—			(2,465	)		—
Commodity price derivatives	Oil and gas revenue		21,976			26,261			67,634			96,173
Total		$	21,913		$	24,640		$	63,536		$	90,280

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Earnings on Derivatives	Amount of Gain (Loss) Recognized in Earnings on Derivatives
		Three Months Ended September 30,					Nine Months Ended September 30,
		2010		2009			2010		2009
		(in thousands)
Interest rate derivatives	Derivative gains (losses), net	$	14,848	$	131		$	52,564	$	(3,120	)
Commodity price derivatives	Derivative gains (losses), net		112,733		(15,353	)		520,486		(82,463	)
Total		$	127,581	$	(15,222	)	$	573,050	$	(85,583	)

AOCI – Hedging. As of September 30, 2010 and December 31, 2009, AOCI – Hedging represented net deferred gains of $17.7 million and $51.0 million, respectively. The AOCI – Hedging balance as of September 30, 2010 was comprised of $51.2 million of net deferred gains on the effective portions of discontinued commodity hedges, $2.0 million of net deferred losses on the effective portions of discontinued interest rate hedges and $13.3 million of associated net deferred tax provisions, reduced by $18.2 million of AOCI – Hedging net deferred gains attributable to and classified as noncontrolling interests in consolidated subsidiaries.

During the twelve months ending September 30, 2011, the Company expects to reclassify $46.0 million of AOCI – Hedging net deferred gains to oil and gas revenues (including $14.8 million related to noncontrolling interests) and $203 thousand of AOCI – Hedging net deferred losses to interest expense. The Company also expects to reclassify $12.6 million of net deferred income tax provisions associated with hedge derivatives during the twelve months ending September 30, 2011 from AOCI – Hedging to income tax expense. For the remaining three months of 2010 and the year ending December 31, 2011, the Company expects to reclassify deferred gains on discontinued commodity hedges of $21.4 million and $32.9 million, respectively, to oil and gas revenues. During 2012, the Company expects to reclassify deferred losses on commodity hedges of $3.1 million to oil and gas revenues. The $2.0 million of net deferred hedge losses on the effective portion of interest rate hedges will be transferred from AOCI-Hedging to interest expense ratably through April 2018.

NOTE H.    Asset Retirement Obligations

The Company’s asset retirement obligations primarily relate to the future plugging and abandonment of wells and related facilities. Market risk premiums associated with asset retirement obligations are estimated to represent a component of the Company’s credit-adjusted risk-free rate that is utilized in the calculations of asset retirement obligations. The Company has no assets that are legally restricted for purposes of settling asset retirement obligations.

27

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following table summarizes the Company’s asset retirement obligation activity during the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Beginning asset retirement obligations	$	137,181		$	154,172		$	166,434		$	172,433
Liabilities assumed in acquisitions		—			—			6			—
New wells placed on production and changes in estimates		2,356			1,202			7,000			16,568
Liabilities reclassified to discontinued operations held for sale		—			—			—			(1,756	)
Disposition of wells		(131	)		(491	)		(29,671	)		(13,334	)
Liabilities settled		(6,141	)		(15,587	)		(16,096	)		(40,562	)
Accretion of discount from continuing operations		2,626			2,754			8,218			8,259
Accretion of discount from discontinued operations		—			88			—			530
Ending asset retirement obligations	$	135,891		$	142,138		$	135,891		$	142,138

The Company records the current and noncurrent portions of asset retirement obligations in other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. As of September 30, 2010 and December 31, 2009, the current portions of the Company’s asset retirement obligations were $6.5 million and $13.9 million, respectively.

NOTE I.    Postretirement Benefit Obligations

As of September 30, 2010 and December 31, 2009, the Company had $8.7 million and $9.1 million, respectively, of unfunded accumulated postretirement benefit obligations, the current and noncurrent portions of which are included in other current liabilities and other liabilities in the accompanying consolidated balance sheets. These obligations are comprised of five plans of which four relate to predecessor entities that the Company acquired in prior years. These plans had no assets as of September 30, 2010 or December 31, 2009. Other than participants in the Company’s retirement plan, the participants of these plans are not current employees of the Company.

The following table reconciles changes in the Company’s unfunded accumulated postretirement benefit obligations during the three and nine months ended September 30, 2010 and September 30, 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Beginning accumulated postretirement benefit obligations	$	8,968		$	9,364		$	9,075		$	9,612
Net benefit payments		(543	)		(361	)		(1,127	)		(1,052	)
Service costs		80			57			241			171
Net actuarial losses		100			—			200			—
Accretion of interest		108			164			324			493
Ending accumulated postretirement benefit obligations	$	8,713		$	9,224		$	8,713		$	9,224

NOTE J.    Commitments and Contingencies

Legal actions. In addition to the legal action described below, the Company is a party to other 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 will continue to evaluate its litigation on a quarter-by-quarter basis and will establish and adjust any litigation reserves as appropriate to reflect its assessment of the then current status of litigation.

28

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

Colorado Notice of Violation. On May 13, 2008, the Company was served with a Notice of Violation/Cease and Desist Order by the State of Colorado Department of Public Health and Environmental Water Quality Control Division (the “Division”). The Notice alleges violations of stormwater discharge permits in the Company’s Raton Basin and former Lay Creek operations, specifically deficiencies in the Company’s stormwater management plans, failure to implement and maintain best management practices to protect stormwater runoff and failure to conduct inspections of the stormwater management system. The Company is in advanced discussions with the Division to resolve this matter and does not believe that the outcome of this proceeding will materially impact the Company’s liquidity, financial position or future results of operations.

Investigation by the Alaska Oil and Gas Conservation Commission (the “AOGCC”). During the second quarter of 2010, the AOGCC commenced an investigation into allegations by a former Pioneer employee regarding the Company’s Oooguruk facility on the North Slope of Alaska. Among the allegations are claims that the Company did not have authorization to inject certain non-hazardous substances into its enhanced oil recovery well, that the Company mishandled disposal of waste products and that the Company’s operating practices are harmful to the project’s oil reservoirs. Upon initially becoming aware of the allegations, the Company informed the AOGCC and other relevant federal, state and local agencies and commenced its own investigation, which confirmed injections of non-hazardous fluids into the Oooguruk enhanced oil recovery well without prior authorizations to do so. The results of the investigation have been reported to the agencies, and the Company is cooperating with the AOGCC’s investigation. Although the investigation into the allegations is ongoing, based on the facts as known to date, the Company believes that the outcome of this investigation will not materially and negatively affect the Company’s liquidity, financial position or future results of operations.

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. The Company does not believe that these obligations, which primarily pertain to matters of litigation, environmental contingencies, royalty obligations and income taxes, are probable of having a material impact on its liquidity, financial position or future results of operations.

The Company has also retained certain liabilities and indemnified buyers for certain matters in connection with other divestitures, including the sale in 2007 of its Canadian assets.

NOTE K.    Net Income (Loss) Per Share Attributable To Common Stockholders

The Company’s basic net income (loss) per share attributable to common stockholders is computed as (i) net income (loss) attributable to common stockholders, (ii) less participating share- and unit-based basic earnings (iii) divided by weighted average basic shares outstanding. The Company’s diluted net income (loss) per share attributable to common stockholders is computed as (i) basic net income (loss) attributable to common stockholders, (ii) plus diluted adjustments to participating undistributed earnings (iii) divided by weighted average diluted shares outstanding. During periods in which the Company realizes a loss from continuing operations attributable to common stockholders, securities or other contracts to issue common stock would not be dilutive to loss per share and conversion into common stock is assumed not to occur.

29

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following table is a reconciliation of the Company’s net income (loss) attributable to common stockholders to basic net income (loss) attributable to common stockholders and to diluted net income (loss) attributable to common stockholders for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Net income (loss) attributable to common stockholders	$	112,036		$	(7,165	)	$	524,866		$	(108,766	)
Participating basic distributed earnings (a)		(18	)		—			(125	)		(94	)
Participating basic undistributed earnings (a)		(2,672	)		—			(11,895	)		—
Basic net income (loss) attributable to common stockholders		109,346			(7,165	)		512,846			(108,860	)
Diluted adjustments to share- and unit-based earnings (a)		19			—			128			—
Diluted net income (loss) attributable to common stockholders	$	109,365		$	(7,165	)	$	512,974		$	(108,860	)

(a) In accordance with ASC 260, unvested restricted stock awards and Pioneer Southwest phantom unit awards represent participating securities because they participate in nonforfeitable dividends or distributions with the common equity owners of the Company or Pioneer Southwest, as applicable. Participating share- and unit-based earnings represent the distributed and undistributed earnings of the Company attributable to the participating securities. Unvested restricted stock awards and phantom unit awards do not participate in undistributed net losses as they are not contractually obligated to do so.

The following table is a reconciliation of basic weighted average common shares outstanding to diluted weighted average common shares outstanding for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Weighted average common shares outstanding (a):
Basic		115,191		114,123		114,985		114,118
Dilutive common stock options (b)		168		—		218		—
Contingently issuable - performance shares (b)		662		—		629		—
Diluted		116,021		114,123		115,832		114,118

(a) In 2007, the Company’s board of directors (“Board”) approved a $750 million share repurchase program of which $355.8 million remained available for purchases as of September 30, 2010. During the first nine months of 2010, the Company did not purchase any common stock pursuant to the program. During the first nine months of 2009, the Company purchased $16.3 million of common stock pursuant to the program.

(b) Diluted earnings per share were calculated using the two-class method for the three and nine months ended September 30, 2010 and 2009. The following common stock equivalents were excluded from the diluted loss per share calculations for the three and nine months ended September 30, 2009 because they would have been anti-dilutive to the calculations: 1,194,518 and 768,049 unvested restricted shares or restricted stock units, respectively; 180,124 and 154,946 outstanding options to purchase the Company’s common stock, respectively; and 203,835 and 126,091 performance units, respectively.

NOTE L.    Geographic Operating Segment Information

The Company has reportable 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 continuing operations in the United States, South Africa and Tunisia.

30

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following tables provide the Company’s geographic operating segment data for the three and nine months ended September 30, 2010 and 2009. Geographic operating segment income tax (provisions) benefits 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 income and expenses that are not routinely included in the earnings measures internally reported to management on a geographic operating segment basis.

	United States			South Africa			Tunisia			Headquarters			Consolidated Total
	(in thousands)
Three Months Ended September 30, 2010
Revenues and other income:
Oil and gas	$	416,108		$	21,299		$	33,965		$	—		$	471,372
Interest and other		—			—			—			11,864			11,864
Derivative gains, net		—			—			—			127,581			127,581
Gain (loss) on disposition of assets, net		2,429			—			—			(46	)		2,383
Hurricane activity, net		3,452			—			—			—			3,452
		421,989			21,299			33,965			139,399			616,652
Costs and expenses:
Oil and gas production		99,711			1,000			3,628			—			104,339
Production and ad valorem taxes		33,045			—			—			—			33,045
Depletion, depreciation and amortization		119,726			18,338			5,576			9,198			152,838
Exploration and abandonments		21,308			302			1,353			—			22,963
General and administrative		—			—			—			44,759			44,759
Accretion of discount on asset retirement obligations		1,899			622			105			—			2,626
Interest		—			—			—			45,002			45,002
Other		9,682			—			—			11,245			20,927
		285,371			20,262			10,662			110,204			426,499
Income from continuing operations before income taxes		136,618			1,037			23,303			29,195			190,153
Income tax provision		(50,549	)		(290	)		(12,101	)		(13,721	)		(76,661	)
Income from continuing operations	$	86,069		$	747		$	11,202		$	15,474		$	113,492

31

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

	United States			South Africa			Tunisia			Headquarters			Consolidated Total
	(in thousands)
Three Months Ended September 30, 2009
Revenues and other income:
Oil and gas	$	350,034		$	20,836		$	39,099		$	—		$	409,969
Interest and other		—			—			—			503			503
Derivative losses, net		—			—			—			(15,222	)		(15,222	)
Gain (loss) on disposition of assets, net		80			—			—			(465	)		(385	)
Hurricane activity, net		(1,830	)		—			—			—			(1,830	)
		348,284			20,836			39,099			(15,184	)		393,035
Costs and expenses:
Oil and gas production		84,083			822			5,489			—			90,394
Production and ad valorem taxes		28,089			—			—			—			28,089
Depletion, depreciation and amortization		128,954			20,813			5,639			7,199			162,605
Exploration and abandonments		19,908			114			4,910			141			25,073
General and administrative		—			—			—			34,799			34,799
Accretion of discount on asset retirement obligations		2,014			637			103			—			2,754
Interest		—			—			—			43,438			43,438
Other		9,702			—			—			11,661			21,363
		272,750			22,386			16,141			97,238			408,515
Income (loss) from continuing operations before income taxes		75,534			(1,550	)		22,958			(112,422	)		(15,480	)
Income tax benefit (provision)		(27,948	)		450			(12,227	)		44,931			5,206
Income (loss) from continuing operations	$	47,586		$	(1,100	)	$	10,731		$	(67,491	)	$	(10,274	)

32

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

	United States			South Africa			Tunisia			Headquarters			Consolidated Total
	(in thousands)
Nine Months Ended September 30, 2010
Revenues and other income:
Oil and gas	$	1,264,315		$	67,182		$	109,813		$	—		$	1,441,310
Interest and other		—			—			—			51,930			51,930
Derivative gains, net		—			—			—			570,585			570,585
Gain (loss) on disposition of assets, net		27,408			—			—			(437	)		26,971
Hurricane activity, net		5,678			—			—			—			5,678
		1,297,401			67,182			109,813			622,078			2,096,474
Costs and expenses:
Oil and gas production		278,154			2,672			10,522			—			291,348
Production and ad valorem taxes		85,444			—			—			—			85,444
Depletion, depreciation and amortization		353,090			58,677			17,593			24,560			453,920
Exploration and abandonments		60,773			428			9,354			328			70,883
General and administrative		—			—			—			128,081			128,081
Accretion of discount on asset retirement obligations		6,043			1,866			309			—			8,218
Interest		—			—			—			137,893			137,893
Other		30,233			—			—			21,995			52,228
		813,737			63,643			37,778			312,857			1,228,015
Income from continuing operations before income taxes		483,664			3,539			72,035			309,221			868,459
Income tax provision		(178,956	)		(991	)		(37,653	)		(114,228	)		(331,828	)
Income from continuing operations	$	304,708		$	2,548		$	34,382		$	194,993		$	536,631

33

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

	United States			South Africa			Tunisia			Headquarters			Consolidated Total
	(in thousands)
Nine Months Ended September 30, 2009
Revenues and other income:
Oil and gas	$	991,849		$	50,801		$	105,862		$	—		$	1,148,512
Interest and other		—			—			—			99,761			99,761
Derivative losses, net		—			—			—			(85,583	)		(85,583	)
Gain (loss) on disposition of assets, net		87			—			—			(534	)		(447	)
Hurricane activity, net		(18,280	)		—			—			—			(18,280	)
		973,656			50,801			105,862			13,644			1,143,963
Costs and expenses:
Oil and gas production		257,580			4,763			23,274			—			285,617
Production and ad valorem taxes		79,503			—			—			—			79,503
Depletion, depreciation and amortization		414,135			57,812			15,706			21,769			509,422
Impairment of oil and gas properties		21,091			—			—			—			21,091
Exploration and abandonments		61,276			403			15,458			724			77,861
General and administrative		—			—			—			102,728			102,728
Accretion of discount on asset retirement obligations		6,038			1,912			309			—			8,259
Interest		—			—			—			128,051			128,051
Other		48,852			—			3,768			36,847			89,467
		888,475			64,890			58,515			290,119			1,301,999
Income (loss) from continuing operations before income taxes		85,181			(14,089	)		47,347			(276,475	)		(158,036	)
Income tax benefit (provision)		(31,517	)		4,086			(26,911	)		102,013			47,671
Income (loss) from continuing operations	$	53,664		$	(10,003	)	$	20,436		$	(174,462	)	$	(110,365	)

NOTE M.    Impairment of Oil and Gas Properties

During the first quarter of 2009, the Company recognized a noncash impairment charge of $21.1 million to reduce the carrying value of its Uinta/Piceance area oil and gas properties. The impairment charge resulted from declines in commodity prices and well performance which reduced the Company’s assessment of economically recoverable resource potential. The impairment charge reduced the Company’s Uinta/Piceance area oil and gas property carrying values to their estimated fair value on that date based on the estimated discounted future cash flows attributable to the assets, which were derived from Level 3 fair value inputs.

The Company’s primary assumptions of the estimated future cash flows attributable to oil and gas properties were based on (i) proved reserves and risk-adjusted probable and possible reserves and (ii) management’s commodity price outlook, which were based in part on forward market quotes.

NOTE N.    Volumetric Production Payments

The Company’s VPPs represent limited-term overriding royalty interests in oil reserves that: (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 associated with the reserves, (iii) are nonrecourse to the Company (i.e., the purchaser’s only recourse is to the reserves acquired), (iv) transfer title of the reserves to the purchaser and (v) allow the Company to retain the remaining reserves after the VPPs volumetric quantities have been delivered.

At the inception of the VPP agreements, the Company (i) removed the proved reserves associated with the VPPs, (ii) recognized VPP proceeds as deferred revenue which are being amortized on a unit-of-production basis to oil revenues over the remaining term of each VPP, (iii) retained 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.

34

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following table provides information about changes in the deferred revenue carrying values of the Company’s VPPs for the nine months ended September 30, 2010 (in thousands):

Deferred revenue at December 31, 2009	$	177,236
Less: 2010 amortization		(67,739	)
Deferred revenue at September 30, 2010	$	109,497

The remaining deferred revenue amounts will be recognized in oil revenues in the consolidated statements of operations as noted below, assuming the related VPP production volumes are delivered as scheduled (in thousands):

Remaining 2010	$	22,475
2011		44,951
2012		42,071
	$	109,497

NOTE O.     Gain (Loss) on Disposition of Assets, Net

For the three and nine months ended September 30, 2010, the Company recorded $2.4 million and $27.0 million of net gains on disposition of assets, respectively, as compared to $385 thousand and $447 thousand of net losses for the three and nine months ended September 30, 2009, respectively.

During the three and nine months ended September 30, 2010, the Company recorded $2.4 million and $8.1 million of net gains, respectively, associated the sale of proved and unproved oil and gas properties associated with an Eagle Ford Shale joint venture transaction that was completed during June 2010. During June 2010, the Company entered into a purchase and sale agreement whereby it sold (i) 45 percent of its Eagle Ford Shale proved and unproved oil and gas properties to an unaffiliated third party for $225.6 million of cash proceeds, including normal closing adjustments, and (ii) sold a 49.9 percent interest in EFS Midstream for $46.4 million of cash proceeds (see Note B for additional information regarding EFS Midstream). The terms of the Eagle Ford Shale transaction also provide that the purchaser will pay 75 percent (up to $886.8 million) of the Company’s defined exploration, drilling and completion costs attributable to the Eagle Ford Shale assets during the six years ending on July 1, 2016, subject to extension. Associated with these transactions, the Company also recorded a deferred gain of $46.3 million that will be amortized to earnings over a 20 year period.

During 2010, the Company also sold certain proved and unproved oil and gas properties in the Uinta/Piceance area for net proceeds of $11.9 million, resulting in a net gain of $17.4 million for the nine months ended September 30, 2010.

The Company’s 2009 asset dispositions were primarily comprised sales of substantially all of its Mississippi assets and shelf properties in the Gulf of Mexico, which are reflected as discontinued operations in the accompanying statements of operations. See Note S for additional information regarding the sale of these assets.

35

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

NOTE P.     Interest and Other Income

The following table provides the components of the Company’s interest and other income:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2010			2009		2010		2009
	(in thousands)
Alaskan Petroleum Production Tax credits (a)	$	12,129		$	—	$	39,990	$	94,989
Interest income		3,113			108		3,594		1,289
Foreign currency remeasurement and exchange gains (losses)(b)		(4,107	)		174		1,871		790
Contract drilling margin		268			—		1,776		—
Insurance claim recovery		—			—		1,665		—
Other income		255			169		1,160		1,780
Sales and other tax refunds		—			—		984		—
Deferred compensation plan income		206			52		890		913
Total interest and other income	$	11,864		$	503	$	51,930	$	99,761

(a) The Company earns Alaskan Petroleum Production Tax (“PPT”) credits on qualifying capital expenditures. The Company recognizes income from PPT credits when they are realized through cash refunds or sales.

(b) The Company’s operations in Africa periodically recognize monetary assets and liabilities in currencies other than their functional currencies. Associated therewith, the Company realizes foreign currency remeasurement and transaction gains and losses.

NOTE Q.     Other Expense

The following table provides the components of the Company’s other expense:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Excess and terminated rig related costs (a)	$	9,682	$	9,702	$	30,233	$	52,620
Inventory impairment (b)		5,660		291		7,230		1,894
Well servicing operations (c)		2,305		5,169		6,965		10,551
Other		822		2,025		3,950		3,370
Foreign currency remeasurement and exchange losses (d)		1,571		1,249		2,746		5,982
Contingency and environmental accrual adjustments		260		913		507		6,998
Bad debt expense		358		1,985		328		1,241
Equity interest in losses of unconsolidated affiliate		269		—		269		—
Transportation commitment charge		—		29		—		6,811
Total other expense	$	20,927	$	21,363	$	52,228	$	89,467

(a) Represents above market drilling rig costs, idle rig costs and costs incurred to terminate contractual drilling rig commitments prior to their contractual maturities.

(b) Represents impairment charges to reduce the carrying value of excess lease and well equipment and supplies inventories to their estimated net realizable values.

(c) Represents idle well servicing costs.

(d) The Company’s operations in Africa periodically recognize monetary assets and liabilities in currencies other than their functional currencies. Associated therewith, the Company realizes foreign currency remeasurement and transaction gains and losses.

36

PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

NOTE R.    Insurance Claims

As a result of Hurricane Rita in September 2005, the Company’s East Cameron facility, located in the Gulf of Mexico shelf, was destroyed. The operations to reclaim and abandon the East Cameron facilities began in January 2007. As of September 30, 2010, the Company estimates that it will cost an additional $1.8 million to complete the reclamation and abandonment of the East Cameron facility.

The remaining estimated cost to reclaim and abandon the East Cameron facilities contains a number of assumptions that could cause the ultimate cost to be higher or lower than the estimate, as there are many uncertainties when working offshore and underwater with low visibility. The Company has expended $206.5 million on the reclamation and abandonment of the East Cameron facility through September 30, 2010.

During the three and nine months ended September 30, 2010, the Company received $5.8 million and $13.5 million from its insurance providers, respectively, related to debris removal, which was credited to Hurricane activity, net in the accompanying consolidated statement of operations. Since operations began to reclaim and abandon the East Cameron facility, the Company has recovered from its insurance providers (i) $59.7 million attributable to reclamation and abandonment costs incurred, (ii) $18.0 million related to business interruption and property damage losses and (iii) $3.0 million of reimbursed interest costs.

In 2007, the Company commenced legal actions against its insurance carriers regarding policy coverage issues, primarily related to debris removal, certain costs associated with plugging and abandonment, and the well restoration and safety coverages. Subsequent to September 30, 2010, the Company and the insurance carriers agreed to settle the insurance policy dispute, as a result of which the insurance carriers are expected to pay the Company an incremental $140 million plus certain court costs during the fourth quarter of 2010.

NOTE S.    Discontinued Operations

The Company sold substantially all of its Mississippi assets and shelf properties in the Gulf of Mexico during June and August 2009, respectively. The Company has reflected the results of operations of these properties and the 2009 gains on the disposition of these assets as discontinued operations, rather than as a component of continuing operations, in the accompanying consolidated statements of operations.

During the fourth quarter of 2009, the Company recorded a $119.3 million receivable from the MMS for the recovery of excess royalties paid by the Company on qualifying deepwater leases in the Gulf of Mexico. During the nine months ended September 30, 2010, the MMS paid the Company the $119.3 million receivable plus an additional $35.3 million of associated interest on the excess royalty payments. The properties that were the source of these royalty and interest recoveries were sold by the Company during 2006. Accordingly, the interest income recorded during the second quarter of 2010 has been classified as a component of income from discontinued operations, net of tax in the accompanying consolidated statements of operations.

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PIONEER NATURAL RESOURCES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

The following table represents the components of the Company’s discontinued operations for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
	(in thousands)
Revenues and other income:
Oil and gas	$	—		$	2,000		$	—		$	13,722
Interest and other (a)		3,603			—			42,911			—
Gain on disposition of assets, net (b)		—			17,823			—			18,129
		3,603			19,823			42,911			31,851
Costs and expenses:
Oil and gas production		—			477			—			5,126
Production and ad valorem taxes		—			(155	)		—			(37	)
Depletion, depreciation and amortization (b)		—			1			—			3,863
Exploration and abandonments (b)		1,500			7			1,500			290
General and administrative		—			144			—			108
Accretion of discount on asset retirement obligations (b)		—			89			—			531
		1,500			563			1,500			9,881
Income from discontinued operations before income taxes		2,103			19,260			41,411			21,970
Income tax provision (b)		(1,021	)		(7,153	)		(14,173	)		(8,102	)
Income from discontinued operations	$	1,082		$	12,107		$	27,238		$	13,868

(a) Primarily comprised of (i) $35.3 million of interest paid to the Company during the three months ended June 30, 2010 by the MMS on excess royalty payments and $2.8 million of legal settlements paid to the Company during the three months ended September 30, 2010 on Gulf of Mexico discontinued operations sold during 2006, (ii) $2.1 million of Canadian sales tax refunds paid to the Company during the three months ended June 30, 2010 attributable to Canadian discontinued operations sold during 2007 and (iii) an $856 thousand receivable recovery and $1.9 million of Argentine value added tax contingency charge reversals recorded during the three months ended September 30 and June 30, 2010, respectively, on Argentine discontinued operations sold during 2006.

(b) Represents the significant noncash components of discontinued operations. Deferred income taxes for the nine months ended September 30, 2010 and 2009 were $9.0 million and $8.1 million, respectively.

NOTE T.    Subsequent Events

The Company has evaluated subsequent events through the date of issuance of its unaudited consolidated financial statements. The Company is not aware of any reportable subsequent events other than the subsequent event disclosed in Note R.

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PIONEER NATURAL RESOURCES COMPANY

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

Financial and Operating Performance

The Company’s financial and operating performance for the third quarter of 2010 included the following highlights:

• Earnings attributable to common stockholders was $112.0 million ($0.94 per diluted share), as compared to net loss attributable to common stockholders of $7.2 million ($0.06 per diluted share) for the third quarter of 2009. The increase in earnings attributable to common stockholders is primarily due to $127.6 million of mark-to-market derivative gains during the third quarter of 2010 as compared to $15.2 million of mark-to-market derivative losses during the third quarter of 2009 and a $61.4 million increase in oil and gas revenues.

• Net cash provided by operating activities increased to $901.7 million for the nine months ended September 30, 2010, as compared to $410.8 million for the nine months ended September 30, 2009. The $490.9 million increase in net cash provided by operating activities was primarily due to increases in oil and gas revenues and changes in working capital.

• Net debt to book capitalization decreased to 37 percent at September 30, 2010, as compared to 43 percent at December 31, 2009, principally due to debt repayments from the proceeds of the Eagle Ford Shale joint venture transaction and earnings attributable to mark-to-market gains on derivative contracts.

• Average reported oil, NGL and gas prices increased during the third quarter of 2010 to $84.71 per Bbl, $34.46 per Bbl and $4.31 per Mcf, respectively, as compared to respective prices of $78.20 per Bbl, $33.13 per Bbl and $3.64 per Mcf during the third quarter of 2009.

• Daily sales volumes increased by two percent to 114,550 BOEPD during the third quarter of 2010, as compared to 112,623 BOEPD during the third quarter of 2009. The increase in third quarter 2010 sales volumes, as compared to the third quarter of 2009, was primarily due to increased drilling activities and workover expenditures during 2010 as compared to 2009.

• Average per-BOE oil and gas production costs increased during the third quarter of 2010 to $9.89, as compared to $8.72 per BOE during the third quarter of 2009, primarily as a result of inflation of well servicing costs and increased workover expenditures.

Fourth Quarter 2010 Outlook

Based on current estimates, the Company expects that fourth quarter 2010 production will average 115,000 to 120,000 BOEPD. The range reflects the planned oil export schedule for Tunisia. Tunisian production that is not sold in the domestic Tunisian markets is not recorded as sales until it is exported and title to the production transfers.

Fourth quarter production costs (including production and ad valorem taxes and transportation costs) are expected to average $11.75 to $13.75 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depletion, depreciation and amortization (“DD&A”) expense is expected to average $14.25 to $15.50 per BOE.

Total exploration and abandonment expense for the quarter is expected to be $35 million to $45 million, primarily related to exploration wells being drilled in Tunisia, the Eagle Ford Shale and the Barnett Shale oil plays, and a 2006 drilling commitment well that is being drilled in Utah targeting an oil prospect near existing discoveries, plus related acreage costs, and seismic and personnel costs. General and administrative expense is expected to be $43 million to $47 million. Interest expense is expected to be $44 million to $47 million, and other expense is expected to be $15 million to $20 million. Accretion of discount on asset retirement obligations is expected to be $2 million to $4 million.

Noncontrolling interest in consolidated subsidiaries’ net income, excluding noncash mark-to-market adjustments, is expected to be $9 million to $12 million, primarily reflecting the public ownership in Pioneer Southwest.

The Company’s fourth quarter effective income tax rate is expected to range from 40 percent to 50 percent, assuming current capital spending plans, higher tax rates in certain foreign jurisdictions and no significant mark-to-market changes in the Company’s derivative position. Cash income taxes are expected to range from $15 million to $25 million, principally related to South African and Tunisian income taxes.

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PIONEER NATURAL RESOURCES COMPANY

Operations and Drilling Highlights

The following table summarizes the Company’s average daily oil, NGL, gas and total production by asset area during the nine months ended September 30, 2010:

	Oil (Bbls)		NGLs (Bbls)		Gas (Mcf)		Total (BOE)
United States:
Permian Basin		16,285		10,731		43,037		34,189
Mid-Continent		4,059		7,753		54,862		20,956
Rocky Mountains		14		13		172,764		28,821
Barnett Shale		92		965		9,137		2,580
South Texas		54		—		50,342		8,444
Eagle Ford Shale		318		187		5,744		1,463
Alaska		6,565		—		—		6,565
Other		1		—		74		12
		27,388		19,649		335,960		103,030
South Africa		730		—		30,304		5,781
Tunisia		4,845		—		2,711		5,297
Total Worldwide		32,963		19,649		368,975		114,108

The Company intends to limit 2010 capital expenditures, excluding the effects of asset retirement obligations, capitalized interest and geological and geophysical administrative costs, to internally-generated operating cash flow for the year. During the nine months ended September 30, 2010, cash flow from operating activities was $901.7 million and the Company’s capital expenditures, excluding the effects of asset retirement obligations, capitalized interest and geological and geophysical administrative costs, were $789.0 million.

The following table summarizes by geographic area the Company’s finding and development costs incurred during the nine months ended September 30, 2010:

	Acquisition Costs					Exploration Costs		Development Costs			Asset Retirement Obligations
	Proved			Unproved									Total
	(in thousands)
United States:
Permian Basin	$	2,517		$	2,405	$	9,389	$	372,813		$	278	$	387,402
Mid-Continent		—			100		607		5,843			21		6,571
Rocky Mountains		(371	)		567		8,782		8,668			7		17,653
Barnett Shale		(89	)		28,855		20,934		145			21		49,866
South Texas		130			2,105		24,538		13,096			10		39,879
Eagle Ford Shale		2,527			107,486		82,289		344			72		192,718
Alaska		—			—		16,826		68,733			549		86,108
Other		—			—		—		—			1,500		1,500
		4,714			141,518		163,365		469,642			2,458		781,697
South Africa		—			—		428		(53	)		279		654
Tunisia		—			—		29,106		24,045			768		53,919
Other		—			—		329		—			—		329
Total Worldwide	$	4,714		$	141,518	$	193,228	$	493,634		$	3,505	$	836,599

40

PIONEER NATURAL RESOURCES COMPANY

The following table summarizes the Company’s development and exploration/extension drilling activities for the nine months ended September 30, 2010:

	Development Drilling
	Beginning Wells in Progress		Wells Spud		Successful Wells		Unsuccessful Wells		Ending Wells in Progress
United States		11		324		316		1		18
Tunisia		—		1		1		—		—
Total Worldwide		11		325		317		1		18

	Exploration/Extension Drilling
	Beginning Wells in Progress		Wells Spud		Successful Wells		Unsuccessful Wells		Sold Wells		Ending Wells in Progress
United States		8		34		20		1		1		20
Tunisia		5		3		5		—		—		3
Total Worldwide		13		37		25		1		1		23

Permian Basin area. During the first nine months of 2010, the Company drilled 303 wells in the Spraberry field. The Company is currently utilizing 25 rigs, and plans to drill approximately 440 wells during 2010. The Company intends to continue to expand its drilling program past 2010, with plans to increase its rig count to 40 rigs by 2012. The Company’s drilling program continues to drill to the lower Wolfcamp formation and in certain areas down to the Strawn formation with positive production results. The Company acquired nine rigs during the first nine months of 2010 and has deposits on three additional rigs to be acquired during the fourth quarter of 2010. These Company-owned rigs will represent about 30 percent of the planned 40-rig drilling program in 2012.

During 2010, the Company commenced a Spraberry field waterflood project that is located on approximately 7,000 acres within an existing Spraberry unit. Drilling, conversion and facility work was completed during the first half of 2010 and the Company commenced water injection during the third quarter of 2010, with initial oil response expected during the first half of 2011.

During 2008, the Company initiated a program to test 20-acre infill drilling performance, as part of its announced recovery improvement initiatives. The Company drilled and completed eleven 20-acre wells in 2008 and completed nine additional 20-acre wells in 2009 with encouraging results. In the fourth quarter of 2010, the Company plans to drill approximately 25 additional 20-acre wells.

South Texas and Eagle Ford Shale area. The Company’s drilling activities in the South Texas area during 2010 continue to be primarily focused on delineation and development of Pioneer’s substantial acreage position in the Eagle Ford Shale play.

During June 2010, the Company entered into an Eagle Ford Shale joint venture transaction and associated therewith the Company received $272.0 million of cash proceeds during the second quarter of 2010, including normal closing adjustments. Pursuant to the transaction, the Company entered into a purchase and sale agreement to sell 45 percent of its Eagle Ford Shale proved and unproved oil and gas properties to an unaffiliated third party for $225.6 million of cash proceeds, including normal closing adjustments. The terms of the transaction also provide that the purchaser will pay 75 percent (up to $886.8 million) of the Company’s defined exploration, drilling and completion costs attributable to the Eagle Ford Shale assets during the six years ending on July 1, 2016, subject to extension.

The Company also sold a 49.9 percent member interest in EFS Midstream to the purchaser for $46.4 million of cash proceeds. The Company does not have voting control of EFS Midstream. The Company deconsolidated the financial statements of EFS Midstream and is accounting for its investment in the venture under the equity method.

EFS Midstream is obligated to construct midstream assets in the Eagle Ford Shale play that will provide gathering, treating and transportation services for the Eagle Ford Shale properties. As EFS Midstream constructs midstream assets, the Company will be responsible for funding 50.1 percent of EFS Midstream’s cash requirements.

41

PIONEER NATURAL RESOURCES COMPANY

Construction of the midstream assets is underway, with the majority of the construction expected to be completed by 2013. The first of 14 planned facilities was completed at the end of September 2010 and four more are expected to be in operation by mid-January 2011.

During October 2010, the Company announced that it executed a third-party gas processing, fractionation and transportation agreement for Eagle Ford Shale gas and oil production with Enterprise Product Partners L.P. The Company drilled 13 wells in the Eagle Ford Shale play during the first nine months of 2010. Production from certain of these wells is awaiting the construction of permanent production facilities, of which the first of 14 planned facilities was completed as of the end of the third quarter of 2010. The Company is currently running seven drilling rigs in the Eagle Ford Shale play.

Alaska. During the third quarter of 2010, the Company continued drilling activities at its Oooguruk development project. A dual lateral, horizontal production well in the Nuiqsut reservoir was drilled and completed during the third quarter of 2010 and drilling operations on another dual lateral, horizontal well are underway. The new dual lateral well produced at initial gross production rates averaging approximately 1,900 Bbls of oil per day. The Company continues to monitor and analyze production from the Moraine reservoir, which commenced production in the first quarter of 2010. Based on production performance to date, the Company is evaluating drilling additional wells in the Moraine reservoir.

On the Company’s Cosmopolitan Unit project in the Cook Inlet, the Company drilled a lateral sidetrack during 2007 from an existing wellbore on an onshore site to further appraise the resource potential of the unit. The initial un-stimulated production test results were encouraging. The Company performed casing repair workover operations on the well during the fourth quarter of 2009, fracture-stimulated the well during the first quarter of 2010 and concluded flow testing during the second quarter of 2010. The Company will continue to conduct permitting activities and facilities planning and may drill another appraisal well during 2011.

Tunisia. Following an extensive geosciences work program during 2009, the Company recommenced its drilling program in 2010 in the Company-operated Cherouq concession with the successful drilling of a development well and an exploration well. Two additional wells are planned for the fourth quarter of 2010. Additionally, the Company is upgrading its existing production facilities by installing permanent processing equipment and artificial lift, which it intends to utilize to optimize production and reduce production costs.

During the third quarter of 2010, the Company placed the previously announced successful exploration well on production in the Adam Concession. On the Borj El Khadra Permit, the Company completed the acquisition of and began processing 1,185 square kilometers of 3-D seismic data in order to high-grade leads identified on existing 2-D seismic data. The Company expects that an exploration well will be drilled on the permit in the fourth quarter of 2010, following interpretation of the processed data.

In the Anaguid Permit, the Company successfully completed drilling of the Mona-1 exploration well. The company has submitted a modified plan of development to the government to allow the Company to add the Mona-1 well to the production concession that was originally submitted for only the area surrounding the Durra discovery. First production from the expanded production concession is expected during the first quarter of 2011.

Results of Operations

Oil and gas revenues. Oil and gas revenues totaled $471.4 million and $1.4 billion for the three and nine months ended September 30, 2010, respectively, as compared to $410.0 million and $1.1 billion for the same respective periods of 2009.

The increase in oil and gas revenues during the three months ended September 30, 2010, as compared to the same period of 2009, is reflective of increases in worldwide average reported commodity prices and United States oil and NGL sales volumes, partially offset by decreases in United States gas sales volumes and South Africa and Tunisia oil sales volumes. The increase in oil and gas revenues during the nine months ended September 30, 2010, as compared to the same period of 2009, is reflective of increases in worldwide average reported commodity prices and United States oil and Tunisia gas sales volumes, partially offset by decreases in United States NGL and gas sales volumes and South Africa gas sales volumes.

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PIONEER NATURAL RESOURCES COMPANY

The following table provides average daily sales volumes from continuing operations, by geographic area and in total, for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Oil (Bbls):
United States		28,880		24,754		27,388		24,989
South Africa		445		575		730		401
Tunisia		4,409		6,334		4,845		6,612
Worldwide		33,734		31,663		32,963		32,002
NGLs (Bbls):
United States		20,525		18,602		19,649		20,044
Gas (Mcf):
United States		327,917		341,874		335,960		360,896
South Africa		31,069		31,372		30,304		31,637
Tunisia		2,760		904		2,711		1,662
Worldwide		361,746		374,150		368,975		394,195
Total (BOE):
United States		104,058		100,335		103,030		105,182
South Africa		5,623		5,803		5,781		5,674
Tunisia		4,869		6,485		5,297		6,890
Worldwide		114,550		112,623		114,108		117,746

In the United States, average daily BOE sales volumes increased by four percent for the three months ended September 30, 2010 and decreased by two percent during the nine months ended September 30, 2010, as compared to the same respective periods of 2009. For the three and nine months ended September 30, 2010, average daily BOE sales volumes decreased by 25 percent and 23 percent, respectively, in Tunisia, while average daily BOE sales volumes decreased by three percent and increased by two percent, respectively, in South Africa, as compared to the same respective periods of 2009.

During the three and nine months ended September 30, 2010, as compared to the three and nine months ended September 30, 2009, oil volumes delivered under the Company’s VPPs decreased by nine percent for each respective period. The Company satisfied its remaining VPP gas delivery obligations at the end of 2009.

The oil, NGL and gas prices that the Company reports are based on the market price received for the commodities adjusted for transfers of the Company’s commodity hedge gains and losses from AOCI-Hedging and the amortization of deferred VPP revenue. See “Derivative activities” and “Deferred revenue” discussion below for additional information regarding the Company’s cash flow hedging activities and the amortization of deferred VPP revenue.

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PIONEER NATURAL RESOURCES COMPANY

The following table provides average reported prices (including transfers of deferred hedge gains and losses and the amortization of deferred VPP revenue) and average realized prices (excluding transfers of deferred hedge gains and losses and the amortization of deferred VPP revenue) by geographic area and in total, for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Average reported prices:
Oil (per Bbl):
United States	$	86.06	$	81.57	$	89.08	$	70.13
South Africa	$	77.84	$	70.30	$	77.43	$	63.08
Tunisia	$	76.54	$	65.76	$	76.72	$	56.83
Worldwide	$	84.71	$	78.20	$	87.00	$	67.29
NGL (per Bbl):
United States	$	34.46	$	33.13	$	36.80	$	27.33
Gas (per Mcf):
United States	$	4.06	$	3.42	$	4.37	$	3.69
South Africa	$	6.34	$	5.93	$	6.26	$	5.08
Tunisia	$	11.50	$	9.35	$	11.27	$	7.22
Worldwide	$	4.31	$	3.64	$	4.58	$	3.82
Average realized prices:
Oil (per Bbl):
United States	$	70.30	$	61.19	$	72.07	$	49.33
South Africa	$	77.84	$	70.30	$	77.43	$	63.08
Tunisia	$	76.54	$	65.76	$	76.72	$	56.83
Worldwide	$	71.21	$	62.27	$	72.87	$	51.05
NGL (per Bbl):
United States	$	33.49	$	31.75	$	35.78	$	26.04
Gas (per Mcf):
United States	$	4.03	$	2.95	$	4.34	$	3.10
South Africa	$	6.34	$	5.93	$	6.26	$	5.08
Tunisia	$	11.50	$	9.35	$	11.27	$	7.22
Worldwide	$	4.28	$	3.22	$	4.55	$	3.28

Derivative activities. The Company utilizes commodity swap contracts, collar contracts and collar contracts with short puts (which are also known as three-way 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. See Note G of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for the scheduled amortization of net deferred gains and losses on discontinued commodity hedges that will be recognized as increases or decreases to future oil and gas revenues.

The following table provides the transfers of deferred hedge gains from AOCI-Hedging associated with oil, NGL and gas price cash flow hedges to oil, NGL and gas revenue for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(in thousands)
Increase to oil revenue from AOCI-Hedging transfers	$	19,206	$	21,668	$	59,415	$	67,928
Increase to NGL revenue from AOCI-Hedging transfers		1,839		2,364		5,458		7,042
Increase to gas revenue from AOCI-Hedging transfers		931		2,229		2,761		21,203
Total	$	21,976	$	26,261	$	67,634	$	96,173

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PIONEER NATURAL RESOURCES COMPANY

Deferred revenue. During the three and nine months ended September 30, 2010, the Company’s amortization of deferred VPP revenue increased oil and gas revenues by $22.7 million and $67.7 million, respectively, as compared to increases of $37.2 million and $110.9 million during the same respective periods of 2009. See Note N of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for specific information regarding the Company’s VPPs.

Interest and other income. Interest and other income for the three and nine months ended September 30, 2010 was $11.9 million and $51.9 million, respectively, as compared to $503 thousand and $99.8 million for the same respective periods in 2009. The increase in interest and other income during the three months ended September 30, 2010, as compared to the same period in 2009, was primarily due to increases of $12.1 million and $3.0 million in Alaskan Petroleum Production tax credit recoveries and interest income, respectively, partially offset by a decrease of $4.3 million in foreign currency remeasurement and exchange gains. The decrease in interest and other income during the nine months ended September 30, 2010, as compared to the same period in 2009, was primarily due to a $55.0 million decrease in Alaskan Petroleum Production tax credit recoveries, partially offset by a $2.3 million increase in interest income and a $1.7 million increase in insurance claim recoveries. See Note P of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding interest and other income.

Derivative gains, net. During the three and nine months ended September 30, 2010, the Company recorded $127.6 million and $570.6 million, respectively, of net derivative gains on commodity price and interest rate derivatives. For the three months ended September 30, 2010, $93.7 million represented unrealized gains subject to continuing market risk and $33.9 million represented realized gains. For the nine months ended September 30, 2010, $506.9 million represented unrealized gains subject to continuing market risk and $63.7 million represented realized gains. During the three and nine months ended September 30, 2009, the Company recorded $15.2 million and $85.6 million, respectively, of net derivative losses. Derivative gains and losses result from changes in the fair values of the Company’s derivative contracts. See Notes D and G of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” and “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding the Company’s derivative activities and market risks associated with those activities.

Gain (loss) on disposition of assets, net. The Company recorded net gains on the disposition of assets of $2.4 million and $27.0 million during the three and nine months ended September 30, 2010, respectively, as compared to net losses on the disposition of assets of $385 thousand and $447 thousand for the three and nine months ended September 30, 2009, respectively. The increase in net gains is primarily associated with the first and second quarter 2010 sales of certain proved and unproved oil and gas properties in the Uinta/Piceance area and gains associated with the Eagle Ford Shale joint venture transaction. See Note O of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding the Company’s gains and losses on dispositions of assets.

Hurricane activity, net. The Company recorded net hurricane related recoveries of $3.5 million and $5.7 million during the three and nine months ended September 30, 2010, respectively, as compared to net hurricane related charges of $1.8 million and $18.3 million during the same respective periods of 2009. Hurricane activity, net is associated with the Company’s East Cameron platform facility, located on the Gulf of Mexico shelf, which was destroyed during 2005 by Hurricane Rita.

The Company estimates that it will expend approximately $1.8 million to complete the operations to reclaim and abandon the East Cameron platform facilities, which the Company expects to occur during the fourth quarter of 2010 and 2011. Since January 2007, the Company has expended approximately $206.5 million on operations to reclaim and abandon the East Cameron platform facilities. The Company’s remaining estimate to reclaim and abandon the East Cameron facilities is based upon an analysis prepared by the Company. Since operations began to reclaim and abandon the East Cameron facility, the Company has recovered from its insurance providers (i) $59.7 million attributable to reclamation and abandonment costs incurred, (ii) $18.0 million related to business interruption and property damage losses and (iii) $3.0 million of reimbursed interest costs.

In 2007, the Company commenced legal actions against its insurance carriers regarding policy coverage issues. Subsequent to September 30, 2010, the Company and the insurance carriers agreed to settle the insurance policy dispute, as a result of which the insurance carriers are expected to pay the Company an incremental $140 million plus certain court costs during the fourth quarter of 2010. See Note R of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for specific information regarding the Company’s East Cameron facility reclamation and abandonment.

Oil and gas production costs. The Company recorded oil and gas production costs of $104.3 million and $291.3 million during the three and nine months ended September 30, 2010, respectively, as compared to $90.4 million and $285.6 million during the same respective periods of 2009. 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 third-party transportation charges represent the cost to transport volumes produced to a sales point. Net natural gas plant/gathering charges represent the net costs to gather and process the Company’s gas, reduced by net revenues earned from gathering and processing of third party gas in Company-owned facilities.

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PIONEER NATURAL RESOURCES COMPANY

Total oil and gas production costs per BOE from continuing operations increased by 13 percent and five percent during the three and nine months ended September 30, 2010, respectively, as compared to the same respective periods in 2009. The increase in United States production costs per BOE is primarily due to inflation in well servicing costs and increases in workover expenditures incurred to mitigate production declines, partially offset by a 43 percent reduction in VPP delivery commitments. South Africa production costs per BOE increased during the three months ended September 30, 2010 and decreased during the nine months ended September 30, 2010, as compared to the same respective periods of 2009 primarily due to the effects of sales volumes variations on the fixed components of South Africa production costs. The decrease in Tunisia production costs per BOE is primarily associated with Adam concession tariff recoveries, reduced utilization of leased operations support facilities and reduced workover activities.

The following tables provide the components of the Company’s oil and gas production costs per BOE from continuing operations and total production costs per BOE from continuing operations by geographic area for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Lease operating expenses	$	7.64	$	6.91	$	7.45	$	7.09
Third-party transportation charges		0.84		0.91		0.87		0.93
Net natural gas plant/gathering charges		0.37		0.27		0.14		0.29
Workover costs		1.04		0.63		0.89		0.58
Total production costs	$	9.89	$	8.72	$	9.35	$	8.89
	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
United States	$	10.42	$	9.12	$	9.89	$	8.96
South Africa	$	1.93	$	1.54	$	1.69	$	3.08
Tunisia	$	8.10	$	9.20	$	7.28	$	12.38
Worldwide	$	9.89	$	8.72	$	9.35	$	8.89

Production and ad valorem taxes. The Company recorded production and ad valorem taxes of $33.0 million and $85.4 million during the three and nine months ended September 30, 2010, respectively, as compared to $28.1 million and $79.5 million for the same respective periods of 2009. In general, production and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, whereas production taxes are based upon current year commodity prices. Consequently, during the three and nine months ended September 30, 2010, the Company’s production and ad valorem taxes per BOE have, in the aggregate, increased 16 percent and 11 percent, reflecting increasing commodity prices during the relevant periods.

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PIONEER NATURAL RESOURCES COMPANY

The following table provides the Company’s production and ad valorem taxes per BOE from continuing operations and total production and ad valorem taxes per BOE from continuing operations for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Ad valorem taxes	$	1.60	$	1.40	$	1.50	$	1.42
Production taxes		1.54		1.31		1.24		1.05
Total ad valorem and production taxes	$	3.14	$	2.71	$	2.74	$	2.47

Depletion, depreciation and amortization expense. The Company’s total DD&A expense was $152.8 million ($14.50 per BOE) and $453.9 million ($14.57 per BOE) for the three and nine months ended September 30, 2010, respectively, as compared to $162.6 million ($15.69 per BOE) and $509.4 million ($15.85 per BOE) during the same respective periods of 2009. The decrease in DD&A expense during the three and nine months ended September 30, 2010, as compared to the same respective periods of 2009, is primarily due to a decrease in depletion expense on oil and gas properties.

Depletion expense on oil and gas properties was $13.63 per BOE and $13.78 per BOE during the three and nine months ended September 30, 2010, respectively, as compared to $15.00 per BOE and $15.17 per BOE during the same respective periods of 2009. The nine percent decreases in per-BOE depletion expense during both the three and nine months ended September 30, 2010 are primarily due to increases in proved reserves as a result of higher commodity prices extending the economic lives of proved properties.

The following table provides depletion expense per BOE from continuing operations by geographic area for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
United States	$	12.51	$	13.97	$	12.55	$	14.42
South Africa	$	35.45	$	38.98	$	37.18	$	37.33
Tunisia	$	12.45	$	9.45	$	12.17	$	8.35
Worldwide	$	13.63	$	15.00	$	13.78	$	15.17

Effective December 31, 2009, the Company adopted the SEC’s final rule on “Modernization of Oil and Gas Reporting” (the “Reserve Ruling”) and the FASB’s ASU 2010-03, which conforms ASC 932 to the Reserve Ruling. Among other items, the Reserve Ruling and ASU 2010-03 require companies to report oil and gas reserves using an average price based upon the prior 12-month period rather than a period-end price.

Impairment of oil and gas properties. The Company reviews its long-lived assets to be held and used, including oil and gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. The Company recognized an impairment charge of $21.1 million to reduce the carrying value of the Company’s oil and gas properties in the Uinta/Piceance areas during 2009. Declines in gas prices and downward adjustments to the economically recoverable resource potential of the Company’s Uinta/Piceance oil and gas properties during the first quarter of 2009 led to the impairment charge.

See Note M of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding the Company’s impairment assessments and the primary factors that impact the Company’s assessments of oil and gas properties for impairment.

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PIONEER NATURAL RESOURCES COMPANY

Exploration and abandonments expense. The following tables provide the Company’s geological and geophysical costs, exploratory dry holes expense and lease abandonments and other exploration expense by geographic area for the three and nine months ended September 30, 2010 and 2009 (in thousands):

	United States		South Africa		Tunisia		Other		Total
Three Months Ended September 30, 2010
Geological and geophysical	$	12,547	$	302	$	1,322	$	—	$	14,171
Exploratory dry holes		2,393		—		31		—		2,424
Leasehold abandonments and other		6,368		—		—		—		6,368
	$	21,308	$	302	$	1,353	$	—	$	22,963
Three Months Ended September 30, 2009
Geological and geophysical	$	9,766	$	114	$	2,160	$	141	$	12,181
Exploratory dry holes		4,048		—		2,750		—		6,798
Leasehold abandonments and other		6,094		—		—		—		6,094
	$	19,908	$	114	$	4,910	$	141	$	25,073
	United States		South Africa		Tunisia		Other		Total
Nine Months Ended September 30, 2010
Geological and geophysical	$	43,664	$	428	$	9,238	$	329	$	53,659
Exploratory dry holes		2,159		—		115		—		2,274
Leasehold abandonments and other		14,950		—		—		—		14,950
	$	60,773	$	428	$	9,353	$	329	$	70,883
Nine Months Ended September 30, 2009
Geological and geophysical	$	29,051	$	403	$	6,291	$	724	$	36,469
Exploratory dry holes		6,757		—		9,167		—		15,924
Leasehold abandonments and other		25,468		—		—		—		25,468
	$	61,276	$	403	$	15,458	$	724	$	77,861

The Company’s exploration and abandonment expense during the three and nine months ended September 30, 2010 is primarily comprised of acquisitions of 3-D seismic in the U.S. and Tunisia, geological and geophysical personnel costs and unproved property abandonments in the United States.

During the nine months ended September 30, 2010, the Company drilled and evaluated 26 exploration/extension wells, 25 of which were successfully completed as discoveries. During the same period in 2009, the Company drilled and evaluated 13 exploration/extension wells, 8 of which were successfully completed as discoveries.

General and administrative expense. General and administrative expense for the three and nine months ended September 30, 2010 was $44.8 million and $128.1 million, respectively, as compared to $34.8 million and $102.7 million during the same respective periods of 2009. The increase in general and administrative expense for the three and nine months ended September 30, 2010, as compared to the same respective periods of 2009, was primarily due to respective increases of (i) $9.0 million and $20.9 million in performance-related compensation expense and (ii) $1.1 million and $1.9 million in contract labor expense in support of the Company’s increased activity level.

Accretion of discount on asset retirement obligations. Accretion of discount on asset retirement obligations was $2.6 million and $8.2 million for the three and nine months ended September 30, 2010, respectively, as compared to $2.8 million and $8.3 million during the same respective periods of 2009. See Note H of Notes to Consolidated Financial Statements in “Item 1. Financial Statements” for information regarding the Company’s asset retirement obligations.

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PIONEER NATURAL RESOURCES COMPANY

Interest expense. Interest expense was $45.0 million and $137.9 million for the three and nine months ended September 30, 2010, respectively, as compared to $43.4 million and $128.1 million during the same respective periods of 2009. The weighted average interest rate on the Company’s indebtedness for the three and nine months ended September 30, 2010, including the effects of interest rate derivatives and capitalized interest, was 7.3 percent and 7.0 percent as compared to 5.2 percent and 5.5 percent for the same respective periods of 2009.

The $1.6 million and $9.8 million increases in interest expense during the three and nine months ended September 30, 2010, as compared to the same periods of 2009, are primarily due to increases in the Company’s effective interest rates, principally as a result of the Company’s November 2009 issuance of $450 million of 7.5% Senior Notes, partially offset by decreases in weighted average borrowings as a result of proceeds from divestitures and Gulf of Mexico royalty refunds (including interest) received during 2010.

Other expense. Other expense for the three and nine months ended September 30, 2010 was $20.9 million and $52.2 million, respectively, as compared to $21.4 million and $89.5 million for the same respective periods of 2009. The $37.3 million decrease in other expense for the nine months ended September 30, 2010, as compared to the same period in 2009, is primarily attributable to a $22.4 million decrease in excess and terminated rig related costs, a $6.8 million decrease in transportation commitment charges, a $6.5 million decrease in contingency and environmental accrual adjustments and a $3.6 million decrease in idle well servicing costs, partially offset by a $5.3 million increase to inventory impairment. See Note Q of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information.

Income tax provision. The Company recognized income tax provisions from continuing operations of $76.7 million and $331.8 million during the three and nine months ended September 30, 2010, respectively, as compared to income tax benefits of $5.2 million and $47.7 million during the same respective periods of 2009. The increase in the income tax provisions for the three and nine months ended September 30, 2010, as compared to the same periods of 2009, is primarily due to increases in income from continuing operations before income taxes, reflecting the significant increases in commodity sales and noncash derivative gains associated with mark-to-market accounting. The Company’s effective tax rates of 41 percent and 40 percent, respectively, during the three and nine months ended September 30, 2010, excluding net income attributable to noncontrolling interests, differs from the combined United States federal and state statutory rate of approximately 37 percent primarily due to foreign tax rates and statutes in foreign jurisdictions that differ from those in the U.S., foreign valuation allowance adjustments and tax provisions on foreign repatriated earnings.

See Note E of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding the Company’s income taxes.

Income from discontinued operations, net of tax. The Company reported income from discontinued operations, net of tax of $1.1 million and $27.2 million for the three and nine months ended September 30, 2010, respectively, as compared to $12.1 million and $13.9 million for the same respective periods of 2009. See Note S of the Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for specific information regarding the Company’s discontinued operations.

Net income attributable to noncontrolling interest. Net income attributable to noncontrolling interest for the three and nine months ended September 30, 2010 was $2.5 million and $39.0 million, respectively, as compared to net income attributable to noncontrolling interest of $9.0 million and $12.3 million for the same respective periods of 2009. The $6.5 million decrease in net income attributable to noncontrolling interest for the three months ended September 30, 2010, as compared to the same period in 2009, is due to a decrease in Pioneer Southwest’s net income that resulted from an increase in Pioneer Southwest’s noncash mark-to-market derivative losses. The $26.7 million increase in net income attributable to noncontrolling interest for the nine months ended September 30, 2010, as compared to the same period in 2009, is primarily due to an increase in Pioneer Southwest’s net income that resulted from an increase in Pioneer Southwest’s noncash mark-to-market derivative gains and an increase in noncontrolling ownership in Pioneer Southwest during the fourth quarter of 2009. See Note B of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding Pioneer Southwest and the Company’s noncontrolling interests.

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PIONEER NATURAL RESOURCES COMPANY

Capital Commitments, Capital Resources and Liquidity

Capital commitments. The Company’s primary needs for cash are for capital expenditures and acquisition expenditures on oil and gas assets, payment of contractual obligations, including funding of EFS Midstream, dividends/distributions and working capital obligations. Funding for these cash needs, as well as funding for any stock or debt repurchases that the Company may undertake, may be provided by any combination of internally-generated cash flow, proceeds from the disposition of nonstrategic assets or external financing sources as discussed in “Capital resources” below. The Company expects that it will be able to fund its needs for cash (excluding acquisitions) with internally-generated cash flows and with its liquidity under its credit facility. Although the Company expects that internal operating cash flows will be adequate to fund capital expenditures and dividend/distribution payments, and that available borrowing capacity under the Company’s credit facility will provide adequate liquidity to fund other needs, no assurances can be given that such funding sources will be adequate to meet the Company’s future needs.

The Company intends to limit its capital expenditures to a level that allows the Company to deliver net cash flow from operating activities in excess of capital requirements in order to enhance and preserve financial flexibility. The Company expects its 2010 capital expenditures to be approximately $1.1 billion (excluding effects of asset retirement obligations, capitalized interest, geological and geophysical administrative costs and EFS Midstream investments). During the first nine months of 2010, the Company’s capital costs (excluding effects of asset retirement obligations, capitalized interest and geological and geophysical administrative costs) were $789.0 million, as compared to $274.2 million during the first nine months of 2009.

Investing activities. Investing activities used $564.2 million of cash during the nine months ended September 30, 2010 as compared to $313.0 million used during the nine months ended September 30, 2009. The $251.2 million increase in net cash used in investing activities for the nine months ending September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily due to a $394.1 million increase in additions to oil and gas properties, due to the Company’s increased drilling activities in 2010, and a $130.6 million increase in additions to other assets and other property and equipment, primarily comprising purchases of drilling rigs, fracture stimulation equipment and well servicing equipment; partially offset by a $273.5 million increase in proceeds from the Eagle Ford Shale joint venture and other asset dispositions. During the nine months ended September 30, 2010 and 2009, the Company’s expenditures for additions to oil and gas properties were funded by net cash provided by operating activities.

Dividends/distributions. During February and August of both 2010 and 2009, the Company’s board of directors (“the Board”) declared semiannual dividends of $0.04 per common share. Associated therewith, the Company paid $4.8 million of aggregate dividends during the nine months ended September 30, 2010 and 2009, respectively. Future dividends are at the discretion of the Board, and, if declared, the Board may change the current dividend amount based on the Company’s liquidity and capital resources at the time.

During January, April and July of both 2010 and 2009, the Pioneer Southwest board of directors (the “Pioneer Southwest Board”) declared quarterly distributions of $0.50 per limited partner unit. Associated therewith, Pioneer Southwest paid aggregate distributions to noncontrolling unitholders of $18.9 million and $14.2 million during the nine months ended September 30, 2010 and 2009, respectively. Future distributions are at the discretion of the Pioneer Southwest Board, and, if declared, the Pioneer Southwest Board may change the current distribution amount based on Pioneer Southwest’s liquidity and capital resources at the time. During October 2010, Pioneer Southwest’s board of directors declared a quarterly cash distribution of $0.50 per limited unit for the period from July 1, 2010 to September 30, 2010. The distribution is payable on November 12, 2010 to unitholders of record at the close of business on November 4, 2010. Associated therewith, Pioneer Southwest will pay approximately $6.3 million of distributions to noncontrolling unitholders.

        Contractual obligations, including off-balance sheet obligations. The Company’s contractual obligations include long-term debt, operating leases, drilling commitments, derivative obligations, other liabilities, transportation commitments, VPP obligations and midstream asset funding commitments. Additionally, the Company has entered into a gathering, treating and transportation agreement with EFS Midstream. Under the terms of the agreement, the Company is obligated to deliver to EFS Midstream, for gathering, treating and transportation services over a twenty year term, production from substantially all of the properties that the Company operates in the Eagle Ford Shale play, contingent upon EFS Midstream constructing the equipment necessary to perform the services. 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 September 30, 2010, the material off-balance sheet arrangements and transactions that the Company has entered into included (i) undrawn letters of credit, (ii) operating lease agreements, (iii) drilling and transportation commitments, (iv) VPP obligations (to physically deliver volumes and pay related lease operating expenses in the future), (v) EFS Midstream capital funding commitments and (vi) 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 or interest rates and gathering, treating and transportation commitments on uncertain volumes of future throughput. Other than the off-balance sheet arrangements described above, the Company has no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company’s liquidity or availability of or requirements for capital resources. Since December 31, 2009, the material changes in the Company’s contractual obligations include (i) a commitment to pay certain minimum annual gathering, treating and transportation payments to EFS Midstream and to fund future EFS Midstream capital expenditures, (ii) a $239.1 million decrease in outstanding long-term borrowings, (iii) a $67.7 million decrease in the Company’s VPP obligations, (iv) a $183.5 million decrease in the Company’s net derivative obligations, (v) an increase of $58.1 million in the Company’s open purchase commitments and (vi) an increase of $348.8 million in the Company’s contractual drilling rig commitments.

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PIONEER NATURAL RESOURCES COMPANY

In accordance with GAAP, the Company periodically measures and records certain assets and liabilities at fair value. The assets and liabilities that the Company periodically measures and records at fair value include trading securities, deferred compensation plan assets, commodity derivative contracts and interest rate derivative contracts. See Note D of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for additional information regarding these assets and liabilities and the valuation techniques used to measure their fair values.

The Company’s commodity and interest rate derivative contracts that are periodically measured and recorded at fair value represent those derivatives that continue to be subject to market or credit risk. As of September 30, 2010, these contracts represented net assets of $334.3 million, including $4.4 million of terminated hedge liabilities that are no longer subject to market risk. The ultimate liquidation value of the Company’s commodity and interest rate derivatives that are subject to market risk will be dependent upon actual future commodity prices and interest rates, which may differ materially from the inputs used to determine the derivatives’ fair values as of September 30, 2010. See Note G of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” and “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for additional information about the Company’s derivative instruments and market risk.

Capital resources. The Company’s primary capital resources are net cash provided by operating activities, proceeds from sales of nonstrategic assets and proceeds from financing activities (principally borrowings under the Company’s credit facility). If internal cash flows do not meet the Company’s expectations, the Company may further reduce its level of capital expenditures, reduce dividend payments, and/or fund a portion of its capital expenditures using borrowings under its credit facility, issuances of debt or equity securities or from other sources, such as asset sales.

Operating activities. Net cash provided by operating activities during the nine months ended September 30, 2010 was $901.7 million as compared to $410.8 million during the same period of 2009. The increase in net cash provided by operating activities for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily due to increases in average oil, NGL and gas prices and working capital changes, partially offset by decreases in NGL and gas sales volumes.

Asset divestitures. See Note O of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” and “Eagle Ford Shale Joint Venture,” above for information regarding the Company’s joint venture and Uinta/Piceance divestitures. During the first quarter of 2010, the Company also received $24.4 million from the Tunisian national oil company as contractual reimbursement of a portion of the Company’s past capital costs incurred in Tunisia.

During June and August 2009, the Company sold its Mississippi assets and its shelf properties in the Gulf of Mexico, respectively, for a net gain of $17.8 million. Also during August 2009, Pioneer USA sold certain of its properties in the Spraberry Field in West Texas to Pioneer Southwest for proceeds of $171.2 million before normal closing adjustments. The transaction value also included the assignment of 2009 through 2013 commodity price derivative positions to Pioneer Southwest. Pioneer Southwest is a partially-owned and consolidated subsidiary of the Company. Consequently, the sale of the properties from Pioneer USA to Pioneer Southwest represented a transfer among entities under common control and did not reduce the Company’s oil and gas properties’ carrying values.

Financing activities. Net cash used in financing activities during the nine months ended September 30, 2010 and 2009 was $286.7 million and $90.6 million, respectively. The $196.1 million increase in cash used in financing activities during the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily due to a $191.1 million decline in borrowings under long-term debt.

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PIONEER NATURAL RESOURCES COMPANY

On March 15, 2010, the Company redeemed for cash all of its outstanding 5.875% senior notes due 2012 for a price equal to the principal amount plus accrued and unpaid interest. Associated therewith, the Company paid $6.3 million.

As the Company pursues its strategy, it may utilize various financing sources, including, to the extent available, 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 Board.

Liquidity. The Company’s principal sources of short-term liquidity are cash on hand and unused borrowing capacity under its credit facility. As of September 30, 2010, the Company had no outstanding borrowings under its credit facility and was in compliance with all of its debt covenants. After adjusting for $65.1 million of undrawn and outstanding letters of credit under its credit facility, the Company had approximately $1.4 billion of unused borrowing capacity as of September 30, 2010. If internal cash flows do not meet the Company’s expectations, the Company may reduce its level of capital expenditures, reduce dividend payments, and/or fund a portion of its capital expenditures using borrowings under its credit facility, issuances of debt or equity securities or from other sources, such as asset sales. The Company cannot provide any assurance that needed short-term or long-term liquidity will be available on acceptable terms or at all. Although the Company expects that internal cash flows will be adequate to fund capital expenditures and dividend payments, and that available borrowing capacity under the Company’s credit facility will provide adequate liquidity, no assurances can be given that such funding sources will be adequate to meet the Company’s future needs. For instance, the amount that the Company may borrow under the credit facility in the future could be reduced as a result of lower oil, NGL or gas prices, among other items.

Debt ratings. The Company receives debt credit ratings from several of the major ratings agencies, which are subject to regular reviews. The Company believes that each of the rating agencies consider many factors in determining the Company’s ratings including: production growth opportunities, liquidity, debt levels, asset composition and proved reserve mix. A reduction in the Company’s debt ratings could negatively impact the Company’s ability to obtain additional financing or the interest rate, fees and other terms associated with such additional financing.

Book capitalization and current ratio. The Company’s net book capitalization at September 30, 2010 was $6.6 billion, consisting of $78.2 million of cash and cash equivalents, debt of $2.5 billion and stockholders’ equity of $4.2 billion. The Company’s net debt to net book capitalization was 37 percent and 43 percent at September 30, 2010 and December 31, 2009, respectively. The Company’s ratio of current assets to current liabilities was 1.16 to 1.00 at September 30, 2010 as compared to 1.08 to 1.00 at December 31, 2009.

New accounting pronouncements. The effects of new accounting pronouncements are discussed in Note B of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements.”

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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, 2009. 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 for the year ended December 31, 2009.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about the Company’s potential exposure to market risks. The term “market risks,” insofar as it relates to currently anticipated transactions of the Company, refers to the risk of loss arising from changes in commodity prices, foreign exchange rates and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how the Company views and manages ongoing market risk exposures. All of the Company’s market risk sensitive instruments are entered into for purposes other than speculative.

The following table reconciles the changes that occurred in the fair values of the Company’s open derivative contracts during the nine months ending 2010:

	Derivative Contract Net Assets (Liabilities) (a)
	Commodities			Interest Rates			Total
	(in thousands)
Fair value of contracts outstanding as of December 31, 2009	$	(121,562	)	$	(17,841	)	$	(139,403	)
Changes in contract fair value (b)		520,486			51,551			572,307
Contract maturities		(90,727	)		(3,244	)		(93,971	)
Fair value of contracts outstanding as of September 30, 2010	$	308,197		$	30,466		$	338,663

(a) Represents the fair values of open derivative contracts subject to market risk. The Company also had $4.4 million and $17.9 million of obligations under terminated derivatives as of September 30, 2010 and December 31, 2009, respectively, for which no market risk exists.

(b) At inception, new derivative contracts entered into by the Company had no intrinsic value.

Interest rate sensitivity. See Note F of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” and Capital Commitments, Capital Resources and Liquidity included in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding debt transactions.

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PIONEER NATURAL RESOURCES COMPANY

The following table provides information about financial instruments to which the Company was a party as of September 30, 2010 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 September 30, 2010. 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 October 27, 2010.

	Three Months Ending December 31, 2010																				Asset (Liability) Fair Value at September 30, 2010
				Year Ending December 31,															Total
				2011			2012			2013			2014			Thereafter
	($ in thousands)
Total Debt:
Fixed rate principal maturities (a)	$	—		$	—		$	—		$	480,000		$	—		$	2,089,985		$	2,569,985	$	(2,813,571	)
Weighted average interest rate		6.05	%		6.05	%		6.05	%		6.75	%		6.78	%		7.07	%
Variable rate principal maturities:
Pioneer Southwest credit facility	$	—		$	—		$	—		$	74,000								$	74,000	$	(71,019	)
Weighted average interest rate		1.22	%		1.38	%		1.82	%		2.58	%
Interest Rate Swaps:
Credit facility:
Notional debt amount (b)	$	189,000		$	23,625																$	(2,150	)
Fixed rate payable (%)		3.00	%		3.00	%
Variable rate receivable (%)		0.34	%		0.51	%
Notional debt amount (b)	$	470,000		$	470,000		$	470,000		$	470,000		$	470,000		$	470,000				$	32,616
Fixed rate receivable (%)		2.92	%		2.92	%		2.92	%		2.92	%		2.92	%		2.92	%
Variable rate payable (%)		0.34	%		0.51	%		0.94	%		1.71	%		2.32	%		2.61	%

(a) Represents maturities of principal amounts excluding debt issuance discounts and premiums and net deferred fair value hedge losses.

(b) Represents weighted average notional contract amounts of interest rate derivatives.

Commodity derivative instruments and price sensitivity. The following table provides information about the Company’s oil, NGL and gas derivative financial instruments that were sensitive to changes in oil, NGL and gas prices as of September 30, 2010. Although mitigated by the Company’s derivative activities, declines in commodity prices would reduce the Company’s revenues and internally-generated cash flows.

The Company manages commodity price risk with derivative contracts, such as swap contracts, collar contracts and collar contracts with short put options. Swap contracts provide a fixed price for a notional amount of sales volumes. Collar contracts provide minimum (“floor”) and maximum (“ceiling”) prices on a notional amount of sales volumes, thereby allowing some price participation if the relevant index price closes above the floor price. Collar contracts with short put options differ from other collar contracts by virtue of the short put option price, below which the Company’s realized price will exceed the variable market prices by the long put-to-short put price differential.

See Note G of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements” for a description of the accounting procedures followed by the Company relative to its derivative financial instruments and for specific information regarding the terms of the Company’s derivative financial instruments that are sensitive to changes in oil, NGL or gas prices.

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PIONEER NATURAL RESOURCES COMPANY

	Three Months Ending December 31, 2010															Asset (Liability) Fair Value at September 30, 2010
				Year Ending December 31,
				2011			2012			2013			2014
																(in thousands)
Oil Derivatives (a):
Average daily notional Bbl volumes:
Swap contracts		2,500			750			3,000			3,000			—		$	(14,627	)
Weighted average fixed price per Bbl	$	93.34		$	77.25		$	79.32		$	81.02		$	—
Collar contracts		—			2,000			—			—			—		$	23,151
Weighted average ceiling price per Bbl	$	—		$	170.00		$	—		$	—		$	—
Weighted average floor price per Bbl	$	—		$	115.00		$	—		$	—		$	—
Collar contracts with short puts		30,250			32,000			31,000			21,250			—		$	(21,538	)
Weighted average ceiling price per Bbl	$	85.09		$	99.33		$	119.70		$	117.38		$	—
Weighted average floor price per Bbl	$	68.38		$	73.75		$	80.48		$	80.18		$	—
Weighted average short put price per Bbl	$	55.23		$	59.31		$	65.00		$	65.18		$	—
Average forward NYMEX oil prices (b)	$	82.53		$	85.34		$	87.42		$	88.09		$	—
NGL Derivatives:
Average daily notional Bbl volumes:
Swap contracts		1,650			750			750			—			—		$	(3,442	)
Weighted average fixed price per Bbl	$	40.85		$	34.65		$	35.03		$	—		$	—
Collar contracts		2,000			1,000			—			—			—		$	(688	)
Weighted average ceiling price per Bbl	$	49.98		$	50.93		$	—		$	—		$	—
Weighted average floor price per Bbl	$	41.58		$	42.21		$	—		$	—		$	—
Collar contracts with short puts		2,000			—			—			—			—		$	(203	)
Weighted average ceiling price per Bbl	$	58.92		$	—		$	—		$	—		$	—
Weighted average floor price per Bbl	$	47.64		$	—		$	—		$	—		$	—
Weighted average short put price per Bbl	$	38.71		$	—		$	—		$	—		$	—
Average forward Mont Belvieu NGL prices (c)	$	47.18		$	42.80		$	40.84		$	—		$	—
Gas Derivatives (a):
Average daily notional MMBtu volumes (b):
Swap contracts		167,500			117,500			105,000			67,500			50,000		$	164,864
Weighted average fixed price per MMBtu	$	6.26		$	6.13		$	5.82		$	6.11		$	6.05
Collar contracts		40,000			—			65,000			100,000			20,000		$	24,564
Weighted average ceiling price per MMBtu	$	7.19		$	—		$	6.60		$	6.50		$	7.20
Weighted average floor price per MMBtu	$	5.75		$	—		$	5.00		$	5.00		$	5.00
Collar contracts with short puts		95,000			200,000			190,000			45,000			50,000		$	166,616
Weighted average ceiling price per MMBtu	$	7.94		$	8.55		$	7.96		$	7.49		$	8.08
Weighted average floor price per MMBtu	$	6.00		$	6.32		$	6.12		$	6.00		$	6.00
Weighted average short put price per MMBtu	$	5.00		$	4.88		$	4.55		$	4.50		$	4.50
Average forward NYMEX gas prices (b)	$	3.53		$	4.23		$	5.00		$	5.37		$	5.60
Basis swap contracts		245,109			133,500			116,000			32,500			10,000		$	(30,500	)
Weighted average fixed price per MMBtu	$	(0.69	)	$	(0.58	)	$	(0.37	)	$	(0.34	)	$	(0.16	)
Average forward basis differential prices (d)	$	(0.20	)	$	(0.28	)	$	(0.27	)	$	(0.23	)	$	(0.13	)

(a) Subsequent to September 30, 2010, the Company entered into additional oil collar contracts with short puts for 6,000 Bbls per day of the Company’s 2012 production with a ceiling price of $111.33 per Bbl, a floor price of $80.00 per Bbl and a short put price of $65.00 per Bbl.

(b) The average forward NYMEX oil and gas prices are based on October 27, 2010 market quotes.

(c) Forward Mont Belvieu NGL prices are derived from active-market NGL component price quotes.

(d) The average forward basis differential prices are based on October 27, 2010 market quotes for basis differentials between the relevant index prices and NYMEX-quoted forward prices.

55

PIONEER NATURAL RESOURCES COMPANY

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Company’s management, under the supervision and with the participation of its 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 effectiveness of the design and operation of 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 Report. Based on that evaluation, the principal executive officer and principal financial officer concluded that the 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, including that such information is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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.

56

PIONEER NATURAL RESOURCES COMPANY

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to the legal proceeding that is described under “Legal actions” in Note J of Notes to Consolidated Financial Statements included in “Item 1. Financial Statements.” The Company is also party to other proceedings and claims incidental to its business. While many of these other 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.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the risks discussed in the Company’s Annual Report on Form 10-K under the headings “Item 1. Business – Competition, Markets and Regulations,” “Item 1A. Risk Factors” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” as updated by the discussions in Part II of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, which risks could materially affect the Company’s business, financial condition or future results. There has been no material change in the Company’s risk factors from those described in the Annual Report on Form 10-K, except as updated by the referenced Form 10-Q.

These risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition or future results.

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 September 30, 2010:

Period	Total Number of Shares (or Units) Purchased (a)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased As Part of Publicly Announced Plans or Programs		Approximate Dollar Amount of Shares that May Yet Be  Purchased under Plans or Programs (b)
July 2010		171	$	61.56		—
August 2010		6,247	$	57.74		—
September 2010		46	$	65.25		—
Total		6,464	$	57.89		—	$	355,789,018

(a) Consists of shares withheld to satisfy tax withholding on employees’ share-based awards.

(b) During 2007, the Board approved a share repurchase program authorizing the purchase of up to $750 million of the Company’s common stock.

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PIONEER NATURAL RESOURCES COMPANY

Item 6. Exhibits

Exhibits

Exhibit Number		Description
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.
101.INS(b)	—	XBRL Instance Document.
101.SCH(b)	—	XBRL Taxonomy Extension Schema.
101.CAL(b)	—	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF(b)	—	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB(b)	—	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE(b)	—	XBRL Taxonomy Extension Presentation Linkbase Document.

(a) Filed herewith.

(b) Furnished herewith.

58

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: November 1, 2010	By:	/s/ Richard P. Dealy
		Richard P. Dealy
		Executive Vice President and Chief
		Financial Officer
Date: November 1, 2010	By:	/s/ Frank W. Hall
		Frank W. Hall
		Vice President and Chief
		Accounting Officer

59

PIONEER NATURAL RESOURCES COMPANY

Exhibit Index

Exhibit Number		Description
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.
101.INS(b)	—	XBRL Instance Document.
101.SCH(b)	—	XBRL Taxonomy Extension Schema.
101.CAL(b)	—	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF(b)	—	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB(b)	—	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE(b)	—	XBRL Taxonomy Extension Presentation Linkbase Document.

(a) Filed herewith.

(b) Furnished herewith.

60

EX-31.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Scott D. Sheffield, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pioneer Natural Resources Company;

2. 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;

3. 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;

4. 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. 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.

November 1, 2010
	/s/ Scott D. Sheffield
	Scott D. Sheffield, Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Richard P. Dealy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pioneer Natural Resources Company;

2. 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;

3. 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;

4. 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. 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.

November 1, 2010
	/s/ Richard P. Dealy
	Richard P. Dealy, Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

OF PIONEER NATURAL RESOURCES COMPANY

PURSUANT TO 18 U.S.C. § 1350

I, Scott D. Sheffield, Chairman and Chief Executive Officer of Pioneer Natural Resources Company (the “Company”), hereby certify that the accompanying Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 and filed with the Securities and Exchange Commission 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 respects, the financial condition and results of operations of the Company.

	/s/ Scott D. Sheffield
Name:	Scott D. Sheffield, Chairman and Chief Executive Officer
Date:	November 1, 2010

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF PIONEER NATURAL RESOURCES COMPANY

PURSUANT TO 18 U.S.C. § 1350

I, Richard P. Dealy, Executive Vice President and Chief Financial Officer of Pioneer Natural Resources Company (the “Company”), hereby certify that the accompanying Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 and filed with the Securities and Exchange Commission 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 respects, 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:	November 1, 2010