NOTE E.

Long-term Debt

Long-term debt, including the effects of net deferred fair value hedge losses and issuance discounts and premiums, consisted of the following components at December 31, 2011 and 2010:


	December 31,
	2011			2010
	(in thousands)
Outstanding debt principal balances:
Pioneer credit facility	$	—		$	49,000
Pioneer Southwest credit facility		32,000			81,200
5.875% senior notes due 2016		455,385			455,385
6.65% senior notes due 2017		485,100			485,100
6.875 % senior notes due 2018		449,500			449,500
7.500 % senior notes due 2020		450,000			450,000
7.20% senior notes due 2028		250,000			250,000
2.875% convertible senior notes due 2038		479,930			480,000

		2,601,915			2,700,185
Issuance discounts and premiums, net		(71,301	)		(96,515	)
Net deferred fair value hedge losses		(1,709	)		(2,000	)

Total long-term debt	$	2,528,905		$	2,601,670

Credit Facility. During March 2011, the Company entered into a Second Amended and Restated 5-Year Revolving Credit Agreement (the "Credit Facility") with a syndicate of financial institutions that matures in March 2016, unless extended in accordance with the terms of the Credit Facility. The Credit Facility replaces the Company's Amended and Restated 5-Year Revolving Credit Agreement entered into in April 2007 (the "Expired Credit Facility") and provides for aggregate loan commitments of $1.25 billion. As of December 31, 2011, the Company had no outstanding borrowings under the Credit Facility and $65.1 million of undrawn letters of credit, all of which were commitments under the Credit Facility, leaving the Company with $1.2 billion of unused borrowing capacity under the Credit Facility.

Borrowings under the Credit Facility may be in the form of revolving loans or swing line loans. Aggregate outstanding swing line loans may not exceed $150 million. Revolving loans under the Credit Facility bear interest, at the option of the Company, based on (a) a rate per annum equal to the higher of the prime rate announced from time to time by Wells Fargo Bank, National Association or the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System during the last preceding business day plus 0.5 percent plus a defined alternate base rate spread margin, which is currently 0.75 percent based on the Company's debt rating or (b) a base Eurodollar rate, substantially equal to LIBOR, plus a margin (the "Applicable Margin"), which is currently 1.75 percent and is also determined by the Company's debt rating. Swing line loans under the Credit Facility bear interest at a rate per annum equal to the "ASK" rate for Federal funds periodically published by the Dow Jones Market Service plus the Applicable Margin. Letters of credit outstanding under the Credit Facility are subject to a per annum fee, representing the Applicable Margin plus 0.125 percent. The Company also pays commitment fees on undrawn amounts under the Credit Facility that are determined by the Company's debt rating (currently 0.325 percent).

The Credit Facility contains certain financial covenants, which include the maintenance of a ratio of total debt to book capitalization less intangible assets, accumulated other comprehensive income and certain noncash asset impairments not to exceed .60 to 1.0. In November 2011, the Company achieved an investment grade rating with one of the credit rating agencies. As such, in accordance with the financial covenants of the Credit Facility, the requirement of the Company to maintain a ratio of the net present value of the Company's oil and gas properties to total debt of at least 1.75 to 1.0 has been permanently deleted. As of December 31, 2011, the Company was in compliance with all of its debt covenants.

In accordance with GAAP, the Company accounted for the entry into the Credit Facility as an extinguishment of the Expired Credit Facility. Associated therewith, the Company recorded a $2.4 million loss on extinguishment of debt to write off the unamortized issuance costs of the Expired Credit Facility, which is included in other expense in the accompanying consolidated statement of operations for the year ended December 31, 2011 (see Note N).

In May 2008, Pioneer Southwest entered into a $300 million unsecured revolving credit facility with a syndicate of financial institutions, which matures in May 2013 (the "Pioneer Southwest Credit Facility"). As of December 31, 2011, there were $32.0 million of outstanding borrowings under the Pioneer Southwest Credit Facility. The Pioneer Southwest Credit Facility is available for general partnership purposes, including working capital, capital expenditures and distributions. Borrowings under the Pioneer Southwest Credit Facility may be in the form of Eurodollar rate loans, base rate committed loans or swing line loans. Eurodollar rate loans bear interest annually at LIBOR, plus a margin (the "Applicable Rate") (currently 0.875 percent) that is determined by a reference grid based on Pioneer Southwest's consolidated leverage ratio. Base rate committed loans bear interest annually at a base rate equal to the higher of (i) the Federal Funds Rate plus 0.5 percent or (ii) the Bank of America prime rate (the "Base Rate") plus a margin (currently zero percent). Swing line loans bear interest annually at the Base Rate plus the Applicable Rate.

The Pioneer Southwest Credit Facility contains certain financial covenants, including (i) the maintenance of a quarter end maximum leverage ratio of not more than 3.5 to 1.00, (ii) an interest coverage ratio (representing a ratio of earnings before depreciation, depletion and amortization; impairment of long-lived assets; exploration expense; accretion of discount on asset retirement obligations; interest expense; income taxes; gain or loss on the disposition of assets; noncash commodity hedge and derivative related activity; and noncash equity-based compensation to interest expense) of not less than 2.5 to 1.0 and (iii) the maintenance of a ratio of the net present value of Pioneer Southwest's projected future cash flows from its oil and gas properties to total debt of at least 1.75 to 1.0. As of December 31, 2011, Pioneer Southwest was in compliance with all of its debt covenants.

As of December 31, 2011, the borrowing capacity under the Pioneer Southwest Credit Facility was $268.0 million. However, because of the net present value covenant, Pioneer Southwest's borrowing capacity under the Pioneer Southwest Credit Facility may be limited in the future. The variables on which the calculation of net present value is based (including assumed commodity prices and discount rates) are subject to adjustment by the lenders. As a result, if commodity prices decline in the future, it could reduce Pioneer Southwest's borrowing capacity under the Pioneer Southwest Credit Facility. In addition, the Pioneer Southwest Credit Facility contains various covenants that limit, among other things, Pioneer Southwest's ability to grant liens, incur additional indebtedness, engage in a merger, enter into transactions with affiliates, pay distributions or repurchase equity and sell its assets. If any default or event of default (as defined in the Pioneer Southwest Credit Facility) were to occur, the Pioneer Southwest Credit Facility would prohibit Pioneer Southwest from making distributions to unitholders. Such events of default include, among other things, nonpayment of principal or interest, violations of covenants, bankruptcy and material judgments and liabilities.

Pioneer Southwest pays a commitment fee on the undrawn amounts under the Pioneer Southwest Credit Facility. The commitment fee is variable based on the Partnership's consolidated leverage ratio. For 2011, the commitment fee was 0.175 percent.

Convertible senior notes. During January 2008, the Company issued $500 million of 2.875% Convertible Senior Notes due 2038 (the "2.875% Convertible Notes"), of which $479.9 million remains outstanding at December 31, 2011.

The 2.875% Convertible Senior Notes are convertible under certain circumstances, using a net share settlement process, into a combination of cash and the Company's common stock pursuant to a formula. The initial base conversion price is approximately $72.60 per share (subject to adjustment in certain circumstances), which is equivalent to an initial base conversion rate of 13.7741 common shares per $1,000 principal amount of convertible notes. In general, upon conversion of a note, the holder of such note will receive cash equal to the principal amount of the note and the Company's common stock for the note's conversion value in excess of such principal amount. If at the time of conversion the applicable price of the Company's common stock exceeds the base conversion price, holders will receive up to an additional 8.9532 shares of the Company's common stock per $1,000 principal amount of notes, as determined pursuant to a specified formula.

The 2.875% Convertible Senior Notes mature on January 15, 2038. The Company may redeem the 2.875% Convertible Senior Notes for cash at any time on or after January 15, 2013 at a price equal to full principal amount plus accrued and unpaid interest. Holders of the 2.875% Convertible Senior Notes may require the Company to purchase their 2.875% Convertible Senior Notes for cash at a price equal to 100 percent of the principal amount plus accrued and unpaid interest if certain defined fundamental changes occur, as defined in the agreement, or on January 15, 2013, 2018, 2023, 2028 or 2033. Additionally, holders may convert their notes at their option in the following circumstances:

•

Following defined periods during which the reported sales prices of the Company's common stock exceeds 130 percent of the base conversion price (initially $72.60 per share);

•

During five-day periods following defined circumstances when the trading price of the 2.875% Convertible Senior Notes is less than 97 percent of the price of the Company's common stock times a defined conversion rate;

•

Upon notice of redemption by the Company; and

•

During the period beginning October 15, 2037, and ending at the close of business on the business day immediately preceding the maturity date.

The Company's stock price during March 2011 caused the 2.875% Convertible Senior Notes to become convertible at the option of the holders during the three months ended June 30, 2011. Associated therewith, certain holders of the 2.875% Convertible Senior Notes tendered $70 thousand principal amount of the notes for conversion during the three months ended June 30, 2011. During 2011, the Company paid the tendering holders a total of $71 thousand of cash and issued to the tendering holders 340 shares of the Company's common stock in accordance with the terms of the 2.875% Convertible Senior Notes indenture supplement.

As of December 31, 2011, the Company's stock price performance did not qualify the 2.875% Convertible Senior Notes for conversion at the option of the holders. However, if all of the 2.875% Convertible Senior Notes had been convertible on December 31, 2011, the note holders would have received $479.9 million of cash and approximately 1.9 million shares of the Company's common stock, which had a market value of $173.3 million as of December 31, 2011.

Interest on the principal amount of the 2.875% Convertible Senior Notes is payable semiannually in arrears on January 15 and July 15 of each year. Beginning on January 15, 2013, during any six-month period thereafter from January 15 to July 14 and from July 15 to January 14, if the average trading day price of a 2.875% Convertible Senior Note for the five consecutive trading days immediately preceding the first day of the applicable six-month interest period equals or exceeds $1,200, interest on the principal amount of the 2.875% Convertible Senior Notes will be 2.375% solely for the relevant interest period.

As of December 31, 2011 and 2010, the 2.875% Convertible Senior Notes had an unamortized discount of $18.5 million and $35.0 million, respectively, and a net carrying value of $461.5 million and $445.0 million, respectively. The unamortized discount is being amortized ratably through January 2013. For the years ended December 31, 2011, 2010 and 2009, the Company recorded $32.3 million, $31.1 million and $29.9 million, respectively, of interest expense relating to the 2.875% Convertible Senior Notes, which had an effective interest rate of 6.75 percent. As of December 31, 2011 and 2010, $49.5 million is recorded in Additional Paid-in Capital as the equity component of the 2.875% Convertible Senior Notes.

The Company's senior notes and convertible senior notes are general unsecured obligations ranking equally in right of payment with all other senior unsecured indebtedness of the Company and are senior in right of payment to all existing and future subordinated indebtedness of the Company. The Company is a holding company that conducts all of its operations through subsidiaries; consequently, the senior notes and senior convertible notes are structurally subordinated to all obligations of its subsidiaries. Interest on the Company's senior notes and senior convertible notes is payable semiannually.

Principal maturities. Principal maturities of long-term debt at December 31, 2011, are as follows (in thousands):


2012	$	—
2013	$	511,930
2014	$	—
2015	$	—
2016	$	455,385
Thereafter	$	1,634,600

The principal maturities during 2013 in the preceding table represent the 2.875% Convertible Senior Notes, which are subject to repurchase at the option of the holders in 2013, and the Pioneer Southwest Credit Facility.

Interest expense. The following amounts have been incurred and charged to interest expense for the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Cash payments for interest	$	165,307		$	155,854		$	151,246
Accretion/amortization of discounts or premiums on loans		25,210			23,304			21,388
Accretion of discount on derivative obligations		—			521			874
Accretion of discount on postretirement benefit obligations		315			433			657
Amortization of net deferred hedge losses (see Note I)		573			517			465
Amortization of capitalized loan fees		5,385			5,698			4,612
Net changes in accruals		(1,768	)		11,999			3,762

Interest incurred		195,022			198,326			183,004
Less capitalized interest		(13,362	)		(15,242	)		(9,651	)

Total interest expense	$	181,660		$	183,084		$	173,353