NOTE B. Basis of Presentation

Presentation. In the opinion of management, the consolidated financial statements of the Company as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 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, 2011.

Discontinued operations. During December 2011, the Company committed to a plan to exit South Africa and initiated a process to divest of its net assets in South Africa ("Pioneer South Africa"). In March 2012, the Company agreed to sell its net assets in Pioneer South Africa to an unaffiliated third party, using a January 1, 2012 effective date, for net cash proceeds of $52.0 million, before normal closing adjustments. The sale is subject to certain regulatory approvals and is expected to close in mid-2012. In accordance with GAAP, the Company has classified the Pioneer South Africa assets and liabilities as discontinued operations held for sale in the Company's accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011, respectively, and Pioneer South Africa's results of operations as income from discontinued operations, net of tax in the accompanying consolidated statements of operations (representing a recasting of Pioneer South Africa results of operations for the three months ended March 31, 2011, which were originally classified as continuing operations). See Note Q for more information regarding the sale of Pioneer South Africa.

During December 2010, the Company committed to a plan to divest 100 percent of the Company's share holdings in Pioneer Natural Resources Tunisia Ltd. and Pioneer Natural Resources Anaguid Ltd. (referred to in the aggregate as "Pioneer Tunisia"). In February 2011, the Company completed the sale of Pioneer Tunisia to an unaffiliated third party. Accordingly, the Company has classified the results of operations of Pioneer Tunisia, prior to its sale, as discontinued operations, net of tax for the three months ended 2011 in the accompanying consolidated statements of operations. See Note Q for more information regarding the sale of Pioneer Tunisia.

Allowances for doubtful accounts. As of March 31, 2012 and December 31, 2011, the Company's allowances for doubtful accounts totaled $1.0 million and $1.1 million, respectively. Changes in the Company's allowance for doubtful accounts during the three months ended March 31, 2012 are summarized in the following table:


	Three Months Ended March 31, 2012
	(in thousands)
Beginning allowance for doubtful accounts balance	$	1,146
Bad debt expense recoveries		(116	)
Other write offs and decreases		(9	)

Ending allowance for doubtful accounts balance	$	1,021

Inventories. Inventories held for use in continuing operations consisted of $321.9 million and $297.9 million of materials and supplies and $4.2 million and $4.5 million of commodities as of March 31, 2012 and December 31, 2011, respectively. As of March 31, 2012 and December 31, 2011, the Company's materials and supplies inventory was net of $6.1 million and $0.9 million, respectively, of valuation reserve allowances. As of March 31, 2012 and December 31, 2011, the Company estimated that $44.2 million and $60.8 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

Derivatives and hedging. All derivatives are recorded in the accompanying consolidated balance sheets at estimated fair value. See Note D for further information regarding the fair value of the Company's derivatives. 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 loss – net deferred hedge losses, net of tax ("AOCI – Hedging"), in the 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 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 most of its 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 162.5 basis points, representing Pioneer Southwest's borrowing rate.

Impairment of long-lived assets. The Company reviews its long-lived assets for impairment, including oil and gas properties, whenever events or circumstances indicate that their carrying values may not be fully recoverable.

The Company's estimates of undiscounted future net cash flows attributable to the Raton and Barnett Shale fields' oil and gas properties indicated on March 31, 2012 that their carrying amounts were expected to be recovered. However, the carrying values of these fields continue to be at risk for impairment if future estimates of undiscounted cash flows decline. As of March 31, 2012, the Company's Raton and Barnett Shale fields have carrying values of $2.3 billion and $511.7 million, respectively.

It is reasonably possible that the estimate of undiscounted future net cash flows attributable to these or other properties may change in the future resulting in the need to impair their carrying values. The primary factors that may affect estimates of futures cash flows are (i) future reserve adjustments, both positive and negative, to proved reserves and appropriate risk-adjusted probable and possible reserves, (ii) results of future drilling activities, (iii) management's commodity price outlooks and (iv) increases or decreases in production and capital costs associated with the fields.

Goodwill. 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 2011, 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 52.4 percent limited partner interest in Pioneer Southwest. Pioneer Southwest owns interests in certain oil and gas properties 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.

The Company also owns a majority interest in Sendero Drilling Company, LLC ("Sendero"), which owns and operates land-based drilling rigs in the United States. In addition, 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 $160.0 million and $162.3 million as of March 31, 2012 and December 31, 2011, respectively. The Company recorded net income attributable to the noncontrolling interests of $6.3 million for the three months ended March 31, 2012 (principally related to Pioneer Southwest), compared to a net loss attributable to the noncontrolling interests of $4.8 million for the three months ended March 31, 2011.

Investment in unconsolidated affiliate. The Company owns a 50.1 percent interest in EFS Midstream LLC ("EFS Midstream"), which owns and operates natural gas and liquids gathering, treating and transportation assets in the Eagle Ford Shale area of South Texas.

The Company accounts for the EFS Midstream 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 investor's interests sold and the investor's share of the investee's net losses. The Company's equity interest in the net income of EFS Midstream of $7.0 million and $298 thousand for the three months ended March 31, 2012 and 2011, respectively, is recorded in interest and other income in the Company's accompanying consolidated statements of operations.

Revenue recognition. The Company does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable and (iv) collectability is reasonably assured.

The Company uses the entitlements method of accounting for oil, natural gas liquids ("NGL") and gas revenues. Sales proceeds in excess of the Company's entitlement are included in other liabilities and the Company's share of sales taken by others is included in other assets in the accompanying consolidated balance sheets.

Stock-based compensation. For stock-based compensation equity awards granted or modified, 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 stock-based compensation awards vest over periods ranging from 18 months to five years. 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, restricted stock units, partnership unit awards or phantom unit awards that are expected to be settled wholly in the Company's common stock or Pioneer Southwest common units ("Equity 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 in cash on their vesting dates, rather than in equity shares or units ("Liability Awards"). Stock-based Liability Awards are recorded as accounts payable – due to 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 unvested portions of the awards for which services have been rendered are recorded as increases or decreases to compensation expense. As of March 31, 2012 and December 31, 2011, accounts payable – due to affiliates includes $2.9 million and $9.2 million, respectively, of liabilities attributable to Liability Awards.

For the three months ended March 31, 2012, the Company recorded $21.3 million of stock-based compensation expense for all plans, as compared to $13.0 million for the same period of 2011. As of March 31, 2012, there was $96.0 million of unrecognized compensation expense related to unvested share- and unit-based compensation plan awards, including $44.3 million attributable to Liability Awards. This compensation will be recognized over the remaining vesting periods of the awards, which is a period of less than three years on a weighted average basis.

The Company's issued shares, as reflected in the consolidated balance sheets at March 31, 2012 and December 31, 2011, do not include 304,260 and 533,125 common shares, respectively, associated with unvested stock-based compensation awards that have voting rights.

The following table summarizes the activity that occurred during the three months ended March 31, 2012, for each type of share-based incentive award issued by Pioneer:


	Restricted Stock Equity Awards			Restricted Stock Liability Awards			Performance Units		Stock Options			Pioneer Southwest LTIP Restricted Units		Pioneer Southwest LTIP Phantom Units
Outstanding at December 31, 2011		1,857,612			322,925			114,128		564,044			7,492		65,157
Awards granted		834,210			216,964			47,875		98,819			—		37,487
Awards vested		(1,184,811	)		(115,245	)		—		—			—		—
Options exercised		—			—			—		(64,509	)		—		—
Awards forfeited		(2,575	)		(2,383	)		—		—			—		—

Outstanding at March 31, 2012		1,504,436			422,261			162,003		598,354			7,492		102,644

New accounting pronouncements. In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, "Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs." ASU 2011-04 amended Accounting Standards Codification ("ASC") 820 to converge the fair value measurement guidance in GAAP and International Financial Reporting Standards. Certain of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures. The amendments are applied prospectively and became effective and were adopted by the Company on January 1, 2012. The adoption of this guidance did not impact the Company's financial position, results of operation or liquidity.

In September 2011, the FASB issued ASU No. 2011-08 "Intangibles—Goodwill and Other (Topic 350)." ASU 2011-08 amended ASC 350 to permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. ASU 2011-08 became effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not impact the carrying value of the Company's goodwill. See "Goodwill" above for more information about the Company's policy for assessing goodwill for impairment.

In December 2011, the FASB issued ASU 2011-11, "Disclosures about offsetting Assets and Liabilities" requiring additional disclosure about offsetting and related arrangements. ASU 2011-11 is effective retrospectively for annual reporting periods beginning on or after January 1, 2013. The adoption of ASU 2011-11 will not impact the Company's future financial position, results of operation or liquidity.