April 13, 2006
Via EDGAR submission and U.S. mail
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Securities and Exchange Commission
Division of Corporate Finance
100 F Street, N.E., Mail Stop 7010
Washington, D.C. 20549-7010
Attention: April Sifford
Re: Pioneer Natural Resources Company
Form 10-K, Filed February 17, 2006
File No. 001-13245
Dear Ms. Sifford:
We are writing to respond to the comments of the Staff of the Securities
and Exchange Commission with respect to our Form 10-K in the comment letter
dated March 31, 2006 (the "Comment Letter"), addressed to Richard P. Dealy,
Executive Vice President and Chief Financial Officer of Pioneer Natural
Resources Company ("Pioneer" or the "Company").
Comment Responses
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The bold typeface, numbered paragraphs and headings below are taken from
the Comment Letter. Our response to each such comment follows in plain text.
Form 10-K for the Fiscal Year Ended December 31, 2005
Management's Discussion and Analysis..., page 36
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Hedging Activities, page 41
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1. We note that your commodity price hedges decreased oil and gas revenues
from continuing operations by $420.4 million, $211.9 million and $110.7
million, in 2005, 2004 and 2003, respectively. Please expand your
discussion and analysis to more clearly explain your objectives and
strategies to manage market risk exposures. Explain whether you believe any
change in your strategies is warranted, given your trend of losses from
risk management activities.
Response: Within Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note J of Notes to Consolidated
Financial Statements included in Item 8. "Financial Statements and
Supplementary Data" of Pioneer's 2005 Form 10-K, the Company discloses to
readers that it utilizes commodity swap and collar contracts in order to
(i) reduce the effect of price volatility on the commodities the Company
produces and sells, (ii) support the Company's annual capital budgeting and
expenditure plans and (iii) reduce commodity price risk associated with
certain capital budgets. Additionally, the Company discloses in (a) Item 1.
"Business - Business Activities - Petroleum Industry" that oil and gas
April Sifford
Securities and Exchange Commission
Page 2
April 13, 2006
prices have increased during recent years and that it utilizes commodity
hedges to mitigate the impact of commodity price volatility on the
Company's net asset value and (b) Item 1A. "Risk Factors - Commodity
Hedges" that to the extent the Company engages in hedging activities to
reduce commodity price risk, the Company may be prevented from realizing
the benefits of price increases above the levels of the hedges. The Company
respectfully submits that its disclosures of its commodity hedge strategy
of utilizing swap and collar contracts to realize its disclosed hedge
objectives are clearly described and meaningful to the readers.
Although the Company's commodity hedging activities have resulted in
hedge losses during recent periods of rising commodity prices, Pioneer's
execution of its hedging strategy has been successful in realizing its
stated objectives. Central to those stated objectives is the mitigation of
commodity price volatility and risk. The Company enters into highly
effective commodity price hedges which, when entered into, are
"at-the-market", have no initial intrinsic value and have as much
likelihood of resulting in future hedge gains as they do of future hedge
losses. However, whether they result in future hedge gains or losses they
are matched by equal offsetting losses or gains on the hedged physical
commodity sales. Consequently, a disciplined hedge strategy is impartial to
hedge gains or losses.
Given that the Company's hedge objectives have not changed, changes in
the Company's strategy of utilizing commodity swap and collar contracts to
realize those objectives are not contemplated at this time. The Company
respectfully submits that its disclosures of hedge objectives, strategies
and recent hedge losses are not conflicting circumstances nor warrant a
change in strategy.
Consolidated Financial Statements, page 64
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Unaudited Supplementary Information, page 116
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2. We note that you present costs incurred for asset retirement obligations
separately from acquisition costs, exploration costs and development costs.
Please remove the asset retirement obligations column and reclassify the
costs accordingly as there is no provision for this column in paragraph 21
and Illustration 2 of SFAS 69. You may disclose the costs incurred related
to asset retirement obligations through a footnote to the table. Refer to
our February 2004 industry letter at
http://www.sec.gov/divisions/corpfin/guidance/oilgasletter.htm.
Response: Although the Company believes its current disclosure was
responsive to the February 2004 industry letter, the Company respectfully
submits that in future filings it will change its supplementary disclosure
to reflect the asset retirement obligations in each category that gave rise
to the obligation as requested. Also, in order to further enhance the
disclosure, the Company will supplementally footnote the incremental asset
retirement obligation added during the period. Exhibit A to this letter
provides an example of the Company's proposed tabular disclosure that would
be provided in its 2006 Form 10-K.
April Sifford
Securities and Exchange Commission
Page 3
April 13, 2006
In connection with the Company's responses to the Staff's comments, Pioneer
acknowledges that:
o the Company is responsible for the adequacy and accuracy of the disclosure
in the filing;
o Staff comments or changes to disclosure in response to Staff comments do
not foreclose the Commission from taking any action with respect to the
filing; and
o the Company may not assert Staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
Please direct any questions in connection with the responses set forth in this
letter to Richard P. Dealy at 972-969-4054 (direct fax 972-969-3572).
Very truly yours,
/s/ Richard P. Dealy
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Richard P. Dealy
Executive Vice President and
Chief Financial Officer
Enclosures
Cc: Darin G. Holderness
Exhibit A
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PIONEER NATURAL RESOURCES COMPANY
UNAUDITED SUPPLEMENTARY INFORMATION
Years Ended December 31, 2005, 2004 and 2003
Costs Incurred for Oil and Gas Producing Activities
Property
Acquisition Costs Total
----------------------- Exploration Development Costs
Proved Unproved Costs Costs Incurred (a)
---------- --------- ----------- ----------- ------------
(in thousands)
Year Ended December 31, 2005:
United States............... $ 167,814 $ 60,561 $ 217,723 $ 457,292 $ 903,390
Argentina................... - 512 36,878 92,250 129,640
Canada ..................... 2,593 7,344 43,437 77,863 131,237
Africa and other............ - 30,923 63,605 20,741 115,269
--------- ------- --------- --------- ---------
Total..................... $ 170,407 $ 99,340 $ 361,643 $ 648,146 $1,279,536
========= ======= ========= ========= =========
Year Ended December 31, 2004:
United States............... $2,213,879 $301,856 $ 127,338 $ 233,112 $2,876,185
Argentina................... - - 49,745 52,707 102,452
Canada ..................... 46,988 20,921 33,406 19,311 120,626
Africa and other............ - 18,238 32,932 23,736 74,906
--------- ------- --------- --------- ---------
Total..................... $2,260,867 $341,015 $ 243,421 $ 328,866 $3,174,169
========= ======= ========= ========= =========
Year Ended December 31, 2003:
United States............... $ 130,876 $ 12,264 $ 191,809 $ 267,218 $ 602,167
Argentina................... 97 1,787 24,893 24,894 51,671
Canada ..................... 63 5,028 24,899 24,810 54,800
Africa and other............ - 910 33,212 28,695 62,817
--------- ------- --------- --------- ---------
Total .................... $ 131,036 $ 19,989 $ 274,813 $ 345,617 $ 771,455
========= ======= ========= ========= =========
<FN>
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(a) The Company adopted SFAS 143 on January 1, 2003. Total costs incurred for
the years ended December 31, 2005, 2004 and 2003 included $19.2 million,
$15.1 million and $48.5 million, respectively, of asset retirement
obligations incurred related to new wells placed on production, changes in
estimates or liabilities assumed in acquisitions. See Notes B and L for
additional information regarding the Company's asset retirement
obligations.
</FN>