Date IFRS in the US – Why it Matters Today UT Arlington EMBA Program November 11, 2011 PwC

Agenda IFRS background IFRS in the United States Date Agenda IFRS background IFRS in the United States Near-term considerations Impact on your business Next steps Questions and answers

Date IFRS background

Date International Financial Reporting Standards (“IFRS”) – The global revolution More than 100 countries require, permit, or are converging to IFRS All major capital markets are changing…except the US Top 10 global capital markets US US GAAP Japan Going to IFRS as adopted by the FSA UK IFRS by the EU France Canada IFRS by the IASB Germany Hong Kong Spain Switzerland Australia IFRS as adopted locally Countries converging to IFRSs with the goal of adoption Countries that require or permit IFRSs Countries with no current plan to adopt

Standard Setting Structure IFRS Foundation Trustees The Trustees promote the work of the IASB and the rigorous application of IFRSs but are not involved in any technical matters relating to the standards. Six of the Trustees must be selected from the Asia/Oceania region, six from Europe, six from North America, one from Africa, one from South America and two from the rest of the world oversee, review effectiveness, appoint and finance appoint inform informs Standard-setting IFRS Advisory Council International Accounting Standards Board (“IASB”) – issues IFRSs provides strategic advice IFRS Interpretations Committee – issues IFRICs

IFRS in the United States Date IFRS in the United States

IFRS – Who is part of the debate Date IFRS in the United States IFRS – Who is part of the debate FASB SEC IASB Preparers US GAAP / IFRS Convergence or Change Europe Asia Significant influence is the power to participate in an entity’s financial and operating policy decisions but not control or jointly control those policies [IAS28.2(R.05)]. An investor that holds directly or indirectly 20% or more, but less than 50%, of an entity’s voting rights, is presumed to have significant influence. A shareholding of less than 20% is presumed not to represent significant influence, unless the influence can be demonstrated [IAS28.6(R.05)] (Solution 20.18). An investor that has significant influence accounts for its investment using the equity method [IAS28.11,13(R.05)]. IAS 28.6-9 6. If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly (eg through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence. 7. The existence of significant influence by an investor is usually evidenced in one or more of the following ways: a. representation on the board of directors or equivalent governing body of the investee; b. participation in policy-making processes, including participation in decisions about dividends or other distributions; c. material transactions between the investor and the investee; d. interchange of managerial personnel; or e. provision of essential technical information. 8. An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or reduce another party’s voting power over the financial and operating policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event. 9. In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intention of management and the financial ability to exercise or convert. Investors Academics Market Auditors

The seeds of revolution… Date IFRS in the United States The seeds of revolution… October 2002 Norwalk Agreement Convergence Objective is to create one global set of high-quality standards Beginning: equivalent standards Now: robust, transparent frameworks with similar principles April 2005 SEC “roadmap” (updated in November 2008) February 2010 – SEC released Work Plan (first progress report was issued October 2010) Competitiveness of the US capital markets Simplicity in US financial reporting Elimination of the US GAAP reconciliation for non-US registrants SEC Concepts Release

Convergence – Sweeping changes on the horizon IFRS in the United States Convergence – Sweeping changes on the horizon The FASB and IASB established a pathway to converged standards in a Memorandum of Understanding The planned convergence will result in a significant number of new US GAAP standards which will be significantly influenced by IFRS It is expected that convergence will not lead to identical standards in the future The challenge for Company’s is to address convergence as well as anticipate those areas that will not fully converge US GAAP GAAP GAP IFRS NORWALK AGREEMENT FASB and IASB formalized commitment to development of high quality, compatible accounting standards and use their best efforts to: Make their existing financial reporting standards fully compatible as soon as is practicable; and, Co-ordinate their future work programs to ensure that once achieved, compatibility is maintained February 2006 Set forth the priorities within the FASB-IASB joint work program by creating specific milestones to be reached by 2008 MoU April and September 2008 The Boards affirmed their commitment to developing common, high quality standards and agreed on a pathway to competing the MoU projects Discussion of priorities and projected completion dates 2011 2012 2013 2014 2015 2016 2017 Estimated publication of selected converging IASB/FASB standards: Key Remaining Differences PPE Inventory Share-Based Payments Extractive Industries 2011 Comprehensive Income Fair Value 2012 Leases Revenue Recognition Discontinued Operations Financial Instruments TBD Income taxes EPS Financial Statement Presentation Pensions Consolidation and Derecognition 9

Convergence – Staying ahead of the game Date IFRS in the United States Convergence – Staying ahead of the game Convergence efforts have gone relatively unnoticed by many companies Companies should start planning for two possible alternatives for US reporting: Convergence alone Convergence followed by adoption of IFRS Multiple financial reporting outcomes could result from either alternative and lead to extensive business consequences Devising strategies around a range of potential scenarios can help companies prepare for those eventualities Companies can no longer afford to ignore the potential impacts of both Convergence and IFRS in strategic planning, structuring of contractual arrangements, system projects and other business initiatives 10

SEC work plan to assess potential use of IFRS by US issuers Date IFRS in the United States SEC work plan to assess potential use of IFRS by US issuers In February 2010 the SEC released Commission Statement in Support of Convergence and Global Accounting Standards which includes details of a Work Plan to be executed by the SEC staff to enhance the Commission’s analysis of the implications of a change to IFRS Proposed phased-in mandatory adoption of IFRS in 2015 The Work Plan identifies six areas of consideration in determining both whether and how to incorporate IFRS into the financial reporting system for U.S. issuers. Sufficient development and application of IFRS for the US domestic reporting system The independence of standard setting for the benefit of investors Investor understanding and education regarding IFRS Examination of the US regulatory environment that would be affected by a change in accounting standards The impact on issuers, both large and small, including changes to accounting systems, contractual arrangements and corporate governance Human Capital Readiness SEC will also consider consistency of IFRS around the globe SEC to vote in 2011 on final mandatory adoption

Status of SEC vote SEC floated an “condorsement” approach in May 2011 Date IFRS in the United States Status of SEC vote SEC floated an “condorsement” approach in May 2011 Rest of world is pushing for US to at the very least just allow IFRS G20 is weighing in heavily for global accounting standards

Date Date IFRS in the United States IFRS conversion – When might IFRS conversion occur in the US? SEC’s Roadmap for the potential use of financial statements prepared in accordance with IFRS by US issuers February 24, 2010 SEC released Commission Statement in Support of Convergence and Global Accounting Standards including detailed Work Plan November 14, 2008 SEC issued the proposed roadmap and rule March 31, 2015 1st quarter IFRS FS + comparative reconciled to US GAAP January 1, 2013 Transition Date Opening balance sheet January 1, 2015 Adoption Date Go Live 2012 2008 2010 2014 2016 2015 2009 2011 2013 December 31, 2015 1st annual IFRS FS + comparative reconciled to US GAAP Dual Reporting Period IFRS 2 years Comparatives reconciled to US GAAP (annual and interim) During 2011 SEC to assess progress and confirm path forward – assume proposed mandatory use of IFRS, possibly in a phased approach over 3 years starting in 2015 (B) SEC PROPOSED ROADMAP AND RULE Resolving current regulatory challenges and restoring confidence in capital markets should be the immediate priorities of the SEC and other market regulators Adopting a single set of high-quality global accounting standards is in the best interest of investors, issuers, and regulators - IFRS is the only viable solution Once the independence and funding of the global standard setter are secured, a mandatory IFRS adoption date should be established A mandatory adoption date will eliminate much of the uncertainty hindering an efficient conversion (C) SUMMARY OF COMMENT LETTERS RECEIVED TO DATE Note that on February 3, 2009 the SEC extended the comment period from February 19 (original comment due date) to April 20, 2009. The SEC determined an extension was appropriate in order to, among other things, improve the potential response rate and quality of responses. The SEC concluded the extension would be appropriate in order to give the public additional time to consider thoroughly the matters discussed in the proposed Roadmap. SEC will reconvene in 2011 to assess whether: Key milestones have been achieved Mandatory adoption date should be set for all issuers The option to early adopt should be expanded to a larger population Removal of the reconciliation requirement Convergence 13

Near-term considerations Date Near-term considerations

How IFRS is affecting US companies now Date Near-term considerations How IFRS is affecting US companies now Customers and vendors: Know how IFRS influences non-US counterparties’ negotiation biases Adoption: Manage non-US subsidiaries’ ongoing adoption of IFRS M & A: Understand the implications of IFRS reporting by non-US targets and acquirers Cost savings: Streamline non-US subsidiaries’ financial reporting via shared services Non-US counterparties Non-US subsidiaries Contracts: Consider how IFRS affects the structure of long-term contracts and financial agreements System upgrades: Anticipate IFRS impact on new company-wide and subsidiary IT systems Convergence Tax strategies: Prepare for IFRS effects on tax rate and cash flow. US reporting: Plan for business implications driven by accounting changes

Near-term change drivers Near-term considerations Near-term change drivers The US path to IFRS will likely be one of convergence, ultimately followed by conversion Companies face four near-term change drivers: Unprecedented level of accounting change driven by continued convergence of standards Non-US subsidiaries moving to IFRS as other countries continue to adopt Customers/suppliers increasing interest in IFRS accounting outcomes Continued focus on differences between IFRS and US GAAP, as full convergence will not be achieved Over the next few years, US GAAP will be significantly influenced by IFRS

Global Adoption of IFRS - IFRS for SMEs next? Date Near-term considerations Global Adoption of IFRS - IFRS for SMEs next? IASB issued IFRS for Small and Medium Sized Enterprises (SME) in July 2009 The standard applies to all entities that do not have public accountability - it is a matter for authorities in each territory to decide which entities are permitted or even required to apply the guidance The IFRS for SMEs contains several simplifications when compared to full IFRS, including fewer disclosures, various omitted topics, disallowance of certain accounting policy options and simplification of many recognition and measurement principles Bridging IFRS for SMEs with full IFRS could result in significant effort and consolidation complexities for US entities with foreign subsidiaries applying the guidance IFRS SME (possible) adopters Austria Portugal Belgium Russia Denmark South Africa Finland Spain Ireland Sweden Italy Turkey Netherlands United Kingdom Norway 17

Impact on your business Date Impact on your business

How is the marketplace reacting Date Impact on your business How is the marketplace reacting Companies are performing initial assessments of the impact of an IFRS, specifically identifying: Potential US GAAP to IFRS differences Impact of IFRS conversion across the business (IT, HR, Treasury, etc.) An IFRS training plan for their employees Plan for next steps of conversion Companies are waiting to see if the SEC is really going to mandate a move to IFRS.

What does a change in GAAP impact? Date Impact on your business What does a change in GAAP impact? Changing numbers Addition of another GAAP and/or change in primary GAAP – accounting policies determination; chart of accounts review, opening balance sheet, comparative financial statements, quarterly financial statements Changing people: a new business language Changing processes Changing systems Communication Internal External Training At different levels Not only finance people Existing processes to be enhanced New processes created Budgeting & forecasting Internal controls revisited Data availability and system requirements New systems components: data warehouse, calculation engine Re-alignment of management information systems Multi-GAAP solutions Primary GAAP changeover Changing business Performance management to be embedded across: Performance measure/KPIs Management accounts Remunerations/bonuses Budgeting/forecasting Financial and Business impact analysis: debt covenants Different valuations

Key differences between IFRS and US GAAP Date Impact on your business Key differences between IFRS and US GAAP Business combinations Tax accounting Recognition and measurement of provisions Derivatives and hedge accounting Consolidation of entities Impairment testing methods Capitalization of R&D Asset retirement obligations Securitizations/ Derecognition Revenue recognition Measurement of inventories Classification and measurement of financial instruments Accruals Debt and equity classification Employee stock compensation LIFO Entities consolidated under IFRS but not under U.S. GAAP Accounting for business combinations Revenue recognition criteria Capitalization of R&D costs Measurement of fixed assets Impairment testing methodologies Conditional asset retirement obligations Recognition and measurement of provisions Classification and measurement of various financial instruments Definition of derivatives and hedging criteria Timing differences in the recognition of expenses relating to certain share-based and pension-related employee benefits Measurement of inventories Tax consequences of these differences Tax accounting differences

Challenges in a conversion to IFRS Date Impact on your business Challenges in a conversion to IFRS Application of judgment within a principles-based framework Policy setting and control challenges due to fewer “rules” in IFRS Adopters finding many more differences than expected Data gaps resulting from increased disclosures Systems capabilities US GAAP deficiencies (i.e., conversion to IFRS uncovering challenges with historical US GAAP accounting) Sufficient, trained resources Change management

Date Next steps

Date Next steps Focus on the challenge address upcoming major US financial reporting changes Perform an assessment to identify business, accounting, tax, investor, systems, controls and workforce-related issues Stay current on convergence projects Be ready to adapt to ongoing change using scenario planning to incorporate likely convergence and IFRS adoption expectations into your strategic thinking and business planning Monitor actual changes and consider how they will influence your non-US counterparties (customers and vendors) and affect your reporting, long-term contractual commitments, tax structures, financings, systems and controls Maintain corporate oversight to influence transition timing, strategies, and policy decisions of non-US subsidiaries that are, or may soon apply IFRS Identify what you can do now, being mindful of the specific aspects of convergence and conversion that will take the longest and consider smaller controlled one-off projects and “easy wins” where desirable Focus on the challenge. The next several years will bring major changes to US financial reporting. Whether changes arrive through convergence, an SEC-mandated move to IFRS, or continued IFRS adoption by subsidiaries and counterparties, the effect on US businesses will be considerable. Perform an assessment. Consider the effects these alternative paths could have and identify business, accounting, tax, investor, control, systems and work-force related issues. Be poised to adapt to ongoing change. Use scenario planning to incorporate likely convergence and IFRS adoption expectations into your strategic thinking and business planning. Monitor actual changes. Closely follow SEC actions and new FASB and IASB standards. Consider how they will influence your non-US counterparties (customers and vendors) and affect your reporting, long-term contractual commitments, tax structures, financings, systems and controls. Maintain corporate oversight. Influence transition timing, strategies, and policy decisions of non-US subsidiaries who are or may soon be IFRS users. Identify what you can do now. Be mindful of the specific aspects of convergence and conversion that will take the longest and consider smaller controlled one-off projects and “easy wins” where desirable.

Contact Information Date Margaret Montemayor Pioneer Natural Resources Director of Financial Reporting and Technical Accounting Phone: (972) 969 3628 Email: margaret.montemayor@pxd.com Margaret joined Pioneer Natural Resources, a large independent exploration and production company in June 2010 as the Director of Technical and Equity Accounting.   Margaret was previously employed with PwC as a manager in the Accounting Advisory and Financial Reporting group of Transaction Services in Dallas, Texas where she provided US GAAP, SEC and IFRS expertise to clients in various industries.    In August 2008, Margaret returned from a four year tour in Zurich, Switzerland with the PwC Capital Markets Group where she provided European companies with advice on complex accounting issues, SEC regulatory issues and IFRS, local GAAP and US GAAP accounting conversions. Prior to Margaret's role in Transaction Services she spent two years in Audit at PwC in Dallas, Texas and 2 years at Arthur Andersen in San Antonio, Texas. Margaret has a Master of Business Administration and a Bachelor of Business Administration in Accounting from St. Mary’s University in San Antonio, Texas.  She is a Certified Public Accountant and a member of American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants.