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

1. IFRS in the US – Why it Matters TodayUT Arlington EMBA ProgramNovember 11, 2011 PwC

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

3. IFRS background

4. Countries converging to IFRSs with the goal of adoption • Countries with no current plan to adopt • Countries that require or permit IFRSs International Financial Reporting Standards (“IFRS”) – The global revolution • More than 100 countries require, permit, or are converging to IFRS • All major capital markets arechanging…except the US

5. 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 informs appoint inform Standard-setting IFRS Advisory Council International Accounting Standards Board (“IASB”) – issues IFRSs provides strategic advice IFRS Interpretations Committee – issues IFRICs

6. IFRS in the United States

7. IFRS in the United States IFRS – Who is part of the debate FASB SEC IASB Preparers US GAAP / IFRS Convergence or Change Asia Europe Academics Investors Auditors Market

8. 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

9. Convergence – Sweeping changes on the horizon GAAP GAP IFRS in the United States • 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 IFRS 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 TBD Income taxes EPS Financial Statement Presentation Pensions Consolidation and Derecognition 2012 Leases Revenue Recognition Discontinued Operations Financial Instruments

10. 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 IFRS in the United States Convergence – Staying ahead of the game • 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

11. 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

12. 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

13. 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 IFRS in the United States 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, 2015 Adoption Date Go Live January 1, 2013 Transition Date Opening balance sheet 2012 2014 2016 2008 2010 2015 2011 2013 2009 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 Convergence

14. Near-term considerations

15. 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

16. 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

17. Global Adoption of IFRS - IFRS for SMEs next? Near-term considerations • 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

18. Impact on your business

19. 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.

20. Impact on your business What does a change in GAAP impact? 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 numbers Changing people:a new business language Changing processes Changing systems 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 Communication • Internal • External Training • At different levels • Not only finance people • Performance management to be embedded across: • Performance measure/KPIs • Management accounts • Remunerations/bonuses • Budgeting/forecasting • Financial and Business impact analysis: debt covenants • Different valuations Changing business

21. 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

22. 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

23. Next steps

24. 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

25. Contact Information 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.