Pioneer Natural Resources Company

Income Taxes

The Company and its eligible subsidiaries file a consolidated United States federal income tax return. Certain subsidiaries are not eligible to be included in the consolidated United States federal income tax return and separate provisions for income taxes have been determined for these entities or groups of entities. The tax returns and the amount of taxable income or loss are subject to examination by United States federal, state, local and foreign taxing authorities. The Company received tax refunds of $66 million (net of tax payments) during 2016 and made current and estimated tax payments of nil and $43 million (net of tax refunds) during 2017 and 2015, respectively.

The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that deferred tax assets can be realized prior to their expiration. Pioneer monitors Company-specific, oil and gas industry and worldwide economic factors and assesses the likelihood that the Company's net operating loss carryforwards ("NOLs") and other deferred tax attributes in the United States federal, state, local and foreign tax jurisdictions will be utilized prior to their expiration.

Enactment of the Tax Cuts and Jobs Act

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Tax Reform Legislation"), which introduces significant changes to the United States federal income tax law. The changes that most impact the Company include:


•	A permanent reduction in the federal corporate income tax rate from 35 percent to 21 percent. The rate reduction is effective for the Company as of January 1, 2018. The application of the rate change on the Company's existing deferred tax liabilities resulted in a $625 million income tax benefit to the Company during 2017.


•	The corporate alternative minimum tax ("AMT") for tax years beginning in January 1, 2018 has been repealed. The Tax Reform Legislation provides that existing AMT credit carryovers are refundable beginning in 2018. As of December 31, 2017, the Company had AMT credit carryovers of $20 million that are expected to be fully refunded by 2022.


•	The Tax Reform Legislation preserves the deductibility of intangible drilling costs and provides for 100 percent bonus depreciation on personal tangible property expenditures through 2022. The bonus depreciation percentage is phased down from 100 percent beginning in 2023 through 2026.

The Tax Reform Legislation is a comprehensive bill containing other provisions, such as limitations on the deductibility of interest expense and certain executive compensation, that are not expected to materially affect Pioneer. The ultimate impact of the Tax Reform Legislation may differ from the Company's estimates as of December 31, 2017 due to changes in the interpretations and assumptions made by the Company as well as additional regulatory guidance that may be issued.

Uncertain tax positions

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. As of December 31, 2017 and 2016, the Company had unrecognized tax benefits of $124 million and $112 million, respectively, resulting from research and experimental expenditures related to horizontal drilling and completion innovations. If all or a portion of the unrecognized tax benefit is sustained upon examination by the taxing authorities, the tax benefit will be recognized as a reduction to the Company's deferred tax liability and will affect the Company's effective tax rate in the period it is recognized. The Company is unable to estimate the range of a reasonably likely outcome at this time. The Company expects to substantially resolve the uncertainties associated with the unrecognized tax benefits by December 2018.

The following table sets forth changes in the Company's unrecognized tax benefits:



	Year Ended December 31,
	2017		2016
Balance at beginning of year	$	112	$	—
Additions based on tax positions related to the current year	12		112
Reductions for tax positions of prior years	—		—
Balance at end of year	$	124	$	112

Other Tax Matters

With respect to income taxes, the Company's policy is to account for interest charges as interest expense and any penalties as other expense in the accompanying consolidated statements of operations. The Company files income tax returns in the United States federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2017, there are no proposed adjustments in any jurisdiction that would have a significant effect on the Company's future results of operations or financial position. The Company's earliest open years in its key jurisdictions are as follows:



U.S. federal	2012
Various U.S. states	2013

The Company's income tax benefit and amounts separately allocated were attributable to the following items for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017		2016		2015
	(in millions)
Income tax benefit from continuing operations	$	524	$	403	$	155
Income tax benefit from discontinued operations	$	—	$	—	$	2

The Company's income tax (provision) benefit attributable to income from continuing operations consisted of the following for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017			2016		2015
	(in millions)
Current:
U.S. federal	$	5		$	22	$	(22	)
U.S. state	—			2		(1		)
	5			24		(23		)
Deferred:
U.S. federal	526			375		165
U.S. state	(7		)	4		13
	519			379		178
Income tax benefit from continuing operations	$	524		$	403	$	155

Reconciliations of the United States federal statutory tax rate to the Company's effective tax rate for income (loss) from continuing operations are as follows for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017			2016			2015
	(in millions, except percentages)
Income (loss) from continuing operations attributable to common stockholders before income taxes	$	309		$	(959	)	$	(421	)
Federal statutory income tax rate	35		%	35		%	35		%
(Provision) benefit for federal income taxes at the statutory rate	(108		)	336			147
State income tax (provision) benefit (net of federal tax)	(4		)	3			8
State valuation allowance (net of federal tax)	(1		)	(3		)	—
Change in federal income tax rate (a)	625			—			—
Equity compensation excess tax benefit (b)	9			—			—
Federal credit for increasing research activities (net of unrecognized tax benefits)	6			68			—
State credit for increasing research activities (net of unrecognized tax benefits and federal tax)	—			4			—
Other	(3		)	(5		)	—
Income tax benefit from continuing operations	$	524		$	403		$	155
Effective income tax rate, excluding net income attributable to the noncontrolling interests	(170		)%	42		%	37		%

____________________


(a)	During 2017, the Company recognized a benefit of $625 million as a result of the December 22, 2017 Tax Reform Legislation that reduces the federal income tax rate beginning in 2018.

(b)

During 2017, the Company recognized excess tax benefits of $9 million associated with the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," which requires excess tax benefits or deficiencies associated with the vesting of long-term incentive awards to be recorded as income tax expense or benefit in the statement of operations rather than as an adjustment to additional paid-in capital in the balance sheet.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities related to continuing operations are as follows as of December 31, 2017 and 2016:



	December 31,
	2017			2016
	(in millions)
Deferred tax assets:
Net operating loss carryforward (a)	$	594		$	635
Credit carryforwards (b)	87			107
Asset retirement obligations	59			106
Incentive plans	48			81
Net deferred hedge losses	52			32
Other	22			30
Total deferred tax assets	862			991
Deferred tax liabilities:
Oil and gas properties, principally due to differences in basis, depletion and the deduction of intangible drilling costs for tax purposes	(1,640		)	(2,184		)
Other property and equipment, principally due to the deduction of bonus depreciation for tax purposes	(121		)	(204		)
Total deferred tax liabilities	(1,761		)	(2,388		)
Net deferred tax liability	$	(899	)	$	(1,397	)

____________________


(a)	Net operating loss carryforwards as of December 31, 2017 consist of $2.8 billion of U.S. federal NOLs, which expire between 2032 and 2037, and $164 million of Colorado NOLs, which expire between 2027 and 2037, and are net of a $6 million valuation allowance relating to $125 million of Colorado NOLs that the Company believes will more likely than not expire unutilized.


(b)	Credit carryforwards as of December 31, 2017 consist of U.S. federal credits for increasing research activities of $82 million and Texas credits for increasing research activities of $5 million. The U.S. federal and state research credits as of December 31, 2017 exclude $124 million of unrecognized tax benefits.