UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   For the fiscal year ended December 31, 1998


                          Commission File No. 33-3353B


                           PARKER & PARSLEY 86-B, LTD.
             (Exact name of Registrant as specified in its charter)

                Texas                                     75-2140235        
    (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                 Identification Number)

303 West Wall, Suite 101, Midland, Texas                     79701    
(Address of principal executive offices)                   (Zip code)

       Registrant's Telephone Number, including area code : (915) 683-4768
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:
                 Limited partnership interests ($1,000 per unit)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes / x / No / /

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / x /

No  market  currently  exists  for  the  limited  partnership  interests  of the
Registrant.  Based on original  purchase  price the  aggregate  market  value of
limited  partnership  interests  owned by  non-affiliates  of the  Registrant is
$17,080,000.

As of March 8, 1999, the number of outstanding limited partnership interests was
17,208. The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: None



<PAGE>



Parts I and II of this Report contain  forward  looking  statements that involve
risks and uncertainties. Accordingly, no assurances can be given that the actual
events and results will not be materially different than the anticipated results
described  in the  forward  looking  statements.  See "Item 1.  Business"  for a
description of various factors that could  materially  affect the ability of the
Partnership to achieve the anticipated  results described in the forward looking
statements.

                                     PART I

ITEM 1.     Business

Parker &  Parsley  86-B,  Ltd.  (the  "Partnership")  is a  limited  partnership
organized  in 1986  under the laws of the State of Texas.  As of August 8, 1997,
Pioneer Natural Resources USA, Inc.  ("Pioneer USA") became the managing general
partner of the Partnership.  Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"),  a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received  shareholder  approval
to merge and create Pioneer Natural Resources Company ("Pioneer").  On August 8,
1997,  PPDLP was merged with and into Pioneer USA, a wholly-owned  subsidiary of
Pioneer,  resulting in Pioneer USA becoming the managing  general partner of the
Partnership as PPDLP's successor by merger.  For a more complete  description of
the Parker & Parsley and Mesa merger,  see Pioneer's  Registration  Statement on
Form S-4 as filed with the Securities & Exchange Commission.

A Registration  Statement,  as amended,  filed pursuant to the Securities Act of
1933,  registering limited partnership  interests  aggregating  $50,000,000 in a
series  of Texas  limited  partnerships  formed  under the  Parker & Parsley  86
Development  Drilling  Program,  was declared  effective by the  Securities  and
Exchange  Commission  on April 7, 1986.  On October 29,  1986,  the  offering of
limited partnership interests in the Partnership,  the second partnership formed
under such statement,  was closed, with interests aggregating  $17,208,000 being
sold to 1,466 subscribers.

The Partnership  engages primarily in oil and gas development and production and
is not  involved in any  industry  segment  other than oil and gas. See "Item 6.
Selected  Financial  Data" and "Item 8. Financial  Statements and  Supplementary
Data" of this  report for a summary  of the  Partnership's  revenue,  income and
identifiable assets.

The principal  markets during 1998 for the oil produced by the Partnership  were
refineries  and  oil  transmission  companies  that  have  facilities  near  the
Partnership's   oil  producing   properties.   The  principal  markets  for  the
Partnership's   gas  were  companies  that  have  pipelines   located  near  the
Partnership's gas producing  properties.  Of the Partnership's total oil and gas
revenues for 1998,  approximately  41%,  17%, 15% and 10% were  attributable  to
sales made to Genesis Crude Oil, L.P.,  Western Gas Resources,  Inc.,  Mobil Oil
Corporation, and Texaco Trading & Transportation, respectively.

                                        2

<PAGE>



The Partnership's revenues,  profitability,  cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by  numerous  factors  beyond  the  Partnership's  control.  Oil and gas  prices
historically have been very volatile.  A substantial or  extended decline in the
prices of oil or gas could have a material  adverse effect on the  Partnership's
revenues,  profitability and cash flow and could,  under certain  circumstances,
result in a reduction in the  carrying  value of the  Partnership's  oil and gas
properties.

Because of the demand for oil and gas, the Partnership does not believe that the
termination  of the  sales of its  products  to any one  customer  would  have a
material adverse impact on its operations. The loss of a particular customer for
gas may have an effect if that  particular  customer  has the only gas  pipeline
located  in the  areas  of  the  Partnership's  gas  producing  properties.  The
Partnership  believes,  however,  that  the  effect  would be  temporary,  until
alternative arrangements could be made.

Federal and state  regulation of oil and gas operations  generally  includes the
fixing of maximum prices for regulated categories of natural gas, the imposition
of maximum  allowable  production rates, the taxation of income and other items,
and the protection of the  environment.  Although the Partnership  believes that
its business operations do not impair  environmental  quality and that its costs
of complying with any  applicable  environmental  regulations  are not currently
significant,   the  Partnership  cannot  predict  what,  if  any,  effect  these
environmental regulations may have on its current or future operations.

The Partnership  does not have any employees of its own. Pioneer USA employs 818
persons,  many of whom  dedicated  a part of their  time to the  conduct  of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.

Numerous  uncertainties  exist in estimating  quantities of proved  reserves and
future net revenues  therefrom.  The  estimates  of proved  reserves and related
future net revenues  set forth in this report are based on various  assumptions,
which may ultimately  prove to be inaccurate.  Therefore,  such estimates should
not be construed as estimates of the current  market value of the  Partnership's
proved reserves.

No material part of the  Partnership's  business is seasonal and the Partnership
conducts no foreign operations.

ITEM 2.     Properties

The  Partnership's  properties  consist  primarily  of  leasehold  interests  in
properties on which oil and gas wells are located.  Such property  interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.

Fractional  working  interests in  developmental  oil and gas prospects  located
primarily  in the  Spraberry  Trend  area of West  Texas  were  acquired  by the
Partnership,  resulting in the Partnership's participation in the drilling of 56
oil and gas wells. At December 31, 1998, 44 wells were producing. Nine wells and

                                        3

<PAGE>



interests  in two  abandoned  wells  were  sold  and one well  was  plugged  and
abandoned.  The Partnership  received interests in one additional  producing oil
and gas well in 1993 due to the Partnership's back-in after payout provision.

For  information  relating  to the  Partnership's  estimated  proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended,  see Note 7 of Notes  to Financial  Statements included in
"Item 8. Financial  Statements and Supplementary Data" below. Such reserves have
been  estimated  by the  engineering  staff of  Pioneer  USA  with a  review  by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.

ITEM 3.     Legal Proceedings

The  Partnership  from  time to time is a party  to  various  legal  proceedings
incidental to its business  involving claims in oil and gas leases or interests,
other  claims for damages in amounts not in excess of 10% of its current  assets
and  other  matters,  none of  which  Pioneer  believes  to be  material  to the
Partnership.

ITEM 4.     Submission of Matters to a Vote of Security Holders

There were no matters  submitted to a vote of security holders during the fourth
quarter of 1998.



                                        4

<PAGE>



                                     PART II


ITEM 5.     Market for Partnership's Common Equity and Related Stockholder
              Matters

At March 8, 1999, the Partnership  had 17,208  outstanding  limited  partnership
interests held of record by 1,423  subscribers.  There is no established  public
trading  market  for  the  limited  partnership  interests.  Under  the  limited
partnership  agreement,  Pioneer USA has made  certain  commitments  to purchase
partnership interests at a computed value.

Revenues which, in the sole judgement of the managing general  partner,  are not
required to meet the  Partnership's  obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement.  During
the years ended  December  31,  1998 and 1997,  distributions  of  $321,805  and
$804,804, respectively, were made to the limited partners.

ITEM 6.     Selected Financial Data

The  following  table sets forth  selected  financial  data for the years  ended
December 31:
<TABLE>
                                 1998         1997         1996          1995         1994      
                              ----------   ----------   ----------    ----------   ----------
<S>                           <C>          <C>          <C>           <C>           <C>
Operating results:
  Oil and gas sales           $  928,899   $1,369,807   $1,700,251    $1,481,520   $1,584,722
                               =========    =========    =========     =========    =========
  Litigation settlement, net  $      -     $      -     $  565,756    $      -     $      -  
                               =========    =========    =========     =========    =========
  Impairment of oil and
     gas properties           $  509,585   $  561,432   $    4,960    $  244,024   $      -  
                               =========    =========    =========     =========    =========
  Net income (loss)           $ (807,041)  $ (158,796)  $1,229,639    $  (31,098)  $   29,196
                               =========    =========    =========     =========    =========
  Allocation of net income
   (loss):
      Managing general
        partner               $   (8,070)  $   (1,587)  $   12,296    $     (310)  $      292
                               =========    =========    =========     =========    =========
      Limited partners        $ (798,971)  $ (157,209)  $1,217,343    $  (30,788)  $   28,904
                               =========    =========    =========     =========    =========
  Limited partners' net
    income (loss) per limited
    partnership interest      $   (46.43)  $    (9.14)  $    70.74    $    (1.79)  $     1.68
                               =========    =========    =========     =========    =========
  Limited partners' cash
    distributions per
    limited partnership
    interest                  $    18.70   $    46.77   $    86.49(a) $    37.11   $    39.07
                               =========    =========    =========     =========    =========
At year end:
  Total assets                $2,363,955   $3,520,172   $4,548,338    $4,800,510   $5,496,873
                               =========    =========    =========     ===========  =========
</TABLE>
---------------
(a) Including  litigation  settlement per limited partnership interest of $32.55
    in 1996.

                                                         5

<PAGE>


ITEM 7.     Management's Discussion and Analysis of Financial Condition and
              Results of Operations

Results of operations

1998 compared to 1997

The  Partnership's  1998 oil and gas  revenues  decreased  32% to $928,899  from
$1,369,807 in 1997. The decrease in revenues  resulted from lower average prices
received.  In 1998, 47,107 barrels of oil, 23,292 barrels of natural gas liquids
("NGLs") and 97,715 mcf of gas were sold,  or 86,685  barrel of oil  equivalents
("BOEs").  In 1997, 47,968 barrels of oil, 9,442 barrels of NGLs and 141,058 mcf
of gas were sold,  or 80,920  BOEs.  Due to the decline  characteristics  of the
Partnership's  oil and gas  properties,  management  expects a certain amount of
decline  in  production  in the  future  until  the  Partnership's  economically
recoverable reserves are fully depleted.

Consistent with the managing general  partner,  the Partnership has historically
accounted for processed  natural gas production as wellhead  production on a wet
gas basis.  Effective  September  30, 1997, as a result of the merger with Mesa,
the managing  general partner  accounts for processed  natural gas production in
two  components:  natural gas  liquids  and dry residue  gas. As a result of the
change in the managing general  partner's  policy,  the Partnership now accounts
for processed  natural gas  production as processed  natural gas liquids and dry
residue gas.  Consequently,  separate product volumes will not be comparable for
periods prior to September 30, 1997.  Also,  prices for gas products will not be
comparable as the price per mcf for natural gas for the year ended  December 31,
1998 is the price received for dry residue gas and the price per mcf for natural
gas produced  prior to October 1997 was  presented as a price for wet gas (i.e.,
natural gas liquids combined with dry residue gas).

The average  price  received per barrel of oil  decreased  $6.30,  or 33%,  from
$19.38 in 1997 to $13.08 in 1998.  The average price received per barrel of NGLs
decreased $4.08, or 38%, from $10.88 in 1997 to $6.80 in 1998. The average price
received per mcf of gas decreased  34% from $2.39 in 1997 to $1.58 in 1998.  The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future.  The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 1998.

A gain on disposition  of assets of $6,371 was  recognized  during 1998 from the
sale of  equipment  on one well plugged and  abandoned  during  1998.  Abandoned
property  costs of $20,389  were also  incurred  during 1998 to plug and abandon
this well.

Total  costs  and  expenses  increased  in 1998 to  $1,755,278  as  compared  to
$1,544,950 in 1997, an increase of $210,328,  or 14%. The increase was due to an
increase in depletion,  production costs and abandoned property costs, offset by
declines  in  the   impairment  of  oil  and  gas  properties  and  general  and
administrative expenses ("G&A").

Production  costs were  $662,691 in 1998 and  $628,784 in 1997,  resulting  in a
$33,907 increase,  or 5%. This increase was due to higher well maintenance costs

                                        6

<PAGE>



incurred  in an effort to  stimulate  well  production,  offset by a decline  in
production taxes and ad valorem taxes.

G&A's  components are independent  accounting and engineering  fees and managing
general  partner  personnel  and  operating  costs.   During  this  period,  G&A
decreased,  in  aggregate,  36% from  $43,678 in 1997 to  $27,867  in 1998.  The
Partnership  paid the managing  general  partner  $21,984 in 1998 and $35,935 in
1997 for G&A incurred on behalf of the Partnership.  G&A is allocated,  in part,
to the Partnership by the managing  general partner.  The Partnership  agreement
limits  allocated  G&A to 3% of  gross  oil and  gas  revenues.  Such  allocated
expenses are determined by the managing general partner based upon its judgement
of the level of activity of the  Partnership  relative to the  managing  general
partner's activities and other entities it manages. The method of allocation has
been  consistent  over  the  past  several  years  with  certain   modifications
incorporated to reflect changes in Pioneer USA's overall business activities.

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  Of"  ("SFAS  121"),  the  managing  general  partner  reviews  the
Partnership's  oil  and  gas  properties  for  impairment   whenever  events  or
circumstances  indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred.  Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its  long-lived  assets for  impairment,  the  Partnership  recognized  non-cash
charges of $509,585 and $561,432  related to its oil and gas  properties  during
1998 and 1997, respectively.

Depletion was $534,746 in 1998 compared to $311,056 in 1997. This represented an
increase of $223,690,  or 72%. This increase was the result of a combination  of
factors that included a decline in proved  reserves during 1998 due to the lower
commodity  prices,  offset by a reduction in the  Partnership's  net  depletable
basis from charges taken in accordance  with SFAS 121 during the fourth  quarter
of 1997 and a reduction  in oil  production  of 861 barrels for the period ended
December 31, 1998 compared to the same period in 1997.

1997 compared to 1996

The  Partnership's  1997 oil and gas revenues  decreased 19% to $1,369,807  from
$1,700,251  in  1996.  The  decrease  in  revenues  resulted  from  declines  in
production and lower average prices  received.  In 1997,  47,968 barrels of oil,
9,442 barrels of NGLs and 141,058 mcf of gas were sold, or 80,920 BOEs. In 1996,
54,953 barrels of oil and 201,324 mcf of gas were sold, or 88,507 BOEs.

Consistent with the managing general  partner,  the Partnership has historically
accounted for processed  natural gas production as wellhead  production on a wet
gas basis.  As is described  above in "Results of  Operations - 1998 compared to
1997",  the Partnership  changed its method of accounting for processed  natural
gas to a dry gas  basis  in the  fourth  quarter  of 1997.  As a result  of this
change,  the  Partnership  now accounts for processed  natural gas production as
processed natural gas liquids and dry residue gas.  Consequently,  1997 and 1996
separate product volumes are not comparable.

                                        7

<PAGE>



The declines in production  volumes were primarily  attributable  to the decline
characteristics of the Partnership's oil and gas properties.

The average  price  received per barrel of oil  decreased  $2.19,  or 10%,  from
$21.57 in 1996 to $19.38 in 1997.  The average price received per barrel of NGLs
during 1997 was $10.88.  The average price  received per mcf of gas decreased 7%
from $2.56 in 1996 to $2.39 in 1997.

During  1996,  the  Partnership  recognized a gain on  disposition  of assets of
$68,568.  Of this amount,  $51,377 was received from the sale of six oil and gas
wells and four saltwater  disposal wells  attributable  to proceeds  received of
$209,248 less the write-off of remaining  capitalized well costs of $157,871. An
additional  unrelated  sale of four fully depleted oil and gas wells resulted in
proceeds  received of $4,332.  Salvage  income of $12,859  received  during 1996
consisted of equipment credits received on two fully depleted wells.

On April  29,  1996,  Southmark  Corporation,  Pioneer  USA and the  Partnership
entered  into a final  $7.4  million  settlement  agreement  with Jack N.  Price
resolving all outstanding  litigation  between the parties.  As a result, all of
the pending  lawsuits and judgments have been dismissed,  the  supersedeas  bond
released,  and the Reserve  released as  collateral.  On June 28,  1996, a final
distribution was made to the working interest owners of $565,756, which included
$560,099, or $32.55 per limited partnership interest, to the Partnership and its
partners.

Total  costs  and  expenses  increased  in 1997 to  $1,544,950  as  compared  to
$1,122,085 in 1996, an increase of $422,865, or 38%. The increase was due to the
impairment of oil and gas properties,  offset by a decrease in production costs,
depletion, abandoned property costs and G&A.

Production  costs were  $628,784 in 1997 and  $730,032 in 1996,  resulting  in a
$101,248 decrease, or 14%. This decrease was due to declines in well maintenance
costs, workover expense and production taxes.

During this period,  G&A  decreased,  in aggregate,  14% from $51,008 in 1996 to
$43,678 in 1997. The  Partnership  paid the managing  general partner $35,935 in
1997 and $43,546 in 1996 for G&A incurred on behalf of the Partnership.

The Partnership  recognized non-cash SFAS 121 impairment  provisions of $561,432
and $4,960 related to its oil and gas properties  during the fourth  quarters of
1997 and 1996, respectively.

Depletion was $311,056 in 1997 compared to $327,745 in 1996. This  represented a
decrease of $16,689,  or 5%.  This  decrease  was  primarily  attributable  to a
reduction  in oil  production  in 1997 from 1996 of 6,985  barrels,  offset by a
decrease in oil reserves during 1997 as a result of lower commodity prices.

Abandoned property costs of $8,340 were incurred during 1996 on one well plugged
and abandoned in 1995.

                                        8

<PAGE>



Impact of inflation and changing prices on sales and net income

Inflation  impacts  the fixed  overhead  rate  charges  of the  lease  operating
expenses for the  Partnership.  During 1998,  the annual  change in the index of
average weekly earnings of crude petroleum and gas production  workers issued by
the U.S.  Department of Labor, Bureau of Labor Statistics  increased  (effective
April 1,  1998)  10.3%.  The 1997  annual  change  in  average  weekly  earnings
increased by 2%. The 1996 index  increased  4.1%.  The impact of  inflation  for
other lease operating expenses is small due to the current economic condition of
the oil industry.

The oil and gas industry  experienced  volatility during the past decade because
of the fluctuation of the supply of most fossil fuels relative to the demand for
such  products  and other  uncertainties  in the world  energy  markets  causing
significant  fluctuations  in oil and gas  prices.  During  1998,  the price per
barrel for oil production similar to the Partnership's ranged from approximately
$9.50 to $15.50.  During most of 1997 and 1996, the Partnership  benefitted from
higher oil prices as  compared  to previous  years.  However,  during the fourth
quarter of 1997, oil prices began a downward trend that has continued into March
1999. On March 8, 1999, the market price for West Texas  intermediate  crude was
$11.00 per barrel.  A continuation of the current  commodity  price  environment
will continue to have an adverse effect on the Partnership's revenues, operating
cash flow and  distributions  and could  result in  additional  decreases in the
carrying value of the Partnership's oil and gas properties.

Prices for natural gas are subject to ordinary seasonal  fluctuations,  and this
volatility of natural gas prices may result in production  being  curtailed and,
in some cases, wells being completely shut-in.

Liquidity and capital resources

Net Cash Provided by Operating Activities

Net cash provided by operating  activities  decreased  $504,452  during the year
ended December 31, 1998 from the year ended December 31, 1997. This decrease was
primarily due to a decline in oil and gas sales receipts.

Net Cash Provided by (Used in) Investing Activities

The Partnership's  investing activities during 1998 were related to expenditures
for oil and gas equipment replacement on active properties.

Proceeds from disposition of assets of $15,526 received during 1998 consisted of
$9,155 in  equipment  credits on an active  property  and  equipment  credits of
$6,371  on one  property  plugged  and  abandoned  during  1998.  Proceeds  from
disposition  of assets of $18,756  recognized  during  1997 were  related to the
disposal of oil and gas equipment on active properties.

                                        9

<PAGE>



Net Cash Used in Financing Activities

Cash was  sufficient  in 1998 for  distributions  to the partners of $325,056 of
which $3,251 was distributed to the managing general partner and $321,805 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $812,934 of which $8,130 was distributed to the managing  general partner and
$804,804 to the limited partners.

The  current   commodity   price   environment   will  continue  to  impact  the
distributions and could result in limited or no distributions to the partners.

Year 2000 Project Readiness

Historically,  many computer programs have been developed that use only the last
two digits in a date to refer to a year.  As the year 2000 nears,  the inability
of such  computer  programs and embedded  technologies  to  distinguish  between
"1900" and "2000" has given rise to the "Year 2000" problem. Theoretically, such
computer  programs and related  technology  could fail  outright or  communicate
inaccurate  data,  if not  remediated  or replaced.  With the  proliferation  of
electronic  data  interchange,  the Year 2000 problem  represents a  significant
exposure to the entire  global  community,  the full  extent of which  cannot be
accurately assessed.

In proactive  response to the Year 2000 problem,  the managing  general  partner
established  a "Year  2000"  project to  assess,  to the  extent  possible,  the
Partnership's and the managing general partner's internal Year 2000 problem;  to
take remedial  actions  necessary to minimize the Year 2000 risk exposure to the
managing  general  partner and  significant  third parties with whom it has data
interchange;  and, to test its systems and processes once remedial  actions have
been taken. The managing general partner has contracted with IBM Global Services
to perform the assessment and remedial phases of its Year 2000 project.

The assessment phase of the managing  general  partner's Year 2000 project is at
varying  stages of  completion  as it pertains  to  information  technology  and
non-information technology applications and systems in the United States, Canada
and Argentina.  As of December 31, 1998, the managing general partner  estimates
that the assessment phase is approximately  86% complete,  on a worldwide basis,
and has included, but is not limited to, the following procedures:

o      the identification of necessary remediation,  upgrade and/or  replacement
       of existing information technology applications and systems;

o      the  assessment  of   non-information   technology  exposures,   such  as
       telecommunications  systems,  security  systems,  elevators  and  process
       control equipment;

o      the  initiation  of inquiry and  dialogue  with  significant  third party
       business partners, customers and suppliers in an effort to understand and
       assess their Year 2000  problems,  readiness and potential  impact on the
       managing general partner and its Year 2000 problem;

                                       10

<PAGE>



o      the   implementation  of  processes   designed  to  reduce  the  risk  of
       reintroduction  of Year 2000 problems into the managing general partner's
       systems and business processes; and,

o      the formulation of  contingency plans  for  mission-critical  information
       technology systems.

The managing  general  partner  expects to complete the assessment  phase of its
Year 2000 project by the end of the first  quarter of 1999 but is being  delayed
by limited responses  received on inquiries made of third party  businesses.  To
date, the managing general partner has distributed  Year 2000 problem  inquiries
to over 500 entities and has received  responses to  approximately  37% of those
inquiries.

The remedial phase of the managing  general  partner's Year 2000 project is also
at varying stages of completion as it pertains to the remediation of information
technology and non-information technology applications and systems in the United
States,  Canada and  Argentina.  As of December 31, 1998,  the managing  general
partner  estimates that the remedial phase is approximately  54% complete,  on a
worldwide  basis,  subject to the continuing  results of the third party inquiry
assessments  and the testing phase.  The remedial phase has included the upgrade
and/or  replacement of certain  application and hardware  systems.  The managing
general  partner has  upgraded its Artesia  general  ledger  accounting  systems
through  remedial  coding and is  currently  testing  this  system for Year 2000
compliance.  The  remediation  of  non-information  technology is expected to be
completed  during July 1999. The managing  general  partner's Year 2000 remedial
actions have not significantly delayed other information  technology projects or
upgrades.

The testing  phase of the  managing  general  partner's  Year 2000 project is on
schedule.  The managing  general  partner expects to complete the testing of the
Artesia  system  upgrades  by March  1999 and all other  information  technology
systems  and  non-information  technology  remediation  by the end of the  third
quarter of 1999.

The managing  general  partner  expects that its total costs related to the Year
2000 problem will approximate $3.6 million, of which approximately $500 thousand
will have been incurred to replace non-compliant information technology systems.
The managing  general  partner intends to use its working capital to pay for the
costs of the Year 2000 projects.  As of December 31, 1998, the managing  general
partner's  total costs  incurred on the Year 2000 problem were $1.8 million,  of
which $200 thousand were incurred to replace non-compliant systems. The managing
general  partner  will  allocate  a  portion  of  the  costs  of the  Year  2000
programming  charges to the  Partnership  in  accordance  with the  general  and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)

The risks  associated with the Year 2000 problem are  significant.  A failure to
remedy a critical  Year 2000 problem could have a materially  adverse  affect on
the Partnership's results of operations and financial condition. The most likely
worst case scenario  which may be encountered as a result of a Year 2000 problem
could include  information and non-information  system failures,  the receipt or

                                       11

<PAGE>



transmission of erroneous  data, lost data or a combination of similar  problems
of a magnitude that cannot be accurately assessed at this time.

In the  assessment  phase of the managing  general  partner's Year 2000 project,
contingency   plans  are  being   designed  to   mitigate   the   exposures   to
mission-critical  information  technology  systems,  such as oil  and gas  sales
receipts,  vendor and royalty cash distributions,  debt compliance,  accounting,
and employee  compensation.  Such  contingency  plans  anticipate  the extensive
utilization  of  third-party  data  processing   services,   personal   computer
applications  and the  substitution  of courier  and mail  services  in place of
electronic data interchange.  Given the uncertainties regarding the scope of the
Year 2000 problem and the compliance of significant third parties,  there can be
no  assurance  that  contingency  plans  will  have  anticipated  all Year  2000
scenarios.

ITEM 8.     Financial Statements and Supplementary Data


                          Index to Financial Statements

                                                                        Page
                                                                        ----
Financial Statements of Parker & Parsley 86-B, Ltd:
  Independent Auditors' Report - Ernst & Young LLP................       13
  Independent Auditors' Report - KPMG LLP.........................       14
  Balance Sheets as of December 31, 1998 and 1997.................       15
  Statements of Operations for the Years Ended December 31,
    1998, 1997 and 1996...........................................       16
  Statements of Partners' Capital for the Years Ended
    December 31, 1998, 1997 and 1996..............................       17
  Statements of Cash Flows for the Years Ended December 31,
    1998, 1997 and 1996...........................................       18
  Notes to Financial Statements...................................       19



                                       12

<PAGE>




                          INDEPENDENT AUDITORS' REPORT



The Partners
Parker & Parsley 86-B, Ltd.
  (A Texas Limited Partnership):

We have audited the balance sheet of Parker & Parsley 86-B,  Ltd. as of December
31, 1998, and the related  statements of operations,  partners' capital and cash
flows for the year then ended. These financial statements are the responsibility
of the Partnership's management.  Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Parker & Parsley 86-B, Ltd. as
of December 31, 1998,  and the results of its  operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.



                                               Ernst & Young LLP


Dallas, Texas
March 15, 1999






                                       13

<PAGE>





                          INDEPENDENT AUDITORS' REPORT




The Partners
Parker & Parsley 86-B, Ltd.
  (A Texas Limited Partnership):

We have audited the financial  statements  of Parker & Parsley 86-B,  Ltd. as of
December 31, 1997, and the related  statements of operations,  partners' capital
and cash flows for the years ended December 31, 1997 and 1996.  These  financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Parker & Parsley 86-B, Ltd. as
of December 31, 1997,  and the results of its  operations and its cash flows for
the years  ended  December  31,  1997 and 1996,  in  conformity  with  generally
accepted accounting principles.



                                             KPMG LLP


Midland, Texas
March 20, 1998



                                       14

<PAGE>



                           PARKER & PARSLEY 86-B, LTD.
                          (A Texas Limited Partnership)

                                 BALANCE SHEETS
                                   December 31



                                                       1998           1997      
                                                   -----------    -----------
                 ASSETS

Current assets:
  Cash                                             $   185,320    $   259,795
  Accounts receivable - oil and gas sales              120,424        168,175
                                                    ----------     ----------
          Total current assets                         305,744        427,970
                                                    ----------     ----------
Oil and gas properties - at cost, based on the
  successful efforts accounting method              12,038,382     12,263,266
Accumulated depletion                               (9,980,171)    (9,171,064)
                                                    ----------     ----------
          Net oil and gas properties                 2,058,211      3,092,202
                                                    ----------     ----------
                                                   $ 2,363,955    $ 3,520,172
                                                    ==========     ==========
LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
  Accounts payable - affiliate                     $    11,216    $    35,336

Partners' capital:
  Managing general partner                              22,251         33,572
  Limited partners (17,208 interests)                2,330,488      3,451,264
                                                    ----------     ----------
                                                     2,352,739      3,484,836
                                                    ----------     ----------
                                                   $ 2,363,955    $ 3,520,172
                                                    ==========     ==========



              The accompanying notes are an integral part of these
                             financial statements.

                                       15

<PAGE>



                           PARKER & PARSLEY 86-B, LTD.
                          (A Texas Limited Partnership)

                            STATEMENTS OF OPERATIONS
                         For the years ended December 31




                                           1998          1997          1996
                                        ----------    ----------    ----------
Revenues:
  Oil and gas                           $  928,899    $1,369,807    $1,700,251
  Interest                                  12,967        16,347        17,149
  Gain on disposition of assets              6,371           -          68,568
  Litigation settlement                        -             -         565,756
                                         ---------     ---------     ---------
                                           948,237     1,386,154     2,351,724
                                         ---------     ---------     ---------
Costs and expenses:
  Oil and gas production                   662,691       628,784       730,032
  General and administrative                27,867        43,678        51,008
  Impairment of oil and gas properties     509,585       561,432         4,960
  Depletion                                534,746       311,056       327,745
  Abandoned property                        20,389           -           8,340
                                         ---------     ---------     ---------
                                         1,755,278     1,544,950     1,122,085
                                         ---------     ---------     ---------
Net income (loss)                       $ (807,041)   $ (158,796)   $1,229,639
                                         =========     =========     =========
Allocation of net income (loss):
  Managing general partner              $   (8,070)   $   (1,587)   $   12,296
                                         =========     =========     =========
  Limited partners                      $ (798,971)   $ (157,209)   $1,217,343
                                         =========     =========     =========
Net income (loss) per limited
  partnership interest                  $   (46.43)   $    (9.14)   $    70.74
                                         =========     =========     =========



              The accompanying notes are an integral part of these
                             financial statements.

                                       16

<PAGE>



                           PARKER & PARSLEY 86-B, LTD.
                          (A Texas Limited Partnership)

                         STATEMENTS OF PARTNERS' CAPITAL




                                         Managing
                                         general       Limited
                                         partner       partners        Total
                                        ---------    -----------    -----------

Partners' capital at January 1, 1996    $  46,026    $ 4,684,266    $ 4,730,292
   Distributions                          (15,033)    (1,488,332)    (1,503,365)
   Net income                              12,296      1,217,343      1,229,639
                                         --------     ----------      ---------
Partners' capital at December 31, 1996     43,289      4,413,277      4,456,566
   Distributions                           (8,130)      (804,804)      (812,934)
   Net loss                                (1,587)      (157,209)      (158,796)
                                         --------     ----------      ---------
Partners' capital at December 31, 1997     33,572      3,451,264      3,484,836
   Distributions                           (3,251)      (321,805)      (325,056)
   Net loss                                (8,070)      (798,971)      (807,041)
                                         --------     ----------      ---------
Partners' capital at December 31, 1998  $  22,251    $ 2,330,488    $ 2,352,739
                                         ========     ==========     ==========






              The accompanying notes are an integral part of these
                             financial statements.

                                       17

<PAGE>



                           PARKER & PARSLEY 86-B, LTD.
                          (A Texas Limited Partnership)

                            STATEMENTS OF CASH FLOWS
                         For the years ended December 31



                                               1998        1997        1996
                                            ---------   ---------   -----------
Cash flows from operating activities:
   Net income (loss)                        $(807,041)  $(158,796)  $ 1,229,639
   Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
      Impairment of oil and gas properties    509,585     561,432         4,960
      Depletion                               534,746     311,056       327,745
      Gain on disposition of assets            (6,371)        -         (68,568)
     Changes in assets and liabilities:
      Accounts receivable                      47,751     101,746       (91,546)
      Accounts payable                        (24,120)    (56,436)        7,825
                                             --------    --------    ----------
          Net cash provided by operating
            activities                        254,550     759,002     1,410,055
                                             --------    --------    ----------
Cash flows from investing activities:
   Additions to oil and gas properties        (19,495)        -             -
   Proceeds from disposition of assets         15,526      18,756       236,518
                                             --------    --------    ----------
          Net cash provided by (used in)
            investing activities               (3,969)     18,756       236,518
                                             --------    --------    ----------
Cash flows from financing activities:
    Cash distributions to partners           (325,056)   (812,934)   (1,503,365)
                                             --------    --------    ----------
Net  increase (decrease) in cash              (74,475)    (35,176)      143,208
Cash at beginning of year                     259,795     294,971       151,763
                                             --------    --------    ----------
Cash at end of year                         $ 185,320   $ 259,795   $   294,971
                                             ========    ========    ==========


              The accompanying notes are an integral part of these
                             financial statements.

                                       18

<PAGE>


                           PARKER & PARSLEY 86-B, LTD.
                          (A Texas Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996

Note 1.     Organization and nature of operations

       Parker & Parsley 86-B, Ltd. (the  "Partnership") is a limited partnership
organized  in 1986  under the laws of the State of Texas.  As of August 8, 1997,
Pioneer Natural Resources USA, Inc.  ("Pioneer USA") became the managing general
partner of the Partnership.  Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"),  a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received  shareholder  approval to merge
and create Pioneer Natural  Resources  Company  ("Pioneer").  On August 8, 1997,
PPDLP was  merged  with and into  Pioneer  USA,  a  wholly-owned  subsidiary  of
Pioneer,  resulting in Pioneer USA becoming the managing  general partner of the
Partnership as PPDLP's successor by merger.

       The  Partnership  engages  primarily  in  oil  and  gas  development  and
production  in Texas and is not involved in any industry  segment other than oil
and gas.

Note 2.     Summary of significant accounting policies

       A summary of the significant  accounting policies consistently applied in
the preparation of the accompanying financial statements follows:

       Oil and gas properties - The Partnership  utilizes the successful efforts
method of accounting for its oil and gas  properties  and equipment.  Under this
method, all costs associated with productive wells and nonproductive development
wells are  capitalized  while  nonproductive  exploration  costs  are  expensed.
Capitalized   costs  relating  to  proved  properties  are  depleted  using  the
unit-of-production  method on a  property-by-property  basis based on proved oil
(dominant  mineral)  reserves as determined by the engineering  staff of Pioneer
USA, the  Partnership's  managing general  partner,  and reviewed by independent
petroleum  consultants.  The carrying  amounts of  properties  sold or otherwise
disposed of and the related  allowances  for depletion are  eliminated  from the
accounts and any gain or loss is included in operations.

       Impairment  of  long-lived  assets  - In  accordance  with  Statement  of
Financial  Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership  reviews its long-lived  assets to be held and used on an individual
property  basis,  including  oil and gas  properties  accounted  for  under  the
successful  efforts  method of  accounting,  whenever  events  or  circumstances
indicate  that the  carrying  value of those assets may not be  recoverable.  An
impairment  loss is indicated  if the sum of the  expected  future cash flows is
less  than  the  carrying  amount  of the  assets.  In  this  circumstance,  the
Partnership  recognizes an impairment  loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.

                                       19

<PAGE>


       Use of estimates in the preparation of financial statements - Preparation
of the accompanying  financial  statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reporting  amounts of revenues and expenses  during the  reporting  period.
Actual results could differ from those estimates.

       Net  income  (loss)  per  limited  partnership  interest - The net income
(loss) per limited  partnership  interest is  calculated  by using the number of
outstanding limited partnership interests.

       Income taxes - A Federal  income tax  provision  has not been included in
the  financial  statements as the income of the  Partnership  is included in the
individual Federal income tax returns of the respective partners.

       Statements  of cash flows - For  purposes of reporting  cash flows,  cash
includes depository accounts held by banks.

       General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing  general partner or its
affiliates.  Such  allocated  expenses are  determined  by the managing  general
partner  based upon its  judgement  of the level of activity of the  Partnership
relative to the managing  general  partner's  activities  and other  entities it
manages.  The method of  allocation  has been  consistent  over the past several
years with  certain  modifications  incorporated  to reflect  changes in Pioneer
USA's overall business activities.

       Reclassifications - Certain  reclassifications  may have been made to the
1997 and 1996 financial  statements to conform to the 1998  financial  statement
presentation.

       Environmental  - The Partnership is subject to extensive  federal,  state
and local  environmental laws and regulations.  These laws, which are constantly
changing,  regulate  the  discharge of materials  into the  environment  and may
require the Partnership to remove or mitigate the  environmental  effects of the
disposal  or release of  petroleum  or  chemical  substances  at various  sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit.  Expenditures  that relate to an existing  condition caused by
past  operations  and  that  have no  future  economic  benefits  are  expensed.
Liabilities  for   expenditures  of  a  noncapital   nature  are  recorded  when
environmental  assessment and/or  remediation is probable,  and the costs can be
reasonably  estimated.  Such liabilities are generally  undiscounted  unless the
timing of cash  payments for the  liability  or component  are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.

       Revenue  recognition - The Partnership  uses the  entitlements  method of
accounting for crude oil and natural gas revenues.

       Reporting  comprehensive  income  -  Statement  of  Financial  Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of  comprehensive  income (loss) and its
components in a full set of general purpose financial statements.  Comprehensive

                                       20

<PAGE>

income (loss) includes net income (loss) and other comprehensive  income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130.  Consequently,  the provisions of SFAS No. 130 do not apply to the
Partnership.

Note 3.     Impairment of long-lived assets

      In accordance  with SFAS 121, the  Partnership  reviews its proved oil and
gas properties  for  impairment  whenever  events and  circumstances  indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas  properties.  Based upon a decline in the  Partnership's  outlook for future
commodity  prices,  the Partnership has estimated the expected future cash flows
of its oil and gas  properties  as of  December  31,  1998,  1997 and 1996,  and
compared such estimated  future cash flows to the respective  carrying amount of
the oil and gas  properties to determine if the carrying  amounts were likely to
be  recoverable.  For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore,  the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by  discounting  their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $509,585,  $561,432 and $4,960  related to its proved oil and gas  properties
during 1998, 1997 and 1996, respectively.

Note 4.     Income taxes

      The  financial  statement  basis  of  the  Partnership's  net  assets  and
liabilities was $322,842 greater than the tax basis at December 31, 1998.

      The following is a  reconciliation  of net income (loss) per statements of
operations  with the net income per  Federal  income tax  returns  for the years
ended December 31:
                                              1998         1997          1996
                                            ---------    ---------    ----------
 Net income (loss) per statements of
   operations                               $(807,041)   $(158,796)   $1,229,639
 Depletion and depreciation provisions for
   tax reporting purposes less than amounts
   for financial reporting purposes           525,430      298,532       315,125
 Impairment of oil and gas properties for
   financial reporting purposes               509,585      561,432         4,960
 Other, net                                     6,831       19,546       146,400
                                             --------     --------     ---------
        Net income per Federal
          income tax returns                $ 234,805    $ 720,714    $1,696,124
                                             ========     ========     =========
Note 5.     Oil and gas producing activities

       The following is a summary of the costs incurred,  whether capitalized or
expensed,  related to the Partnership's oil and gas producing activities for the
years ended December 31:
                                       1998          1997          1996      
                                     ---------    ----------    ---------
       Development costs             $  19,495    $ (18,755)    $     868
                                      ========     =========     ========
                                       21

<PAGE>

       Capitalized oil and gas properties consist of the following:
                                                  1998           1997      
                                              -----------    -----------
     Proved properties:
       Property acquisition costs             $   446,308    $   446,308
       Completed wells and equipment           11,592,074     11,816,958
                                               ----------     ----------
                                               12,038,382     12,263,266
     Accumulated depletion                     (9,870,171)    (9,171,064)
                                               ----------     ----------
             Net capitalized costs            $ 2,168,211    $ 3,092,202
                                               ==========     ==========
Note 6.     Related party transactions

       Pursuant to the limited  partnership  agreement,  the Partnership had the
following  related party  transactions  with the managing general partner or its
affiliates during the years ended December 31:
                                             1998        1997        1996      
                                           --------    --------    --------
     Payment of lease operating and
       supervision charges in accordance
       with standard industry operating
       agreements                          $296,383    $300,045    $305,520
     Reimbursement of general and
       administrative expenses             $ 21,984    $ 35,935    $ 43,546

       The Partnership  participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement.  In addition,
Pioneer USA and the Partnership are parties to the Program agreement.

       The costs and  revenues of the Program are  allocated  to Pioneer USA and
the Partnership as follows:
                                                    Pioneer
                                                    USA (1)      Partnership
                                                   ----------    -----------
Revenues:
   Proceeds from disposition of depreciable
     properties                                     9.09091%      90.90909%
   All other revenues                              24.242425%     75.757575%
Costs and expenses:
   Lease acquisition costs, drilling and
     completion costs and all other costs           9.09091%      90.90909%
   Operating costs, direct costs and general
     and administrative expenses                   24.242425%     75.757575%

    (1)   Excludes Pioneer USA's 1% general partner ownership which is allocated
          at the Partnership  level and 128  limited  partner interests owned by
          Pioneer USA.

Note 7.     Oil and gas information (unaudited)

       The following table presents  information  relating to the  Partnership's
estimated  proved oil and gas reserves at December  31, 1998,  1997 and 1996 and
changes in such quantities during the years then ended.   Due to a change in the

                                       22

<PAGE>

accounting policy of the managing general partner in 1997, the Partnership began
accounting  for processed  natural gas production in two  components:  processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation  prepared by the  engineering  staff of Pioneer  USA and  reviewed by
Williamson Petroleum  Consultants,  Inc., an independent  petroleum  consultant,
using criteria  established by the Securities and Exchange  Commission.  Reserve
value  information is available to limited partners  pursuant to the Partnership
agreement and, therefore, is not presented.
                                                  Oil and NGLs         Gas
                                                     (bbls)           (mcf)
                                                  -----------      -----------
    Net proved reserves at January 1, 1996            748,476        3,039,729
    Revisions                                         148,949          734,788
    Sale of reserves                                  (29,193)        (123,822)
    Production                                        (54,953)        (201,324)
                                                  -----------      -----------
    Net proved reserves at December 31, 1996          813,279        3,449,371
    Revisions                                         184,178       (2,069,107)
    Production                                        (57,410)        (141,058)
                                                  -----------      -----------
    Net proved reserves at December 31, 1997          940,047        1,239,206
    Revisions                                        (401,595)        (457,837)
    Production                                        (70,399)         (97,715)
                                                  -----------      -----------
    Net proved reserves at December 31, 1998          468,053          683,654
                                                  ===========      ===========

       As of  December  31,  1998,  the  estimated  present  value of future net
revenues of proved reserves, calculated using December 31, 1998 prices of $10.61
per barrel of oil, $5.57 per barrel of NGLs and $1.37 per mcf of gas, discounted
at 10% was approximately $819,000 and undiscounted was $1,206,000.

       Numerous  uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom.  The estimates of proved reserves and related
future net revenues  set forth in this report are based on various  assumptions,
which may ultimately  prove to be inaccurate.  Therefore,  such estimates should
not be construed as estimates of the current  market value of the  Partnership's
proved  reserves.   The  Partnership   emphasizes  that  reserve  estimates  are
inherently imprecise and,  accordingly,  the estimates are expected to change as
future information becomes available.

Note 8.     Major customers

       The following table reflects the major customers of the Partnership's oil
and gas sales (a major  customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
                                              1998        1997        1996    
                                            --------    --------    --------
        Genesis Crude Oil, L.P.                41%         41%         43%
        Western Gas Resources, Inc.            17%         16%         13%
        Mobil Oil Corporation                  15%         17%         15%
        Texaco Trading & Transportation        10%         10%         12%

                                       23

<PAGE>




       At December  31, 1998,  the amounts  receivable  from Genesis  Crude Oil,
L.P.,  Western Gas Resources,  Inc.,  Mobil Oil Corporation and Texaco Trading &
Transportation were $27,545,  $25,218, $9,262 and $10,346,  respectively,  which
are  included  in the  caption  "Accounts  receivable  oil and gas sales" in the
accompanying Balance Sheet.

       The  Partnership's  share of oil and gas  production  is sold to  various
purchasers.  Pioneer  USA is of the opinion  that the loss of any one  purchaser
would not have an adverse  effect on the ability of the  Partnership to sell its
oil and gas production.

Note 9.     Organization and operations

       The Partnership was organized  October 29, 1986 as a limited  partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties.  The following is a brief summary of the more
significant provisions of the limited partnership agreement:

       Managing   general  partner  -  The  managing   general  partner  of  the
       Partnership  is Pioneer USA.  Pioneer USA has the power and  authority to
       manage,  control and administer all Program and Partnership  affairs.  As
       managing  general partner and operator of the  Partnership's  properties,
       all  production  expenses  are  incurred by Pioneer USA and billed to the
       Partnership and a portion of revenue is initially received by Pioneer USA
       prior to being paid to the  Partnership.  Under the  limited  partnership
       agreement,  the managing  general  partner  pays 1% of the  Partnership's
       acquisition,  drilling and  completion  costs and 1% of its operating and
       general and administrative expenses. In return, it is allocated 1% of the
       Partnership's revenues.

       Limited  partner  liability  - The  maximum  amount of  liability  of any
       limited partner is the total contributions of such partner plus his share
       of any undistributed profits.

       Initial  capital  contributions  -  The  limited  partners  entered  into
       subscription   agreements   for  aggregate   capital   contributions   of
       $17,208,000. Pioneer USA is required to contribute amounts equal to 1% of
       initial   Partnership  capital  less  commission  and  offering  expenses
       allocated to the limited partners and to contribute  amounts necessary to
       pay costs and expenses allocated to it under the Partnership agreement to
       the extent its share of revenues does not cover such costs.

ITEM 9.     Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure
None.
                                                  24

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                                    PART III


ITEM 10.     Directors and Executive Officers of the Partnership

The  Partnership  does not have any  officers  or  directors.  Under the limited
partnership agreement,  the Partnership's managing general partner, Pioneer USA,
is  granted  the  exclusive  right and full  authority  to manage,  control  and
administer the Partnership's business.

Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of  stockholders  or until their  successors are elected and
qualified.
                            Age at
                         December 31,
        Name                 1998                        Position
        ----             ------------                    --------
Scott D. Sheffield            46           President and Director

Timothy L. Dove               42           Executive Vice President and Director

Dennis E. Fagerstone          49           Executive Vice President and Director

Mark L. Withrow               51           Executive Vice President, General
                                             Counsel and Director

M. Garrett Smith              37           Executive Vice President, Chief
                                             Financial Officer and Director

Mel Fischer (a)               64           Executive Vice President

Lon C. Kile                   43           Executive Vice President

Rich Dealy                    32           Vice President and Chief Accounting
                                             Officer

(a) Mr. Fischer was a director and officer until his retirement from Pioneer and
Pioneer USA on February 19, 1999.

         Scott D. Sheffield.   Mr. Sheffield is a  distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering.  Since August 1997, he
has served as President,  Chief Executive  Officer and a director of Pioneer and
President  and a director of Pioneer USA. Mr.  Sheffield was the President and a
director  of  Parker  &  Parsley  from May 1990  until  August  1997 and was the
Chairman  of the Board  and Chief  Executive  Officer  of Parker & Parsley  from
October  1990 until August  1997.  He was the sole  director of Parker & Parsley
from  May 1990  until  October  1990.  Mr.  Sheffield  joined  Parker &  Parsley
Development Company ("PPDC"),  a predecessor of Parker & Parsley, as a petroleum
engineer  in 1979.  He  served  as Vice  President  -  Engineering  of PPDC from
September 1981 until April 1985 when he was elected President and a director. In

                                       25

<PAGE>


March 1989, Mr.  Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.

         Timothy L. Dove.   Mr. Dove became Executive  Vice President - Business
Development  of Pioneer and Pioneer USA in August 1997. He was also  appointed a
director of Pioneer USA in August 1997.  Mr. Dove joined Parker & Parsley in May
1994 as Vice President - International and was promoted to Senior Vice President
- Business Development in October 1996, in which position he served until August
1997.  Prior to joining  Parker & Parsley,  Mr. Dove was  employed  with Diamond
Shamrock Corp., and its successor,  Maxus Energy Corp, in various  capacities in
international exploration and production,  marketing, refining and marketing and
planning and development.  Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts  Institute of Technology  in 1979 and received his M.B.A.  in 1981
from the University of Chicago.

         Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of  Mines  with a B.S.  in  Petroleum  Engineering,  became  an  Executive  Vice
President  of Pioneer and Pioneer USA in August  1997.  He was also  appointed a
director of Pioneer USA in August 1997.  He served as Executive  Vice  President
and Chief  Operating  Officer of Mesa from March 1, 1997 until August 1997. From
October 1996 to February  1997, Mr.  Fagerstone  served as Senior Vice President
and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served
as Vice President - Exploration  and  Production of Mesa.  From June 1988 to May
1991, Mr. Fagerstone served as Vice President - Operations of Mesa.

         Mark  L.  Withrow.   Mr.  Withrow,  a  graduate  of  Abilene  Christian
University  with a B. S. in Accounting  and Texas Tech  University  with a Juris
Doctorate degree, became Executive Vice President, General Counsel and Secretary
of Pioneer and Pioneer USA in August 1997.  He was also  appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General  Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley,  to January
1995,  when he was appointed  Senior Vice  President - General  Counsel.  He was
Parker &  Parsley's  Secretary  from  August 1992 until  August  1997.  Prior to
joining Parker & Parsley,  Mr. Withrow was the managing  partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.

         M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with
a B.S. in  Electrical  Engineering  and Southern  Methodist  University  with an
M.B.A.,  was appointed  Executive Vice President and Chief Financial  Officer of
Pioneer  in  December  1997.  He served as Senior  Vice  President  - Finance of
Pioneer from August 1997 until  December 1997. Mr. Smith was elected Senior Vice
President - Finance and a director of Pioneer USA in August  1997.  He served as
Vice President - Corporate  Acquisitions  of Mesa from January 1997 until August
1997.  From October 1996 to December  1996, Mr. Smith served as Vice President -
Finance  of Mesa  and from  1994 to 1996 he  served  as  Director  of  Financial
Planning  of Mesa.  Mr.  Smith was  employed  by BTC  Partners,  Inc.  (a former
financial advisor to Mesa) from 1989 to 1994.

         Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters  degree in Geology,  became  Executive  Vice President -
Worldwide  Exploration of Pioneer and Pioneer USA in August 1997. He served as a

                                       26

<PAGE>


director  of Parker & Parsley  from  November  1995  until  August  1997 and was
Executive  Vice  President - Worldwide  Exploration  for  Parker & Parsley  from
February 1997 to August 1997. Mr.  Fischer  retired from Pioneer and Pioneer USA
effective  February 15, 1999. He worked in the petroleum  industry for 32 years,
starting  as a  Petroleum  Geologist  with  Texaco  in  1962,  and  retiring  as
President,  Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental  International,
he served as Executive Vice President,  World Wide  Exploration  with Occidental
Oil  and  Gas  Corporation.  He  is a  registered  geologist  in  the  State  of
California,  a member of the American Association of Petroleum Geologists and an
emeritus  member  of the  Board of  Advisors  for the  Earth  Sciences  Research
Institute at the University of Utah.

         Lon C. Kile.  Mr. Kile,  a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997.  Mr. Kile was Senior Vice  President - Investor  Relations  from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the  Mid-Continent  Division,  Vice President - Equity Finance & Analysis and
Vice President - Marketing & Program  Administration.  Prior to joining Parker &
Parsley in 1985,  he was employed as  Supervisor - Senior,  Audit,  in charge of
Parker & Parsley's audit, with Arthur Young.

         Rich Dealy.   Mr. Dealy is a graduate of  Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February  1998.  He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously  employed with KPMG Peat Marwick as an Audit Senior,  in
charge of Parker & Parsley's audit.

ITEM 11.     Executive Compensation

The  Partnership  does not have any  directors  or officers.  Management  of the
Partnership  is vested  in  Pioneer  USA,  the  managing  general  partner.  The
Partnership  participates  in oil and  gas  activities  through  an  income  tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement,  Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative  expenses. In return, Pioneer USA is allocated  approximately
25% of the  Partnership's  revenues.  See  Note 6 and 9 of  Notes  to  Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information  regarding  fees and  reimbursements  paid to the  managing  general
partner or its affiliates by the Partnership.

The Partnership does not directly pay any salaries of the executive  officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and  administrative
expenses of which these  salaries  are a part.  See Note 6 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data".

                                       27

<PAGE>



ITEM 12.     Security Ownership of Certain Beneficial Owners and Management

(a)      Beneficial owners of more than five percent

The Partnership is not aware of any person who  beneficially  owns 5% or more of
the outstanding  limited partnership  interests of the Partnership.  Pioneer USA
owned 128 limited partner interests at January 1, 1999.

(b)      Security ownership of management

The Partnership  does not have any officers or directors.  The managing  general
partner  of the  Partnership,  Pioneer  USA,  has the  exclusive  right and full
authority to manage,  control and administer the Partnership's  business.  Under
the limited  partnership  agreement,  limited partners holding a majority of the
outstanding  limited  partnership  interests  have  the  right  to take  certain
actions,  including  the removal of the  managing  general  partner or any other
general  partner.  The  Partnership  is not aware of any current  arrangement or
activity  which may lead to such removal.  The  Partnership  is not aware of any
officer or director of Pioneer USA who  beneficially  owns  limited  partnership
interests in the Partnership.

ITEM 13.     Certain Relationships and Related Transactions

Transactions with the managing general partner or its affiliates

Pursuant to the limited partnership agreement, the Partnership had the following
related party  transactions  with the managing general partner or its affiliates
during the years ended December 31:
                                              1998        1997        1996      
                                            --------    --------    --------
Payment of lease operating and supervision
  charges in accordance with standard
  industry operating agreements             $296,383    $300,045    $305,520

Reimbursement of general and
  administrative expenses                   $ 21,984    $ 35,935    $ 43,546

Under the limited partnership agreement, the managing general partner pays 1% of
the  Partnership's  acquisition,  drilling  and  completion  costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the  Partnership's  revenues.  Also,  see Notes 6 and 9 of Notes to Financial
Statements  included in "Item 8. Financial  Statements and Supplementary  Data",
regarding the Partnership's  participation  with the managing general partner in
oil and gas activities of the Program.

                                       28

<PAGE>



                                     PART IV


ITEM 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)   1.   Financial statements

           The following are filed as part of this annual report:

                Independent Auditors' Report - Ernst & Young LLP

                Independent Auditors' Report - KPMG LLP

                Balance sheets as of December 31, 1998 and 1997

                Statements of operations for the years ended December 31, 1998,
                  1997 and 1996

                Statements of partners' capital for the years ended December 31,
                  1998, 1997 and 1996

                Statements of cash flows for the years ended December 31, 1998,
                   1997 and 1996

                Notes to financial statements

      2.   Financial statement schedules

           All  financial  statement  schedules  have been  omitted  since the
           required  information  is in  the  financial  statements  or  notes
           thereto, or is not applicable nor required.

(b)   Reports on Form 8-K

None.

(c)    Exhibits

       The exhibits  listed on the  accompanying  index to exhibits are filed or
       incorporated by reference as part of this annual report.


                                       29

<PAGE>


                               S I G N A T U R E S

       Pursuant to the requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                   PARKER & PARSLEY 86-B, LTD.

Dated: March 25, 1999              By:     Pioneer Natural Resources USA, Inc.
                                             Managing General Partner


                                           By:  /s/ Scott D. Sheffield
                                                -----------------------------
                                                Scott D. Sheffield, President

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date indicated.


/s/ Scott D. Sheffield     President and Director of              March 25, 1999
------------------------   Pioneer USA
Scott D. Sheffield 


/s/ Timothy L. Dove        Executive Vice President and           March 25, 1999
------------------------   Director of Pioneer USA
Timothy L. Dove 


/s/ Dennis E. Fagerstone   Executive Vice President and           March 25, 1999
------------------------   Director of Pioneer USA
Dennis E. Fagerstone 


/s/ Mark L. Withrow        Executive Vice President, General      March 25, 1999
------------------------   Counsel and Director of Pioneer USA
Mark L. Withrow 


/s/ M. Garrett Smith       Executive Vice President, Chief        March 25, 1999
------------------------   Financial Officer and Director
M. Garrett Smith           of Pioneer USA


/s/ Lon C. Kile            Executive Vice President of            March 25, 1999
------------------------   Pioneer USA
Lon C. Kile 


/s/ Rich Dealy             Vice President and Chief Accounting    March 25, 1999
------------------------   Officer of Pioneer USA
Rich Dealy 
                                       30

<PAGE>


                           PARKER & PARSLEY 86-B, LTD.

                                INDEX TO EXHIBITS

       The following documents are incorporated by reference in response to Item
14(c):

Exhibit No.                       Description                             Page
-----------                       -----------                             ----
    3(a)           Amended and Restated Certificate of                      -
                   Limited Partnership of Parker & Parsley
                   86-B, Ltd. incorporated by reference to
                   Exhibit 3a of the Partnership's Registration
                   Statement on Form S-1 (Registration No.
                   33-3353) (hereinafter called the Partnership's
                   Registration Statement)

    4(a)           Form of Agreement of Limited Partnership of              -
                   Parker & Parsley 86-B, Ltd. incorporated by
                   reference to Exhibit A of Amendment No. 1 of
                   the Partnership's Registration Statement

    4(b)           Form of Subscription Agreement incorporated by
                   reference to Exhibit C of Amendment No. 1 of
                   the Partnership's Registration Statement                 -

    4(b)           Power of Attorney incorporated by reference to           -
                   an Exhibit of the Partnership's Registration
                   Statement

    4(c)           Specimen Certificate of Limited Partnership              -
                   Interest incorporated by reference to Exhibit
                   4c of the Partnership's Registration Statement

   10(b)           Development Program Agreement incorporated               -
                   by reference to Exhibit B of Amendment No. 1
                   of the Partnership's Registration Statement

   27.1*           Financial Data Schedule

   99.1            Mutual Release and Indemnity Agreement                   -
                   dated May 25, 1993 incorporated by reference
                   to Exhibit 99.1 of the Partnership's Annual
                   Report on Form 10-K for the year ended
                   December 31, 1993
*Filed herewith

                                       31

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