Pioneer Southwest Energy Partners L.P. Reports First Quarter 2013 Financial and Operating Results

Pioneer Southwest Energy Partners L.P. Reports First Quarter 2013 Financial and Operating Results

DALLAS--(BUSINESS WIRE)-- Pioneer Southwest Energy Partners L.P.("Pioneer Southwest" or "the Partnership") today announced financial and operating results for the quarter ended March 31, 2013.


Pioneer Southwest reported first quarter net income of $17 million, or $0.48 per common unit. Net income for the first quarter included unrealized mark-to-market derivative gains of $1 million, or $0.02 per common unit. Without the effect of this item, adjusted income for the first quarter was $16 million, or $0.46 per common unit. Cash flow from operations for the first quarter was $22 million.

Oil and gas sales for the first quarter averaged 7,893 barrels oil equivalent per day (BOEPD). Production for the quarter included a loss of approximately 300 BOEPD due to reduced ethane recoveries associated with gas processing facilities in the Spraberry field operating above capacity as a result of greater-than-anticipated industry production growth. New gas processing capacity of 200 million cubic feet per day (MMCFPD) (Driver plant) came on line in mid-April, alleviating the ethane recovery issue.

The Partnership's three-rig drilling program continued during the first quarter, with 12 new wells being placed on production and the recompletion of one well that was previously producing from only one interval. At the end of the quarter, the Partnership had nine wells awaiting completion. The Partnership has a large inventory of remaining oil drilling locations in the Spraberry field, with approximately 150 40-acre vertical locations and 1,275 20-acre vertical locations.

Pioneer Southwest expects to drill approximately 50 wells during 2013. Capital expenditures are forecasted to be $120 million, including facilities. The 2013 drilling program is expected to generate production growth of 9% compared to 2012. Essentially all of the wells will be drilled to the Strawn formation, with approximately 85% of these wells drilled to the deeper Atoka interval. In addition, recent successful horizontal Wolfcamp Shale drilling by industry participants in Midland County is encouraging for future horizontal drilling potential on the Partnership's acreage in the area.

First quarter oil sales averaged 5,428 barrels per day (BPD), natural gas liquids (NGL) sales averaged 1,415 BPD and gas sales averaged 6 MMCFPD. The first quarter average price for oil was $85.38 per barrel. The average price for NGLs was $33.30 per barrel, and the average price for gas was $3.01 per thousand cubic feet.

Production costs (including production and ad valorem taxes) for the first quarter averaged $25.65 per barrel oil equivalent (BOE). Depreciation, depletion and amortization expense for the first quarter averaged $9.69 per BOE.

The Partnership has additional borrowing capacity under its credit facility of $122 million as of March 31, 2013, which is expected to be adequate to fund 2013 planned drilling activities. The Partnership has also entered into derivative contracts that cover approximately 70% in 2013, 70% in 2014 and 10% in 2015 of its forecasted production.

Pioneer Southwest previously announced a cash distribution of $0.52 per outstanding common unit for the quarter ended March 31, 2013. The distribution will be paid on May 10, 2013, to unitholders of record at the close of business on May 3, 2013. On an annual basis, the cash distribution equates to $2.08 per common unit.

Second Quarter 2013 Financial Outlook

The following paragraphs provide the Partnership's second quarter of 2013 outlook for certain operating and financial items.

Production is forecasted to average 7,700 BOEPD to 8,200 BOEPD, reflecting the new gas processing capacity of 200 MMCFPD that came on line in mid-April to alleviate the gas processing capacity limitations in the area. The guidance for the second quarter excludes the effects of potential ethane rejection to the extent the Partnership decides to do so in the future.

Production costs (including production and ad valorem taxes) are expected to average $23.50 to $26.50 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $9.25 per BOE to $10.25 per BOE. General and administrative expense is expected to be $1.5 million to $2.5 million. Interest expense is expected to be $0.8 million to $1.1 million. Accretion of discount on asset retirement obligations is forecasted to be nominal.

Pioneer Southwest's effective income tax rate is expected to be approximately 1% of earnings before income taxes as a result of Pioneer Southwest being subject to the Texas Margin tax.

Earnings Conference Call

On Thursday, May 2, 2013, at 11:00 a.m. Central Time, Pioneer Southwest will discuss its financial and operating results for the first quarter with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.

Internet: www.pioneersouthwest.com
Select "Investors," then "Earnings Calls & Webcasts" to listen to the discussion and view the presentation.

Telephone: Dial (888) 510-1786 confirmation code: 5827104 five minutes before the call to listen to the discussion. View the presentation via Pioneer Southwest's internet address above.

A replay of the webcast will be archived on Pioneer Southwest's website. A telephone replay will be available through May 27, 2013 by dialing (888) 203-1112, confirmation code: 5827104.

Pioneer Southwest is a Delaware limited partnership, headquartered in Dallas, Texas, with current production and drilling operations in the Spraberry field in West Texas. For more information, visit www.pioneersouthwest.com.

Except for historical information contained herein, the statements in this News Release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of Pioneer Southwest are subject to a number of risks and uncertainties that may cause Pioneer Southwest's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices, the effectiveness of Pioneer Southwest's commodity price derivative strategy, reliance on Pioneer Natural Resources Company and its subsidiaries to manage Pioneer Southwest's business and identify and evaluate drilling opportunities and acquisitions, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, litigation, the costs and results of drilling and operations, availability of equipment, services, resources and personnel required to complete Pioneer Southwest's operating activities, access to and availability of transportation, processing, fractionation and refining facilities, Pioneer Southwest's ability to replace reserves, including through acquisitions, and implement its business plans or complete its development activities as scheduled, uncertainties associated with acquisitions, access to and cost of capital, the financial strength of counterparties to Pioneer Southwest's credit facility and derivative contracts and the purchasers of Pioneer Southwest's oil, NGL and gas production, uncertainties about estimates of reserves and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks, including the possible impacts of climate change. These and other risks are described in Pioneer Southwest's 10-K and 10-Q Reports and other filings with the Securities and Exchange Commission. In addition, Pioneer Southwest may be subject to currently unforeseen risks that may have a materially adverse impact on it. Pioneer Southwest undertakes no duty to publicly update these statements except as required by law.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
March 31, December 31,
2013 2012
 
ASSETS
Current assets:
Cash $ 605 $ 1,601
Accounts receivable - trade 19,332 15,651
Inventories 1,186 1,388
Prepaid expenses 175 228
Deferred income taxes 146 89
Derivatives   4,333     4,553  
Total current assets   25,777     23,510  
 
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties 592,834 556,915
Unproved properties 5,480 5,682
Accumulated depletion, depreciation and amortization   (170,426 )   (163,542 )
Total property, plant and equipment   427,888     399,055  
 
Derivatives 7,465 7,227
Other, net   1,033     1,097  
$ 462,163   $ 430,889  
 
 
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 21,071 $ 15,557
Due to affiliates 519 1,277
Interest payable 168 9
Income taxes payable to affiliate 127 70
Derivatives 12,711 13,390
Asset retirement obligations 600 900
Other current liabilities   193     146  
Total current liabilities   35,389     31,349  
 
Long-term debt 154,000 126,000
Derivatives 263 150
Deferred income taxes 376 156
Asset retirement obligations 11,401 11,201
Other noncurrent liabilities 289 400
Partners' equity 260,445 261,633
Commitments and contingencies    
$ 462,163   $ 430,889  
 
 
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per unit data)
   
Three Months Ended
March 31,
2013 2012
Revenues:
Oil and gas $ 47,658 $ 50,705
 
Costs and expenses:
Oil and gas production 14,087 10,974
Production and ad valorem taxes 4,147 3,794
Depletion, depreciation and amortization 6,884 4,832
General and administrative 1,898 1,887
Accretion of discount on asset retirement obligations 207 188
Interest 837 309
Derivative losses, net 2,208 14,539
Other       433  
  30,268     36,956  
 
Income before income taxes 17,390 13,749
Income tax provision   (220 )   (179 )
Net income $ 17,170   $ 13,570  
 
Allocation of net income:
General partner's interest $ 17 $ 14
Limited partners' interest 17,100 13,523
Unvested participating securities' interest   53     33  
Net income $ 17,170   $ 13,570  
 
Net income per common unit - basic and diluted $ 0.48   $ 0.38  
 
Weighted average common units outstanding - basic and diluted   35,714     35,714  
 
Distributions declared per common unit $ 0.52   $ 0.51  
 
 
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
   
Three Months Ended
March 31,
2013 2012
 
Cash flows from operating activities:
Net income $ 17,170 $ 13,570
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion, depreciation and amortization 6,884 4,832
Deferred income taxes 163 43
Accretion of discount on asset retirement obligations 207 188
Amortization of debt related costs 64 45
Amortization of unit-based compensation 232 170
Commodity derivative related activity (584 ) 8,465
Other noncash expense 433
Change in operating assets and liabilities:
Accounts receivable (3,681 ) (984 )
Inventories 202 (35 )
Prepaid expenses 53 25
Accounts payable 1,878 2,042
Interest payable 159 117
Income taxes payable to affiliate 57 136
Asset retirement obligations (356 ) (447 )
Other current liabilities   (64 )    
Net cash provided by operating activities   22,384     28,600  
Cash flows from investing activities:
Additions to oil and gas properties   (32,790 )   (23,308 )
Net cash used in investing activities   (32,790 )   (23,308 )
Cash flows from financing activities:
Borrowings under credit facility 28,000 67,000
Principal payments on credit facility (49,000 )
Payment of financing fees (1,261 )
Distributions to unitholders   (18,590 )   (18,232 )
Net cash provided by (used in) financing activities   9,410     (1,493 )
Net increase (decrease) in cash (996 ) 3,799
Cash, beginning of period   1,601     1,176  
Cash, end of period $ 605   $ 4,975  
 
 
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUMMARY PRODUCTION AND PRICE DATA
   
Three Months Ended
March 31,
2013 2012
 
Average Daily Sales Volumes:
Oil (Bbls) -   5,428   4,890
 
Natural gas liquids (Bbls) -   1,415   1,515
 
Gas (Mcf) -   6,297   7,222
 
Total (BOE) -   7,893   7,609
 

Average Prices:

Oil (per Bbl) - $ 85.38 $ 99.07
 
Natural gas liquids (per Bbl) - $ 33.30 $ 37.48
 
Gas (per Mcf) - $ 3.01 $ 2.21
 
Total (per BOE) - $ 67.09 $ 73.23
 

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