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

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Pioneer Southwest Energy Partners L.P. Reports Second 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 June 30, 2013.


Pioneer Southwest reported second quarter net income of $30 million, or $0.83 per common unit. Net income for the second quarter included unrealized mark-to-market derivative gains of $9 million, or $0.26 per common unit. Without the effect of this item, adjusted income for the second quarter was $21 million, or $0.57 per common unit. Cash flow from operations for the second quarter was $31 million.

The Partnership's three-rig drilling program continued during the second quarter, with 13 new wells being placed on production. Oil and gas sales for the second quarter averaged 8,412 barrels oil equivalent per day (BOEPD). At the end of the quarter, the Partnership had seven wells awaiting completion. Production continues to benefit from deeper vertical drilling to the Wolfcamp, Strawn and Atoka intervals. The Partnership has a large inventory of remaining oil drilling locations in the Spraberry field, with approximately 135 40-acre vertical locations and 1,275 20-acre vertical locations.

Pioneer Southwest expects to drill approximately 50 vertical 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 and Martin County is encouraging for future horizontal drilling potential on the Partnership's acreage in the area.

Second quarter oil sales averaged 5,627 barrels per day (BPD), natural gas liquids (NGL) sales averaged 1,451 BPD and gas sales averaged 8 million cubic feet per day. The second quarter average price for oil was $90.93 per barrel. The average price for NGLs was $31.25 per barrel, and the average price for gas was $3.39 per thousand cubic feet.

Production costs (including production and ad valorem taxes) for the second quarter averaged $23.86 per barrel oil equivalent (BOE). Depreciation, depletion and amortization expense for the second quarter averaged $10.37 per BOE.

The Partnership has additional borrowing capacity under its credit facility of $100 million as of June 30, 2013, which is expected to be adequate to fund 2013 planned vertical 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 June 30, 2013. The distribution will be paid on August 9, 2013, to unitholders of record at the close of business on August 2, 2013.

Third Quarter 2013 Financial Outlook

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

Production is forecasted to average 8,200 BOEPD to 8,700 BOEPD. Production costs (including production and ad valorem taxes) are expected to average $23.00 per BOE to $26.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $10.00 per BOE to $11.00 per BOE. General and administrative expense is expected to be $1.5 million to $2.5 million. Interest expense is expected to be $1.0 million to $1.2 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.

Common Unit Purchase Proposal from Pioneer Natural Resources Company

On May 7, 2013, Pioneer Natural Resources Company ("Pioneer") delivered a proposal to the chairman of the Conflicts Committee (the "Conflicts Committee") of the General Partner of the Partnership to acquire all of the outstanding common units of the Partnership held by unitholders other than Pioneer or its subsidiaries for consideration of 0.2234 of a share of common stock of Pioneer for each outstanding common unit of the Partnership held by such unitholders in a transaction to be structured as a merger of the Partnership with a wholly-owned subsidiary of Pioneer. The proposed 0.2234 exchange ratio was based on Pioneer's assumption that the Partnership would declare and pay the aforementioned distribution for the quarter ending June 30, 2013, and then suspend future common unit distributions pending the execution of a definitive agreement and the consummation of the transaction. The proposal was referred to the Conflicts Committee, which is reviewing and evaluating the proposal. The consummation of the transactions contemplated by Pioneer's proposal is subject to approval of Pioneer's Board of Directors, approval of the Conflicts Committee and the Board of Directors of the General Partner and the negotiation of a definitive agreement. There can be no assurance that a definitive agreement will be executed or that any transaction will be approved or consummated.

The Partnership will post a presentation related to its financial and operating results for the quarter ended June 30, 2013, on the Partnership's website, www.pioneersouthwest.com. A copy of the presentation can be reviewed at the website by selecting "Investors," then "Investor Presentations."

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.

This communication does not constitute an offer to sell any securities. Any such offer will be made only by means of a prospectus, and only if and when a definitive agreement has been entered into by Pioneer and Pioneer Southwest, pursuant to a registration statement filed with the Securities and Exchange Commission.

If Pioneer Southwest accepts Pioneer's proposal and executes a definitive agreement, a registration statement of Pioneer, which will include a proxy statement and will constitute a prospectus of Pioneer, and other materials will be filed with the Securities and Exchange Commission. If and when applicable, investors and security holders are urged to carefully read the documents filed with the Securities and Exchange Commission regarding the proposed transaction when they become available, because they will contain important information about Pioneer, Pioneer Southwest and the proposed merger. If and when applicable, investors and security holders may obtain a free copy of the proxy statement/prospectus and other documents containing information about Pioneer and Pioneer Southwest, without charge, at the Securities and Exchange Commission's website at www.sec.gov.

Pioneer, Pioneer Southwest and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the unitholders of Pioneer Southwest in connection with the proposed transaction. Information about the directors and executive officers of Pioneer is set forth in its proxy statement for its 2013 annual meeting of stockholders, which was filed with the Securities and Exchange Commission on April 11, 2013. Information about the directors and executive officers of the General Partner of Pioneer Southwest is set forth in Pioneer Southwest's Annual Report on Form 10-K for the year ending December 31, 2012, which was filed with the Securities and Exchange Commission on March 14, 2013. These documents can be obtained without charge at the Securities and Exchange Commission's website indicated above. Additional information regarding the interests of these participants may be obtained by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available.

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, risks associated with the proposal delivered to the chairman of the Conflicts Committee by Pioneer to acquire all of the outstanding common units of Pioneer Southwest that are held by unitholders other than Pioneer or its subsidiaries, including the risks that a definitive agreement will not be executed and that a transaction will not be approved or consummated, volatility of commodity prices, the effectiveness of Pioneer Southwest's commodity price derivative strategy, reliance on Pioneer 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)
  
June 30,December 31,
20132012
 
ASSETS
Current assets:
Cash$2,035$1,601
Accounts receivable - trade18,76015,651
Inventories1,3701,388
Prepaid expenses47228
Deferred income taxes5489
Derivatives 7,259  4,553 
Total current assets 29,525  23,510 
 
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties629,916556,915
Unproved properties5,2785,682
Accumulated depletion, depreciation and amortization (178,367) (163,542)
Total property, plant and equipment 456,827  399,055 
 
Derivatives7,3097,227
Other assets, net 968  1,097 
$494,629 $430,889 
 
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable:
Trade$26,204$15,557
Due to affiliates7781,277
Interest payable309
Income taxes payable to affiliate14870
Derivatives6,45313,390
Asset retirement obligations600900
Other current liabilities 212  146 
Total current liabilities 34,425  31,349 
 
Long-term debt176,000126,000
Derivatives150
Deferred income taxes601156
Asset retirement obligations11,34611,201
Other liabilities256400
Partners' equity272,001261,633
Commitments and contingencies  
$494,629 $430,889 
    
 
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per unit data)
 
Three Months EndedSix Months Ended
June 30,June 30,
2013201220132012
Revenues:
Oil and gas$53,161$42,565$100,819$93,270
Derivative gains, net 6,358  46,309  4,150  31,768 
 59,519  88,874  104,969  125,038 
 
Costs and expenses:
Oil and gas production13,92711,04728,01422,019
Production and ad valorem taxes4,3334,0338,4807,827
Depletion, depreciation and amortization7,9414,98614,8259,818
General and administrative1,8431,7733,7413,660
Accretion of discount on asset retirement obligations207190414378
Interest9845091,821818
Other   315    748 
 29,235  22,853  57,295  45,268 
 
Income before income taxes30,28466,02147,67479,770
Income tax provision (366) (772) (586) (951)
Net income$29,918 $65,249 $47,088 $78,819 
 
Allocation of net income:
General partner's interest$30$65$47$79
Limited partners' interest29,80564,99746,93478,538
Unvested participating securities' interest 83  187  107  202 
Net income$29,918 $65,249 $47,088 $78,819 
 
Net income per common unit - basic and diluted$0.83 $1.82 $1.31 $2.20 
 
Weighted average common units outstanding - basic and diluted 35,714  35,714  35,714  35,714 
 
Distributions declared per common unit$0.52 $0.52 $1.04 $1.03 
    
 
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Three Months EndedSix Months Ended
June 30,June 30,
2013201220132012
 
Cash flows from operating activities:
Net income$29,918$65,249$47,088$78,819
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion, depreciation and amortization7,9414,98614,8259,818
Deferred income taxes317824480867
Accretion of discount on asset retirement obligations207190414378
Amortization of debt related costs6565129110
Amortization of unit-based compensation227241459411
Commodity derivative related activity(9,291)(48,764)(9,875)(40,297)
Other noncash expense315748
Change in operating assets and liabilities:
Accounts receivable5725,529 Read Full Story

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