PSE Pioneer Southwest Energy Partners L.P. Pioneer Southwest Energy Partners Lp

Pioneer Southwest Energy Partners L.P. (�Pioneer Southwest�) (NYSE:PSE) today announced financial results for the quarter ending June 30, 2008. Net income for the second quarter was $26 million. Income since the May 6, 2008 closing date of the initial public offering was $16 million or $.53 per common unit. Oil and gas sales for the second quarter averaged 5,006 barrels oil equivalent per day (BOEPD). Cash flow from operating activities for the period was $35 million of which approximately $16 million was attributable to operations from May 6 through June 30. Second quarter oil sales averaged 3,046 barrels per day (BPD), natural gas liquids (NGLs) sales averaged 1,135 BPD and gas sales averaged 5.0 million cubic feet per day (MMCFPD). The reported second quarter average price for oil was $116.54 per barrel. The price for natural gas liquids was $50.05 per barrel. The reported price for gas was $7.81 per thousand cubic feet (MCF). The average prices reported for the second quarter include hedging results from May 6 through June 30. Pioneer Southwest previously announced a cash distribution of $.31 per outstanding common unit for the quarter ended June 30. The distribution is payable August 12, 2008 to holders of record at the close of business on July 29, 2008. This distribution reflects an annual distribution rate of $2.00 per common unit, pro rated from the May 6 closing date through June 30. Financial Outlook Third quarter 2008 production is forecasted to average 4,900 BOEPD to 5,100 BOEPD. Third quarter production costs (including production and ad valorem taxes and transportation costs) are expected to average $24.00 to $27.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $3.50 to $4.00 per BOE. General and administrative expense is expected to be $1 million to $2 million. Interest expense and accretion of discount on asset retirement obligations are both expected to be nominal. Pioneer Southwest�s third quarter cash taxes and effective income tax rate are expected to be approximately 1% as a result of Pioneer Southwest being subject to the Texas Margin tax. Earnings Conference Call On Tuesday, August 5 at 12:30 p.m. Eastern Time, Pioneer Southwest will discuss its financial and operating results with an accompanying presentation. The call will be webcast on Pioneer Southwest�s website, www.pioneersouthwest.com. The presentation will soon be available on Pioneer Southwest�s website for preview in advance of the call. At the website, select �INVESTORS� at the top of the page. For those who cannot listen to the live broadcast, a replay will be available shortly after the call. Or you may choose to dial (877) 795-3610 (confirmation code: 1064543) to listen to the call by telephone and view the accompanying visual presentation at the website above. A telephone replay will be available by dialing (888) 203-1112 (confirmation code: 1064543). Pioneer Southwest is a Delaware limited partnership formed by Pioneer Natural Resources Company to own and acquire oil and gas assets in its area of operations. This area includes onshore Texas and eight counties in the southeast region of New Mexico. 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 hedging strategy, reliance on Pioneer Natural Resources Company and its subsidiaries to manage Pioneer Southwest's business and identify and evaluate 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 operations, access to and availability of transportation, processing and refining facilities, Pioneer Southwest's ability to replace reserves, including through acquisitions, and implement its business plans, uncertainties associated with acquisitions, access to and cost of capital, uncertainties about estimates of reserves, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks. These and other risks are described in Pioneer Southwest's final prospectus dated April 30, 2008 (File No.�333-144868) and filed on May�1, 2008 with the Securities and Exchange Commission (the "SEC") pursuant to Rule�424(b)(4) under the Securities Act of 1933 (the "Prospectus"), as well as Pioneer Southwest�s 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, 2008 2007 � � ASSETS � Current assets: Cash and cash equivalents $ 12,461 $ - Accounts receivable, net 17,235 14,183 Prepaid expenses � 285 � � - � � Total current assets � 29,981 � � 14,183 � � Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting 218,125 218,930 Accumulated depletion, depreciation and amortization � (80,519 ) � (76,171 ) � Total property, plant and equipment � 137,606 � � 142,759 � � Deferred income taxes 878 - Other assets, net � 921 � � - � � $ 169,386 � $ 156,942 � � LIABILITIES AND PARTNERS' EQUITY � Current liabilities: Accounts payable: Trade $ 8,245 $ 3,129 Due to affiliates 6,701 - Income taxes payable 170 677 Derivative obligations 42,248 - Other current liabilities � 122 � � 156 � � Total current liabilities � 57,486 � � 3,962 � � Derivative obligations 52,328 - Deferred income taxes - 463 Other liabilities 1,491 1,444 Partners' and owner's equity � 58,081 � � 151,073 � � $ 169,386 � $ 156,942 � � PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per unit data) � � � � Three Months Ended June 30, 2008 � Partnership Partnership Predecessor (1) Partnership Predecessor (1) Period from Period from Three Months April 1, 2008 May 6, 2008 Ended Through Through June 30, May 5, 2008 � June 30, 2008 � Combined 2007 Revenues: Oil $ 12,249 $ 20,050 $ 32,299 $ 18,125 Natural gas liquids 1,997 3,171 5,168 3,900 Gas 1,263 2,260 3,523 2,568 Interest income � - � � � 9 � � � 9 � � - � � 15,509 � � � 25,490 � � � 40,999 � � 24,593 � � Costs and expenses: Production: Lease operating expense 2,320 4,658 6,978 5,001 Production and ad valorem taxes 1,140 1,969 3,109 2,282 Workover 437 527 964 956 Depletion, depreciation and amortization 620 1,021 1,641 2,162 General and administrative 459 1,003 1,462 1,069 Accretion of discount on asset retirement obligations 10 20 30 27 Interest � - � � � 236 � � � 236 � � - � � 4,986 � � � 9,434 � � � 14,420 � � 11,497 � � Income before taxes 10,523 16,056 26,579 13,096 Income tax provision � (109 ) � � (170 ) � � (279 ) � (141 ) Net income $ 10,414 � � $ 15,886 � � $ 26,300 � $ 12,955 � � � Net income allocation: General partner's interest in net income $ 16 � Limited partners' interest in net income $ 15,870 � Net income per common unit - basic and diluted $ 0.53 � � Weighted average common units outstanding - basic and diluted � 30,009 � � (1) "Partnership Predecessor" financial results are presented in these unaudited condensed statements of operations for periods prior to May 6, 2008 because they represent the carve out operating results of the predecessor entity prior to Pioneer Southwest Energy Partners L.P. (the "Partnership") completing its initial public offering on May 6, 2008. The Partnership's initial public offering of 9,487,500 common units representing limited partnership interests in the Partnership were sold at $19.00 per unit, or $17.67 per unit after payment of an underwriting discount (the "Offering"). To effect the Offering, Pioneer Natural Resources Company (together with its subsidiaries, "Pioneer") (i) contributed to the Partnership a portion of its interest in Pioneer Southwest Energy Partners USA LLC ("Pioneer Southwest USA"), which is a subsidiary through which Pioneer owned certain oil and gas properties located in the Spraberry field in the Permian Basin of West Texas, for additional general and limited partner interests in the Partnership, (ii) sold its remaining interest in Pioneer Southwest USA for $141.1 million to the Partnership and (iii) sold incremental working interests in certain of the oil and gas properties owned by Pioneer Southwest USA to the Partnership for $22.0 million. PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per unit data) � � � � Six Months Ended June 30, 2008 � Partnership Partnership Predecessor(1) Partnership Predecessor(1) Period from Period from Six Months January 1, 2008 May 6, 2008 Ended Through Through June 30, May 5, 2008 � June 30, 2008 � Combined 2007 Revenues: Oil $ 40,983 $ 20,050 $ 61,033 $ 35,448 Natural gas liquids 6,725 3,171 9,896 7,199 Gas 3,992 2,260 6,252 4,898 Interest income � - � � � 9 � � � 9 � � - � � 51,700 � � � 25,490 � � � 77,190 � � 47,545 � � Costs and expenses: Production: Lease operating expense 7,930 4,658 12,588 9,807 Production and ad valorem taxes 3,877 1,969 5,846 4,467 Workover 1,451 527 1,978 1,316 Depletion, depreciation and amortization 2,382 1,021 3,403 4,342 General and administrative 1,690 1,003 2,693 2,162 Accretion of discount on asset retirement obligations 39 20 59 53 Interest � - � � � 236 � � � 236 � � - � � 17,369 � � � 9,434 � � � 26,803 � � 22,147 � � Income before taxes 34,331 16,056 50,387 25,398 Income tax provision � (358 ) � � (170 ) � � (528 ) � (275 ) Net income $ 33,973 � � $ 15,886 � � $ 49,859 � $ 25,123 � � � Net income allocation: General partner's interest in net income $ 16 � Limited partners' interest in net income $ 15,870 � Net income per common unit - basic and diluted � 0.53 � � Weighted average common units outstanding - basic and diluted � 30,009 � � (1) "Partnership Predecessor" financial results are presented in these unaudited condensed statements of operations for periods prior to May 6, 2008 because they represent the carve out operating results of the predecessor entity prior to Pioneer Southwest Energy Partners L.P. (the "Partnership") completing its initial public offering on May 6, 2008.��The Partnership's initial public offering of 9,487,500 common units representing limited partnership interests in the Partnership were sold at $19.00 per unit, or $17.67 per unit after payment of an underwriting discount (the "Offering").��To effect the Offering, Pioneer Natural Resources Company (together with its subsidiaries, "Pioneer") (i) contributed to the Partnership a portion of its interest in Pioneer Southwest Energy Partners USA LLC ("Pioneer Southwest USA"), which is a subsidiary through which Pioneer owned certain oil and gas properties located in the Spraberry field in the Permian Basin of West Texas, for additional general and limited partner interests in the Partnership, (ii) sold its remaining interest in Pioneer Southwest USA for $141.1 million to the Partnership and (iii) sold incremental working interests in certain of the oil and gas properties owned by Pioneer Southwest USA to the Partnership for $22.0 million. PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) � � � � Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 � Cash flows from operating activities: Net income $ 26,300 $ 12,955 $ 49,859 $ 25,123 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 1,641 2,162 3,403 4,342 Deferred income taxes (1 ) (11 ) (6 ) 9 Accretion of discount on asset retirement obligations 30 27 59 53 Interest expense 39 - 39 - Amortization of unit-based compensation 27 - 27 - Change in operating assets and liabilities: Accounts receivable, net (2,295 ) (1,836 ) (3,525 ) (1,997 ) Prepaid expenses (285 ) - (285 ) - Accounts payable 10,578 1,642 11,663 2,978 Income taxes payable � (760 ) � 157 � � (507 ) � 266 � Net cash provided by operating activities 35,274 15,096 60,727 30,774 Net cash used in investing activities (163,243 ) (2,072 ) (163,326 ) (6,761 ) Net cash provided by (used in) financing activities � 140,429 � � (13,024 ) � 115,059 � � (24,013 ) Net increase in cash and cash equivalents 12,460 - 12,460 - Cash and cash equivalents, beginning of period � 1 � � - � � 1 � � - � Cash and cash equivalents, end of period $ 12,461 � $ - � $ 12,461 � $ - � � PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY PRODUCTION AND PRICE DATA � � � � � Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 � Average Daily Sales Volumes Oil (Bbls) - � 3,046 � 3,182 � 3,148 � 3,246 � Natural gas liquids (Bbls) - � 1,135 � 1,223 � 1,140 � 1,236 � Gas (Mcf) - � 4,955 � 5,178 � 4,920 � 5,075 � Total (BOE) - � 5,006 � 5,268 � 5,108 � 5,328 � Average Reported Prices (a): Oil (per Bbl) - $ 116.54 $ 62.60 $ 106.52 $ 60.00 � Natural gas liquids (per Bbl) - $ 50.05 $ 35.04 $ 47.69 $ 31.99 � Gas (per Mcf) - $ 7.81 $ 5.45 $ 6.98 $ 5.30 � Total (BOE) - $ 89.98 $ 51.30 $ 83.02 $ 49.03 � (a) During periods prior to May 6, 2008, the oil, NGL and gas sales of the Partnership were not hedged. Average prices of the three and six month periods ended June 30, 2008 include the Partnership's hedging activities beginning on May 6, 2008. The Partnership's reported prices include the effective portions of May and June 2008 derivative hedge settlements adjusted for the fair value portion of such derivatives on May 6, 2008. The fair values of hedge obligations novated to the Partnership on May 6, 2008 represented an aggregate liability of $37.2 million. � � NOVATED HEDGE LOSSES (a) (in thousands) � � � � � � 2008 Second Third Fourth Quarter Quarter Quarter 2009 2010 Total � Oil $ 2,424 $ 3,656 $ 3,656 $ 12,637 $ 8,528 $ 30,901 NGL 205 309 309 1,364 948 3,135 Gas � 195 � 294 � 294 � 1,746 � 684 � 3,213 � Total novated hedges $ 2,824 $ 4,259 $ 4,259 $ 15,747 $ 10,160 $ 37,249 � (a) Novated hedge losses were settled or will be settled in the indicated periods. � PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (in thousands) � EBITDAX and distributable cash flow (as defined below) are presented herein and reconciled to the generally accepted accounting principle ("GAAP") measures of net cash provided by operating activities and net income. Management of Pioneer Southwest Energy Partners L.P. believes these financial measures provide additional information to the investment community about the Partnership's ability to generate sufficient cash flow to sustain or increase distributions to its unitholders, among other items. In particular, EBITDAX is used in the Partnership's credit facility to determine the interest rate that we will pay on outstanding borrowings and to determine compliance with the leverage and interest coverage tests. EBITDAX and distributable cash flow should not be considered as alternatives to net cash provided by operating activities or net income, as defined by GAAP. � � � � Period from May 6, 2008 Through June 30, 2008 � Net cash provided by operating activities $ 16,363 Add (deduct): Depletion, depreciation and amortization (1,021 ) Accretion of discount on asset retirement obligations (20 ) Interest expense (39 ) Amortization of unit-based compensation (27 ) Changes in operating assets and liabilities � 630 � � Net income 15,886 Add: Depletion, depreciation and amortization 1,021 Accretion of discount on asset retirement obligations 20 Interest expense 236 Income tax provision 170 Amortization of unit-based compensation � 27 � � EBITDAX (a) 17,360 Deduct: Cash interest expense (197 ) Current income taxes (170 ) Cash payments on novated hedges (2,824 ) Cash reserves for acquisitions � (3,814 ) � Distributable cash flow (b) $ 10,355 � � � � (a) "EBITDAX" represents earnings before depletion, depreciation and amortization expense; accretion of discount on asset retirement obligations; interest expense; income taxes and amortization of unit-based compensation. (b) Distributable cash flow equals EBITDAX less cash interest expense, current income taxes, payments on novated hedges and the Partnership's estimated reserve for acquisitions to maintain production levels. � � � � � PIONEER SOUTHWEST ENERGY PARTNERS L.P. � SUPPLEMENTAL INFORMATION � Open Commodity Hedge Positions as of August 1, 2008 � 2008 Third Fourth Quarter Quarter 2009 2010 2011 � Average Daily Oil Production Hedged: Swap Contracts: Volume (Bbl) 2,500 2,500 2,500 2,000 - NYMEX price (Bbl) $ 101.79 $ 101.79 $ 99.26 $ 98.32 $ - Collar Contracts: Volume (Bbl) - - - - 2,000 NYMEX price (Bbl): Ceiling $ - $ - $ - $ - $ 170.00 Floor $ - $ - $ - $ - $ 115.00 Average Daily Natural Gas Liquid Production Hedged: Swap Contracts: Volume (Bbl) 500 500 500 500 - Blended index price (Bbl) (a) $ 57.15 $ 57.15 $ 53.08 $ 52.67 $ - Average Daily Gas Production Hedged: Swap Contracts: Volume (MMBtu) 2,500 2,500 2,500 2,500 - NYMEX price (MMBtu) (b) $ 10.00 $ 10.00 $ 9.52 $ 9.01 $ - � (a) Represents blended Mont Belvieu posted price per Bbl. (b) Approximate NYMEX price based on the differential to the index price at the time the derivative was entered into.