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

Pioneer Southwest Energy Partners L.P. (“Pioneer Southwest” or “the Partnership”) (NYSE:PSE) today announced financial and operating results for the quarter ended December 31, 2009.

Net loss for the fourth quarter was $11 million, or $.35 per common unit. The loss included noncash mark-to-market derivative losses of $36 million, or $1.14 per common unit. Without the effect of this item, adjusted income for the fourth quarter would have been $25 million, or $.79 per common unit. Cash flow from operations for the period was $18 million.

Oil and gas sales for the fourth quarter averaged 6,032 barrels oil equivalent per day (BOEPD). Fourth quarter oil sales averaged 3,636 barrels per day (BPD), natural gas liquid (NGL) sales averaged 1,388 BPD, and gas sales averaged 6 million cubic feet per day (MMCFPD).

The fourth quarter average price for oil was $116.65 per barrel. The average price for NGLs was $48.32 per barrel, and the average price for gas was $6.03 per thousand cubic feet. The average prices reported for the fourth quarter benefitted from the Partnership’s attractive commodity derivative position.

The Partnership commenced a two-rig drilling program in early November and through the end of December had drilled six wells, of which five are producing and one is awaiting completion. During 2010, the Partnership expects to drill approximately 50 wells. The drilling program is expected to provide production growth and, based on current NYMEX strip prices and drilling and production costs, generate internal rates of return of approximately 50%.

The Partnership has credit facility availability of $225 million, which is expected to be adequate to fund future growth through drilling and acquisitions.

Pioneer Southwest previously announced a cash distribution of $.50 per outstanding common unit for the quarter ended December 31, 2009, or $2.00 per outstanding common unit on an annual basis. The distribution is payable February 11, 2010 to holders of record at the close of business on February 4, 2010. Distribution sustainability is supported by the Partnership’s low-decline rate Spraberry properties, its drilling inventory of 40-acre and 20-acre locations and its strong derivative position through 2013 (of the Partnership’s forecasted production, derivative contracts cover approximately 85% in 2010, 75% in 2011 and 2012 and 60% in 2013).

Proved Reserves

The Partnership’s total proved oil and gas reserves as of December 31, 2009 were 44 million barrels oil equivalent (MMBOE). The year-end 2009 proved reserves include the Spraberry reserves acquired from a subsidiary of Pioneer Natural Resources Company in August 2009. Since this transaction represented a transaction between entities under common control under generally accepted accounting standards, the proved reserves acquired by the Partnership are reflected as if the Partnership had acquired the assets at the beginning of the period.

The new Securities and Exchange Commission (SEC) reporting rules applicable for year-end 2009 reporting require that year-end proved reserve volumes be calculated using an average of the NYMEX spot prices for sales of oil and gas on the first calendar day of each month during 2009. On this basis, the price of oil and gas for 2009 proved reserves reporting purposes was $61.14 per barrel and $3.87 per million British thermal units (MMBtu), respectively. The prices used to calculate proved reserves for year-end 2008, when Pioneer Southwest’s proved reserves were last reported, were $44.60 per barrel of oil and $5.71 per MMBtu of gas, representing the NYMEX spot prices on December 31, 2008 as required by the previous SEC reporting rules. Since the Partnership’s production is primarily oil and NGLs, year-end proved reserves increased by 4 MMBOE, including the acquired properties, as a result of positive price revisions based on the higher oil price used for 2009.

Additional reserves totaling approximately 5 MMBOE would be added if SEC NYMEX pricing returned to $80 per barrel of oil and $6 per MMBtu of gas.

Netherland, Sewell & Associates, Inc., an independent reserve engineering firm, audited 100% of Pioneer Southwest’s proved reserves at year-end 2009.

Financial Outlook

First quarter 2010 production is forecasted to average 5,800 BOEPD to 6,200 BOEPD. First quarter production costs (including production and ad valorem taxes) are expected to average $20.00 to $23.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $5.00 to $6.00 per BOE.

General and administrative expense is expected to be $1 million to $2 million. Interest expense is expected to be $400,000 to $600,000. Accretion of discount on asset retirement obligations is forecasted to be nominal.

Pioneer Southwest’s 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 Wednesday, February 3, 2010 at 11:00 a.m. Central Time, Pioneer Southwest will discuss its financial and operating results with an accompanying presentation. Instructions for listening to the call and viewing the accompanying presentation are shown below.

Internet: www.pioneersouthwest.comSelect “Investors,” then “Earnings Calls & Webcasts” to listen to the discussion and view the presentation.

Telephone: Dial (888) 452-4024 (confirmation code: 3410205) 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 March 3 by dialing (888) 203-1112 (confirmation code: 3410205).

Pioneer Southwest is a Delaware limited partnership headquartered in Dallas, Texas. Pioneer Natural Resources formed Pioneer Southwest 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. For more information, visit Pioneer Southwest’s website at 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, access to and availability of drilling equipment and transportation, processing 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. Sensitivity price cases for proved reserves mentioned in this release may not be attained or sustained. 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.

An audit of proved reserves follows the general principles set forth in the standards pertaining to the estimating and auditing of oil and gas reserve information promulgated by the Society of Petroleum Engineers (“SPE”). A reserve audit as defined by the SPE is not the same as a financial audit. Please see Pioneer Southwest’s Annual Report on Form 10-K for a general description of the concepts included in the SPE’s definition of a reserve audit.

  PIONEER SOUTHWEST ENERGY PARTNERS L.P. CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands)     December 31, December 31, 2009 2008  

ASSETS

  Current assets: Cash and cash equivalents $ 625 $ 29,936 Accounts receivable 14,162 12,606 Inventories 851 1,941 Prepaid expenses 260 105 Derivatives   16,042     51,261     Total current assets   31,940     95,849     Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting 311,730 305,075 Accumulated depletion, depreciation and amortization   (113,386 )   (100,370 )   Total property, plant and equipment   198,344     204,705     Deferred income taxes 1,964 - Other assets: Derivatives 23,784 65,804 Other, net   606     806     $ 256,638   $ 367,164     LIABILITIES AND PARTNERS' EQUITY   Current liabilities: Accounts payable: Trade $ 6,139 $ 5,824 Due to affiliates 697 5,968 Interest payable 26 - Income taxes payable to affiliate 460 492 Deferred income taxes 127 521 Derivatives 3,606 - Asset retirement obligations   500     99     Total current liabilities   11,555     12,904     Long-term debt 67,000 - Derivatives 30,205 -

Deferred income taxes

- 101 Asset retirement obligations 6,605 6,328 Partners' equity   141,273     347,831     $ 256,638   $ 367,164     PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except for per unit data)         Three Months Ended Twelve Months Ended December 31, December 31, 2009 2008 2009 2008 Revenues: Oil $ 39,015 $ 35,156 $ 134,902 $ 155,333 Natural gas liquids 6,169 3,089 21,568 22,993 Gas 3,356 2,923 12,247 15,068 Interest and other   1     159     210     192     48,541     41,327     168,927     193,586     Costs and expenses: Oil and gas production 9,487 9,677 34,749 38,807 Production and ad valorem taxes 2,220 2,883 9,547 14,213 Depletion, depreciation and amortization 2,950 3,474 13,016 11,582 General and administrative 1,004 1,405 4,790 6,227 Accretion of discount on asset retirement obligations 121 36 484 144 Interest 432 192 1,160 621 Derivative loss, net 43,344 - 78,265 - Other, net   297     599     549     890     59,855     18,266     142,560     72,484     Income (loss) before taxes (11,314 ) 23,061 26,367 121,102 Income tax benefit (provision)   183     (248 )   (46 )   (1,326 ) Net income (loss) $ (11,131 ) $ 22,813   $ 26,321   $ 119,776     Allocation of net income (loss): (a) Net income (loss) applicable to the Partnership Predecessor $ - $ 2,348 $ (1,598 ) $ 59,038 Net income (loss) applicable to the Partnership   (11,131 )   20,465     27,919     60,738   $ (11,131 ) $ 22,813   $ 26,321   $ 119,776     Allocation of net income (loss) applicable to the Partnership: Applicable to the general partner's interest $ (11 ) $ 21 $ 28 $ 61 Applicable to the limited partners' interest   (11,120 )   20,444     27,891     60,677   $ (11,131 ) $ 20,465   $ 27,919   $ 60,738     Net income (loss) per common unit - basic and diluted $ (0.35 ) $ 0.68   $ 0.92   $ 2.02     Weighted average common units outstanding - basic and diluted   31,557     30,009     30,399     30,009     _____________ (a) The following table provides the composition of the historic accounting attributes of the Partnership, as combined with the Partnership Predecessor:   Prior to May 6, 2008 through Subsequent to May 6, 2008 August 31, 2009 August 31, 2009 2008 IPO Acquisitions Partnership Predecessor Partnership Partnership 2009 Acquisition Partnership Predecessor Partnership Predecessor Partnership         PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)         Three Months Ended Twelve Months Ended

December 31,

December 31,

2009 2008 2009 2008   Cash flows from operating activities: Net income (loss) $ (11,131 ) $ 22,813 $ 26,321 $ 119,776 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 2,950 3,474 13,016 11,582 Deferred income taxes (272 ) 153 (470 ) 278 Accretion of discount on asset retirement obligations 121 36 484 144 Inventory valuation adjustment - 159 - 159 Amortization of debt issuance costs 47 58 200 155 Derivative related activity 32,373 (4,266 ) 51,254 (11,349 ) Change in operating assets and liabilities, net of effects from acquisition and disposition: Accounts receivable (1,820 ) 4,710 (1,556 ) 5,786 Inventories 167 (914 ) 1,090 (1,152 ) Prepaid expenses 121 79 (155 ) (105 ) Accounts payable (4,548 ) (4,860 ) (6,853 ) 7,550 Interest payable (84 ) - 26 - Income taxes payable to affiliate 89 56 (32 ) (196 ) Asset retirement obligations   (65 )   (2 )   (803 )   (173 ) Net cash provided by operating activities   17,948     21,496     82,522     132,455   Cash flows from investing activities: Payments for acquisition of carrying value (42 ) (1,438 ) (54,716 ) (142,274 ) Additions to oil and gas properties   (2,821 )   (1,497 )   (3,760 )   (15,625 ) Net cash used in investing activities   (2,863 )   (2,935 )   (58,476 )   (157,899 ) Cash flows from financing activities: Borrowings under credit facility 12,000 - 150,000 - Principal payments on credit facility (80,000 ) - (83,000 ) - Proceeds from issuance of common units, net 60,983 - 60,983 163,045 Partner contributions 64 - 64 24 Payments for acquisition in excess of carrying value 1,438 1,438 (113,512 ) (20,795 ) Payment of financing fees - - - (960 ) Distributions to general partner and common unitholders (15,019 ) (15,019 ) (60,078 ) (24,331 ) Net contributions from (distributions to) owner   42     (3,809 )   (7,814 )   (61,604 ) Net cash provided by (used in) financing activities   (20,492 )   (17,390 )   (53,357 )   55,379   Net increase (decrease) in cash and cash equivalents (5,407 ) 1,171 (29,311 ) 29,935 Cash and cash equivalents, beginning of period   6,032     28,765     29,936     1   Cash and cash equivalents, end of period $ 625   $ 29,936   $ 625   $ 29,936           PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY PRODUCTION AND PRICE DATA    

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2009 2008 2009 2008  

Average Daily Sales Volumes:

Oil (Bbls) -

  3,636   3,880   3,683   3,937  

Natural gas liquids (Bbls) -

  1,388   884   1,420   1,298   Gas (Mcf) -   6,050   5,005   6,248   5,828   Total (BOE) -   6,032   5,598   6,145   6,206   Average Reported Prices: Oil (per Bbl) - $ 116.65 $ 98.48 $ 100.35 $ 107.79   Natural gas liquids (per Bbl) - $ 48.32 $ 37.98 $ 41.61 $ 48.41   Gas (per Mcf) - $ 6.03 $ 6.35 $ 5.37 $ 7.06   Total (BOE) - $ 87.47 $ 79.93 $ 75.23 $ 85.14  

PIONEER SOUTHWEST ENERGY PARTNERS L.P.UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (a)(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 (loss). 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 (loss), as defined by GAAP.

        Three Months Ended Twelve Months Ended December 31, 2009 (a) December 31, 2009 (a)   Net cash provided by operating activities $ 17,948 $ 82,522 Deduct: Depletion, depreciation and amortization (2,950 ) (13,016 ) Deferred income taxes 272 470 Accretion of discount on asset retirement obligations (121 ) (484 ) Amortization of debt issuance costs (47 ) (200 ) Derivative related activity (32,373 ) (51,254 ) Changes in operating assets and liabilities   6,140     8,283     Net income (loss) (11,131 ) 26,321 Add: Depletion, depreciation and amortization 2,950 13,016 Accretion of discount on asset retirement obligations 121 484 Interest expense 432 1,160 Income tax provision (benefit) (183 ) 46 Derivative related activity   32,373     51,254     EBITDAX (b) 24,562 92,281 Deduct: Cash reserves to maintain production and cash flow (4,487 ) (20,631 ) Cash interest expense (385 ) (960 ) Cash income taxes   (89 )   (516 )   Distributable cash flow (c) $ 19,601   $ 70,174       _____________ (a) The information shown represents the activity of the Partnership, including the Partnership Predecessor data. (b) "EBITDAX" represents earnings before depletion, depreciation and amortization expense; accretion of discount on asset retirement obligations; interest expense; income taxes and noncash commodity derivative related activity. (c) Distributable cash flow equals EBITDAX less the Partnership's estimated cash reserves to maintain production and cash flow, cash interest expense and cash income taxes.   PIONEER SOUTHWEST ENERGY PARTNERS L.P. SUPPLEMENTAL INFORMATION Open Commodity Derivative Positions as of January 18, 2010       2010   Twelve Months Ending December 31, First   Second   Third   Fourth     Quarter Quarter Quarter Quarter 2011 2012 2013   Average Daily Oil Production Associated with Derivatives: Swap Contracts: Volume (Bbl) 2,500 2,500 2,500 2,500 750 3,000 3,000 NYMEX price (Bbl) $ 93.34 $ 93.34 $ 93.34 $ 93.34 $ 77.25 $ 79.32 $ 81.02 Collar Contracts: Volume (Bbl) - - - - 2,000 - - NYMEX price (Bbl): Ceiling $ - $ - $ - $ - $ 170.00 $ - $ - Floor $ - $ - $ - $ - $ 115.00 $ - $ - Collar Contracts with Short Puts: Volume (Bbl) 750 1,000 1,000 1,250 1,000 1,000 1,000 NYMEX price (Bbl): Ceiling $ 87.10 $ 87.18 $ 87.18 $ 89.06 $ 99.60 $ 103.50 $ 111.50 Floor $ 70.00 $ 70.00 $ 70.00 $ 70.00 $ 70.00 $ 80.00 $ 83.00 Short Put $ 55.00 $ 55.00 $ 55.00 $ 55.00 $ 55.00 $ 65.00 $ 68.00 Percent of total oil production (a) ~90% ~90% ~90% ~90% ~90% ~90% ~85% Average Daily NGL Production Associated with Derivatives: Swap Contracts: Volume (Bbl) 750 750 750 750 750 750 - Blended index price (Bbl) (b) $ 52.52 $ 52.52 $ 52.52 $ 52.52 $ 34.65 $ 35.03 $ - Percent of total NGL production (a) ~55% ~55% ~55% ~55% ~55% ~50% N/A Average Daily Gas Production Associated with Derivatives: Swap Contracts: Volume (MMBtu) 5,000 5,000 5,000 5,000 2,500 2,500 2,500 NYMEX price (MMBtu) (c) $ 7.44 $ 7.44 $ 7.44 $ 7.44 $ 6.65 $ 6.77 $ 6.89 Percent of total gas production (a) ~90% ~90% ~90% ~90% ~45% ~40% ~40% Basis Swap Contracts: Spraberry index swaps (MMBtu) (d) 2,500 2,500 2,500 2,500 - - - Price differential ($/MMBtu) $ (0.87 ) $ (0.87 ) $ (0.87 ) $ (0.87 ) $ - $ - $ - _____________ (a) Represents approximate percentage of forecasted production that is covered by derivative contracts. (b) Represents the blended Mont Belvieu index prices per Bbl. (c) NYMEX Henry Hub index price or approximate NYMEX Henry Hub index price based on the differential to the index price on the derivative trade date. (d) Represents swaps that fix the basis differentials between the index at which the Partnership sells its Spraberry gas and NYMEX Henry Hub index prices used in gas swap contracts.     PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUPPLEMENTAL INFORMATION       Derivative Loss, Net (in thousands)   Three Months Ended Twelve Months Ended December 31, 2009 December 31, 2009   Noncash fair value changes: Oil derivative loss $ 32,065 $ 57,229 NGL derivative loss 6,149 10,651 Gas derivative gain   (1,873 )   (880 ) Total noncash derivative loss, net 36,341 67,000   Cash settlements: Oil derivative loss 6,117 10,630 NGL derivative loss 1,062 1,452 Gas derivative gain   (176 )   (817 ) Total cash derivative loss, net   7,003     11,265   Total derivative loss, net $ 43,344   $ 78,265       Deferred Gains on Discontinued Commodity Hedges as of December 31, 2009 (in thousands)       2010 2011   Commodity hedge gains (a): Oil $ 37,100 $ 36,489 NGL 6,688 - Gas   2,893     -   Total $ 46,681   $ 36,489     ______________ (a) Deferred commodity hedge gains will be amortized as increases to oil and gas revenues during the indicated future periods.  

PIONEER SOUTHWEST ENERGY PARTNERS L.P.UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES(in millions, except per unit data)

Income adjusted for unrealized fair value derivative losses, as presented in this press release, is presented and reconciled to the Partnership’s net loss determined in accordance with GAAP because the Partnership believes that this non-GAAP financial measure reflects an additional way of viewing aspects of the Partnership’s business that, when viewed together with its financial results computed in accordance with GAAP, provides a more complete understanding of factors and trends affecting its historical financial performance and future operating results, greater transparency of underlying trends and greater comparability of results across periods. In addition, management believes that this non-GAAP measure may enhance investors’ ability to assess the Partnership’s historical and future financial performance. This non-GAAP financial measure is not intended to be a substitute for the comparable GAAP measure and should be read only in conjunction with the Partnership’s consolidated financial statements prepared in accordance with GAAP. Unrealized fair value derivative gains and losses are of a type that will recur in future periods; however, the amount can vary significantly from period to period. The table below reconciles the Partnership’s net loss for the three months ended December 31, 2009, as determined in accordance with GAAP, to adjusted income excluding unrealized fair value losses for that quarter.

    After-tax Per Common Amounts Unit   Net loss applicable to the Partnership $ (11 ) $ (0.35 )   Unrealized fair value derivative losses   36     1.14     Adjusted income excluding unrealized fair value losses $ 25   $ 0.79