Pioneer Southwest Energy Partners L.P. (“Pioneer
Southwest” or “the Partnership”) (NYSE:PSE) today
announced financial and operating results for the quarter ended
September 30, 2011.
Pioneer Southwest reported third quarter net income of $89
million, or $2.69 per common unit. Net income included unrealized
mark-to-market derivative gains of $62 million, or $1.88 per common
unit. Without the effect of this item, adjusted income for the
third quarter was $27 million, or $0.81 per common unit. Cash flow
from operations for the third quarter was $32 million.
Oil and gas sales for the third quarter averaged 7,429 barrels
oil equivalent per day (BOEPD), an increase of 11% compared to the
second quarter of 2011, reflecting the success of the Partnership’s
two-rig drilling program and the addition of incremental oil
transport trucks during the third quarter to cover a shortfall that
arose during the second quarter. Third quarter oil sales averaged
4,598 barrels per day (BPD), natural gas liquid (NGL) sales
averaged 1,707 BPD and gas sales averaged 7 million cubic feet per
day.
The third quarter average reported price for oil was $108.46 per
barrel. The average reported price for NGLs was $45.27 per barrel,
and the average reported price for gas was $3.57 per thousand cubic
feet.
The Partnership has a large inventory of remaining oil drilling
locations in the Spraberry field, with approximately 100 40-acre
locations and 1,200 20-acre locations. During 2011, the Partnership
expects to drill approximately 40 wells at a net cost of $65
million to $75 million, including facilities capital. All wells are
being completed in the Lower Wolfcamp and organic rich shale/silt
intervals. In addition, the Partnership is completing the majority
of its wells in the deeper Strawn interval and is continuing to
evaluate the Atoka interval in certain areas of the field.
Approximately 60% and 40% of the Partnership’s acreage position has
Strawn and Atoka potential, respectively. During the first nine
months of 2011, the Partnership added 33 new wells to production
and exited the third quarter of 2011 with eight wells awaiting
completion. The 2011 drilling program is expected to generate
full-year production growth of more than 5% as compared to
2010.
The Partnership has additional borrowing capacity under its
credit facility of $203 million as of September 30, 2011, which is
expected to be adequate to fund future growth from the two-rig
drilling program and acquisitions.
Pioneer Southwest previously announced a cash distribution of
$0.51 per outstanding common unit for the quarter ended September
30, 2011, or $2.04 per outstanding common unit on an annual basis.
The distribution is payable November 11, 2011, to unitholders of
record at the close of business on October 31, 2011.
Distribution sustainability is supported by the Partnership’s
low-decline rate Spraberry properties, its large drilling inventory
of 40-acre and 20-acre locations and its strong derivative position
through 2014. Of the Partnership’s forecasted production,
derivative contracts cover approximately 70% in the fourth quarter
of 2011, 80% in 2012, 60% in 2013 and 25% in 2014.
Fourth Quarter 2011 Financial
Outlook
The following paragraphs provide the Partnership’s fourth
quarter of 2011 outlook for certain operating and financial
items.
Production is forecasted to average 7,100 BOEPD to 7,600 BOEPD.
Production costs (including production and ad valorem taxes) are
expected to average $20.00 to $23.00 per barrel oil equivalent
(BOE) based on current NYMEX strip prices for oil, NGLs and gas.
Depreciation, depletion and amortization expense is expected to
average $5.75 to $6.75 per BOE.
General and administrative expense is expected to be $1.5
million to $2.5 million. Interest expense is expected to be $400
thousand to $600 thousand. 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% of earnings before income taxes as
a result of Pioneer Southwest being subject to the Texas Margin
tax.
Earnings Conference Call
On Wednesday, November 2, 2011, at 1:30 p.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 (877) 719-9789 confirmation
code: 1604214 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 November 23
by dialing (888) 203-1112 confirmation code: 1604214.
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 and
personnel required to complete Pioneer Southwest’s operating
activities, 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 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) September 30,
December 31, 2011 2010
ASSETS Current assets: Cash and cash
equivalents $ 5,155 $ 107 Accounts receivable 18,940 15,824
Inventories 894 883 Prepaid expenses 353 260 Derivatives
10,965 18,753 Total current assets
36,307 35,827 Property, plant and
equipment, at cost: Oil and gas properties, using the successful
efforts method of accounting: Proved properties 418,206 364,237
Accumulated depletion, depreciation and amortization
(137,236 ) (125,963 ) Total property, plant and equipment
280,970 238,274 Deferred income
taxes 1,052 1,751 Derivatives 5,869 3,783 Other, net 288
425 $ 324,486 $ 280,060
LIABILITIES AND PARTNERS' EQUITY Current liabilities:
Accounts payable: Trade $ 15,657 $ 8,422 Due to affiliates 667
1,164 Interest payable 146 30 Income taxes payable to affiliate 423
492 Deferred income taxes 62 63 Derivatives 6,160 9,673 Asset
retirement obligations 500 1,000 Total
current liabilities 23,615 20,844
Long-term debt 97,000 81,200 Derivatives 4,113 31,713 Asset
retirement obligations 12,371 11,558 Partners' equity
187,387 134,745 $ 324,486 $ 280,060
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per unit data)
Three Months Ended Nine Months
Ended September 30, September 30,
2011 2010
2011 2010 Revenues: Oil
and gas $ 55,200 $ 44,907 $ 159,486 $ 134,734 Interest and other -
- 2 - Derivative gains (losses), net 55,761
(19,971 ) 28,852 20,334 110,961
24,936 188,340 155,068
Costs and expenses: Oil and gas production 10,002
9,964 28,378 28,221 Production and ad valorem taxes 3,629 2,962
10,460 8,961 Depletion, depreciation and amortization 4,372 3,313
11,272 9,381 General and administrative 1,873 1,600 5,287 4,752
Accretion of discount on asset retirement obligations 229 136 684
409 Interest 413 386 1,206
1,157 20,518 18,361
57,287 52,881 Income
before taxes 90,443 6,575 131,053 102,187 Income tax provision
(946 ) (60 ) (1,353 ) (993 ) Net income
$ 89,497 $ 6,515 $ 129,700 $ 101,194
Allocation of net income: General partner's interest $ 90 $
6 $ 130 $ 101 Limited partners' interest 89,231 6,491 129,335
101,024 Unvested participating securities' interest
176 18 235 69 Net
income $ 89,497 $ 6,515 $ 129,700 $ 101,194
Net income per common unit - basic and diluted $ 2.69
$ 0.20 $ 3.91 $ 3.05 Weighted
average common units outstanding - basic and diluted 33,114
33,114 33,114 33,114
Distributions declared per common unit $ 0.51
$ 0.50 $ 1.52 $ 1.50
PIONEER
SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended
Nine Months Ended September 30, September 30,
2011 2010
2011 2010 Cash
flows from operating activities: Net income $ 89,497 $ 6,515 $
129,700 $ 101,194 Adjustments to reconcile net income to net cash
provided by operating activities: Depletion, depreciation and
amortization 4,372 3,313 11,272 9,381 Deferred income taxes 885 45
943 628 Accretion of discount on asset retirement obligations 229
136 684 409 Amortization of debt issuance costs 45 45 136 136
Amortization of unit-based compensation 141 63 372 146 Commodity
derivative related activity (62,330 ) 14,233 (52,702 ) (39,409 )
Change in operating assets and liabilities, net of effects from
acquisitions: Accounts receivable (1,153 ) (327 ) (3,116 ) 222
Inventories 131 (254 ) (11 ) (257 ) Prepaid expenses (242 ) (266 )
(93 ) (126 ) Accounts payable 656 1,903 3,037 3,752 Interest
payable 3 4 116 (3 ) Income taxes payable to affiliate (419 ) (446
) (69 ) (96 ) Asset retirement obligations (182 )
(393 ) (468 ) (557 ) Net cash provided by operating
activities 31,633 24,571 89,801
75,420 Cash flows from investing activities:
Additions to oil and gas properties (20,774 ) (10,834
) (50,170 ) (32,713 ) Net cash used in investing
activities (20,774 ) (10,834 ) (50,170 )
(32,713 ) Cash flows from financing activities: Borrowings
under credit facility 17,500 16,000 50,404 47,000 Principal
payments on credit facility (7,500 ) (14,000 ) (34,604 ) (40,000 )
Distributions to unitholders (16,905 ) (16,573 )
(50,383 ) (49,721 ) Net cash used in financing
activities (6,905 ) (14,573 ) (34,583 )
(42,721 ) Net increase (decrease) in cash and cash equivalents
3,954 (836 ) 5,048 (14 ) Cash and cash equivalents, beginning of
period 1,201 1,447 107
625 Cash and cash equivalents, end of period $ 5,155
$ 611 $ 5,155 $ 611
PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY
PRODUCTION AND PRICE DATA Three Months
Ended Nine Months Ended September
30, September 30, 2011 2010
2011 2010 Average Daily Sales Volumes:
Oil (Bbls) - 4,598 3,894 4,263 3,874
Natural gas liquids (Bbls) - 1,707 1,722
1,578 1,628 Gas (Mcf) - 6,744
6,092 6,503 5,987 Total (BOE) - 7,429
6,631 6,925 6,500 Average Reported
Prices: Oil (per Bbl) - $ 108.46 $ 100.02 $ 115.95 $ 101.79
Natural gas liquids (per Bbl) - $ 45.27 $ 41.25 $ 42.94 $ 43.23
Gas (per Mcf) - $ 3.57 $ 4.53 $ 3.41 $ 4.80 Total
(per BOE) - $ 80.77 $ 73.61 $ 84.36 $ 75.93
PIONEER SOUTHWEST ENERGY PARTNERS
L.P.UNAUDITED SUPPLEMENTAL EARNINGS PER UNIT
INFORMATION(in thousands, except for per unit
amounts)
The Partnership follows the two-class method of calculating
basic and diluted net income per unit. Under the two-class method,
generally accepted accounting principle ("GAAP") provides that the
net income applicable to the Partnership be allocated to all
securities that participate in the Partnership's earnings.
Accordingly, net income applicable to the Partnership is allocated
to the General Partner, unvested participating securities and
common unitholders. Net losses applicable to the Partnership are
allocated to the General Partner and common unitholders but only to
unvested participating securities to the extent that they receive
distributions during loss periods because unvested participating
securities are not contractually obligated to share in the
Partnership's net losses. Unit- and unit-based awards with
guaranteed dividend or distribution participation rights qualify as
"participating securities" during their vesting periods. The
Partnership's basic and diluted net income per unit attributable to
common unitholders is computed as (i) net income applicable to the
Partnership, (ii) less General Partner net income, (iii) less
unvested participating securities' basic and diluted net income
(iv) divided by weighted average basic and diluted units
outstanding.
The following table provides a reconciliation of the
Partnership's net income applicable to the Partnership to basic and
diluted net income attributable to common unitholders, and the
calculation of net income per common unit - basic and diluted, for
the three and nine months ended September 30, 2011 and 2010:
Three Months Ended Nine
Months Ended September 30, September 30,
2011 2010
2011 2010
Net income applicable to the Partnership $ 89,497 $ 6,515 $ 129,700
$ 101,194 Less: General partner's interest (90 ) (6 ) (130 ) (101 )
Unvested participating securities' interest (176 )
(18 ) (235 ) (69 ) Basic and diluted net income
applicable to common unitholders $ 89,231 $ 6,491 $
129,335 $ 101,024 Weighted average basic and
diluted units outstanding 33,114 33,114
33,114 33,114 Net income per
common unit - basic and diluted $ 2.69 $ 0.20 $ 3.91
$ 3.05
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 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 the Partnership 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.
Three Months Ended Nine
Months Ended September 30, 2011 September 30,
2011 Net cash provided by operating activities $ 31,633
$ 89,801 Add/(Deduct): Depletion, depreciation and amortization
(4,372 ) (11,272 ) Deferred income taxes (885 ) (943 ) Accretion of
discount on asset retirement obligations (229 ) (684 ) Amortization
of debt issuance costs (45 ) (136 ) Amortization of unit-based
compensation (141 ) (372 ) Commodity derivative related activity
62,330 52,702 Changes in operating assets and liabilities
1,206 604 Net income 89,497 129,700
Add/(Deduct): Depletion, depreciation and amortization 4,372 11,272
Accretion of discount on asset retirement obligations 229 684
Interest expense 413 1,206 Income tax provision 946 1,353
Amortization of unit-based compensation 141 372 Commodity
derivative related activity (62,330 ) (52,702 )
EBITDAX (a) 33,268 91,885 Deduct: Cash reserves to maintain
production and cash flow (7,908 ) (22,450 ) Cash interest expense
(368 ) (1,070 ) Cash income taxes (61 ) (410 )
Distributable cash flow (b) $ 24,931 $ 67,955
_____________
(a) "EBITDAX" represents earnings before depletion, depreciation
and amortization expense; accretion of discount on asset retirement
obligations; interest expense; income taxes; amortization of
unit-based compensation and noncash commodity derivative related
activity.
(b) 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 November 1, 2011
2011 Twelve Months Ending December
31, Fourth Quarter
2012 2013
2014 Oil Derivatives: Swap
contracts: Volume (Bbls per day) 750 3,000 3,000 - Price per
Bbl $ 77.25 $ 79.32 $ 81.02 $ -
Collar contracts: Volume
(Bbl) 2,000 - - - Price per Bbl: Ceiling $ 170.00 $ - $ - $ - Floor
$ 115.00 $ - $ - $ -
Collar contracts with short puts:
Volume (Bbl) 1,000 1,000 1,000 2,000 Price per Bbl: Ceiling $ 99.60
$ 103.50 $ 111.50 $ 133.00 Floor $ 70.00 $ 80.00 $ 83.00 $ 90.00
Short put $ 55.00 $ 65.00 $ 68.00 $ 75.00
Percent of total oil
production (a)
~90
%
~90
%
~85
%
~40
%
NGL Derivatives: Swap contracts: Volume (Bbls per
day) 750 750 - - Price per Bbl (b) $ 34.65 $ 35.03 $ - $ -
Percent of total NGL production (a)
~50
%
~50
%
N/A N/A
Gas Derivatives: Swap contracts: Volume
(MMBtus per day) 2,500 5,000 2,500 - Price per MMBtu (c) $ 6.65 $
6.43 $ 6.89 $ -
Percent of total gas production (a)
~40
%
~80
%
~40
%
N/A
Basis swap contracts: Permian Basin index swaps (MMBtus
per day) (d) - 2,500 2,500 - Price differential ($/MMBtu) $ - $
(0.30 ) $ (0.31 ) $ -
_____________
(a) Represents an estimated percentage of forecasted production,
which may differ from the percentage of actual production.
(b) Represents blended Mont Belvieu index prices per Bbl.
(c) Represents the NYMEX Henry Hub index price or approximate
NYMEX Henry Hub index price based on historical differentials to
the index price on the derivative trade date.
(d) Represents swaps that fix the basis differentials between
the index price at which the Partnership sells its gas and NYMEX
Henry Hub index price used in gas swap contracts.
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUPPLEMENTAL INFORMATION Derivative
Gains, Net (in thousands)
Three Months Ended Nine Months Ended September 30,
2011 September 30, 2011 Noncash changes in fair
value: Oil derivative gains $ 59,536 $ 51,808 NGL derivative gains
1,922 325 Gas derivative gains 872 569
Total noncash derivative gains 62,330 52,702
Cash settled changes in fair value: Oil derivative
losses (5,429 ) (20,868 ) NGL derivative losses (1,704 ) (4,651 )
Gas derivative gains 564 1,669 Total
cash derivative losses, net (6,569 ) (23,850 ) Total
derivative gains, net $ 55,761 $ 28,852
Deferred Gains on Discontinued Commodity Hedges as of September
30, 2011 (in thousands) 2011 Fourth
Quarter Commodity hedge gains (a): Oil $ 9,197
_____________
(a) Deferred commodity hedge gains will be amortized as
increases to oil revenues during the indicated future periods.
Net income adjusted for unrealized mark-to-market derivative
gains, as presented in this press release, is presented and
reconciled to the Partnership’s net income 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 mark-to-market 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 income for the
three months ended September 30, 2011, as determined in accordance
with GAAP, to adjusted income excluding unrealized mark-to-market
derivative gains for that quarter.
PIONEER SOUTHWEST ENERGY PARTNERS
L.P.UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL
MEASURES(in millions, except per unit data)
After-tax Per Common
Amounts Unit Net income $ 89 $ 2.69
Unrealized mark-to-market derivative gains (62 )
(1.88 ) Adjusted income excluding unrealized mark-to-market
derivative gains $ 27 $ 0.81
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