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 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