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, 2011.
Pioneer Southwest reported a fourth quarter net loss of $7
million, or $0.21 per common unit. The net loss included unrealized
mark-to-market derivative losses of $33 million, or $0.98 per
common unit. Without the effect of this item, adjusted income for
the fourth quarter was $26 million, or $0.77 per common unit. Cash
flow from operations for the fourth quarter was $28 million.
Oil and gas sales for the fourth quarter averaged 6,995 barrels
oil equivalent per day (BOEPD), a decrease of 6% compared to the
third quarter of 2011. Third quarter production benefited from an
inventory draw of 175 BOEPD related to the addition of oil
transport trucks to cover a second quarter transport truck
shortage. Fourth quarter production reflects new wells being placed
on production towards the latter part of the quarter and
weather-related downtime, including a lightning strike at a large
tank battery. Without these items, production would have been
similar to the third quarter.
The Partnership’s two-rig drilling program continued through the
fourth quarter. During 2011, the Partnership placed 44 new wells on
production. All wells were completed in the Lower Wolfcamp and
deeper Strawn intervals, with one well completed in the deeper
Atoka interval. Production data from current Strawn completions
supports the addition of an incremental 30 thousand barrels oil
equivalent (MBOE) estimated ultimate recovery (EUR) for wells
completed in this interval. Completions in the Atoka interval are
estimated to add an incremental 50 to 70 MBOE of EUR. At year end,
the Partnership had eight wells waiting on completion, with two of
these wells being drilled to the deeper Atoka interval.
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. The 2012 drilling program
reflects increasing the rig count from two rigs to three rigs,
which is expected to result in 55 to 60 wells being drilled during
the year. Essentially all of these wells will target the Strawn
formation, and 35% of the planned wells will target the deeper
Atoka formation. Approximately 60% and 40% of the Partnership’s
acreage position has Strawn and Atoka potential, respectively.
Capital spending for this drilling program is forecasted to range
from $110 million to $120 million. The current average well cost is
$1.8 million, which is expected to generate an average before-tax
return of 45% to 50%, assuming flat commodity prices of $100 per
barrel for oil and $4 per thousand cubic feet (MCF) for gas. The
2012 drilling program is expected to generate full-year production
growth of 10% compared to 2011.
Fourth quarter oil sales averaged 4,430 barrels per day (BPD),
natural gas liquids (NGL) sales averaged 1,478 BPD and gas sales
averaged 7 million cubic feet per day. The fourth quarter average
reported price for oil was $113.87 per barrel. The average reported
price for NGLs was $42.12 per barrel, and the average reported
price for gas was $2.91 per MCF.
Production costs (including production and ad valorem taxes) for
the fourth quarter averaged $20.78 per barrel oil equivalent (BOE),
and depreciation, depletion and amortization expense averaged $6.62
per BOE.
The Partnership has additional borrowing capacity under its
credit facility of $268 million as of December 31, 2011, which is
expected to be adequate to fund future growth from the three-rig
drilling program and acquisitions.
Pioneer Southwest previously announced a cash distribution of
$0.51 per outstanding common unit for the quarter ended December
31, 2011, or $2.04 per outstanding common unit on an annual basis.
The distribution is payable February 10, 2012, to unitholders of
record at the close of business on February 3, 2012.
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 2012, 55% in 2013
and 45% in 2014.
Proved Reserves
The Partnership’s total proved oil and gas reserves as of
December 31, 2011 were 51 million barrels oil equivalent (MMBOE), a
decrease of 1 MMBOE from year-end 2010. The proved reserve decrease
from year-end 2010 was comprised of production during 2011 of 3
MMBOE, offset by proved reserve additions from the drilling program
and positive oil price revisions. The NYMEX prices used for 2011
reserves reporting purposes were $96.13 per barrel for oil and
$4.12 per million British thermal units (MMBtu) for gas compared to
$79.28 per barrel for oil and $4.37 per MMBtu for gas used to
calculate proved reserves for 2010.
Netherland, Sewell & Associates, Inc., an independent
reserve engineering firm, audited all of Pioneer Southwest’s proved
reserves at year-end 2011.
First Quarter 2012 Financial
Outlook
The following paragraphs provide the Partnership’s first quarter
of 2012 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 BOE based on current NYMEX
strip prices for oil, NGLs and gas. Depreciation, depletion and
amortization expense is expected to average $6.00 to $7.00 per
BOE.
General and administrative expense is expected to be $1.5
million to $2.5 million. Interest expense is expected to be $100
thousand to $300 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 Tuesday, February 7, 2012, 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.com
Select “Investors,” then “Earnings Calls
& Webcasts” to listen to the discussion and view the
presentation.
Telephone: Dial (877) 874-1586 confirmation
code: 4119537 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 February 28,
2012 by dialing (888) 203-1112 confirmation code: 4119537.
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.
Cautionary Note to U.S. Investors -- The U.S. Securities and
Exchange Commission (the "SEC") prohibits oil and gas companies, in
their filings with the SEC, from disclosing estimates of oil or gas
resources other than “reserves,” as that term is defined by the
SEC. In this news release, Pioneer Southwest includes estimates of
quantities of oil and gas using certain terms, such as “estimated
ultimate recovery,” “EUR” or other descriptions of volumes of
reserves, which terms include quantities of oil and gas that may
not meet the SEC’s definitions of proved, probable and possible
reserves, and which the SEC's guidelines strictly prohibit Pioneer
Southwest from including in filings with the SEC. These estimates
are by their nature more speculative than estimates of proved
reserves and accordingly are subject to substantially greater risk
of being recovered by Pioneer Southwest. U.S. investors are urged
to consider closely the disclosures in the Partnership’s periodic
filings with the SEC. Such filings are available from the
Partnership at 5205 N. O'Connor Blvd., Suite 200, Irving, Texas
75039, Attention: Investor Relations, and the Partnership’s website
at www.pioneersouthwest.com. These filings also can be obtained
from the SEC by calling 1-800-SEC-0330.
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in
thousands) December 31,
December 31, 2011 2010
ASSETS Current assets: Cash and cash equivalents $ 1,176 $
107 Accounts receivable 18,063 15,824 Inventories 920 883 Prepaid
expenses 240 260 Deferred income taxes 207 - Derivatives
5,619 18,753 Total current assets 26,225
35,827 Property, plant and equipment, at cost: Oil and gas
properties, using the successful efforts method of accounting:
Proved properties 437,085 364,237 Accumulated depletion,
depreciation and amortization (141,498) (125,963)
Total property, plant and equipment 295,587 238,274
Deferred income taxes 1,008 1,751 Derivatives 3,665 3,783
Other, net 242 425 $ 326,727 $ 280,060
LIABILITIES AND PARTNERS' EQUITY Current liabilities:
Accounts payable: Trade $ 10,756 $ 8,422 Due to affiliates 830
1,164 Interest payable 16 30 Income taxes payable to affiliate 550
492 Deferred income taxes - 63 Derivatives 28,101 9,673 Asset
retirement obligations 500 1,000 Total current
liabilities 40,753 20,844 Long-term debt
32,000 81,200 Derivatives 16,953 31,713 Asset retirement
obligations 9,815 11,558 Partners' equity 227,206
134,745 $ 326,727 $ 280,060
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,
2011 2010 2011 2010
Revenues: Oil and gas $ 53,876 $ 49,024 $ 213,362 $ 183,758
Interest and other - - 2 -
53,876 49,024 213,364 183,758 Costs and
expenses: Oil and gas production 10,049 10,113 38,427 38,334
Production and ad valorem taxes 3,324 3,158 13,784 12,119
Depletion, depreciation and amortization 4,262 3,196 15,534 12,577
General and administrative 1,935 1,578 7,222 6,330 Accretion of
discount on asset retirement obligations 229 137 913 546 Interest
399 386 1,605 1,543 Derivative losses, net 40,577
25,765 11,725 5,431 60,775 44,333
89,210 76,880 Income (loss) before taxes
(6,899) 4,691 124,154 106,878 Income tax (provision) benefit
15 (52) (1,338) (1,045) Net income (loss) $
(6,884) $ 4,639 $ 122,816 $ 105,833 Allocation of net income
(loss): General partner's interest $ (7) $ 5 $ 123 $ 106 Limited
partners' interest (6,910) 4,616 122,466 105,649 Unvested
participating securities' interest 33 18 227
78 Net income (loss) $ (6,884) $ 4,639 $ 122,816 $ 105,833
Net income (loss) per common unit - basic and diluted $
(0.21) $ 0.14 $ 3.68 $ 3.19 Weighted average common units
outstanding - basic and diluted 33,651 33,114
33,249 33,114 Distributions declared per common unit
$ 0.51 $ 0.50 $
2.03
$ 2.00
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, 2011
2010 2011 2010 Cash flows from
operating activities: Net income (loss) $ (6,884) $ 4,639 $ 122,816
$ 105,833 Adjustments to reconcile net income (loss) to net cash
provided by operating activities: Depletion, depreciation and
amortization 4,262 3,196 15,534 12,577 Deferred income taxes (142)
(76) 801 552 Accretion of discount on asset retirement obligations
229 137 913 546 Amortization of debt issuance costs 46 46 182 182
Amortization of unit-based compensation 142 64 514 210 Commodity
derivative related activity 33,135 17,593 (19,567) (21,816) Change
in operating assets and liabilities: Accounts receivable 877
(1,884) (2,239) (1,662) Inventories (26) 225 (37) (32) Prepaid
expenses 113 126 20 - Accounts payable (3,732) (2,423) (695) 1,329
Interest payable (130) 7 (14) 4 Income taxes payable to affiliate
127 128 58 32 Asset retirement obligations (167)
(341) (635) (898) Net cash provided by operating
activities 27,850 21,437 117,651 96,857
Cash flows from investing activities: Additions to oil and gas
properties (22,504) (12,568) (72,674)
(45,281) Net cash used in investing activities (22,504)
(12,568) (72,674) (45,281) Cash flows from
financing activities: Borrowings under credit facility 15,000
16,574 65,404 63,574 Principal payments on credit facility (80,000)
(9,374) (114,604) (49,374) Proceeds from issuance of common units,
net of issuance costs 72,504 - 72,504 - Partner contributions 76 -
76 - Distributions to unitholders (16,905) (16,573)
(67,288) (66,294) Net cash used in financing
activities (9,325) (9,373) (43,908)
(52,094) Net increase (decrease) in cash and cash equivalents
(3,979) (504) 1,069 (518) Cash and cash equivalents, beginning of
period 5,155 611 107 625 Cash and cash
equivalents, end of period $ 1,176 $ 107 $ 1,176 $ 107
PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY
PRODUCTION AND PRICE DATA Three Months
Ended Twelve Months Ended December 31,
December 31, 2011 2010 2011
2010 Average Daily Sales Volumes: Oil (Bbls) -
4,430 3,988 4,305 3,903 Natural
gas liquids (Bbls) - 1,478 1,548 1,553
1,608 Gas (Mcf) - 6,527 5,937 6,509
5,975 Total (BOE) - 6,995 6,526
6,943 6,507 Average Reported Prices: Oil (per Bbl) -
$ 113.87 $ 108.81 $ 115.41 $ 103.60 Natural gas liquids (per
Bbl) - $ 42.12 $ 47.65 $ 42.74 $ 44.31 Gas (per Mcf) - $
2.91 $ 4.24 $ 3.28 $ 4.66 Total (per BOE) - $ 83.72 $ 81.71
$ 84.20 $ 77.37
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 (loss) 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 (loss) per unit
attributable to common unitholders is computed as (i) net income
(loss) applicable to the Partnership, (ii) less General Partner net
income (loss), (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 (loss) applicable to the Partnership to
basic and diluted net income (loss) attributable to common
unitholders, and the calculation of net income (loss) per common
unit - basic and diluted, for the three and twelve months ended
December 31, 2011 and 2010:
Three Months Ended Twelve Months
Ended December 31, December 31, 2011
2010 2011 2010 Net
income (loss) applicable to the Partnership $ (6,884) $ 4,639 $
122,816 $ 105,833 Less: General partner's interest 7 (5) (123)
(106) Unvested participating securities' interest (33)
(18) (227) (78) Basic and diluted net income
(loss) applicable to common unitholders $ (6,910) $ 4,616 $ 122,466
$ 105,649 Weighted average basic and diluted units
outstanding 33,651 33,114 33,249 33,114
Net income (loss) per common unit - basic and diluted $
(0.21) $ 0.14 $ 3.68 $ 3.19
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 (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 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 (loss), as defined
by GAAP.
Three Months Ended Twelve
Months Ended December 31, 2011 December 31, 2011
Net cash provided by operating activities $ 27,850 $ 117,651
Add/(Deduct): Depletion, depreciation and amortization (4,262)
(15,534) Deferred income taxes 142 (801) Accretion of discount on
asset retirement obligations (229) (913) Amortization of debt
issuance costs (46) (182) Amortization of unit-based compensation
(142) (514) Commodity derivative related activity (33,135) 19,567
Changes in operating assets and liabilities 2,938
3,542 Net income (loss) (6,884) 122,816 Add/(Deduct):
Depletion, depreciation and amortization 4,262 15,534 Accretion of
discount on asset retirement obligations 229 913 Interest expense
399 1,605 Income tax provision (benefit) (15) 1,338 Amortization of
unit-based compensation 142 514 Commodity derivative related
activity 33,135 (19,567) EBITDAX (a) 31,268
123,153 Deduct: Cash reserves to maintain production and cash flow
(6,963) (29,413) Cash interest expense (353) (1,423) Cash income
taxes (127) (537) Distributable cash flow (b)
$ 23,825 $ 91,780
_____________
(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 February 3, 2012 Twelve
Months Ending December 31,
2012 2013 2014 Oil Derivatives:
Swap contracts: Volume (Bbls per day) 3,000 3,000 - Price
per Bbl $ 79.32 $ 81.02 $ -
Collar contracts with short
puts: Volume (Bbl) 1,000 1,000 4,000 Price per Bbl: Ceiling $
103.50 $ 111.50 $ 124.75 Floor $ 80.00 $ 83.00 $ 90.00 Short put $
65.00 $ 68.00 $ 72.50
Percent of total oil production (a)
~80% ~75% ~70%
NGL Derivatives: Swap contracts:
Volume (Bbls per day) 750 - - Price per Bbl (b) $ 35.03 $ - $ -
Percent of total NGL production (a) ~45% N/A N/A
Gas
Derivatives: Swap contracts: Volume (MMBtus per day)
5,000 2,500 - Price per MMBtu (c) $ 6.43 $ 6.89 $ -
Percent of
total gas production (a) ~75% ~35% 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 Losses, Net
(in thousands)
Three Months Ended Twelve Months Ended December
31, 2011 December 31, 2011 Noncash changes in
fair value: Oil derivative gains (losses) $ (35,747) $ 16,061 NGL
derivative gains 781 1,106 Gas derivative gains 1,831
2,400 Total noncash derivative gains (losses), net (33,135)
19,567 Cash settled changes in fair value: Oil
derivative losses (6,494) (27,362) NGL derivative losses (1,661)
(6,312) Gas derivative gains 713 2,382 Total cash
derivative losses, net (7,442) (31,292) Total
derivative losses, net $ (40,577) $ (11,725)
PIONEER SOUTHWEST ENERGY PARTNERS
L.P.UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL
MEASURES(in millions, except per unit data)
Adjusted income excluding unrealized mark-to-market 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 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 loss for the three
months ended December 31, 2011, as determined in accordance with
GAAP, to adjusted income excluding unrealized mark-to-market
derivative losses for that quarter.
After-tax Per Common
Amounts Unit Net loss $ (7) $ (0.21)
Unrealized mark-to-market derivative losses 33 0.98
Adjusted income excluding unrealized mark-to-market
derivative losses $ 26 $ 0.77
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