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, 2013.

Pioneer Southwest reported third quarter net income of $16 million, or $0.44 per common unit. Net income for the third quarter included unrealized mark-to-market derivative losses of $5 million, or $0.13 per common unit. Without the effect of this item, adjusted income for the third quarter was $21 million, or $0.57 per common unit. Cash flow from operations for the third quarter was $29 million.

The Partnership’s three-rig drilling program continued during the third quarter, with 14 new vertical wells being placed on production. Oil and gas sales for the third quarter averaged 8,872 barrels oil equivalent per day (BOEPD). At the end of the quarter, the Partnership had nine vertical wells awaiting completion. Production continues to benefit from deeper vertical drilling to the Wolfcamp, Strawn and Atoka intervals. The Partnership has a large inventory of remaining oil drilling locations in the Spraberry field, with approximately 120 40-acre vertical locations and 1,275 20-acre vertical locations.

Pioneer Southwest expects to drill approximately 55 vertical wells during 2013. Capital expenditures are forecasted to be $135 million, including facilities. The 2013 drilling program is expected to generate production growth of 13% compared to 2012. Essentially all of the wells are expected to be drilled to the deeper Atoka interval. In addition, successful horizontal Wolfcamp Shale drilling by industry participants in Midland County and Martin County is encouraging for future horizontal drilling potential on the Partnership’s acreage in the area.

Third quarter oil sales averaged 5,792 barrels per day (BPD), natural gas liquids (NGL) sales averaged 1,848 BPD and gas sales averaged 7 million cubic feet per day. The third quarter average realized price for oil was $103.77 per barrel. The average realized price for NGLs was $33.11 per barrel, and the average realized price for gas was $3.07 per thousand cubic feet.

Production costs (including production and ad valorem taxes) for the third quarter averaged $26.36 per barrel oil equivalent (BOE). Depreciation, depletion and amortization expense for the third quarter averaged $10.89 per BOE.

The Partnership has additional borrowing capacity under its credit facility of $69 million as of September 30, 2013, which is expected to be adequate to fund remaining 2013 vertical drilling activities. The Partnership has also entered into derivative contracts that cover approximately 70% of forecasted fourth quarter 2013 production, 70% of forecasted 2014 production and 10% of forecasted 2015 production.

Pioneer Southwest previously announced a cash distribution of $0.52 per outstanding common unit for the quarter ended September 30, 2013. The distribution will be paid on November 12, 2013, to unitholders of record at the close of business on November 4, 2013.

Fourth Quarter 2013 Financial Outlook

The following paragraphs provide the Partnership’s fourth quarter of 2013 outlook for certain operating and financial items.

Production is forecasted to average 8,700 BOEPD to 9,200 BOEPD. Production costs (including production and ad valorem taxes) are expected to average $24.00 per BOE to $27.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $10.50 per BOE to $11.50 per BOE. General and administrative expense is expected to be $1.5 million to $2.5 million. Interest expense is expected to be $1.0 million to $1.2 million. Accretion of discount on asset retirement obligations is forecasted to be nominal.

Pioneer Southwest’s effective income tax rate is expected to be approximately 1% of earnings before income taxes as a result of Pioneer Southwest being subject to the Texas Margin tax.

Merger Agreement with Pioneer Natural Resources Company

On August 9, 2013, the Partnership entered into an Agreement and Plan of Merger with Pioneer Natural Resources Company (“Pioneer”), Pioneer Natural Resources USA, Inc., a wholly-owned subsidiary of Pioneer (“Pioneer USA”), PNR Acquisition Company, LLC, a wholly-owned subsidiary of Pioneer (“MergerCo”), and Pioneer Natural Resources GP LLC, a wholly-owned subsidiary of Pioneer and the general partner of the Partnership (the “General Partner”), which was amended on October 25, 2013 (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, MergerCo will merge with and into the Partnership, with the Partnership surviving the merger (the “Merger”), such that following the Merger, the General Partner will remain a wholly-owned subsidiary of Pioneer and the sole general partner of the Partnership, and Pioneer USA will be the sole limited partner of the Partnership. Except for the common units owned by Pioneer, all of the common units outstanding as of the closing of the Merger will be cancelled and, except for dissenting common units, converted into the right to receive 0.2325 of a share of common stock of Pioneer per common unit. The parties anticipate that the Merger will close in the fourth quarter of 2013, pending the satisfaction of certain conditions; however, the Merger Agreement contains customary representations, warranties, covenants and conditions, some of which are beyond the parties’ control, which could delay or prevent the consummation of the Merger.

The Partnership will post a presentation related to its financial and operating results for the quarter ended September 30, 2013, on the Partnership’s website, www.pioneersouthwest.com. A copy of the presentation can be reviewed at the website by selecting “Investors,” then “Investor Presentations.”

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.

This communication does not constitute an offer to sell any securities. Any such offer will be made only by means of a prospectus, pursuant to a registration statement filed with the Securities and Exchange Commission (the “SEC”).

In connection with the proposed Merger, a registration statement on Form S-4 (No. 333-191196) of Pioneer, which includes a proxy statement of the Partnership and constitutes a prospectus of Pioneer, was filed with the SEC by Pioneer on September 16, 2013, and amendments to such registration statement and the proxy statement/prospectus contained therein may be filed in the future. The registration statement has not yet been made effective by the SEC. Investors and security holders are urged to carefully read the documents filed with the SEC regarding the proposed Merger because they contain important information about Pioneer, the Partnership and the proposed Merger. Investors and security holders may obtain a free copy of the proxy statement/prospectus and other documents containing information about Pioneer and the Partnership, without charge, at the SEC’s website at www.sec.gov.

Pioneer, the Partnership and certain of the respective directors and executive officers of Pioneer and the General Partner may be deemed to be participants in the solicitation of proxies from the unitholders of the Partnership in connection with the proposed Merger. Information about the directors and executive officers of Pioneer is set forth in its proxy statement for its 2013 annual meeting of stockholders, which was filed with the SEC on April 11, 2013. Information about the directors and executive officers of the General Partner is set forth in the Partnership’s Annual Report on Form 10-K for the year ending December 31, 2012, which was filed with the SEC on March 14, 2013. These documents can be obtained without charge at the SEC’s website indicated above. Additional information regarding the interests of these participants may be obtained by reading the proxy statement/prospectus regarding the proposed Merger.

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, risks associated with the Merger Agreement, including the risks that the Merger will not be consummated and the anticipated benefits from the Merger cannot be fully realized, volatility of commodity prices, the effectiveness of Pioneer Southwest’s commodity price derivative strategy, reliance on Pioneer 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, resources and personnel required to complete Pioneer Southwest’s operating activities, access to and availability of transportation, processing, fractionation 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 SEC. 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, 2013 2012   ASSETS Current assets: Cash $ 4,813 $ 1,601 Accounts receivable: Trade 22,188 15,651 Due from affiliates 391 — Inventories 1,307 1,388 Prepaid expenses 148 228 Deferred income taxes 96 89 Derivatives 5,238   4,553   Total current assets 34,181   23,510     Property, plant and equipment, at cost: Oil and gas properties, using the successful efforts method of accounting: Proved properties 664,765 556,915 Unproved properties 6,727 5,682 Accumulated depletion, depreciation and amortization (187,253 ) (163,542 ) Total property, plant and equipment 484,239   399,055     Derivatives 3,055 7,227 Other assets, net 904   1,097   $ 522,379   $ 430,889     LIABILITIES AND PARTNERS' EQUITY Current liabilities: Accounts payable: Trade $ 33,982 $ 15,557 Due to affiliates — 1,277 Interest payable 11 9 Income taxes payable to affiliate 162 70 Derivatives 4,795 13,390 Asset retirement obligations 600 900 Other current liabilities 109   146   Total current liabilities 39,659   31,349     Long-term debt 201,000 126,000 Derivatives — 150 Deferred income taxes 879 156 Asset retirement obligations 11,087 11,201 Other liabilities 355 400 Partners' equity 269,399 261,633 Commitments and contingencies     $ 522,379   $ 430,889                           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, 2013 2012 2013 2012 Revenues: Oil and gas $ 63,013 $ 46,385 $ 163,832 $ 139,655 Derivative gains (losses), net (11,380 ) (13,592 ) (7,230 ) 18,176   51,633   32,793   156,602   157,831     Costs and expenses: Oil and gas production 16,704 14,468 44,718 36,487 Production and ad valorem taxes 4,793 3,974 13,273 11,801 Depletion, depreciation and amortization 8,886 5,771 23,711 15,589 General and administrative 1,950 1,888 5,691 5,548 Accretion of discount on asset retirement obligations 209 189 623 567 Interest 1,027 638 2,848 1,456 Other 2,058   221   2,058   969   35,627   27,149   92,922   72,417     Income before income taxes 16,006 5,644 63,680 85,414 Income tax provision (249 ) (111 ) (835 ) (1,062 ) Net income $ 15,757   $ 5,533   $ 62,845   $ 84,352     Allocation of net income: General partner's interest $ 16 $ 6 $ 63 $ 84 Limited partners' interest 15,689 5,474 62,631 84,058 Unvested participating securities' interest 52   53   151   210   Net income $ 15,757   $ 5,533   $ 62,845   $ 84,352     Net income per common unit - basic and diluted $ 0.44   $ 0.15   $ 1.75   $ 2.35     Weighted average common units outstanding - basic and diluted 35,714   35,714   35,714   35,714     Distributions declared per common unit $ 0.52   $ 0.52   $ 1.56   $ 1.55                       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, 2013 2012 2013 2012   Cash flows from operating activities: Net income $ 15,757 $ 5,533 $ 62,845 $ 84,352 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 8,886 5,771 23,711 15,589 Deferred income taxes 236 90 716 957 Accretion of discount on asset retirement obligations 209 189 623 567 Amortization of debt related costs 65 64 194 174 Amortization of unit-based compensation 231 228 690 639 Commodity derivative related activity 4,617 11,597 (5,258 ) (28,700 ) Other noncash expense — 221 — 969 Change in operating assets and liabilities: Accounts receivable (3,819 ) (3,014 ) (6,928 ) 1,531 Inventories 63 368 81 (353 ) Prepaid expenses (101 ) (220 ) 80 (91 ) Accounts payable 3,068 4,798 6,735 6,241 Interest payable (19 ) 143 2 127 Income taxes payable to affiliate 14 (514 ) 92 (430 ) Asset retirement obligations (636 ) (576 ) (1,325 ) (1,477 ) Other current liabilities (4 ) (82 ) (82 ) (296 ) Net cash provided by operating activities 28,567   24,596   82,176   79,799   Cash flows from investing activities: Additions to oil and gas properties (32,199 ) (25,160 ) (98,195 ) (76,778 ) Net cash used in investing activities (32,199 ) (25,160 ) (98,195 ) (76,778 ) Cash flows from financing activities: Borrowings under credit facility 25,000 21,000 75,000 107,000 Principal payments on credit facility — (2,000 ) — (51,000 ) Payment of financing fees — — — (1,291 ) Distributions to unitholders (18,590 ) (18,590 ) (55,769 ) (55,412 ) Net cash provided by (used in) financing activities 6,410   410   19,231   (703 ) Net increase (decrease) in cash 2,778 (154 ) 3,212 2,318 Cash, beginning of period 2,035   3,648   1,601   1,176   Cash, end of period $ 4,813   $ 3,494   $ 4,813   $ 3,494       PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY PRODUCTION AND PRICE DATA             Three Months Ended Nine Months Ended September 30, September 30, 2013     2012 2013     2012   Average Daily Sales Volumes: Oil (Bbls) 5,792   4,934   5,617   4,900   Natural gas liquids (Bbls) 1,848   1,665   1,573   1,449   Gas (Mcf) 7,393   6,388   7,237   6,665   Total (BOE) 8,872   7,664   8,396   7,459   Average Prices: Oil (per Bbl) $ 103.77 $ 88.12 $ 93.63 $ 91.13   Natural gas liquids (per Bbl) $ 33.11 $ 31.60 $ 32.59 $ 33.29   Gas (per Mcf) $ 3.07 $ 2.62 $ 3.17 $ 2.24   Total (per BOE) $ 77.20 $ 65.79 $ 71.48 $ 68.33  

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 principles ("GAAP") provide that net income be allocated to all securities that participate in the Partnership's earnings. Accordingly, net income is allocated to the General Partner, unvested participating securities and common unitholders. Net losses 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, (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 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, 2013 and 2012:

          Three Months Ended Nine Months Ended September 30, September 30, 2013   2012 2013   2012     Net income $ 15,757 $ 5,533 $ 62,845 $ 84,352 Less: General partner's interest (16 ) (6 ) (63 ) (84 ) Unvested participating securities' interest (52 ) (53 ) (151 ) (210 ) Basic and diluted net income applicable to common unitholders $ 15,689   $ 5,474   $ 62,631   $ 84,058     Weighted average basic and diluted units outstanding 35,714   35,714   35,714   35,714     Net income per common unit - basic and diluted $ 0.44   $ 0.15   $ 1.75   $ 2.35    

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 the General Partner 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 coverage test. 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, 2013 September 30, 2013   Net cash provided by operating activities $ 28,567 $ 82,176 Add/(Deduct): Depletion, depreciation and amortization (8,886 ) (23,711 ) Deferred income taxes (236 ) (716 ) Accretion of discount on asset retirement obligations (209 ) (623 ) Amortization of debt issuance costs (65 ) (194 ) Amortization of unit-based compensation (231 ) (690 ) Commodity derivative related activity (4,617 ) 5,258 Changes in operating assets and liabilities 1,434   1,345     Net income 15,757 62,845 Add/(Deduct): Depletion, depreciation and amortization 8,886 23,711 Accretion of discount on asset retirement obligations 209 623 Interest expense 1,027 2,848 Income tax provision 249 835 Amortization of unit-based compensation 231 690 Commodity derivative related activity 4,617   (5,258 )   EBITDAX (a) 30,976 86,294 Add/(Deduct): Cash reserves to maintain production and cash flow (7,142 ) (20,544 ) Cash interest expense (962 ) (2,654 ) Current income taxes (13 ) (119 )   Distributable cash flow (b) $ 22,859   $ 62,977    

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(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 adjusted for the Partnership's estimated cash reserves to maintain production and cash flow, cash interest expense and current income taxes.     PIONEER SOUTHWEST ENERGY PARTNERS L.P. SUPPLEMENTAL INFORMATION Open Commodity Derivative Positions as of November 1, 2013             Year Ending 2013 December 31, Fourth     Quarter 2014 2015   Oil Derivatives: Collar contracts with short puts: Volume (Bbls per day) — 5,000 — Price per Bbl: Ceiling $ — $ 105.74 $ — Floor $ — $ 100.00 $ — Short put $ — $ 80.00 $ — Swap contracts: Volume (Bbls per day) 4,750 — — Price per Bbl $ 87.83 $ — $ — Gas Derivatives: Collar contracts with short puts: Volume (MMBtus per day) — — 5,000 Price per MMBtu: Ceiling $ — $ — $ 5.00 Floor $ — $ — $ 4.00 Short put $ — $ — $ 3.00 Collar contracts: Volume (MMBtus per day) 2,500 — — Price per MMBtu: Ceiling $ 4.50 $ — $ — Floor $ 4.00 $ — $ — Swap contracts: Volume (MMBtus per day) 2,500 5,000 — Price per MMBtu (a) $ 6.89 $ 4.00 $ — Basis swap contracts: Permian Basin index swaps (MMBtus per day) (b) 2,500 — — Price differential ($/MMBtu) $ (0.31 ) $ — $ —  

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(a)   Represents the NYMEX Henry Hub index price on the derivative trade date. (b) Represents swaps that fix the basis differentials between the Permian Basin index price and the NYMEX Henry Hub index price used in gas swap contracts.  

PIONEER SOUTHWEST ENERGY PARTNERS L.P.UNAUDITED SUPPLEMENTAL INFORMATION

The following table summarizes net derivative gains and losses that the Partnership has recorded in its earnings for the three and nine months ended September 30, 2013:

  Derivative Gains (Losses), Net (in thousands)           Three Months Ended Nine Months Ended September 30, 2013 September 30, 2013   Noncash changes in fair value: Oil derivative gains (losses) $ (3,998 ) $ 6,606 Gas derivative losses (619 ) (1,348 ) Total noncash derivative gains (losses), net (4,617 ) 5,258     Cash settled changes in fair value: Oil derivative losses (7,581 ) (14,663 ) Gas derivative gains 818   2,175   Total cash derivative losses, net (6,763 ) (12,488 ) Total derivative losses, net $ (11,380 ) $ (7,230 )  

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 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 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, 2013, 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 income $ 16 $ 0.44   Unrealized mark-to-market derivative losses   5     0.13   Adjusted income excluding unrealized mark-to-market derivative losses $ 21   $ 0.57

Pioneer Southwest Energy Partners L.P.InvestorsFrank Hopkins, 972-969-4065orJosh Jones, 972-969-5822orMike Bandy, 972-969-4513orMedia and Public AffairsSusan Spratlen, 972-969-4018orSuzanne Hicks, 972-969-4020