Pioneer Southwest Energy Partners L.P. Reports Third Quarter 2009 Results
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DALLAS--(BUSINESS WIRE)-- 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, 2009. The Partnership acquired assets and liabilities from a subsidiary of Pioneer Natural Resources Company in August 2009, which represents a transaction between entities under common control under generally accepted accounting standards. As a result, the following financial and operating results of the Partnership for the third quarter and nine-month periods include the results of the acquired assets as if the Partnership had acquired the assets at the beginning of the periods presented.
Net income for the third quarter was $25 million, of which $29 million, or $.96 per common unit, was attributable to the Partnership, offset by a loss of $4 million attributable to the acquired assets prior to the acquisition date of August 31, 2009. Net income attributable to the Partnership included noncash mark-to-market derivative gains of $7 million. Without the effect of this item, adjusted income applicable to the Partnership for the third quarter would have been $22 million, or $.74 per common unit. Cash flow from operating activities for the period was $25 million.
Oil and gas sales for the third quarter averaged 5,853 barrels oil equivalent per day (BOEPD). Third quarter oil sales averaged 3,482 barrels per day (BPD), natural gas liquid (NGL) sales averaged 1,333 BPD, and gas sales averaged 6 million cubic feet per day (MMCFPD).
The third quarter average price for oil was $109.61 per barrel. The price for NGLs was $45.42 per barrel, and the price for gas was $5.05 per thousand cubic feet. The average prices reported for the third quarter benefitted from the Partnership's attractive commodity derivative position.
The Partnership acquired Spraberry properties from a subsidiary of Pioneer Natural Resources Company on August 31, 2009 at a price of $171.2 million, before customary purchase price adjustments. The properties included proved reserves of 18.9 million barrels of oil equivalent (BOE), production of approximately 1,300 BOEPD, 170 forty-acre drilling locations and 250 twenty-acre locations. Also included in the acquisition were certain derivative positions.
The Partnership commenced a two-rig drilling program in early November and expects to drill 50 to 60 wells through 2010. As a result, 2010 production is forecasted to grow by more than 15% compared to 2009, with operating cash flow increasing by approximately 35% in 2010, resulting in an improved distribution coverage ratio. The drilling program is expected to generate internal rates of return of approximately 50%.
Current liquidity of $140 million under the Partnership's credit facility is expected to be adequate to fund future growth through drilling and acquisitions.
Pioneer Southwest previously announced a cash distribution of $15 million, or $.50 per outstanding common unit, for the quarter ended September 30, 2009. The distribution is payable November 12, 2009 to holders of record at the close of business on November 5, 2009. Distribution sustainability and growth potential are supported by significant derivative positions through 2013 (derivative contracts cover approximately 85% through 2010, 75% in 2011 and 2012, and 60% in 2013 of the Partnership's forecasted production for those periods).
Financial Outlook
Fourth quarter 2009 production is forecasted to average 5,600 BOEPD to 5,900 BOEPD. Fourth quarter production costs (including production and ad valorem taxes) are expected to average $20.00 to $23.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depreciation, depletion and amortization expense is expected to average $5.00 to $6.00 per BOE based on the new SEC reserve pricing methodology that is expected to be implemented during the fourth quarter of 2009.
General and administrative expense is expected to be $1 million to $2 million. Interest expense is expected to be $500,000 to $700,000. Accretion of discount on asset retirement obligations is forecasted to be nominal.
Pioneer Southwest's fourth quarter cash taxes and effective income tax rate are expected to be approximately 1% as a result of Pioneer Southwest being subject to the Texas margin tax.
Earnings Conference Call
On Wednesday, November 4 at 11:00 a.m. Central Time, Pioneer Southwest will discuss its financial and operating results with an accompanying presentation. The call will be webcast on Pioneer Southwest's website, www.pioneersouthwest.com. The presentation will be available on the website for preview in advance of the call. At the website, select 'INVESTORS' at the top of the page. For those who cannot listen to the live webcast, a replay will be available shortly thereafter. Or you may choose to dial (888) 378-4350 (confirmation code: 1552499) to listen by telephone and view the accompanying presentation at the website above. A telephone replay will be available by dialing (888) 203-1112 (confirmation code: 1552499).
Pioneer Southwest is a Delaware limited partnership headquartered in Dallas. Pioneer Natural Resources formed Pioneer Southwest to own and acquire oil and gas assets in its area of operations. This area includes onshore Texas and eight counties in the southeast region of New Mexico. For more information, visit Pioneer Southwest's website at www.pioneersouthwest.com.
Except for historical information contained herein, the statements in this News Release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements and the business prospects of Pioneer Southwest are subject to a number of risks and uncertainties that may cause Pioneer Southwest's actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, volatility of commodity prices, the effectiveness of Pioneer Southwest's commodity price derivative strategy, reliance on Pioneer Natural Resources Company and its subsidiaries to manage Pioneer Southwest's business and identify and evaluate acquisitions, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, litigation, the costs and results of drilling and operations, access to and availability of drilling equipment and transportation, processing and refining facilities, Pioneer Southwest's ability to replace reserves, including through acquisitions, and implement its business plans or complete its development activities as scheduled, uncertainties associated with acquisitions, access to and cost of capital, the financial strength of counterparties to Pioneer Southwest's credit facility and derivative contracts and the purchasers of Pioneer Southwest's oil, NGL and gas production, uncertainties about estimates of reserves, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks. 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,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents $ 6,032 $ 29,936
Accounts receivable 12,342 12,606
Inventories 1,018 1,941
Prepaid expenses 381 105
Derivatives 27,167 51,261
Total current assets 46,940 95,849
Property, plant and equipment, at cost:
Oil and gas properties, using the successful 305,688 305,075
efforts method of accounting
Accumulated depletion, depreciation and (110,436 ) (100,370 )
amortization
Total property, plant and equipment 195,252 204,705
Deferred income taxes 1,806 -
Other assets:
Derivatives 34,603 65,804
Other, net 652 806
$ 279,253 $ 367,164
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 6,995 $ 5,824
Due to affiliates 2,042 5,968
Interest payable 110 -
Income taxes payable to affiliate 371 492
Deferred income taxes 307 521
Derivatives 951 -
Asset retirement obligations 715 99
Total current liabilities 11,491 12,904
Long-term debt 135,000 -
Derivatives 4,828 -
Deferred income taxes - 101
Asset retirement obligations 5,337 6,328
Partners' equity 122,597 347,831
$ 279,253 $ 367,164
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,
2009 2008 2009 2008
Revenues:
Oil $ 35,107 $ 41,472 $ 95,887 $ 120,177
Natural gas 5,571 7,091 15,399 19,904
liquids
Gas 2,896 4,188 8,891 12,145
Interest and 35 24 209 33
other
43,609 52,775 120,386 152,259
Costs and
expenses:
Oil and gas 8,754 10,619 25,262 29,130
production
Production and
ad valorem 2,596 3,881 7,327 11,330
taxes
Depletion,
depreciation 2,885 2,882 10,066 8,108
and
amortization
General and 1,145 1,431 3,786 4,822
administrative
Accretion of
discount on
asset 121 36 363 108
retirement
obligations
Interest 348 193 728 429
Derivative 2,461 - 34,921 -
loss, net
Other, net 252 291 252 291
18,562 19,333 82,705 54,218
Income before 25,047 33,442 37,681 98,041
taxes
Income tax (111 ) (401 ) (229 ) (1,078 )
provision
Net income $ 24,936 $ 33,041 $ 37,452 $ 96,963
Allocation of
net income:
(a)
Net income
(loss)
applicable to $ (3,860 ) $ 8,654 $ (1,598 ) $ 56,690
the
Partnership
Predecessor
Net income
applicable to 28,796 24,387 39,050 40,273
the
Partnership
$ 24,936 $ 33,041 $ 37,452 $ 96,963
Allocation of
net income
applicable to
the
Partnership:
Applicable to
the general $ 29 $ 24 $ 39 $ 40
partner's
interest
Applicable to
the limited 28,767 24,363 39,011 40,233
partners'
interest
$ 28,796 $ 24,387 $ 39,050 $ 40,273
Net income per
common unit - $ 0.96 $ 0.81 $ 1.30 $ 1.34
basic and
diluted
Weighted
average common
units 30,009 30,009 30,009 30,009
outstanding -
basic and
diluted
(a) The following table provides the composition of the historic
accounting attributes of the Partnership, as combined with the
Partnership Predecessor:
Prior to May 6, 2008 through Subsequent to
May 6, 2008 August 31, 2009 August 31, 2009
2008 Partnership Partnership Partnership
acquisitions Predecessor
2009 Partnership Partnership Predecessor Partnership
acquisition Predecessor
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,
2009 2008 2009 2008
Cash flows from
operating activities:
Net income $ 24,936 $ 33,041 $ 37,452 $ 96,963
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depletion,
depreciation and 2,885 2,882 10,066 8,108
amortization
Deferred income taxes (61 ) 69 (198 ) 125
Accretion of discount
on asset retirement 121 36 363 108
obligations
Amortization of debt 45 58 153 97
issuance costs
Derivative related (5,431 ) (4,259 ) 19,002 (7,083 )
activity
Change in operating
assets and
liabilities, net of
effects from
acquisition and
disposition:
Accounts receivable 97 5,237 264 1,076
Inventories (213 ) (237 ) 923 (238 )
Prepaid expenses (261 ) 101 (276 ) (184 )
Accounts payable 3,933 (225 ) (2,426 ) 12,410
Interest payable 110 - 110 -
Income taxes payable (339 ) 255 (121 ) (252 )
to affiliate
Asset retirement (349 ) (79 ) (738 ) (171 )
obligations
Net cash provided by 25,473 36,879 64,574 110,959
operating activities
Cash flows from
investing activities:
Payments for
acquisition of (54,674 ) (296 ) (54,674 ) (140,836 )
carrying value
Additions to oil and (261 ) (6,851 ) (939 ) (14,128 )
gas properties
Net cash used in (54,935 ) (7,147 ) (55,613 ) (154,964 )
investing activities
Cash flows from
financing activities:
Borrowings under 138,000 - 138,000 -
credit facility
Principal payments on (3,000 ) - (3,000 ) -
credit facility
Proceeds from
issuance of common - - - 163,045
units, net
Partner contributions - - - 24
Payments for
acquisition in excess (114,950 ) 296 (114,950 ) (22,233 )
of carrying value
Payment of financing - - - (960 )
fees
Distributions to
general partner and (15,019 ) (9,312 ) (45,059 ) (9,312 )
common unitholders
Net distributions to (3,799 ) (4,412 ) (7,856 ) (57,795 )
owner
Net cash provided by
(used in) financing 1,232 (13,428 ) (32,865 ) 72,769
activities
Net increase
(decrease) in cash (28,230 ) 16,304 (23,904 ) 28,764
and cash equivalents
Cash and cash
equivalents, 34,262 12,461 29,936 1
beginning of period
Cash and cash
equivalents, end of $ 6,032 $ 28,765 $ 6,032 $ 28,765
period
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUMMARY PRODUCTION AND PRICE DATA
Three Months Ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
Average Daily Sales Volumes:
Oil (Bbls) - 3,482 3,812 3,699 3,956
Natural gas liquids (Bbls) - 1,333 1,394 1,431 1,437
Gas (Mcf) - 6,229 5,818 6,315 6,105
Total (BOE) - 5,853 6,176 6,183 6,410
Average Reported Prices:
Oil (per Bbl) - $ 109.61 $ 118.24 $ 94.96 $ 110.86
Natural gas liquids (per Bbl) - $ 45.42 $ 55.30 $ 39.41 $ 50.57
Gas (per Mcf) - $ 5.05 $ 7.82 $ 5.16 $ 7.26
Total (BOE) - $ 80.93 $ 92.84 $ 71.20 $ 86.67
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES (a)
(in thousands)
EBITDAX and distributable cash flow (as defined below) are presented herein and
reconciled to the generally accepted accounting principle ("GAAP") measures of
net cash provided by operating activities and net income. Management of Pioneer
Southwest Energy Partners L.P. believes these financial measures provide
additional information to the investment community about the Partnership's
ability to generate sufficient cash flow to sustain or increase distributions to
its unitholders, among other items. In particular, EBITDAX is used in the
Partnership's credit facility to determine the interest rate that we will pay on
outstanding borrowings and to determine compliance with the leverage and
interest coverage tests. EBITDAX and distributable cash flow should not be
considered as alternatives to net cash provided by operating activities or net
income, as defined by GAAP.
Three Months Ended Nine Months Ended
September 30, 2009 (a) September 30, 2009 (a)
Net cash provided by $ 25,473 $ 64,574
operating activities
Deduct:
Depletion, depreciation (2,885 ) (10,066 )
and amortization
Deferred income taxes 61 198
Accretion of discount on
asset retirement (121 ) (363 )
obligations
Amortization of debt (45 ) (153 )
issuance costs
Derivative related 5,431 (19,002 )
activity
Changes in operating (2,978 ) 2,264
assets and liabilities
Net income 24,936 37,452
Add:
Depletion, depreciation 2,885 10,066
and amortization
Accretion of discount on
asset retirement 121 363
obligations
Interest expense 348 728
Income tax provision 111 229
Derivative related (5,431 ) 19,002
activity
EBITDAX (b) 22,970 67,840
Deduct:
Cash reserves to maintain (6,368 ) (16,144 )
production and cash flow
Cash interest expense (303 ) (575 )
Cash income taxes (172 ) (427 )
Distributable cash flow $ 16,127 $ 50,694
(c)
Distributable cash flow is calculated for the Partnership and its activity
(a) for the three and nine months ended September 30, 2009. The calculation
above and the balances shown represent the activity of the Partnership,
including the Partnership Predecessor data.
"EBITDAX" represents earnings before depletion, depreciation and
(b) amortization expense; accretion of discount on asset retirement
obligations; interest expense; income taxes and noncash commodity
derivative related activity.
Distributable cash flow equals EBITDAX less the Partnership's estimated
(c) 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 3, 2009 (a)
2009
Fourth
Quarter 2010 2011 2012 2013
Average Daily Oil
Production Associated
with Derivatives:
Swap Contracts:
Volume (Bbl) 3,250 2,500 750 3,000 3,000
NYMEX price (Bbl) $ 92.36 $ 93.34 $ 77.25 $ 79.32 $ 81.02
Collar Contracts:
Volume (Bbl) - - 2,000 - -
NYMEX price (Bbl):
Ceiling $ - $ - $ 170.00 $ - $ -
Floor $ - $ - $ 115.00 $ - $ -
Collar Contracts
with Short Puts:
Volume (Bbl) - 1,000 1,000 1,000 1,000
NYMEX price (Bbl):
Ceiling $ - $ 87.75 $ 99.60 $ 103.50 $ 111.50
Floor $ - $ 70.00 $ 70.00 $ 80.00 $ 83.00
Short Put $ - $ 55.00 $ 55.00 $ 65.00 $ 68.00
Percent of total ~90% ~90% ~90% ~90% ~85%
oil production (b)
Average Daily Natural
Gas Liquid Production
Associated with
Derivatives:
Swap Contracts:
Volume (Bbl) 750 750 750 750 -
Blended index $ 53.80 $ 52.52 $ 34.65 $ 35.03 $ -
price (Bbl) (c)
Percent of total ~55% ~55% ~55% ~50% N/A
NGL production (b)
Average Daily Gas
Production Associated
with Derivatives:
Swap Contracts:
Volume (MMBtu) 5,000 5,000 2,500 2,500 2,500
NYMEX price $ 7.00 $ 7.44 $ 6.65 $ 6.77 $ 6.89
(MMBtu) (d)
Percent of total ~90% ~90% ~45% ~40% ~40%
gas production (b)
Basis Swap
Contracts:
Permian Basin
index swaps 2,500 2,500 - - -
(MMBtu) (e)
Price differential $ (1.00 ) $ (0.87 ) $ - $ - $ -
($/MMBtu)
Effective February 1, 2009, Pioneer Southwest Energy Partners L.P. ceased
(a) accounting for commodity derivatives as hedges on a prospective basis.
Changes in derivative values since February 1, 2009 are recorded as
derivative gains or losses.
(b) Represents percentage of forecasted production, which may differ from
percentage of actual production.
(c) Represents the blended Mont Belvieu index prices per Bbl.
(d) Approximate NYMEX Henry Hub index price based on the differential to the
index price on the derivative trade date.
Represents swaps that fix the basis differentials between the Permian Basin
(e) index at which the Partnership sells its gas and NYMEX Henry Hub index
prices.
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUPPLEMENTAL INFORMATION
Derivative Losses, Net
(in thousands)
Three Months Nine Months
Ended Ended
September 30, 2009 September 30, 2009
Noncash mark-to-market changes
(a):
Oil derivative (gain) loss $ (5,380 ) $ 25,164
NGL derivative loss 2,485 4,502
Gas derivative loss 1,310 993
Total noncash derivative (gains) (1,585 ) 30,659
losses, net
Cash settlements:
Oil derivative loss 3,834 4,513
NGL derivative loss 433 390
Gas derivative gain (221 ) (641 )
Total cash derivative losses, net 4,046 4,262
Total derivative losses, net $ 2,461 $ 34,921
(a) Includes $5.2 million of noncash mark-to-market net loss attributable to
the Partnership Predecessor.
Deferred Gains on Discontinued Commodity Hedges as of September 30, 2009
(in thousands)
2009
Fourth
Quarter 2010 2011
Commodity hedge
gains (a):
Oil $ 14,143 $ 37,100 $ 36,489
NGL 2,090 6,688 -
Gas 1,491 2,893 -
Total $ 17,724 $ 46,681 $ 36,489
(a) Deferred commodity hedge gains will be amortized as increases to oil and
gas revenues during the indicated future periods.
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
(in millions, except per unit data)
Income adjusted for unrealized 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, 2009, as determined in accordance with GAAP, to adjusted income
excluding unrealized mark-to-market gains for that quarter.
After-tax Per Common
Amounts Unit
Net income $ 25
Net loss attributable to Partnership Predecessor 4
Net income applicable to the Partnership 29 $ 0.96
Unrealized mark-to-market derivative gain applicable to (7 ) (0.22 )
the Partnership
Adjusted income excluding unrealized mark-to-market $ 22 $ 0.74
gains
Source: Pioneer Southwest Energy Partners L.P.
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