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Pioneer Southwest Energy Partners L.P. Reports Second Quarter 2009 Results
Posted by: gurufocus (IP Logged)
Date: August 4, 2009 05:10PM

Press Release: Pioneer Southwest Energy Partners L.P. Reports Second Quarter 2009 Results

DALLAS--(BUSINESS WIRE)--Pioneer Southwest Energy Partners L.P. (“Pioneer Southwest” or “the Partnership”) (NYSE:PSE) today announced financial results for the quarter ended June 30, 2009. Net loss for the second quarter was $2 million, or $.06 per common unit. The loss included noncash mark-to-market derivative losses of $24 million. Without the effect of this item, adjusted income for the second quarter would have been $22 million, or $.72 per common unit. Cash flow from operating activities for the period was $20 million.

Oil and gas sales for the second quarter averaged 4,559 barrels oil equivalent per day (BOEPD). Second quarter oil sales averaged 2,810 barrels per day (BPD), natural gas liquid (NGL) sales averaged 968 BPD and gas sales averaged 4.7 million cubic feet per day (MMCFPD). Second quarter production of 4,559 BOEPD was slightly below the second quarter guidance range of 4,700 BOEPD to 4,900 BOEPD, primarily due to hurricane-related NGL inventory and production adjustments.

The second quarter average price for oil was $110.90 per barrel. The price for NGLs was $47.03 per barrel, and the price for gas was $5.75 per thousand cubic feet. The average prices reported for the second quarter benefited from the Partnership’s attractive commodity derivative position.

Pioneer Southwest previously announced a cash distribution of $15 million, or $.50 per outstanding common unit for the quarter ended June 30, 2009. The distribution is payable August 12, 2009, to holders of record at the close of business on August 4, 2009. Distributions are supported by a significant derivative position covering approximately 75%, 70% and 45% of the Partnership’s production in 2009, 2010 and 2011, respectively.

The Partnership is currently evaluating a potential acquisition of certain developed and undeveloped oil and gas properties from Pioneer Natural Resources Company. Additionally, the Partnership continues to evaluate the potential benefits of initiating a development drilling program in the Spraberry field with costs decreasing and margins improving. The Partnership also continues to evaluate third-party acquisition opportunities. The decision regarding whether to pursue these growth opportunities will be dependent on market conditions, among other items.

Financial Outlook

Third quarter 2009 production is forecasted to average 4,500 BOEPD to 4,800 BOEPD. Third quarter production costs (including production and ad valorem taxes) are expected to average $19.00 to $22.00 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 $4.50 to $5.50 per BOE.

General and administrative expense is expected to be $1 million to $2 million. Interest expense and accretion of discount on asset retirement obligations are both expected to be nominal.

Pioneer Southwest’s third 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.

Commodity Derivatives

Prior to February 1, 2009, the Partnership entered into and designated certain commodity derivative instruments as cash flow hedges of commodity price risk in accordance with generally accepted accounting principles in the United States (GAAP). Effective February 1, 2009, the Partnership discontinued hedge accounting on all of its existing derivative instruments and, since that date has accounted for derivative instruments using the mark-to-market (MTM) accounting method.

On January 31, 2009, the Partnership determined the fair value of its derivative hedge instruments and adjusted the effective portion of its net hedge gains in accumulated other comprehensive income – deferred hedge gains, net of tax (AOCI), in the partners’ equity portion of its consolidated balance sheet, to $147 million. In accordance with GAAP, the Partnership transfers the net hedge gains included in AOCI to oil and gas revenues in the same periods in which the transactions that they hedged are recognized in earnings. During the three and six month periods ended June 30, 2009, the Partnership transferred $18 million and $29 million of net gains from AOCI to oil and gas revenues, respectively, attributable to discontinued hedge derivatives.

Under the MTM accounting method, the Partnership has accounted for all changes in the fair values of its derivative instruments since February 1, 2009, as gains or losses in the earnings of the periods in which they occurred. The Partnership’s MTM net derivative losses that were recorded to the earnings of the three and six month periods ended June 30, 2009, and the scheduled amortization of net deferred gains on discontinued commodity hedges to oil and gas revenue are shown in the attached schedules.

Earnings Conference Call

On Wednesday, August 5 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 (877) 723-9502 (confirmation code: 4416045) 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: 4416045).

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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
   
June 30, December 31,
2009 2008
(Unaudited)
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 34,262 $ 29,936
Accounts receivable 10,130 10,965
Inventories 731 1,659
Prepaid expenses 120 105
Derivatives   29,363     51,261  
 
Total current assets   74,606     93,926  
 
Property, plant and equipment, at cost:

Oil and gas properties, using the successful efforts method of accounting

225,325 225,092

Accumulated depletion, depreciation and amortization

 

(88,069 )   (83,335 )
 
Total property, plant and equipment   137,256     141,757  
 
Deferred income taxes 688 235
Other assets:
Derivatives 39,308 65,804
Other, net   698     806  
 
$ 252,556   $ 302,528  
 
LIABILITIES AND PARTNERS\' EQUITY
 
Current liabilities:
Accounts payable:
Trade $ 3,732 $ 4,739
Due to affiliates 365 5,968
Income taxes payable to affiliate 710 492
Deferred income taxes 370 521
Derivatives 266 -
Asset retirement obligations   500     23  
 
Total current liabilities   5,943     11,743  
 
Derivatives 116 -
Asset retirement obligations 5,048 5,683
Partners\' equity   241,449     285,102  
 
$ 252,556   $ 302,528  
 
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per unit data)
       
 
 
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Revenues:
Oil $ 28,360 $ 32,299 $ 53,708 $ 61,033
Natural gas liquids 4,142 5,168 8,482 9,896
Gas 2,451 3,523 5,327 6,252
Interest and other   56     9     174     9  
  35,009     40,999     67,691     77,190  
 
Costs and expenses:
Oil and gas production 6,419 7,942 13,722 14,566
Production and ad valorem taxes 1,924 3,109 3,807 5,846
Depletion, depreciation and amortization 1,984 1,641 4,734 3,403
General and administrative 780 1,462 2,030 2,693
Accretion of discount on asset retirement obligations 108 30 215 59
Interest 191 236 380 236
Derivative loss, net   25,505     -     32,460     -  
  36,911     14,420     57,348     26,803  
 
Income (loss) before taxes (1,902 ) 26,579 10,343 50,387
Income tax provision   (5 )   (279 )   (89 )   (528 )
Net income (loss) $ (1,907 ) $ 26,300   $ 10,254   $ 49,859  
 
Allocation of net income (loss): (a)
Net income applicable to the Partnership Predecessor $ - $ 10,414 $ - $ 33,973
Net income (loss) applicable to the Partnership   (1,907 )   15,886     10,254     15,886  
Net income (loss) $ (1,907 ) $ 26,300   $ 10,254   $ 49,859  
 
Allocation of net income (loss) applicable to the Partnership:
General partner\'s interest in net income (loss) $ (2 ) $ 16 $ 10 $ 16
Limited partners\' interest in net income (loss)   (1,905 )   15,870     10,244     15,870  
Net income (loss) applicable to the Partnership

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