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Pioneer Southwest Energy Partners L.P. Announces Acquisition of Spraberry Properties from Pioneer Natural Resources Company
Posted by: gurufocus (IP Logged)
Date: August 31, 2009 04:18PM
Press Release: Pioneer Southwest Energy Partners L.P. Announces Acquisition of Spraberry Properties from Pioneer Natural Resources Company
DALLAS--(BUSINESS WIRE)--Pioneer Southwest Energy Partners L.P. (“Pioneer Southwest” or the “Partnership”) (NYSE:PSE) today announced that it has acquired certain oil and gas properties in the Spraberry field in West Texas from Pioneer Natural Resources Company (“Pioneer”) for $171.2 million in cash. The transaction value also includes the assignment of 2009 through 2013 commodity price derivative positions.
The acquisition is accretive to Pioneer Southwest’s operating cash flow, which is forecast to increase in 2010 and 2011 by more than 35% and 55%, respectively, as compared to pre-acquisition operating cash flow forecasts for the same periods. The acquisition is also expected to improve the Partnership’s coverage ratio (distributable cash flow in excess of distributions) to approximately 1.15 in 2010.
The acquired properties have estimated proved reserves of approximately 18.9 million barrels oil equivalent, of which 37% are proved developed reserves and 63% are proved undeveloped reserves (approximately 170 40-acre drilling locations). Netherland, Sewell & Associates, Inc., an independent reserve engineering firm, audited the proved reserves of the acquired properties. Production from the acquired properties is approximately 1,300 barrels oil equivalent per day. Of this amount, approximately 65% is oil, 20% is natural gas liquids and 15% is gas.
The Board of Directors of the general partner of the Partnership approved the acquisition, based in part on the unanimous recommendation in favor of the acquisition from its Conflicts Committee. This committee of independent directors retained independent legal and financial advisors to assist in evaluating the transaction. The investment bank of Houlihan Lokey acted as the financial advisor to the Committee and delivered a fairness opinion for the use of the Conflicts Committee in connection with the transaction.
Pioneer Southwest used its $30 million of cash on hand and borrowings under its credit facility to fund this transaction and related expenses. The Partnership’s liquidity position is expected to remain strong after the acquisition with approximately $135 million of availability under its credit facility. The Partnership is considering a public offering of common units later this year of approximately $75 million, subject to market conditions, to retire a portion of the debt incurred to fund the acquisition and to enhance its liquidity and financial flexibility.
The Partnership plans to commence a two-rig drilling program on these properties during the fourth quarter of 2009 and expects to invest approximately $60 million through the end of 2010 to develop proved undeveloped reserves. The 2009-2010 drilling program is expected to be funded primarily from cash flow and, to a lesser extent, from borrowings under the Partnership’s credit facility. Internal rates of return from the new wells are expected to be at least 50% assuming August strip prices and market well costs. Average daily production is forecasted to grow by more than 15% in 2010 compared to 2009.
Pioneer Southwest had a strong derivative position prior to the acquisition to protect cash distributions, with approximately 75% of production protected in 2009, 70% in 2010 and 45% in 2011. Based on forecasted production following the acquisition and the derivatives that were assigned from Pioneer, derivative coverage has now been extended into 2013 using a combination of swaps and three-way collars with coverage levels of approximately 75% in 2009, 80% in 2010, 75% in 2011, 75% in 2012 and 60% in 2013.
Scott D. Sheffield, Chairman and CEO of the Partnership’s general partner, stated, “This acquisition demonstrates our commitment to grow the Partnership through strategic acquisitions, especially in our core Spraberry operating area. These low-decline Spraberry producing properties, coupled with our planned low-risk, high-return drilling program and attractive derivatives position, will add to our predictable, stable cash flow and are well suited to support and potentially grow future distributions. The Partnership is also expected to benefit from the additional upside in this transaction, including production from the deeper Wolfcamp formation, approximately 250 20-acre drilling locations and future waterflood potential.”
On Tuesday, September 1, 2009 at 9:00 a.m. Central Time, Pioneer Southwest will discuss the Spraberry acquisition 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) 364-3104 (confirmation code: 5308443) 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: 5308443).
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, including the ability to access the public market, the possibility that Pioneer Southwest will not raise the planned amount of capital even if an offering is completed, 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.
This news release shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offers, solicitations of offers to buy, or any sales of securities will only be made in accordance with the registration requirements of the Securities Act of 1933 or an exemption therefrom.
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