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
_____________
(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
) $ — $ —
_____________
(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
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