Pioneer Southwest Energy Partners L.P. (“Pioneer
Southwest” or “the Partnership”) (NYSE: PSE) today
announced financial and operating results for the quarter ended
June 30, 2013.
Pioneer Southwest reported second quarter net income of $30
million, or $0.83 per common unit. Net income for the second
quarter included unrealized mark-to-market derivative gains of $9
million, or $0.26 per common unit. Without the effect of this item,
adjusted income for the second quarter was $21 million, or $0.57
per common unit. Cash flow from operations for the second quarter
was $31 million.
The Partnership’s three-rig drilling program continued during
the second quarter, with 13 new wells being placed on production.
Oil and gas sales for the second quarter averaged 8,412 barrels oil
equivalent per day (BOEPD). At the end of the quarter, the
Partnership had seven 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 135 40-acre vertical locations and 1,275 20-acre
vertical locations.
Pioneer Southwest expects to drill approximately 50 vertical
wells during 2013. Capital expenditures are forecasted to be $120
million, including facilities. The 2013 drilling program is
expected to generate production growth of 9% compared to 2012.
Essentially all of the wells will be drilled to the Strawn
formation, with approximately 85% of these wells drilled to the
deeper Atoka interval. In addition, recent 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.
Second quarter oil sales averaged 5,627 barrels per day (BPD),
natural gas liquids (NGL) sales averaged 1,451 BPD and gas sales
averaged 8 million cubic feet per day. The second quarter average
price for oil was $90.93 per barrel. The average price for NGLs was
$31.25 per barrel, and the average price for gas was $3.39 per
thousand cubic feet.
Production costs (including production and ad valorem taxes) for
the second quarter averaged $23.86 per barrel oil equivalent (BOE).
Depreciation, depletion and amortization expense for the second
quarter averaged $10.37 per BOE.
The Partnership has additional borrowing capacity under its
credit facility of $100 million as of June 30, 2013, which is
expected to be adequate to fund 2013 planned vertical drilling
activities. The Partnership has also entered into derivative
contracts that cover approximately 70% in 2013, 70% in 2014 and 10%
in 2015 of its forecasted production.
Pioneer Southwest previously announced a cash distribution of
$0.52 per outstanding common unit for the quarter ended June 30,
2013. The distribution will be paid on August 9, 2013, to
unitholders of record at the close of business on August 2,
2013.
Third Quarter 2013 Financial
Outlook
The following paragraphs provide the Partnership’s third quarter
of 2013 outlook for certain operating and financial items.
Production is forecasted to average 8,200 BOEPD to 8,700 BOEPD.
Production costs (including production and ad valorem taxes) are
expected to average $23.00 per BOE to $26.00 per BOE based on
current NYMEX strip prices for oil, NGLs and gas. Depreciation,
depletion and amortization expense is expected to average $10.00
per BOE to $11.00 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.
Common Unit Purchase Proposal from
Pioneer Natural Resources Company
On May 7, 2013, Pioneer Natural Resources Company (“Pioneer”)
delivered a proposal to the chairman of the Conflicts Committee
(the “Conflicts Committee”) of the General Partner of the
Partnership to acquire all of the outstanding common units of the
Partnership held by unitholders other than Pioneer or its
subsidiaries for consideration of 0.2234 of a share of common stock
of Pioneer for each outstanding common unit of the Partnership held
by such unitholders in a transaction to be structured as a merger
of the Partnership with a wholly-owned subsidiary of Pioneer. The
proposed 0.2234 exchange ratio was based on Pioneer’s assumption
that the Partnership would declare and pay the aforementioned
distribution for the quarter ending June 30, 2013, and then suspend
future common unit distributions pending the execution of a
definitive agreement and the consummation of the transaction. The
proposal was referred to the Conflicts Committee, which is
reviewing and evaluating the proposal. The consummation of the
transactions contemplated by Pioneer’s proposal is subject to
approval of Pioneer’s Board of Directors, approval of the Conflicts
Committee and the Board of Directors of the General Partner and the
negotiation of a definitive agreement. There can be no assurance
that a definitive agreement will be executed or that any
transaction will be approved or consummated.
The Partnership will post a presentation related to its
financial and operating results for the quarter ended June 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, and only if and when a definitive agreement has been
entered into by Pioneer and Pioneer Southwest, pursuant to a
registration statement filed with the Securities and Exchange
Commission.
If Pioneer Southwest accepts Pioneer’s proposal and executes a
definitive agreement, a registration statement of Pioneer, which
will include a proxy statement and will constitute a prospectus of
Pioneer, and other materials will be filed with the Securities and
Exchange Commission. If and when applicable, investors and security
holders are urged to carefully read the documents filed with the
Securities and Exchange Commission regarding the proposed
transaction when they become available, because they will contain
important information about Pioneer, Pioneer Southwest and the
proposed merger. If and when applicable, investors and security
holders may obtain a free copy of the proxy statement/prospectus
and other documents containing information about Pioneer and
Pioneer Southwest, without charge, at the Securities and Exchange
Commission’s website at www.sec.gov.
Pioneer, Pioneer Southwest and certain of their respective
directors and executive officers may be deemed to be participants
in the solicitation of proxies from the unitholders of Pioneer
Southwest in connection with the proposed transaction. 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 Securities and Exchange Commission on
April 11, 2013. Information about the directors and executive
officers of the General Partner of Pioneer Southwest is set forth
in Pioneer Southwest’s Annual Report on Form 10-K for the year
ending December 31, 2012, which was filed with the Securities and
Exchange Commission on March 14, 2013. These documents can be
obtained without charge at the Securities and Exchange Commission’s
website indicated above. Additional information regarding the
interests of these participants may be obtained by reading the
proxy statement/prospectus regarding the proposed transaction when
it becomes available.
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 proposal delivered to the chairman of the Conflicts Committee
by Pioneer to acquire all of the outstanding common units of
Pioneer Southwest that are held by unitholders other than Pioneer
or its subsidiaries, including the risks that a definitive
agreement will not be executed and that a transaction will not be
approved or consummated, 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 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) June 30, December 31,
2013 2012 ASSETS Current assets: Cash $
2,035 $ 1,601 Accounts receivable - trade 18,760 15,651 Inventories
1,370 1,388 Prepaid expenses 47 228 Deferred income taxes 54 89
Derivatives 7,259 4,553 Total current
assets 29,525 23,510 Property,
plant and equipment, at cost: Oil and gas properties, using the
successful efforts method of accounting: Proved properties 629,916
556,915 Unproved properties 5,278 5,682 Accumulated depletion,
depreciation and amortization (178,367 ) (163,542 )
Total property, plant and equipment 456,827
399,055 Derivatives 7,309 7,227 Other assets, net
968 1,097 $ 494,629 $ 430,889
LIABILITIES AND PARTNERS' EQUITY Current
liabilities: Accounts payable: Trade $ 26,204 $ 15,557 Due to
affiliates 778 1,277 Interest payable 30 9 Income taxes payable to
affiliate 148 70 Derivatives 6,453 13,390 Asset retirement
obligations 600 900 Other current liabilities 212
146 Total current liabilities 34,425
31,349 Long-term debt 176,000 126,000
Derivatives — 150 Deferred income taxes 601 156 Asset retirement
obligations 11,346 11,201 Other liabilities 256 400 Partners'
equity 272,001 261,633 Commitments and contingencies
$ 494,629 $ 430,889
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, 2013 2012 2013 2012 Revenues:
Oil and gas $ 53,161 $ 42,565 $ 100,819 $ 93,270 Derivative gains,
net 6,358 46,309 4,150
31,768 59,519 88,874
104,969 125,038 Costs and
expenses: Oil and gas production 13,927 11,047 28,014 22,019
Production and ad valorem taxes 4,333 4,033 8,480 7,827 Depletion,
depreciation and amortization 7,941 4,986 14,825 9,818 General and
administrative 1,843 1,773 3,741 3,660 Accretion of discount on
asset retirement obligations 207 190 414 378 Interest 984 509 1,821
818 Other — 315 —
748 29,235 22,853 57,295
45,268 Income before income taxes
30,284 66,021 47,674 79,770 Income tax provision (366 )
(772 ) (586 ) (951 ) Net income $ 29,918
$ 65,249 $ 47,088 $ 78,819
Allocation of net income: General partner's interest $ 30 $ 65 $ 47
$ 79 Limited partners' interest 29,805 64,997 46,934 78,538
Unvested participating securities' interest 83
187 107 202 Net income $ 29,918
$ 65,249 $ 47,088 $ 78,819 Net
income per common unit - basic and diluted $ 0.83 $ 1.82
$ 1.31 $ 2.20 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
$ 1.04 $ 1.03
PIONEER SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in
thousands) Three Months Ended Six Months
Ended June 30, June 30, 2013 2012
2013 2012 Cash flows from operating
activities: Net income $ 29,918 $ 65,249 $ 47,088 $ 78,819
Adjustments to reconcile net income to net cash provided by
operating activities: Depletion, depreciation and amortization
7,941 4,986 14,825 9,818 Deferred income taxes 317 824 480 867
Accretion of discount on asset retirement obligations 207 190 414
378 Amortization of debt related costs 65 65 129 110 Amortization
of unit-based compensation 227 241 459 411 Commodity derivative
related activity (9,291 ) (48,764 ) (9,875 ) (40,297 ) Other
noncash expense — 315 — 748 Change in operating assets and
liabilities: Accounts receivable 572 5,529 (3,109 ) 4,545
Inventories (184 ) (686 ) 18 (721 ) Prepaid expenses 128 104 181
129 Accounts payable 1,789 (597 ) 3,667 1,443 Interest payable (138
) (133 ) 21 (16 ) Income taxes payable to affiliate 21 (52 ) 78 84
Asset retirement obligations (333 ) (454 ) (689 ) (901 ) Other
current liabilities (14 ) (214 ) (78 )
(214 ) Net cash provided by operating activities 31,225
26,603 53,609 55,203
Cash flows from investing activities: Additions to oil and
gas properties (33,206 ) (28,310 ) (65,996 )
(51,618 ) Net cash used in investing activities
(33,206 ) (28,310 ) (65,996 ) (51,618 ) Cash
flows from financing activities: Borrowings under credit facility
22,000 19,000 50,000 86,000 Principal payments on credit facility —
— — (49,000 ) Payment of financing fees — (30 ) — (1,291 )
Distributions to unitholders (18,589 ) (18,590 )
(37,179 ) (36,822 ) Net cash provided by (used in)
financing activities 3,411 380
12,821 (1,113 ) Net increase (decrease) in cash 1,430
(1,327 ) 434 2,472 Cash, beginning of period 605
4,975 1,601 1,176 Cash,
end of period $ 2,035 $ 3,648 $ 2,035 $ 3,648
PIONEER
SOUTHWEST ENERGY PARTNERS L.P. UNAUDITED SUMMARY PRODUCTION
AND PRICE DATA Three Months Ended Six Months
Ended June 30, June 30, 2013 2012
2013
2012
Average Daily Sales Volumes: Oil (Bbls) 5,627
4,874 5,528 4,882 Natural gas liquids (Bbls)
1,451 1,164 1,433 1,340 Gas
(Mcf) 8,008 6,389 7,157 6,806
Total (BOE) 8,412 7,103 8,154 7,356
Average Prices: Oil (per Bbl) $ 90.93 $ 86.25 $ 88.22 $
92.67 Natural gas liquids (per Bbl) $ 31.25 $ 30.28 $ 32.26
$ 34.35 Gas (per Mcf) $ 3.39 $ 1.89 $ 3.22 $ 2.06
Total (per BOE) $ 69.44 $ 65.85 $ 68.31 $ 69.67
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 the
net income applicable to the Partnership be allocated to all
securities that participate in the Partnership's earnings.
Accordingly, net income applicable to the Partnership is allocated
to the General Partner, unvested participating securities and
common unitholders. Net losses applicable to the Partnership 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 applicable to the
Partnership, (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 applicable to the Partnership 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 six months ended June 30, 2013 and 2012:
Three Months Ended Six Months Ended
June 30, June 30, 2013 2012
2013 2012 Net income applicable
to the Partnership $ 29,918 $ 65,249 $ 47,088 $ 78,819 Less:
General partner's interest (30 ) (65 ) (47 ) (79 ) Unvested
participating securities' interest (83 ) (187 )
(107 ) (202 ) Basic and diluted net income applicable
to common unitholders $ 29,805 $ 64,997 $ 46,934
$ 78,538 Weighted average basic and diluted
units outstanding 35,714 35,714
35,714 35,714 Net income per common
unit - basic and diluted $ 0.83 $ 1.82 $ 1.31
$ 2.20
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 Six Months Ended
June 30, 2013 June 30, 2013 Net cash provided
by operating activities $ 31,225 $ 53,609 Add/(Deduct): Depletion,
depreciation and amortization (7,941 ) (14,825 ) Deferred income
taxes (317 ) (480 ) Accretion of discount on asset retirement
obligations (207 ) (414 ) Amortization of debt issuance costs (65 )
(129 ) Amortization of unit-based compensation (227 ) (459 )
Commodity derivative related activity 9,291 9,875 Changes in
operating assets and liabilities (1,841 ) (89 )
Net income 29,918 47,088 Add/(Deduct): Depletion,
depreciation and amortization 7,941 14,825 Accretion of discount on
asset retirement obligations 207 414 Interest expense 984 1,821
Income tax provision 366 586 Amortization of unit-based
compensation 227 459 Commodity derivative related activity
(9,291 ) (9,875 ) EBITDAX (a) 30,352 55,318
Add/(Deduct): Cash reserves to maintain production and cash flow
(7,806 ) (13,402 ) Cash interest expense (919 ) (1,692 ) Current
income taxes (49 ) (106 ) Distributable cash
flow (b) $ 21,578 $ 40,118
_____________
(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 July
30, 2013 Year Ending 2013 December
31, Third Fourth Quarter Quarter
2014 2015 Oil Derivatives: Collar
contracts with short puts: Volume (Bbls per day) 590 — 5,000 —
Price per Bbl: Ceiling $ 116.00 $ — $ 105.74 $ — Floor $ 88.14 $ —
$ 100.00 $ — Short put $ 73.14 $ — $ 80.00 $ —
Swap
contracts: Volume (Bbls per day) 4,160 4,750 — — Price per Bbl
$ 86.17 $ 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 2,500 — — Price per MMBtu: Ceiling $ 4.50 $ 4.50 $ — $ —
Floor $ 4.00 $ 4.00 $ — $ —
Swap contracts: Volume (MMBtus
per day) 2,500 2,500 5,000 — Price per MMBtu (a) $ 6.89 $ 6.89 $
4.00 $ —
Basis swap contracts: Permian Basin index swaps
(MMBtus per day) (b) 2,500 2,500 — — Price differential ($/MMBtu) $
(0.31 ) $ (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
six months ended June 30, 2013:
Derivative Gains (Losses), Net (in thousands)
Three Months Ended Six Months Ended
June 30, 2013 June 30, 2013 Noncash changes in
fair value: Oil derivative gains $ 8,627 $ 10,604 Gas derivative
gains (losses) 664 (729 ) Total noncash
derivative gains, net 9,291 9,875
Cash settled changes in fair value: Oil derivative losses
(3,537 ) (7,082 ) Gas derivative gains 604
1,357 Total cash derivative losses, net (2,933 )
(5,725 ) Total derivative gains, net $ 6,358 $ 4,150
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
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 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
June 30, 2013, as determined in accordance with GAAP, to
adjusted income excluding unrealized mark-to-market derivative
gains for that quarter.
After-tax Per Common
Amounts Unit Net income $ 30 $ 0.83
Unrealized mark-to-market derivative gains (9 ) (0.26
) Adjusted income excluding unrealized mark-to-market
derivative gains $ 21 $ 0.57
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