Pioneer Southwest Energy Partners L.P. Reports Fourth Quarter 2011 Financial And Operating Results

Pioneer Southwest Energy Partners L.P. (“Pioneer Southwest” or “the Partnership”) (NYSE:PSE) today announced financial and operating results for the quarter ended December 31, 2011.

Pioneer Southwest reported a fourth quarter net loss of $7 million, or $0.21 per common unit. The net loss included unrealized mark-to-market derivative losses of $33 million, or $0.98 per common unit. Without the effect of this item, adjusted income for the fourth quarter was $26 million, or $0.77 per common unit. Cash flow from operations for the fourth quarter was $28 million.

Oil and gas sales for the fourth quarter averaged 6,995 barrels oil equivalent per day (BOEPD), a decrease of 6% compared to the third quarter of 2011. Third quarter production benefited from an inventory draw of 175 BOEPD related to the addition of oil transport trucks to cover a second quarter transport truck shortage. Fourth quarter production reflects new wells being placed on production towards the latter part of the quarter and weather-related downtime, including a lightning strike at a large tank battery. Without these items, production would have been similar to the third quarter.

The Partnership’s two-rig drilling program continued through the fourth quarter. During 2011, the Partnership placed 44 new wells on production. All wells were completed in the Lower Wolfcamp and deeper Strawn intervals, with one well completed in the deeper Atoka interval. Production data from current Strawn completions supports the addition of an incremental 30 thousand barrels oil equivalent (MBOE) estimated ultimate recovery (EUR) for wells completed in this interval. Completions in the Atoka interval are estimated to add an incremental 50 to 70 MBOE of EUR. At year end, the Partnership had eight wells waiting on completion, with two of these wells being drilled to the deeper Atoka interval.

The Partnership has a large inventory of remaining oil drilling locations in the Spraberry field, with approximately 100 40-acre locations and 1,200 20-acre locations. The 2012 drilling program reflects increasing the rig count from two rigs to three rigs, which is expected to result in 55 to 60 wells being drilled during the year. Essentially all of these wells will target the Strawn formation, and 35% of the planned wells will target the deeper Atoka formation. Approximately 60% and 40% of the Partnership’s acreage position has Strawn and Atoka potential, respectively. Capital spending for this drilling program is forecasted to range from $110 million to $120 million. The current average well cost is $1.8 million, which is expected to generate an average before-tax return of 45% to 50%, assuming flat commodity prices of $100 per barrel for oil and $4 per thousand cubic feet (MCF) for gas. The 2012 drilling program is expected to generate full-year production growth of 10% compared to 2011.