Pioneer Southwest Energy Partners L.P. ( PSE)

Q3 2011 Earnings Conference Call

November 2, 2011 2:30 PM ET

Executives

Scott Sheffield – Chairman and CEO

Rich Dealy – EVP and CFO

Frank Hopkins – SVP, IR

Analysts

Michael Blum – Wells Fargo

TJ Schultz – RBC Capital Markets

David Demuth – Howard Weil

Kevin Smith – Raymond James

Steve Tabb – Tocqueville Asset Management

Presentation

Operator

Good day, welcome to the Pioneer Southwest Energy’s Third Quarter conference call. Joining us today is Scott Sheffield, Chairman and Chief Executive Officer, Rich Dealy, Executive Vice President and Chief Financial Officer and Frank Hopkins, Senior Vice President of Investor Relations.

As a reminder, today’s call is being recorded. Pioneer Southwest has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the internet at www.poineersouthwest.com. Again, the internet site for access to the slides related to today’s call is www.pioneersouthwest.com.

At the website, select Investors, then select Investor Presentations. A replay of today’s webcast will be archived on the internet site through November 23rd. The partnership’s comments today will include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements and the business prospects of Pioneer Southwest are subject to a number of risks and uncertainties that may cause actual results to – and future periods to differ materially from the forward-looking statements.

These risks and uncertainties are described in Pioneer Southwest’s news release on page two of the slide presentation. And in the Pioneer Southwest pubic filings made with the Securities Exchange Commission.

At this time, for opening remarks introductions, I would like to turn the call over to Pioneer Southwest’s Senior Vice President of Investor Relations, Frank Hopkins, please go ahead sir.

Frank Hopkins

Thank you Lisa [ph]. Good day everyone, and thank you for joining us. I’ll briefly go through the agenda for today’s call. Scott’s going to be up first, he’ll review the financial and operating highlights for the third quarter, and he’ll update you on PSE’s drilling program in the Spraberry field.

Rich will then cover the third quarter financials in more detail, and he will give you earnings guidance for the fourth quarter. After that, we’ll open up the call for your questions. With that, I’ll turn the call over to Scott.

Scott Sheffield

Thanks, Frank and good afternoon. If you have access to our slides, start off in slide number three, the highlights. Our third quarter, a great quarter, adjusted income at 27 million, $0.81 per unit. It excludes unrealized mark-to-market gains, 62 million.

Third quarter production had a great quarter regard to production over 7400 barrels of oil equivalent per day, up 11% versus the second quarter of ’11 primarily due to the success of the 2-rig drilling program also going deeper and strong.

The addition of incremental oil transport trucks in third quarter which covered a tracking shortfall during the second quarter. 13 wells are placed on production on the third quarter, 33 wells year-to-date from a 2-rig program. Additional wells were waiting completion at the end of the quarter.

As I mentioned earlier, we benefit from the drilling deeper, the Lower Wolfcamp and Strawn intervals, and also completing throughout the entire pay zone and the organic-rich shale/silt intervals.

Cash flow at 32 million from operations, distribution at $0.51 per outstanding unit for third quarter. On November 11th the unitholders of record date October 31st equates to a 2.04 for common unit on annualized basis.

Our drilling update on slide number four, expect to drill approximately 40 wells with 2-rigs, capital expenditures about 65 to 75 million including facilities. Again, all the wells are going down to the Lower Wolfcamp and completing in the organic rich shale/silt intervals.

In addition, majority of the wells are being drilled to the deeper Strawn interval. 60% of the partnership acreage position has Strawn potential, that’s primarily in the middle of the Martin County, the northern part of the field.

We continue to evaluate the Atoka interval in certain areas, we expect to have three Atoka wells down by year-end. And if you look on PXD’s website, PDX has had three Atoka wells, their first three wells all came in around 150 barrels a day equivalent. A very exciting – that would be added on top of anything coming from the Spraberry Wolfcamp or the Strawn.

Forecasting production growth of 5% in ’11 compared in ’10. And as we always mention, tremendous inventory inside the partnership with over 100 acre locations, that’s about two and half years with the drilling, and over 1200 in 20-acre locations.

And again, our 20-acre locations at the BHD level on our website continue to exhibit tremendous success, are getting closer and closer to the original 40-acre type well.

Let me now turn over to Rich over our earnings for the quarter.

Rich Dealy

Thanks, Scott. Let’s turn to slide five. As Scott mentioned, net income of $89 million or $2.69 per common unit for the quarter include $62 million or 1.88 per unit related to unrealized mark-to-market derivative gains, primarily due to the decline in oil prices at the end of the quarter.

So adjusting for those non-cash unrealized mark-to-market gains $27 million or $0.81 per common unit. At the bottom of page five, we show our results relative to our Q3 guidance. You can see that production was above our guidance range, the 7400 was a great result for the quarter.

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