Pioneer Southwest Energy Partners' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Pioneer Southwest Energy Partners L.P. (PSE)

Q1 2012 Earnings Call

May 3, 2012 12:00 pm ET

Executives

Scott Sheffield - Chairman & CEO

Rich Dealy - EVP & CFO

Frank Hopkins - SVP, IR

Analysts

Kevin Smith - Raymond James

Bernhard Weimann - Private Investor

John Razzano - RBC Capital Markets

Steve Tabb - Tocqueville Asset Management

Presentation

Operator

Welcome to Pioneer Southwest Energy's First Quarter Conference Call. Joining us today will be 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.

Pioneer Southwest has prepared PowerPoint slides to supplement their comments today. These slides can be accessed over the Internet at www.pioneersouthwest.com. Again, the Internet site to access the slides related to today's call is www.pioneersouthwest.com. At the website, select Investors, then select Investor Presentations. This call is being recorded.

A replay of the call will be archived on the Internet site through May 25th. 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 in future periods to differ materially from the forward-looking statements.

These risks and uncertainties are described in Pioneer Southwest's news release on page 2 of the slide presentation and in Pioneer Southwest's public filings made with the Securities and Exchange Commission.

At this time, for opening remarks, 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

Good day everyone, and thank you for joining us. Let me briefly review the agenda for today's call. Scott will be the first speaker. He will review the financial and operating highlights for the first quarter and update you on PSE's expanded drilling program in the Spraberry field. Rich will then cover the first quarter financials in more detail and provide earnings guidance for the second quarter. After that, we will open up the call for your questions.

With that, I'll turn the call over to Scott.

Scott Sheffield

Thanks, Frank, and good morning, good afternoon to some. On our highlights slide number 3; we had a first quarter adjusted income of $22 million or $0.62 per unit.

First quarter production, we had a tremendous quarter, on average well over 7600 barrels of oil equivalent per day up 9% versus previous quarter. We increased our drilling program from two rigs to three rigs during the first quarter.

We have the 14 new wells placed on production, and five additional wells are waiting completion, and three wells were being drilled at the end of the first quarter.

We continue to great results from drilling deeper to the lower Wolfcamp, Strawn, and Atoka intervals. 2012 program is expected to generate full year production growth about 10% compared to 2011. We are continuing to add more hedges especially to year 2014. We are well protected 2012 to 2014.

Cash flow from operations of $29 million. Distribution of $0.52 that we just recently increased cent per unit, with our recent quarter distribution, payable on May 11th, to unitholders of record as of May 4. This equates to $2.08 per common unit on an annualized basis.

On slide number 4, an update on our drilling program. We expect to drill 55 to 60 wells 3-rig program. We will spend about $110 million to $120 million including facilities. We expect essentially most all the wells, at least go to the Strawn formation, roughly 60% of the acreage position at Strawn potential. We are finding out from both PSE and also the PSE results we are writing about 30,000 drilled of oil equivalent to the EURs of a typical Wolfcamp well on top of that. 35% of the 2012 wells are expected to be drilled to be deeper Atoka interval. Well we expect to add about 50 to 70,000 barrels of oil equivalent.

We are starting to drill 40-acre space well, I mean 20-acre wells, we drilled four of those, results just like we have seen at the PXD last three to four years. Very similar to a tight curve, from a lower, full acre lower Wolfcamp well, an EUR of 140,000 barrels of oil equivalent.

Our total inventory, we still have 90 remaining 40-acre locations and over 1,200 20-acre locations. Average well cost it pretty much stands flat at $1.8 million, with an average before tax IRR of 45% to 50%.

Let me turn over to Rich to go over our earnings summary.

Rich Dealy

Thanks, Scott. I'm going to start on slide 5. Net income for the quarter was $14 million or $0.38 per common unit that did include unrealized mark-to-market derivative losses primarily relate to oil as the port strip has moved up at $8 million or $0.24 per common unit. Adjusted for mark-to-market derivative losses, partnership would have been at $22 million or $0.62 per common unit.

At the bottom of slide 5, it shows our results relative to guidance, as Scott mentioned production was at the, slightly above the high end of our range. So good quarter on production. Other items came in within range DD&A at the higher end of the range primarily due to the flood location.

Turning to slide 6, and guidance, still we expect with the 3-rig programs the production tend to move up in the range of 7400 to 7900 BOEs per day for the second quarter. The other items are consistent with prior quarters other than DD&A where we moved that up reflecting that we are continuing to drill putt locations.

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