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Pioneer Southwest Energy Partners L.P. (PSE)

Q4 2012 Earnings Call

February 14, 2013 12:00 PM ET

Executives

Frank Hopkins - Senior Vice President, Investor Relations

Richard Dealy - Executive Vice President and Chief Financial Officer and Treasurer

Analysts

Michael Peterson - MLV & Company

Praneeth Satish - Wells Fargo

Steve Tabb - Tocqueville Asset Management

John Ragozzino - RBC Capital Markets

Kevin Smith - Raymond James

Matt Niblack - HITE Hedge Funds

Chuck Goldblum - Hurley Capital

Presentation

Operator

Welcome to Pioneer Southwest Energy's fourth quarter conference call. Joining us today will be 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 are at www.pioneersouthwest.com. At the website select Investors then select Investor Presentations. This call is being recorded and a replay of this call will be archived on the Internet site through March 11th.

The partnership's comments today will include forward-looking statements made pursuant to the Safe Harbor Provisions of this 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 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'd like to turn things over to Pioneer Southwest's, Senior Vice President of Investor Relations, Frank Hopkins.

Frank Hopkins

Good day, everyone, and thank you for joining us. We're just going to go through the slide presentation on today's call. He'll review the financial and operating highlights for the fourth quarter, and then he'll update you on what's been going on with the drilling program for PSE in the Spraberry field. He will also take a quick look at the financials for the fourth quarter in more detail and provide you with the guidance operating and financials for the first quarter. After that, he and I will be available to take your questions.

So with that, Rich, why don't you go through the slides.

Richard Dealy

Thanks, Frank, and good morning. Starting on Slide 3 for those who have in front of them. For the fourth quarter, adjusted income of $18 million or $0.50 per unit did include unrealized mark-to-market gains of $5 million, after tax were $0.15 per common unit.

Production for the fourth quarter was essentially flat with the third quarter just under 7,700 BOEs per day. Indeed as we talked about in the third quarter call, it was impacted by 200 BOEs per day and reduced ethane recoveries associated with our gas processing facility in West Texas operating capacity. So that didn't lower our actual production for the quarter.

That is also expected to impact just in the first quarter of 2013 in the range of 200 to 300 BOEs per day. We have the new driver plant that will alleviate that problem, it comes on line in early April, and then that constraint will go away and we'll get those volumes back, but that is going to continue to reduce our ethane recoveries through the first quarter of 2013.

Turning to Slide 4, talk about operations a bit. We did complete 13 new wells and one recompleted well in the fourth quarter, brings our year-to-date to 42 wells and five recompletions. We do have nine wells waiting on completion at the end of the December, and the three rigs are running and will continue to benefit from drilling to the Wolfcamp, Strawn and Atoka intervals with good success. For 2012, we spent $126 million and generated 8% production growth compared to 2011.

Cash flow from operations for the quarter were $19 million or just under $100 million for the year. We did declare another distribution of $0.52 for the fourth quarter that was paid on February 11, to holders of record of February 4, and equates to $2.08 on an annualized basis.

For the year, we reported 49 million barrels of proved reserves, at the end of the year down 1 million barrel from yearend 2011, principally related to production of 3 million barrels, 1 million of negative price provisions, principally to gas prices dropping from $4 to high $2 range for the year-over-year. And then we had proved reserve additions of 3 million from our growing program and acquisitions that we've accomplished during the year.

Turning to Slide 5, looking at our 2013 drilling program. We are continuing with our three-rig drilling program, planned to drill about 50 wells for about $120 million, including facilities next year or this year. We expect that to generate about 9% production growth and the wells that we will be drilling similar we've talked about in past quarters.

We'll be virtually 100% going through the Strawn formation, but we expect that to add by going to the Strawn about 30,000 BOEs of incremental EUR. We've got about 65% of wells that will go to the Strawn and into the Atoka next year. And so that will be also add reserves going to the Atoka, adds about 50,000 to 70,000 BOEs per well for an EUR basis.

From an inventory standpoint, 160 40-acre locations left, still well over 1,200 20-acre locations are big drilling inventory. And for those of you who didn't follow the news in West Texas to have in a number of horizontal wells drilled recently in Midland County. PXD, having one of those, a third-party having another one that have had good success. And so it's encouraging for the partnerships 10,000 acres that it hold in the area. We're continuing to monitor that and to see more information over the next year as more wells are drilled, but it is encouraging for the partnerships acreage.

Read the rest of this transcript for free on seekingalpha.com