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Pioneer Southwest Energy Partners, L.P. (PSE)

Q4 2010 Earnings Call

February 8, 2011 12:00 p.m. ET

Executives

Frank Hopkins - VP, IR

Scott Sheffield - Chairman and CEO

Rich Dealy - EVP and CFO

Analysts

Kevin Smith – Raymond James

Gary Paul – Private Investor

William Adams – AMCO

Presentation

Operator

Welcome to Pioneer Southwest Energy’s Fourth Quarter Conference Call. Today’s call is being recorded.

Joining us today will be Scott Sheffield, Chairman and Chief Executive Officer, Rich Dealy, Executive Vice President and Chief Financial Officer, and Frank Hopkins, 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.

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 prospectives 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 new 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 and introductions, I would like to turn the call over to Pioneer Southwest’s 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’ll review the financial and operating highlights for the fourth quarter and update you on the PSE’s drilling program in the Spraberry deal.

Rich will then cover the fourth quarter financials in more detail and provide earnings guidance for the first quarter. And after that, we’ll open up the call for any questions that you might have.

With that, we’ll get the call started now with Scott.

Scott Sheffield

Thanks, Frank. Good morning. Slide Number 3 highlights our fourth quarter 2010 adjusted income at 25 million, or $0.75 per unit, excludes unrealized mark-to-market. Grid of losses of 20 million after tax, or $0.61 per unit. Fourth quarter production averaged a little over 6,500 barrels a day, up 8 %, versus fourth quarter of April of 2009.

We’re also within guidance, down slightly, up from third quarter 2010, due to new oil connection delay. Basically, obviously, we’ll pick that up and solve that.

Twenty-eight wells placed on production during 2010 from two-rig drilling programs; 18 additional wells are waiting completion, or being drilled at the end of the year.

Obviously, we’re seeing tremendous benefits from drilling deeper the lower Wolfcamp opening up the organic-rich shale zones in both the Spraberry and the Wolfcamp.

Cash flow from operations at 21 million. We declared another distribution of $0.50 per outstanding unit for fourth quarter 2010. It’s payable on February 11 to unit holders of record as of February 3, and reflects the annual distribution rate of $2 per common unit.

Reported year-end reserves 2010, of 52 million barrels of oil equivalent is up 8 million barrels from year in 2009; comprised of 6 million barrels of performance improvements from the production curves. Also, we had 4 million barrels of revisions offset by production of about 2 million barrels of oil equivalent.

Slide Number 4, we talked about our drilling program on 2011 going forward. Our capital budget will be about 67 million, 62 million for drilling, 5 million for facilities. We expect to drill 40-45 wells in the two-rig program.

Expected well cost of about 1.4 million, continue to drill deeper to the lower Wolfcamp, and complete the organic-rich shale zones in both the Spraberry and the Wolfcamp zones.

We’ll be testing the deeper strong formation in certain areas of the field. PHD, we talked about on a more recent call where we had fairly significant success. Wells are producing 20-40 barrels a day more, and also it looks like for somewhere around 50-$60,000 we can get maybe 20-40 thousand barrels of oil equivalent. So tremendous economics.

Forecasting production growth of 5 % plus in 2011 compared to 2010. And again, to remind everybody, we have tremendous inventory; 125 locations on 40s, and about 1200 on 20-acre spacing. On a recent call on PHD, we did give an update in the Q-and-A session if you want to look at that on PHD. We talked about the recent activity by PHD on 20 acres. We’re seeing significant improvement on those 20s by opening up those additional zones.

Let me turn it over to Rich to go over the financials.

Richard Dealy

Great. Thanks Scott. On Slide 5, net income for the quarter, as Scott mentioned, is 5 million, or $0.14 per unit. It did include unrealized mark-to-market, gridded losses related to oil prices rising during the fourth quarter of 20 million, or $0.61, so adjusted for that non-cash item are $25 million or $0.75 per unit. At the bottom of the page there you can see where we projected fourth quarter guidance, and our fourth quarter results where they came in at. You can see it was within guidance on all items as we have been for the past couple of quarters.

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