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Pioneer Southwest Energy Partners L.P. (PSE)

Q2 2011 Earnings Conference Call

August 4, 2011 12:30 ET

Executives

Frank Hopkins – Vice President of Investor Relations

Scott Sheffield – Chairman and Chief Executive Officer

Rich Dealy – Executive Vice President and Chief Financial Officer

Analysts

Kevin Smith – Raymond James

Presentation

Operator

Welcome to Pioneer Southwest Energy’s second 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, 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 prospects of Pioneer Southwest are subject to a number of risks and uncertainties that may cause actual results 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 Pioneer Southwest’s public filings made with the Securities and Exchange Commission. As a reminder, today’s call will be recorded.

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, Mr. Frank Hopkins. Please go ahead, sir.

Frank Hopkins – Vice President of Investor Relations

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 second quarter and updates you on Pioneer Southwest’s drilling program in the Spraberry field. After that, Rich will then cover the second quarter financials in more detail and he will provide the earnings guidance for the third quarter. Then we’ll open up the call for your questions.

With that, I will turn the call over to Scott.

Scott Sheffield – Chairman and Chief Executive Officer

Thank you, Frank. Good morning. On our highlights on slide number three, we had adjusted income of $25 million or $0.75 per unit. That does exclude a market-to-market gain of our derivatives of $28 million after-tax or $0.84 per unit. Second quarter production about 6700 barrels a day, up 4% from a year ago and up 1% for first quarter.

As we mentioned in the PXD call this morning, we did have a shortage of trucks. So, it actually reduced our production by 140 barrels of oil per day. The problem is essentially solved now with additional trucks coming in and to the Permian Basin, primarily the Spraberry Trend area field and we should see that make up significantly going into the third quarter.

We have nine wells placed on production and 12 wells year-to-date from our two-rig program. We got 12 additional wells awaiting completion at June 30th, which continue to see the benefit from drilling to deeper to Lower Wolfcamp and Strawn intervals and helping up all the shales down throughout the Spraberry field, in Lower Wolfcamp.

Cash flow from operations $31 million and our distribution of $0.51 per unit for the second quarter of '11, payable on August 11th, the unitholders of record day of August 1st equates to $2.04 per common unit on an annualized basis.

In slide four, our drilling program CapEx $67 million, $62 million for drilling, $5 million for facilities. We will be drilling some more between 40 to 45 wells, the two-rig program. Averaged well costs year-to-date to about $1.5 million, very beneficial. And average AFE for most of our parties today is over $2 million in this Spraberry field.

We continue to drill lot of Lower Wolfcamp as I mentioned and also organic rich shale. We are drilling deeper now on the Strawn, if you look at the PXD website you can pickup some more comments from drilling in to the strong Atoka. We feel like that we will have some opportunities will be it will add up to 110,000 barrels a day. Equivalent on a combination of Strawn and Atoka wells in some of our locations. So, we see there is a big benefit moving forward inside PSE.

Forecasting production growth of 5% in ‘11 versus’10, again to remind everyone, we do have a 120 remaining 40 acre locations, 1220 acre locations and we are again we drilled three 28 acre locations inside PSE. We continue to drill several in PXD. We are seeing tremendous benefit from the 20 acre locations as they open up all these additional.

Let me now turn it over to Rich to talk about our earnings.

Rich Dealy – Executive Vice President and Chief Financial Officer

Thanks, Scott. On slide five, as Scott mentioned net income $53 million for the quarter or $1.59 per unit include mark-to-market derivative gains of $28 million or $0.84 well adjusted for that item $25 million of income, or $0.75 unit per unit.

At the bottom of that page, you can see our results relative to the guidance we gave value you see that and all the items are within the range, I think particularly as Scott mentioned that our production results at the lower end of the range primary because the shortage of trucks and so we had 140 growth that we lost because of the shortage of trucks near the mid point on production.

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