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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

Pioneer Southwest Energy Partners L.P. (PSE) Q2 2011 Earnings Conference Call August 4, 2011 12:30 PM ET

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.

Looking at slide six and moving forward to the third quarter guidance, you will see here our guidance ranges continuing to increase to 6700 to 7200 BOEs per day. For PSE we expect to put on about 12 wells, new wells on production during the quarter, so we expect to see that production ramp up. The other items of guidance are very similar what we had in past quarters, I won’t go to those individually, but they are consistent with what we had in the past and historical results.

Looking to slide seven, PSE’s still has a great balance sheet. The $213 million available under our $300 million credit facility. We have plenty of liquidity to fund two-ring drilling program and acquisitions.

Cash flows obviously is going to fund most of that, in good position there and we have a great derivative position at 70% of our remaining 2011 production everybody hedges 80% for 2012, 60% for 2013 and 25% for 2014 and we will continue to look for opportunities to add to 2014 and beyond derivative positions.

So, I will stop there and we will open up the call for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll take our first question from Kevin Smith with Raymond James.

Kevin Smith – Raymond James

Hi. Good afternoon gentlemen. Question, how many, I know you said in your prepared remarks that you are getting ready-to-drill 20-acre spacing, how many has PXD drilled just on curiosity?

Scott Sheffield

Yeah, we drilled 25 in 2008 than 25 in 2010 and then we are drilling about 25 in ’11.

Kevin Smith – Raymond James

Okay.

Scott Sheffield

We’ll end up having 75 wells. And so all those wells are exhibiting significant performance increases somewhere between 110,000 barrels of oil equivalent to 140,000 barrels of oil equivalent.

Kevin Smith – Raymond James

Again, you remind me what the difference is between the 40 and 20 as far as production?

Scott Sheffield

Yeah, the old 40 was 110,000 barrels of oil equivalent as before, now the tight curve before we opening up, went deeper in the Wolfcamp and opening up all the shale zones. And so we are offsetting wells that did not opening up shale zones in the Spraberry and go deeper to the Wolfcamp. And so now the 20-acre well is opening up, all conventional zones going deeper in the Wolfcamp opening up all the shale zones. And then as I have mentioned, we will take some moment to the strong into the (indiscernible).

Kevin Smith – Raymond James

Okay, that’s helpful. And the other question I had is are you expecting to see kind of production uplift due to an inventory drawdown in the third quarter, now that you get the trucks?

Scott Sheffield

We should. We should see a pickup, yeah, significantly.

Kevin Smith – Raymond James

Okay.

Scott Sheffield

We’re seeing already at the – I’ll give out some gross numbers in the PXD call. So, production is up significantly just in last few weeks in our entire field.

Kevin Smith – Raymond James

Okay. I mean, is it some of it is just going to be contributed to an inventory drawdown or you are just talking about organically production?

Scott Sheffield

It’s both.

Kevin Smith – Raymond James

Okay, got you. All right, well thank you gentlemen. That’s all the questions I have.

Scott Sheffield

Thanks.

Operator

(Operator Instructions) There are no further questions at this time. I’d like to turn the conference back over to you gentlemen.

Scott Sheffield – Chairman and Chief Executive Officer

Okay, again we appreciate everyone listening and again thanks look forward to the next quarter. Thank you.

Operator

And that does conclude today’s conference. We thank you for your participation. You may now disconnect.

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