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1 Click to edit Master title style Click to edit Master text styles Second level Third level Fourth level Fifth level Investor Presentation December

2 Forward Looking Statements Except for historical information contained herein, the statements, charts and graphs in this presentation are forwardlooking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of Forwardlooking statements and the business prospects of Pioneer Southwest Energy Partners L.P. ( PSE ) are subject to a number of risks and uncertainties that may cause PSE s actual results in future periods to differ materially from the forwardlooking statements. These risks and uncertainties include, among other things, volatility of commodity prices, the effectiveness of PSE s commodity price hedging strategy, reliance on Pioneer Natural Resources Company and its subsidiaries to manage PSE s business and identify and evaluate acquisitions, product supply and demand, competition, the ability to obtain environmental and other permits and the timing thereof, other government regulation or action, the ability to obtain approvals from third parties and negotiate agreements with third parties on mutually acceptable terms, litigation, the costs and results of operations, access to and availability of transportation, processing and refining facilities, PSE s ability to replace reserves, including through acquisitions, and implement its business plans, uncertainties associated with acquisitions, access to and cost of capital, the financial strength of counterparties to PSE s credit facility and derivative contracts and the purchasers of PSE s oil, NGL and gas production, uncertainties about estimates of reserves, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks. These and other risks are described in PSE s final prospectus dated April 30, 2008 (File No ) and filed on May 1, 2008 with the Securities and Exchange Commission (the "SEC") pursuant to Rule 424(b)(4) under the Securities Act of 1933 and other filings with the SEC. In addition, PSE may be subject to currently unforeseen risks that may have a materially adverse impact on it. PSE undertakes no duty to publicly update these statements except as required by law. Please see the appendix slides included in this presentation for other important information. 2

3 PSE Overview MLP formed by PXD to own and acquire oil and gas properties and midstream facilities associated with core assets in Texas and 8 counties in southeastern New Mexico Primary focus will be PXD s core operating areas Initial assets include: Proved reserves of ~34 MMBOE (yearend 2007) in the West Texas Spraberry field 84% liquids / 16% gas Reservetoproduction ratio of 18 years Average daily production of ~5,000 BOE ~1,100 wells with 78% average working interest Spraberry Field Future downspacing and recompletion opportunities Longlived production with low decline rate averaging ~4% per year PSE Operating Area Average remaining well life of 35 years 3

4 PSE Investment Highlights Backed by a strong E&P parent with ~68% retained ownership (PXD) Strong sponsorship with large upstream and midstream dropdown potential Predictable, stable cash flow 100% proved developed producing reserves (no drilling required) Longlived production with low decline rates (~4% per year) Active hedging program Planned distribution growth driven by: Accretive acquisitions both independently and jointly with Pioneer Potential dropdowns of oil & gas and midstream assets Potential drilling on 20acre downspacing Longerterm growth potential from recompletions No debt: $300 MM unsecured revolving credit facility Attractive longterm cost of capital with no IDRs or MIUs Focused management team with strong operational and acquisition experience in PSE s area of operations, especially the Spraberry field Attractive Balance of Yield and Growth Opportunities 4

5 Strong Liquidity Position Cash balance of ~$29 MM at September 30, 2008 No borrowings on $300 MM credit facility; expires 2013 Strong hedge position 75% of production hedged in 2009; 70% in 2010; 45% in 2011 Retaining ~25% of cash flow for maintenance capex Thirdparty acquisitions or 20acre drilling Distributions over the next three years supported by the Partnership s strong financial position and significant hedge position at attractive prices 5

6 Distribution History Declared second distribution of $0.50 per outstanding unit Distribution paid on November 12 th to unitholders of record as of November 3 rd Reflects an annual distribution rate of $2.00 per common unit Initial distribution of $0.31 per outstanding unit Distribution paid on August 12 th ; pro rated from May 6 th (IPO date) through June 30 th 6

7 Operations Update Spraberry Field 20acre spacing PSE has right to drill 20acre locations surrounding its wells Considering drilling a limited number of 20acre wells in 2009 if conditions improve MidkiffBenedum Ownership Option PSE did not pursue assignment of 2008 MidkiffBenedum option (14%) from Pioneer Natural Resources due to current market conditions Expect Pioneer Natural Resources to consider assignment of option to PSE in the future Full 22% option expires November 1,

8 PSE Hedge Position as of 11/25/2008 HEDGING STRATEGY Protect Distributions Gas Q Swaps (MMBTUPD) 2,500 2,500 2,500 NYMEX Price ($/MMBTU) 1 $ $ 9.52 $ 9.01 % Hedged Gas 2 ~50% ~55% ~55% Crude Swaps (BPD) 2,500 2,500 2,000 NYMEX Price ($/BBL) $ $ $ Collars New (BPD) NYMEX Call Price ($/BBL) 2,000 $ NYMEX Put Price ($/BBL) $ % Hedged Crude 2 ~85% ~85% ~75% ~80% Natural Gas Liquids Swaps (BPD) Blended Index Price ($/BBL) 3 $ $ $ % Hedged NGLs 2 ~40% ~65% ~70% % Hedged Total 2 ~70% ~75% ~70% ~45% 1) Approximate NYMEX price based on differentials to index prices at the date the derivative was entered into 2) % of production 3) Represents blended Mont Belvieu posted price 8

9 PSE A Premier Upstream MLP 9

10 Appendix 10

11 Spraberry Only Large U.S. Onshore Oil Field Growing Spraberry is 5 th largest oil field and 15 th largest gas field in the U.S Largest Oil Fields in the United States 1 : Production Growth Since 2003 Spraberry Trend Area +22% MarsUrsa 2 +6% Thunder Horse 2 5% Wasson 5% Belridge South 8% Elk Hills 16% Kern River 17% MidwaySunset 23% Kuparuk River 35% Prudhoe Bay 1) Source: EIA 2) Offshore Oil Field 11

12 PXD Largest Spraberry Trend Producer Gross operated production ~50 MBOEPD 1 Represents ~40% of total Spraberry production Net production ~39 MBOEPD 1 YE 2007 proved reserves of 481 MMBOE 2 / ~50% PUD) 869,000 acres (~50% of Spraberry field) (~50% PDP PXD Acreage (869,000 gross acres) 5,300 active wells (>95% operated) Average working interest: 90% Spraberry oil receives up to $0.50 / Bbl premium to WTI 150 miles Midland Midland Third Party Acreage 1,400 BTU gas; high NGL yield Lowcost driller and operator 27% ownership interest in MidkiffBenedum midstream facilities Option to acquire additional 22% in miles 1) At June 30, Includes Spraberry VPP volumes of 8 MBOEPD 2) Includes proved reserves attributable to the public ownership in PSE 12

13 Spraberry Wells: Low Decline Rate Provides Predictable Cash Flow 60 Spraberry wells are well suited for maintaining MLP distributions Low decline rate after initial 7 8 years of production Expected average well life: 70 years 50 BOEPD Gas NGL Oil 4% 6% Decline Years 13

14 PXD Strong Spraberry Acquisition Track Record $458 million of bolton acquisitions totaling 196 MMBOE from 2001 through 2007 Reflects >25% of the total transactions in the Spraberry during this period 1 Significant bolton upstream acquisition opportunities remain PDP to PSE and unbooked resource potential to PXD Option to increase ownership in Midkiff Benedum gas processing system from 27% to 49% in % in 2009 Well suited for potential dropdown or assignment to PSE PERMIAN BASIN SPRABERRY TREND 1) Source: Jefferies Randall & Dewey and PXD data 14

15 PSE Favorable Structural Features No incentive distribution rights ( IDRs ) or management incentive units ( MIUs ) that reduce distributable cash flow to LP unitholders Alignment of interests among all unitholders All investors share equally in cash flow PXD has significant ownership (~68%) Maximizes distributions to LP unitholders Common unit distribution growth not burdened by GP or management splits Greater % of incremental cash flow distributed to common units Enhanced ability to make accretive acquisitions Future downspacing and recompletion opportunities Includes only PDP reserves Stable production; low decline rate wells (~5% per year) No debt: $300 MM credit facility 15

16 Maximizes Distributions to LP Unitholders No IDRs or MIUs Investors share equally in all cash flows no increasing share of cash flow allocable to GP or management Acquisitions deliver greater accretion to unitholders without IDRs or MIUs Distribution Growth Example Initial Distribution GP Distribution: $2.00 / unit Without IDRs GP Distribution: $4.00 / unit With IDRs GP Distribution: $ / unit LP Distribution: $2.00 / unit Unitholders $1.48 Hypothetical 100% Distribution Increase LP Distribution: $4.00 / unit vs. LP Distribution: $3.60 / unit Total Distribution: $57.6 MM Total Distribution: $115.2 MM Total Distribution: $115.2 MM Note: Growth example assumes a typical GP structure with incentive distribution rights tiers of 0.1%, 15% and 25% (GP receives 0.1%, 15% and 25% of incremental distributions, respectively). Chart is for illustrative purposes only and is not an indication of future distribution increases. Management incentive units would have a similar impact. 16

17 Differentials Oil Differentials (per BBL) NYMEX calendar month average NYMEX differential excluding hedges and novated hedge amount Realized price excluding hedges and novated hedge amount Hedge impact (active hedge amount) Reported price Novated hedge amount Reported price less novated hedge amount NGL Differentials (per BBL) NYMEX calendar month average NYMEX differential 1 excluding hedges and novated hedge amount Realized price excluding hedges and novated hedge amount Hedge impact (active hedge amount) Reported price Novated hedge amount Reported price less novated hedge amount Q2 08 $ (0.85) (6.59) (8.75) $ (72.07) (1.86) (1.98) Q3 08 $ (0.28) (13.77) $ $ (61.45) (1.26) (3.08) $ Gas Differentials (per MCF) NYMEX bid week average NYMEX differential 1 excluding hedges and novated hedge amount Realized price excluding hedges and novated hedge amount Hedge impact (active hedge amount) Reported price Novated hedge amount Reported price less novated hedge amount (3.22) (0.43) 7.38 $ (3.04) (0.71) $ ) Includes processing fees retained by processing plant owners 17

18 Novated Hedge Explanation On May 6, 2008, novation agreements were entered into between PXD and PSE to transfer hedges for oil, NGL and gas production from PXD to PSE for the period May 6, 2008 through yearend 2010 The value of the hedges transferred to PSE represented a loss of approximately $37.2 million on May 6, 2008 (i.e. value loss between the date when PXD entered these hedges and the May 6, 2008 novation date) The loss associated with the novated hedges was recognized as a liability on PSE s Balance Sheet on May 6, 2008 and has been settled (Q2 2008) or will be settled (Q through 2010) as shown in the table below Changes in hedge values subsequent to the May 6, 2008 novation date will be recognized separately as an increase or decrease to future oil, NGL and gas revenues NOVATED HEDGE LOSSES 1 (in thousands) 2008 Second Third Fourth Quarter Quarter Quarter Total Oil $ 2,424 $ 3,656 $ 3,656 $ 12,637 $ 8,528 $ 30,901 NGL , ,135 Gas , ,213 Total novated hedges $ 2,824 $ 4,259 $ 4,259 $ 15,747 $ 10,160 $ 37,249 Reported prices going forward will exclude the settlement of the May 6, 2008 novated hedge losses 1) Novated hedge losses were settled or will be settled in the indicated periods 18

19 Credit Facility Counterparties Lender Bank of America, N.A. Wells Fargo Bank, N.A. BMO Capital Markets Financing, Inc. Barclays Bank PLC Citibank, N.A. Deutsche Bank AG New York Branch DnB NOR Bank ASA JPMorgan Chase Bank, N.A. The Royal Bank of Scotland PLC Toronto Dominion (Texas) LLC UBS Loan Finance LLC U.S. Bank National Association Societe Generale Total Commitment $30 MM $30 MM $25 MM $22 MM $22 MM $22 MM $22 MM $22 MM $22 MM $22 MM $22 MM $22 MM $17 MM $300 MM Applicable Percentage 10.0% 10.0% 8.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3% 5.7% 19

20 May 2008 Offering Summary Issuer: NYSE Symbol: Pioneer Southwest Energy Partners L.P. PSE Units Sold: 9,487,500 common units (31.6%) PXD Unit Ownership: 68.3% (excludes PXD s GP interest of 0.1%) Total Units Outstanding: 30,008,700 Offering Price (4/30/08): $19.00 Initial Quarterly Distribution: $0.50 ($2.00 annually) 1 Initial Yield: 10.5% Expected Tax Shield: Gross Proceeds: Use of Proceeds: Approximately 15% (3year average) $180 million To acquire oil and gas properties from PXD 1) Second Quarter pro rated distribution of $0.31 per outstanding share (for time period May 6 th through June 30 th ) 20

21 Supplemental NonGAAP Financial Measures EBITDAX and distributable cash flow are presented herein and reconciled to the generally accepted accounting principle ( GAAP ) measures of net cash provided by operating activities and net income. Management of Pioneer Southwest Energy Partners L.P. believes these financial measures provide additional information to the investment community about the Partnership s ability to generate sufficient cash flow to sustain or increase distributions to its unitholders, among other items. In particular, EBITDAX is used in the Partnership s credit facility to determine the interest rate that we will pay on outstanding borrowings and to determine compliance with the leverage and interest coverage tests. EBITDAX and distributable cash flow should not be considered as alternatives to net cash provided by operating activities or net income, as defined by GAAP. May 6, 2008 September Q , 2008 (in thousands) Net cash provided by operating activities $ 30,922 $ 46,774 Deduct: Depletion, depreciation and amortization (1,765) (2,786) Deferred income taxes (56) (56) Accretion of discount on asset retirement obligations (29) (49) Amortization of debt issuance costs (58) (97) Amortization of unitbased compensation (40) (67) Changes in operating assets and liabilities (4,518) (3,446) Net Income 24,456 40,273 Add: Depletion, depreciation and amortization 1,765 2,786 Accretion of discount on asset retirement obligations Interest expense Income tax provision Amortization of unitbased compensation EBITDAX 26,794 44,085 Deduct: Cash reserves for acquisitions (6,215) (10,029) Cash payments on novated hedges (4,259) (7,083) Cash interest expense (135) (332) Cash income taxes (255) (425) Distributable cash flow $ 15,930 $ 26,216 Distributions declared ($0.50 per common unit for Q3; $0.81 per common unit for May 6 September 30) $ 15,019 $ 24,331 21