Pioneer Southwest Energy Partners L.P. - FORM 10-Q

Attached files

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EX-10.27 - PSE MARCH 31, 2011 10-Q EXH 10.27 - Pioneer Southwest Energy Partners L.P.	ex10_27.htm
EX-10.26 - PSE MARCH 31, 2011 10-Q EXH 10.26 - Pioneer Southwest Energy Partners L.P.	ex10_26.htm
EX-10.28 - PSE MARCH 31, 2011 10-Q EXH 10.28 - Pioneer Southwest Energy Partners L.P.	ex10_28.htm
EX-31.2 - PSE MARCH 31, 2011 10-Q EXH 31.2 - Pioneer Southwest Energy Partners L.P.	pseexh312.htm
EX-32.2 - PSE MARCH 31, 2011 10-Q EXH 32.2 - Pioneer Southwest Energy Partners L.P.	pseexh322.htm
EX-31.1 - PSE MARCH 31, 2011 10-Q EXH 31.1 - Pioneer Southwest Energy Partners L.P.	pseexh311.htm
EX-32.1 - PSE MARCH 31, 2011 10-Q EXH 32.1 - Pioneer Southwest Energy Partners L.P.	pseexh321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number: 001-34032

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

Delaware		26-0388421
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5205 N. O'Connor Blvd., Suite 200, Irving, Texas		75039
(Address of principal executive offices)		(Zip Code)

(972) 444-9001

(Registrant's telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	ý

Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

Number of common units outstanding as of May 5, 2011 ........................................................................................................................ 33,113,700

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

TABLE OF CONTENTS

		Page

Cautionary Statement Concerning Forward-Looking Statements		3

Definitions of Certain Terms and Conventions Used Herein		4

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010	6

	Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010	7

	Consolidated Statement of Partners' Equity for the three months ended March 31, 2011	8

	Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010	9

	Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2011 and 2010	10

	Notes to Consolidated Financial Statements	11

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 6.	Exhibits	34

Signatures		35

Exhibit Index		36

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Cautionary Statement Concerning Forward-Looking Statements

The information in this Quarterly Report on Form 10-Q (this "Report") contains forward-looking statements that involve risks and uncertainties. When used in this document, the words "believes," "plans," "expects," "anticipates," "intends," "continue," "may," "will," "could," "should," "future," "potential," "estimate" or the negative of such terms and similar expressions as they relate to Pioneer Southwest Energy Partners L.P. ("Pioneer Southwest" or the "Partnership") are intended to identify forward-looking statements. The forward-looking statements are based on the Partnership's current expectations, assumptions, estimates and projections about the Partnership and the industry in which the Partnership operates. Although the Partnership believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, they involve risks and uncertainties that are difficult to predict and, in many cases, beyond the Partnership's control.

These risks and uncertainties include, among other things, volatility of commodity prices, the effectiveness of the Partnership's commodity price derivative strategy, reliance on Pioneer Natural Resources Company and its subsidiaries to manage the Partnership's business and identify and evaluate drilling opportunities and 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 drilling and operations, availability of equipment, services and personnel required to complete the Partnership's operating activities, access to and availability of transportation, processing and refining facilities, the Partnership's ability to replace reserves, including through acquisitions, and implement its business plans or complete its development activities as scheduled, uncertainties associated with acquisitions, access to and cost of capital, the financial strength of counterparties to the Partnership's credit facility and derivative contracts and the purchasers of the Partnership's oil, NGL and gas production, uncertainties about estimates of reserves and the ability to add proved reserves in the future, the assumptions underlying production forecasts, quality of technical data and environmental and weather risks, including the possible impacts of climate change. These and other risks are described in the Partnership's Annual Report on Form 10-K, this Report, other Quarterly Reports on Form 10-Q and other filings with the United States Securities and Exchange Commission. In addition, the Partnership may be subject to currently unforeseen risks that may have a materially adverse effect on it. Accordingly, no assurances can be given that the actual events and results will not be materially different than the anticipated results described in the forward-looking statements. See "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part I, Item 3. Quantitative and Qualitative Disclosure About Market Risk" and "Part II, Item 1A. Risk Factors" in this Report and "Part I, Item 1. Business — Competition, Markets and Regulations," "Part I, Item 1A. Risk Factors," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2010 for a description of various factors that could materially affect the ability of the Partnership to achieve the anticipated results described in the forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. The Partnership undertakes no duty to publicly update these statements except as required by law.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Definitions of Certain Terms and Conventions Used Herein

Within this Report, the following terms and conventions have specific meanings:

·	"Bbl" means a standard barrel containing 42 United States gallons.

"BOE" means a barrel of oil equivalent and is a standard convention used to express oil and gas volumes on a comparable oil equivalent basis. Gas equivalents are determined under the relative energy content method by using the ratio of 6,000 cubic feet of gas to 1.0 Bbl of oil or natural gas liquid.

·	"BOEPD" means BOE per day.

·	"Btu" means British thermal unit, which is a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.

·	"Common unit" means outstanding Pioneer Southwest Energy Partners L.P. limited partner units.

·	"COPAS fee" means a fee based on an overhead rate established by the Council of Petroleum Accountants Societies to reimburse the operator of a well for overhead costs, such as accounting and engineering costs.

·	"Derivatives" means financial contracts or financial instruments, whose values are derived from the value of an underlying asset, reference rate or index.

·	"GAAP" means accounting principles that are generally accepted in the United States of America.

·	"LIBOR" means London Interbank Offered Rate, which is a market rate of interest.

·	"LNG" means liquefied natural gas.

·	"MBbl" means one thousand Bbls.

·	"MBOE" means one thousand BOEs.

·	"Mcf" means one thousand cubic feet and is a measure of gas volume.

·	"MMBOE" means one million BOEs.

·	"MMBtu" means one million Btus.

·	"MMcf" means one million cubic feet.

·	"Mont Belvieu-posted-price" means the daily average of natural gas liquids components as priced in Oil Price Information Service ("OPIS") in the table "U.S. and Canada LP – Gas Weekly Averages" at Mont Belvieu, Texas.

·	"NGL" means natural gas liquid.

·	"Novation" represents the act of replacing one party to a contractual obligation with another party.

·	"NYMEX" means the New York Mercantile Exchange.

·	"NYSE" means the New York Stock Exchange.

·	"Partnership Predecessor" means Pioneer Southwest Energy Partners L.P. Predecessor.

·	"Partnership" or "Pioneer Southwest" means Pioneer Southwest Energy Partners L.P. and its subsidiaries.

·	"Pioneer" means Pioneer Natural Resources Company and its subsidiaries.

"Proved reserves" are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations--prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes: (A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons ("LKH") as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty. (iii) Where direct observation from well penetrations has defined a highest known oil ("HKO") elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when: (A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including governmental entities.

(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

·	"Recompletion" means the completion for production of an existing wellbore in another formation from that in which the well has been previously completed.

·	"SEC" means the United States Securities and Exchange Commission.

·	"Standardized Measure" means the after-tax present value of estimated future net cash flows of proved reserves, determined in accordance with the rules and regulations of the SEC, using prices and costs employed in the determination of proved reserves and a ten percent discount rate.

·	"U.S." means United States.

· "VPP" means volumetric production payment.

·	"Workover" means operations on a producing well to restore or increase production.

With respect to information on the working interest in wells, drilling locations and acreage, "net" wells, drilling locations and acres are determined by multiplying "gross" wells, drilling locations and acres by the Partnership's working interest in such wells, drilling locations and acres. Unless otherwise specified, wells, drilling locations and acres statistics quoted herein represent gross wells, drilling locations and acres.

· All currency amounts are expressed in U.S. dollars.

PART I. FINANCIAL INFORMATION

Item1. Financial Statements

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)

				March 31,		December 31,
				2011		2010
			(Unaudited)
		ASSETS
Current assets:
	Cash and cash equivalents		$	282	$	107
	Accounts receivable			17,461		15,824
	Inventories			1,033		883
	Prepaid expenses			175		260
	Deferred income taxes			159		-
	Derivatives			8,759		18,753
		Total current assets		27,869		35,827

Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
	Proved properties			380,833		364,237
	Accumulated depletion, depreciation and amortization			(129,291)		(125,963)
		Total property, plant and equipment		251,542		238,274

Deferred income taxes				1,957		1,751
Derivatives				3,041		3,783
Other, net				379		425
			$	284,788	$	280,060

		LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
	Accounts payable:
		Trade	$	11,697	$	8,422
		Due to affiliates		1,030		1,164
	Interest payable			133		30
	Income taxes payable to affiliate			637		492
	Deferred income taxes			-		63
	Derivatives			23,459		9,673
	Asset retirement obligations			500		1,000
		Total current liabilities		37,456		20,844

Long-term debt				85,000		81,200
Derivatives				53,571		31,713
Asset retirement obligations				12,140		11,558
Partners' equity:
	General partner's interest - 33,147 general partner units issued and outstanding			222		251
	Limited partners' interest - 33,113,700 common units issued and outstanding			69,151		98,333
	Accumulated other comprehensive income - deferred hedge gains, net of tax			27,248		36,161
		Total partners' equity		96,621		134,745
Commitments and contingencies				-		-
			$	284,788	$	280,060

The financial information included as of March 31, 2011 has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per unit data)

(Unaudited)

		Three Months Ended
		March 31,
			2011		2010
Revenues:
	Oil and gas	$	49,782	$	45,508
	Interest and other		2		-
			49,784		45,508

Costs and expenses:
	Oil and gas production		9,249		9,127
	Production and ad valorem taxes		3,323		3,082
	Depletion, depreciation and amortization		3,328		2,968
	General and administrative		1,580		1,524
	Accretion of discount on asset retirement obligations		227		136
	Interest		395		363
	Derivative (gain) loss, net		44,609		(11,524)
			62,711		5,676

Income (loss) before taxes			(12,927)		39,832
Income tax benefit (provision)			200		(386)
Net income (loss)		$	(12,727)	$	39,446

Allocation of net income (loss) applicable to the Partnership:
	General partner's interest	$	(13)	$	39
	Limited partners' interest		(12,739)		39,407
	Unvested participating securities' interest		25		-
	Net income (loss) applicable to the Partnership	$	(12,727)	$	39,446

Net income (loss) per common unit - basic and diluted		$	(0.38)	$	1.19

Weighted average common units outstanding - basic and diluted			33,114		33,114

Distributions declared per common unit		$	0.50	$	0.50

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENT OF PARTNERS' EQUITY

(in thousands)

(Unaudited)

								Accumulated
		General	Limited	General		Limited		Other		Total
		Partner Units	Partner Units	Partner's		Partners'		Comprehensive		Partners'
		Outstanding	Outstanding	Equity		Equity		Income		Equity

Balance as of December 31, 2010		33	33,114	$	251	$	98,333	$	36,161	$	134,745

Cash distributions to partners		-	-		(16)		(16,558)		-		(16,574)
Net loss		-	-		(13)		(12,714)		-		(12,727)
Contributions of unit-based services		-	-		-		90		-		90
Other comprehensive income, net of tax:
	Hedge gains included in net loss	-	-		-		-		(8,913)		(8,913)

Balance as of March 31, 2011		33	33,114	$	222	$	69,151	$	27,248	$	96,621

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

						Three Months Ended
						March 31,
						2011		2010

Cash flows from operating activities:
	Net income (loss)					$	(12,727)	$	39,446
		Adjustments to reconcile net income (loss) to net cash provided by
			operating activities:
				Depletion, depreciation and amortization			3,328		2,968
				Deferred income taxes			(344)		217
				Accretion of discount on asset retirement obligations			227		136
				Amortization of debt related costs			45		58
				Amortization of unit-based compensation			90		19
				Commodity derivative related activity			37,383		(18,736)
		Change in operating assets and liabilities, net of effects from
			acquisitions:
				Accounts receivable			(1,637)		(955)
				Inventories			(150)		(21)
				Prepaid expenses			85		60
				Accounts payable			1,025		489
				Interest payable			103		3
				Income taxes payable to affiliate			145		169
				Asset retirement obligations			(183)		(47)
					Net cash provided by operating activities		27,390		23,806
Cash flows from investing activities:
	Additions to oil and gas properties						(14,441)		(9,715)
					Net cash used in investing activities		(14,441)		(9,715)
Cash flows from financing activities:
	Borrowings under credit facility						16,000		17,000
	Principal payments on credit facility						(12,200)		(15,000)
	Distributions to unitholders						(16,574)		(16,574)
					Net cash used in financing activities		(12,774)		(14,574)
Net increase (decrease) in cash and cash equivalents							175		(483)
Cash and cash equivalents, beginning of period							107		625
Cash and cash equivalents, end of period						$	282	$	142

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)


			Three Months Ended
			March 31,
			2011		2010

Net income (loss)			$	(12,727)	$	39,446
Other comprehensive loss:
	Hedge activity, net of tax:
		Hedge gains included in net income (loss)		(8,913)		(11,402)
Comprehensive income (loss)			$	(21,640)	$	28,044

The financial information included herein has been prepared by management

without audit by independent registered public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

NOTE A. Partnership and Nature of Operations

Pioneer Southwest Energy Partners L.P. (the "Partnership") is a Delaware limited partnership that was formed in June 2007 by Pioneer Natural Resources Company (together with its subsidiaries, "Pioneer") to own and acquire oil and gas assets in the Partnership’s area of operations. The Partnership’s area of operations consists of onshore Texas and eight counties in the southeast region of New Mexico.

NOTE B. Summary of Significant Accounting Policies

Presentation. In the opinion of management, the consolidated financial statements of the Partnership as of March 31, 2011, and for the three months ended March 31, 2011 and 2010 include all adjustments and accruals, consisting only of normal recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles that are generally accepted in the United States ("GAAP") have been condensed in or omitted from this Form 10-Q pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). These consolidated financial statements should be read together with the consolidated financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2010.

Principles of consolidation. The consolidated financial statements of the Partnership include the accounts of the Partnership and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

Use of estimates in the preparation of financial statements. Preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, along with the disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of oil and gas properties and impairment of oil and gas properties, in part, is determined using estimates of proved oil and gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.

Cash and cash equivalents. Cash and cash equivalents include cash on hand and depository accounts held by banks.

Inventories. The Partnership's inventories as of March 31, 2011 and December 31, 2010 consist of oil held in storage tanks. The Partnership's oil inventories are carried at the lower of lifting cost or market, on a first-in, first-out basis. Any impairments of inventory are reflected in other expense in the consolidated statements of operations. As of March 31, 2011 and December 31, 2010, there were no inventory valuation reserve allowances recorded by the Partnership.

Oil and gas properties. The Partnership utilizes the successful efforts method of accounting for its oil and gas properties. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized, and nonproductive exploration costs and geological and geophysical expenditures are expensed.

Capitalized costs relating to proved properties are depleted using the unit-of-production method based on total proved reserves or proved developed reserves, depending on the nature of the capitalized costs. Costs of significant nonproducing properties or wells in the process of being drilled are excluded from depletion until such time as the property begins producing and proved reserves are established or, if unsuccessful, impairment is determined.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Proceeds from the sales of individual properties and the capitalized costs of individual properties sold or abandoned are credited and charged, respectively, to accumulated depletion, depreciation and amortization. Generally, no gain or loss is recognized until the entire amortization base is sold. However, gain or loss is recognized from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion rate of the remaining properties in the depletion base.

The Partnership reviews its long-lived assets to be held and used, including proved oil and gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. If impairment is indicated based on a comparison of the asset's carrying value to its undiscounted expected future net cash flows, then an impairment charge is recognized to the extent that the asset's carrying value exceeds its fair value. Estimates of the sum of expected future cash flows requires management to estimate future recoverable proved and risk-adjusted probable and possible reserves, commodity prices, production volumes, capital and lease operating costs and discount rates. Uncertainties about these future cash flow variables cause impairment estimates to be inherently imprecise. Any impairment charge incurred is expensed and reduces the Partnership's recorded basis in the asset.

Asset retirement obligations. The Partnership's asset retirement obligations are recorded at fair value in the period in which the liability is incurred. Asset retirement obligations are generally capitalized as part of the carrying value of the long-lived asset. Conditional asset retirement obligations meet the definition of liabilities and are also recognized when incurred. Asset retirement obligation expenditures are classified as cash used in operating activities in the accompanying consolidated statements of cash flows.

Derivatives and hedging. All derivatives are recorded on the balance sheet at estimated fair value. See Note C for further information regarding the fair value of the Partnership's derivatives. Changes in the fair values of derivative instruments are recognized as gains or losses in the earnings of the period in which they occur. Effective February 1, 2009, the Partnership discontinued hedge accounting on all of its then-existing hedge contracts. Changes in the fair value of effective cash flow hedges prior to the Partnership's discontinuance of hedge accounting on February 1, 2009 were recorded as a component of accumulated other comprehensive income – deferred hedge gains, net of tax ("AOCI – Hedging"), in the partners' equity section of the accompanying consolidated balance sheets, and are being transferred to earnings during the same periods in which the originally hedged transactions are recognized in the Partnership's earnings. Since February 1, 2009, the Partnership has recognized all changes in the fair values of its derivative contracts as gains or losses in the earnings of the periods in which they actually occur.

The Partnership classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty. Net derivative asset values are determined, in part, by utilization of the derivative counterparties' credit-adjusted risk-free rate curves, and net derivative liabilities are determined, in part, by utilization of the Partnership's credit-adjusted risk-free rate curves. The credit-adjusted risk-free rates of the counterparties are based on an independent market-quoted credit default swap rate curve for the counterparties' debt plus the United States Treasury Bill yield curve as of March 31, 2011. The Partnership's credit-adjusted risk-free rate curve is based on independent market-quoted forward London Interbank Offered Rate ("LIBOR") curves plus 250 basis points, representing the Partnership's estimated borrowing rate.

See Notes C and F for a description of the specific types of derivative transactions in which the Partnership participates and the related accounting treatment.

Employee benefit plans. The Partnership does not have its own employees. However, the Partnership does provide unit-based compensation for the independent directors of Pioneer Natural Resources GP LLC (the "General Partner"), the general partner of the Partnership, and certain members of management of the General Partner.

For unit-based compensation awards, compensation expense is recognized in the Partnership's financial statements on a straight line basis over the awards' vesting periods based on their fair values on the dates of grant. The Partnership utilizes the prior trading day's closing common unit price for the fair value of restricted common unit awards.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

For the three months ended March 31, 2011, the Partnership recognized $157 thousand of unit-based compensation, as compared to $86 thousand for the three months ended March 31, 2010. As of March 31, 2011, there was $1.5 million of unrecognized compensation expense related to unvested unit-based compensation awards. This compensation will be recognized over the remaining vesting periods of the awards, which on a weighted average basis is a period of less than three years.

The following table reflects the Partnership's outstanding unit-based awards as of March 31, 2011 and the activity related thereto for the three months ended March 31, 2011:

		Restricted Units	Phantom Units

Outstanding at beginning of year		12,212	35,118
	Units granted	-	30,039
Outstanding at March 31, 2011		12,212	65,157

Segment reporting. The Partnership's only operating segment is oil and gas producing activities. Additionally, all of the Partnership's properties are located in the United States, and all of the related oil, NGL, and gas revenues are derived from sales to purchasers located in the United States.

Income taxes. The Partnership's operations are treated as a partnership with each partner being separately taxed on its share of the Partnership's federal taxable income. Therefore, no provision for current or deferred federal income taxes has been provided for in the accompanying consolidated financial statements. However, the Partnership is subject to the Texas Margin tax. Accordingly, the Partnership reflects its tax positions associated with the tax effects of the Texas Margin tax in the accompanying consolidated balance sheets. See Note D for additional information regarding the Partnership's current and deferred tax provisions and obligations.

Revenue recognition. The Partnership does not recognize revenues until they are realized or realizable and earned. Revenues are considered realized or realizable and earned when: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable and (iv) collectability is reasonably assured.

The Partnership uses the entitlements method of accounting for oil, NGL and gas revenues. Sales proceeds in excess of the Partnership's entitlement, if any, are included in other liabilities and the Partnership's share of sales taken by others, if any, is included in other assets in the accompanying consolidated balance sheets. The Partnership had no material oil, NGL or gas entitlement assets or liabilities as of March 31, 2011 or December 31, 2010.

Environmental. The Partnership's environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. Liabilities are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. Such liabilities are undiscounted unless the timing of cash payments for the liability is fixed or reliably determinable. At March 31, 2011 and December 31, 2010, the Partnership had no material environmental liabilities.

Net income (loss) per common unit. Net income (loss) per common unit is calculated by dividing the limited partners' interest in net income (loss) derived from operations (which excludes net income allocable to unvested participating securities) by the weighted average number of common units outstanding.

The Partnership applies the provisions of ASC Topic 260 "Earnings Per Share" when determining net income (loss) per common unit. Instruments granted in unit-based payment transactions that are determined to be participating securities prior to vesting are included in the net income (loss) allocation in computing basic net income (loss) per unit under the two-class method. Participating securities represent unvested unit-based awards

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

that have non-forfeitable distribution rights during their vesting periods, such as the phantom units which were awarded under the Pioneer Southwest Energy Partners L.P. 2008 Long Term Incentive Plan (the "LTIP").

For purposes of calculating net income (loss) per common unit, the Partnership allocates net income (loss) to its limited partners and its general partner each quarter under the two-class method. Under the two-class method, the Partnership's net income (loss) is allocated among the general partner's interest in net income (loss) and the limited partners' interest in net income (loss). The Partnership's net income (loss) is allocated to partners' equity accounts in accordance with the provisions of the First Amended and Restated Agreement of Limited Partnership of Pioneer Southwest Energy Partners L.P. (the "Partnership Agreement").

NOTE C. Disclosures About Fair Value Measurements

In accordance with GAAP, fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are classified into two categories: observable inputs and unobservable inputs. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. These two types of inputs are further prioritized into the following fair value input hierarchy:

Level 1 – quoted prices for identical assets or liabilities in active markets.

Level 2 – quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g. interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.

· Level 3 – unobservable inputs for the asset or liability.

The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety. The following table presents the Partnership's assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2011, for each of the fair value hierarchy levels:

		Fair Value Measurements at Reporting Date Using
		Quoted Prices in		Significant
		Active Markets		Other		Significant
		for Identical		Observable		Unobservable		Fair Value at
		Assets		Inputs		Inputs		March 31,
		(Level 1)		(Level 2)		(Level 3)		2011
		(in thousands)
Assets:
Commodity derivatives	$	-	$	11,800	$	-	$	11,800
Liabilities:
Commodity derivatives	$	-	$	68,763	$	8,267	$	77,030
Credit facility	$	-	$	81,289	$	-	$	81,289

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

The Partnership's commodity derivatives that are classified as Level 3 in the fair value hierarchy at March 31, 2011 represent NGL derivative contracts. The following table presents the changes in the fair values of the Partnership's commodity derivative assets and liabilities classified as Level 3 in the fair value hierarchy:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)		Three Months Ended
		March 31, 2011
		(in thousands)

Beginning liability balance		$	(6,102)
Net settlement payments			1,285
Fair value changes (a):
	Included in earnings - realized		(1,285)
	Included in earnings - unrealized		(2,165)
Ending liability balance		$	(8,267)

___________

(a) Changes in fair value are included in derivative (gain) loss, net in the accompanying consolidated statements of operations. See Note B for a description of the Partnership's derivative accounting policies.

The following table presents the carrying amounts and fair values of the Partnership’s financial instruments as of March 31, 2011 and December 31, 2010:

	March 31, 2011				December 31, 2010
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value
		(in thousands)
Assets:
Commodity derivatives	$	11,800	$	11,800	$	22,536	$	22,536

Liabilities:
Commodity derivatives	$	77,030	$	77,030	$	41,386	$	41,386
Credit facility	$	85,000	$	81,289	$	81,200	$	77,241

Commodity derivative instruments. The Partnership's commodity derivative assets and liabilities represent oil, NGL and gas swap contracts, collar contracts and collar contracts with short puts. All of the Partnership's oil and gas derivative asset and liability measurements represent Level 2 inputs in the hierarchy priority. The Partnership's NGL derivative liability measurements represent Level 3 inputs in the hierarchy priority.

Oil derivatives. The Partnership's oil derivatives are swap contracts, collar contracts and collar contracts with short puts for notional barrels ("Bbls") of oil at fixed (in the case of swaps contracts) or interval (in the case of collar contracts) New York Mercantile Exchange ("NYMEX") West Texas Intermediate ("WTI") oil prices. Commodity derivative asset values are determined, in part, by utilization of the derivative counterparties' credit-adjusted risk-free rates, and commodity derivative liability values are determined, in part, by utilization of the Partnership's credit-adjusted risk-free rate. The counterparties' credit-adjusted risk-free rates are based on independent market-quoted credit default swap rate curves for the counterparties' debt plus the United States Treasury Bill yield curve as of March 31, 2011. The Partnership's credit-adjusted risk-free rate curve is based on independent market-quoted forward LIBOR curves plus 250 basis points, representing the Partnership's estimated borrowing rate if it were to finance future settlements. The asset and liability transfer values attributable to the Partnership's oil derivative instruments as of March 31, 2011 are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for WTI oil, (iii) the applicable credit-adjusted risk-free rate yield curve and (iv) the implied rate of volatility inherent in the collar contracts. The implied rates of volatility inherent in the Partnership's collar contracts were determined based on average volatility factors provided by certain independent brokers who are active in buying and selling oil options and were corroborated by market-quoted volatility factors.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

NGL derivatives. The Partnership's NGL derivatives are swap contracts for notional blended barrels of Mont Belvieu-posted-price NGLs. The asset and liability values attributable to the Partnership's NGL derivative instruments are based on (i) the contracted notional volumes, (ii) independent market-quoted NGL component prices and (iii) the applicable credit-adjusted risk-free rate yield curve. NGL swap contracts are not as actively traded as oil and gas derivatives. Consequently, fair values determined on the basis of thinly traded price quotes may be less reliable fair value estimates than price quotes for more actively-traded commodities.

Gas derivatives. The Partnership's gas derivatives are swap contracts for notional million British thermal units ("MMBtus") of gas contracted at various posted price indexes, including NYMEX Henry Hub ("HH") swap contracts coupled with basis swap contracts that convert the HH price index point to Permian Basin index prices. The asset and liability values attributable to the Partnership's gas derivative instruments are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for HH gas, (iii) independent active market-quoted forward gas index prices and (iv) the applicable credit-adjusted risk-free rate yield curve.

Credit facility. The fair value of the Partnership's credit facility is based on (i) forecasted contractual interest and fee payments, (ii) forward active market-quoted LIBOR rate yield curves and (iii) the applicable credit-adjusted risk-free rate yield curve.

The carrying value of the Partnership’s cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities approximate fair value due to the short maturity of these instruments.

NOTE D. Income Taxes

The Partnership's income tax (benefits) provisions, which amounts were entirely attributable to the Texas Margin tax (which rate currently approximates one percent of the Partnership's taxable income apportioned to Texas), consisted of the following for the three months ended March 31, 2011 and 2010:

			Three Months Ended
			March 31,
			2011		2010
		(in thousands)
Current provisions:
	U.S. state	$	144	$	169
Deferred (benefits) provisions:
	U.S. state		(344)		217
		$	(200)	$	386

The Partnership's net deferred tax attributes represented a current asset of $159 thousand as of March 31, 2011, a current liability of $63 thousand as of December 31, 2010 and noncurrent assets of $2.0 million and $1.8 million as of March 31, 2011 and December 31, 2010, respectively. In connection with the Partnership's initial public offering in 2008, the Partnership entered into a Tax Sharing Agreement with Pioneer. Under this agreement, the Partnership will pay Pioneer for its share of state and local income and other taxes (currently only the Texas Margin tax) for which the Partnership's results are included in a combined or consolidated tax return filed by Pioneer. The Partnership's share of Texas Margin tax is determined based on a pro forma tax return prepared by including only the income, deductions, gains, losses and credits of the Partnership and computing the tax liability as if the Partnership filed a separate return. As of March 31, 2011 and December 31, 2010, the Partnership had $637 thousand and $492 thousand, respectively, of income taxes payable to affiliate in the accompanying consolidated balance sheets, representing amounts due to Pioneer under the Tax Sharing Agreement.

The Partnership applies the provisions of FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("ASC Topic 740-10"). ASC Topic 740-10 clarifies the accounting for uncertainty in income taxes

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

recognized and prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of March 31, 2011, the Partnership had no material unrecognized tax benefits (as defined in ASC Topic 740-10). The Partnership does not expect to incur interest charges or penalties related to its tax positions, but if such charges or penalties are incurred, the Partnership's policy is to account for interest charges as interest expense and penalties as other expense in the consolidated statements of operations.

NOTE E. Asset Retirement Obligations

The Partnership's asset retirement obligations primarily relate to the Partnership's portion of future plugging and abandonment of wells and related facilities. Market risk premiums associated with asset retirement obligations are estimated to represent a component of the Partnership's credit-adjusted risk-free rate that is employed in the calculations of asset retirement obligations. The Partnership has no assets that are legally restricted for purposes of settling asset retirement obligations. The following table summarizes the Partnership's asset retirement obligation transactions during the three months ended March 31, 2011 and 2010:

			Three Months Ended
			March 31,
			2011		2010
		(in thousands)

Beginning asset retirement obligations		$	12,558	$	7,105
	Liabilities settled		(183)		(47)
	New wells placed on production and changes in estimate		38		9
	Accretion of discount		227		136
Ending asset retirement obligations		$	12,640	$	7,203

NOTE F. Derivative Financial Instruments

The Partnership utilizes derivative swap contracts, collar contracts and collar contracts with short puts to (i) reduce the impact on the Partnership's net cash provided by operating activities from the price volatility of the commodities the Partnership produces and sells and (ii) help sustain unitholder distributions. The Partnership does not enter into derivative financial instruments for speculative or trading purposes. The Partnership's production may also be sold under physical delivery contracts that effectively provide commodity price hedges. Because physical delivery contracts are not expected to be net cash settled, they are considered to be normal sales contracts and not derivatives. Therefore, physical delivery contracts are not recorded as derivatives in the financial statements.

All derivative contracts are recorded in the Partnership's consolidated balance sheets at estimated fair value. Fair value is generally determined based on the credit-adjusted present value difference between the fixed contract price and the underlying market price at the determination date. Effective February 1, 2009, the Partnership discontinued hedge accounting on all existing derivative instruments and since that date has accounted for derivative instruments under the mark-to-market accounting rules, which require all changes in fair values of the Partnership’s derivative contracts be recognized as gains or losses in the earnings of the period in which they occur.

Changes in the fair value of effective cash flow hedges prior to the Partnership's discontinuance of hedge accounting on February 1, 2009 were recorded as a component of AOCI – Hedging, which has been and will continue to be transferred to oil and gas revenues when the forecasted hedged transactions are recognized in earnings.

Cash inflows and outflows attributable to the Partnership's commodity derivatives are included in net cash provided by operating activities in the Partnership's accompanying consolidated statements of cash flows for the three months ended March 31, 2011 and 2010.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Cash flow hedges and derivative price risk management

Oil prices. All material physical sales contracts governing the Partnership's oil production are tied directly or indirectly to the New York Mercantile Exchange ("NYMEX") prices. The following table sets forth the volumes in Bbls underlying the Partnership's outstanding oil derivative contracts and the weighted average NYMEX prices per Bbl for those contracts as of March 31, 2011:

					2011
					Second		Third		Fourth	Year Ending December 31,
					Quarter		Quarter		Quarter		2012		2013		2014
Oil Derivatives:
	Swap contracts:
		Volume (Bbls per day)			750		750		750		3,000		3,000		-
		Price per Bbl		$	77.25	$	77.25	$	77.25	$	79.32	$	81.02	$	-
	Collar contracts:
		Volume (Bbls per day)			2,000		2,000		2,000		-		-		-
		Price per Bbl:
			Ceiling	$	170.00	$	170.00	$	170.00	$	-	$	-	$	-
			Floor	$	115.00	$	115.00	$	115.00	$	-	$	-	$	-
	Collar contracts with short puts:
		Volume (Bbls per day)			1,000		1,000		1,000		1,000		1,000		2,000
		Price per Bbl:
			Ceiling	$	99.60	$	99.60	$	99.60	$	103.50	$	111.50	$	133.00
			Floor	$	70.00	$	70.00	$	70.00	$	80.00	$	83.00	$	90.00
			Short Put	$	55.00	$	55.00	$	55.00	$	65.00	$	68.00	$	75.00

NGL prices. All material physical sales contracts governing the Partnership's NGL production are tied directly or indirectly to Mont Belvieu-posted-prices. The following table sets forth the volumes in Bbls under outstanding NGL derivative contracts and the weighted average Mont Belvieu-posted-prices per Bbl for those contracts as of March 31, 2011:

				2011
				Second		Third		Fourth		Year Ending December 31,
				Quarter		Quarter		Quarter		2012
NGL Derivatives:
	Swap contracts:
		Volume (Bbls per day)		750		750		750		750
		Price per Bbl	$	34.65	$	34.65	$	34.65	$	35.03

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Gas prices. All material physical sales contracts governing the Partnership's gas production are tied directly or indirectly to a Permian Basin index price where the gas is sold. The Partnership utilizes derivative contracts, including basis swaps, to manage its gas price volatility. The following table sets forth the volumes in MMBtus under outstanding gas derivative contracts and the weighted average index prices per MMBtu for those contracts as of March 31, 2011:

			2011
				Second		Third		Fourth	Year Ending December 31,
				Quarter		Quarter		Quarter	2012		2013
Gas Derivatives:
	Swap contracts:
		Volume (MMBtus per day)		2,500		2,500		2,500		5,000		2,500
		Price per MMBtu	$	6.65	$	6.65	$	6.65	$	6.43	$	6.89
	Basis Swap contracts:
		Permian Basin index swaps - (MMBtus per day)		-		-		-		2,500		2,500
		Price differential ($/MMBtu)	$	-	$	-	$	-	$	(0.30)	$	(0.31)

Tabular disclosures about derivative instruments. All of the Partnership’s commodity derivatives were accounted for as non-hedge derivatives as of March 31, 2011 and December 31, 2010. The following tables provide disclosure of the Partnership's commodity derivative instruments:

Fair Value of Derivative Instruments as of March 31, 2011
Asset Derivatives			Liability Derivatives
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)			(in thousands)

Derivatives - current	$	8,768	Derivatives - current	$	23,468
Derivatives - noncurrent		3,049	Derivatives - noncurrent		53,579
Total derivatives not designated as hedging instruments	$	11,817		$	77,047

Fair Value of Derivative Instruments as of December 31, 2010
Asset Derivatives			Liability Derivatives
Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(in thousands)			(in thousands)

Derivatives - current	$	18,753	Derivatives - current	$	9,673
Derivatives - noncurrent		3,783	Derivatives - noncurrent		31,713
Total derivatives not designated as hedging instruments	$	22,536		$	41,386

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Effect of Derivative Instruments on the Consolidated Statement of Operations
Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Amount of Gain Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended
	March 31,
	2011		2010
	(in thousands)

Oil and gas revenues	$	8,997	$	11,510

			Amount of Gain (Loss) Recognized in Income on Derivatives
Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivatives	Three Months Ended
			March 31,
			2011		2010
			(in thousands)

Commodity contracts	Derivative gain (loss), net	$	(44,609)	$	11,524

AOCI - Hedging. The fair value of the effective portion of the derivative contracts on January 31, 2009 was reflected in AOCI-Hedging and has been and will continue to be transferred to oil and gas revenue when the forecasted hedged transactions are recognized in net income (loss). As of March 31, 2011 and December 31, 2010, AOCI - Hedging represented net deferred gains of $27.5 million and $36.5 million, respectively, and associated deferred tax provisions of $244 thousand and $328 thousand as of March 31, 2011 and December 31, 2010, respectively.

During the nine month period ending December 31, 2011, the Partnership expects to reclassify the remaining $27.5 million of net deferred hedge gains and $244 thousand of deferred Texas Margin tax provisions associated with derivative contracts from AOCI - Hedging to oil and gas revenues and income tax provisions, respectively.

Noncash derivative-related activity. The following table summarizes the Partnership's noncash derivative-related activity for the three months ended March 31, 2011 and 2010:

		Three Months Ended
		March 31,
		2011		2010
		(in thousands)

Noncash hedge gains		$	-	$	2,504
Noncash fair value gains (losses)			(37,383)		16,232
	Total noncash derivative-related activity	$	(37,383)	$	18,736

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

Derivative counterparties. The Partnership uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Partnership does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Partnership's credit risk policies and procedures. The following table provides the Partnership's derivative assets and liabilities by counterparty as of March 31, 2011:

		Assets		Liabilities
		(in thousands)

JP Morgan Chase	$	6,764	$	1,362
Societe Generale		-		9,671
Citibank, N.A.		2,295		10,783
Toronto Dominion		2,741		2,730
Wells Fargo Bank, N.A.		-		52,484
Total	$	11,800	$	77,030

NOTE G. Related Party Transactions

Related party charges. In accordance with standard industry operating agreements and the various agreements entered into between the Partnership and Pioneer, the Partnership incurred the following charges from Pioneer during the three months ended March 31, 2011 and 2010:

		Three Months Ended
		March 31,
		2011		2010
		(in thousands)

Producing well overhead (COPAS) fees		$	2,599	$	2,502
Payment of lease operating and supervision charges			2,093		2,209
Drilling and completion related charges			2,589		1,286
General and administrative expenses			985		984
	Total	$	8,266	$	6,981

As of March 31, 2011 and December 31, 2010, the Partnership's accounts payable – due to affiliates balances in the accompanying consolidated balance sheets are comprised of $1.0 million and $1.2 million, respectively, of general and administrative expenses.

As of March 31, 2011 and December 31, 2010, the Partnership had $637 thousand and $492 thousand, respectively, of income taxes payable to affiliate recorded in the accompanying consolidated balance sheets, representing amounts due to Pioneer under the tax sharing agreement between Pioneer and the Partnership.

During 2010 and 2009, the General Partner awarded 8,744 and 12,909 restricted common units, respectively, to directors under the LTIP. Associated therewith, the Partnership paid the General Partner $63 thousand of general and administrative expense during each of the three months ended March 31, 2011 and 2010. In addition, during the three months ended March 31, 2011 and 2010, the General Partner awarded 30,039 and 35,118 phantom units, respectively, to certain employees of Pioneer, including certain executive officers of the General Partner, who were most responsible for the performance of the Partnership. The phantom units represent the right to receive common units after the lapse of a three-year vesting period, subject to the recipient's continuous employment with Pioneer and its affiliates. Distributions on the phantom units will be paid concurrently with distributions paid to holders of common units. Associated therewith, the Partnership recognized general and administrative expense during the three months ended March 31, 2011 and 2010 of $93 thousand and $22 thousand, respectively, of which $90 thousand and $19 thousand, respectively, was noncash.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2011

(Unaudited)

NOTE H. Subsequent Event

The Partnership is not aware of any reportable subsequent events except as disclosed below:

Distribution declaration. In April 2011, the Partnership declared a cash distribution of $0.51 per common unit for the period from January 1, 2011 to March 31, 2011. The distribution is payable on May 12, 2011 to unitholders of record at the close of business on May 2, 2011. Associated therewith, the Partnership will pay $16.9 million of aggregate distributions.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Financial and Operating Performance

The Partnership's financial and operating performance for the first quarter of 2011 included the following highlights:

Earnings decreased to a net loss of $12.7 million ($0.38 per common unit) for the first quarter of 2011, as compared to net income of $39.4 million ($1.19 per common unit) for the first quarter of 2010. The decrease in earnings is primarily attributable to $37.4 million of noncash net mark-to-market commodity derivative losses recognized during the three months ended March 31, 2011 as compared to $18.7 million of noncash net mark-to-market commodity derivative gains recognized during the three months ended March 31, 2010.

·	Daily sales volumes increased to 6,648 BOEPD, as compared to 6,410 BOEPD in the first quarter of 2010, primarily due to incremental production volumes from new wells drilled as part of the Partnership's two-rig drilling program.

The average reported oil sales price increased to $115.48 per Bbl, with average reported NGL and gas sales prices decreasing to $37.94 per Bbl and $3.25 per Mcf, respectively, during the first quarter of 2011, as compared to $103.58 per Bbl, $48.23 per Bbl and $5.46 per Mcf, respectively, during the first quarter of 2010.

·	Average oil and gas production costs per BOE decreased to $15.46 for the first quarter of 2011, as compared to $15.82 for the first quarter of 2010.

Net cash provided by operating activities increased to $27.4 million in the first quarter of 2011, as compared to $23.8 million in the first quarter of 2010. The increase in 2011, as compared to 2010, is primarily due to higher oil and gas production volumes, higher oil prices and changes in working capital during the current quarter.

Second Quarter 2011 Outlook

Based on current estimates, the Partnership expects that production will average 6,600 to 7,100 BOEPD.

Production costs (including production and ad valorem taxes) are expected to average $20.00 to $23.00 per BOE based on current NYMEX strip prices for oil, NGLs and gas. Depletion, depreciation and amortization ("DD&A") expense is expected to average $5.00 to $6.00 per BOE.

General and administrative expense is expected to be $1 million to $2 million. Interest expense is expected to be $400 thousand to $600 thousand, and accretion of discount on asset retirement obligations is expected to be nominal.

The Partnership's cash taxes and effective income tax rate are expected to be approximately one percent of earnings before income taxes as a result of the Partnership's operations being subject to the Texas Margin tax.

Results of Operations

Oil and gas revenues. Oil and gas revenues totaled $49.8 million for the three months ended March 31, 2011, as compared to $45.5 million for the same respective period of 2010.

The increase in oil and gas revenues during the three months ended March 31, 2011, as compared to the same period in 2010, was primarily due to an increase in the average daily sales volumes of oil and an eleven percent increase in average oil prices. The increase in oil and gas sales volumes was primarily due to incremental production from new wells drilled as part of the Partnership's two-rig drilling program. First quarter 2011 production was also negatively impacted by unusually cold weather in early February, which resulted in production being reduced by approximately 50 BOEPD for the quarter.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

The following table provides average daily sales volumes for the three months ended March 31, 2011 and 2010:

	Three Months Ended
	March 31,
	2011	2010

Oil (Bbls)	4,135	3,832
NGLs (Bbls)	1,447	1,572
Gas (Mcf)	6,396	6,038
Daily sales volume (BOE)	6,648	6,410

The following table provides average reported prices, including the results of hedging activities, and average realized prices, excluding results of hedging activities, for the three months ended March 31, 2011 and 2010:

		Three Months Ended
		March 31,
		2011		2010

Average reported prices:
	Oil (Bbls)	$	115.48	$	103.58
	NGLs (Bbls)	$	37.94	$	48.23
	Gas (Mcf)	$	3.25	$	5.46
	Total (BOE)	$	83.21	$	78.87

Average realized prices:
	Oil (Bbls)	$	91.30	$	77.05
	NGLs (Bbls)	$	37.94	$	36.57
	Gas (Mcf)	$	3.25	$	4.15
	Total (BOE)	$	68.17	$	58.94

Oil and gas production costs. The Partnership’s oil and gas production costs totaled $9.2 million during the three months ended March 31, 2011 as compared to $9.1 million for the same period of 2010. During the three months ended March 31, 2011, total oil and gas production costs per BOE decreased by two percent, as compared to the three months ended March 31, 2010.

The Partnership's production costs per BOE for the three months ended March 31, 2011 decreased as compared to the same period of 2010 primarily due to decreased workover activities being performed in 2011 partially offset by general increases in oilfield services costs.

The following table provides the components of the Partnership's oil and gas production costs per BOE for the three months ended March 31, 2011 and 2010:

	Three Months Ended
	March 31,
	2011		2010

Lease operating expenses	$	14.00	$	13.05
Workover costs		1.46		2.77
Production costs	$	15.46	$	15.82

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Production and ad valorem taxes. The Partnership recorded production and ad valorem taxes of $3.3 million for the three months ended March 31, 2011, as compared to $3.1 million for the same period of 2010. In general, production and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, whereas production taxes are based upon current year commodity prices. Consequently, during the three months ended March 31, 2011, the Partnership's production and ad valorem taxes per BOE have, in the aggregate, increased by four percent, as compared to the three months ended March 31, 2010, primarily due to the rise in realized oil prices.

The following table provides components of the Partnership's total production and ad valorem taxes per BOE for the three months ended March 31, 2011 and 2010:

	Three Months Ended
	March 31,
	2011		2010

Ad valorem taxes	$	2.13	$	2.21
Production taxes		3.42		3.13
Total production and ad valorem taxes	$	5.55	$	5.34

Depletion, depreciation and amortization expense. The Partnership's depletion expense was $3.3 million ($5.57 per BOE) for the three months ended March 31, 2011, as compared to $3.0 million ($5.14 per BOE) for the same period of 2010. The increase in per BOE depletion expense was primarily due to increases in the Partnership's oil and gas properties as a result of the two-rig drilling program and partially offset by positive price revisions to proved reserves since March 31, 2010.

General and administrative expense. The Partnership's general and administrative expense was $1.6 million for the three months ended March 31, 2011, as compared to $1.5 million for the same period of 2010. The Partnership and Pioneer entered into an administrative services agreement in May 2008, pursuant to which Pioneer performs administrative services for the Partnership. Pursuant to this agreement, a portion of Pioneer's general and administrative expense is allocated to the Partnership based on a methodology of determining the Partnership's share, on a per-BOE basis, of certain of the general and administrative costs incurred by Pioneer. The Partnership is also responsible for paying for its direct third-party services.

Interest expense. Interest expense was $395 thousand for the three months ended March 31, 2011 as compared to $363 thousand for the same period of 2010. Interest expense increased during the three months ended March 31, 2011, as compared to the same period of 2010 primarily due to increased borrowings under the Partnership's credit facility. Outstanding borrowings under the credit facility as of March 31, 2011 were $85.0 million.

Derivative (gain) loss, net. Fluctuations in commodity prices during 2011 have impacted the fair value of the Partnership's derivative contracts, which resulted in net mark-to-market derivative losses of $44.6 million for the three months ended March 31, 2011. For the three months ended March 31, 2010, the Partnership recognized net mark-to-market derivative gains of $11.5 million. See Note F of Notes to the Consolidated Financial Statements included in "Item 1. Financial Statements" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information about the Partnership's commodity related derivative financial instruments.

Income tax benefit. The Partnership recognized an income tax benefit of $200 thousand for the three months ended March 31, 2011, as compared to an income tax provision of $386 thousand for the same period of 2010. The recognition of an income tax benefit for the three months ended March 31, 2011 as compared to an income tax provision for the same period of 2010 is primarily due to the noncash mark-to-market derivative losses recognized during the three months ended March 31, 2011. See Note D of Notes to Consolidated Financial Statements included in "Item 1. Financial Statements" for additional information regarding the Partnership's income taxes.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Capital Commitments, Capital Resources and Liquidity

Capital commitments. The Partnership's primary cash funding needs will be for production growth through drilling initiatives and acquisitions and for unitholder distributions. The Partnership may use any combination of internally- and externally-financed sources to fund drilling activities, acquisitions and unitholder distributions, including borrowings under its credit facility and funds from future private and public equity and debt offerings.

Consistent with 2010, the Partnership has maintained its two-rig drilling program in 2011. During the first quarter of 2011, the Partnership added 11 new wells to production and exited the quarter with 13 wells awaiting completion. During 2011, the Partnership expects to drill 40 to 45 wells at a net cost, including facility connections, of approximately $67 million. During 2011, the Partnership expects that its capital expenditures will benefit, to some extent, from savings realized from Pioneer’s use of internally provided drilling and completion services in connection with drilling the Partnership’s undeveloped properties, although Pioneer has no obligation to provide its internal services in connection with drilling the Partnership’s undeveloped properties. Although the Partnership expects that internal cash flows and available borrowing capacity under its credit facility will be adequate to fund capital expenditures and planned unitholder distributions, no assurances can be given that such funding sources will be adequate to meet the Partnership's future needs.

The Partnership Agreement requires that the Partnership distribute all of its available cash to its partners. In general, available cash is defined to mean cash on hand at the end of a quarter after the payment of expenses and the establishment of cash reserves for future capital expenditures (including acquisitions), operational needs and distributions for any one or more of the next four quarters. Because the Partnership's proved reserves and production decline continually over time, the Partnership will need to mitigate these declines through drilling initiatives, production enhancement, and/or acquisitions of income producing assets that provide cash margins that allow the Partnership to sustain its level of distributions to unitholders over time. Currently, the Partnership is reserving approximately 25 percent of its cash flow to drill its undeveloped locations in order to maintain its production and cash flow. In the future, the Partnership may use its reserved cash flow for acquisitions of producing properties or undeveloped properties that can be developed to maintain the Partnership's production and cash flow. A distribution for the first quarter of 2011 of $0.51 per unit was declared by the Board of Directors of the General Partner and is to be paid on May 12, 2011 to unitholders of record on May 2, 2011. The first quarter distribution was increased $0.01 per unit, or two percent, as compared to prior quarters primarily as a result of increased available cash, reflecting the success of the Partnership's two-rig drilling program.

Oil and gas properties. The Partnership's cash expenditures for additions to oil and gas properties during the three months ended March 31, 2011 increased to $14.4 million, as compared to $9.7 million for the same period of 2010. Additions to oil and gas properties reflect expenditures associated with the Partnership’s two-rig drilling program and acquisition of interests in producing properties of $2.3 million during the quarter. The Partnership's expenditures for additions to oil and gas properties for the three months ended March 31, 2011 and 2010 were primarily funded by net cash provided by operating activities.

Contractual obligations, including off-balance sheet obligations. As of March 31, 2011, the Partnership's contractual obligations included credit facility indebtedness, asset retirement obligations and derivative instruments. Borrowings outstanding under its credit facility were $85.0 million at March 31, 2011. As of March 31, 2011, the Partnership's derivative instruments represented assets of $11.8 million and liabilities of $77.0 million; however, these derivative instruments continue to have market risk and represent contractual obligations of the Partnership. The ultimate liquidation value of the Partnership's commodity derivatives will be dependent upon actual future commodity prices at the time of settlement, which may differ materially from the inputs used to determine the derivatives' fair values at any point in time. The Partnership entered into these derivatives for the primary purpose of reducing commodity price risk on forecasted physical commodity sales and has an expectation of a high degree of correlation between changes in the derivative values and commodity prices received on physical sales. See Notes C and F of Notes to the Consolidated Financial Statements included in "Item 1. Financial Statements" and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information regarding the Partnership's derivative positions and credit facility. As of March 31, 2011, the Partnership's asset retirement obligations were $12.6 million, an increase of $82 thousand from December 31, 2010. As of March 31, 2011, the Partnership was not a party to any material off-balance sheet arrangements.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Capital resources. The Partnership's primary capital resources are expected to be net cash provided by operating activities, amounts available under its credit facility and, to the extent available, funds from future private and public equity and debt offerings. During 2011, the Partnership expects that cash flow from operations and the available borrowing capacity under its credit facility will be sufficient to fund its drilling program and planned unitholder distributions, and to provide adequate liquidity for future growth opportunities such as additional development drilling or acquisitions. As the Partnership pursues its strategy, it may utilize various financing sources, including, to the extent available, funds from private and public equity and debt offerings.

Operating activities. Net cash provided by operating activities during the three months ended March 31, 2011 was $27.4 million, as compared to $23.8 million for the three months ended March 31, 2010. The increase in net cash provided by operating activities during the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, was primarily due to increases in oil prices.

Investing activities. Net cash used in investing activities during the three months ended March 31, 2011 was $14.4 million, as compared to $9.7 million for the three months ended March 31, 2010. The increase in net cash used in investing activities during the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, was due primarily to increased activity associated with the ongoing two-rig drilling program and $2.3 million of producing property acquisitions during the quarter.

Financing activities. Net cash used in financing activities during the three months ended March 31, 2011 was $12.8 million, as compared to net cash used in financing activities of $14.6 million for the three months ended March 31, 2010. The decrease in net cash used in financing activities during the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, was primarily due to increased net borrowings under the credit facility.

In April 2011, the Partnership declared a cash distribution of $0.51 per common unit for the period from January 1, 2011 to March 31, 2011. The distribution is payable on May 12, 2011 to unitholders of record at the close of business on May 2, 2011. The distribution was increased by $0.01 per unit, or two percent, as compared to prior quarterly distributions per unit. Associated therewith, the Partnership will pay $16.9 million of aggregate distributions.

Liquidity. The Partnership expects that its principal sources of liquidity will be cash generated from operations, amounts available under the credit facility, and, to the extent available, funds from future private and public equity and debt offerings. As of March 31, 2011, the Partnership had $85.0 million of borrowings outstanding under its credit facility and approximately $215 million of remaining borrowing capacity under the credit facility. The Partnership's borrowing capacity under the credit facility is subject to a covenant requiring that the Partnership maintain a specified ratio of the net present value of the Partnership's projected future cash flows from its oil and gas assets to total debt, with the variables upon which the calculation of net present value is based (including assumed commodity prices and discount rates) being subject to adjustment by the lenders. As a result, declines in commodity prices could reduce the Partnership's borrowing capacity under the credit facility and could require the Partnership to reduce its distributions to unitholders. As of March 31, 2011, the Partnership was in compliance with all of its debt covenants.

The Partnership utilizes derivative swap contracts, collar contracts, and collar contracts with short puts to (i) reduce the impact on the Partnership’s net cash provided by operating activities from the price volatility of the commodities the Partnership produces and sells, and (ii) help sustain unitholder distributions. In furtherance of the Partnership’s effort to meet these objectives, approximately 70 percent, 80 percent, 60 percent, and 25 percent of the Patnership’s estimated total production for the remainder of 2011 and for 2012, 2013, and 2014, respectively, have been matched with fixed price commodity swap contracts, collar contracts, or collar contracts with short puts.

As discussed above under "— Capital commitments," the Partnership Agreement requires that the Partnership distribute all of its available cash to its unitholders and the General Partner. In addition, because the Partnership's proved reserves and production decline continually over time, the Partnership will need to replace production to sustain its level of distributions to unitholders over time. Accordingly, the Partnership's primary needs for cash will be for production growth through drilling initiatives (such as the ongoing two-rig drilling program), acquisitions, production enhancements and for distributions to partners. In making cash distributions, the General Partner will attempt to avoid large variations in the amount the Partnership distributes from quarter to quarter. The Partnership

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Agreement permits the General Partner to establish cash reserves to be used to pay distributions for any one or more of the next four quarters, and for the conduct of the Partnership's business, which includes possible acquisitions. A sustained decline in commodity prices could result in a shortfall in expected cash flows. If cash flow from operations does not meet the Partnership's expectations, the Partnership may reduce its level of capital expenditures, reduce distributions to unitholders, and/or fund a portion of its capital expenditures using borrowings under the credit facility, issuances of debt or equity securities or from other sources, such as asset sales. The Partnership cannot provide any assurance that needed capital will be available on acceptable terms or at all.

The Partnership Agreement allows the Partnership to borrow funds to make distributions. The Partnership may borrow to make distributions to unitholders, for example, in circumstances where the Partnership believes that the distribution level is sustainable over the long-term, but short-term factors have caused available cash from operations to be insufficient to sustain its level of distributions. In addition, the Partnership plans to continue to use derivative contracts to protect the cash flow associated with a significant portion of its production. The Partnership is generally required to settle its commodity derivatives within five days of the end of a month. As is typical in the oil and gas industry, the Partnership does not generally receive the proceeds from the sale of its production until 45 days to 60 days following the end of the production month. As a result, when commodity prices increase above the fixed price in the derivative contracts, the Partnership will be required to pay the derivative counterparty the difference between the fixed price in the derivative contract and the market price before the Partnership receives the proceeds from the sale of its production. If this occurs, the Partnership may make working capital borrowings to fund its distributions.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following quantitative and qualitative information about market risk are supplementary to the quantitative and qualitative disclosures provided in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2010. As such, the information contained herein should be read in conjunction with the related disclosures in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2010.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about the Partnership's potential exposure to market risks. The term "market risks," insofar as it relates to currently anticipated transactions of the Partnership, refers to the risk of loss arising from changes in commodity prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather as indicators of reasonably possible losses. This forward-looking information provides indicators of how the Partnership views and manages ongoing market risk exposures. None of the Partnership's market risk sensitive instruments are entered into for speculative purposes.

The Partnership generally uses commodity swap contracts, collar contracts and collar contracts with short put options to mitigate the price risk attributable to changes in commodity prices on its cash available for distributions and other cash requirements. All contracts will be settled with cash and do not require the delivery of physical volumes to satisfy settlement. See Note F of "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding the Partnership's derivative instruments.

The Partnership may, to the extent available in the financial markets, borrow under fixed rate and variable rate debt instruments that give rise to interest rate risk. The objective in borrowing under fixed or variable rate debt is to meet capital requirements for growth while minimizing the Partnership's costs of capital.

The following table reconciles the changes that occurred in the fair values of the Partnership's open derivative contracts during the three months ended March 31, 2011:

	Derivative Contract Net Liabilities (a)
	(in thousands)

Fair value of contracts outstanding as of December 31, 2010	$	(18,850)
Changes in contract fair value		(44,609)
Contract maturities		(1,771)
Fair value of contracts outstanding as of March 31, 2011	$	(65,230)

_____________

(a) Represents the fair values of open derivative contracts subject to market risk.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

The following table provides information about the Partnership's oil, NGL and gas derivative financial instruments that were sensitive to changes in oil, NGL or gas prices as of March 31, 2011:

												Asset
				Nine Months								(Liability)
				Ending								Fair Value at
				December 31,		Year Ending December 31,						March 31,
				2011		2012		2013		2014		2011 (a)
												(in thousands)
Oil Derivatives:
	Swap contracts:
		Volume (Bbls per day)			750		3,000		3,000		-	$	(56,978)
			Price per Bbl	$	77.25	$	79.32	$	81.02	$	-
	Collar contracts:
		Volume (Bbls per day)			2,000		-		-		-	$	6,764
		Price per Bbl:
			Ceiling	$	170.00	$	-	$	-	$	-
			Floor	$	115.00	$	-	$	-	$	-
	Collar contracts with short puts:
		Volume (Bbls per day)			1,000		1,000		1,000		2,000	$	(11,785)
		Price per Bbl:
			Ceiling	$	99.60	$	103.50	$	111.50	$	133.00
			Floor	$	70.00	$	80.00	$	83.00	$	90.00
			Short Put	$	55.00	$	65.00	$	68.00	$	75.00
	Average forward NYMEX oil prices (b)			$	111.81	$	110.25	$	106.99	$	104.90
NGL Derivatives:
	Swap contracts:
		Volume (Bbls per day)			750		750		-		-	$	(8,267)
			Price per Bbl	$	34.65	$	35.03	$	-	$	-
	Average forward Mont Belvieu NGL prices (c)			$	61.93	$	56.23	$	-	$	-
Gas Derivatives:
	Swap contracts:
		Volume (MMBtus per day)			2,500		5,000		2,500		-	$	5,053
			Price per MMBtu	$	6.65	$	6.43	$	6.89	$	-
	Average forward index gas prices (d)			$	4.86	$	5.20	$	5.50	$	-
	Basis swap contracts (e):
		Permian Basin index swaps - (MMBtu per day)			-		2,500		2,500		-	$	(17)
		Price differential ($/MMBtu)		$	-	$	(0.30)	$	(0.31)	$	-
	Average forward basis differential prices (d)			$	-	$	(0.29)	$	(0.31)	$	-

_____________

(a)

In accordance with ASC 210-20 and ASC 815-10, the Partnership classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements as net derivative assets or net derivative liabilities, as the case may be. The net asset and liability amounts shown above have been provided on a commodity contract-type basis, which may differ from their master netting arrangements classifications.

(b)	The average forward NYMEX oil prices are based on May 3, 2011 market quotes.

(c)	Forward Mont Belvieu–posted-prices are not available as formal market quotes. These forward prices represent estimates as of May 2, 2011 provided by third parties who actively trade in the derivatives. Accordingly, these prices are subject to estimates and assumptions.

(d)	The average forward index gas prices and forward basis differential prices are based on May 3, 2011 NYMEX market quotes and estimated El Paso Natural Gas (Permian Basin) differentials to NYMEX prices, respectively.

(e)	To minimize basis risk, the Partnership enters into basis swaps to convert the index prices of those swap contracts from a NYMEX index to an El Paso Natural Gas (Permian Basin) posting index.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

The following table provides information about the Partnership's credit facility's sensitivity to changes in interest rates. The table presents the expected maturity date of the credit facility, the weighted average interest rates expected to be paid on the credit facility given current contractual terms and market conditions and the estimated fair value of outstanding borrowings under the credit facility. The average interest rate represents the average rates being paid on the debt projected forward relative to the forward yield curve for LIBOR on May 2, 2011.

			Nine Months							Liability
			Ending							Fair Value at
			December 31,		Year Ending December 31,					March 31,
			2011		2012		2013			2011
			($ in thousands)
Total Debt:
	Variable rate principal
		maturities	$	-	$	-	$	85,000	$	81,289

	Average interest rate			1.24%		1.90%		3.02%

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Partnership's management, with the participation of the General Partner's principal executive officer and principal financial officer, have evaluated, as required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"), the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report. Based on that evaluation, the principal executive officer and principal financial officer of the General Partner concluded that the Partnership's disclosure controls and procedures were effective, as of the end of the period covered by this Report, in ensuring that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including that such information is accumulated and communicated to the Partnership's management, including the principal executive officer and principal financial officer of the General Partner to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There have been no changes in the Partnership's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2011 that have materially affected or are reasonably likely to materially affect the Partnership's internal control over financial reporting.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Although the Partnership may, from time to time, be involved in litigation and claims arising out of its operations in the normal course of business, the Partnership is not currently a party to any material legal proceedings. In addition, the Partnership is not aware of any material legal or governmental proceedings against it, or contemplated to be brought against it, under the various environmental protection statutes to which the Partnership is subject.

Item 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the risks discussed in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2010, under the headings "Item 1. Business – Competition, Markets and Regulations," "Item 1A. Risk Factors," and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk," which risks could materially affect the Partnership's business, financial condition or future results. There has been no material change in the Partnership's risk factors from those described in the Annual Report on Form 10-K.

These risks are not the only risks facing the Partnership. Additional risks and uncertainties not currently known to the Partnership or that it currently deems to be immaterial also may materially adversely affect the Partnership's business, financial condition or future results.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Item 6. Exhibits

Exhibits

Exhibit Number		Description
10.26 (a)	—	Crude Oil Contract with Occidental Energy Marketing, Inc.
10.27 (a)	—	Amendment to Crude Oil Contract with Occidental Energy Marketing, Inc.
10.28 (a)	—	Amendment to Crude Oil Contract with Occidental Energy Marketing, Inc.
31.1 (a)	—	Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.
31.2 (a)	—	Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.
32.1 (b)	—	Chief Executive Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.
32.2 (b)	—	Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

_____________

(a) Filed herewith.

(b) Furnished herewith.

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.

	PIONEER SOUTHWEST ENERGY PARTNERS L.P.
	By: Pioneer Natural Resources GP LLC, its general
	partner


Date: May 6, 2011	By:	/s/ Richard P. Dealy
		Richard P. Dealy
		Executive Vice President and Chief
		Financial Officer




Date: May 6, 2011	By:	/s/ Frank W. Hall
		Frank W. Hall
		Vice President and Chief
		Accounting Officer

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

Exhibit Index

Exhibit Number		Description
10.26 (a)	—	Crude Oil Contract with Occidental Energy Marketing, Inc.
10.27 (a)	—	Amendment to Crude Oil Contract with Occidental Energy Marketing, Inc.
10.28 (a)	—	Amendment to Crude Oil Contract with Occidental Energy Marketing, Inc.
31.1 (a)	—	Chief Executive Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.
31.2 (a)	—	Chief Financial Officer certification under Section 302 of Sarbanes-Oxley Act of 2002.
32.1 (b)	—	Chief Executive Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.
32.2 (b)	—	Chief Financial Officer certification under Section 906 of Sarbanes-Oxley Act of 2002.

_____________

(a) Filed herewith.

(b) Furnished herewith.

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