e424b5
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and we are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-162566
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PRELIMINARY
PROSPECTUS SUPPLEMENT
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SUBJECT TO COMPLETION
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November 10, 2009
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(To
Prospectus dated November 9, 2009)
2,700,000
Common Units
Representing
Limited Partner Interests
Pioneer
Southwest Energy Partners L.P.
We are selling 2,700,000 common units representing limited
partner interests. Our common units are listed on the New York
Stock Exchange under the symbol PSE. On
November 9, 2009, the last reported sale price of our
common units on the New York Stock Exchange was $21.53 per
common unit.
Investing in our securities involves risks. See Risk
Factors beginning on
page S-6
of this prospectus supplement and on page 4 of the
accompanying prospectus.
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Per common
unit
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to Pioneer Southwest Energy Partners
L.P.
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$
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$
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We have granted the underwriters a
30-day
over-allotment option to purchase up to an additional
405,000 common units on the same terms and conditions as
set forth above.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the common units on or about
November , 2009.
Joint
Book-Running Managers
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BofA
Merrill Lynch |
Wells Fargo Securities |
Co-Managers
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J.P. Morgan |
RBC Capital Markets |
The date of this prospectus supplement is
November , 2009.
TABLE OF
CONTENTS
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Prospectus Supplement
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S-1
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S-4
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S-6
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S-7
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S-8
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S-9
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S-10
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S-11
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S-14
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S-15
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S-15
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S-16
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S-17
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Prospectus
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1
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1
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1
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2
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4
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4
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4
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5
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13
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15
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21
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22
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33
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51
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53
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53
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This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering
and also adds to and updates information contained in the
accompanying prospectus and the documents incorporated by
reference into this prospectus supplement and the accompanying
prospectus. The second part is the accompanying prospectus,
which gives more general information about securities we may
offer from time to time. To the extent the information contained
in this prospectus supplement differs or varies from the
information contained in the accompanying prospectus, the
information in this prospectus supplement controls. Before you
invest in our common units, you should carefully read this
prospectus supplement, along with the accompanying prospectus,
in addition to the information contained in the documents we
refer to under the heading Where you can find more
information in this prospectus supplement and the
accompanying prospectus.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement, the
accompanying prospectus or any free writing
prospectus we may authorize to be delivered to you.
Neither we nor the underwriters have authorized anyone to
provide you with additional or different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. This prospectus supplement is not an
offer to sell or a solicitation of an offer to buy our common
units in any jurisdiction where such offer or any sale would be
unlawful. You should not assume that the information contained
in this prospectus supplement, the accompanying prospectus or
any free writing prospectus is accurate as of any date other
than the dates shown in these documents or any information that
we have incorporated by reference is accurate as of any date
other than the date of the document incorporated by reference.
Our business, financial condition, results of operations and
prospects may have changed since such dates. If any statement in
one of these documents is inconsistent with a statement in
another document having a later datefor example, a
document incorporated by reference in this prospectus supplement
or the accompanying prospectusthe statement in the
document having the later date modifies or supersedes the
earlier statement.
As used in this prospectus supplement, unless we indicate
otherwise: (1) we, our,
us or like terms refer to Pioneer Southwest Energy
Partners L.P. and its subsidiaries, (2) Pioneer
GP or our general partner refers to Pioneer
Natural Resources GP LLC, our general partner,
(3) our operating company refers to Pioneer
Southwest Energy Partners USA LLC, (4) Pioneer
refers to Pioneer Natural Resources Company, a Delaware
corporation (NYSE: PXD) and the ultimate parent company of our
general partner, and its wholly owned subsidiaries,
(5) Pioneer USA refers to Pioneer Natural
Resources USA, Inc., a wholly owned subsidiary of Pioneer,
(6) our properties refers to the properties
that are held by our operating company and (7) our
area of operations is limited by an agreement with
Pioneer to onshore Texas and eight counties in the southeast
region of New Mexico.
i
This summary highlights information contained elsewhere in
this prospectus supplement and the accompanying prospectus. It
does not contain all of the information that you should consider
before making an investment decision. You should read this
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference for a more complete
understanding of our business and the terms of our common units,
as well as the tax and other considerations that are important
to you in making your investment decision. You should pay
special attention to the Risk factors sections on
page S-6
of this prospectus supplement and on page 4 of the
accompanying prospectus, as well as the risk factors included in
Item 1. BusinessCompetition, Markets and
Regulations and Item 1A. Risk Factors in
our Annual Report on
Form 10-K
for the year ended December 31, 2008 (our 2008 Annual
Report on
Form 10-K),
and Quantitative and Qualitative Disclosures About Market
Risk in Exhibit 99.2 to our Current Report on
Form 8-K
filed with the Securities and Exchange Commission (the
SEC) on November 9, 2009 (which
Form 8-K
recast certain financial and operating data previously included
in our 2008 Annual Report on
Form 10-K),
in Part I, Item 3. Quantitative and
Qualitative Disclosures About Market Risk and
Part II, Item 1A. Risk Factors in each of
our quarterly reports on
Form 10-Q
filed since our 2008 Annual Report on Form 10-K, and
Quantitative and Qualitative Disclosures about Market
Risk in Exhibit 99.6 to our
Form 8-K
filed with the SEC on October 19, 2009 (which Form 8-K
recasts and supplements certain financial and operating data
previously included in our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009), as well as the other
documents incorporated by reference, to determine whether an
investment in our common units is appropriate for you. As
described in the Recent Developments section below, we completed
the acquisition of certain oil and gas properties in the
Spraberry field, which we refer to as the Acquired Property
Interests, from Pioneer in August 2009. Because this acquisition
represents a transaction between entities under common control
under generally accepted accounting standards, the data in this
prospectus supplement regarding our properties and financial and
operating results include the attributes of the Acquired
Property Interests as if we had owned the properties at the
beginning of the applicable period. The information presented in
this prospectus supplement assumes, unless otherwise indicated,
that the underwriters do not exercise their over-allotment
option.
PIONEER SOUTHWEST
ENERGY PARTNERS L.P.
We are a Delaware limited partnership that was formed in June
2007 by Pioneer to own and acquire oil and gas assets in our
area of operations.
All of our properties are located in the Spraberry field in the
Permian Basin of West Texas. These properties consist of
non-operated working interests in approximately 1,158 producing
wells with 40.8 MMBOE of proved reserves, of which
approximately 84% were oil and natural gas liquids, or NGLs, as
of December 31, 2008. Pioneer is the operator of these
wells. According to the Energy Information Administration, the
Spraberry field is the fifth largest oil field in the United
States, and we believe that Pioneer is the largest operator in
the field based on recent production information. Because
Pioneer is the largest producer in the Spraberry field and has a
significantly greater asset base than we do, we believe that we
benefit from Pioneers experience and scale of operations.
RECENT
DEVELOPMENTS
On August 31, 2009, we completed the acquisition of certain
oil and gas properties in the Spraberry field, which we refer to
as the Acquired Property Interests, from Pioneer. The
consideration for the Acquired Property Interests was
$169.6 million in cash, including estimated customary
closing adjustments, the assignment by Pioneer to us of certain
associated commodity price derivative positions, and the
assumption by us of certain liabilities.
As of July 1, 2009, estimated net proved oil, NGL and gas
reserves attributable to the Acquired Property Interests totaled
approximately 18.9 MMBOE, of which approximately 37% are
proved developed reserves and approximately 63% are proved
undeveloped reserves. Production from the
S-1
Acquired Property Interests is approximately 1,300 barrels
oil equivalent per day as of August 31, 2009. Of this
amount, approximately 65% is oil, 20% is NGLs and 15% is gas.
Pioneer is the operator of all of the Acquired Property
Interests. In November 2009, we commenced a two-rig drilling
program on these properties and we expect to invest
approximately $60 million through the end of 2010 to
develop proved undeveloped reserves.
The following table sets forth summary information about our
assets, including the Acquired Property Interests, as reflected
in Supplemental Property Information in our Current
Report on
Form 8-K
filed with the SEC on October 19, 2009 (which
Form 8-K
recast certain financial and operating data previously included
in our 2008 Annual Report on
Form 10-K):
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Estimated proved
reserves as of December 31, 2008
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2008 average
daily sales volumes
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Oil
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Oil
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& NGLs
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Gas
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Standardized
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& NGLS
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Gas
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(MBbls)
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(MMcf)
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MBOE
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measure
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(Bbls)
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(Mcf)
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BOE
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(in
thousands)
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Total
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34,454
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38,109
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40,805
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$
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187,219
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5,235
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5,828
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6,206
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OUR RELATIONSHIP
WITH PIONEER
We believe that one of our principal strengths is our
relationship with Pioneer, which owns our general partner and
will own common units representing a 62.7% limited partner
interest in us following the completion of this offering.
Pioneer is a large independent oil and gas exploration and
production company with current operations in the United States
and Africa. Pioneers estimated proved reserves at
December 31, 2008, on a consolidated basis, which includes
our properties, were 959.6 MMBOE, of which 477 MMBOE,
or 50%, were in the Spraberry field. Of the 477 MMBOE of
estimated proved reserves in the Spraberry field, 205 MMBOE
were proved developed reserves and 272 MMBOE were proved
undeveloped reserves.
Pioneer views us as an integral part of its overall growth
strategy and has publicly announced that it intends to offer us
over time the opportunity to purchase Pioneers producing
oil and gas assets in our area of operations, provided that such
transactions can be done in an economic manner on an after tax
basis and depending upon market conditions at the time. We also
plan to participate jointly with Pioneer in acquisitions that
include mature producing assets in our area of operations.
BUSINESS
STRATEGY
Our primary business objective is to maintain quarterly cash
distributions to our unitholders at our initial distribution
rate and, over time, to increase our quarterly cash
distributions. Our strategy for achieving this objective is to:
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Ø
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increase production through a two-rig drilling program, with a
goal of drilling 50 to 60 wells by the end of 2010;
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Ø
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purchase producing properties in our area of operations directly
from Pioneer;
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Ø
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purchase producing properties in our area of operations from
third parties either independently or jointly with Pioneer;
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Ø
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benefit from production and reserve enhancements as a result of
infill drilling and secondary recovery initiatives being
advanced by Pioneer;
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Ø
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maintain a balanced capital structure to ensure financial
flexibility for development and acquisitions; and
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Ø
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mitigate commodity price risk through derivatives.
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S-2
COMPETITIVE
STRENGTHS
We believe the following competitive strengths will allow us to
achieve our objectives of generating and growing cash available
for distribution:
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Ø |
our relationship with Pioneer:
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-
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Pioneer has a significant retained interest in the Spraberry
field as well as an active development plan, each of which
should generate acquisition opportunities for us over time;
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-
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Pioneers significant ownership in us provides it an
economic incentive to sell producing oil and gas properties to
us over time; and
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-
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our ability to pursue acquisitions jointly with Pioneer
increases the number and type of transactions we can pursue and
increases our competitiveness;
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Ø
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our assets are characterized by long-lived and stable production
and include 170
forty-acre
drilling locations; and
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Ø
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our cost of capital and financial flexibility should over time
provide us with a competitive advantage in pursuing acquisitions.
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OUR EXECUTIVE
OFFICE
Our principal executive offices are located at
5205 N. OConnor Blvd., Suite 200, Irving,
Texas 75039, and our telephone number is
(972) 969-3586.
ORGANIZATIONAL
STRUCTURE
The diagram below depicts our organizational structure after
giving effect to this offering:
Ownership
of Pioneer Southwest Energy Partners L.P. after this
offering
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Public Common Units
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37.2
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%
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Pioneer USA Common Units
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62.7
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%
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Pioneer GP General Partner Interest
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0.1
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%
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100.0
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%
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(1) |
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Includes approximately 91,000
common units owned by directors and executive officers of
Pioneer Natural Resources GP LLC. |
S-3
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Common units offered by us |
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2,700,000 common units. |
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405,000 common units if the underwriters exercise their
over-allotment option in full. |
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Common units outstanding after this offering |
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32,708,700 common units, or 33,113,700 if the underwriters
exercise their over-allotment option in full. |
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Use of proceeds |
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We expect to receive net proceeds of approximately
$ million from this offering
($ million if the
underwriters exercise their option to purchase additional common
units in full), including our general partners
proportionate capital contribution and after deducting the
underwriting discounts and commissions and estimated offering
expenses. We intend to use the net proceeds from this offering
to reduce outstanding borrowings under our revolving credit
facility, which we incurred in connection with the acquisition
of the Acquired Property Interests. Such amounts may be
reborrowed and used for general partnership purposes, including
potential future acquisitions. Please read Use of
proceeds. |
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Cash distributions |
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Our partnership agreement requires us to distribute all of our
cash on hand at the end of each quarter, less reserves
established by our general partner, or available
cash, 99.9% to our unitholders and 0.1% to our general
partner. These distributions will be paid within 45 days
after the end of each quarter. We do not have any subordinated
units, and our general partner is not entitled to any incentive
distributions. |
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Currently, our policy is to pay quarterly distributions at a
rate of $0.50 per common unit ($2.00 per common unit on an
annual basis) to the extent we have sufficient available cash.
Our ability to pay distributions is subject to various
restrictions and other factors, and there is no guarantee that
unitholders will receive quarterly distributions from us. Please
read Cash Distribution Policy in the accompanying
prospectus for more information. We declared a quarterly
distribution for our third quarter of 2009 of $0.50 per unit, or
$2.00 on an annualized basis. The distribution is payable
November 12, 2009, to unitholders of record at the close of
business on November 5, 2009. Holders of common units
purchased in this offering are not entitled to this distribution. |
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Estimated ratio of taxable income to distributions |
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We estimate that if you own the common units you purchase in
this offering through the record date for distributions for the
period ended December 31, 2011, you will be allocated, on a
cumulative basis, an amount of federal taxable income for that
period that will be less than 30% of the cash distributed to you
with respect to that period. Please read Material tax
consequences on
page S-10
of this prospectus supplement for an explanation of the basis of
this estimate. |
S-4
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Agreement to be bound by the partnership agreement |
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By purchasing a common unit, you will be bound by all of the
terms of our partnership agreement. Please read The
Partnership Agreement in the accompanying prospectus for
more information. |
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Exchange listing |
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Our common units are traded on the New York Stock Exchange under
the symbol PSE. |
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Conflicts of interest |
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Affiliates of certain of the underwriters are lenders under our
revolving credit facility and will receive a portion of the
proceeds from this offering through repayment of indebtedness
under the revolving credit facility. Please read Conflicts
of interest. |
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Risk factors |
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You should carefully consider the information set forth in the
section of this prospectus supplement and the accompanying
prospectus entitled Risk factors as well as the
other information included in or incorporated by reference in
this prospectus supplement before deciding whether to invest in
our common units. |
S-5
The nature of our business activities subjects us to certain
hazards and risks. Additionally, limited partner interests are
inherently different from capital stock of a corporation. Before
investing in our common units, you should carefully consider the
risk factors included in Item 1.
BusinessCompetition, Markets and Regulations and
Item 1A. Risk Factors in our 2008 Annual Report
on
Form 10-K
and Quantitative and Qualitative Disclosures About Market
Risk in Exhibit 99.2 to our Current Report on
Form 8-K
filed with the SEC on November 9, 2009 (which
Form 8-K
recast certain financial and operating data previously included
in our 2008 Annual Report on
Form 10-K),
in Part I, Item 3. Quantitative and Qualitative
Disclosure About Market Risk and Part II,
Item 1A. Risk Factors in each of our quarterly
reports on
Form 10-Q
filed since our 2008 Annual Report on Form 10-K, and
Quantitative and Qualitative Disclosure About Market
Risk in Exhibit 99.6 to our
Form 8-K
filed with the SEC on October 19, 2009 (which Form
8-K recasts
and supplements certain financial and operating data previously
included in our Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009), as well as the other
information included or incorporated by reference in this
prospectus supplement. These risk factors are not the only risks
that may affect our business. Our business could also be
impacted by additional risks not currently known to us or that
we currently deem to be immaterial. If any of these risks were
actually to occur, our business, financial condition or results
of operations could be materially adversely affected. In that
case, we might not be able to pay the distributions on our
common units, the trading price of our common units could
decline and you could lose part or all of your investment.
S-6
We expect to receive net proceeds of approximately
$ million from this offering
($ million if the
underwriters exercise their option to purchase additional common
units in full), including our general partners
proportionate capital contribution and after deducting the
underwriting discounts and commissions and estimated offering
expenses. We intend to use the net proceeds from this offering
(and from the underwriters exercise of their option to
purchase additional units, if any) to reduce outstanding
borrowings under our revolving credit facility, which we
incurred in connection with the acquisition of the Acquired
Property Interests. Such amounts may be reborrowed and used for
general partnership purposes, including potential future
acquisitions.
At September 30, 2009, $135 million of borrowings were
outstanding under our revolving credit facility, substantially
all of which was incurred to finance the acquisition of the
Acquired Property Interests. As of September 30, 2009,
interest on borrowings under our revolving credit facility had a
weighted average effective interest rate of approximately 1.13%.
The revolving credit facility matures on May 6, 2013.
Affiliates of certain of the underwriters are lenders under our
revolving credit facility and will receive a portion of the
proceeds from this offering through repayment of indebtedness
under the revolving credit facility. Please read Conflicts
of interest.
S-7
The following table shows our cash and cash equivalents and our
capitalization as of September 30, 2009:
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Ø
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on an actual basis; and
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Ø
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as adjusted to reflect the offering of common units in this
offering and the application of the net proceeds therefrom as
described in Use of proceeds.
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The actual information in the table is derived from and should
be read in conjunction with our historical financial statements,
including the accompanying notes, included in our Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2009, which is
incorporated by reference in this prospectus supplement and the
accompanying prospectus.
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September 30,
2009
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Actual
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As
adjusted
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(in
thousands)
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Cash and cash equivalents
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$
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6,032
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$
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Debt, including current maturities:
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Revolving credit facility
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135,000
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Total long-term debt
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135,000
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Partners equity:
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Common unitholders
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22,327
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General partner interest
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173
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Accumulated other comprehensive income-deferred hedge gains, net
of tax
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100,097
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Total partners equity
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122,597
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Total capitalization
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$
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257,597
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$
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S-8
Our common units are listed on the New York Stock Exchange under
the symbol PSE. The last reported sale price of the
common units on November 9, 2009 was $21.53 per common
unit. As of November 9, 2009, there were 30,008,700 common
units outstanding, which were held by 14 holders of record.
The following table sets forth, for the periods indicated, the
high and low sales prices per common unit, as reported on the
New York Stock Exchange, and the amount of the cash
distributions declared per common unit:
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Price
range
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Cash
distributions
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High
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Low
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per
unit(1)
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Year Ending December 31, 2009
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Fourth Quarter (through November 9, 2009)
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$
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22.67
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$
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18.51
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(2)
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Third Quarter
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$
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21.25
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$
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17.03
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0.50
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(3)
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Second Quarter
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$
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20.03
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$
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15.50
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|
0.50
|
|
First Quarter
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|
$
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17.60
|
|
|
$
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13.01
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|
|
|
0.50
|
|
Year Ended December 31, 2008
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|
|
|
|
|
|
|
|
|
|
|
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Fourth Quarter
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$
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17.20
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|
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$
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9.98
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|
|
|
0.50
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Third Quarter
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|
$
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22.68
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|
|
$
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14.35
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|
|
|
0.50
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|
Second
Quarter(4)
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|
$
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22.58
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|
|
$
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18.92
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|
|
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0.31
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(5)
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|
|
(1) |
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Distributions are shown for the quarter with respect to which
they were declared. |
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(2) |
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The distribution has not yet been declared. |
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(3) |
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The distribution is payable November 12, 2009, to
unitholders of record at the close of business on
November 5, 2009. Holders of common units purchased in this
offering are not entitled to this distribution. |
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(4) |
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The high and low sales prices per common unit are reported
from May 1, 2008, the commencement of trading. |
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(5) |
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Based on an initial quarterly distribution of $0.50 per unit,
prorated for the period from and including May 6, 2008 (the
closing date of our initial public offering) through
June 30, 2008. |
S-9
The tax consequences to you of an investment in our common units
will depend in part on your own tax circumstances. For a
discussion of the principal federal income tax considerations
associated with our operations and the purchase, ownership and
disposition of common units, please read Material Tax
Consequences beginning on page 33 of the accompanying
prospectus. You are urged to consult your own tax advisor about
the federal, state, foreign and local tax consequences
particular to your circumstances.
RATIO OF TAXABLE
INCOME TO DISTRIBUTIONS
We estimate that if you purchase a common unit in this offering
and hold the common unit through the record date for the
distribution with respect to the quarter ending
December 31, 2011, you will be allocated, on a cumulative
basis, an amount of federal taxable income for the taxable years
2009 through 2011 that will be less than 30 percent of the
amount of cash distributed to you with respect to that period.
This estimate is based upon many assumptions regarding our
business, assets and operations, including assumptions with
respect to the timing and amounts of capital expenditures, other
expenditures for our drilling program, cash flows and cash
distributions. This estimate and our assumptions are subject to,
among other things, numerous business, economic, regulatory,
competitive and political uncertainties beyond our control.
Further, this estimate is based on current tax law and tax
reporting positions that we have adopted and with which the
Internal Revenue Service might disagree. Accordingly, we cannot
assure you that this estimate will be correct. The actual
percentage of taxable income to distributions could be higher or
lower than our estimate, and any differences could materially
affect the value of the common units. For example, the
percentage of taxable income relative to our distributions could
be higher, and perhaps substantially higher, than our estimate
with respect to the period described above if:
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Ø
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gross income from operations exceeds the amount required to make
the current level of quarterly distributions on all units, yet
we only distribute the current level of quarterly distributions
on all units;
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Ø
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we drill fewer well locations than we anticipate or spend less
than anticipated in connection with drilling the wells included
in our two-rig drilling program; or
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Ø
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we make a future offering of common units and use the proceeds
of that offering in a manner that does not produce substantial
additional deductions during the period described above, such as
to repay indebtedness outstanding at the time of that offering
or to acquire property that is not eligible for depreciation or
amortization for federal income tax purposes or that is
depreciable or amortizable at a rate significantly slower than
the rate applicable to our assets at the time of that offering.
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TAX-EXEMPT
ORGANIZATIONS & OTHER INVESTORS
Ownership of common units by tax-exempt entities and foreign
investors raises issues unique to such persons. Please read
Material Tax ConsequencesTax-Exempt Organizations
and Other Investors in the accompanying base prospectus.
S-10
We are offering our common units described in this prospectus
supplement through the underwriters named below. UBS Securities
LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Citigroup Global Markets Inc. and Wells Fargo
Securities, LLC are the representatives of the underwriters.
Subject to the terms and conditions of an underwriting
agreement, each of the underwriters has severally agreed to
purchase the number of common units listed next to its name in
the following table:
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Number of common
units
|
|
|
|
|
UBS Securities LLC
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|
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Citigroup Global Markets Inc.
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Wells Fargo Securities, LLC
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|
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J.P. Morgan Securities Inc.
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|
|
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RBC Capital Markets Corporation
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|
|
|
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Total
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2,700,000
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|
|
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|
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The underwriting agreement provides that the underwriters must
buy all of the common units if they buy any of them. However,
the underwriters are not required to take or pay for the common
units covered by the underwriters option to purchase
additional common units described below. The conditions
contained in the underwriting agreement include the condition
that all the representations and warranties made by us and our
affiliates to the underwriters are true, that there has been no
material adverse change in the condition of us and that we
deliver to the underwriters customary closing documents.
Our common units and the common units to be sold upon the
exercise of the underwriters option to purchase additional
common units, if any, are offered subject to a number of
conditions, including:
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Ø
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receipt and acceptance of our common units by the
underwriters, and
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Ø
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the underwriters right to reject orders in whole or in
part.
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We have been advised by the representative that the underwriters
intend to make a market in our common units, but that they are
not obligated to do so and may discontinue making a market at
any time without notice.
In connection with this offering, certain of the underwriters or
securities dealers may distribute prospectuses electronically.
OPTION TO
PURCHASE ADDITIONAL COMMON UNITS
We have granted the underwriters an option to buy up to an
aggregate 405,000 additional common units. The underwriters
have 30 days from the date of this prospectus to exercise
this option. If the underwriters exercise this option, they will
each purchase additional common units approximately in
proportion to the amounts specified in the table above.
COMMISSIONS AND
DISCOUNTS
Common units sold by the underwriters to the public will
initially be offered at the offering price set forth on the
cover of this prospectus supplement. Any common units sold by
the underwriters to securities dealers may be sold at a discount
of up to $ per common unit from
the offering price. Any of these securities dealers may resell
any common units purchased from the underwriters to other
brokers or dealers at a discount of up to
$ per common unit from the public
offering price. If all
S-11
Underwriting
the common units are not sold at the offering price, the
representatives may change the offering price and the other
selling terms. Sales of common units made outside of the United
States may be made by affiliates of the underwriters. Upon
execution of the underwriting agreement, the underwriters will
be obligated to purchase the common units at the prices and upon
the terms stated therein, and, as a result, will thereafter bear
any risk associated with changing the offering price to the
public or other selling terms.
The following table shows the per unit and total underwriting
discounts and commissions we will pay to the underwriters
assuming both no exercise and full exercise of the
underwriters option to purchase up to an additional
405,000 units.
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No
exercise
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Full
exercise
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Per Unit
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Total
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We estimate that the total expenses of this offering payable by
us, not including the underwriting discounts and commissions,
will be approximately $320,000.
INDEMNIFICATION
We and our general partner have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, and to contribute
to payments that may be required to be made in respect of these
liabilities.
LOCK-UP
AGREEMENTS
We, our general partner and its executive officers and
directors, have entered into
lock-up
agreements with the underwriters. Under these agreements, we and
each of the these persons may not, without the prior written
approval of the representatives, offer, sell, contract to sell,
pledge or otherwise dispose of or hedge our common units or
securities convertible into or exchangeable for our common
units, enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership
of the common units, make any demand for or exercise any right
or file or cause to be filed a registration statement with
respect to the registration of any common units or securities
convertible, exercisable or exchangeable into common units or
publicly disclose the intention to do any of the foregoing.
These restrictions will be in effect for a period of
60 days after the date of this prospectus supplement,
subject to certain limited exceptions. The restrictions
described in this paragraph do not apply to, among other things:
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Ø
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the sale of units to the underwriters pursuant to the
underwriting agreement;
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Ø
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the issuance by us of common units upon the exercise of a
warrant or the conversion of a security outstanding on the date
of this prospectus supplement;
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Ø
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with certain restrictions, the issuance by us of common units or
securities convertible into or exchangeable for common units as
consideration for any merger or acquisition made by us;
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Ø
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the issuance of unit awards under our 2008 Long Term Incentive
Plan; or
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Ø
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the sale of a maximum of 100,000 common units in the aggregate
by the executive officers and directors of our general partner.
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At any time and without public notice, the representatives may
in their discretion, release all or some of the securities from
these
lock-up
agreements.
S-12
Underwriting
PRICE
STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
In connection with this offering, the underwriters may engage in
activities that stabilize, maintain or otherwise affect the
price of our common units including:
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Ø
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stabilizing transactions;
|
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Ø
|
short sales;
|
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Ø
|
purchases to cover positions created by short sales;
|
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Ø
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imposition of penalty bids; and
|
|
Ø
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syndicate covering transactions.
|
Stabilizing transactions consist of bids or purchases made for
the purpose of preventing or retarding a decline in the market
price of our common units while this offering is in progress.
These transactions may also include making short sales of our
common units, which involves the sale by the underwriters of a
greater number of common units than they are required to
purchase in this offering, and purchasing common units on the
open market to cover positions created by short sales. Short
sales may be covered shorts, which are short
positions in an amount not greater than the underwriters
option to purchase additional common units referred to above, or
may be naked shorts, which are short positions in
excess of that amount.
The underwriters may close out any covered short position by
either exercising their option to purchase additional common
units, in whole or in part, or by purchasing common units in the
open market. In making this determination, the underwriters will
consider, among other things, the price of common units
available for purchase in the open market as compared to the
price at which they may purchase common units through their
option to purchase additional common units.
Naked short sales are in excess of the underwriters option
to purchase additional common units. The underwriters must close
out any naked short position by purchasing common units in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common units in the open market
that could adversely affect investors who purchased in this
offering.
LISTING
Our common units are traded on the New York Stock Exchange under
the symbol PSE.
ELECTRONIC
DISTRIBUTION
A prospectus supplement in electronic format may be made
available by one or more of the underwriters or their
affiliates. The representatives may agree to allocate a number
of common units to underwriters for sale to their online
brokerage account holders. The representatives will allocate
common units to underwriters that may make Internet
distributions on the same basis as other allocations. In
addition, common units may be sold by the underwriters to
securities dealers who resell common units to online brokerage
account holders.
Other than the prospectus supplement in electronic format, the
information on any underwriters web site and any
information contained in any other web site maintained by an
underwriter is not part of the prospectus supplement or the
registration statement of which this prospectus supplement forms
a part, has not been approved
and/or
endorsed by us or any underwriter in its capacity as an
underwriter and should not be relied upon by investors.
S-13
Some of the underwriters and their affiliates have performed
investment banking, commercial banking and advisory services for
us and our affiliates from time to time for which they have
received customary fees and expenses. The underwriters and their
affiliates may, from time to time in the future, engage in
transactions with and perform services for us and our affiliates
in the ordinary course of their business.
Affiliates of UBS Securities LLC, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Wells Fargo Securities,
LLC, Citigroup Global Markets Inc., J.P. Morgan Securities
Inc. and RBC Capital Markets Corporation are lenders and
agents under our revolving credit facility. These affiliates
will receive their respective share of any repayment by us of
amounts outstanding under our revolving credit facility from the
proceeds of this offering.
Because FINRA views our common units as interests in a direct
participation program, this offering is being made in compliance
with FINRA Rule 2310. Investor suitability with respect to
the common units will be judged similarly to the suitability
with respect to other securities that are listed for trading on
a national securities exchange.
S-14
The validity of the common units will be passed upon for us by
Vinson & Elkins L.L.P., Houston, Texas. Certain legal
matters in connection with the common units offered by us will
be passed upon for the underwriters by Baker Botts L.L.P.,
Dallas, Texas.
The consolidated financial statements of Pioneer Southwest
Energy Partners L.P. appearing in Pioneer Southwest Energy
Partners L.P.s Annual Report
(Form 10-K)
for the year ended December 31, 2008 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated balance sheet of Pioneer Southwest Energy
Partners GP LLC appearing in Pioneer Southwest Energy Partners
L.P.s Annual Report
(Form 10-K)
for the year ended December 31, 2008 has been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such consolidated
balance sheet is incorporated herein by reference in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
The carve out financial statements of the Acquired Property
Interests as of December 31, 2008 and 2007 and for each of
the three years in the period ended December 31, 2008
appearing in Pioneer Southwest Energy Partners L.P.s
current report on
Form 8-K/A
filed on October 16, 2009 have been audited by
Ernst & Young LLP, independent auditors, as set forth
in their report thereon appearing therein, and incorporated
herein by reference. Such carve out financial statements are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The supplemental consolidated financial statements of Pioneer
Southwest Energy Partners L.P. as of December 31, 2008 and
2007 and for each of the three years in the period ended
December 31, 2008 appearing in Pioneer Southwest Energy
Partners L.P.s current report on
Form 8-K
filed on October 19, 2009 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such supplemental
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The supplemental consolidated balance sheet of Pioneer Southwest
Energy Partners GP LLC as of December 31, 2008 appearing in
Pioneer Southwest Energy Partners L.P.s current report on
Form 8-K
filed on October 19, 2009 has been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such supplemental
consolidated balance sheet is incorporated herein by reference
in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Pioneer Southwest
Energy Partners L.P. as of December 31, 2008 and 2007 and
for each of the three years in the period ended
December 31, 2008 appearing in Pioneer Southwest Energy
Partners L.P.s current report on Form
8-K filed on
November 9, 2009 have been audited by Ernst &
Young LLP, independent registered public accounting firm,
as set forth in their report thereon appearing therein, and
incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
Estimated quantities of our oil and gas reserves and the net
present value of such reserves incorporated by reference in this
prospectus supplement are based upon reserve reports prepared by
us, certain portions of which have been audited by Netherland,
Sewell & Associates, Inc. We have incorporated these
estimates in reliance on the authority of such firm as experts
in such matters.
S-15
We file annual, quarterly, and current reports and other
information with the SEC. You may read and copy any documents
filed by us at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information
regarding us. The SECs web site is at
http://www.sec.gov.
We also make available free of charge on our internet website at
http://www.pioneersouthwest.com
all of the documents that we file with the SEC as soon as
reasonably practicable after we electronically file such
material with the SEC. Information contained on our website is
not incorporated by reference into this prospectus supplement
and, you should not consider information contained on our
website as part of this prospectus supplement.
We incorporate by reference information into this
prospectus supplement, which means that we disclose important
information to you by referring you to another document filed
separately with the SEC. The information incorporated by
reference is deemed to be part of this prospectus supplement,
except for any information superseded by information contained
expressly in this prospectus supplement. Also, the information
we file later with the SEC will automatically supersede the
information in documents previously filed with the SEC. You
should not assume that the information in this prospectus
supplement is current as of any date other than the date on the
front page of this prospectus supplement.
We incorporate by reference in this prospectus supplement the
documents listed below:
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Our Annual Report on
Form 10-K
for the year ended December 31, 2008 filed on March 6,
2009, as amended by Amendment No. 1 to our Annual Report on
Form 10-K/A
filed on March 31, 2009;
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Ø
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Our Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2009,
June 30, 2009 and September 30, 2009, filed on
May 13, 2009, August 12, 2009 and November 9,
2009, respectively;
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Ø
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Our Current Reports on
Form 8-K
filed on March 31, 2009, June 17, 2009,
August 19, 2009, September 3, 2009, October 19,
2009 and November 9, 2009, and our Current Report on
Form 8-K/A
(Amendment No. 1) filed on October 16, 2009 (in each
case excluding any information furnished pursuant to
Item 2.02 or Item 7.01); and
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Ø
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The description of our common units contained in our
Registration Statement on
Form 8-A
filed on April 25, 2008, and including any other amendments
or reports filed for the purpose of updating such description.
|
In addition, we incorporate by reference in this prospectus
supplement any future filings made by Pioneer Southwest Energy
Partners L.P. with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934 (the
Exchange Act) (excluding any information furnished
and not filed with the SEC) after the date of this prospectus
supplement and until the termination of this offering.
You may request a copy of any document incorporated by reference
in this prospectus supplement and any exhibit specifically
incorporated by reference in those documents, at no cost, by
writing or telephoning us at the following address or phone
number:
Pioneer Southwest Energy Partners L.P.
5205 N. OConnor Blvd., Suite 200
Irving, Texas 75039
Attention: Investor Relations
Tel:
(972) 969-3586
S-16
This prospectus supplement, the accompanying prospectus, and the
documents we incorporate by reference contain statements that
constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Exchange Act, and the Private Securities
Litigation Reform Act of 1995. The forward-looking statements
speak only as of the date made, and we undertake no obligation
to update forward-looking statements. These forward-looking
statements may be identified by the use of the words
believe, expect, anticipate,
will, contemplate, would and
similar expressions that contemplate future events. These
statements appear in a number of places in the documents we
incorporate by reference. All statements other than statements
of historical fact included or incorporated in this prospectus
supplement or the accompanying prospectus, including statements
regarding the financial position, business strategy, production
and other plans and objectives for our future operations, are
forward-looking statements.
Although we believe that such forward-looking statements are
based on reasonable assumptions, we give no assurance that our
expectations will in fact occur. Important factors could cause
actual results to differ materially from those in the
forward-looking statements, including factors identified in our
periodic reports incorporated in this prospectus supplement by
reference and under the heading Cautionary Statements
Regarding Forward-Looking Statements in the accompanying
prospectus. Forward-looking statements are subject to risks and
uncertainties and include information concerning general
economic conditions and possible or assumed future results of
operations, estimates of oil and gas production and reserves,
drilling plans, future cash flows, anticipated capital
expenditures, and our strategies, plans and objectives. When
considering these forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this
prospectus supplement or incorporated by reference herein,
including those described in the Risk Factors
section of our most recent Annual Report on
Form 10-K
and, to the extent applicable, our Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K.
All forward-looking statements attributable to us are expressly
qualified in their entirety by this cautionary statement.
S-17
PROSPECTUS
$500,000,000
PIONEER SOUTHWEST ENERGY PARTNERS
L.P.
Common Units
PIONEER SOUTHWEST ENERGY
PARTNERS L.P.
PSE FINANCE
CORPORATION
Debt Securities
We may offer under this prospectus, from time to time, in one or
more series, common units representing limited partner interests
in Pioneer Southwest Energy Partners L.P. and debt securities,
which may be senior debt securities or subordinated debt
securities.
PSE Finance Corporation may act as co-issuer of the debt
securities. If a series of debt securities is guaranteed, we
expect that such series will be fully and unconditionally
guaranteed by substantially all of the domestic wholly-owned
subsidiaries of Pioneer Southwest Energy Partners L.P.
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on
a continuous or delayed basis. This prospectus describes the
general terms of these securities and the general manner in
which we will offer the securities. The specific terms of any
securities we offer will be included in a supplement to this
prospectus. The prospectus supplement will also describe the
specific manner in which we will offer the securities.
You should carefully read this prospectus and any prospectus
supplement before you invest. You should also read the documents
we refer to in the Where You Can Find More
Information section of this prospectus for information on
us and our financial statements.
Our common units are listed on the New York Stock Exchange and
trade under the symbol PSE.
Investing in our securities involves risks, including those
associated with the inherent differences between partnerships
and corporations. You should carefully consider each of the risk
factors described under Risk Factors beginning on
page 4 of this prospectus and in the applicable prospectus
supplement before you make an investment in our securities.
We will provide information in the prospectus supplement for the
trading market, if any, for any debt securities we may offer.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is November 9, 2009.
TABLE OF
CONTENTS
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33
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51
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53
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53
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You should rely only on the information contained in or
incorporated by reference into this prospectus and any
prospectus supplement. We have not authorized anyone to provide
you with additional or different information. If anyone provides
you with different or inconsistent information, you should not
rely on it. This prospectus and any prospectus supplement are
not an offer to sell, nor a solicitation of an offer to buy,
these securities in any jurisdiction where the offer or sale is
not permitted. You should not assume that the information
contained in this prospectus is accurate as of any date other
than the date on the front cover of this prospectus, or that the
information contained in any document incorporated by reference
is accurate as of any date other than the date of the document
incorporated by reference, regardless of the time of delivery of
this prospectus or any sale of a security.
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement on
Form S-3
that we and PSE Finance Corporation have filed with the
Securities and Exchange Commission, or SEC, utilizing a
shelf registration process or continuous offering
process. Under this shelf registration process, we may, from
time to time, sell up to $500,000,000 of the securities
described in this prospectus in one or more offerings. Each time
we offer securities, we will provide this prospectus and a
prospectus supplement that will describe, among other things,
the specific amounts and prices of the securities being offered
and the terms of the offering, including, in the case of debt
securities, the specific terms of the securities.
The prospectus supplement may include additional risk factors or
other special considerations applicable to those securities and
may also add, update, or change information in this prospectus.
Additional information, including our financial statements and
the notes thereto, is incorporated in this prospectus by
reference to our reports filed with the SEC. Please read
Where You Can Find More Information. You are urged
to read this prospectus and any prospectus supplements relating
to the securities offered to you, together with the additional
information described under the heading Where You Can Find
More Information, carefully before investing in our common
units or debt securities. To the extent information in this
prospectus is inconsistent with information contained in a
prospectus supplement, you should rely on the information in the
prospectus supplement.
The following information should help you understand some of the
conventions used in this prospectus:
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The Partnership, we, our,
us, or like terms mean Pioneer Southwest Energy
Partners L.P. and its subsidiaries.
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References to Pioneer GP, the general
partner, or our general partner refer to
Pioneer Natural Resources GP LLC, our general partner.
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References to our operating company refer to Pioneer
Southwest Energy Partners USA LLC, our wholly-owned subsidiary.
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Pioneer refers to Pioneer Natural Resources Company,
a Delaware corporation (NYSE: PXD) and the ultimate parent
company of our general partner.
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Pioneer USA refers to Pioneer Natural Resources USA,
Inc., a wholly-owned subsidiary of Pioneer.
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ABOUT
PIONEER SOUTHWEST ENERGY PARTNERS L.P.
Pioneer Southwest Energy Partners L.P. is a Delaware limited
partnership that was formed in June 2007 by Pioneer Natural
Resources Company to own and acquire oil and gas assets in the
Partnerships area of operations. The Partnerships
area of operations consists of onshore Texas and eight counties
in the southeast region of New Mexico.
Our principal executive offices are located at
5205 N. OConnor Blvd., Suite 200, Irving,
Texas 75039, and our phone number is
(972) 969-3586.
Our website is located at
http://www.pioneersouthwest.com.
We make our periodic reports and other information filed with or
furnished to the SEC available, free of charge, through our
website, as soon as reasonably practicable. Information
contained on our website is not incorporated by reference into
this prospectus and you should not consider information
contained on our website as part of this prospectus.
For additional information as to our business, properties, and
financial condition, please refer to the documents cited in
Where You Can Find More Information.
WHERE YOU
CAN FIND MORE INFORMATION
We are required to file annual, quarterly, and current reports
and other information with the SEC. You may read and copy any
documents filed by us at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of the Public Reference
Room. The SEC maintains an internet site that contains reports,
proxy and information statements, and other information
regarding US.The SECs web site is at
http://www.sec.gov.
1
We also make available free of charge on our internet website at
http://www.pioneersouthwest.com
all of the documents that we file with the SEC as soon as
reasonably practicable after we electronically file such
material with the SEC. Information contained on our website is
not incorporated by reference into this prospectus and, you
should not consider information contained on our website as part
of this prospectus.
We incorporate by reference information into this
prospectus, which means that we disclose important information
to you by referring you to another document filed separately
with the SEC. The information incorporated by reference is
deemed to be part of this prospectus, except for any information
superseded by information contained expressly in this
prospectus.Also, the information we file later with the SEC will
automatically supersede the information in documents previously
filed with the SEC. You should not assume that the information
in this prospectus is current as of any date other than the date
on the front page of this prospectus.
We incorporate by reference in this prospectus the documents
listed below:
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Our Annual Report on
Form 10-K
for the year ended December 31, 2008 filed on March 6,
2009, as amended by Amendment No. 1 to our Annual Report on
Form 10-K/A
filed on March 31, 2009;
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Our Quarterly Reports on
Form 10-Q
for the quarterly periods ended March 31, 2009,
June 30, 2009 and September 30, 2009, filed on
May 13, 2009, August 12, 2009 and November 9,
2009, respectively;
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Our Current Reports on
Form 8-K
filed on March 31, 2009, June 17, 2009,
August 19, 2009, September 3, 2009, October 19,
2009 and November 9, 2009, and our Current Report on
Form 8-K/A
(Amendment No. 1) filed on October 16, 2009 (in each
case excluding any information furnished pursuant to
Item 2.02 or Item 7.01); and
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The description of our common units contained in our
Registration Statement on
Form 8-A
filed on April 25, 2008, and including any other amendments
or reports filed for the purpose of updating such description.
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In addition, we incorporate by reference in this prospectus any
future filings made by Pioneer Southwest Energy Partners L.P.
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934 (the Exchange
Act) (excluding any information furnished and not filed
with the SEC) after the date on which the registration statement
that includes this prospectus was initially filed with the SEC
(including all such documents we may file with the SEC after the
date of the initial registration statement and prior to the
effectiveness of the registration statement) and until all
offerings under this shelf registration statement are terminated.
You may request a copy of any document incorporated by reference
in this prospectus and any exhibit specifically incorporated by
reference in those documents, at no cost, by writing or
telephoning us at the following address or phone number:
Pioneer Southwest Energy Partners L.P.
5205 N. OConnor Blvd., Suite 200
Irving, Texas 75039
Attention: Investor Relations
Tel:
(972) 969-3586
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Statements included or incorporated by reference in this
prospectus that are not historical facts are forward-looking
statements. Statements other than historical facts are forward-
looking and may be identified by words such as
expects, anticipates,
intends, plans, believes,
estimates, impact, future,
projection, forecasts,
could, will, and words of similar
meaning. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and
other factors, some of which are beyond our control and are
difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such
forward-looking statements. You should not place undue reliance
on these forward-looking statements, which speak only as of the
date of this report. Examples of these types of statements
include, among others, those regarding:
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the volatility of oil, NGL and gas prices;
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estimation, development and acquisition of oil and gas reserves;
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cash flow, liquidity and financial condition;
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future financial performance;
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business and financial strategy;
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amount, nature and timing of capital expenditures;
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availability and terms of capital;
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timing and amount of future production of oil and gas;
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availability of drilling, production and well service equipment;
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operating costs and other expenses;
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prospect development and property acquisitions;
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marketing of oil, NGL and gas;
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competition in the oil and gas industry;
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the impact of weather and the occurrence of natural disasters
such as fires, earthquakes and other catastrophic events;
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governmental regulation of the oil and gas industry;
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global supply and demand fundamentals for oil and natural gas;
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developments in oil-producing and gas-producing
countries; and
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strategic plans, expectations and objectives for future
operations.
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The forward-looking statements contained in this prospectus are
largely based on our expectations, which reflect estimates and
assumptions made by our management. These estimates and
assumptions reflect our best judgment based on currently known
market conditions and other factors. Although we believe such
estimates and assumptions to be reasonable, they are inherently
uncertain and involve a number of risks and uncertainties that
are beyond our control. In addition, managements
assumptions about future events may prove to be inaccurate.
Management cautions all readers that the forward-looking
statements contained in this prospectus are not guarantees of
future performance, and we cannot assure any reader that such
statements will be realized or the forward-looking events and
circumstances will occur. When considering these forward-looking
statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus or incorporated by
reference herein, including those described in the Risk
Factors section of our most recent Annual Report on
Form 10-K
and, to the extent applicable, our Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and any prospectus supplement. The risk factors and other
factors included in this prospectus, any prospectus supplement,
or incorporated by reference herein or therein could cause our
actual results to differ materially from those contained in any
forward-looking statement.
All forward-looking statements included in this prospectus, any
prospectus supplement, and the documents we incorporate by
reference herein and therein are expressly qualified in their
entirety by these cautionary statements.
Forward-looking statements speak only as of the date of this
prospectus or, in the case of forward-looking statements
contained in any document incorporated by reference, the date of
such document, and we expressly disclaim any obligation or
undertaking to update these statements to reflect any change in
our expectations or beliefs or any change in events, conditions,
or circumstances on which any forward-looking statement is based.
3
RISK
FACTORS
The nature of our business activities subjects us to certain
hazards and risks. Additionally, limited partner interests are
inherently different from the capital stock of a corporation,
although many of the business risks to which we are subject are
similar to those that would be faced by a corporation engaged in
similar businesses. You should carefully consider the risk
factors and all of the other information included in, or
incorporated by reference into, this prospectus or any
prospectus supplement, including those included in our most
recent Annual Report on
Form 10-K
and, if applicable, in our Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
in evaluating an investment in our securities. If any of these
risks were to occur, our business, financial condition, or
results of operations could be adversely affected. In that case,
the trading price of our common units or debt securities could
decline and you could lose all or part of your investment. When
we offer and sell any securities pursuant to a prospectus
supplement, we may include additional risk factors relevant to
those securities in the prospectus supplement.
USE OF
PROCEEDS
Unless otherwise indicated to the contrary in an accompanying
prospectus supplement, we will use the net proceeds from the
sale of the securities covered by this prospectus for general
partnership purposes, which may include debt repayment, future
acquisitions, capital expenditures, and additions to working
capital.
Any specific allocation of the net proceeds of an offering of
securities to a purpose will be determined at the time of the
offering and will be described in a prospectus supplement.
RATIO OF
EARNINGS TO FIXED CHARGES
The table below sets forth our and our predecessors ratio
of earnings to fixed charges for the periods indicated on a
consolidated historical basis. For purposes of determining the
ratio of earnings to fixed charges, earnings are defined as
earnings (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of net interest
expense (inclusive of credit facility commitment fees) on all
indebtedness, the amortization of deferred financing costs, and
interest associated with operating leases, if any.
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Pioneer Southwest Energy Partners L.P.(a)
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Six Months
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Ended
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Year Ended December 31,
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June 30,
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2004
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2005
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2006
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2007
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2008
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2009
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Ratio of earnings to fixed charges
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(c
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(c
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(c
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(c
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196.01
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34.25
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(a)
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Pioneer Southwest Energy Partners
L.P. together with its subsidiaries (the
Partnership) acquired its oil and gas property
interests through transactions consummated on May 6, 2008
(the 2008 IPO Acquisitions) and on August 31,
2009 (the 2009 Acquisition). For periods prior to
the Partnerships acquisition of the oil and gas property
interests (prior to May 6, 2008 in the case of the 2008 IPO
Acquisitions and for all periods in the case of the 2009
Acquisition), these ratios were calculated from amounts
representing Partnership predecessor attributes.
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(b)
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The ratio has been computed by
dividing earnings by fixed charges. For purposes of computing
the ratio:
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earnings consist of
income from continuing operations before income taxes and
cumulative effect of change in accounting principle plus fixed
charges; and
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fixed charges consist
of interest expense (neither the Partnership nor the
Partnerships predecessor had noncontrolling interests,
capitalized interest or rental expense during the periods
presented).
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(c)
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The ratio of earnings to fixed
charges is not applicable to periods prior to May 6, 2008,
as the Partnerships predecessor did not incur any fixed
charges.
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4
DESCRIPTION
OF DEBT SECURITIES
General
The debt securities will be:
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our direct general obligations;
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either senior debt securities or subordinated debt
securities; and
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issued under one or more indentures among Pioneer Southwest
Energy Partners L.P., PSE Finance Corporation, if it is a
co-issuer of the debt securities, any subsidiary guarantors, and
a trustee.
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Pioneer Southwest Energy Partners L.P. may issue debt securities
in one or more series, and PSE Finance Corporation may be a
co-issuer of one or more series of such debt securities. PSE
Finance Corporation was incorporated under the laws of the State
of Delaware on August 25, 2009, is wholly-owned by Pioneer
Southwest Energy Partners L.P., and has no material assets or
any liabilities other than as a co-issuer of debt securities.
Its activities are expected to be limited to co-issuing debt
securities and engaging in other activities incidental thereto.
When used in this section Description of Debt
Securities, the terms we, us,
our, and issuers refer jointly to
Pioneer Southwest Energy Partners L.P. and PSE Finance
Corporation, and the terms Pioneer Southwest Energy
Partners L.P. and PSE Finance refer strictly
to Pioneer Southwest Energy Partners L.P. and PSE Finance
Corporation, respectively.
If we offer senior debt securities, we will issue them under a
senior indenture. If we issue subordinated debt securities, we
will issue them under a subordinated indenture. A form of each
indenture is filed as an exhibit to the registration statement
of which this prospectus is a part. We have not restated either
indenture in its entirety in this description. You should read
the relevant indenture because it, and not this description,
controls the rights of holders of the debt securities.
Capitalized terms used in the summary have the meanings
specified in the indentures.
Specific
Terms of Each Series of Debt Securities in the Prospectus
Supplement
A prospectus supplement and a supplemental indenture or
authorizing resolutions relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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whether PSE Finance will be a co-issuer of the debt securities;
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the guarantors of the debt securities, if any;
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whether the debt securities are senior or subordinated debt
securities;
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the title of the debt securities;
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the total principal amount of the debt securities;
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the denominations in which the debt securities are issuable, if
other than $1,000 and any integral multiple thereof;
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whether we will issue the debt securities in individual
certificates to each holder in registered form, or in the form
of temporary or permanent global securities held by a depositary
on behalf of holders;
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the prices at which we will issue the debt securities;
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the portion of the principal amount that will be payable if the
maturity of the debt securities is accelerated;
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the currency or currency unit in which the debt securities will
be payable, if not U.S. dollars;
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the date or dates on which the principal of or premium, if any,
on the debt securities will be payable;
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the interest rate, if any, that the debt securities will bear
and the interest payment dates for the debt securities;
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any conversion or exchange provisions;
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any optional redemption provisions;
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any sinking fund or other provisions that would obligate us to
redeem or otherwise repurchase the debt securities;
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any changes to or additional events of default or
covenants; and
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any other terms of the debt securities.
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We may offer and sell debt securities, including original issue
discount debt securities, at a substantial discount below their
principal amount. The prospectus supplement will describe
special U.S. federal income tax and any other
considerations applicable to those securities. In addition, the
prospectus supplement may describe certain special
U.S. federal income tax or other considerations applicable
to any debt securities that are denominated in a currency other
than U.S. dollars.
Guarantees
If specified in the prospectus supplement respecting a series of
debt securities, Pioneer Southwest Energy Partners USA LLC and
any other of our subsidiaries specified in the prospectus
supplement will unconditionally guarantee to each holder and the
trustee, on a joint and several basis, the full and prompt
payment of principal of, premium, if any, and interest on the
debt securities of that series when and as the same become due
and payable, whether at stated maturity, upon redemption or
repurchase, by declaration of acceleration or otherwise. If a
series of debt securities is guaranteed, we expect that such
series will be guaranteed by substantially all of the
wholly-owned subsidiaries of Pioneer Southwest Energy Partners
L.P. The prospectus supplement will describe any limitation on
the maximum amount of any particular guarantee and the
conditions under which guarantees may be released.
The guarantees will be general obligations of the guarantors.
Guarantees of subordinated debt securities will be subordinated
to the Senior Indebtedness of the guarantors on the same basis
as the subordinated debt securities are subordinated to the
Senior Indebtedness of Pioneer Southwest Energy Partners L.P.
Consolidation,
Merger, or Asset Sale
Each indenture will, in general, allow each issuer to
consolidate or merge with or into another domestic entity. It
will also allow each issuer to sell, lease, transfer, or
otherwise dispose of all or substantially all of its assets to
another domestic entity. If this happens, the remaining or
acquiring entity must assume all of the issuers
responsibilities and liabilities under the indenture, including
the payment of all amounts due on the debt securities and
performance of the issuers covenants in the indenture.
However, each indenture will impose certain requirements with
respect to any consolidation or merger with or into an entity,
or any sale, lease, transfer, or other disposition of all or
substantially all of an issuers assets, including:
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the remaining or acquiring entity must be organized under the
laws of the United States, any state or the District of Columbia;
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the remaining or acquiring entity must assume the issuers
obligations under the indenture;
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immediately after giving effect to the transaction, no Default
or Event of Default (as defined under Events
of Default and Remedies) may exist; and
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if the series of debt securities are guaranteed and if the
issuer is not the remaining or acquiring entity, then each
subsidiary guarantor, unless it is the remaining or acquiring
entity, must confirm that its guarantee will continue to apply
to the obligations under the debt securities and the indenture.
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The remaining or acquiring entity will be substituted for the
issuer in the indenture with the same effect as if it had been
an original party to the indenture, and, except in the case of a
lease, the issuer will be relieved from any further obligations
under the indenture.
6
No
Protection in the Event of a Change of Control
Unless otherwise set forth in the prospectus supplement, the
debt securities will not contain any provisions that protect the
holders of the debt securities in the event of a change of
control of Pioneer Southwest Energy Partners L.P. or our general
partner or in the event of a highly leveraged transaction,
whether or not such transaction results in a change of control
of Pioneer Southwest Energy Partners L.P. or our general partner.
Modification
of Indentures
We may supplement or amend an indenture if the holders of a
majority in aggregate principal amount of the outstanding debt
securities of each series issued under the indenture affected by
the supplement or amendment consent to it. Further, the holders
of a majority in aggregate principal amount of the outstanding
debt securities of any series may waive past defaults under the
indenture and compliance by us with our covenants with respect
to the debt securities of that series only. Those holders may
not, however, waive any default in any payment on any debt
security of that series or compliance with a provision that
cannot be supplemented or amended without the consent of each
holder affected. Without the consent of each outstanding debt
security affected, no modification of the indenture or waiver
may:
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reduce the percentage in principal amount of debt securities of
any series whose holders must consent to an amendment,
supplement, or waiver;
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reduce the principal of or extend the fixed maturity of any debt
security;
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reduce the premium payable upon redemption or change the time of
redemption of the debt securities;
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reduce the rate of or extend the time for payment of interest on
any debt security;
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waive a Default or an Event of Default in the payment of
principal of or premium, if any, or interest on the debt
securities or a Default or an Event of Default in respect of a
provision that cannot be amended without the consent of each
affected holder;
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except as otherwise permitted under the indenture, release any
security that may have been granted with respect to the debt
securities;
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make any debt security payable in currency other than that
stated in the debt security;
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impair the right of any holder to receive payment of premium, if
any, principal of and interest on such holders debt
securities on or after the due dates therefor or to institute
suit for the enforcement of any payment on or with respect to
such holders debt securities;
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in the case of any subordinated debt security, make any change
in the subordination provisions that adversely affects the
rights of any holder under those provisions;
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make any change in the provisions of the indenture relating to
waivers of past Defaults or Events of Default;
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except as otherwise permitted in the indenture, release any
guarantor from its obligations under its guarantee or the
indenture or modify any guarantee in any manner adverse to the
holders; or
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make any change in the preceding amendment, supplement, and
waiver provisions (except to increase any percentage set forth
therein).
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We may supplement or amend an indenture without the consent of
any holders of the debt securities in certain circumstances,
including:
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to provide for the assumption of an issuers or
guarantors obligations to holders of debt securities in
the case of a merger or consolidation or disposition of all or
substantially all of such issuers or guarantors
assets;
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to add any additional covenants and related Events of Default;
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to cure any ambiguity, defect, or inconsistency;
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to secure the debt securities
and/or the
guarantees;
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to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the
Trust Indenture Act;
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in the case of any subordinated debt security, to make any
change in the subordination provisions that limits or terminates
the benefits applicable to any holder of our Senior Indebtedness;
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to make any changes that do not adversely affect the rights
under the indenture of any holder of debt securities;
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to add or release guarantors pursuant to the terms of the
indenture;
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to evidence or provide for the acceptance of appointment under
the indenture of a successor trustee; or
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to establish the form or terms of any series of debt securities.
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Events of
Default and Remedies
Event of Default, when used in an indenture, will
mean any one or more of the following with respect to the debt
securities of any series:
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failure to pay when due the principal of or premium, if any, on
any debt security of that series, whether or not, in the case of
subordinated debt securities, the subordination provisions of
the indenture prohibit such payment;
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failure to pay, within 30 days of the due date, interest on
any debt security of that series, whether or not, in the case of
subordinated debt securities, the subordination provisions of
the indenture prohibit such payment;
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failure to pay when due any sinking fund payment with respect to
any debt securities of that series, whether or not, in the case
of subordinated debt securities, the subordination provisions of
the indenture prohibit such payment;
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failure on the part of the issuers to comply with the covenant
described under Consolidation, Merger or Asset
Sale;
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failure to perform any other covenant in the indenture that
continues for 60 days after written notice is given to the
issuers;
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certain events of bankruptcy, insolvency, or
reorganization; or
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any other Event of Default provided under the terms of the debt
securities of that series.
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An Event of Default for a particular series of debt securities
will not necessarily constitute an Event of Default for any
other series of debt securities issued under an indenture. The
trustee may withhold notice to the holders of debt securities of
any default (except in the payment of principal, premium, if
any, or interest) if it considers such withholding of notice to
be in the interests of the holders.
If an Event of Default described in the sixth bullet point above
occurs, the entire principal of, premium, if any, and accrued
interest on, all debt securities then outstanding will be due
and payable immediately, without any declaration or other act on
the part of the trustee or any holders. If any other Event of
Default for any series of debt securities occurs and continues,
the trustee or the holders of at least 25% in aggregate
principal amount of the debt securities of the series may
declare the entire principal of, and accrued interest on, all
the debt securities of that series to be due and payable
immediately. If this happens, subject to certain conditions, the
holders of a majority in aggregate principal amount of the debt
securities of that series can rescind the declaration.
Other than its duties in case of a default, a trustee is not
obligated to exercise any of its rights or powers under either
indenture at the request, order, or direction of any holders,
unless the holders offer the trustee reasonable security or
indemnity. If they provide this reasonable security or
indemnification, the holders of a majority in aggregate
principal amount of any series of debt securities may direct the
time, method, and place of conducting any proceeding for any
remedy available to the trustee, or exercising any power
conferred upon the trustee, for that series of debt securities.
8
No Limit
on Amount of Debt Securities
Neither indenture will limit the amount of debt securities that
we may issue, unless we indicate otherwise in a prospectus
supplement. Each indenture will allow us to issue debt
securities of any series up to the aggregate principal amount
that we authorize.
Registration
of Notes
We will issue debt securities of a series only in registered
form, without coupons, unless otherwise indicated in the
prospectus supplement.
Minimum
Denominations
Unless the prospectus supplement states otherwise, the debt
securities will be issued only in principal amounts of $1,000
each or integral multiples of $1,000.
No
Personal Liability
None of the past, present, or future partners, incorporators,
managers, members, directors, officers, employees, unitholders,
or stockholders of either issuer or any guarantor will have any
liability for the obligations of the issuers or any guarantors
under either indenture, the debt securities, or any guarantee or
for any claim based on such obligations or their creation. Each
holder of debt securities by accepting a debt security waives
and releases all such liability. The waiver and release are part
of the consideration for the issuance of the debt securities.
The waiver may not be effective under federal securities laws,
however, and it is the view of the SEC that such a waiver is
against public policy.
Payment
and Transfer
The trustee will initially act as paying agent and registrar
under each indenture. The issuers may change the paying agent or
registrar without prior notice to the holders of debt
securities, and the issuers or any of their subsidiaries may act
as paying agent or registrar.
If a holder of debt securities has given wire transfer
instructions to the issuers, the issuers will make all payments
on the debt securities in accordance with those instructions.
All other payments on the debt securities will be made at the
corporate trust office of the trustee, unless the issuers elect
to make interest payments by check mailed to the holders at
their addresses set forth in the debt security register.
Subject to any applicable abandoned property law, the trustee
and any paying agent will repay to us upon request any funds
held by them for payments on the debt securities that remain
unclaimed for two years after the date upon which that payment
has become due. After payment to us, holders entitled to the
money must look to us for payment as general creditors.
Exchange,
Registration, and Transfer
Debt securities of any series will be exchangeable for other
debt securities of the same series, the same total principal
amount, and the same terms but in different authorized
denominations in accordance with the applicable indenture.
Holders may present debt securities for exchange or registration
of transfer at the office of the registrar. The registrar will
effect the transfer or exchange when it is satisfied with the
documents of title and identity of the person making the
request. We will not charge a service charge for any
registration of transfer or exchange of the debt securities. We
may, however, require the payment of any tax or other
governmental charge payable for that transaction.
We will not be required to:
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issue, register the transfer of, or exchange debt securities of
a series during a period of 15 days prior to the mailing of
notice of redemption of that series; or
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register the transfer of or exchange any debt security called
for redemption, except the unredeemed portion of any debt
security we are redeeming in part.
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Provisions
Relating only to the Senior Debt Securities
The senior debt securities will rank equally in right of payment
with all of our other senior and unsubordinated debt. The senior
debt securities will be effectively subordinated, however, to
all of our secured debt to the extent of the value of the
collateral for that debt. We will disclose the amount of our
secured debt in the prospectus supplement.
Provisions
Relating only to the Subordinated Debt Securities
Subordinated
Debt Securities Subordinated to Senior
Indebtedness
The subordinated debt securities will rank junior in right of
payment to all of our Senior Indebtedness. Senior
Indebtedness and Designated Senior
Indebtedness will be defined in a supplemental indenture
or authorizing resolutions respecting any issuance of a series
of subordinated debt securities, and the definitions will be set
forth in the prospectus supplement. If the subordinated debt
securities are guaranteed by any of the subsidiaries of Pioneer
Southwest Energy Partners L.P., then the guarantees will be
subordinated on like terms.
Payment
Blockages
The subordinated indenture will provide that no payment of
principal, interest, and any premium on the subordinated debt
securities (or any related guarantee) may be made in the event:
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we or our property (or any guarantor or its property) is
involved in any liquidation, bankruptcy, or similar proceeding;
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we (or any guarantor) fails to pay the principal, interest, any
premium, or any other amounts on any of our (or its) Senior
Indebtedness within any applicable grace period or the maturity
of such Senior Indebtedness is accelerated following any other
default, subject to certain limited exceptions set forth in the
subordinated indenture; or
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any other default on any of our (or any guarantors)
Designated Senior Indebtedness occurs that permits immediate
acceleration of its maturity, in which case a payment blockage
on the subordinated debt securities will be imposed for a
maximum of 179 days at any one time.
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No
Limitation on Amount of Senior Debt
The subordinated indenture will not limit the amount of Senior
Indebtedness that we or any guarantor may incur, unless
otherwise indicated in the prospectus supplement.
Book
Entry, Delivery and Form
The debt securities of a particular series may be issued in
whole or in part in the form of one or more global certificates
that will be deposited with the trustee as custodian for The
Depository Trust Company, New York, New York
(DTC). This means that we will not issue
certificates to each holder, except in the limited circumstances
described below. Instead, one or more global debt securities
will be issued to DTC, who will keep a computerized record of
its participants (for example, your broker) whose clients have
purchased the debt securities. The participant will then keep a
record of its clients who purchased the debt securities. Unless
it is exchanged in whole or in part for a certificated debt
security, a global debt security may not be transferred, except
that DTC, its nominees, and their successors may transfer a
global debt security as a whole to one another.
Beneficial interests in global debt securities will be shown on,
and transfers of global debt securities will be made only
through, records maintained by DTC and its participants.
DTC has provided us the following information: DTC, the
worlds largest securities depository, is a limited-purpose
trust company organized under the New York Banking Law, a
banking organization within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a
clearing corporation within the meaning of the New
York Uniform Commercial Code and a clearing agency
registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC holds and provides asset
servicing for over 3.5 million
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issues of U.S. and
non-U.S. equity
issues, corporate and municipal debt issues, and money market
instruments (from over 100 countries) that DTCs
participants (Direct Participants) deposit with DTC.
DTC also facilitates the post-trade settlement among Direct
Participants of sales and other securities transactions in
deposited securities, through electronic computerized book-entry
transfers and pledges between Direct Participants
accounts. This eliminates the need for physical movement of
securities certificates. Direct Participants include both
U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. DTC is a
wholly-owned subsidiary of The Depository Trust &
Clearing Corporation (DTCC). DTCC is the holding
company for DTC, National Securities Clearing Corporation and
Fixed Income Clearing Corporation, all of which are registered
clearing agencies. DTCC is owned by the users of its regulated
subsidiaries. Access to the DTC system is also available to
others such as both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial
relationship with a Direct Participant, either directly or
indirectly (Indirect Participants). DTC has
Standard & Poors Ratings Services highest
rating: AAA. The DTC rules applicable to its Direct Participants
are on file with the SEC.
We will wire all payments on the global debt securities to
DTCs nominee. We, any guarantor, and the trustee will
treat DTCs nominee as the owner of the global debt
securities for all purposes. Accordingly, we, any guarantor, the
trustee and any paying agent will have no direct responsibility
or liability to pay amounts due on the global debt securities to
owners of beneficial interests in the global debt securities.
We understand that it is DTCs current practice, upon
receipt of any payment on the global debt securities, to credit
Direct Participants accounts on the payment date according
to their respective holdings of beneficial interests in the
global debt securities as shown on DTCs records. In
addition, it is DTCs current practice to assign any
consenting or voting rights to Direct Participants whose
accounts are credited with debt securities on a record date, by
using an omnibus proxy. Payments by Direct and Indirect
Participants to owners of beneficial interests in the global
debt securities, and voting by Direct and Indirect Participants,
will be governed by the customary practices between such
Participants and owners of beneficial interests, as is the case
with debt securities held for the account of customers
registered in street name. However, payments will be
the responsibility of the Direct and Indirect Participants and
not of DTC, the trustee, us, or any guarantor.
Debt securities represented by a global debt security will be
exchangeable for certificated debt securities with the same
terms in authorized denominations only if:
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DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be eligible or in good standing
under applicable law and in either event a successor depositary
is not appointed by us within 90 days; or
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an Event of Default occurs and DTC notifies the trustee of its
decision to exchange the global debt security for certificated
debt securities.
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Satisfaction
and Discharge; Defeasance
Each indenture will be discharged and will cease to be of
further effect as to all outstanding debt securities of any
series issued thereunder, when:
(a) either:
(1) all outstanding debt securities of that series that
have been authenticated (except lost, stolen, or destroyed debt
securities that have been replaced or paid and debt securities
for whose payment money has theretofore been deposited in trust
and thereafter repaid to us) have been delivered to the trustee
for cancellation; or
(2) all outstanding debt securities of that series that
have not been delivered to the trustee for cancellation have
become due and payable by reason of the giving of a notice of
redemption or otherwise or will become due and payable at their
stated maturity within one year or are to be called for
redemption within one year under arrangements satisfactory to
the trustee and in any case we have irrevocably deposited or
caused to be irrevocably deposited with the trustee as trust
funds in trust cash sufficient to pay and discharge the entire
indebtedness of such debt securities not delivered to the
trustee for
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cancellation, for principal, premium, if any, and accrued
interest to the date of such deposit (in the case of debt
securities that have been due and payable) or the stated
maturity or redemption date;
(b) we have paid or caused to be paid all other sums
payable by us under the indenture with respect to that
series; and
(c) we have delivered an officers certificate and an
opinion of counsel to the trustee stating that all conditions
precedent to satisfaction and discharge have been satisfied.
The debt securities of a particular series will be subject to
legal or covenant defeasance to the extent, and upon the terms
and conditions, set forth in the prospectus supplement.
Governing
Law
Each indenture and all of the debt securities will be governed
by the laws of the State of New York.
The
Trustee
We will enter into the indentures with a trustee that is
qualified to act under the Trust Indenture Act of 1939 (the
Trust Indenture Act) and with any other
trustees chosen by us and appointed in a supplemental indenture
for a particular series of debt securities. We may maintain a
banking relationship in the ordinary course of business with our
trustee and one or more of its affiliates.
Resignation
or Removal of Trustee
If the trustee has or acquires a conflicting interest within the
meaning of the Trust Indenture Act, the trustee must either
eliminate its conflicting interest or resign, to the extent and
in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and the applicable indenture. Any
resignation will require the appointment of a successor trustee
under the applicable indenture in accordance with the terms and
conditions of such indenture.
The trustee may resign or be removed by us with respect to one
or more series of debt securities and a successor trustee may be
appointed to act with respect to any such series. The holders of
a majority in aggregate principal amount of the debt securities
of any series may remove the trustee with respect to the debt
securities of such series.
Limitations
on Trustee if It Is Our Creditor
Each indenture will contain certain limitations on the right of
the trustee, in the event that it becomes a creditor of an
issuer or a guarantor, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of
any such claim as security or otherwise.
Certificates
and Opinions to Be Furnished to Trustee
Each indenture will provide that, in addition to other
certificates or opinions that may be specifically required by
other provisions of an indenture, every application by us for
action by the trustee must be accompanied by a certificate of
certain of our officers and an opinion of counsel (who may be
our counsel) stating that, in the opinion of the signers, all
conditions precedent to such action have been complied with by
US.
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DESCRIPTION
OF THE COMMON UNITS
The
Common Units
Our common units represent limited partner interests in Pioneer
Southwest Energy Partners L.P. The holders of units are entitled
to participate in partnership distributions and exercise the
rights or privileges available to unitholders under our
partnership agreement. For a description of the rights and
preferences of holders of common units in and to partnership
distributions, please read this section and Cash
Distribution Policy. For a description of the rights and
privileges of unitholders under our partnership agreement,
including voting rights, please read The Partnership
Agreement.
Our common units trade on the New York Stock Exchange under the
symbol PSE.
Transfer
Agent and Registrar
Duties
American Stock Transfer & Trust Company is the
registrar and transfer agent for the common units. We will pay
all fees charged by the transfer agent for transfers of common
units except the following, which must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates,
taxes and other governmental charges;
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special charges for services requested by a common
unitholder; and
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other similar fees or charges.
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There will be no direct charge to unitholders for disbursements
of our cash distributions. We will indemnify the transfer agent,
its agents and each of their stockholders, directors, officers
and employees against all claims and losses that may arise out
of acts performed or omitted for its activities in that
capacity, except for any liability due to any gross negligence
or intentional misconduct of the indemnified person or entity.
Resignation
or Removal
The transfer agent may resign, by notice to us, or be removed by
US. The resignation or removal of the transfer agent will become
effective upon our appointment of a successor transfer agent and
registrar and its acceptance of the appointment. If no successor
has been appointed and has accepted the appointment within
30 days after notice of the resignation or removal, our
general partner may act as the transfer agent and registrar
until a successor is appointed.
Transfer
of Common Units
Pursuant to our partnership agreement, each transferee of our
common units:
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represents that the transferee has the capacity, power and
authority to become bound by our partnership agreement;
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automatically agrees to be bound by the terms and conditions of,
and is deemed to have executed, our partnership
agreement; and
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gives the consents and approvals contained in our partnership
agreement.
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A transferee will become a substituted limited partner of our
partnership for the transferred common units automatically upon
the recording of the transfer on our books and records or the
books and records of our transfer agent. Our general partner
will cause any transfers to be recorded on our books and records
no less frequently than quarterly.
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We may, at our discretion, treat the nominee holder of a common
unit as the absolute owner. In that case, the beneficial
holders rights are limited solely to those that it has
against the nominee holder as a result of any agreement between
the beneficial owner and the nominee holder.
Common units are securities and are transferable according to
the laws governing transfers of securities. In addition to other
rights acquired upon transfer, the transferor gives the
transferee the right to become a substituted limited partner in
our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and
the transfer agent may treat the record holder of the unit as
the absolute owner for all purposes, except as otherwise
required by law or stock exchange regulations.
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CONFLICTS
OF INTEREST AND FIDUCIARY DUTIES
Conflicts
of Interest
Conflicts of interest exist and may arise in the future as a
result of the relationships among us and our general partner and
affiliates. Because our general partner is owned by Pioneer, the
directors and officers of our general partner have fiduciary
duties to manage our general partner in a manner beneficial to
Pioneer. At the same time, our general partner has a fiduciary
duty to manage us in a manner beneficial to us, subject to the
exculpation provisions and limitations in the partnership
agreement. The board of directors or the conflicts committee of
the board of directors of our general partner will resolve any
such conflict and has broad latitude to consider the interests
of all parties to the conflict. The resolution of these
conflicts may not always be in our best interest.
Whenever a conflict arises between our general partner or its
affiliates, on the one hand, and us, on the other hand, our
general partner will resolve that conflict. Our partnership
agreement provides that our general partners fiduciary
duties are limited and owed only to us, not to our unitholders.
Our partnership agreement also restricts the remedies available
to unitholders for actions taken that, without those
limitations, might constitute breaches of our general
partners fiduciary duty to US.
Our general partner is responsible for identifying any such
conflict of interest and our general partner may choose to
resolve the conflict of interest by any one of the methods
described in the following sentence. Our general partner will
not be in breach of its obligations under the partnership
agreement or its duties to us if the resolution of the conflict
is, or is deemed to be, fair and reasonable to the partnership;
provided, that any conflict of interest and any resolution of
such conflict of interest shall be deemed fair and reasonable to
the partnership if such conflict of interest or resolution is:
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approved by the conflicts committee in good faith, although our
general partner is not obligated to seek such approval;
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approved by the vote of a majority of the outstanding common
units, excluding any common units owned by our general partner
or any of its affiliates;
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determined by our general partner in good faith to be on terms
no less favorable to us than those generally being provided to
or available from unrelated third parties; or
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determined by our general partner in good faith to be fair and
reasonable to us, taking into account the totality of the
relationships among the parties involved.
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The board of directors of our general partner has stated that it
intends to maintain a conflicts committee, comprising at least
two independent directors. Currently its conflicts committee
comprises all four of its independent directors. Our general
partner may, but is not required to, seek approval from the
conflicts committee of a resolution of a conflict of interest
with our general partner or its affiliates. If our general
partner seeks approval from the conflicts committee, the members
of the conflicts committee who do not have a recusal
conflict (as defined below) will determine in good faith
whether to approve the proposed resolution of a conflict of
interest with our general partner or its affiliates. In the
event any member of the conflicts committee has a recusal
conflict with respect to any proposed transaction, such member
is required to disclose such recusal conflict and may not
participate in the decision of the conflicts committee with
respect to such proposed transaction. A member of the conflicts
committee shall only be deemed to have a recusal conflict with
respect to a proposed transaction in the event that such member
of the conflicts committee (i) is an officer of any person
that is a party to any proposed transaction with the partnership
or any member of the partnership group that is the subject of
review (a counterparty), (ii) is an employee of
the counterparty, (iii) has a material financial interest
in the counterparty (other than ownership of less than 1% of the
outstanding equity of the counterparty) or the proposed
transaction (other than by reason of an ownership interest in
the partnership) or (iv) is involved on behalf of the
counterparty in connection with structuring or negotiating the
proposed transaction. Any matters approved by the conflicts
committee (or approved by an officer or officers of our general
partner pursuant to guidelines and procedures adopted by the
conflicts committee) in good faith will be conclusively deemed
to be fair and reasonable to us, approved by all of our partners
and not a breach by our general partner of any duties it may owe
to US.It shall be presumed that, in making any decision relating
to the resolution of a conflict of interest, the conflicts
committee or
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our general partner acted in good faith, and in any proceeding
brought by or on behalf of any limited partner or us, the person
bringing or prosecuting such proceeding will have the burden of
overcoming such presumption. Unless the resolution of a conflict
is specifically provided for in our partnership agreement, our
general partner or the conflicts committee may consider any of
the following factors when resolving a conflict: (i) the
relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating
to such interest; (ii) the totality of the relationships
between the parties involved (including other transactions that
may be or have been particularly favorable or advantageous to
us); (iii) any customary or accepted industry practices and
any customary or historical dealings with a particular person;
(iv) any applicable engineering practices or generally
accepted accounting practices or principles; and (v) the
relative cost of capital of the parties and the consequent rates
of return to the equity holders of the parties. In addition, the
conflicts committee (or such officer or officers of our general
partner pursuant to guidelines and procedures adopted by the
conflicts committee) shall be authorized in connection with its
resolution of any conflict of interest to consider such
additional factors as the conflicts committee or such officer(s)
determine in their sole discretion to be relevant, reasonable or
appropriate under the circumstances. For a discussion of what
constitutes good faith, please read Fiduciary
Duties below.
Conflicts of interest could arise in the situations described
below, among others.
Pioneer
is not limited in its ability to compete with us, which could
cause conflicts of interest and limit our ability to acquire
additional assets or businesses which, in turn, could adversely
affect our results of operations and cash available for
distribution to our unitholders.
Our partnership agreement does not prohibit Pioneer from owning
assets or engaging in businesses that compete directly or
indirectly with US.For example, Pioneer owns other oil and gas
properties in the Spraberry field and other parts of our area of
operations that will not be conveyed to US.In addition, Pioneer
may acquire, develop or dispose of oil and gas properties or
other assets in the future, without any obligation to offer us
the opportunity to purchase or develop any of those assets.
Pioneer is a large, established participant in the oil and gas
industry, and has significantly greater resources and experience
than we have, which may make it more difficult for us to compete
with Pioneer with respect to commercial activities as well as
for acquisition candidates. As a result, competition from
Pioneer could adversely impact our results of operations and
cash available for distribution.
Neither
our partnership agreement nor any other agreement requires
Pioneer to pursue a business strategy that favors
US.Pioneers officers and directors have a fiduciary duty
to make these decisions in the best interests of the owners of
Pioneer, which may be contrary to our interests.
Because the officers and certain of the directors of our general
partner are also officers of Pioneer, such officers and
directors have fiduciary duties to Pioneer that may cause them
to pursue business strategies that disproportionately benefit
Pioneer or which otherwise are not in our best interests.
Our
general partner is allowed to take into account the interests of
parties other than us, such as Pioneer, in resolving conflicts
of interest.
Our partnership agreement contains provisions that reduce the
standards to which our general partner would otherwise be held
by state fiduciary duty law. For example, our partnership
agreement permits our general partner to make a number of
decisions in its sole discretion. This entitles our general
partner to consider only the interests and factors that it
desires, and it has no fiduciary duty or obligation to give any
consideration to any interest of, or factors affecting, us, our
affiliates or any limited partner. Examples include the exercise
of its limited call right, its right to vote and transfer the
units it owns, its registration rights and its determination
whether or not to consent to any merger or consolidation of the
partnership or any amendment to the partnership agreement.
We
will reimburse our general partner and its affiliates for
expenses.
Our partnership agreement requires us to reimburse our general
partner and its affiliates for all actual direct and indirect
expenses they incur or actual payments they make on our behalf
and all other expenses allocable to us or otherwise incurred by
our general partner or its affiliates in connection with
operating our business, including overhead allocated to our
general partner by its affiliates, including Pioneer. These
expenses may include salary,
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bonus, incentive compensation (including equity compensation)
and other amounts paid to persons who perform services for us or
on our behalf, and expenses allocated to our general partner by
its affiliates. Our general partner is entitled to determine in
good faith the expenses that are allocable to US.In connection
with our initial public offering, we entered into an
administrative services agreement pursuant to which Pioneer
agreed to manage all of our assets and perform administrative
services for us and be reimbursed for a portion of its overhead
expenses allocated to us pursuant to a formula. For a
description of the fees and expenses that we pay pursuant to
these agreements, please read Certain Relationships and
Related Party Transactions, and Director Independence in
our Annual Report on
Form 10-K/A
(Amendment No. 1) for the year ended December 31,
2008.
Our
general partner intends to limit its liability regarding our
obligations.
Our general partner intends to limit its liability under
contractual arrangements so that the other party has recourse
only against our assets and not against our general partner or
its assets. Our partnership agreement provides that any action
taken by our general partner to limit its liability or our
liability is not a breach of our general partners
fiduciary duties, even if we could have obtained more favorable
terms without the limitation on liability.
Common
unitholders will have no right to enforce obligations of our
general partner and its affiliates under agreements with
US.
Any agreements between us on the one hand, and our general
partner and its affiliates, on the other, will not grant to the
unitholders, separate and apart from us, the right to enforce
the obligations of our general partner and its affiliates in our
favor.
Contracts
between us, on the one hand, and our general partner and its
affiliates, on the other, may not be the result of
arms-length negotiations.
Our partnership agreement allows our general partner to
determine, in good faith, any amounts to pay itself or its
affiliates for any services rendered to us. Our general partner
may also enter into additional contractual arrangements with any
of its affiliates on our behalf. Neither the partnership
agreement nor many of the other agreements, contracts and
arrangements between us, on the one hand, and our general
partner and its affiliates, on the other, are or will be the
result of arms-length negotiations.
Pioneer
will have conflicts of interest between the manner in which it
operates our properties and other properties it owns or
operates.
Pioneer operates all of our properties as well as its own
properties. Pioneer will have conflicts of interest between the
manner in which it operates our properties and other properties
it owns or operates. For example:
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Pioneer owns drilling locations that directly offset our wells,
the drilling of and production from which could cause depletion
of our proved reserves. We have agreed in the omnibus operating
agreement not to object to such drilling. We have also agreed
that Pioneers proposed well operations will take
precedence over any conflicting operations we propose and that
we will allow Pioneer to use certain of our production
facilities in connection with other wells operated by Pioneer,
subject to capacity limitations. In addition, we are restricted
in our ability to remove Pioneer as the operator of the wells we
own.
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Pioneer operates all of our wells, determines the manner in
which its personnel and operational resources are utilized, and
is not prohibited from favoring other properties it operates
over our properties, so long as it conducts itself in accordance
with the operating standards set forth in the operating
agreements.
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Common
units are subject to our general partners limited call
right.
Our general partner may exercise its right to call and purchase
common units as provided in our partnership agreement or assign
this right to one of its affiliates or to us. Our general
partner may use its own discretion, free of fiduciary duty
restrictions, in determining whether to exercise this right. As
a result, a common unitholder may have his common units
purchased from him at an undesirable time or price.
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We may
not choose to retain separate counsel for ourselves or for the
holders of common units.
The attorneys, independent accountants and others who perform
services for us have been retained by our general partner.
Attorneys, independent accountants and others who will perform
services for us are selected by our general partner or the
conflicts committee and may perform services for our general
partner and its affiliates. We or our conflicts committee may
retain separate counsel for ourselves in the event of a conflict
of interest between our general partner and its affiliates, on
the one hand, and us, on the other, depending on the nature of
the conflict. We are not required to do so and do not intend to
do so in most cases.
Fiduciary
Duties
The fiduciary duties our general partner owes are prescribed by
law and our partnership agreement. The Delaware Revised Uniform
Limited Partnership Act, which we refer to in this prospectus as
the Delaware Act, provides that Delaware limited partnerships
may, in their partnership agreements, expand, restrict or
eliminate the fiduciary duties otherwise owed by a general
partner.
Our partnership agreement contains various provisions modifying
and restricting the fiduciary duties that our general partner
might otherwise owe. We have adopted these restrictions to allow
our general partner to take into account the interests of other
parties in addition to our interests when resolving conflicts of
interest. These modifications are detrimental to the common
unitholders because they restrict the remedies available to
unitholders for actions that, without those limitations, might
constitute breaches of fiduciary duty, as described below. The
following is a summary of the material restrictions of the
fiduciary duties owed by our general partner to US.
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State-law fiduciary duty standards |
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Fiduciary duties are generally considered to include an
obligation to act in good faith and with due care and loyalty.
The duty of care, in the absence of a provision in a partnership
agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a
prudent person would act on his own behalf. The duty of loyalty,
in the absence of a provision in a partnership agreement
providing otherwise, would generally require a general partner
of a Delaware limited partnership to demonstrate the entire
fairness of any action or transaction where a conflict of
interest is present. |
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Partnership agreement modified standards |
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Our partnership agreement contains provisions that waive or
consent to conduct by our general partner and its affiliates
that might otherwise raise issues as to compliance with
fiduciary duties or applicable law. For example, our partnership
agreement provides that when our general partner is acting in
its capacity as our general partner and not in its sole
discretion it must act in good faith and will not be subject to
any other standard under applicable law. Under our partnership
agreement, good faith means that the person or persons making
such determination or taking or declining to take such other
action subjectively believe that the determination or other
action is in our best interests; provided, however, that in
making a determination in connection with a conflict of interest
transaction (other than with respect to a determination by or
under the direction of the conflicts committee), good faith
means that a person making any determination or taking or
declining to take any action subjectively believes that the
decision or action made or taken (or not made or taken) is fair
and reasonable to us taking into account the totality of the
relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous
to us), or is on terms no less favorable to us than those
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from unrelated third parties. Any decision made or action taken
by our general partner in good faith, including those involving
a conflict of interest, will be conclusive and binding on all
partners and will not be a breach of our partnership agreement
or of any duty it may owe to US.In addition, when our general
partner is permitted by our partnership agreement to make a
decision in its sole discretion, it may act without any
fiduciary obligation to us whatsoever. These standards reduce
the obligations to which our general partner would otherwise be
held. |
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In addition to the other more specific provisions limiting the
obligations of our general partner, our partnership agreement
further provides that our general partner and its officers and
directors will not be liable for monetary damages to us, our
unitholders or assignees for errors of judgment or for any acts
or omissions unless there has been a final and non-appealable
judgment by a court of competent jurisdiction determining that
the general partner or its officers and directors acted in bad
faith or engaged in fraud or willful misconduct, or in the case
of a criminal matter, acted with the knowledge that such conduct
was unlawful. |
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Special provisions regarding affiliated
transactions. Our partnership agreement generally
provides that affiliated transactions and resolutions of
conflicts of interest that do not involve a vote of unitholders
and that are not approved by the conflicts committee of the
board of directors of our general partner or pursuant to
procedures adopted by the conflicts committee must be determined
by our general partner in good faith to be fair and
reasonable to us taking into account the totality of the
relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous
to us), or on terms no less favorable to us than those generally
being provided to or available from third parties. |
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In making any decision relating to a resolution or course of
action relating to a conflict of interest, it shall be presumed
that the board of directors of our general partner, which may
include board members affected by the conflict of interest,
acted in good faith, and in any proceeding brought by or on
behalf of any limited partner or us, the person bringing or
prosecuting such proceeding will have the burden of overcoming
that presumption. These standards reduce the obligations to
which our general partner would otherwise be held. |
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Our partnership agreement provides for the allocation of
overhead costs to us by our general partner and its affiliates
(including Pioneer) in such amounts as our general partner
determines in good faith, subject to the provisions of the
administrative services agreement. |
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Rights and remedies of unitholders |
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The Delaware Act generally provides that a limited partner may
institute legal action on behalf of the partnership to recover
damages from a third party where a general partner has refused
to institute the action or where an effort to cause a general
partner to do so is not likely to succeed. These actions include
actions against a general partner for breach of its fiduciary
duties or of a partnership agreement. In addition, the statutory
or case law of some jurisdictions may permit a limited partner
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similarly situated limited partners to recover damages from a
general partner for violations of its fiduciary duties to the
limited partners. Pursuant to our partnership agreement, each of
our partners, any assignee and each person holding any
beneficial interest in us irrevocably agrees that any legal
action arising out of or relating in any way to our partnership
agreement shall be exclusively brought in the Court of Chancery
of the State of Delaware and irrevocably submits to the
exclusive jurisdiction of such court in connection with any such
legal action. |
In order to become one of our limited partners, a unitholder is
required to agree to be bound by the provisions in our
partnership agreement, including the provisions discussed above.
This is in accordance with the policy of the Delaware Act
favoring the principle of freedom of contract and the
enforceability of partnership agreements. The failure of a
limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against that
person. By purchasing a common unit, you will be admitted as a
limited partner and will be deemed to be bound by all of the
terms of our partnership agreement.
We must indemnify our general partner and its officers,
directors, managers and certain other specified persons, to the
fullest extent permitted by law, against liabilities, costs and
expenses incurred by our general partner or these other persons.
We must provide this indemnification unless there has been a
final and non-appealable judgment by a court of competent
jurisdiction determining that these persons acted in bad faith
or engaged in fraud or willful misconduct. We must also provide
this indemnification for criminal proceedings unless our general
partner or these other persons acted with knowledge that their
conduct was unlawful. Thus, our general partner could be
indemnified for its negligent acts if it meets the requirements
set forth above. To the extent these provisions purport to
include indemnification for liabilities arising under the
Securities Act, in the opinion of the SEC, such indemnification
is contrary to public policy and, therefore, unenforceable.
Please read The Partnership Agreement
Indemnification.
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CASH
DISTRIBUTION POLICY
Distributions
of Available Cash
Our partnership agreement requires that, within 45 days
after the end of each quarter, we distribute all of our
available cash to unitholders of record on the applicable record
date.
The term available cash, for any quarter, means all
cash and cash equivalents on hand at the end of that quarter:
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less, the amount of cash reserves established by our
general partner to:
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provide for the proper conduct of our business;
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comply with applicable law, any of our debt instruments or other
agreements; or
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provide funds for distributions to our unitholders and to our
general partner for any one or more of the next four quarters.
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plus, if our general partner so determines, all or a
portion of any additional cash or cash equivalents on hand on
the date of determination of available cash for the quarter.
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We distribute 99.9% of our available cash to our unitholders,
pro rata, and 0.1% of our available cash to our general partner.
Distributions
of Cash Upon Liquidation
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
liquidation. We will first apply the proceeds of liquidation to
the payment of our creditors. We will distribute any remaining
proceeds to our unitholders and our general partner, in
accordance with their capital account balances, as adjusted to
reflect any gain or loss upon the sale or other disposition of
our assets in liquidation.
Adjustments
to Capital Accounts
Our partnership agreement requires that we make adjustments to
capital accounts upon the issuance of additional units. In this
regard, our partnership agreement specifies that we allocate any
unrealized and, for tax purposes, unrecognized gain or loss
resulting from the adjustments to the unitholders and our
general partner in the same manner as we allocate gain or loss
upon liquidation.
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THE
PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of the
First Amended and Restated Agreement of Limited Partnership of
Pioneer Southwest Energy Partners L.P., as amended, which is
referred to in this prospectus as our partnership agreement. Our
partnership agreement is available as described under
Where You Can Find More Information. We will provide
prospective investors with a copy of this agreement upon request
at no charge.
We summarize the following provisions of our partnership
agreement elsewhere in this prospectus:
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with regard to distributions of available cash, please read
Cash Distribution Policy;
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with regard to the fiduciary duties of our general partner,
please read Conflicts of Interest and Fiduciary
Duties;
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with regard to rights of holders of units, please read
Description of the Common Units; and
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with regard to allocations of taxable income, taxable loss and
other matters, please read Material Tax Consequences.
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Organization
and Duration
We were formed on June 19, 2007 and have a perpetual
existence.
Purpose
Under our partnership agreement, we are permitted to engage,
directly or indirectly, in the business activity that is
approved by our general partner and that lawfully may be
conducted by a limited partnership organized under Delaware law;
provided that our general partner may not cause us to engage,
directly or indirectly, in any business activity that our
general partner determines would cause us to be treated as an
association taxable as a corporation or otherwise taxable as an
entity for federal income tax purposes.
Although our general partner has the ability to cause us and our
subsidiaries to engage in activities other than the acquisition,
development and production of oil and gas reserves, our general
partner may decline to do so in its sole discretion. Our general
partner is authorized in general to perform all acts it
determines to be necessary or appropriate to carry out our
purposes and to conduct our business.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder, by accepting the unit, automatically grants to our
general partner and, if appointed, a liquidator, a power of
attorney to, among other things, execute and file documents
required for our formation, qualification, continuance or
dissolution. The power of attorney also grants our general
partner the authority to amend, and to make consents and waivers
under, our partnership agreement.
Capital
Contributions
Unitholders are not obligated to make additional capital
contributions, except as described below under
Limited Liability.
Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware Act
and that the limited partner otherwise acts in conformity with
the provisions of our partnership agreement, the limited
partners liability under the Delaware Act will be limited,
subject to possible exceptions, to the amount of capital the
limited partner is obligated to contribute to us for the limited
partners common units plus the limited partners
share of any undistributed profits and assets. If it were
determined, however, that the right, or exercise of the right,
by the limited partners as a group:
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to remove or replace the general partner;
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to approve some amendments to the partnership agreement; or
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to take other action under the partnership agreement;
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constituted participation in the control of our
business for the purposes of the Delaware Act, then our limited
partners could be held personally liable for our obligations
under the laws of Delaware, to the same extent as our general
partner. This liability would extend to persons who transact
business with us and reasonably believe that the limited partner
is a general partner. Neither our partnership agreement nor the
Delaware Act specifically provides for legal recourse against
our general partner if a limited partner were to lose limited
liability through any fault of our general partner. While this
does not mean that a limited partner could not seek legal
recourse, we know of no precedent for this type of a claim in
Delaware case law.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner if, after the distribution, all
liabilities of the limited partnership, other than liabilities
to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, would exceed the fair
value of the assets of the limited partnership. For the purpose
of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of
property subject to liability for which recourse of creditors is
limited shall be included in the assets of the limited
partnership only to the extent that the fair value of that
property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and
knew at the time of the distribution that the distribution was
in violation of the Delaware Act shall be liable to the limited
partnership for the amount of the distribution for three years.
Under the Delaware Act, a substituted limited partner of a
limited partnership is liable for the obligations of the limited
partners assignor to make contributions to the
partnership, except that such person is not obligated for
liabilities unknown to the limited partner at the time the
limited partner became a limited partner and that could not be
ascertained from the partnership agreement.
Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly
established in many jurisdictions. If, by virtue of our
ownership of our operating company or otherwise, it were
determined that we were conducting business in any state without
compliance with the applicable limited partnership or limited
liability company statute, or that the right or exercise of the
right by the limited partners as a group to remove or replace
the general partner, to approve some amendments to our
partnership agreement, or to take other action under our
partnership agreement constituted participation in the
control of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be
held personally liable for our obligations under the law of that
jurisdiction to the same extent as the general partner under the
circumstances. We will operate in a manner that the general
partner considers reasonable and necessary or appropriate to
preserve the limited liability of the limited partners.
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Voting
Rights
The following is a summary of the unitholder vote required for
the matters specified below. In voting their units, affiliates
of our general partner will have no fiduciary duty or obligation
whatsoever to us or the limited partners, including any duty to
act in good faith or in the best interests of us or the limited
partners.
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Issuance of additional common units
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No approval right. Please read Issuance of
Additional Securities.
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Amendment of our partnership agreement
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Certain amendments may be made by our general partner without
the approval of our unitholders. Other amendments generally
require the approval of a majority of our outstanding units.
Please read Amendments to Our Partnership
Agreement.
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Merger of our partnership or the sale of all or substantially
all of our assets
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A majority of our outstanding units in certain circumstances.
Please read Merger, Sale or Other Disposition of
Assets.
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Dissolution of our partnership
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A majority of our outstanding units. Please read
Termination or Dissolution.
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Continuation of our business upon dissolution
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A majority of our outstanding units. Please read
Termination or Dissolution.
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Withdrawal of our general partner
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Under most circumstances, the approval of a majority of the
units, excluding units held by our general partner and its
affiliates, is required for the withdrawal of our general
partner prior to March 31, 2018 in a manner that would cause a
dissolution of our partnership. Please read
Withdrawal or Removal of Our General Partner.
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Removal of our general partner
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Not less than
662/3%
of the outstanding units, including units held by our general
partner and its affiliates. Please read Withdrawal
or Removal of Our General Partner.
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Transfer of the general partner interest
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Our general partner may transfer all, but not less than all, of
its general partner interest in us without a vote of our
unitholders to (i) an affiliate (other than an individual) or
(ii) another person (other than an individual) in connection
with the merger or consolidation of our general partner with or
into, or sale of all or substantially all of its assets to, such
person. The approval of a majority of the units, excluding
units held by the general partner and its affiliates, is
required in other circumstances for a transfer of the general
partner interest to a third party prior to March 31, 2018.
Please read Transfer of General Partner
Interest.
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Transfer of ownership interests in our general partner
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No approval required at any time. Please read
Transfer of Ownership Interests in Our General
Partner.
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Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional limited partner interests and other equity
securities for the consideration and on the terms and conditions
established by our general partner without the approval of our
unitholders.
It is possible that we will fund acquisitions through the
issuance of additional units or other equity securities. Holders
of any additional units we issue will be entitled to share
equally with the then-existing holders of units in
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our cash distributions. In addition, the issuance of additional
partnership interests may dilute the value of the interests of
the then-existing holders of units in our net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, as determined by our general partner, may have
special voting rights to which the common units are not
entitled. In addition, our partnership agreement does not
prohibit the issuance of equity securities that may effectively
rank senior to our common units.
If we issue additional units in the future, our general partner
is not obligated to, but may, contribute a proportionate amount
of capital to us to maintain its general partner interest. If
our general partner does not contribute a proportionate
additional amount of capital, our general partners initial
0.1% interest would be reduced. Moreover, our general partner
will have the right, which it may from time to time assign in
whole or in part to any of its affiliates, to purchase common
units or other partnership securities whenever, and on the same
terms that, we issue those securities to persons other than our
general partner and its affiliates, to the extent necessary to
maintain the percentage interest of the general partner and its
affiliates that existed immediately prior to each issuance.
Other than our general partner, the holders of common units will
not have a preemptive right to acquire additional common units
or other partnership securities.
Amendments
to Our Partnership Agreement
General
Amendments to our partnership agreement may be proposed only by
or with the consent of our general partner. However, our general
partner will have no duty or obligation to propose any
amendment. To adopt a proposed amendment, other than the
amendments discussed below under No Unitholder
Approval, our general partner is required to seek written
approval of the holders of the number of units required to
approve the amendment or call a meeting of the limited partners
to consider and vote upon the proposed amendment. Except as
described below, an amendment must be approved by a majority of
our outstanding units.
Prohibited
Amendments
Generally, no amendment may be made that would:
(1) have the effect of reducing the voting percentage of
outstanding units required to take any action under the
provisions of our partnership agreement;
(2) enlarge the obligations of any limited partner without
its consent; or
(3) enlarge the obligations of, restrict in any way any
action by or rights of, or reduce in any way the amounts
distributable, reimbursable or otherwise payable by us to our
general partner or any of its affiliates without the consent of
our general partner, which may be given or withheld at its
option.
The provision of our partnership agreement preventing the
amendments having the effects described in clauses (1) to
(3) above can be amended upon the approval of the holders
of at least 90% of the outstanding units. Our general partner
and its affiliates own approximately 68.7% of our outstanding
common units.
No
Unitholder Approval
Our general partner generally may make amendments to our
partnership agreement without the approval of any limited
partner or assignee to reflect:
(1) a change in the name of the partnership, the location
of the partnerships principal place of business, the
partnerships registered agent or its registered office;
(2) the admission, substitution, withdrawal or removal of
partners in accordance with our partnership agreement;
(3) a change that our general partner determines to be
necessary or advisable to qualify or to continue our
qualification as a limited partnership or a partnership in which
the limited partners have limited liability under
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the laws of any state or to ensure that the partnership and its
subsidiaries will not be treated as associations taxable as
corporations or otherwise taxed as entities for federal income
tax purposes;
(4) an amendment that is necessary, in the opinion of our
counsel, to prevent the partnership or our general partner or
its directors, officers, agents or trustees, from in any manner
being subjected to the provisions of the Investment Company Act
of 1940, the Investment Advisors Act of 1940, or plan
asset regulations adopted under the Employee Retirement
Income Security Act of 1974, whether or not substantially
similar to plan asset regulations currently applied or proposed;
(5) an amendment that our general partner determines to be
necessary or appropriate for the authorization of additional
partnership securities or rights to acquire partnership
securities;
(6) any amendment expressly permitted in our partnership
agreement to be made by our general partner acting alone;
(7) an amendment effected, necessitated or contemplated by
a merger agreement that has been approved under the terms of our
partnership agreement;
(8) any amendment that our general partner determines to be
necessary or appropriate to reflect and account for the
formation by the partnership of, or its investment in, any
corporation, partnership, joint venture, limited liability
company or other entity, as otherwise permitted by our
partnership agreement;
(9) a change in our fiscal year or taxable year and related
changes;
(10) certain mergers or conveyances set forth in our
partnership agreement; and
(11) any other amendments substantially similar to any of
the matters described in (1) through (10) above.
In addition, our general partner may make amendments to our
partnership agreement without the approval of any limited
partner or assignee if our general partner determines, at its
option, that those amendments:
(1) do not adversely affect our limited partners (or any
particular class of limited partners) in any material respect;
(2) are necessary or appropriate to satisfy any
requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any federal or state
agency or judicial authority or contained in any federal or
state statute;
(3) are necessary or appropriate to facilitate the trading
of limited partner interests (including the division of any
limited partner interests into different classes to facilitate
uniformity of tax consequences within such class of limited
partner interests) or to comply with any rule, regulation,
guideline or requirement of any national securities exchange on
which the limited partner interests are or will be listed or
admitted for trading;
(4) are necessary or advisable for any action taken by our
general partner relating to splits or combinations of units
under the provisions of our partnership agreement; or
(5) are required to effect the intent expressed in the
registration statement of which this prospectus forms a part as
amended or supplemented or of the provisions of our partnership
agreement or are otherwise contemplated by our partnership
agreement.
Opinion
of Counsel and Unitholder Approval
Our general partner will not be required to obtain an opinion of
counsel that an amendment will not result in a loss of limited
liability to the limited partners or result in our being treated
as an entity for federal income tax purposes in connection with
any of the amendments described under No
Unitholder Approval. No other amendments to our
partnership agreement will become effective without the approval
of holders of at least 90% of the outstanding units unless we
first obtain an opinion of counsel to the effect that the
amendment will not affect the limited liability under applicable
law of any of our limited partners. In addition to the above
restrictions, any amendment that would have a material adverse
effect on the rights or preferences of any type or class of
outstanding
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units in relation to other classes of units will require the
approval of at least a majority of the type or class of units so
affected. Any amendment that reduces the voting percentage
required to take any action must be approved by the affirmative
vote of limited partners constituting not less than the voting
requirement sought to be reduced.
Merger,
Sale or Other Disposition of Assets
A merger, consolidation or conversion of us requires the prior
consent of our general partner. However, our general partner
will have no duty or obligation to consent to any merger,
consolidation or conversion.
In addition, our partnership agreement generally prohibits our
general partner, without the prior approval of the holders of a
majority of our outstanding units, from causing us to, among
other things, sell, exchange or otherwise dispose of all or
substantially all of our assets in a single transaction or a
series of related transactions, including by way of merger,
consolidation, other combination, or sale of ownership interests
in our subsidiaries. Our general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of our assets without that approval. Our
general partner may also sell all or substantially all of our
assets under a foreclosure or other realization upon those
encumbrances without that approval. Finally, our general partner
may consummate any merger or consolidation without the prior
approval of our unitholders if we are the surviving entity in
the transaction, our general partner has received an opinion of
counsel regarding certain limited liability and tax matters, the
transaction would not result in a material amendment to our
partnership agreement, each of our units will be an identical
unit of our partnership following the transaction, and the units
to be issued do not exceed 20% of our outstanding units
immediately prior to the transaction.
If the conditions specified in our partnership agreement are
satisfied, our general partner may convert us or any of our
subsidiaries into a new limited liability entity or merge us or
any of our subsidiaries into, or convey all of our assets to, a
newly formed entity if the sole purpose of that conversion,
merger or conveyance is to effect a mere change in our legal
form into another limited liability entity. The unitholders are
not entitled to dissenters rights of appraisal under our
partnership agreement or applicable Delaware law in the event of
a conversion, merger or consolidation, a sale of substantially
all of our assets or any other transaction or event.
Termination
or Dissolution
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
(1) the election of our general partner to dissolve us, if
approved by the holders of a majority of our outstanding units;
(2) there being no limited partners, unless we are
continued without dissolution in accordance with the Delaware
Act;
(3) the entry of a decree of judicial dissolution of our
partnership; or
(4) the withdrawal or removal of our general partner or any
other event that results in its ceasing to be our general
partner other than by reason of a transfer of its general
partner interest in accordance with our partnership agreement or
withdrawal or removal following approval and admission of a
successor.
Upon a dissolution under clause (4) above, the holders of a
majority of our outstanding units may also elect, within
specific time limitations, to continue our business on the same
terms and conditions described in our partnership agreement by
appointing as a successor general partner an entity approved by
the holders of a majority of our outstanding units subject to
receipt by us of an opinion of counsel to the effect that:
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the action would not result in the loss of limited liability of
any limited partner; and
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neither our partnership, our operating company nor any of our
subsidiaries would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal
income tax purposes upon the exercise of that right to continue.
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Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited
partnership, the liquidator authorized to wind up our affairs
will, acting with all the powers of our general partner that are
necessary or appropriate, liquidate our assets. The proceeds of
the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and
the creation of a reserve for contingent liabilities; and
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then, to all partners in accordance with the positive
balance in the respective capital accounts.
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Under some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time. If the liquidator determines
that a sale would be impractical or would cause a loss to our
partners, our general partner may distribute assets in kind to
our partners.
Withdrawal
or Removal of Our General Partner
Except as described below, our general partner has agreed not to
withdraw voluntarily as our general partner prior to
March 31, 2018 without obtaining the approval of a majority
of our outstanding common units, excluding those held by our
general partner and its affiliates, and furnishing an opinion of
counsel regarding certain limited liability and tax matters. On
or after March 31, 2018, our general partner may withdraw
as general partner without first obtaining approval of any
unitholder by giving 90 days written notice, and that
withdrawal will not constitute a violation of our partnership
agreement. In addition, our general partner may withdraw without
unitholder approval upon 90 days notice to our
limited partners if at least 50% of our outstanding common units
are held or controlled by one person and its affiliates other
than our general partner and its affiliates. In addition, the
partnership agreement permits our general partner in some
instances to sell or otherwise transfer all of its general
partner interest in us without the approval of the unitholders.
Please read Transfer of General Partner
Interest.
Upon the voluntary withdrawal of our general partner, other than
as a result of its transfer of all or part of its general
partner interest in us, the holders of a majority of our
outstanding units may elect a successor to the withdrawing
general partner. If a successor is not elected, or is elected
but an opinion of counsel regarding limited liability and tax
matters cannot be obtained, we will be dissolved, wound up and
liquidated, unless within 90 days after that withdrawal,
the holders of a majority of our outstanding common units,
excluding the common units held by the withdrawing general
partner and its affiliates, agree to continue our business and
to appoint a successor general partner.
Our general partner may not be removed unless that removal is
approved by not less than
662/3%
of our outstanding units, including units held by our general
partner and its affiliates, and we receive an opinion of counsel
regarding certain limited liability and tax matters. Any removal
of our general partner is also subject to the approval of a
successor general partner by a majority of our outstanding
units, including those held by our general partner and its
affiliates. The ownership of more than
331/3%
of the outstanding units by our general partner and its
affiliates would give it the practical ability to prevent its
removal. Pioneer USA and its affiliates own approximately 68.7%
of the outstanding common units.
In addition, we will be required to reimburse the departing
general partner for all amounts due the departing general
partner, including, without limitation, all employee-related
liabilities, including severance liabilities, incurred for the
termination of any employees employed by the departing general
partner or its affiliates for our benefit.
Transfer
of General Partner Interest
Except for transfer by our general partner of all, but not less
than all, of its general partner interest in us to:
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an affiliate of the general partner (other than an
individual); or
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another entity as part of the merger or consolidation of the
general partner with or into another entity or the transfer by
the general partner of all or substantially all of its assets to
another entity;
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our general partner may not transfer all or any part of its
general partner interest in us to another entity prior to
March 31, 2018 without the approval of a majority of the
common units outstanding, excluding common units held
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by our general partner and its affiliates. As a condition of
this transfer, the transferee must assume the rights and duties
of our general partner, agree to be bound by the provisions of
the partnership agreement, and furnish an opinion of counsel
regarding certain limited liability and tax matters.
Our general partner and its affiliates may at any time transfer
units to one or more persons without unitholder approval.
Transfer
of Ownership Interests in Our General Partner
At any time, Pioneer USA, as the sole member of our general
partner, may sell or transfer all or part of its ownership
interest in the general partner without the approval of our
unitholders.
Change of
Management Provisions
Our partnership agreement contains specific provisions that are
intended to discourage a person or group from attempting to
remove our general partner as general partner or otherwise
change management. If any person or group other than our general
partner and its affiliates acquires beneficial ownership of 20%
or more of any class of units, that person or group loses voting
rights on all of its units. This loss of voting rights does not
apply to (1) any person or group that acquires the units
from our general partner or its affiliates and any transferees
of that person or group approved by our general partner or
(2) any person or group that acquires the units with the
prior approval of the board of directors of our general partner.
Limited
Call Right
If at any time our general partner and its affiliates hold more
than 80% of the outstanding limited partner interests of any
class, our general partner will have the right, but not the
obligation, which it may assign in whole or in part to any of
its affiliates or us, to purchase all, but not less than all, of
the remaining limited partner interests of the class held by
unaffiliated persons as of a record date to be selected by our
general partner, on at least ten but not more than
60 days notice. The purchase price in the event of
this purchase is the greater of:
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the highest cash price paid by either our general partner or any
of its affiliates for any limited partners interests of
the class purchased within the 90 days preceding the date
our general partner first mails notice of its election to
purchase the limited partner interests; and
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the current market price (as defined in the partnership
agreement) of the limited partner interests of the class as of
the date three days prior to the date that notice is mailed.
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As a result of our general partners right to purchase
outstanding limited partner interests, a holder of limited
partner interests may have his limited partner interests
purchased at an undesirable time or price. The tax consequences
to a unitholder of the exercise of this call right are the same
as a sale by that unitholder of his units in the market. Please
read Material Tax Consequences Disposition of
Common Units.
Our general partner and its affiliates own 20,612,193 of our
common units, representing approximately 68.7% of our
outstanding common units.
Meetings;
Voting
Except as described below regarding a person or group owning 20%
or more of units then outstanding, unitholders on the record
date will be entitled to notice of, and to vote at, meetings of
our limited partners and to act upon matters for which approvals
may be solicited. Units that are owned by Non-Eligible Holders
will be voted by our general partner and our general partner
will distribute the votes on those units in the same ratios as
the votes of limited partners on other units are cast.
Our general partner does not anticipate that any meeting of
unitholders will be called in the foreseeable future. Any action
that is required or permitted to be taken by our unitholders may
be taken either at a meeting of the unitholders or, if
authorized by our general partner, without a meeting if consents
in writing describing the action so taken are signed by holders
of the number of units as would be necessary to authorize or
take that action at a meeting. Special meetings of the
unitholders may be called by our general partner or by
unitholders owning at least
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20% of the outstanding units. Unitholders may vote either in
person or by proxy at meetings. The holders of a majority of the
outstanding units of the class or classes for which a meeting
was called (including outstanding units deemed owned by the
general partner), represented in person or by proxy, will
constitute a quorum unless any action by the unitholders
requires approval by holders of a greater percentage of the
units, in which case the quorum will be the greater percentage.
Each record holder of a unit has a vote according to his
percentage interest in us, although additional limited partner
interests having special voting rights could be issued. Please
read Issuance of Additional Securities
above. However, if at any time any person or group, other than
our general partner and its affiliates, or a direct or
subsequently approved transferee of our general partner or its
affiliates, acquires, in the aggregate, beneficial ownership of
20% or more of any class of units then outstanding, that person
or group will lose voting rights on all of its units and the
units may not be voted on any matter and will not be considered
to be outstanding when sending notices of a meeting of
unitholders, calculating required votes, determining the
presence of a quorum or for other similar purposes except such
units may be considered to be outstanding for purposes of the
withdrawal of our general partner. Common units held in nominee
or street name account will be voted by the broker or other
nominee in accordance with the instruction of the beneficial
owner unless the arrangement between the beneficial owner and
his nominee provides otherwise.
Any notice, demand, request, report or proxy material required
or permitted to be given or made to record holders of units
under our partnership agreement will be delivered to the record
holder by us or by the transfer agent.
Status as
Limited Partner
By transfer of common units in accordance with our partnership
agreement, each transferee of common units shall be admitted as
a limited partner with respect to the transferred units when
such transfer and admission is reflected in our books and
records or the books and records of our transfer agent. Except
as described under Limited Liability,
the common units will be fully paid, and unitholders will not be
required to make additional contributions.
Non-Eligible
Holders; Redemption; Withholding of Distributions
We do not currently own interests in oil and gas leases on
United States federal lands but we may acquire such interests in
the future. To comply with certain U.S. laws relating to
the ownership of interests in oil and gas leases on United
States federal lands, if requested by our general partner after
the delivery of notice relating thereto, transferees will be
required to fill out a properly completed certifications that
the unitholder is an Eligible Holder, and our general partner,
acting on our behalf, may at any time require each unitholder to
certify or re-certify that the unitholder is an Eligible Holder.
As used herein, an Eligible Holder means a person or entity
qualified to hold an interest in oil and gas leases on United
States federal lands. As of the date hereof, Eligible Holder
means: (1) a citizen of the United States; (2) a
corporation organized under the laws of the United States or of
any state thereof; (3) a public body, including a
municipality; or (4) an association of United States
citizens, such as a partnership or limited liability company,
organized under the laws of the United States or of any state
thereof, but only if such association does not have any direct
or indirect foreign ownership, other than foreign ownership of
stock in a parent corporation organized under the laws of the
United States or of any state thereof. For the avoidance of
doubt, onshore mineral leases on United States federal lands or
any direct or indirect interest therein may be acquired and held
by aliens only through stock ownership, holding or control in a
corporation organized under the laws of the United States or of
any state thereof. This certification can be changed in any
manner our general partner determines is necessary or
appropriate to implement its original purpose.
If a transferee or unitholder, as the case may be, fails to
furnish:
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the required certification if requested by the general partner
in connection with a transfer application; or
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an initial certification confirming the required certification
or a re-certification of a previously required certification
within 30 days after request;
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then, as the case may be, such transfer will be void or we will
(1) have the right to withhold quarterly distributions
payable on the units held by such transferee or unitholder or
(2) have the right, which we may assign to any of our
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subsidiaries, to acquire at the lower of the purchase price of
their units or the then current market price all but not less
than all of the units held by such unitholder. Further, the
units held by such unitholder will not be entitled to any voting
rights. If the transferee or unitholder furnishes the required
certification, but our general partner determines (1) that
such transferee or unitholder is not an Eligible Holder or
(2) that the certification contains false information, then
quarterly distributions will be restored on the units held by
such transferee or unitholder, but the units shall still be
subject to redemption as set forth above. If the units held by
such unitholder are transferred, any previously withheld
distributions will be paid to such transferring unitholder.
The purchase price will be paid in cash or delivery of a
promissory note, as determined by our general partner. Any such
promissory note will bear interest at the rate of 5% annually
and be payable in three equal annual installments of principal
and accrued interest, commencing one year after the redemption
date. Any such promissory note will also be unsecured and shall
be subordinated to the extent required by the terms of our other
indebtedness.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify the following persons, to the fullest extent permitted
by our partnership agreement, from and against all losses,
claims, damages or similar events:
(1) our general partner;
(2) any departing general partner;
(3) any person who is or was an affiliate of our general
partner or any departing general partner;
(4) any person who is or was an officer, director, member,
partner, fiduciary or trustee of any entity described in (1),
(2) or (3) above;
(5) any person who is or was serving as an officer,
director, member, partner, fiduciary or trustee of another
person at the request of the general partner or any departing
general partner or any affiliate of our general partner or any
departing general partner, provided that a person will not be an
indemnitee by reason of providing, on a fee-for-services basis,
trustee, fiduciary or custodian services; and
(6) any person designated by our general partner.
Any indemnification under these provisions will only be out of
our assets. Unless it otherwise agrees, our general partner will
not be personally liable for, or have any obligation to
contribute or loan funds or assets to us to enable us to
effectuate indemnification. We may purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under the
partnership agreement. Please read Conflicts of Interest
and Fiduciary Duties Fiduciary Duties.
Reimbursement
of Expenses
Our partnership agreement requires us to reimburse our general
partner and its affiliates for all direct and indirect expenses
they incur or payments they make on our behalf and all other
expenses allocable to us or otherwise incurred by our general
partner or its affiliates in connection with operating our
business. These expenses may include salary, bonus, incentive
compensation (including equity compensation) and other amounts
paid to persons who perform services for us or on our behalf and
expenses allocated to our general partner by its affiliates. The
general partner is entitled to determine the expenses that are
allocable to US.In connection with our initial public offering,
we entered into an administrative services agreement pursuant to
which Pioneer performs administrative services for us such as
accounting, business development, finance, land, legal,
engineering, investor relations, management, marketing,
information technology, insurance, government regulations,
communications, regulatory, environmental and human resources.
Under the administrative services agreement, Pioneer is
reimbursed for a portion of its overhead expenses allocated to
us pursuant to a formula. In addition, Pioneer operates our
properties pursuant to operating agreements. For a description
of the fees and expenses that we pay pursuant to these
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agreements, please read Certain Relationships and Related
Party Transactions, and Director Independence in our
Annual Report on
Form 10-K/A
(Amendment No. 1) for the year ended December 31,
2008.
Books and
Reports
Our general partner is required to keep appropriate books of our
business at our principal offices. The books will be maintained
for both tax and financial reporting purposes on an accrual
basis. For tax and fiscal reporting purposes, our fiscal year is
the calendar year.
We will furnish or make available to record holders of units,
within 120 days after the close of each fiscal year, an
annual report containing audited financial statements and a
report on those financial statements by our independent public
accountants. Except for our fourth quarter, we will also furnish
or make available summary financial information within
90 days after the close of each quarter.
We will furnish each record holder of a unit with information
reasonably required for tax reporting purposes within
90 days after the close of each calendar year. This
information is expected to be furnished in summary form so that
some complex calculations normally required of partners can be
avoided. Our ability to furnish this summary information to
unitholders will depend on the cooperation of unitholders in
supplying us with specific information. Every unitholder will
receive information to assist him in determining his federal and
state tax liability and filing his federal and state income tax
returns, regardless of whether he supplies us with information.
Right to
Inspect Our Books and Records
A limited partner can, for a purpose reasonably related to the
limited partners interest as a limited partner, upon
reasonable demand stating the purpose of such demand and at his
own expense, obtain:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns promptly after they become available;
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information as to the amount of cash and a description and
statement of the net agreed value (as defined in the partnership
agreement) of any other property or services contributed or to
be contributed by each partner and the date on which each became
a partner;
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copies of our partnership agreement, our certificate of limited
partnership, amendments to either of them and powers of attorney
that have been executed under our partnership agreement;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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Our general partner may, and intends to, keep confidential from
the limited partners trade secrets and other information the
disclosure of which our general partner believes in good faith
is not in our best interest or which we are required by law or
by agreements with third parties to keep confidential.
Registration
Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any units or other partnership securities proposed to be
sold by our general partner or any of its affiliates or their
assignees if an exemption from the registration requirements is
not otherwise available. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts
and commissions.
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MATERIAL
TAX CONSEQUENCES
Tax
Consequences to Common Unitholders
This section is a summary of the material tax consequences that
may be relevant to prospective unitholders who are individual
citizens or residents of the United States and, unless otherwise
noted in the following discussion, is the opinion of
Vinson & Elkins L.L.P., counsel to our general partner
and us, insofar as it relates to legal conclusions with respect
to matters of U.S. federal income tax law. This section is
based upon current provisions of the Internal Revenue Code of
1986, as amended (the Internal Revenue Code),
existing and proposed Treasury regulations promulgated under the
Internal Revenue Code (the Treasury Regulations),
and current administrative rulings and court decisions, all of
which are subject to change. Later changes in these authorities
may cause the tax consequences to vary substantially from the
consequences described below. Unless the context otherwise
requires, references in this section to us or
we are references to Pioneer Southwest Energy
Partners L.P. and our operating subsidiaries.
The following discussion does not comment on all federal income
tax matters affecting us or our unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens, or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), employee benefit plans, real estate investment
trusts (REITs), or mutual funds. Accordingly, we encourage each
prospective unitholder to consult, and depend on, his own tax
advisor in analyzing the federal, state, local, and foreign tax
consequences particular to him of the ownership or disposition
of common units.
No ruling has been or will be requested from the Internal
Revenue Service (the IRS) regarding any matter
affecting us or prospective unitholders. Instead, we will rely
on opinions and advice of Vinson & Elkins L.L.P.
Unlike a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made in
this discussion may not be sustained by a court if contested by
the IRS. Any contest of this sort with the IRS may materially
and adversely impact the market for the common units and the
prices at which the common units trade. In addition, the costs
of any contest with the IRS, principally legal, accounting, and
related fees, will result in a reduction in cash available for
distribution to our unitholders and our general partner and thus
will be borne directly by our unitholders and our general
partner. Furthermore, the tax treatment of us, or of an
investment in us, may be significantly modified by future
legislative or administrative changes or court decisions. Any
modifications may or may not be retroactively applied.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
For the reasons described below, Vinson & Elkins
L.L.P. has not rendered an opinion with respect to the following
specific federal income tax issues: (a) the treatment of a
unitholder whose common units are loaned to a short seller to
cover a short sale of common units (please read
Tax Consequences of Common Unit
Ownership Treatment of Short Sales);
(b) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of Common
Units Allocations Between Transferors and
Transferees); (c) whether percentage depletion will
be available to a unitholder or the extent of the percentage
depletion deduction available to any unitholder (please read
Tax Treatment of Operations Oil
and Natural Gas Taxation Depletion
Deductions); (d) whether the deduction related to
U.S. production activities will be available to a
unitholder or the extent of such deduction to any unitholder
(please read Tax Treatment of
Operations Oil and Natural Gas Taxation
Deduction for U.S. Production Activities); and
(e) whether our method for depreciating Section 743
adjustments is sustainable in certain cases (please read
Tax Consequences of Common Unit
Ownership Section 754 Election and
Uniformity of Common Units).
Partnership
Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss, and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the
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partnership. Distributions by a partnership to a partner are
generally not taxable to the partnership or the partner unless
the amount of cash distributed to him is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to in this
discussion as the Qualifying Income Exception,
exists with respect to publicly traded partnerships 90% or more
of the gross income of which for every taxable year consists of
qualifying income. Qualifying income includes income
and gains derived from the exploration, development, mining or
production, processing, transportation, and marketing of natural
resources, including oil, gas, and products thereof. Other types
of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real
property and gains from the sale or other disposition of capital
assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 2% of
our current gross income is not qualifying income; however, this
estimate could change from time to time. Based upon and subject
to this estimate, the factual representations made by us and our
general partner and a review of the applicable legal
authorities, Vinson & Elkins L.L.P. is of the opinion
that at least 90% of our current gross income constitutes
qualifying income. The portion of our income that is qualifying
income may change from time to time.
No ruling has been or will be sought from the IRS, and the IRS
has made no determination as to our status or the status of our
operating subsidiaries for federal income tax purposes or
whether our operations generate qualifying income
under Section 7704 of the Internal Revenue Code. Instead,
we will rely on the opinion of Vinson & Elkins L.L.P.
on such matters. It is the opinion of Vinson & Elkins
L.L.P. that, based upon the Internal Revenue Code, its
regulations, published revenue rulings, and court decisions and
the representations described below, we will be classified as a
partnership, and each of our operating subsidiaries will be
disregarded as an entity separate from us for federal income tax
purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and our general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied include:
(a) Neither we, nor our operating company, has elected or
will elect to be treated as a corporation;
(b) For each taxable year of the Partnership, more than 90%
of our gross income has been and will be income that
Vinson & Elkins L.L.P. has opined or will opine is
qualifying income within the meaning of
Section 7704(d) of the Internal Revenue Code; and
(c) Each hedging transaction that we treat as resulting in
qualifying income has been and will be appropriately identified
as a hedging transaction pursuant to applicable Treasury
Regulations, and has been and will be associated with oil, gas,
or products thereof that are held or to be held by us in
activities that Vinson & Elkins L.L.P. has opined or
will opine result in qualifying income.
We believe that these representations have been true in the past
and expect that these representations will be true in the future.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts), we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock in that corporation, and then distributed that stock
to the unitholders in liquidation of their interests in US.This
deemed contribution and liquidation should be tax-free to
unitholders and us so long as we, at that time, do not have
liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal
income tax purposes.
If we were treated as an association taxable as a corporation in
any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, our items of income,
gain, loss and deduction would be reflected only on our tax
return rather than being passed through to our unitholders, and
our net income would be taxed to us at corporate rates. In
addition, any distribution made to a unitholder would be treated
as either taxable dividend income, to the extent of our current
or accumulated earnings and profits, or, in the absence of
earnings and profits, a nontaxable return of capital, to the
extent of the unitholders tax basis in his common units,
or taxable
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capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
common units.
The discussion below is based on Vinson & Elkins
L.L.P.s opinion that we will be classified as a
partnership for federal income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of Pioneer
Southwest Energy Partners L.P. will be treated as partners of
Pioneer Southwest Energy Partners L.P. for federal income tax
purposes. Also:
(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners, and
(b) unitholders whose common units are held in street name
or by a nominee and who have the right to direct the nominee in
the exercise of all substantive rights attendant to the
ownership of their common units
will be treated as partners of Pioneer Southwest Energy Partners
L.P. for federal income tax purposes. As there is no direct or
indirect controlling authority addressing the federal tax
treatment of assignees of common units who are entitled to
execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who
fail to execute and deliver transfer applications,
Vinson & Elkins L.L.P.s opinion does not extend
to these persons. Furthermore, a purchaser or other transferee
of common units who does not execute and deliver a transfer
application may not receive some federal income tax information
or reports furnished to record holders of common units unless
the common units are held in a nominee or street name account
and the nominee or broker has executed and delivered a transfer
application for those common units.
A beneficial owner of common units whose common units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
common units for federal income tax purposes. Please read
Tax Consequences of Common Unit Ownership
Treatment of Short Sales.
Income, gain, deductions, or losses would not appear to be
reportable by a unitholder who is not a partner for federal
income tax purposes, and any cash distributions received by a
unitholder who is not a partner for federal income tax purposes
would therefore appear to be fully taxable as ordinary income.
These holders are urged to consult their own tax advisors with
respect to their tax consequences of holding common units in
Pioneer Southwest Energy Partners L.P.
The references to unitholders in the discussion that
follows are to persons who are treated as partners in Pioneer
Southwest Energy Partners L.P. for U.S. federal income tax
purposes.
Tax
Consequences of Common Unit Ownership
Flow-Through of Taxable Income. We do not pay
any federal income tax. Instead, each unitholder will be
required to report on his income tax return his share of our
income, gains, losses, and deductions without regard to whether
we make cash distributions to him. Consequently, we may allocate
income to a unitholder even if he has not received a cash
distribution. Each unitholder will be required to include in
income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by
us to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes, except to the extent
the amount of any such cash distribution exceeds his tax basis
in his common units immediately before the distribution. Our
cash distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution by us of cash to that unitholder. To the extent our
distributions cause a unitholders at-risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
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A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. This deemed
distribution may constitute a non-pro rata distribution. A
non-pro rata distribution of money or property may result in
ordinary income to a unitholder, regardless of his tax basis in
his common units, if the distribution reduces the
unitholders share of our unrealized
receivables, including recapture of intangible drilling
costs, depletion and depreciation
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively, Section 751 Assets. To that
extent, he will be treated as having been distributed his
proportionate share of the Section 751 Assets and then
having exchanged those assets with us in return for the non-pro
rata portion of the actual distribution made to him. This latter
deemed exchange will generally result in the unitholders
realization of ordinary income, which will equal the excess of
(a) the non-pro rata portion of that distribution over
(b) the unitholders tax basis (generally zero) for
the share of Section 751 Assets deemed relinquished in the
exchange.
Basis of Common Units. A unitholders
initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse
liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse
liabilities. That basis will be decreased, but not below zero,
by distributions from us, by the unitholders share of our
losses, by depletion deductions taken by him to the extent such
deductions do not exceed his proportionate share of the adjusted
tax basis of the underlying producing properties, by any
decreases in his share of our nonrecourse liabilities and by his
share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A
unitholder will have no share of our debt that is recourse to
our general partner, but will have a share, generally based on
his share of profits, of our nonrecourse liabilities. Please
read Disposition of Common Units
Recognition of Gain or Loss.
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his common units and, in the case of
an individual unitholder, estate, trust, or corporate unitholder
(if more than 50% of the value of the corporate
unitholders stock is owned directly or indirectly by or
for five or fewer individuals or some tax-exempt organizations)
to the amount for which the unitholder is considered to be
at risk with respect to our activities, if that is
less than his tax basis. A unitholder subject to these
limitations must recapture losses deducted in previous years to
the extent that distributions cause his at-risk amount to be
less than zero at the end of any taxable year. Losses disallowed
to a unitholder or recaptured as a result of these limitations
will carry forward and will be allowable as a deduction to the
extent that his at-risk amount is subsequently increased,
provided such losses do not exceed such unitholders tax
basis in his common units. Upon the taxable disposition of a
common unit, any gain recognized by a unitholder can be offset
by losses that were previously suspended by the at-risk
limitation but may not be offset by losses suspended by the
basis limitation. Any loss previously suspended by the at-risk
limitation in excess of that gain would no longer be utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his common units, excluding any portion of that
basis attributable to his share of our nonrecourse liabilities,
reduced by (a) any portion of that basis representing
amounts otherwise protected against loss because of a guarantee,
stop loss agreement or other similar arrangement and
(b) any amount of money he borrows to acquire or hold his
common units, if the lender of those borrowed funds owns an
interest in us, is related to the unitholder or can look only to
the common units for repayment. A unitholders at-risk
amount will increase or decrease as the tax basis of the
unitholders common units increases or decreases, other
than tax basis increases or decreases attributable to increases
or decreases in his share of our nonrecourse liabilities.
Moreover, a unitholders at risk amount will decrease by
the amount of the unitholders depletion deductions and
will increase to the extent of the amount by which the
unitholders percentage depletion deductions with respect
to our property exceed the unitholders share of the tax
basis of that property.
The at-risk limitation applies on an
activity-by-activity
basis, and in the case of oil and gas properties, each property
is treated as a separate activity. Thus, a taxpayers
interest in each oil or gas property is generally required to be
treated separately so that a loss from any one property would be
limited to the at-risk amount for that property and not the
at-risk amount for all the taxpayers oil and gas
properties. It is uncertain how this rule is implemented in the
case of multiple oil and gas properties owned by a single entity
treated as a partnership for federal income tax purposes.
However, for taxable years ending on or before the date on which
further guidance is published, the IRS will permit aggregation
of oil or gas properties we own in computing a unitholders
at-risk limitation with respect to US.If a unitholder were
required to compute his at-risk amount separately with respect
to each oil or gas property we
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own, he might not be allowed to utilize his share of losses or
deductions attributable to a particular property even though he
has a positive at-risk amount with respect to his common units
as a whole.
In addition to the basis and at-risk limitations on the
deductibility of losses, the passive loss limitations generally
provide that individuals, estates, trusts, and some closely-held
corporations and personal service corporations can deduct losses
from passive activities, which are generally trade or business
activities in which the taxpayer does not materially
participate, only to the extent of the taxpayers income
from those passive activities. The passive loss limitations are
applied separately with respect to each publicly traded
partnership. Consequently, any passive losses we generate will
be available to offset only our passive income generated in the
future and will not be available to offset income from other
passive activities or investments (including our investments or
a unitholders investments in other publicly traded
partnerships), or a unitholders salary or active business
income. If we dispose of all or only a part of our interest in
an oil or gas property, unitholders will be able to offset their
suspended passive activity losses from our activities against
the gain, if any, on the disposition. Passive losses that are
not deductible because they exceed a unitholders share of
income we generate may be deducted by the common unitholder in
full when he disposes of his entire investment in us in a fully
taxable transaction with an unrelated party. The passive loss
limitations are applied after other applicable limitations on
deductions, including the at-risk rules and the basis limitation.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a common
unit. Net investment income includes gross income from property
held for investment and amounts treated as portfolio income
under the passive loss rules, less deductible expenses, other
than interest, directly connected with the production of
investment income, but generally does not include gains
attributable to the disposition of property held for investment
or qualified dividend income. The IRS has indicated that the net
passive income earned by a publicly traded partnership will be
treated as investment income to its unitholders for purposes of
the investment interest deduction limitation. In addition, the
unitholders share of our portfolio income will be treated
as investment income.
Entity-Level Collections. If we are
required or elect under applicable law to pay any federal,
state, or local income tax on behalf of any unitholder or our
general partner or any former unitholder, we are authorized to
pay those taxes from our funds. That payment, if made, will be
treated as a distribution of cash to the unitholder on whose
behalf the payment was made. If the payment is made on behalf of
a person whose identity cannot be determined, we are authorized
to treat the payment as a distribution to all current
unitholders. Subject to the terms of our partnership agreement,
we are authorized to amend our partnership agreement in the
manner necessary to maintain uniformity of intrinsic tax
characteristics of common units and to adjust later
distributions, so that after giving effect to these
distributions, the priority and characterization of
distributions otherwise applicable under our partnership
agreement is maintained as nearly as is practicable. Payments by
us as described above could give rise to an overpayment of tax
on behalf of an individual unitholder in which event the
unitholder would be required to file a claim in order to obtain
a credit or refund.
Allocation of Income, Gain, Loss and
Deduction. In general, if we have a net profit,
our items of income, gain, loss, and deduction will be allocated
among our general partner and the unitholders in accordance with
their percentage interests in US.If we have a net loss, that
loss will be allocated first to our general partner and the
37
unitholders in accordance with their percentage interests in us
to the extent of their positive capital accounts and, second, to
our general partner.
Specified items of our income, gain, loss, and deduction will be
allocated under Section 704(c) of the Internal Revenue Code
to account for (a) any difference between the tax basis and
fair market value of our assets at the time of an offering and
(b) any difference between the tax basis and fair market
value of any property contributed to us that exists at the time
of such contribution, together, referred to in this discussion
as the Contributed Property. These
Section 704(c) Allocations are required to
eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and the tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity. The effect of these Section 704(c)
Allocations to a unitholder purchasing common units from us in
an offering will be essentially the same as if the tax bases of
our assets were equal to their fair market value at the time of
such offering. In the event we issue additional common units or
engage in certain other transactions in the future, we will make
reverse Section 704(c) Allocations, similar to
the Section 704(c) Allocations described above, to our
general partner and our other unitholders immediately prior to
such issuance or other transactions to account for the Book-Tax
Disparity of all property held by us at the time of such
issuance or future transaction. In addition, items of recapture
income will be allocated to the extent possible to the
unitholder who was allocated the deduction giving rise to the
treatment of that gain as recapture income in order to minimize
the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital
accounts nevertheless result, items of our income and gain will
be allocated in an amount and manner sufficient to eliminate the
negative balance as quickly as possible.
An allocation of items of our income, gain, loss, or deduction,
other than an allocation required by Section 704(c) of the
Internal Revenue Code, will generally be given effect for
federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction only if the
allocation has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Vinson & Elkins L.L.P. is of the opinion that, with
the exception of the issues described in
Section 754 Election,
Disposition of Common Units
Allocations Between Transferors and Transferees, and
Uniformity of Common Units, allocations
under our partnership agreement will be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss, or deduction.
Treatment of Short Sales. A unitholder whose
common units are loaned to a short seller to cover a
short sale of common units may be considered as having disposed
of those common units. If so, he would no longer be treated for
tax purposes as a partner with respect to those common units
during the period of the loan and may recognize gain or loss
from the disposition. As a result, during this period:
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any of our income, gain, loss, or deduction with respect to
those common units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
common units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Vinson & Elkins L.L.P. has not rendered an opinion
regarding the tax treatment of a unitholder whose common units
are loaned to a short seller to cover a short sale of common
units; therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from borrowing and
loaning their common units. The IRS has previously announced
that it is studying issues relating to the tax treatment of
short sales of partnership interests. Please also read
Disposition of Common Units
Recognition of Gain or Loss.
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Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss, or deduction for purposes of
the alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in common units
on their liability for the alternative minimum tax.
Tax Rates. Under current law, the highest
marginal U.S. federal income tax rate applicable to
ordinary income of individuals is 35% and the highest marginal
U.S. federal income tax rate applicable to long-term
capital gains (generally, capital gains on certain assets held
for more than 12 months) of individuals is 15%. However,
absent new legislation extending the current rates, beginning
January 1, 2011, the highest marginal U.S. federal
income tax rate applicable to ordinary income and long-term
capital gains of individuals will increase to 39.6% and 20%,
respectively. Moreover, these rates are subject to change by new
legislation at any time.
Section 754 Election. We have made the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. The election will generally permit us to adjust a common
unit purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. The Section 743(b)
adjustment resulting from this election applies to a purchaser
of common units from another unitholder, but does not apply to a
person who purchases common units directly from us, and it
belongs only to the purchaser and not to other unitholders.
Please also read, however, Allocation of
Income, Gain, Loss and Deduction above. For purposes of
this discussion, a unitholders inside basis in our assets
will be considered to have two components: (a) his share of
our tax basis in our assets (common basis) and
(b) his Section 743(b) adjustment to that basis.
Where the remedial allocation method is adopted (which we have
and will adopt as to our properties), the Treasury Regulations
under Section 743 of the Internal Revenue Code require a
portion of the Section 743(b) adjustment that is
attributable to recovery property subject to depreciation under
Section 168 of the Internal Revenue Code whose book basis
is in excess of its tax basis to be depreciated over the
remaining cost recovery period for the propertys
unamortized book-tax disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under our partnership agreement, our general partner is
authorized to take a position to preserve the uniformity of
common units even if that position is not consistent with these
and any other Treasury Regulations. Please read
Uniformity of Common Units.
Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no direct or
indirect controlling authority on this issue, we intend to
depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of
Contributed Property, to the extent of any unamortized Book-Tax
Disparity, using a rate of depreciation or amortization derived
from the depreciation or amortization method and useful life
applied to the propertys unamortized book-tax disparity,
or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with the methods employed by other
publicly traded partnerships but is arguably inconsistent with
Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may take a depreciation or amortization position under which
all purchasers acquiring common units in the same month would
receive depreciation or amortization, whether attributable to
common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest
in our assets. This kind of aggregate approach may result in
lower annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Common Units. A
unitholders tax basis for his common units is reduced by
his share of our deductions (whether or not such deductions were
claimed on an individuals income tax return) so that any
position we take that understates deductions will overstate the
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such common units. Please read Disposition of
Common Units Recognition of Gain or Loss. The
IRS may challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we
39
take to preserve the uniformity of the common units. If such a
challenge were sustained, the gain from the sale of common units
might be increased without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his common units is higher than
the common units share of the aggregate tax basis of our
assets immediately prior to the transfer. In that case, as a
result of the election, the transferee would have, among other
items, a greater amount of depreciation and depletion deductions
and his share of any gain or loss on a sale of our assets would
be less. Conversely, a Section 754 election is
disadvantageous if the transferees tax basis in his common
units is lower than those common units share of the
aggregate tax basis of our assets immediately prior to the
transfer. Thus, the fair market value of the common units may be
affected either favorably or unfavorably by the election. A
basis adjustment is required regardless of whether a
Section 754 election is made in the case of a transfer of
an interest in us if we have a substantial built in
loss immediately after the transfer, or if we distribute
property and have a substantial basis reduction. Generally a
built in loss or a basis reduction is substantial if
it exceeds $250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally nonamortizable or amortizable over a longer period of
time or under a less accelerated method than our tangible
assets. We cannot assure you that the determinations we make
will not be successfully challenged by the IRS and that the
deductions resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of common units
may be allocated more income than he would have been allocated
had the election not been revoked.
Tax
Treatment of Operations
Accounting Method and Taxable Year. We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31 and
who disposes of all of his common units following the close of
our taxable year but before the close of his taxable year must
include his share of our income, gain, loss, and deduction in
income for his taxable year, with the result that he will be
required to include in his taxable income for his taxable year
his share of more than twelve months of our income, gain, loss,
and deduction. Please read Disposition of
Common Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and Amortization. The
tax basis of our tangible assets, such as casing, tubing, tanks,
pumping units and other similar property, will be used for
purposes of computing depreciation and cost recovery deductions
and, ultimately, gain or loss on the disposition of these
assets. The federal income tax burden associated with the
difference between the fair market value of our assets and their
tax basis immediately prior to an offering will be borne by our
partners holding interests in us prior to such offering. Please
read Tax Consequences of Common Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets subject
to these allowances are placed in service. We may not be
entitled to any amortization deductions with respect to certain
goodwill properties, if any, held by us at the time of any
future offering. Please read Uniformity of
Common Units. Property we subsequently acquire or
construct may be depreciated using accelerated methods permitted
by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all of those deductions as
ordinary income upon a sale of his interest in US. Please read
Tax Consequences of
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Common Unit Ownership Allocation of Income, Gain,
Loss and Deduction and Disposition of
Common Units Recognition of Gain or Loss.
The costs incurred in selling our common units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably, or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by US.The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
Valuation and Tax Basis of Our Properties. The
federal income tax consequences of the ownership and disposition
of common units will depend in part on our estimates of the
relative fair market values, and the tax bases, of our assets.
Although we may from time to time consult with professional
appraisers regarding valuation matters, we will make many of the
relative fair market value estimates ourselves. These estimates
and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of
fair market value or basis are later found to be incorrect, the
character and amount of items of income, gain, loss or deduction
previously reported by unitholders might change, and unitholders
might be required to adjust their tax liability for prior years
and incur interest and penalties with respect to those
adjustments.
Oil
and Natural Gas Taxation
Depletion
Deductions
Subject to the limitations on deductibility of losses discussed
above (please read Tax Consequences of Common
Unit Ownership Limitations on Deductibility of
Losses), unitholders will be entitled to deductions for
the greater of either cost depletion or (if otherwise allowable)
percentage depletion with respect to our oil and natural gas
interests. Although the Internal Revenue Code requires each
unitholder to compute his own depletion allowance and maintain
records of his share of the adjusted tax basis of the underlying
property for depletion and other purposes, we intend to furnish
each of our unitholders with information relating to this
computation for federal income tax purposes. Each unitholder,
however, remains responsible for calculating his own depletion
allowance and maintaining records of his share of the adjusted
tax basis of the underlying property for depletion and other
purposes.
Percentage depletion is generally available with respect to
unitholders who qualify under the independent producer exemption
contained in Section 613A(c) of the Internal Revenue Code.
For this purpose, an independent producer is a person not
directly or indirectly involved in the retail sale of oil,
natural gas, or derivative products or the operation of a major
refinery. Percentage depletion is calculated as an amount
generally equal to 15% (and, in the case of marginal production,
potentially a higher percentage) of the unitholders gross
income from the depletable property for the taxable year. The
percentage depletion deduction with respect to any property is
limited to 100% of the taxable income of the unitholder from the
property for each taxable year, computed without the depletion
allowance and without the deduction under Internal Revenue Code
Section 199. A unitholder that qualifies as an independent
producer may deduct percentage depletion only to the extent the
unitholders average daily production of domestic crude
oil, or the natural gas equivalent, does not exceed
1,000 barrels. This depletable amount may be allocated
between natural gas and oil production, with 6,000 cubic feet of
domestic natural gas production regarded as equivalent to one
barrel of crude oil. The 1,000-barrel limitation must be
allocated among the independent producer and controlled or
related persons and family members in proportion to the
respective production by such persons during the period in
question.
In addition to the foregoing limitations, the percentage
depletion deduction otherwise available is limited to 65% of a
unitholders total taxable income from all sources for the
year, computed without the depletion allowance, net operating
loss carrybacks, or capital loss carrybacks. Any percentage
depletion deduction disallowed because of the 65% limitation may
be deducted in the following taxable year if the percentage
depletion deduction for such year plus the deduction carryover
does not exceed 65% of the unitholders total taxable
income for that year. The carryover period resulting from the
65% net income limitation is unlimited.
Unitholders that do not qualify under the independent producer
exemption are generally restricted to depletion deductions based
on cost depletion. Cost depletion deductions are calculated by
(a) dividing the unitholders share of the adjusted
tax basis in the underlying mineral property by the number of
mineral units (barrels of oil and
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thousand cubic feet, or Mcf, of natural gas) remaining as of the
beginning of the taxable year and (b) multiplying the
result by the number of mineral units sold within the taxable
year. The total amount of deductions based on cost depletion
cannot exceed the unitholders share of the total adjusted
tax basis in the property.
All or a portion of any gain recognized by a unitholder as a
result of either the disposition by us of some or all of our oil
and natural gas interests or the disposition by the unitholder
of some or all of his common units may be taxed as ordinary
income to the extent of recapture of depletion deductions,
except for percentage depletion deductions in excess of the tax
basis of the property. The amount of the recapture is generally
limited to the amount of gain recognized on the disposition.
The foregoing discussion of depletion deductions does not
purport to be a complete analysis of the complex legislation and
Treasury Regulations relating to the availability and
calculation of depletion deductions by the unitholders. Further,
because depletion is required to be computed separately by each
unitholder and not by our partnership, no assurance can be
given, and counsel is unable to express any opinion, with
respect to the availability or extent of percentage depletion
deductions to the unitholders for any taxable year. Moreover,
the availability of percentage depletion may be reduced or
eliminated if recently proposed (or similar) tax legislation is
enacted. For a discussion of such legislative proposals, please
read Recent Legislative Developments. We
encourage each prospective unitholder to consult his tax advisor
to determine whether percentage depletion would be available to
him.
Deductions
for Intangible Drilling and Development Costs
We elect to currently deduct intangible drilling and development
costs associated with wells located in the United States
(IDCs). IDCs generally include our expenses for
wages, fuel, repairs, hauling, supplies and other items that are
incidental to, and necessary for, the drilling and preparation
of wells for the production of oil or natural gas. The option to
currently deduct IDCs applies only to those items that do not
have a salvage value.
Although we elect to currently deduct IDCs, each unitholder will
have the option of either currently deducting IDCs or
capitalizing all or part of the IDCs and amortizing them on a
straight-line basis over a
60-month
period, beginning with the taxable month in which the
expenditure is made. If a unitholder makes the election to
amortize the IDCs over a
60-month
period, no IDC preference amount in respect of those IDCs will
result for alternative minimum tax purposes.
Integrated oil companies must capitalize 30% of all their IDCs
(other than IDCs paid or incurred with respect to oil and gas
wells located outside of the United States) and amortize these
IDCs over 60 months beginning in the month in which those
costs are paid or incurred. If the taxpayer ceases to be an
integrated oil company, it must continue to amortize those costs
as long as it continues to own the property to which the IDCs
relate. An integrated oil company is a taxpayer that
has economic interests in crude oil deposits and also carries on
substantial retailing or refining operations. An oil or natural
gas producer is deemed to be a substantial retailer or refiner
if it is subject to the rules disqualifying retailers and
refiners from taking percentage depletion. In order to qualify
as an independent producer that is not subject to
these IDC deduction limits, a unitholder, either directly or
indirectly through certain related parties, may not be involved
in the refining of more than 75,000 barrels of oil on
average for any day during the taxable year or in the retail
marketing of oil and natural gas products exceeding
$5 million per year in the aggregate.
IDCs previously deducted that are allocable to property
(directly or through ownership of an interest in a partnership)
and that would have been included in the adjusted tax basis of
the property had the IDC deduction not been taken are recaptured
to the extent of any gain realized upon the disposition of the
property or upon the disposition by a unitholder of interests in
US.Recapture is generally determined at the unitholder level.
Where only a portion of the recapture property is sold, any IDCs
related to the entire property are recaptured to the extent of
the gain realized on the portion of the property sold. In the
case of a disposition of an undivided interest in a property, a
proportionate amount of the IDCs with respect to the property is
treated as allocable to the transferred undivided interest to
the extent of any gain recognized. Please read
Disposition of Common Units
Recognition of Gain or Loss.
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The election to currently deduct IDCs may be restricted or
eliminated if recently proposed (or similar) tax legislation is
enacted. For a discussion of such legislative proposals, please
read Recent Legislative Developments.
Deduction
for U.S. Production Activities
Subject to the limitations on the deductibility of losses
discussed above and the limitation discussed below, unitholders
will be entitled to a deduction, herein referred to as the
Section 199 deduction, equal to 9% of our qualified
production activities income that is allocated to such
unitholder, but not to exceed 50% of such unitholders IRS
Form W-2
wages for the taxable year allocable to domestic production
gross receipts.
Qualified production activities income is generally equal to
gross receipts from domestic production activities reduced by
cost of goods sold allocable to those receipts, other expenses
directly associated with those receipts, and a share of other
deductions, expenses, and losses that are not directly allocable
to those receipts or another class of income. The products
produced must be manufactured, produced, grown, or extracted in
whole or in significant part by the taxpayer in the United
States.
For a partnership, the Section 199 deduction is determined
at the partner level. To determine his Section 199
deduction, each unitholder will aggregate his share of the
qualified production activities income allocated to him from us
with the unitholders qualified production activities
income from other sources. Each unitholder must take into
account his distributive share of the expenses allocated to him
from our qualified production activities regardless of whether
we otherwise have taxable income. However, our expenses that
otherwise would be taken into account for purposes of computing
the Section 199 deduction are taken into account only if
and to the extent the unitholders share of losses and
deductions from all of our activities is not disallowed by the
tax basis rules, the at-risk rules or the passive activity loss
rules. Please read Tax Consequences of Common
Unit Ownership Limitations on Deductibility of
Losses.
The amount of a unitholders Section 199 deduction for
each year is limited to 50% of the IRS
Form W-2
wages actually or deemed paid by the unitholder during the
calendar year that are deducted in arriving at qualified
production activities income. Each unitholder is treated as
having been allocated IRS
Form W-2
wages from us equal to the unitholders allocable share of
our wages that are deducted in arriving at qualified production
activities income for that taxable year. It is not anticipated
that we or our subsidiaries will pay material wages that will be
allocated to our unitholders, and thus a unitholders
ability to claim the Section 199 deduction may be limited.
This discussion of the Section 199 deduction does not
purport to be a complete analysis of the complex legislation and
Treasury authority relating to the calculation of domestic
production gross receipts, qualified production activities
income, or IRS
Form W-2
wages, or how such items are allocated by us to unitholders.
Further, because the Section 199 deduction is required to
be computed separately by each unitholder, no assurance can be
given, and counsel is unable to express any opinion, as to the
availability or extent of the Section 199 deduction to the
unitholders. Moreover, the availability of Section 199
deductions may be reduced or eliminated if recently proposed (or
similar) tax legislation is enacted. For a discussion of such
legislative proposals, please read Recent
Legislative Developments. Each prospective unitholder is
encouraged to consult his tax advisor to determine whether the
Section 199 deduction would be available to him.
Lease
Acquisition Costs
The cost of acquiring oil and natural gas lease or similar
property interests is a capital expenditure that must be
recovered through depletion deductions if the lease is
productive. If a lease is proved worthless and abandoned, the
cost of acquisition less any depletion claimed may be deducted
as an ordinary loss in the year the lease becomes worthless.
Please read Tax Treatment of
Operations Oil and Natural Gas Taxation
Depletion Deductions.
Geophysical
Costs
The cost of geophysical exploration incurred in connection with
the exploration and development of oil and natural gas
properties in the United States is deducted ratably over a
24-month
period beginning on the date that
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such expense is paid or incurred. This
24-month
period is extended to 7 years in the case of major
integrated oil companies. Moreover, the
24-month
period may be similarly extended for all taxpayers if recently
proposed (or similar) tax legislation is enacted. For a
discussion of such legislative proposals, please read
Recent Legislative Developments.
Operating
and Administrative Costs
Amounts paid for operating a producing well are deductible as
ordinary business expenses, as are administrative costs to the
extent they constitute ordinary and necessary business expenses
that are reasonable in amount.
Recent
Legislative Developments
On February 26, 2009, the White House released President
Obamas budget proposal for the fiscal year 2010 (the
Budget Proposal). Among the changes recommended in
the Budget Proposal is the elimination of certain key
U.S. federal income tax preferences currently available to
oil and gas exploration and production companies. These changes
include, but are not limited to, (i) the repeal of the
percentage depletion allowance for oil and gas properties,
(ii) the elimination of current deductions for intangible
drilling and development costs, (iii) the elimination of
the deduction for United States production activities, and
(iv) the increase in the amortization period from two years
to seven years for geophysical costs paid or incurred in
connection with the exploration for, or development of, oil or
gas within the United States.
On April 23, 2009, the Oil Industry Tax Break Repeal Act of
2009 (the Senate Bill) was introduced in the Senate
and includes many of the proposals outlined in the Budget
Proposal. While the Senate Bill continues to be considered, it
is unclear whether any such changes will actually be enacted or,
if so, how soon any such changes could become effective. The
passage of any future legislation as a result of the Budget
Proposal, the Senate Bill or any other similar change in
U.S. federal income tax law could affect certain tax
deductions that are currently available with respect to oil and
gas exploration and production and could negatively impact the
value of an investment in our units.
Disposition
of Common Units
Recognition of Gain or Loss. Gain or loss will
be recognized on a sale of common units equal to the difference
between the amount realized and the unitholders tax basis
for the common units sold. A unitholders amount realized
will be measured by the sum of the cash or the fair market value
of other property received by him plus his share of our
nonrecourse liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of common units could result in a tax
liability in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in common units, on the sale or
exchange of a common unit will generally be taxable as capital
gain or loss. Capital gain recognized by an individual on the
sale of common units held for more than twelve months will
generally be taxed at a maximum U.S. federal income tax
rate of 15% through December 31, 2010 and 20% thereafter
(absent new legislation extending or adjusting the current
rate). However, a portion, which will likely be substantial, of
this gain or loss will be separately computed and taxed as
ordinary income or loss under Section 751 of the Internal
Revenue Code to the extent attributable to assets giving rise to
depreciation recapture or other unrealized
receivables or to inventory items we own. The
term unrealized receivables includes potential
recapture items, including depreciation depletion, and IDC
recapture. Ordinary income attributable to unrealized
receivables, inventory items, and depreciation recapture may
exceed net taxable gain realized upon the sale of a common unit
and may be recognized even if there is a net taxable loss
realized on the sale of a common unit. Thus, a unitholder may
recognize both ordinary income and a capital loss upon a sale of
common units. Net capital losses may offset capital gains and no
44
more than $3,000 of ordinary income, in the case of individuals,
and may only be used to offset capital gains in the case of
corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling discussed
above, a unitholder will be unable to select high or low basis
common units to sell as would be the case with corporate stock,
but, according to the Treasury Regulations, he may designate
specific common units sold for purposes of determining the
holding period of common units transferred. A unitholder
electing to use the actual holding period of common units
transferred must consistently use that identification method for
all subsequent sales or exchanges of common units. A unitholder
considering the purchase of additional common units or a sale of
common units purchased in separate transactions is urged to
consult his tax advisor as to the possible consequences of this
ruling and application of the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract, or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, our taxable income and
losses will be determined annually, will be prorated on a
monthly basis and will be subsequently apportioned among the
unitholders in proportion to the number of common units owned by
each of them as of the opening of the applicable exchange on the
first business day of the month, which we refer to in this
prospectus as the Allocation Date. However, gain or
loss realized on a sale or other disposition of our assets other
than in the ordinary course of business will be allocated among
the unitholders on the Allocation Date in the month in which
that gain or loss is recognized. As a result, a unitholder
transferring common units may be allocated income, gain, loss,
and deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently,
however, the Department of the Treasury and the IRS issued
proposed Treasury Regulations that provide a safe harbor
pursuant to which a publicly traded partnership may use a
similar monthly simplifying convention to allocate tax items
among transferor and transferee unitholders, although such tax
items must be prorated on a daily basis. Existing publicly
traded partnerships are entitled to rely on these proposed
Treasury Regulations; however, they are not binding on the IRS
and are subject to change until final Treasury Regulations are
issued. Accordingly, Vinson & Elkins L.L.P. is unable
to opine on the validity of this method of allocating income and
deductions between transferor and transferee unitholders. If
this method is not allowed under the Treasury Regulations, or
only applies to transfers of less than all of the
unitholders interest, our taxable income or losses might
be reallocated among the unitholders. We are authorized to
revise our method of allocation between
45
transferor and transferee unitholders, as well as unitholders
whose interests vary during a taxable year, to conform to a
method permitted under future Treasury Regulations.
A unitholder who owns common units at any time during a quarter
and who disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who
sells any of his common units is generally required to notify us
in writing of that sale within 30 days after the sale (or,
if earlier, January 15 of the year following the sale). A
purchaser of common units who purchases common units from
another unitholder is also generally required to notify us in
writing of that purchase within 30 days after the purchase.
Upon receiving such notifications, we are required to notify the
IRS of that transaction and to furnish specified information to
the transferor and transferee. Failure to notify us of a
purchase may, in some cases, lead to the imposition of
penalties. However, these reporting requirements do not apply to
a sale by an individual who is a citizen of the United States
and who effects the sale or exchange through a broker who will
satisfy such requirements.
Constructive Termination. We will be
considered to have been terminated for tax purposes if there are
sales or exchanges which, in the aggregate, constitute 50% or
more of the total interests in our capital and profits within a
twelve-month period. For purposes of measuring whether the 50%
threshold is reached, multiple sales of the same interest are
counted only once. A constructive termination results in the
closing of our taxable year for all unitholders. In the case of
a unitholder reporting on a taxable year other than a fiscal
year ending December 31, the closing of our taxable year
may result in more than twelve months of our taxable income or
loss being includable in his taxable income for the year of
termination. A constructive termination occurring on a date
other than December 31 will result in us filing two tax returns
(and unitholders receiving two Schedules K-1) for one fiscal
year and the cost of the preparation of these returns will be
borne by all unitholders. We would be required to make new tax
elections after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination. The IRS has announced recently announced that it
plans to issue guidance regarding the treatment of constructive
terminations of publicly traded partnerships such as US.Any such
guidance may change the application of the rules discussed above
and may affect the tax treatment of a unitholder.
Uniformity
of Common Units
Because we cannot match transferors and transferees of common
units, we must maintain uniformity of the economic and tax
characteristics within each class of common units to a purchaser
of a common unit of that class. In the absence of uniformity, we
may be unable to completely comply with a number of federal
income tax requirements, both statutory and regulatory. A lack
of uniformity can result from a literal application of Treasury
Regulation Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the common units. Please read Tax Consequences
of Common Unit Ownership Section 754
Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the propertys unamortized Book-Tax
Disparity, or treat that portion as nonamortizable, to the
extent attributable to property the common basis of which is not
amortizable, consistent with the regulations under
Section 743 of the Internal Revenue Code, even though that
position may be inconsistent with Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. Please read Tax Consequences of
Common Unit Ownership Section 754
Election. To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may adopt a depreciation and amortization position under
which all purchasers acquiring common units in the same month
would receive depreciation and amortization deductions, whether
attributable to a common basis or Section 743(b)
adjustment, based upon the same applicable methods and lives as
if they had purchased a direct
46
interest in our property. If this position is adopted, it may
result in lower annual depreciation and amortization deductions
than would otherwise be allowable to some unitholders and risk
the loss of depreciation and amortization deductions not taken
in the year that these deductions are otherwise allowable. This
position will not be adopted if we determine that the loss of
depreciation and amortization deductions will have a material
adverse effect on the unitholders. If we choose not to utilize
this aggregate method, we may use any other reasonable
depreciation and amortization method to preserve the uniformity
of the intrinsic tax characteristics of any common units that
would not have a material adverse effect on the unitholders. The
IRS may challenge any method of depreciating the
Section 743(b) adjustment described in this paragraph. If
this challenge were sustained, the uniformity of common units
might be affected, and the gain from the sale of common units
might be increased without the benefit of additional deductions.
Please read Disposition of Common
Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of common units by employee benefit plans, other
tax-exempt organizations, non-resident aliens, foreign
corporations, and other foreign persons raises issues unique to
those investors and, as described below, may have substantially
adverse tax consequences to them. If you are a tax-exempt entity
or a
non-U.S. person,
you should consult your tax advisor before investing in our
common units. Moreover, under our partnership agreement,
non-U.S. persons
are not Eligible Holders of our common units and common units
held by
non-U.S. persons
may be subject to redemption. Please read The Partnership
Agreement Non-Eligible Holders; Redemption;
Withholding of Distributions.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
less certain allowable deductions allocated to a unitholder that
is a tax-exempt organization will be unrelated business taxable
income and will be taxable to them.
Non-resident aliens and foreign corporations, trusts, or estates
that own common units will be considered to be engaged in
business in the United States because of the ownership of common
units. As a consequence, they will be required to file federal
tax returns to report their share of our income, gain, loss, or
deduction and pay federal income tax at regular rates on their
share of our net income or gain. Moreover, under rules
applicable to publicly traded partnerships, we will withhold at
the highest applicable effective tax rate from cash
distributions made quarterly to foreign unitholders. Each
foreign unitholder must obtain a taxpayer identification number
from the IRS and submit that number to our transfer agent on a
Form W-8BEN
or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns common
units will be treated as engaged in a United States trade or
business, that corporation may be subject to the United States
branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its share of our income and gain, as
adjusted for changes in the foreign corporations
U.S. net equity, which is effectively connected
with the conduct of a United States trade or business. That tax
may be reduced or eliminated by an income tax treaty between the
United States and the country in which the foreign corporate
unitholder is a qualified resident. In addition,
this type of unitholder is subject to special information
reporting requirements under Section 6038C of the Internal
Revenue Code.
A foreign unitholder who sells or otherwise disposes of a common
unit will be subject to U.S. federal income tax on gain
realized from the sale or disposition of that common unit to the
extent the gain is effectively connected with a U.S. trade
or business of the foreign unitholder. Under a ruling published
by the IRS, interpreting the scope of effectively
connected income, a foreign unitholder would be considered
to be engaged in a trade or business in the U.S. by virtue
of the U.S. activities of the Partnership, and part or all
of that unitholders gain would be effectively connected
with that unitholders indirect U.S. trade or
business. Moreover, under the Foreign Investment in Real
Property Tax Act, a foreign unitholder generally will be subject
to U.S. federal income tax upon the sale or disposition of
a common unit if (a) he owned (directly or constructively
applying certain attribution rules) more than 5% of our common
units at any time during the five-year period ending on the date
of such disposition and (b) 50% or more of the fair market
value of all of our assets consisted of U.S. real property
interests at any time during the shorter of the period during
which such unitholder held the common units or the
5-year
period ending on the date of disposition. Currently, more than
50% of our assets consist of U.S. real property interests
and we do not expect that
47
to change in the foreseeable future. Therefore, foreign
unitholders may be subject to federal income tax on gain from
the sale or disposition of their common units.
Administrative
Matters
Information Returns and Audit Procedures. We
intend to furnish to each unitholder, within 90 days after
the close of each calendar year, specific tax information,
including a
Schedule K-1,
which describes each unitholders share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders share of income, gain, loss and
deduction. We cannot assure you that those positions will yield
a result that conforms to the requirements of the Internal
Revenue Code, Treasury Regulations, or administrative
interpretations of the IRS. Neither we nor Vinson &
Elkins L.L.P. can assure prospective unitholders that the IRS
will not successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the common units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of a unitholders return.
Any audit of a unitholders return could result in
adjustments not related to our returns as well as those related
to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. Our partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner has made and will make some elections on
our behalf and on behalf of unitholders. In addition, the Tax
Matters Partner can extend the statute of limitations for
assessment of tax deficiencies against unitholders for items in
our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the
IRS unless that unitholder elects, by filing a statement with
the IRS, not to give that authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review, by which all
the unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on a unitholders federal income tax
return that is not consistent with the treatment of the item on
our return. Intentional or negligent disregard of this
consistency requirement may subject a unitholder to substantial
penalties.
Nominee Reporting. Persons who hold an
interest in us as a nominee for another person are required to
furnish to us:
(a) the name, address, and taxpayer identification number
of the beneficial owner and the nominee;
(b) whether the beneficial owner is:
1. a person that is not a United States person;
2. a foreign government, an international organization, or
any wholly-owned agency or instrumentality of either of the
foregoing; or
3. a tax-exempt entity;
(c) the amount and description of common units held,
acquired, or transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
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Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on common units they acquire,
hold, or transfer for their own account. A penalty of $50 per
failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that
information to US.The nominee is required to supply the
beneficial owner of the common units with the information
furnished to us.
Accuracy-Related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax, and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith
regarding that portion.
For individuals, a substantial understatement of income tax in
any taxable year exists if the amount of the understatement
exceeds the greater of 10% of the tax required to be shown on
the return for the taxable year or $5,000. The amount of any
understatement subject to penalty generally is reduced if any
portion is attributable to a position adopted on the return:
(a) for which there is, or was, substantial
authority; or
(b) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return.
If any item of income, gain, loss, or deduction included in the
distributive shares of unitholders might result in that kind of
an understatement of income for which no
substantial authority exists, we must disclose the
pertinent facts on our return. In addition, we will make a
reasonable effort to furnish sufficient information for
unitholders to make adequate disclosure on their returns and to
take other actions as may be appropriate to permit unitholders
to avoid liability for this penalty. More stringent rules apply
to tax shelters, which we do not believe includes
us, or any of our investments, plans or arrangements.
A substantial valuation misstatement exists if (a) the
value of any property, or the tax basis of any property, claimed
on a tax return is 150% or more of the amount determined to be
the correct amount of the valuation or tax basis, (b) the
price for any property or services (or for the use of property)
claimed on any such return with respect to any transaction
between persons described in Internal Revenue Code
Section 482 is 200% or more (or 50% or less) of the amount
determined under Section 482 to be the correct amount of
such price, or (c) the net Internal Revenue Code
Section 482 transfer price adjustment for the taxable year
exceeds the lesser of $5 million or 10% of the
taxpayers gross receipts. No penalty is imposed unless the
portion of the underpayment attributable to a substantial
valuation misstatement exceeds $5,000 ($10,000 for a corporation
other than an S Corporation or a personal holding company).
The penalty is increased to 40% in the event of a gross
valuation misstatement.
Reportable Transactions. If we were to engage
in a reportable transaction, we (and possibly you
and others) would be required to make a detailed disclosure of
the transaction to the IRS. A transaction may be a reportable
transaction based upon any of several factors, including the
fact that it is a type of tax avoidance transaction publicly
identified by the IRS as a listed transaction or
that it produces certain kinds of losses for partnerships,
individuals, S corporations, and trusts in excess of
$2 million in any single year, or $4 million in any
combination of six successive tax years. Our participation in a
reportable transaction could increase the likelihood that our
federal income tax information return (and possibly your tax
return) would be audited by the IRS. Please read
Information Returns and Audit Procedures.
Moreover, if we were to participate in a reportable transaction
with a significant purpose to avoid or evade tax, or in any
listed transaction, you may be subject to the following
provisions of the American Jobs Creation Act of 2004:
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accuracy-related penalties with a broader scope, significantly
narrower exceptions, and potentially greater amounts than
described above at Accuracy-Related
Penalties;
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for those persons otherwise entitled to deduct interest on
federal tax deficiencies, nondeductibility of interest on any
resulting tax liability; and
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in the case of a listed transaction, an extended statute of
limitations.
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We do not expect to engage in any reportable
transactions.
State,
Local, and Other Tax Considerations
In addition to federal income taxes, you will be subject to
other taxes, including state and local income taxes,
unincorporated business taxes, and estate, inheritance or
intangibles taxes that may be imposed by the various
jurisdictions in which we conduct business or own property or in
which you are a resident. We conduct business and own property
only in Texas. Texas imposes an entity level franchise tax (the
Texas Margin tax) on corporations, certain partnerships and
other entities, but currently does not impose any income or
similar tax on individuals. We may also own property or do
business in other states in the future that impose income or
similar taxes on nonresident individuals. Although an analysis
of those various taxes is not presented here, each prospective
common unitholder should consider their potential impact on his
investment in US.You may be required to file state income tax
returns and to pay state income taxes in any state other than
Texas in which we do business or own property, and you may be
subject to penalties for failure to comply with those
requirements. In some states, tax losses may not produce a tax
benefit in the year incurred and also may not be available to
offset income in subsequent taxable years. Some of the states
may require us, or we may elect, to withhold a percentage of
income from amounts to be distributed to a unitholder who is not
a resident of the state. Withholding, the amount of which may be
greater or less than a particular unitholders income tax
liability to the state, generally does not relieve a nonresident
unitholder from the obligation to file an income tax return.
Amounts withheld may be treated as if distributed to unitholders
for purposes of determining the amounts distributed by US.Please
read Tax Consequences of Common Unit
Ownership Entity-Level Collections. Based
on current law and our estimate of our future operations, we
anticipate that any amounts required to be withheld will not be
material.
It is the responsibility of each unitholder to investigate the
legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in US.Accordingly, each
prospective unitholder is urged to consult, and depend upon, his
tax counsel or other advisor with regard to those matters.
Further, it is the responsibility of each unitholder to file all
state, local, and foreign, as well as United States federal tax
returns, that may be required of him. Vinson & Elkins
L.L.P. has not rendered an opinion on the state, local, or
foreign tax consequences of an investment in us.
Tax
Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership, and disposition of any series of
debt securities that we may offer hereunder will be set forth in
the prospectus supplement relating to the offering of such debt
securities.
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PLAN OF
DISTRIBUTION
We may sell securities described in this prospectus and any
accompanying prospectus supplement through underwriters, through
broker-dealers, through agents, or directly to one or more
investors.
We will prepare a prospectus supplement for each offering that
will disclose the terms of the offering, including the name or
names of any underwriters, dealers, or agents, the purchase
price of the securities and the proceeds to us from the sale,
any underwriting discounts, and other items constituting
compensation to underwriters, dealers, or agents.
We will fix a price or prices of our securities at:
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market prices prevailing at the time of any sale under this
registration statement;
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prices related to market prices; or
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negotiated prices.
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We may change the price of the securities offered from time to
time.
If we use underwriters or dealers in the sale, they will acquire
the securities for their own account, and they may resell these
securities from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering
price, or at varying prices determined at the time of sale. The
securities may be offered to the public either through
underwriting syndicates represented by one or more managing
underwriters or directly by one or more of such firms. Unless
otherwise disclosed in the prospectus supplement, the
obligations of the underwriters to purchase securities will be
subject to certain conditions precedent, and the underwriters
will be obligated to purchase all of the securities offered by
the prospectus supplement if any of the securities are
purchased. Any initial public offering price and any discounts
or concessions allowed or re-allowed or paid to dealers may be
changed from time to time.
We may sell the securities through agents designated by us from
time to time. We will name any agent involved in the offering
and sale of the securities for which this prospectus is
delivered, and disclose any commissions payable by us to the
agent or the method by which the commissions can be determined,
in the prospectus supplement. Unless otherwise indicated in the
prospectus supplement, any agent will be acting on a best
efforts basis for the period of its appointment.
Offers to purchase securities may be solicited directly by us
and the sale thereof may be made by us directly to institutional
investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act of 1933 with respect to any
resale thereof. The terms of any such sales will be described in
the prospectus supplement relating thereto. We may use
electronic media, including the internet, to sell offered
securities directly.
We may offer our common units into an existing trading market on
the terms described in the prospectus supplement relating
thereto. Underwriters, dealers, and agents who participate in
any
at-the-market
offerings will be described in the prospectus supplement
relating thereto.
We may agree to indemnify underwriters, dealers, and agents who
participate in the distribution of securities against certain
liabilities to which they may become subject in connection with
the sale of the securities, including liabilities arising under
the Securities Act of 1933.
Certain of the underwriters and their affiliates may be
customers of, may engage in transactions with and may perform
services for us or our affiliates in the ordinary course of
business.
A prospectus and accompanying prospectus supplement in
electronic form may be made available on the websites maintained
by the underwriters. The underwriters may agree to allocate a
number of securities for sale to their online brokerage account
holders. Such allocations of securities for internet
distributions will be made on the same basis as other
allocations. In addition, securities may be sold by the
underwriters to securities dealers who resell securities to
online brokerage account holders.
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The aggregate maximum compensation the underwriters will receive
in connection with the sale of any securities under this
prospectus and the registration statement of which it forms a
part will not exceed 10% of the gross proceeds from the sale.
Because FINRA views our common units as interests in a direct
participation program, any offering of common units under the
registration statement of which this prospectus forms a part
will be made in compliance with Rule 2810 of the NASD
Conduct Rules (or any applicable successor to such rule).
To the extent required, this prospectus may be amended or
supplemented from time to time to describe a specific plan of
distribution. The place and time of delivery for the securities
in respect of which this prospectus is delivered will be set
forth in the accompanying prospectus supplement.
In connection with offerings of securities under the
registration statement of which this prospectus forms a part and
in compliance with applicable law, underwriters, brokers, or
dealers may engage in transactions that stabilize or maintain
the market price of the securities at levels above those that
might otherwise prevail in the open market. Specifically,
underwriters, brokers, or dealers may over-allot in connection
with offerings, creating a short position in the securities for
their own accounts. For the purpose of covering a syndicate
short position or stabilizing the price of the securities, the
underwriters, brokers, or dealers may place bids for the
securities or effect purchases of the securities in the open
market. Finally, the underwriters may impose a penalty whereby
selling concessions allowed to syndicate members or other
brokers or dealers for distribution of the securities in
offerings may be reclaimed by the syndicate if the syndicate
repurchases previously distributed securities in transactions to
cover short positions, in stabilization transactions or
otherwise. These activities may stabilize, maintain, or
otherwise affect the market price of the securities, which may
be higher than the price that might otherwise prevail in the
open market, and, if commenced, may be discontinued at any time.
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LEGAL
MATTERS
Vinson & Elkins L.L.P. will pass upon the validity of
the securities offered in this registration statement. If
certain legal matters in connection with an offering of the
securities made by this prospectus and a related prospectus
supplement are passed upon by counsel for the underwriters of
such offering, that counsel will be named in the applicable
prospectus supplement related to that offering.
EXPERTS
The consolidated financial statements of Pioneer Southwest
Energy Partners L.P. appearing in Pioneer Southwest Energy
Partners L.P.s Annual Report
(Form 10-K)
for the year ended December 31, 2008 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated balance sheet of Pioneer Southwest Energy
Partners GP LLC appearing in Pioneer Southwest Energy Partners
L.P.s Annual Report
(Form 10-K)
for the year ended December 31, 2008 has been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such consolidated
balance sheet is incorporated herein by reference in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
The carve out financial statements of the Acquired Property
Interests as of December 31, 2008 and 2007 and for each of
the three years in the period ended December 31, 2008
appearing in Pioneer Southwest Energy Partners L.P.s
current report on
Form 8-K/A
filed on October 16, 2009 have been audited by
Ernst & Young LLP, independent auditors, as set forth
in their report thereon appearing therein, and incorporated
herein by reference. Such carve out financial statements are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
The supplemental consolidated financial statements of Pioneer
Southwest Energy Partners L.P. as of December 31, 2008 and
2007 and for each of the three years in the period ended
December 31, 2008 appearing in Pioneer Southwest Energy
Partners L.P.s current report on
Form 8-K
filed on October 19, 2009 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such supplemental
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The supplemental consolidated balance sheet of Pioneer Southwest
Energy Partners GP LLC as of December 31, 2008 appearing in
Pioneer Southwest Energy Partners L.P.s current report on
Form 8-K
filed on October 19, 2009 has been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon appearing
therein, and incorporated herein by reference. Such supplemental
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Estimated quantities of our oil and gas reserves and the net
present value of such reserves incorporated by reference in this
prospectus are based upon reserve reports prepared by us,
certain portions of which have been audited by Netherland,
Sewell & Associates, Inc. We have incorporated these
estimates in reliance on the authority of such firm as experts
in such matters.
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Pioneer
Southwest Energy Partners L.P.
2,700,000
Common Units
Representing
Limited Partner Interests
Joint
Book-Running Managers
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BofA
Merrill Lynch |
Wells Fargo Securities |
Co-Managers
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J.P. Morgan |
RBC Capital Markets |