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Independant energy group Laredo Petroleum reported mixed third quarter earnings after the close Tuesday. $LPI revenue is derived from oil and natural gas production in the Permian Basin of West Texas.

Laredo Petroleum

Laredo Petroleum Inc NYSE: $LPI: $PDCE Reported Earnings After Close Tuesday

$0.24 Missed Exp $0.30 EPS on $257.28 million forecast in revenue 

 Earnings Forecast: 

Laredo Petroleum (LPI) reported results for the quarter ended September 2019 of Non-GAAP EPS of $0.21 beating estimates by $0.02 but GAAP EPS of -$1.14 missed by $1.35. Revenue of $193.57M (-30.8% Y/Y) missed by $2.46M..

The Company also announced the signing of a purchase and sale agreement to acquire 7,360 net acres and 750 net royalty acres in Howard County for $130 million, subject to customary closing adjustments and conditions, with closing expected late in the fourth quarter of 2019.

Laredo Petroleum Inc NYSE: $LPI

Market Reaction - After Hours After hours $2.68 +0.040 (+1.52%))

Highlights

  • Produced 27,830 barrels of oil per day ("BOPD") and 81,921 barrels of oil equivalent ("BOE") per day, exceeding oil production guidance for the quarter by 2% and total production guidance by 4%
  • Generated $48.9 million of Free Cash Flow and reduced the amount outstanding on the Company's credit facility by $50.0 million, maintaining Net Debt to Adjusted EBITDAa at 1.7 times' Reduced controllable cash costs of combined unit lease operating expenses ("LOE") and unit cash general and administrative expenses ("G&A") to $4.41 per BOE, a 27% decrease from full-year 2018 results of $6.07 per BOE '
  • Reduced well costs to $660 per lateral foot for Laredo's standard completion design, a decrease of 14% from year-end 2018 costs of $770 per lateral foot
  • Received net cash of $23.8 million on settlements of derivatives as the Company's hedges mitigated the impact of commodity price declines

Outlook

"Beginning in late 2018 and throughout 2019, we have made a significant transition from being a Company that sought to maximize net asset value to being a returns and Free Cash Flowb generation focused Company," stated Jason Pigott, President and Chief Executive Officer.

"By optimizing development spacing and driving costs down, we substantially improved capital efficiency in 2019 and have generated almost $40 million of Free Cash Flow in the first nine months of the year. The pending Howard County acquisition we are announcing today is our next strategic step to maximize and create additional value for our stakeholders. Utilizing cash flow from our existing production base to develop higher-margin inventory transforms our near-term development program. Oil-rich inventory at the front of our rig schedule creates a step change in capital efficiency, leading to increased oil growth and Free Cash Flowb expectations in 2020 and 2021 at lower capital spending levels."

 Laredo Petroleum Acerage

Tier-One Acreage Acquisition

On November 4, 2019, Laredo signed a purchase and sale agreement to acquire 7,360 net acres (96% operated) and 750 net royalty acres in Howard County for a total of $130 million. The Company believes the opportunistic acquisition of high-margin, tier-one acreage at values below historical averages in Howard County transforms the Company's near-term development plan and return profile and establishes an additional operating area in which to leverage Laredo's basin-low cost structure.

The acreage is located in a region with significant offset development activity. Relevant offset production indicates first-year production that is 80% oil and first year oil productivity that is 55% higher than expectations for legacy Laredo Wolfcamp drilling and 20% higher than the Cline. The Company expects to develop 120 gross (100 net) primary locations on the acreage beginning in first-quarter 2020, targeting the Lower Spraberry and Upper and Middle Wolfcamp formations.

The Company believes returns will be further enhanced for the locations developed on the 750 net royalty acres, all of which will be operated by Laredo. The Company believes that the highly contiguous nature of the pending leasehold acquisition will enable Laredo to maintain the same operational efficiencies realized on the Company's existing acreage base. The cost and efficiency advantages associated with long-lateral drilling, limited rig and completions crew moves and large development packages are expected to be recognized on this acreage, with expected well costs of $660 per lateral foot for the Company's standard completion design.

Additionally, substantial third-party infrastructure is in place, which Laredo believes will limit the need for upfront capital expenditures prior to development. The pending leasehold acquisition is largely undeveloped and the Company believes it has minimal existing parent-child considerations.

To minimize future parent-child interactions, Laredo intends to co-develop the three primary targets with four wells in the Lower Spraberry formation and six wells in each of the Upper and Middle Wolfcamp formations. The first well package is expected to be completed during the third quarter of 2020. Laredo expects to quickly integrate the Howard County acreage into the Company's development plan.

Allocating capital to the Howard County acreage is expected to significantly improve returns and capital efficiency, driving updated expectations of mid-to-high single digit annual oil growth and cumulative Free Cash Flowb generation of $100 million in the 2020 - 2021 period.

Capital Program

During the third quarter of 2019, total costs incurred were $79 million, comprised of $68 million in drilling and completions activities, $2 million in land and data related costs, $4 million in infrastructure, including Laredo Midstream Services investments, and $5 million in other capitalized costs. Total costs incurred of $375 million in the first nine months of 2019, excluding non-budgeted acquisitions, put the Company on pace to deliver on its plan to complete 58 wells within the $490 million capital budget and deliver more than $40 million in Free Cash Flowb for full-year 2019, excluding non-budgeted acquisitions and the pending Howard County acquisition.

Liquidity

At September 30, 2019, the Company had outstanding borrowings of $185 million on its $1.1 billion senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $900 million. Including cash and cash equivalents of $32 million, total liquidity was $932 million.

On October 30, 2019, pursuant to the semi-annual redetermination, both the borrowing base and aggregate elected commitment under the senior secured credit facility were reduced to $1.0 billion. Subsequent to the end of the third quarter of 2019, Laredo paid down an additional $5 million on its credit facility, resulting in outstanding borrowings of $180 million. Including cash and cash equivalents at November 4, 2019 of $18 million and after reductions for outstanding letters of credit, total liquidity was $823 million.

Commodity Derivatives

For the remainder of 2019, Laredo has hedged 95% of anticipated oil production at a weighted-average floor price of $60.42 per barrel. For full-year 2020, the Company has hedged 7.54 million barrels of oil at a weighted-average floor price of $58.79. Additionally, Laredo has hedges in place for natural gas, natural gas liquids, and oil and natural gas basis.

Details of the Company's hedge positions are included in the current Corporate Presentation available on the Company's website at www.laredopetro.com.

Guidance

The Company is reaffirming its recently updated full-year 2019 total production guidance of 79.0 MBOE per day and oil production guidance of 28.1 MBOPD.

About Laredo Petroleum

Laredo Petroleum, Inc. is an independent energy company with headquarters in Tulsa, Oklahoma. Laredo’s business strategy is focused on the acquisition, exploration and development of oil and natural gas properties and the gathering of oil and liquids-rich natural gas from such properties, primarily in the Permian Basin of West Texas.

Laredo’s Permian activities are centered on the east side of the basin approximately 35 miles east of Midland, Texas in primarily Glasscock and Reagan Counties. Today, Laredo has over 140,000 gross acres (with a majority of it being contiguous) and of which 85% is HBP. The principal focus of Laredo’s horizontal drilling activities is an oil play (that also includes a liquids-rich natural gas component) that involves both the Wolfcamp (Upper, Middle, and Lower) and the Cline formations.

Secondary targets include the Spraberry, Canyon, Strawn and ABW intervals. In total, over 12 viable landing points have been identified throughout the stratigraphic section (~ 4,500 ft. thick) as being prospective for development.

Source: Laredo

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