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Laredo Petroleum First Quarter 2022 Results

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   |    Monday,May 09,2022

Laredo Petroleum Inc. announced its first-quarter 2022 financial and operating results.

First-Quarter 2022 Highlights:

• Reported a net loss of $86.8 million and cash flows from operating activities of $170.9 million, generating Adjusted EBITDA¹ of $222.1 million and Free Cash Flow¹ of $23.2 million
• Reduced Net Debt¹/Consolidated EBITDAX¹ ratio to 1.9x
• Produced 40,295 BOPD and 85,118 barrels of oil equivalent per day BOEPD, in line with guidance and an increase of 66% and 8%, respectively, versus first-quarter 2021
• Incurred capital expenditures of $171 million, excluding non-budgeted acquisitions and leasehold expenditures, in line with guidance

Subsequent Highlights:

• Secured pricing and supply for majority of second-half 2022 expenditures, increasing 2022 capital budget by 6% to ~$550 million
• Increased the borrowing base and elected commitment of the Company's senior secured credit facility to $1.25 billion and $1.0 billion, respectively
• Achieved Project Canary² TrustWell Gold certification for approximately 31,500 BOEPD of gross operated production to become the first Permian producer to receive TrustWell certified responsibly sourced oil and natural gas production

CEO Jason Pigott said: "We have executed extremely well year-to-date, generating Free Cash Flow and further reducing our leverage ratio. Well performance from Howard and western Glasscock counties is driving our strong oil production and capital efficiency. The exceptional returns of our development program in the current commodity environment enabled Free Cash Flow generation in the quarter."

"Free Cash Flow during 2022 is still expected to exceed $300 million, despite the highly inflationary environment" continued Mr. Pigott. "We plan to utilize the majority of our free cash this year to reduce debt by $300 million and expect to achieve our leverage targets of 1.5x in the third quarter of 2022 and 1.0x by the first quarter of 2023. As we reduce our leverage ratio, absolute debt levels and interest expense, we anticipate that we will be in a position to institute measures to return cash to shareholders by early 2023."

First-Quarter 2022 Financial Results

For the first quarter of 2022, the Company reported a net loss attributable to common stockholders of $86.8 million, or $5.18 per diluted share, which included a non-cash loss on derivatives, net, of $200.4 million, or $11.95 per diluted share. Adjusted Net Income¹ for the first quarter of 2022 was $88.2 million, or $5.17 per adjusted diluted share. Adjusted EBITDA for the first quarter of 2022 was $222.1 million.

Operations Summary

In the first quarter of 2022, the Company's total and oil production averaged 85,118 BOEPD and 40,295 BOPD, respectively. Both metrics were in-line with guidance, driven by solid execution and well performance, including results from wells in the Middle Spraberry and Wolfcamp D formations.

Lease operating expenses ("LOE") in first-quarter 2022 were $5.34 per BOE, higher than original guidance, reflecting inflation and integration costs from recently acquired assets. The increase is primarily related to artificial lift and flowback management on new wells in Howard and western Glasscock counties. This includes higher costs for generators and fuel to operate electric submersible pumps on wells in Howard County and higher compression and fuel gas costs for gas lifted wells in western Glasscock County.

Laredo is working to offset these cost pressures by reallocating power generation systems to high-line power as it becomes available in its operating areas, switching to liquefied natural gas generator systems and consolidating production in Howard County to upgraded, Laredo-built facilities. The Company anticipates these cost pressures will persist for the remainder of 2022 and expects total LOE will be consistent with first quarter levels, with unit LOE varying with production levels.

During the first quarter of 2022, Laredo maintained its improved venting/flaring performance on its acquired properties in Howard County. The Company vented/flared 0.64% of produced gas during first-quarter 2022, roughly flat compared to the 0.61% vented/flared in the fourth quarter of 2021.

In the first quarter of 2022, the Company completed and TIL'd 18 wells. Laredo released one drilling rig and one completions crew during the quarter. The Company is currently operating two drilling rigs and one completions crew and expects to complete 11 wells and TIL seven wells during the second quarter of 2022.

First-Quarter 2022 Incurred Capital Expenditures

During the first quarter of 2022, total incurred capital expenditures were $171 million, excluding non-budgeted acquisitions and leasehold expenditures. Total investments included $146 million in drilling and completions activities, including $4 million of non-operated capital, $5 million in land, exploration and data related costs, $13 million in infrastructure, including Laredo Midstream Services investments, and $7 million in other capitalized costs. Non-budgeted acquisitions and leasehold expenditures were $8 million.

2022 Capital Investment Outlook

Laredo is working to mitigate the impact of inflationary and supply chain pressures impacting both the energy industry and global economy. The Company's initial capital budget anticipated approximately 15% inflation, with a significant portion of required goods and services contracted through the first half of 2022. Although first-quarter 2022 capital expenditures were in-line with the Company's guidance of $170 million, the price increases are impacting Laredo's full-year outlook.

The Company recently contracted the majority of its services related to its capital program for the second half of 2022 and now has pricing and supply secured for approximately 85% of its required goods and services for the remainder of 2022. Incorporating inflation to date and the price increases associated with contracted second-half pricing, the Company adjusted its full-year 2022 capital budget to ~$550 million, up from ~$520 million.

Responsibly Sourced Gas/Oil Certification

In November 2021, Laredo further demonstrated its commitment to ESG leadership as the first operator in the Permian Basin to seek TrustWell certification for its responsibly sourced oil and natural gas production. The third-party certification covers the Company's operating standards and practices for horizontal wells in its Howard and western Glasscock County development areas. After significant work demonstrating its sustainable operating practices, the Company has been awarded Gold certification for production from 73 horizontal wells in the certification area, representing approximately 31,500 BOEPD of its gross operated production. In addition to the recognition of its sustainable operating practices, the Company is uniquely positioned among Permian Basin operators to benefit as premium markets are developed for certified responsibly sourced natural gas and oil production.

Liquidity

At March 31, 2022, the Company had outstanding borrowings of $100 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $581 million. Including cash and cash equivalents of $65 million, total liquidity was $646 million.

On April 13, 2022, as part of the semi-annual borrowing base redetermination, the Company's borrowing base was increased to $1.25 billion from $1.0 billion and the elected commitment was increased to $1.0 billion from $725 million. At May 3, 2022, the Company had outstanding borrowings of $50 million, resulting in available capacity, after the reduction for outstanding letters of credit, of $906 million. Including cash and cash equivalents of $104 million, total liquidity was $1.01 billion.