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Laredo Petroleum Second Quarter 2021 Results

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   |    Monday,August 09,2021

Laredo Petroleum, Inc. announced its second-quarter 2021 financial and operating results.

Second-Quarter 2021 Highlights:

• Announced agreements to purchase the assets of Sabalo Energy, LLC ("Sabalo") and divest of 37.5% of the Company's legacy proved developed producing reserves, transforming Laredo's expected future production mix and Free Cash Flow¹ trajectory
• Incurred capital expenditures of $95 million, excluding non-budgeted acquisitions and leasehold expenditures, and completed 16 wells during second-quarter 2021
• Completed and began flowing back the 13-well Davis package in Howard County, the Company's third Howard County development package and first developed on wider spacing
• Produced an average of 85,924 barrels of oil equivalent ("BOE") per day and 26,440 barrels of oil per day ("BOPD"), both increases of 9% from the first quarter of 2021
• Held flaring/venting to just 0.29% of produced gas, despite delayed third-party connections to tank batteries and downtime at third-party facilities
• Sold 714,526 shares for net proceeds of $45.6 million through the Company's at-the-market equity program ("ATM program"), completing the program

Subsequent Highlights:

• Closed Sabalo acquisition and divestment of legacy proved developed producing reserves on July 1, 2021
• Issued $400 million of senior unsecured notes due 2029 and utilized proceeds to reduce the balance on the Company's senior secured credit facility
• Extended the maturity of the Company's senior secured credit facility until 2025, with the borrowing base reaffirmed at $725 million

CEO Jason Pigott said: "During 2021, we have significantly accelerated Laredo's transformation. The combined Sabalo purchase and sale of legacy proved developed reserves increased our oil cut and added additional oil-weighted inventory. We continued to optimize our development in Howard County by increasing operational efficiency and completing our first wider-spaced development package. We improved our financial flexibility by completing a $75 million ATM program, extending the maturity of our senior secured credit facility and issuing $400 million of unsecured notes to reduce the balance on our credit facility. These actions, and our talented workforce, position us well to continue driving a rapid rate of change as we focus on our principles of adding high-margin inventory, risk management and continuous improvement to create long-term value for our investors."

Second-Quarter 2021 Financial Results

For the second quarter of 2021, the Company reported a net loss attributable to common stockholders of $132.7 million, or $10.47 per diluted share, which included a $159.3 million non-cash loss on derivatives. Adjusted Net Income¹ for the second quarter of 2021 was $22.0 million, or $1.71 per adjusted diluted share. Adjusted EBITDA¹ for the second quarter of 2021 was $97.0 million.

Operations Summary

In the second quarter of 2021, Laredo's total production averaged 85,924 BOE per day, including oil production of 26,440 BOPD. As previously announced, in mid-to-late June, the Company's production operations in Howard County were impacted by a combination of delayed third-party connections to tank batteries, downtime at third-party facilities due to weather-related events and lost power in the field. Laredo estimates that the curtailments and shut-ins reduced second-quarter 2021 total production by approximately 900 BOE per day, including approximately 700 BOPD of oil production. Absent these interruptions, the Company's oil production would have been above the midpoint of its oil production guidance range for second-quarter 2021.

Laredo maintained its commitment to reducing the flaring/venting of produced gas during the second quarter of 2021. Despite the challenges associated with the third-party delays and downtime, the Company only flared/vented 0.29% of produced gas during the quarter. Through the first half of 2021, Laredo has flared/vented 0.25% of produced gas, down from 0.71% for full-year 2020.

The Company completed 16 wells during second-quarter 2021, three more than anticipated. Operational efficiencies continued to reduce Laredo's time to drill and complete wells versus budgeted expectations, which pulled forward activity and resulted in the three additional completions during the quarter. Estimated drilling, completions and equipment cost during second-quarter 2021 remained at $525 per foot as Laredo's sand mine in Howard County protected the Company from rising sand prices and continued completions efficiencies offset other service cost pressures.

The Company's 13-well Davis package was completed during second-quarter 2021. This was Laredo's third well package in Howard County and the Company's first package developed on wider spacing in the Wolfcamp-A formation. Although production data is still limited, the Davis package is outperforming Laredo's first two Howard County packages that were developed on tighter spacing by 19%.

The Company is currently operating three drilling rigs and one completions crew in Howard and Glasscock counties. One of the three rigs was inherited with the Sabalo acquisition and is currently drilling an eight-well package that was spud prior to the closing of the acquisition. Laredo expects to release the third rig when drilling is completed and to utilize a second completions crew through the end of third-quarter 2021 to complete the package. The Company expects to complete a total of 17 wells during third-quarter 2021, comprised of the remaining nine wells of the 12-well West package and eight wells of the 12-well Worthy/Buchanan package.

Operational and General & Administrative Expenses

Unit lease operating expense ("LOE") for the second quarter of 2021 was $2.53 per BOE, a decrease of 5% from the first quarter of 2021. Beginning in third-quarter 2021, the Company expects unit LOE to approach $4.00 per BOE as more of Laredo's production comes from Howard County after the closing of the Sabalo acquisition and the sale of working interests in certain producing reserves in Laredo's legacy acreage. The expected unit LOE increase reflects the Company's production shift away from legacy acreage with a production oil cut of approximately 20% to acreage in Howard County with a production oil cut of approximately 80%.

Cash long-term incentive plan ("LTIP") expense of $0.92 per BOE for second-quarter 2021 reflects the 209% appreciation in Laredo's stock price during the quarter. This expense is highly correlated to price changes in the Company's stock and would have been approximately $0.25 per BOE had the price remained at first-quarter 2021 levels. At a stock price of approximately $55, the expected expense for third-quarter 2021 is ($0.20) per BOE.

Incurred Capital Expenditures

During the second quarter of 2021, total incurred capital expenditures were $95 million, excluding non-budgeted acquisitions and leasehold expenditures, comprised of $79 million in drilling and completions activities, $4 million in land, exploration and data related costs, $6 million in infrastructure, including Laredo Midstream Services investments, and $6 million in other capitalized costs.

The Company remains in line with its updated full-year 2021 capital budget, excluding non-budgeted acquisitions and leasehold expenses, of $420 million. Laredo expects incurred capital expenditures of approximately $150 million in third-quarter 2021, reflecting transitional activity associated with the integration of the Sabalo acquisition. Incurred capital expenditures for fourth-quarter 2021 are expected to decrease to approximately $105 million as the Company's development activity returns to normalized levels.

Liquidity

At June 30, 2021, the Company had outstanding borrowings of $380 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $301 million. Including cash and cash equivalents of $194 million, total liquidity was $495 million. The cash and cash equivalents balance reflects funds that were subsequently utilized to close the Sabalo transaction on July 1, 2021.

On July 16, 2021, Laredo closed an offering of $400 million in aggregate principal amount of senior unsecured notes due 2029. In conjunction with the closing of the notes offering, the maturity of the Company's senior secured credit facility was extended until 2025 and the borrowing base was reaffirmed at $725 million.

At August 4, 2021, the Company had outstanding borrowings of $70 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $611 million. Including cash and cash equivalents of $62 million, total liquidity was $673 million.

Third-Quarter 2021 Guidance

The table below reflects the Company's guidance for total and oil production for the third and fourth quarters of 2021. Additionally, the Company is reiterating its updated full-year 2021 total and oil production guidance.