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Laredo Petroleum Third Quarter 2020 Results

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   |    Thursday,November 05,2020

Laredo Petroleum, Inc. announced its third-quarter 2020 results.

For the third quarter of 2020, the Company reported a net loss attributable to common stockholders of $237.4 million, or $20.32 per diluted share. Adjusted Net Income, a non-GAAP financial measure, for the third quarter of 2020 was $47.0 million, or $4.02 per adjusted diluted share. Adjusted EBITDA, a non-GAAP financial measure, for the third quarter of 2020 was $137.3 million.

Third-Quarter 2020 Highlights

• Generated Free Cash Flow, a non-GAAP financial measure, of $71 million and reduced net debt, a non-GAAP financial measure, by $64 million during third-quarter 2020
• Received $58.2 million from settlements of matured/terminated commodity derivatives, resulting in an average hedged sales price of $22.76 per barrel of oil equivalent ("BOE"), a 39% increase versus an average unhedged sales price of $16.39 per BOE in the same period
• Added 6,800 barrels of oil per day ("BOPD") of 2021 oil hedges at a weighted-average swap price of $45.55 Brent, increasing 2021 oil hedges to 22,150 BOPD, equivalent to 80% of anticipated 2021 oil production
• Lowered lease operating expenses ("LOE") to $2.45 per BOE, an 18% decrease from third-quarter 2019
• Reduced general and administrative expenses ("G&A"), excluding long-term incentive plan ("LTIP"), to $1.16 per BOE, a 21% decrease from third-quarter 2019
• Produced an average of 25,120 BOPD and total production of 87,857 BOE per day, a decrease of 10% and an increase of 7%, respectively, from third-quarter 2019, while reducing drilling and completions capital expenditures by 54% during the same period

Jason Pigott, President and Chief Executive Officer, said: "Since launching our revised strategy a year ago, the Laredo team has delivered on our core objectives of operational excellence, financial risk management and inventory expansion, and this quarter was no exception. We began completions operations in Howard County and did not miss a beat operationally, continuing our exemplary run of efficiency gains and proving we can maintain our low drilling and completions costs in a new area. We generated $71 million in Free Cash Flow, supported by our robust hedge position, enabling us to reduce debt and increase liquidity, and added more hedges in 2021 to further protect future cash flows. We have also increased fourth-quarter and full-year 2020 oil and total production guidance while maintaining our full-year capital expenditure guidance as our base production continued to outperform expectations during the third quarter."

"In October, we closed on a bolt-on transaction in Howard County, lengthening our runway of higher-margin development opportunities, and our bank group reaffirmed our $725 million borrowing base," continued Mr. Pigott. "We have built tremendous momentum in our business that we expect to carry into 2021 as we bring on our first package of wells in Howard County, execute a continuous development plan within cash flow and focus on further expanding our inventory of high-return locations in Howard County."

Operations Summary

During third-quarter 2020, Laredo resumed completions operations, deploying a completions crew in Howard County. The crew is currently operating on a 15-well package that is expected to be fully online in early December. To date, the transition of the Company's operations to Howard County has exceeded expectations as both drilling and completions efficiencies have set Company records and well costs are tracking to initial estimates of $550 per foot.

Laredo produced 87,857 BOE per day in the third quarter of 2020, including oil production of 25,120 BOPD, with both figures exceeding the midpoint of guidance. Oil production results were driven by continued improvement of the Company's first package of wells on its western Glasscock County acreage, acquired in December 2019.

The Company is currently operating one drilling rig and one completions crew, both located in Howard County, and expects to complete 15 wells during fourth-quarter 2020.

Expenses

Laredo continues to stringently manage cash expenses, maintaining a peer-leading cost structure. During third-quarter 2020, the Company reduced combined unit LOE and cash G&A expenses to $3.61 per BOE, a reduction of 19% from third-quarter 2019.

Laredo has transitioned to selling almost all of its production at Gulf Coast pricing, which the Company believes provides a long-term pricing advantage versus the Midland market. As such, transportation and marketing expenses, reflecting costs associated with transporting the Company's produced oil to the US Gulf Coast and expected deficiency payments related to minimum transportation volume commitments, increased to $1.63 per BOE in third-quarter 2020 compared to $0.74 per BOE in third-quarter 2019 as more produced oil was transported to the US Gulf Coast and the Company expensed anticipated future deficiency payments.

Q3 and Full-Year 2020 Costs Incurred

During the third quarter of 2020, total costs incurred were $43 million, comprised of $31 million in drilling and completions activities, $2 million in land, exploration and data related costs, $4 million in infrastructure, including Laredo Midstream Services investments, and $6 million in other capitalized costs.

Through the first nine months of 2020, excluding non-budgeted acquisitions, total costs incurred were $276 million. The Company expects total costs incurred in the fourth quarter of 2020 to be in a range of $64 to $74 million and remain on track to be within Laredo's full-year 2020 budget of $340 to $350 million.

Increased Oil Hedges

For the remainder of 2020, Laredo has hedged 2.1 million barrels of oil, with 1.5 million barrels of oil swapped at a weighted-average price of $59.35 WTI per barrel and 0.6 million barrels of oil swapped at a weighted-average price of $63.07 Brent per barrel. For 2021, the Company has hedged 80% of expected oil production, with 8.1 million barrels of oil at a weighted-average floor price of $50.80 Brent per barrel.

Please see the table in the appendix of Laredo's Third-Quarter 2020 Earnings Presentation posted to the Company's website for the full details of the Company's commodity derivatives.

Liquidity

At September 30, 2020, the Company had outstanding borrowings of $235 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $446 million. Including cash and cash equivalents of $40 million, total liquidity was $486 million.

At November 2, 2020, the Company had outstanding borrowings of $220 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $461 million. Including cash and cash equivalents of $28 million, total liquidity was $489 million.

Q4 and Full-Year 2020 Guidance

The table below reflects the Company's increased fourth-quarter and full-year guidance for total and oil production for 2020. The increase in total production guidance for fourth-quarter and full-year 2020 reflects the continued outperformance versus expectations of natural gas production on the Company's established acreage position. This represent an 8% increase at the midpoint from full-year 2020 guidance issued with first-quarter 2020 results and a 2% increase from full-year 2020 guidance issued with second-quarter 2020 results. The Company raised the low-end of oil production guidance by 2%, compared to previous guidance issued with second-quarter 2020 results, for both fourth-quarter and full-year 2020 as established acreage wells have continued to perform better than type-curve expectations and the performance of the five-well Western Glasscock package has improved. The increase in the high-end of guidance includes the possibility of the Company's 15-well package in Howard County beginning to produce oil prior to the end of 2020.