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Laredo Touts Increased Efficiencies in Q3; Success with Higher Density Tests

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Laredo Petroleum reported its Q3 2018 results.

2018 Third-Quarter Highlights

• Produced a Company record 71,382 BOEPD in Q3 - up +19% YOY and up +6% from 2Q18

• In Q3, Laredo completed 16 gross (16 net) horizontal wells with an average completed lateral length of approximately 11,300 feet

Improves Drill Times 25% YOY

The company touted its operational efficiencies, including improved drill times and feet completed per rig.

Operational efficiencies continued to improve in the third quarter of 2018. Drilling operations set a Company record for average drilling days per 10,000-foot lateral of 8.6 days, a 25% improvement YOY.

Combined with the 53% improvement in completions efficiencies compared to third-quarter 2017, Laredo expects gross completed lateral feet per rig to increase approximately 50% in 2018 versus 2017.

Working on Optimizing Density

CEO Randy Foutch commented: "During the past 18 months, Laredo has worked to implement a development plan that maximizes the long-term value of our leasehold through high-density drilling. We have executed six packages of wells designed to co-develop multiple landing points in our Upper and Middle Wolfcamp formations at a density of 24 to 32 wells per drilling spacing unit and have another three high-density packages in process. The results of these high-density packages have successfully demonstrated that this development plan can increase the total value of our leasehold, albeit at lower per well value than lower-density development. As we seek to balance rate of return and capital efficiency with overall value, while minimizing our outspend, we are beginning to widen our well spacing and develop packages at a lower density."

Based on the productivity of high-density packages developed at 24 to 32 wells per DSU in the Upper/Middle Wolfcamp, Laredo has begun to plan lower-density development on packages to be drilled at the end of the fourth quarter of 2018 and is building the Company's 2019 budget to include lower-density development. The Company believes lower-density development of 8 to 16 wells per DSU in the Upper/Middle Wolfcamp will better balance higher- return drilling and capital efficiency with future value. The majority of completions in the first half of 2019 will consist of higher-density packages, with the transition to completions of lower-density packages expected to occur in the second half of 2019.

The 11-well Fuchs package, a high-density co-development package based on 32 wells per DSU and completed in the second quarter of 2018, is producing mixed results. Laredo is evaluating production data to better understand the individual productivity impact of landing point selection, lateral length and parent/child impact in relation to horizontal and vertical spacing in this package.

E&P Update

During third-quarter 2018, 14 of the 16 completed wells were in two larger, high-density packages. The six-well Sugg-D 104 package was a co-development package based on 24 wells per drilling spacing unit ("DSU") and an average lateral length of approximately 15,000 feet. Due in part to the longer clean-up times associated with 15,000-foot laterals, this package is currently underperforming the Company's lateral-length adjusted Upper/Middle Wolfcamp type curve. Although production has reached its peak, the Company expects the underperformance versus the type curve to improve as the package's decline rate is relatively shallow. The second package, the eight-well Barbee package based primarily on 32 wells per DSU, was completed at the end of the third quarter of 2018 and has not yet reached peak production.

The 11-well Fuchs package, a high-density co-development package based on 32 wells per DSU and completed in the second quarter of 2018, is producing mixed results. Laredo is evaluating production data to better understand the individual productivity impact of landing point selection, lateral length and parent/child impact in relation to horizontal and vertical spacing in this package.

During the third quarter of 2018, the Company began utilizing in-basin sand on all of its completions, resulting in the previously expected savings of approximately $400,000 per well. Laredo estimates its current well cost for a 10,000-foot Upper/Middle Wolfcamp well to be approximately $7.4 million.