Laredo Petroleum (LPI) Update - Dec 15

[dan_s]

We will be sending out an updated profile on Laredo on Wednesday morning. LPI closed at $19.51 today.
The stock price is up 47% since November 30. Not bad for two weeks. However, it is still 50% below my valuation of $30/share. It is a classic example of how leverage works both ways, especially for an upstream company with just 12 million shares outstanding. < They completed a 1 for 20 reverse stock split in June.

If Laredo's average realized oil price were to be just $40/bbl in 2021 it would survive, but it would be hard for the Company to live within cash flow from operations and hold production flat. However, if the Company's realized oil price is $50/bbl in 2021 they can fund a D&C budget that should generated ~10% production growth and still have free cash flow to pay down debt. The company increased production 18.7% YOY in 2019 and they are on-track to generate another 8.7% production growth in 2020 despite shutting down their well completions from May thru November.

Here is the good news:
> Laredo is completing 15 new horizontal wells in December.
> More than 75% of their 2021 forecast oil production (28,000 BOPD) is hedged at ~$48US/bbl
> Production will get a big boost this month from Q4 to Q1 2021.
> Revenues will get a significant boost from rising natural gas and NGL prices. Their 2021 forecast production split is approximately 37% natural gas, 33% NGLs and 30% crude oil.

If WTI goes over $60/bbl within 12 months (Goldman Sachs current oil price forecast), LPI has a lot more upside than $30.