Laredo Petroleum (LPI) Update - March 25

[dan_s]

Laredo Petroleum is going to replace Matador Resources in the Sweet 16 Growth Portfolio. There is nothing wrong with MTDR other than my opinion that LPI has more upside for us. I will put MTDR in the Small-Cap Growth Portfolio.

I have finished my review of the Laredo profile and it will be posted to the EPG website later today. We will be sending it out on Friday morning via email to all members.

IMO Laredo gives us the kind of upside that we've gotten from Callon Petroleum (CPE) over the last three months. Why?
> Like Callon, the Wall Street Gang put Laredo in the "penalty box" because of a development well spacing problem that surprised them in 2018.
> Laredo has solved the problem and now it has solid growth locked in that can be fully funded by their operating cash flow.
> In the last few weeks several energy sector analysts have increased their price targets for LPI. If Q1 results confirm my forecast assumptions, it should draw a lot more attention and upgrades.
> Like Callon, Laredo has a very small number of shares of common stock outstanding for a company of this size.
> Based on $60/bbl WTI oil price, the PV10 net asset value of LPI using just their proved developed reserves is over $90/share.
> Last but not least, LPI is trading today at less than 1X my 2021 operating cash flow per share forecast of $32.35.

[mkarpoff]

For those of us who want a little safety and income, although I am long in many of Dan's faves, I also hold a cpe bond (6.375%, 7/26 maturity, selling at approx 80 for about an 9% ytm), and I hold a lpi bond (9.5%, 1/25 maturity, selling at approx 96 for about a 10% ytm). Both of these are in my wife's ira. Although these are both rated junk, with oil in an upcycle I think these two companies will not have any problem servicing their debt, and the yields are better than some of Dan's preferreds in the Income sector of the View with a greater level of security IMHO.

[dan_s]

Good idea. Yes, the debt of high quality upstream companies like our Sweet 16 is in MUCH BETTER shape than it was just a few months ago. Just check to see that they don't have any senior debt coming due soon.

Note that my valuation of LPI would be a lot higher if they did not have so much of this year's oil hedged. If WTI is over $65/bbl when those hedges expire at the end of this year my valuation will go to over $90/share. Take a look at the operating cash flow per share number for 2022 with a realized oil price of just $55.

[willvanam]

How does the 75m/share offering affect LPI?

[dan_s]

TULSA, OK, Feb. 23, 2021 (GLOBE NEWSWIRE) -- Laredo Petroleum, Inc. (NYSE: LPI) ("Laredo" or the "Company") announced today that it has filed a prospectus supplement with the Securities and Exchange Commission (the "SEC") under which it may offer and sell from time to time and at its discretion shares of its common stock having an aggregate gross sales price of up to $75.0 million pursuant to an "at-the-market" offering program (the "ATM Program").

It is $75 million dollars, not 75 million shares.

All they've done is set up another access to capital if they need it. Since LPI's current operating cash flow exceeds their capital expenditure program, I doubt that they will draw this much.

Plus, LPI has a super low number of shares outstanding. An equity offering would strengthen the balance sheet ratios. I'm sure some large investors don't like the low float that LPI has.

Bottom Line: It has no impact on my valuation.