Laredo Petroleum (LPI) Updated Valuation - May 10

[dan_s]

Based on the information provided by Laredo on two large transactions that are expected to close on July 1, 2021 I have updated my forecast/valuation model for the Company.

For the model my assumption is that the Company's production will increase per year by ~6% from an estimated 2021 exit rate of 77,000 Boepd and that the production mix in 2022 will be 52% crude oil, 24% natural gas and 24% NGLs. I am also assuming that none of the oil production being acquired is hedged since it was not mentioned in their PowerPoint presentation. More unhedged oil in 2H 2021 should increase Laredo's realized oil price net of cash settlements on their current hedges to $56/bbl assuming WTI averages $65/bbl in 2H 2021.

I like the deals and my valuation increases by $4 to $58/share, with a lot more upside potential post closing if oil prices move firmly over $65/bbl. Plus, with more "running room", this stock deserves a lot higher multiple than the one I am currently using. It will take a few months for "the smoke to clear". More detailed production and expense guidance from Laredo will help the Wall Street Gang appreciate the significance of these transactions.

The updated forecast model will be posted to the EPG website this afternoon.

[dan_s]

Stifel's Update: Laredo Petroleum, Inc. (LPI, $37.22, Buy; Target $68.00)
Transformative transactions accelerate FCF generation and pivot asset base towards oil production - Derrick Whitfield

On May 9, 2021, Laredo announced the acquisition of oil-weighted acreage in Howard County and the sale of working interest volumes in legacy gas-weighted assets located in Glasscock and Reagan Counties. The acquisition from Sabalo Energy included ~21,000 net acres and ~14.5 mboepd (83% oil) for total consideration of $715mm in cash and stock. We estimate Laredo paid ~$12,600/net acre, adjusted for production. In conjunction with the acquisition, Laredo announced the divestiture of gas-weighted working interest production to partially fund the acquisition. The divestiture to Sixth Street Partners included 37.5% working interest in wellbores, excluding Western Glasscock acreage and any undeveloped locations, and 25 mboepd of production for $405mm. We view the transactions as an important step forward for Laredo as the company accelerates free cash flow generation, positions the company to reduce leverage, and adds high-quality, oil-weighted inventory at an attractive price.

[Fraser921]

68!!

[dan_s]

Take a hard look at the forecast model posted this morning to our website and I think you will agree that LPI has a lot of upside for us. It is trading today at less than 1.5 X my 2021 operating CFPS forecast. With a stronger balance sheet at year-end 4 X CFPS is a reasonable valuation.

Finding stocks like LPI is why you pay me for your EPG membership.

[Fraser921]

>
Finding stocks like LPI is why you pay me for your EPG membership

Sign me up to a lifetime membership

[dan_s]

You definitely joined EPG are the "Fun Part" of this oil price cycle.

Please tell some friend about EPG. We had a lot of Houston members that were just in it for the luncheons, so we need to rebuild the membership. I do plan on starting up Houston and Dallas luncheons later this year.

[dan_s]

LPI had a good day on more than double the average trading volume. Good sign.

[Fraser921]

Will do. .... Luncheons, you mean I missed lunch?

Do you zoom some of these meetings or functions you speak at?

[dan_s]

We stopped having monthly luncheons in Houston and Dallas back in April, 2020. The Hess Club in Houston has gone out of business, so we need to find a new venue. I hope to begin luncheons again this fall.