Laredo Petroleum (LPI) Q2 Results - August 6

[dan_s]

On August 4 Laredo Petroleum, Inc. (NYSE: LPI) announced its second-quarter 2021 financial and operating results.

Second-Quarter 2021 Highlights

For the second quarter of 2021, the Company reported a net loss attributable to common stockholders of $132.7 million, or $10.47 per diluted share, which included a $159.3 million non-cash loss on derivatives.
Adjusted Net Income for the second quarter of 2021 was $22.0 million, or $1.71 per adjusted diluted share. < Compares to my net income forecast of $51.5 million, $4.00 per share.
Adjusted EBITDA for the second quarter of 2021 was $97.0 million.

Announced agreements to purchase the assets of Sabalo Energy, LLC ("Sabalo") and divest of 37.5% of the Company's legacy proved developed producing reserves, transforming Laredo's expected future production mix and Free Cash Flow trajectory

Incurred capital expenditures of $95 million, excluding non-budgeted acquisitions and leasehold expenditures, and completed 16 wells during second-quarter 2021

Completed and began flowing back the 13-well Davis package in Howard County, the Company's third Howard County development package and first developed on wider spacing

Produced an average of 85,924 barrels of oil equivalent ("BOE") per day and 26,440 barrels of oil per day ("BOPD"), both increases of 9% from the first quarter of 2021 < Compares to my forecast of 85,900 Boepd, 26,400 BOPD.

Held flaring/venting to just 0.29% of produced gas, despite delayed third-party connections to tank batteries and downtime at third-party facilities

Sold 714,526 shares for net proceeds of $45.6 million through the Company's at-the-market equity program ("ATM program"), completing the program

Subsequent Highlights

Closed Sabalo acquisition and divestment of legacy proved developed producing reserves on July 1, 2021 < These transactions will lower production by over 12,000 Boepd, but raise revenues because of much higher oil production.

Issued $400 million of senior unsecured notes due 2029 and utilized proceeds to reduce the balance on the Company's senior secured credit facility

Extended the maturity of the Company's senior secured credit facility until 2025, with the borrowing base reaffirmed at $725 million

"During 2021, we have significantly accelerated Laredo's transformation," stated Jason Pigott, President and Chief Executive Officer. "The combined Sabalo purchase and sale of legacy proved developed reserves increased our oil cut and added additional oil-weighted inventory. We continued to optimize our development in Howard County by increasing operational efficiency and completing our first wider-spaced development package. We improved our financial flexibility by completing a $75 million ATM program, extending the maturity of our senior secured credit facility and issuing $400 million of unsecured notes to reduce the balance on our credit facility. These actions, and our talented workforce, position us well to continue driving a rapid rate of change as we focus on our principles of adding high-margin inventory, risk management and continuous improvement to create long-term value for our investors."

[dan_s]

At the time of this post LPI was trading for $49.13

TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for LPI. The average price target among the analysts is $85.17." The six price targets range from $63 to $105. On August 5th Siebert Williams Shank & Co analyst Gabriele Sorbara reiterated a Hold rating on Laredo Petroleum and set a price target of $72.00."

Laredo is a company "In Transition", having closed two very large transactions on July 1st. Plus, it has less than 17 million shares outstanding, so relatively small changes in their guidance and my forecast/valuation model have a big impact on the share price valuation.

I am lowering my valuation by $5 to $80/share, but I am using a very low (3X) multiple of operating cash flow to value it. I think it has a lot more upside for us if my model assumptions are accurate.
> Laredo appears to be on-track to a production exit rate of more than 80,000 Boepd with 50% crude oil.
> If the next two quarters with the full impact of the "transformative transactions" confirm my forecast model assumptions, Laredo should be in great shape heading into 2022.
> If WTI averages $70/bbl in 2022, Laredo should generate over $660 million of operating cash flow, ~$39/share.
> A valuation of 4X operating cash flow should be reasonable.
> This is important: "At August 4, 2021, the Company had outstanding borrowings of $70 million on its $725 million senior secured credit facility, resulting in available capacity, after the reduction for outstanding letters of credit, of $611 million. Including cash and cash equivalents of $62 million, total liquidity was $673 million." Laredo has no near-term debt problems and operating cash flow is more than enough to cover their 2H 2021 drilling program.

HIGH RISK WITH POTENTIAL FOR HIGH REWARD: Upstream oil & gas companies that are "in transition" are very high beta, meaning the share price will make wild moves.

My forecast/valuation model has been posted to the EPG website.