Laredo Petroleum (LPI) Update - July 8

[dan_s]

Laredo Petroleum Provides Second-Quarter 2021 Operational Update and Revised 2021 Capital Budget and Production Guidance
Thu, July 8, 2021, 6:00 AM
My comments are in blue.- Dan

TULSA, OK, July 08, 2021 (GLOBE NEWSWIRE) -- Laredo Petroleum, Inc. (NYSE: LPI) ("Laredo" or the "Company") today provided preliminary production results and an operational update for the second quarter of 2021 and its revised capital budget and production guidance for full-year 2021 in association with the closing of the acquisition of the Howard County leasehold of Sabalo Energy, LLC ("Sabalo") and the divestiture of legacy proved developed producing reserves.

Second-Quarter 2021 Operational Update
In the second quarter of 2021, Laredo produced approximately 85.9 thousand barrels of oil equivalent ("BOE") per day, including oil production of approximately 26.4 thousand barrels of oil per day ("BOPD"), growing both total and oil production by 9% versus first-quarter 2021. < My Q2 forecast was 84,000 Boepd with 27,000 BOPD.

In mid-to-late June, the Company’s production operations in Howard County were impacted by a combination of delayed third-party connections to tank batteries, downtime at third-party facilities due to weather-related events and lost power in the field. For approximately 10 days, Laredo chose to curtail production to minimize flaring rather than continue producing crude oil at maximum rates and flaring excessive amounts of wet gas. Laredo estimates that the curtailments and shut-ins reduced second-quarter 2021 total production by approximately 900 BOE per day, including approximately 700 BOPD of oil production. The midstream infrastructure and field electrical issues have been addressed and production operations in Howard County have returned to normal.

Incurred capital expenditures in the second quarter of 2021 were approximately $100 million, excluding non-budgeted acquisitions and a $10 million leasehold expenditure. Laredo completed 16 wells during second-quarter 2021, three more than anticipated, as reductions in the time to drill and complete wells pulled activity from the third quarter of 2021 into the second quarter. The 13-well Davis package was put on production during the second half of the quarter and the three additional completions are part of the 12-well West package, with the remaining nine wells in the West package expected to begin flowing back during the third quarter of 2021.

Revised Full-Year 2021 Capital Budget and Production Guidance
The Company’s revised full-year 2021 capital budget is driven by the integration of Sabalo’s operations into Laredo’s low-cost operational structure paired with continued efficiency gains. The revised budget achieves a 22% increase in completed wells and a 24% increase in completed lateral feet versus the previous budget while investing only 17% more capital. Revised production guidance reflects the sale of approximately 25,000 BOE (23% oil) per day of gas-weighted production from the Company’s legacy leasehold and the purchase of approximately 13,600 BOE (89% oil) per day of production from Sabalo, as of July 1, 2021.

Preliminary 2022 Operational Plan
By the second quarter of 2022, Laredo expects to return to a highly-efficient operational cadence of two rigs and one completions crew. Current plans are for total capital expenditures, including infrastructure and other capitalized costs, excluding non-budgeted acquisitions, of approximately $380 million and to complete approximately 60 wells with an average lateral length of approximately 11,500 feet during full-year 2022. This activity level is expected to generate oil production of 36,000 to 38,000 BOPD for full-year 2022, holding oil production approximately flat versus the expected fourth-quarter 2021 exit rate. Total production is expected to average 75,000 to 78,000 BOE per day, a slight decline in total production versus full-year 2021. At current 2022 commodity prices, the Company expects this plan to generate $225 million to $250 million of Free Cash Flow. < Full year 2022 production compares to my forecast of 81,500 Boepd with 42,380 BOPD.

"During the second quarter, Laredo again executed on its Howard County development plan," stated Jason Pigott, President and Chief Executive Officer. "Our team quickly made up lost time from the storms in the first quarter and got ahead of schedule by the end of the second quarter. When we experienced some production issues associated with our third-party midstream and electrical providers, we took the necessary steps to curtail production and demonstrated our commitment to minimizing flaring and properly stewarding our resources."

"As we integrate Sabalo’s operations, we have budgeted a moderate increase in activity and capital levels for the remainder of 2021, primarily driven by the drilling and completion of an eight-well package that was already in process at the closing of the transaction," continued Mr. Pigott. "We remain committed to a disciplined development pace and expect to return to operating two drilling rigs and one completions crew in early 2022. At this pace, the capital efficiency of our Howard County acreage is expected to drive significant, sustainable Free Cash Flow generation while keeping oil production relatively flat with our 2021 exit rate. We expect to utilize our Free Cash Flow to reduce debt and push our leverage down to 1.5 times by the end of 2022."

[dan_s]

I have updated my forecast/valuation model for LPI and it will be posted to the EPG website this afternoon.

I am lowering my current valuation of LPI by $5 to $85/share. They have updated their 2021 guidance and provided preliminary guidance for 2022, which raises the confidence that I have in my model. As we move thru the year I will gain more confidence in the model as we get more actual results and know the impact of the Sabalo Energy acquisition.

LPI is a company "in transition". If actual Q3 results, the first full quarter after the acquisition, confirm my model assumptions I should be justified in raising the multiple of operating CFPS that is used to value the company.

At today's share price ($77), LPI is trading at less than 2.4 X my operating CFPS forecast for 2021.