Energy Prospectus

LPI's 4th quarter Adjusted Earning per share of $0.06 compares to my forecast of $0.05. Production was slightly lower, but it was offset by lower LOE.

1st quarter production guidance is inline with my forecast.

LPI has a very high percentage of their production hedged in 2016, which locks in solid cash flows from operations.

"Laredo maintains an active hedging program to reduce the variability in its anticipated cash flow due to fluctuations in commodity prices. At December 31, 2015, the Company had hedges in place for 2016 for 6,523,800 barrels of oil at a weighted-average floor price of $70.84 per barrel, representing approximately 85% to 90% of anticipated oil production for 2016. The Company had also hedged 18,666,000 million British thermal units (“MMBtu”) of natural gas for 2016 at a weighted-average floor price of $3.00 per MMBtu, representing approximately 70% to 75% of anticipated natural gas production for 2016."

"At December 31, 2015, for 2017, the Company had hedged 2,628,000 barrels of oil at a weighted-average floor price of $77.22 per barrel and 5,475,000 MMBtu of natural gas at a weighted-average floor price of $3.00 per MMBtu. Subsequently, the Company hedged an additional 8,040,000 MMBtu of natural gas for 2017 and currently has 13,515,000 MMBtu of natural gas hedged at a weighted-average floor price of $2.70 per MMBtu for 2017."

Learn to ignore "Reported Earnings".

"Impairment" does NOT equal abandonment. The company still holds all of the leases and the oil & gas reserves under them. All the impairment does is lower the DD&A rate going forward.

All they did with the reserves is move them from proven (P1) to probable (P2).

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

My valuation dips to $13.25/share, compared to First Call's price target of $8.92.

2016 cash flow from operations should be approximately $300 million, compared to their capital program of $345 million. With over $800 million in liquidity today, the company is in good shape. They've done a great job of lowering lease operating expenses and completion costs. On the conference call they said they have 30 years of low risk development drilling inventory.
> More than 85% of 2016 oil production is hedged at $70.84/bbl
> More than 70% of 2016 natural gas is hedged at $3.00
> They also have some good hedges in place for 2017

I know the "Reported Earnings" are shocking, but that is going to be the case with all of these upstream companies. SEC rules require an impairment adjustment to their fixed assets when commodity prices fall. Again, impairment does not mean they have abandoned the properties or that the reserves in the ground have gone anywhere. The big impairment adjustment has lowered LPI's DD&A rate from $14/boe to $11/boe, which will increase future reported earnings. Just remember, "Cash is King".

LPI is trading today at less than 4X operating cash flow per share for 2016. Cash flow is locked in by the hedges above.