Laredo Petroleum, Inc. (NYSE: LPI) ("Laredo" or "the Company")
today announced the Company's 2020 capital budget of approximately
$450 million and updated its 2020 - 2022 three-year outlook.
2020 Budget Highlights
- Expect to balance capital expenditures and cash flow at $50 per
barrel WTI and $2.25 per MMBtu Henry Hub pricing
- Anticipating mid-single digit oil and total production growth
versus full-year 2019, driven by capital- efficient development of
recently acquired Howard County leasehold
- Planned 2020 capital budget of $450 million is a 7% decrease
versus 2019 capital expenditures
- All development activity expected to transition to Howard
County acreage by the end of second-quarter 2020
"Our 2020 budget and production expectations
reflect the significant progress we made in 2019 optimizing our
established acreage position and opportunistically adding
high-margin inventory," stated Jason Pigott, President and Chief
Executive Officer. "Throughout 2019, we drove down well costs, unit
lease operating expenses and unit general and administration
expenses, while improving well productivity versus 2018 by widening
development spacing. We expect to retain the benefits of these
improvements in our 2020 development program as we transition from
our established acreage base to our recently acquired tier-one
Howard County acreage. This transition to Howard County is expected
to drive mid-single digit oil production growth within cash flow in
2020 and position the Company for continued oil growth with Free
Cash Flow generation in 2021 - 2022 in a $50 oil price
environment."
2020 Capital Program
The Company's capital program for 2020 is
structured to facilitate an efficient transition from Laredo's
established acreage position to the recently acquired, oilier
acreage in Howard County and target capital efficient oil
production growth within cash flow. Utilizing commodity prices of
$50.00 per barrel WTI and $2.25 per MMBtu Henry Hub for the budget
in 2020, the Company expects to grow oil at a mid-single digit rate
within cash flow and be in full development mode in Howard County
by the end of the second quarter of 2020.
Laredo expects to invest approximately $450
million in 2020, excluding non-budgeted acquisitions and the recent
Howard County bolt-on transaction. This includes $390 million for
drilling and completions activities and $60 million for
infrastructure, land and other capitalized costs. To the extent
that operating cash flow exceeds capital spending, excluding
acquisitions, the Company intends to utilize the Free Cash Flow to
reduce debt.
The Company is not anticipating significant
changes in service costs and has budgeted such costs at current
levels. Laredo is beginning to add more sand to its standard
completions design, taking advantage of the current low cost of
in-basin sand to potentially enhance well productivity. The
enhanced completions design, utilizing 2,400 pounds of sand per
foot, is expected to increase the cost for an Upper/Middle Wolfcamp
10,000-foot lateral to $6.8 million. The additional costs are
incorporated into the 2020 capital program, but no productivity
increase associated with larger completions has been assumed. If
the Company realizes future savings driven by increased
efficiencies or service cost reductions, they are expected to be
utilized for debt reduction.
Laredo's 2020 budget is supported by a robust
hedge position. For full-year 2020, the Company has hedged 90% of
expected oil production, 40% of expected natural gas production and
25% of expected NGL production. Combined, Laredo's 2020 product and
basis hedges have a value of more than $150 million at commodity
prices utilized in the 2020 capital program.
2021/2022 Outlook
Laredo's transition to full-scale development in
Howard County in 2020 is expected to drive a substantial
improvement in capital efficiency beginning in 2021. Capital
required to maintain a mid-single digit oil growth rate, assuming
current service costs, is expected to decrease by 15% - 20% in
2021, improving the Company's ability to generate free cash flow.
At a WTI price of $50 per barrel, cumulative Free Cash Flow over
the two-year 2021 - 2022 period is expected to be at least $15
million, rising to at least $100 million at a WTI price of $55 per
barrel.
Cline Update
In 2019, based on lower expected drilling and
completions costs and long-term oil productivity uplift associated
with larger completions, the Company incorporated the Cline
formation into its development plans. In the first quarter of 2020,
Laredo completed both planned 2020 Cline wells. Total average well
cost, adjusted to a 10,000-foot lateral and for 2,400 pounds of
sand per foot, was approximately $7.4 million, 8% less than
pre-drill cost assumptions. Significantly, expected returns at the
lower well cost increase by 6% and 8% at $50 per barrel and $55 per
barrel WTI, respectively. Although early, initial production
results are encouraging and reinforce the Company's assumption that
Cline wells benefit from larger completions. Combined with the
lower costs, expected returns for the Company's approximately 150
Cline locations become increasingly competitive and extend Laredo's
inventory of oilier, higher-return opportunities.
Corporate Governance
The Company's Board of Directors regularly
evaluates Laredo's executive compensation plans to ensure alignment
with both the Company's strategic direction and its stakeholders.
For 2020, short-term incentive performance ("STIP") metrics have
been modified to reflect Laredo's updated strategy, including
targeting both Free Cash Flow generation and accretive acquisitions
while maintaining a competitive leverage profile. New STIP metrics
supporting the goals of the 2020 budget include targets for Free
Cash Flow, the Company's leverage ratio and gross inventory added
with a minimum of 30% drilling rate of return at a $50 oil price.
Additionally, reflecting the importance of environment, social and
governance reporting, an environmental metric that measures spills
and flaring/venting has been initiated with a 15% weighting in
2020's STIP metrics.
About Laredo
Laredo Petroleum, Inc. is an independent energy
company with headquarters in Tulsa, Oklahoma. Laredo's business
strategy is focused on the acquisition, exploration and development
of oil and natural gas properties, primarily in the Permian Basin
of West Texas.
Additional information about Laredo may be found
on its website at www.laredopetro.com.
Forward-Looking Statements
This press release and any oral statements made
regarding the subject of this release contain forward-looking
statements as defined under Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements, other than statements of
historical facts, that address activities that Laredo assumes,
plans, expects, believes, intends, projects, indicates, enables,
transforms, estimates or anticipates (and other similar
expressions) will, should or may occur in the future are
forward-looking statements. This press release and any accompanying
disclosures may include or reference certain forward-looking,
non-GAAP financial measures, such as Free Cash Flow, and certain
related estimates regarding future performance, results and
financial position. The forward-looking statements are based on
management’s current belief, based on currently available
information, as to the outcome and timing of future events. General
risks relating to Laredo include, but are not limited to, the
decline in prices of oil, natural gas liquids and natural gas and
the related impact to financial statements as a result of asset
impairments and revisions to reserve estimates, long-term
performance of wells, drilling and operating risks, the increase in
service and supply costs, tariffs on steel, pipeline transportation
constraints in the Permian Basin, hedging activities, possible
impacts of litigation and regulations and other factors, including
those and other risks described in its Annual Report on Form 10-K
for the year ended December 31, 2019, and those set forth from time
to time in other filings with the Securities and Exchange
Commission ("SEC"). These documents are available through Laredo's
website at www.laredopetro.com under the tab "Investor
Relations" or through the SEC's Electronic Data Gathering and
Analysis Retrieval System at www.sec.gov. Any of these factors
could cause Laredo's actual results and plans to differ materially
from those in the forward-looking statements. Therefore, Laredo can
give no assurance that its future results will be as estimated.
Laredo does not intend to, and disclaims any obligation to, update
or revise any forward-looking statement. Any forward-looking
statement speaks only as of the date on which such statement is
made and the Company undertakes no obligation to correct or update
any forward-looking statement, whether as a result of new
information, future events or otherwise, except as required by
applicable law.
Unless otherwise specified, references to
"average sales price" refer to average sales price excluding the
effects of our derivative transactions. All amounts, dollars and
percentages presented in this press release are rounded and
therefore approximate. Free Cash Flow (non-GAAP) is based on net
cash provided by operating activities (GAAP) to cash flow from
operating activities before changes in operating assets and
liabilities, net, less costs incurred, excluding non-budgeted
acquisition costs.
Contact:Ron Hagood: (918) 858-5504 -
RHagood@laredopetro.com
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