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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 ☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2020
 or
☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                             to                            
Commission File Number: 001-35380
 Laredo Petroleum, Inc.
(Exact name of registrant as specified in its charter)
Delaware 45-3007926
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
15 W. Sixth Street Suite 900  
Tulsa Oklahoma 74119
(Address of principal executive offices) (Zip code)
(918) 513-4570
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading symbol Name of each exchange on which registered
Common stock, $0.01 par value per share LPI New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ☒ Accelerated filer  ☐
     
Non-accelerated filer  ☐ Smaller reporting company  ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒ 
Number of shares of registrant's common stock outstanding as of November 2, 2020: 12,003,806


LAREDO PETROLEUM, INC.
TABLE OF CONTENTS
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ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (this "Quarterly Report") are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, natural gas liquids ("NGL") and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:
•the effects, duration, government response or other implications of the outbreak and continued spread of the coronavirus ("COVID-19"), or the threat and occurrence of other epidemic or pandemic diseases;
•changes in domestic and global production, supply and demand for oil, NGL and natural gas, including the decrease in demand and oversupply of oil and natural gas as a result of the COVID-19 pandemic and actions by the Organization of the Petroleum Exporting Countries members and other oil exporting nations ("OPEC+");
•the volatility of oil, NGL and natural gas prices, including in our area of operation in the Permian Basin, and the extent and duration of price reductions and increased production by OPEC+;
•revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;
•impacts of impairment write-downs on our financial statements;
•the effectiveness of our internal control over financial reporting and our ability to remediate a material weakness in our internal control over financial reporting;
•the potential impact of suspending drilling programs and completions activities or shutting in a portion of our wells, as well as costs to later restart, and co‐development considerations such as horizontal spacing, vertical spacing and parent‐child interactions on production of oil, NGL and natural gas from our wells;
•conditions of the energy industry and changes in the regulatory environment and in United States ("U.S.") or international legal, tax, political, administrative or economic conditions, including new or changes to existing laws, trade policies or regulations that restrict imports or exports from the U.S., prohibit or restrict our ability to apply hydraulic fracturing to our oil and natural gas wells and to access and dispose of water used in these operations or eliminate federal income tax deductions for oil and gas exploration and development, which could be affected by the outcome of the U.S. presidential, congressional and state elections;
•the ongoing instability and uncertainty in the U.S. and international energy, financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;
•our ability to maintain listing on the New York Stock Exchange ("NYSE") and to prevent the decrease in market price and liquidity of our common stock;
•our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;
•capital requirements for our operations and projects;
•the long-term performance of wells that were completed using different technologies;
iii
•the availability and costs of drilling and production equipment, supplies, labor and oil and natural gas processing and other services;
•the availability and costs of sufficient export infrastructure in the Permian Basin and U.S. Gulf Coast and gathering and processing capacity;
•our ability to continue to maintain the borrowing capacity under our Fifth Amended and Restated Senior Secured Credit Facility (as amended, the "Senior Secured Credit Facility") or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;
•our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties;
•our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;
•the impact of repurchases, if any, of securities from time to time;
•restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our Senior Unsecured Notes (as defined below), as well as debt that could be incurred in the future;
•our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;
•the potential for pipeline and storage constraints in the Permian Basin and U.S. Gulf Coast and the possibility of future production curtailment in the State of Texas;
•the potentially insufficient refining capacity in the U.S. Gulf Coast to refine all of the light sweet crude oil being produced in the U.S., which could result in widening price discounts to world oil prices and potential shut-in of production due to lack of sufficient markets;
•risks related to the geographic concentration of our assets;
•our ability to secure or generate sufficient electricity to produce our wells without limitations;
•our ability to hedge and regulations that affect our ability to hedge;
•legislation or regulations that prohibit or restrict our ability to drill new allocation wells;
•our ability to execute our strategies;
•competition in the oil and natural gas industry;
•drilling and operating risks, including risks related to hydraulic fracturing activities,
•and those related to inclement weather impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time; and
•our ability to comply with federal, state and local regulatory requirements.
These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," under "Part II, Item 1A. Risk Factors" and elsewhere in this Quarterly Report and our first-quarter and second-quarter 2020 Quarterly Reports, under "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Annual Report") and those set forth from time to time in our other filings with the Securities and Exchange Commission (the "SEC"). These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.
iv
Part I

Item 1.    Consolidated Financial Statements (Unaudited)

Laredo Petroleum, Inc.
Consolidated balance sheets
(in thousands, except share data)
(Unaudited)
  September 30, 2020 December 31, 2019
Assets    
Current assets:    
Cash and cash equivalents $ 40,258  $ 40,857 
Accounts receivable, net 60,298  85,223 
Derivatives 81,129  51,929 
Other current assets 17,828  22,470 
Total current assets 199,513  200,479 
Property and equipment:  
Oil and natural gas properties, full cost method:  
Evaluated properties 7,773,776  7,421,799 
Unevaluated properties not being depleted 83,558  142,354 
Less accumulated depletion and impairment (6,669,537) (5,725,114)
Oil and natural gas properties, net 1,187,797  1,839,039 
Midstream service assets, net 115,385  128,678 
Other fixed assets, net 31,966  32,504 
Property and equipment, net 1,335,148  2,000,221 
Derivatives 9,117  23,387 
Operating lease right-of-use assets 20,931  28,343 
Other noncurrent assets, net 16,614  12,007 
Total assets $ 1,581,323  $ 2,264,437 
Liabilities and stockholders' equity  
Current liabilities:  
Accounts payable and accrued liabilities $ 46,090  $ 40,521 
Accrued capital expenditures 25,061  36,328 
Undistributed revenue and royalties 25,492  33,123 
Derivatives 852  7,698 
Operating lease liabilities 11,812  14,042 
Other current liabilities 33,801  39,184 
Total current liabilities 143,108  170,896 
Long-term debt, net 1,218,947  1,170,417 
Derivatives 1,657  — 
Asset retirement obligations 63,425  60,691 
Operating lease liabilities 11,715  17,208 
Other noncurrent liabilities 959  3,351 
Total liabilities 1,439,811  1,422,563 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of September 30, 2020 and December 31, 2019
 —  — 
Common stock, $0.01 par value, 22,500,000 shares authorized and 12,004,372 and 11,864,604 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively (1)
 120  2,373 
Additional paid-in capital 2,395,487  2,385,355 
Accumulated deficit (2,254,095) (1,545,854)
Total stockholders' equity 141,512  841,874 
Total liabilities and stockholders' equity $ 1,581,323  $ 2,264,437 
______________________________________________________________________________
(1)Common stock shares were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020. See Note 7.a.
The accompanying notes are an integral part of these unaudited consolidated financial statements.
1
Laredo Petroleum, Inc.
Consolidated statements of operations
(in thousands, except per share data)
(Unaudited)
  Three months ended September 30, Nine months ended September 30,
  2020 2019 2020 2019
Revenues:      
Oil sales $ 93,329  $ 141,709  $ 283,412  $ 430,910 
NGL sales 24,935  20,522  49,721  74,954 
Natural gas sales 14,198  7,520  29,357  21,126 
Midstream service revenues 1,751  3,079  6,715  8,572 
Sales of purchased oil 39,334  20,739  119,922  83,597 
Total revenues 173,547  193,569  489,127  619,159 
Costs and expenses:
Lease operating expenses 19,840  22,597  62,471  68,838 
Production and ad valorem taxes 8,753  11,085  24,935  29,632 
Transportation and marketing expenses 13,161  5,583  37,886  15,233 
Midstream service expenses 1,073  1,191  3,058  3,401 
Costs of purchased oil 42,720  20,741  138,134  83,604 
General and administrative 11,473  8,852  34,694  41,427 
Organizational restructuring expenses —  5,965  4,200  16,371 
Depletion, depreciation and amortization 47,015  69,099  174,891  197,900 
Impairment expense 196,088  397,890  789,235  397,890 
Other operating expenses 1,102  1,005  3,325  3,077 
Total costs and expenses 341,225  544,008  1,272,829  857,373 
Operating loss (167,678) (350,439) (783,702) (238,214)
Non-operating income (expense):
Gain (loss) on derivatives, net (45,250) 96,684  162,049  136,713 
Interest expense (26,828) (15,191) (78,870) (46,503)
Litigation settlement —  —  —  42,500 
Loss on extinguishment of debt —  —  (13,320) — 
Gain (loss) on disposal of assets, net (607) 1,294  (1,057) (315)
Other income, net 533  556  608  4,269 
Write-off of debt issuance costs —  —  (1,103) — 
Total non-operating income (expense), net (72,152) 83,343  68,307  136,664 
Loss before income taxes
 (239,830) (267,096) (715,395) (101,550)
Income tax benefit:
Deferred 2,398  2,467  7,154  812 
Total income tax benefit 2,398  2,467  7,154  812 
Net loss $ (237,432) $ (264,629) $ (708,241) $ (100,738)
Net loss per common share (1):
  
Basic $ (20.32) $ (22.86) $ (60.76) $ (8.72)
Diluted $ (20.32) $ (22.86) $ (60.76) $ (8.72)
Weighted-average common shares outstanding(1):
      
Basic 11,686  11,578  11,657  11,558 
Diluted 11,686  11,578  11,657  11,558 
______________________________________________________________________________
(1)Net loss per common share and weighted-average common shares outstanding were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020 as discussed in Note 7.a.




The accompanying notes are an integral part of these unaudited consolidated financial statements.
2
Laredo Petroleum, Inc.
Consolidated statements of stockholders' equity
(in thousands)
(Unaudited)
  Common stock Additional
paid-in capital		 Treasury stock
(at cost)		 Accumulated deficit  
  Shares Amount Shares Amount Total
Balance, June 30, 2020 11,939  $ 119  $ 2,392,564  —  $ —  $ (2,016,663) $ 376,020 
Restricted stock awards 68  1  (1) —  —  —  — 
Restricted stock forfeitures (2) —  —  —  —  —  — 
Stock exchanged for tax withholding —  —  —  1  (12) —  (12)
Retirement of treasury stock (1) —  (12) (1) 12  —  — 
Share-settled equity-based compensation —  —  2,936  —  —  —  2,936 
Net loss —  —  —  —  —  (237,432) (237,432)
Balance, September 30, 2020 12,004  $ 120  $ 2,395,487  —  $ —  $ (2,254,095) $ 141,512 
Common stock Additional
paid-in capital		 Treasury stock
(at cost)		 Accumulated deficit
Shares (1)
 Amount
Shares (1)
 Amount Total
Balance, June 30, 2019 11,874  $ 2,375  $ 2,381,450  —  $ —  $ (1,039,504) $ 1,344,321 
Restricted stock awards 14  2  (2) —  —  —  — 
Restricted stock forfeitures (4) —  —  —  —  —  — 
Stock exchanged for tax withholding —  —  —  —  (4) —  (4)
Retirement of treasury stock —  —  (4) —  4  —  — 
Share-settled equity-based compensation —  —  (436) —  —  —  (436)
Net loss —  —  —  —  —  (264,629) (264,629)
Balance, September 30, 2019 11,884  $ 2,377  $ 2,381,008  —  $ —  $ (1,304,133) $ 1,079,252 
______________________________________________________________________________
(1) Shares presented were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020 as discussed in Note 7.a.























The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Laredo Petroleum, Inc.
Consolidated statements of stockholders' equity
(in thousands)
(Unaudited) 

  Common stock Additional
paid-in capital		 Treasury stock
(at cost)		 Accumulated deficit  
 
Shares (1)
 Amount
Shares (1)
 Amount Total
Balance, December 31, 2019 11,865  $ 2,373  $ 2,385,355  —  $ —  $ (1,545,854) $ 841,874 
Reverse stock split —  (2,277) 2,277  —  —  —  — 
Restricted stock awards(2)
 220  31  (31) —  —  —  — 
Restricted stock forfeitures(2)
 (46) (2) 2  —  —  —  — 
Stock exchanged for tax withholding —  —  —  35  (774) —  (774)
Retirement of treasury stock(2)
 (35) (5) (769) (35) 774  —  — 
Share-settled equity-based compensation —  —  8,653  —  —  —  8,653 
Net loss —  —  —  —  —  (708,241) (708,241)
Balance, September 30, 2020 12,004  $ 120  $ 2,395,487  —  $ —  $ (2,254,095) $ 141,512 
Common stock Additional
paid-in capital		 Treasury stock
(at cost)		 Accumulated deficit
Shares (1)
 Amount
Shares (1)
 Amount Total
Balance, December 31, 2018 11,697  $ 2,339  $ 2,375,286  —  $ —  $ (1,203,395) $ 1,174,230 
Restricted stock awards 367  73  (73) —  —  —  — 
Restricted stock forfeitures (145) (28) 28  —  —  —  — 
Stock exchanged for tax withholding —  —  —  35  (2,650) —  (2,650)
Stock exchanged for cost of exercise of stock options —  —  —  1  (76) —  (76)
Retirement of treasury stock (36) (7) (2,719) (36) 2,726  —  — 
Exercise of stock options 1  —  76  —  —  —  76 
Share-settled equity-based compensation —  —  8,410  —  —  —  8,410 
Net loss —  —  —  —  —  (100,738) (100,738)
Balance, September 30, 2019 11,884  $ 2,377  $ 2,381,008  —  $ —  $ (1,304,133) $ 1,079,252 
______________________________________________________________________________
(1)Shares presented were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020 as discussed in Note 7.a.
(2)The amounts presented for common stock and additional paid-in capital include (i) unadjusted amounts for the period January 1, 2020 to May 31, 2020 and (ii) adjusted amounts for the period June 1, 2020 to September 30, 2020. See the "Reverse stock split" line item for the retroactive adjustment for the life-to-date activity through May 31, 2020.
















The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Laredo Petroleum, Inc.
Consolidated statements of cash flows
(in thousands)
(Unaudited)
  Nine months ended September 30,
  2020 2019
Cash flows from operating activities:    
Net loss $ (708,241) $ (100,738)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-settled equity-based compensation, net 6,111  5,244 
Depletion, depreciation and amortization 174,891  197,900 
Impairment expense 789,235  397,890 
Mark-to-market on derivatives:
Gain on derivatives, net (162,049) (136,713)
Settlements received for matured derivatives, net 186,435  48,827 
Settlements received (paid) for early-terminated commodity derivatives, net 6,340  (5,409)
Premiums paid for commodity derivatives (51,070) (7,664)
Amortization of debt issuance costs 3,304  2,539 
Amortization of operating lease right-of-use assets 10,133  9,583 
Loss on extinguishment of debt 13,320  — 
Deferred income tax benefit (7,154) (812)
Other, net 4,519  2,673 
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 24,925  11,778 
Decrease (increase) in other current assets 4,451  (4,088)
(Increase) decrease in other noncurrent assets, net (3,619) 2,988 
Increase (decrease) in accounts payable and accrued liabilities 5,569  (15,896)
Decrease in undistributed revenue and royalties (7,631) (18,878)
Decrease in other current liabilities (8,216) (21,221)
Decrease in other noncurrent liabilities (7,633) (1,135)
Net cash provided by operating activities 273,620  366,868 
Cash flows from investing activities:
Acquisitions of oil and natural gas properties, net (23,563) (2,880)
Capital expenditures:
Oil and natural gas properties (278,277) (368,182)
Midstream service assets (2,517) (6,741)
Other fixed assets (3,024) (1,720)
Proceeds from dispositions of capital assets, net of selling costs 1,242  6,847 
Net cash used in investing activities (306,139) (372,676)
Cash flows from financing activities:
Borrowings on Senior Secured Credit Facility 45,000  80,000 
Payments on Senior Secured Credit Facility (185,000) (85,000)
Issuance of January 2025 Notes and January 2028 Notes 1,000,000  — 
Extinguishment of debt (808,855) — 
Stock exchanged for tax withholding (774) (2,650)
Payments for debt issuance costs (18,451) — 
Net cash provided by (used in) financing activities 31,920  (7,650)
Net decrease in cash and cash equivalents (599) (13,458)
Cash and cash equivalents, beginning of period 40,857  45,151 
Cash and cash equivalents, end of period $ 40,258  $ 31,693 
 


The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 1—Organization and basis of presentation
a.    Organization
Laredo Petroleum, Inc. ("Laredo"), together with its wholly-owned subsidiaries, Laredo Midstream Services, LLC ("LMS") and Garden City Minerals, LLC ("GCM"), is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties, primarily in the Permian Basin of West Texas. In these notes, the "Company" refers to Laredo, LMS and GCM collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.
b.    Basis of presentation
The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.
The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2019 is derived from audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of September 30, 2020, results of operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019.
Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2019 Annual Report.
Significant accounting policies
See Note 2 in the 2019 Annual Report for discussion of significant accounting policies.
Use of estimates in the preparation of interim unaudited consolidated financial statements
The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.
For further information regarding the use of estimates and assumptions, see Note 2.b in the 2019 Annual Report and Notes 8.e and 8.f pertaining to the Company's 2020 performance unit awards and phantom unit awards, respectively.
Reclassifications
Certain amounts in the accompanying unaudited consolidated financial statements have been reclassified to conform to the 2020 presentation. These reclassifications had no impact on previously reported total assets, total liabilities, net income (loss), stockholders' equity or total operating, investing or financing cash flows.
Note 2—New accounting standards
The Company considers the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of September 30, 2020.
On January 1, 2020, the Company adopted ASU 2016-13 to Topic 326, Financial Instruments—Credit Losses, that requires an allowance for expected credit losses to be recorded against newly recognized financial assets measured at an amortized cost
6
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
basis. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company has included these factors in its analysis and determined there was minimal impact to the unaudited consolidated financial statements for the three and nine months ended September 30, 2020.
Note 3—Acquisitions and divestiture
a.    2020 Asset acquisitions and divestiture
On April 30, 2020, the Company closed an acquisition of 180 net acres in Howard County, Texas for a total purchase price of $0.6 million. The acquisition also provides for one or more potential contingent payments to be paid by the Company if the arithmetic average of the monthly settlement West Texas Intermediate ("WTI") NYMEX prices exceed certain thresholds for the contingency period beginning on January 1, 2021 and ending on the earlier of December 31, 2022 or the date the counterparty has received the maximum consideration of $1.2 million. The fair value of this contingent consideration was $0.2 million as of the acquisition date, which was recorded as part of the basis in the oil and natural gas properties acquired and as a contingent consideration derivative liability. See Note 10.a for the fair value of the contingent consideration as of September 30, 2020.
On February 4, 2020, the Company closed a transaction for $22.5 million acquiring 1,180 net acres and divesting 80 net acres in Howard County, Texas.
All transaction costs for the asset acquisitions were capitalized and were included in "Oil and natural gas properties" on the consolidated balance sheet.
See Note 19.b for discussion of the Company's acquisition of oil and natural gas properties subsequent to September 30, 2020.
On April 9, 2020, the Company closed a divestiture of 80 net acres and working interests in two producing wells in Glasscock County, Texas for a total sales price of $0.7 million, net of customary closing and post-closing sales price adjustments. The divestiture was recorded as an adjustment to oil and natural gas properties pursuant to the rules governing full cost accounting. Effective at closing, the operations and cash flows of these oil and natural gas properties were eliminated from the ongoing operations of the Company, and the Company has no continuing involvement in the properties. This divestiture did not represent a strategic shift and has not had a major effect on the Company's future operations or financial results.
b.    2019 Acquisitions
Asset acquisitions
On December 12, 2019, the Company closed an acquisition of 7,360 net acres and 750 net royalty acres in Howard County, Texas for $131.7 million, net of customary closing and subject to customary post-closing purchase price adjustments. The acquisition also provides for a potential contingent payment, where the Company is required to pay $20.0 million if the arithmetic average of the monthly settlement WTI NYMEX prices for each consecutive calendar month for the one-year period beginning January 1, 2020 through December 31, 2020 exceeds a certain threshold. The fair value of this contingent consideration was $6.2 million as of the acquisition date, which was recorded as part of the basis in the oil and natural gas properties acquired and as a contingent consideration derivative liability. See Note 10.a for the fair value of the contingent consideration as of September 30, 2020. This acquisition was primarily financed through borrowings under the Senior Secured Credit Facility. Post-closing is expected to be finalized during the fourth quarter of 2020.
On June 20, 2019, the Company acquired 640 net acres in Reagan County, Texas for $2.9 million.
All transaction costs were capitalized and were included in "Oil and natural gas properties" on the consolidated balance sheet.
Business combination
On December 6, 2019, the Company closed a bolt-on acquisition of 4,475 contiguous net acres and working interests in 49 producing wells in western Glasscock County, Texas, which included net production of 1,400 barrels of oil equivalent ("BOE") per day at the time of acquisition, for $64.6 million, net of customary closing purchase price adjustments. This acquisition was
7
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
financed through borrowings under the Senior Secured Credit Facility. Post-closing was finalized during the nine months ended September 30, 2020.
This acquisition was accounted for as a business combination. Accordingly, the Company conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at the estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed. The Company makes various assumptions in estimating the fair values of assets acquired and liabilities assumed. The most significant assumptions relate to the estimated fair values of evaluated and unevaluated oil and natural gas properties. The fair values of these properties were measured using a discounted cash flow model that converts future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) forecasted oil, NGL and natural gas reserve quantities; (ii) future commodity strip prices as of the closing dates adjusted for transportation and regional price differentials; (iii) forecasted ad valorem taxes, production taxes, income taxes, operating expenses and development costs; and (iv) a peer group weighted-average cost of capital rate subject to additional project-specific risk factors. To compensate for the inherent risk of estimating the value of the unevaluated properties, the discounted future net cash flows of proved undeveloped and probable reserves are reduced by additional reserve adjustment factors. These assumptions represent Level 3 inputs under the fair value hierarchy, as described in Note 10 in the 2019 Annual Report.
The following table reflects an aggregate of the final estimate of the fair values of the assets acquired and liabilities assumed in this business combination on December 6, 2019:
(in thousands) Fair values of acquisition
Fair values of net assets:
Evaluated oil and natural gas properties $ 29,921 
Unevaluated oil and natural gas properties 34,700 
Asset retirement cost 2,728 
     Total assets acquired 67,349 
Asset retirement obligations (2,728)
        Net assets acquired $ 64,621 
Fair values of consideration paid for net assets:
Cash consideration $ 64,621 
c.    Exchange of unevaluated oil and natural gas properties
From time to time, the Company exchanges undeveloped acreage with third parties. The exchanges are recorded at fair value and the difference is accounted for as an adjustment of capitalized costs with no gain or loss recognized pursuant to the rules governing full cost accounting, unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.
8
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 4—Property and equipment
The following table presents the Company's property and equipment as of the dates presented:
(in thousands) September 30, 2020 December 31, 2019
Evaluated oil and natural gas properties $ 7,773,776  $ 7,421,799 
Less accumulated depletion and impairment (6,669,537) (5,725,114)
Evaluated oil and natural gas properties, net 1,104,239  1,696,685 
Unevaluated oil and natural gas properties not being depleted 83,558  142,354 
Midstream service assets 182,169  180,932 
Less accumulated depreciation and impairment (66,784) (52,254)
Midstream service assets, net 115,385  128,678 
Depreciable other fixed assets 36,786  37,894 
Less accumulated depreciation and amortization (23,721) (23,649)
Depreciable other fixed assets, net 13,065  14,245 
Land 18,901  18,259 
Total property and equipment, net $ 1,335,148  $ 2,000,221 
See Note 10.b for discussion of impairments of long-lived assets during the nine months ended September 30, 2020. See Note 6 in the 2019 Annual Report for additional discussion of the Company's property and equipment.
The Company uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain employee-related costs, incurred for the purpose of acquiring, exploring for or developing oil and natural gas properties, are capitalized and, once evaluated, depleted on a composite unit-of-production method based on estimates of proved oil, NGL and natural gas reserves. The depletion base includes estimated future development costs and dismantlement, restoration and abandonment costs, net of estimated salvage values. Capitalized costs include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs, delay rentals and other costs related to such activities. Costs, including employee-related costs, associated with production and general corporate activities are expensed in the period incurred.
The Company excludes unevaluated property acquisition costs and exploration costs from the depletion calculation until it is determined whether or not proved reserves can be assigned to the properties. The Company capitalizes a portion of its interest costs to its unevaluated properties and such costs become subject to depletion when proved reserves can be assigned to the associated properties. All items classified as unevaluated properties are assessed on a quarterly basis for possible impairment. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion.
Sales of oil and natural gas properties, whether or not being depleted currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.

9
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents costs incurred in the acquisition, exploration and development of oil and natural gas properties, with asset retirement obligations included in evaluated property acquisition costs and development costs, for the periods presented:
  Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Property acquisition costs:         — 
Evaluated $ —    $ —  $ 7,586  $ — 
Unevaluated —  —  16,468  2,880 
Exploration costs 3,479  3,480  13,563  16,101 
Development costs 37,649  73,357  256,374  349,738 
Total oil and natural gas properties costs incurred $ 41,128  $ 76,837  $ 293,991  $ 368,719 
The aforementioned total oil and natural gas properties costs incurred included certain employee-related costs as shown in the table below.
The following table presents capitalized employee-related costs incurred in the acquisition, exploration and development of oil and natural gas properties for the periods presented:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Capitalized employee-related costs $ 4,976  $ 4,164  $ 13,573  $ 14,276 
The following table presents depletion expense, which is included in "Depletion, depreciation and amortization" on the unaudited consolidated statements of operations, and depletion expense per BOE sold of evaluated oil and natural gas properties for the periods presented:
Three months ended September 30, Nine months ended September 30,
2020 2019 2020 2019
Depletion expense of evaluated oil and natural gas properties $ 43,648  $ 65,354  $ 164,705  $ 186,662 
Depletion expense per BOE sold $ 5.40  $ 8.67  $ 6.72  $ 8.56 
The full cost ceiling is based principally on the estimated future net revenues from proved oil, NGL and natural gas reserves, which exclude the effect of the Company's commodity derivative transactions, discounted at 10%. The SEC guidelines require companies to use the unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials ("Benchmark Prices"). The Benchmark Prices are then adjusted for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the wellhead ("Realized Prices") without giving effect to the Company's commodity derivative transactions. The Realized Prices are utilized to calculate the estimated future net revenues in the full cost ceiling calculation. Significant inputs included in the calculation of discounted cash flows used in the impairment analysis include the Company's estimate of operating and development costs, anticipated production of proved reserves and other relevant data. In the event the unamortized cost of evaluated oil and natural gas properties being depleted exceeds the full cost ceiling, as defined by the SEC, the excess is expensed in the period such excess occurs. Once incurred, a write-down of oil and natural gas properties is not reversible.

10
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents the Benchmark Prices and the Realized Prices as of the dates presented:
September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019
Benchmark Prices:
   Oil ($/Bbl) $ 39.88  $ 43.60  $ 52.23  $ 52.19  $ 54.27 
   NGL ($/Bbl)(1)
 $ 16.95  $ 16.87  $ 19.36  $ 21.14  $ 23.93 
   Natural gas ($/MMBtu) $ 1.06  $ 0.87  $ 0.58  $ 0.87  $ 0.85 
Realized Prices:
   Oil ($/Bbl) $ 41.08  $ 44.97  $ 52.47  $ 52.12  $ 52.86 
   NGL ($/Bbl) $ 7.71  $ 7.66  $ 10.47  $ 12.21  $ 14.78 
   Natural gas ($/Mcf) $ 0.68  $ 0.53  $ 0.28  $ 0.53  $ 0.52 
_____________________________________________________________________________
(1)    Based on the Company's average composite NGL barrel.
The following table presents full cost ceiling impairment expense, which is included in "Impairment expense" on the unaudited consolidated statements of operations for the periods presented:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Full cost ceiling impairment expense $ 196,088  $ 397,890  $ 779,718  $ 397,890 
Note 5—Leases
The Company has recognized operating lease right-of-use assets and operating lease liabilities on the unaudited consolidated balance sheets for leases of commercial real estate with lease terms extending into 2027 and drilling, completions, production and other equipment leases with lease terms extending through 2025. The Company's lease costs include those that are recognized in net loss during the period as well as those that are capitalized as part of the cost of another asset.
The lease costs related to drilling, completions and production activities are reflected at the Company's net ownership, which is consistent with the principals of proportional consolidation, and lease commitments are reflected on a gross basis. As of September 30, 2020, the Company had an average working interest of 97% in Laredo-operated active productive wells in its core operating area. See Note 5 in the 2019 Annual Report for additional discussion of the Company's leases.
Note 6—Debt
a.   January 2025 Notes and January 2028 Notes
On January 24, 2020, the Company completed an offer and sale (the "Offering") of $600.0 million in aggregate principal amount of 9 1/2% senior unsecured notes due 2025 (the "January 2025 Notes") and $400.0 million in aggregate principal amount of 10 1/8% senior unsecured notes due 2028 (the "January 2028 Notes"). Interest for both the January 2025 Notes and January 2028 Notes is payable semi-annually, in cash in arrears on January 15 and July 15 of each year. The first interest payment was made on July 15, 2020, and consisted of interest from closing to that date. The terms of the January 2025 Notes and January 2028 Notes include covenants, which are in addition to but different than similar covenants in the Senior Secured Credit Facility, which limit the Company's ability to incur indebtedness, make restricted payments, grant liens and dispose of assets.
The January 2025 Notes and January 2028 Notes are fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain automatic customary releases, including the sale, disposition or transfer of all of the capital stock or of all or substantially all of the assets of a subsidiary guarantor to one or more persons that are not the Company or a restricted subsidiary, exercise of legal defeasance or covenant defeasance options or satisfaction and discharge of the applicable indenture, designation of a subsidiary guarantor as a non-guarantor
restricted subsidiary or as an unrestricted subsidiary in accordance with the applicable indenture, release from guarantee under the Senior Secured Credit Facility, or liquidation or dissolution (collectively, the "Releases").
11
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The Company received net proceeds of $982.0 million from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses. The proceeds from the Offering were used (i) to fund Tender Offers (defined below) for the Company's January 2022 Notes and March 2023 Notes (defined below), (ii) to repay the Company's January 2022 Notes and March 2023 Notes that remained outstanding after settling the Tender Offers and (iii) for general corporate purposes, including repayment of a portion of the borrowings outstanding under the Company's Senior Secured Credit Facility.
b.   January 2022 Notes and March 2023 Notes
On January 23, 2014, the Company completed an offering of $450.0 million in aggregate principal amount of 5 5/8% senior unsecured notes due 2022 (the "January 2022 Notes"). The January 2022 Notes were due to mature on January 15, 2022 and bore an interest rate of 5 5/8% per annum, payable semi-annually, in cash in arrears on January 15 and July 15 of each year, commencing July 15, 2014. The January 2022 Notes were fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
On March 18, 2015, the Company completed an offering of $350.0 million in aggregate principal amount of 6 1/4% senior unsecured notes due 2023 (the "March 2023 Notes"). The March 2023 Notes were due to mature on March 15, 2023 and bore an interest rate of 6 1/4% per annum, payable semi-annually, in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2015. The March 2023 Notes were fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
On January 6, 2020, the Company commenced cash tender offers and consent solicitations for any or all of its outstanding January 2022 Notes and March 2023 Notes (collectively, the "Tender Offers"). On January 24, 2020 and February 6, 2020, the Company settled the Tender Offers for the principal outstanding amounts of $428.9 million and $299.4 million, respectively, for consideration for tender offers and early tender premiums of $431.6 million and $304.1 million for the January 2022 Notes and March 2023 Notes, respectively, plus accrued and unpaid interest. On January 29, 2020, the Company redeemed the remaining $21.1 million of January 2022 Notes not tendered under the Tender Offers at a redemption price of 100.000% of the principal amount thereof, plus accrued and unpaid interest. On March 15, 2020, the Company redeemed the remaining $50.6 million of March 2023 Notes not tendered under the Tender Offers at a redemption price of 101.563% of the principal amount thereof, plus accrued and unpaid interest. The Company recognized a loss on extinguishment of $13.3 million related to the difference between the consideration for tender offers, early tender premiums and redemption prices and the net carrying amounts of the extinguished January 2022 Notes and March 2023 Notes.
c.    Senior Secured Credit Facility
As of September 30, 2020, the Senior Secured Credit Facility, which matures on April 19, 2023, had a maximum credit amount of $2.0 billion, a borrowing base and an aggregate elected commitment of $725.0 million each, with $235.0 million outstanding and was subject to an interest rate of 2.188%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity or $80.0 million. As of September 30, 2020 and December 31, 2019, the Company had one letter of credit outstanding of $44.1 million and $14.7 million, respectively, under the Senior Secured Credit Facility. The Senior Secured Credit Facility is fully and unconditionally guaranteed by LMS and GCM. For additional information see Note 7.d in the 2019 Annual Report. See Note 19.a for discussion of the additional payment on the Senior Secured Credit Facility and the reaffirmation of the Company's borrowing base associated with the semi-annual redetermination subsequent to September 30, 2020.
The Company's measurements of Adjusted EBITDA (non-GAAP) for financial reporting as compared to compliance under its debt agreements differ.
12
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
d.    Long-term debt, net
The following table presents the Company's long-term debt and debt issuance costs, net included in "Long-term debt, net" on the unaudited consolidated balance sheets as of the dates presented:
  September 30, 2020 December 31, 2019
(in thousands) Long-term debt Debt issuance costs, net Long-term debt, net Long-term debt Debt issuance costs, net Long-term debt, net
January 2022 Notes(1)
 $ —  $ —  $ —  $ 450,000  $ (2,034) $ 447,966 
March 2023 Notes(1)
 —  —  —  350,000  (2,549) 347,451 
January 2025 Notes(2)
 600,000  (9,424) 590,576  —  —  — 
January 2028 Notes(2)
 400,000  (6,629) 393,371  —  —  — 
Senior Secured Credit Facility(3)
 235,000  —  235,000  375,000  —  375,000 
Long-term debt, net $ 1,235,000  $ (16,053) $ 1,218,947  $ 1,175,000  $ (4,583) $ 1,170,417 
______________________________________________________________________________
(1)During the nine months ended September 30, 2020, the Company wrote off debt issuance costs in connection with the extinguishment of the January 2022 Notes and the March 2023 Notes, which are included in "Loss on extinguishment of debt" on the unaudited consolidated statement of operations.
(2)Debt issuance costs for the January 2025 Notes and the January 2028 Notes are amortized on a straight-line basis over the respective terms of the notes.
(3)Debt issuance costs, net related to the Senior Secured Credit Facility of $2.6 million and $4.5 million as of September 30, 2020 and December 31, 2019, respectively, are reported in "Other noncurrent assets, net" on the unaudited consolidated balance sheets, and are amortized on a straight-line basis. In connection with the April 2020 reduction in borrowing base, the Company wrote off $1.1 million of debt issuance costs, which are included in "Write-off of debt issuance costs" on the unaudited consolidated statement of operations, and capitalized $0.1 million of debt issuance costs during the nine months ended September 30, 2020.
Note 7—Stockholders' equity
a.    Reverse stock split and Authorized Share Reduction
On March 17, 2020, the board of directors authorized an amendment to the Company's amended and restated certificate of incorporation ("Certificate of Incorporation") to effect, at the discretion of the board of directors (i) a reverse stock split that would reduce the number of shares of outstanding common stock in accordance with a ratio to be determined by the board of directors within a range of 1-for-5 and 1-for-20 currently outstanding and (ii) a reduction of the number of authorized shares of common stock by a corresponding proportion ("Authorized Share Reduction").
On May 14, 2020, after receiving stockholder approval of the amendment to the Company's Certificate of Incorporation to effect, at the discretion of the board of directors, the reverse stock split and the Authorized Share Reduction, the board of directors approved the implementation of the reverse stock split at a ratio of 1-for-20 currently outstanding shares of common stock, and the related corresponding Authorized Share Reduction.
On June 1, 2020, the amendment to the Company's Certificate of Incorporation became effective and effected the 1-for-20 reverse stock split of the Company's issued and outstanding common stock and the related Authorized Share Reduction from 450,000,000 to 22,500,000 authorized shares, par value $0.01 per share, with authorized shares of preferred stock remaining unchanged at 50,000,000, par value $0.01 per share, for a total of 72,500,000 shares of capital stock. See Note 8 for discussion of the Laredo Petroleum, Inc. Omnibus Equity Incentive Plan (the "Equity Incentive Plan"), that proportionately reduced the number of shares that may be granted.
b.    Treasury stock
Treasury stock is recorded at cost, which includes incremental direct transaction costs, and is retired upon acquisition as a result of (i) stock exchanged to satisfy tax withholding that arises upon the lapse of restrictions on share-settled equity-based awards at the awardee's election or (ii) stock exchanged for the cost of exercise of stock options at the awardee's election.
13
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 8—Equity Incentive Plan
The Equity Incentive Plan provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, outperformance share awards, performance unit awards, phantom unit awards and other awards. On June 1, 2020, in connection with the effectiveness of the reverse stock split and Authorized Share Reduction, the board of directors approved and adopted an amendment to the Equity Incentive Plan to proportionately adjust the limitations on awards that may be granted under the Equity Incentive Plan. Following the amendment, an aggregate of 1,492,500 shares may be issued under the Equity Incentive Plan. See Note 7.a for additional discussion of the reverse stock split and Authorized Share Reduction.
The Company recognizes the fair value of equity-based compensation awards, expected to vest over the requisite service period, as a charge against earnings, net of amounts capitalized. The Company's restricted stock awards, stock option awards, performance share awards and outperformance share award are accounted for as equity awards and the Company's performance unit awards and phantom unit awards are accounted for as liability awards. Equity-based compensation expense is included in "General and administrative" on the unaudited consolidated statements of operations. The Company capitalizes a portion of equity-based compensation for employees who are directly involved in the acquisition, exploration or development of oil and natural gas properties into the full cost pool. Capitalized equity-based compensation is included in "Evaluated properties" on the unaudited consolidated balance sheets.
a.    Restricted stock awards
All service vesting restricted stock awards are treated as issued and outstanding in the unaudited consolidated financial statements. Per the award agreement terms, if employment is terminated prior to the restriction lapse date for reasons other than death or disability, the restricted stock awards are forfeited and canceled and are no longer considered issued and outstanding. If the termination of employment is by reason of death or disability, all of the holder's restricted stock will automatically vest. Restricted stock awards granted to employees vest in a variety of schedules that mainly include (i) 33%, 33% and 34% vesting per year beginning on the first anniversary of the grant date and (ii) full vesting on the first anniversary of the grant date. Restricted stock awards granted to non-employee directors vest immediately on the grant date.
The following table reflects the restricted stock award activity for the nine months ended September 30, 2020:
(in thousands, except for weighted-average grant-date fair value)
Restricted stock awards(1)
Weighted-average
grant-date fair value
 (per share)(1)
Outstanding as of December 31, 2019 275  $ 85.89 
Granted 220  $ 16.95 
Forfeited (46) $ 52.97 
Vested(2)
 (137) $ 79.29 
Outstanding as of September 30, 2020 312  $ 45.03 
_____________________________________________________________________________
(1)Shares and per share data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The aggregate intrinsic value of vested restricted stock awards for the nine months ended September 30, 2020 was $3.1 million.
The Company utilizes the closing stock price on the grant date to determine the fair value of restricted stock awards. As of September 30, 2020, unrecognized equity-based compensation related to the restricted stock awards expected to vest was $9.3 million. Such cost is expected to be recognized over a weighted-average period of 1.63 years.
14
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
b.    Stock option awards
As of September 30, 2020, the 11,362 outstanding stock option awards have a weighted-average exercise price of $257.42 per award and a weighted-average remaining contractual term of 4.25 years. The stock option awards were adjusted for the Company's 1-for-20 reverse stock split as discussed in Note 7.a. There were 5,441 cancellations and de minimis forfeitures of stock option awards during the nine months ended September 30, 2020, and there were no grants or exercises. The vested and exercisable stock option awards as of September 30, 2020 had no intrinsic value.
c.    Performance share awards
Performance share awards, which the Company has determined are equity awards, are subject to a combination of market, performance and service vesting criteria. For portions of awards with market criteria, which include: (i) the relative three-year total shareholder return ("TSR") comparing the Company's shareholder return to the shareholder return of the peer group specified in each award agreement ("RTSR Performance Percentage") and (ii) the Company's absolute three-year total shareholder return ("ATSR Appreciation"), a Monte Carlo simulation prepared by an independent third party is utilized to determine the grant-date (or modification date) fair value, and the associated expense is recognized on a straight-line basis over the three-year requisite service period of the awards. For portions of awards with performance criteria, which is the Company's three-year return on average capital employed ("ROACE Percentage"), the fair value is equal to the Company's closing stock price on the grant date (or modification date), and for each reporting period, the associated expense fluctuates and is adjusted based on an estimated payout of the number of shares of common stock to be delivered on the payment date for the three-year performance period. Any shares earned under performance share awards are expected to be issued in the first quarter following the completion of the respective requisite service periods based on the achievement of certain market and performance criteria, and the payout can range from 0% to 200%.
The following table reflects the performance share award activity for the nine months ended September 30, 2020:
(in thousands, except for weighted-average grant-date fair value)
Performance
share awards(1)
Weighted-average
grant-date
fair value
(per share)1)
Outstanding as of December 31, 2019 115  $ 107.05 
Forfeited (10) $ 112.37 
Lapsed(2)
 (8) $ 379.20 
Outstanding as of September 30, 2020 97  $ 84.06 
______________________________________________________________________________
(1)Shares and per share data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The performance share awards granted on February 17, 2017 had a performance period of January 1, 2017 to December 31, 2019 and, as their market criteria were not satisfied, resulted in a TSR modifier of 0% based on the Company finishing in the 15th percentile of its peer group for relative TSR. As such, the granted units lapsed and were not converted into the Company's common stock during the three months ended March 31, 2020.

15
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents the fair values per performance share and the expense per performance share, which is the fair value per performance share adjusted for the estimated payout of the performance criteria, for the outstanding performance share awards as of September 30, 2020 for the grant dates presented:
June 3, 2019
February 28, 2019(1)
 February 16, 2018
Market Criteria:
(1/4) RTSR Factor + (1/4) ATSR Factor:
Grant-date fair value per performance share(2)
 $ 49.00  $ 79.61  $ 201.65 
Expense per performance share as of September 30, 2020(2)
 $ 49.00  $ 79.61  $ 201.65 
Performance Criteria:
(1/2) ROACE Factor:
Grant-date fair value per performance share(2)
 $ 51.80  $ 69.80  $ 167.20 
Estimated payout for expense as of September 30, 2020 175  % 175  % 61  %
Expense per performance share as of September 30, 2020(2)(3)
 $ 90.65  $ 122.15  $ 101.99 
Combined:
Grant-date fair value per performance share(2)(4)
 $ 50.40  $ 74.71  $ 184.43 
Expense per performance share as of September 30, 2020(2)(5)
 $ 69.83  $ 100.88  $ 151.82 
______________________________________________________________________________
(1)The fair values of the performance shares granted on February 28, 2019 are based on the May 16, 2019 modification date. See Note 8.b in the 2019 Annual Report for additional information on the award conversion.
(2)Per share data has been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(3)As the (1/2) ROACE Factor is based on performance criteria, the expense fluctuates based on the estimated payout and is redetermined each reporting period and the life-to-date recognized expense for the respective awards is adjusted accordingly.
(4)The combined grant-date fair value per performance share is the combination of the fair value per performance share weighted for the market and performance criteria for the respective awards.
(5)The combined expense per performance share is the combination of the expense per performance share for market and performance criteria for the respective awards.
As of September 30, 2020, unrecognized equity-based compensation related to the performance share awards expected to vest was $3.7 million. Such cost is expected to be recognized over a weighted-average period of 1.34 years.
d.    Outperformance share award
An outperformance share award was granted during the year ended December 31, 2019, in conjunction with the appointment of the Company's President, and is accounted for as an equity award. The award was adjusted for the Company's 1-for-20 reverse stock split as discussed in Note 7.a. If earned, the payout ranges from 0 to 50,000 shares in the Company's common stock per the vesting schedule. This award is subject to a combination of market and service vesting criteria, therefore, a Monte Carlo simulation prepared by an independent third party was utilized to determine the grant-date fair value with the associated expense recognized over the requisite service period. The payout of this award is based on the highest 50 consecutive trading day average closing stock price of the Company that occurs during the performance period that commenced on June 3, 2019 and ends on June 3, 2022 ("Final Date"). Of the earned outperformance shares, one-third of the award will vest on the Final Date, one-third will vest on the first anniversary of the Final Date and one-third will vest on the second anniversary of the Final Date, provided that the participant has been continuously employed with the Company through the applicable vesting date.
As of September 30, 2020, unrecognized equity-based compensation related to the outperformance share award expected to vest was $0.4 million. Such cost is expected to be recognized over a weighted-average period of 3.75 years.

16
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
e.    Performance unit awards
Performance unit awards, which the Company has determined are liability awards since they are settled in cash, are subject to a combination of market, performance and service vesting criteria. For portions of awards with market criteria, which include: (i) the RTSR Performance Percentage (as defined above) and (ii) the ATSR Appreciation (as defined above), a Monte Carlo simulation prepared by an independent third party is utilized to determine the fair value, and is re-measured at each reporting period until settlement. For portions of awards with performance criteria, which is the ROACE Percentage (as defined above), the Company's closing stock price is utilized to determine the fair value and is re-measured on the last trading day of each reporting period until settlement and, additionally, the associated expense fluctuates based on an estimated payout for the three-year performance period. The expense related to the performance unit awards is recognized on a straight-line basis over the three-year requisite service period of the awards, and the life-to-date recognized expense is adjusted accordingly at each reporting period based on the quarterly fair value re-measurements and redetermination of the estimated payout for the performance criteria. Any units earned, are expected to be paid in cash during the first quarter following the completion of the requisite service period, based on the achievement of certain market and performance criteria, and the payout can range from 0% to 200%, but is capped at 100% if the ATSR Appreciation is zero or less. Per the award agreement terms, if employment is terminated prior to the restriction lapse date for reasons other than death or disability, the performance unit awards are forfeited and canceled. If the termination of employment is by reason of death or disability, and the market and performance criteria are satisfied, then the holder of the earned performance unit awards will receive a prorated payment based on the number of days the participant was employed with the Company during the performance period.
The following table reflects the performance unit award activity for the nine months ended September 30, 2020:
(in thousands)
Performance units(1)
Outstanding as of December 31, 2019(2)
 — 
Granted(3)
 123 
Forfeited (24)
Outstanding as of September 30, 2020 99 
______________________________________________________________________________
(1)Units have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
(2)The performance unit awards granted on February 28, 2019 were originally determined to be liability awards due to the board of directors election to settle the awards in cash. These awards were converted to performance share awards during the three months ended June 30, 2019. See Note 8.b in the 2019 Annual Report for additional information on the award conversion.
(3)The amounts potentially payable in cash at the end of the requisite service period for the performance unit awards granted on March 5, 2020 will be determined based on three criteria: (i) RTSR Performance Percentage, (ii) ATSR Appreciation and (iii) ROACE Percentage. The RTSR Performance Percentage, ATSR Appreciation and ROACE Percentage will be used to identify the "RTSR Factor," the "ATSR Factor" and the "ROACE Factor," respectively, which are used to compute the "Performance Multiple" and ultimately to determine the final value of each performance unit to be paid in cash on the payment date per the award agreement, subject to withholding requirements. In computing the Performance Multiple, the RTSR Factor is given a 1/3 weight, the ATSR Factor a 1/3 weight and the ROACE Factor a 1/3 weight. These awards have a performance period of January 1, 2020 to December 31, 2022.

17
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents (i) the fair values per performance unit and the assumptions used to estimate these fair values per performance unit and (ii) the expense per performance unit, which is the fair value per performance unit adjusted for the estimated payout of the performance criteria, for the outstanding performance unit awards as of September 30, 2020 for the grant date presented:
March 5, 2020
Market criteria:
(1/3) RTSR Factor + (1/3) ATSR Factor:
Fair value assumptions:
Remaining performance period 2.26 years
Risk-free interest rate(1)
 0.13  %
Dividend yield —  %
Expected volatility(2)
 119.46  %
Closing stock price on September 30, 2020 $ 9.80 
Fair value per performance unit as of September 30, 2020 $ 11.63 
Expense per performance unit as of September 30, 2020 $ 11.63 
Performance criteria:
(1/3) ROACE Factor:
Fair value assumptions:
Closing stock price on September 30, 2020 $ 9.80 
Fair value per performance unit as of September 30, 2020 $ 9.80 
Estimated payout for expense as of September 30, 2020 100.00  %
Expense per performance unit as of September 30, 2020(3)
 $ 9.80 
Combined:
Fair value per performance unit as of September 30, 2020(4)
 $ 11.02 
Expense per performance unit as of September 30, 2020(5)
 $ 11.02 
______________________________________________________________________________
(1)The remaining performance period matched zero-coupon risk-free interest rate was derived from the U.S. Treasury constant maturities yield curve on September 30, 2020.
(2)The Company utilized its own remaining performance period matched historical volatility in order to develop the expected volatility.
(3)As the (1/3) ROACE Factor is based on performance criteria, the expense fluctuates based on the estimated payout and is redetermined each reporting period and the life-to-date recognized expense for the award is adjusted accordingly.
(4)The combined fair value per performance unit is the combination of the fair value per performance unit weighted for the market and performance criteria for the award.
(5)The combined expense per performance unit is the combination of the expense per performance unit for market and performance criteria for the award.
As of September 30, 2020, unrecognized equity-based compensation related to the performance unit awards expected to vest was $0.9 million. Such cost is expected to be recognized over a weighted-average period of 2.50 years.
f.    Phantom unit awards
Phantom unit awards, which the Company has determined are liability awards, represent the holder's right to receive the cash equivalent of one share of common stock of the Company for each phantom unit as of the applicable vesting date, subject to withholding requirements. Phantom unit awards granted to employees vest 33%, 33% and 34% per year beginning on the first anniversary of the grant date. Per the award agreement terms, if employment is terminated prior to the restriction lapse date
18
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
for reasons other than death or disability, the phantom unit awards are forfeited and canceled. If the termination of employment is by reason of death or disability, all of the holder's phantom unit awards automatically vest.
The following table reflects the phantom unit award activity for the nine months ended September 30, 2020:
(in thousands, except for weighted-average fair value)
Phantom units(1)
Fair value as of September 30, 2020
(per unit)1)
Outstanding as of December 31, 2019 —  $ — 
Granted 75  $ 9.80 
Outstanding as of September 30, 2020 75  $ 9.80 
______________________________________________________________________________
(1)Units and per unit data have been retroactively adjusted to reflect the Company's 1-for-20 reverse stock split effective June 1, 2020, as described in Note 7.a.
The Company utilizes the closing stock price on the last day of each reporting period to determine the fair value of phantom unit awards and the life-to-date recognized expense is adjusted accordingly. As of September 30, 2020, unrecognized equity-based compensation related to the phantom unit awards expected to vest was $0.6 million. Such cost is expected to be recognized over a weighted-average period of 2.50 years.
g.    Equity-based compensation
The following table reflects equity-based compensation expense for the periods presented:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Equity awards:
Restricted stock awards $ 2,140  $ 2,275  $ 6,682  $ 10,157 
Performance share awards 739  (2,455) 1,777  (2,482)
Outperformance share award 44  44  131  57 
Stock option awards 13  (300) 63  678 
Total share-settled equity-based compensation, gross 2,936  (436) 8,653  8,410 
Less amounts capitalized (895) (1,303) (2,542) (3,166)
Total share-settled equity-based compensation, net 2,041  (1,739) 6,111  5,244 
Liability awards:
Phantom unit awards 29  —  140  — 
Performance unit awards 18  —  208  — 
Total cash-settled equity-based compensation, gross 47  —  348  — 
Less amounts capitalized (14) —  (57) — 
Total cash-settled equity-based compensation, net 33  —  291  — 
Total equity-based compensation, net $ 2,074  $ (1,739) $ 6,402  $ 5,244 
See Note 18 for discussion of the Company's organizational restructurings and the related equity-based compensation reversals during the nine months ended September 30, 2020 and 2019.
19
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 9—Derivatives
The Company has three types of derivative instruments as of September 30, 2020: (i) commodity derivatives, (ii) debt interest rate derivative and (iii) contingent consideration derivatives. See Note 10.a for the fair value measurement on a recurring basis of derivatives and Note 2.f in the 2019 Annual Report for the Company's significant accounting policies for derivatives. The Company's derivatives were not designated as hedges for accounting purposes, and the Company does not enter into such instruments for speculative trading purposes. Accordingly, the changes in fair value are recognized in "Gain (loss) on derivatives, net" under "Non-operating income (expense)" on the unaudited consolidated statements of operations.
The following table summarizes components of the Company's gain (loss) on derivatives, net by type of derivative instrument for the periods presented:
Three months ended September 30, Nine months ended September 30,
(in thousands) 2020 2019 2020 2019
Commodity $ (45,219) $ 96,684  $ 155,278  $ 136,713 
Interest rate 9  —  (329) — 
Contingent consideration (40) —  7,100  — 
Gain (loss) on derivatives, net $ (45,250) $ 96,684  $ 162,049  $ 136,713 
a.    Commodity
Due to the inherent volatility in oil, NGL and natural gas prices and differences in the prices of oil, NGL and natural gas between where the Company produces and where the Company sells such commodities, the Company engages in commodity derivative transactions, such as puts, swaps, collars and basis swaps to hedge price risk associated with a portion of the Company's anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See Note 9 in the 2019 Annual Report for information on the transaction types and settlement indexes. Additionally, the Brent ICE to WTI NYMEX basis swaps are settled based on the differential between the basis swaps' fixed differential as compared to the differential between the arithmetic average of each day's index prices for the first nearby month on the pricing dates in each calculation period, for only days when both indices settle, with the index prices being (i) the ICE Brent Crude Oil Futures Contract except for the last day of trading for the applicable expiring Brent Crude Oil Futures Contract whereby the second nearby month of the Brent Crude Oil Futures Contract settlement price will be used and (ii) the NYMEX West Texas Intermediate Light Sweet Crude Oil Futures Contract.
In regards to the Company's basis swaps, when the settlement basis differential is below the fixed basis differential, the counterparty pays the Company an amount equal to the difference between the fixed basis differential and the settlement basis differential multiplied by the hedged contract volume. When the settlement basis differential is above the fixed basis differential, the Company pays the counterparty an amount equal to the difference between the settlement basis differential and the fixed basis differential multiplied by the hedged contract volume.
During the nine months ended September 30, 2020, the Company completed hedge restructurings by (i) early terminating collars and entering into new swaps and (ii) early terminating swaps, the latter of which was completed during the three months ended September 30, 2020.
The following table details the commodity derivatives that were terminated:
Aggregate volumes (Bbl) Floor price ($/Bbl) Ceiling price ($/Bbl) Contract period
WTI NYMEX - Swaps 389,180  $ 60.25  $ 60.25  September 2020 - December 2020
WTI NYMEX - Collars 912,500  $ 45.00  $ 71.00  January 2021 - December 2021
20
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes open commodity derivative positions as of September 30, 2020, for commodity derivatives that were entered into through September 30, 2020, for the settlement periods presented:
  Remaining year 2020 Year 2021 Year 2022
Oil:  
WTI NYMEX - Swaps:    
Volume (Bbl) 1,509,720  —  — 
Weighted-average price ($/Bbl) $ 59.35  $ —  $ — 
Brent ICE:    
Puts(1):
    
Volume (Bbl) —  2,463,750  — 
Weighted-average floor price ($/Bbl) $ —  $ 55.00  $ — 
Swaps:
Volume (Bbl) 598,000  5,037,000  3,759,500 
Weighted-average price ($/Bbl) $ 63.07  $ 49.43  $ 47.05 
Collars:    
Volume (Bbl) —  584,000  — 
Weighted-average floor price ($/Bbl) $ —  $ 45.00  $ — 
Weighted-average ceiling price ($/Bbl) $ —  $ 59.50  $ — 
Total Brent ICE:
Total volume with floor (Bbl) 598,000  8,084,750  3,759,500 
Weighted-average floor price ($/Bbl) $ 63.07  $ 50.80  $ 47.05 
Total volume with ceiling (Bbl) 598,000  5,621,000  3,759,500 
Weighted-average ceiling price ($/Bbl) $ 63.07  $ 50.47  $ 47.05 
Total oil volume with floor (Bbl) 2,107,720  8,084,750  3,759,500 
Total oil volume with ceiling (Bbl) 2,107,720  5,621,000  3,759,500 
Basis Swaps:
Brent ICE to WTI NYMEX - Basis Swaps
Volume (Bbl) 901,600  —  — 
Weighted-average differential ($/Bbl) $ 5.09  $ —  $ — 
NGL - Mont Belvieu OPIS:
Purity Ethane - Swaps:
Volume (Bbl) 92,000  912,500  — 
Weighted-average price ($/Bbl) $ 13.60  $ 12.01  $ — 
Non-TET Propane - Swaps:
Volume (Bbl) 312,800  730,000  — 
Weighted-average price ($/Bbl) $ 26.58  $ 25.52  $ — 
Non-TET Normal Butane - Swaps:
Volume (Bbl) 110,400  255,500  — 
Weighted-average price ($/Bbl) $ 28.69  $ 27.72  $ — 
Non-TET Isobutane - Swaps:
Volume (Bbl) 27,600  67,525  — 
Weighted-average price ($/Bbl) $ 29.99  $ 28.79  $ — 
Non-TET Natural Gasoline - Swaps:
Volume (Bbl) 101,200  237,250  — 
Weighted-average price ($/Bbl) $ 45.15  $ 44.31  $ — 
Total NGL volume (Bbl) 644,000  2,202,775  — 
TABLE CONTINUES ON NEXT PAGE
21
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Natural gas:    
Henry Hub NYMEX - Swaps:    
Volume (MMBtu) 11,897,000  42,522,500  — 
Weighted-average price ($/MMBtu) $ 2.65  $ 2.59  $ — 
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:    
Volume (MMBtu) 10,580,000  41,610,000  7,300,000 
Weighted-average differential ($/MMBtu) $ (0.82) $ (0.55) $ (0.53)
_____________________________________________________________________________
(1)    Associated with these open positions were $50.6 million of premiums, which were paid at the respective contracts' inception during the nine months ended September 30, 2020.
b.    Interest rate
Due to the inherent volatility in interest rates, the Company has entered into an interest rate derivative swap to hedge interest rate risk associated with a portion of the Company's anticipated outstanding debt under the Senior Secured Credit Facility. The Company will pay a fixed rate over the contract term for that portion. By removing a portion of the interest rate volatility associated with anticipated outstanding debt, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations.
The following table details the interest rate derivative that was entered into during the nine months ended September 30, 2020:
Notional amount
(in thousands)		 Fixed rate Contract period
LIBOR - Swap $ 100,000  0.345  % April 16, 2020 - April 18, 2022
c.    Contingent consideration
The Company's asset acquisition of oil and natural gas properties that closed on April 30, 2020 provides for potential contingent payments to be paid by the Company if the arithmetic average of the monthly settlement WTI NYMEX prices exceed certain thresholds for the contingency period beginning on January 1, 2021 and ending on the earlier of December 31, 2022 or the date the counterparty has received the maximum consideration of $1.2 million.
See Notes 3.a and 3.b for further discussion of the Company's asset acquisitions associated with potential contingent consideration payments. At each quarterly reporting period, the Company remeasures each contingent consideration with the changes in fair values recognized in earnings. See Note 10.a for the fair value of the contingent considerations as of September 30, 2020.
22
Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 10—Fair value measurements
See the beginning of Note 10 in the 2019 Annual Report for information about the fair value hierarchy levels.
a.    Fair value measurement on a recurring basis
See Note 9 for further discussion of the Company's derivatives, and see Note 2.f in the 2019 Annual Report for the Company's significant accounting policies for derivatives.
Balance sheet presentation
The following tables present the Company's derivatives' three-level fair value hierarchy by (i) assets and liabilities, (ii) current and noncurrent, (iii) commodity, interest rate and contingent consideration derivatives and (iv) oil, NGL, natural gas, LIBOR and/or deferred premiums, and provide a total, on a gross basis and a net basis reflected in "Derivatives" on the unaudited consolidated balance sheets as of the dates presented:
September 30, 2020
(in thousands) Level 1 Level 2 Level 3 Total gross fair value Amounts offset Net fair value presented on the unaudited consolidated balance sheets
Assets:
Current:
Commodity - Oil $ —  $ 89,930  $ —  $ 89,930  $ (5,072) $ 84,858 
Commodity - NGL —  10,192  —  10,192  —  10,192 
Commodity - Natural gas —  3,495  —  3,495  (17,416) (13,921)
Commodity - Oil deferred premiums —  —  —  —  —  — 
Noncurrent:
Commodity - Oil $ —  $ 17,152  $ —  $ 17,152  $ (3,819) $ 13,333 
Commodity - NGL —  2,288  —  2,288  —  2,288 
Commodity - Natural gas