Quarterly Report (10-q)

Date : 05/02/2019 @ 9:38PM
Source : Edgar (US Regulatory)
Stock : Laredo Petroleum, Inc. (LPI)
Quote : 2.98  0.0 (0.00%) @ 2:20PM

Quarterly Report (10-q)

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iso4217:USD utreg:MMBTU iso4217:USD xbrli:shares lpi:anniversary xbrli:shares xbrli:pure iso4217:USD utreg:bbl lpi:installment iso4217:USD utreg:Boe utreg:Boe utreg:MMBTU utreg:bbl

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
  ý       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the quarterly period ended March 31, 2019
  or
  o          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                                                                        (State or other jurisdiction of incorporation or organization)
45-3007926 (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
LPI
New York Stock Exchange ("NYSE")
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  ý   No  o
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  ý   No  o
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. (Check one): 
Large accelerated filer  ý
Accelerated filer  o
 
 
Non-accelerated filer  o
Smaller reporting company  o
 
 
Emerging growth company  o
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  ý  
Number of shares of registrant's common stock outstanding as of April 29, 2019 : 236,555,114



LAREDO PETROLEUM, INC.
TABLE OF CONTENTS
 
Page
 

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 volatility of oil, NGL and natural gas prices, including in our area of operation in the Permian Basin;
our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves;
changes in domestic and global production, supply and demand for oil, NGL and natural gas;
revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;
the long-term performance of wells that were completed using different technologies;
the ongoing instability and uncertainty in the United States and international 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;
the potential impact on production of oil, NGL and natural gas from our wells due to tighter spacing of our wells;
capital requirements for our operations and projects;
impacts to our financial statements as a result of impairment write-downs;
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 pipeline and transportation facilities and gathering and processing capacity;
our ability 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;
restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;
our ability to recruit and retain the qualified personnel necessary to operate our business;
the potentially insufficient refining capacity in the United States Gulf Coast to refine all of the light sweet crude oil being produced in the United States, which could result in widening price discounts to world crude 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 hedge and regulations that affect our ability to hedge;
changes in the regulatory environment and changes in United States or international legal, tax, political, administrative or economic conditions, including regulations that prohibit or restrict our

iii


ability to apply hydraulic fracturing to our oil and natural gas wells and to access and dispose of water used in these operations;
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
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" and elsewhere in this Quarterly Report, 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, 2018 (the " 2018 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)
 
 
March 31, 2019

December 31, 2018
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
44,544

 
$
45,151

Accounts receivable, net
 
107,520

 
94,321

Derivatives
 
7,610

 
39,835

Other current assets
 
13,056

 
13,445

Total current assets
 
172,730

 
192,752

Property and equipment:
 
 
 
 

Oil and natural gas properties, full cost method:
 
 
 
 

Evaluated properties
 
6,951,343

 
6,752,631

Unevaluated properties not being depleted
 
92,467

 
130,957

Less accumulated depletion and impairment
 
(4,913,384
)
 
(4,854,017
)
Oil and natural gas properties, net
 
2,130,426

 
2,029,571

Midstream service assets, net
 
131,118

 
130,245

Other fixed assets, net
 
39,098

 
39,819

Property and equipment, net
 
2,300,642

 
2,199,635

Derivatives
 
5,970

 
11,030

Operating lease right-of-use assets
 
19,035

 

Other noncurrent assets, net
 
16,412

 
16,888

Total assets
 
$
2,514,789

 
$
2,420,305

Liabilities and stockholders' equity
 
 
 
 

Current liabilities:
 
 
 
 

Accounts payable and accrued liabilities
 
$
76,644

 
$
69,504

Accrued capital expenditures
 
36,418

 
29,975

Undistributed revenue and royalties
 
51,730

 
48,841

Derivatives
 
11,057

 
7,359

Operating lease liabilities
 
10,896

 

Other current liabilities
 
16,877

 
44,786

Total current liabilities
 
203,622

 
200,465

Long-term debt, net
 
1,064,081

 
983,636

Derivatives
 
3,563

 

Asset retirement obligations
 
54,555

 
53,387

Operating lease liabilities
 
11,301

 

Other noncurrent liabilities
 
6,235

 
8,587

Total liabilities
 
1,343,357

 
1,246,075

Commitments and contingencies
 


 


Stockholders' equity:
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of March 31, 2019 and December 31, 2018
 

 

Common stock, $0.01 par value, 450,000,000 shares authorized and 239,191,487 and 233,936,358 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
 
2,392

 
2,339

Additional paid-in capital
 
2,381,926

 
2,375,286

Accumulated deficit
 
(1,212,886
)
 
(1,203,395
)
Total stockholders' equity
 
1,171,432

 
1,174,230

Total liabilities and stockholders' equity
 
$
2,514,789

 
$
2,420,305


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 March 31,
 
 
2019
 
2018
Revenues:






Oil sales

$
129,171


$
150,914

NGL sales
 
32,235

 
28,360

Natural gas sales
 
11,970

 
18,160

Midstream service revenues

2,883


2,359

Sales of purchased oil
 
32,688

 
59,903

Total revenues

208,947


259,696

Costs and expenses:

 
 
 
Lease operating expenses

22,609


21,951

Production and ad valorem taxes
 
7,219

 
11,812

Transportation and marketing expenses
 
4,759

 

Midstream service expenses
 
1,603

 
693

Costs of purchased oil
 
32,691

 
60,664

General and administrative

21,519


24,725

Depletion, depreciation and amortization

63,098


45,553

Other operating expenses
 
1,052

 
1,106

Total costs and expenses

154,550


166,504

Operating income

54,397


93,192

Non-operating income (expense):




 
Gain (loss) on derivatives, net

(48,365
)

9,010

Interest expense

(15,547
)

(13,518
)
Loss on disposal of assets, net
 
(939
)
 
(2,617
)
Other income, net

867


453

Non-operating expense, net

(63,984
)

(6,672
)
Income (loss) before income taxes

(9,587
)

86,520

Income tax benefit:




 
Deferred

96



Total income tax benefit

96



Net income (loss)

$
(9,491
)
 
$
86,520

Net income (loss) per common share:




 
Basic

$
(0.04
)

$
0.36

Diluted

$
(0.04
)
 
$
0.36

Weighted-average common shares outstanding:






Basic

230,476


238,228

Diluted

230,476


239,319

 
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, December 31, 2018
 
233,936

 
$
2,339

 
$
2,375,286

 

 
$

 
$
(1,203,395
)
 
$
1,174,230

Restricted stock awards
 
5,986

 
60

 
(60
)
 

 

 

 

Restricted stock forfeitures
 
(48
)
 

 

 

 

 

 

Stock exchanged for tax withholding
 

 

 

 
683

 
(2,612
)
 

 
(2,612
)
Stock exchanged for cost of exercise of stock options
 

 

 

 
18

 
(76
)
 

 
(76
)
Retirement of treasury stock
 
(701
)
 
(7
)
 
(2,681
)
 
(701
)
 
2,688

 

 

Exercise of stock options
 
18

 

 
76

 

 

 

 
76

Stock-based compensation
 

 

 
9,305

 

 

 

 
9,305

Net loss
 

 

 

 

 

 
(9,491
)
 
(9,491
)
Balance, March 31, 2019
 
239,191

 
$
2,392

 
$
2,381,926

 

 
$

 
$
(1,212,886
)
 
$
1,171,432

 
 
 
Common Stock
 
Additional
paid-in capital
 
Treasury Stock
(at cost)
 
Accumulated deficit
 
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
Total
Balance, December 31, 2017
 
242,521

 
$
2,425

 
$
2,432,262

 

 
$

 
$
(1,669,108
)
 
$
765,579

Adjustment to the beginning balance of accumulated deficit upon adoption of ASC 606 (see Note 13.a)
 

 

 

 

 

 
141,118

 
141,118

Restricted stock awards
 
3,052

 
30

 
(30
)
 

 

 

 

Restricted stock forfeitures
 
(13
)
 

 

 

 

 

 

Share repurchases
 

 

 

 
6,728

 
(58,475
)
 

 
(58,475
)
Stock exchanged for tax withholding
 

 

 

 
512

 
(4,353
)
 

 
(4,353
)
Retirement of treasury stock
 
(7,240
)
 
(72
)
 
(62,756
)
 
(7,240
)
 
62,828

 

 

Stock-based compensation
 

 

 
11,441

 

 

 

 
11,441

Net income
 

 

 

 

 

 
86,520

 
86,520

Balance, March 31, 2018
 
238,320

 
$
2,383

 
$
2,380,917

 

 
$

 
$
(1,441,470
)
 
$
941,830


The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


Laredo Petroleum, Inc.
Consolidated statements of cash flows
(in thousands)
(Unaudited)
 
 
Three months ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:

 


 

Net income (loss)

$
(9,491
)

$
86,520

Adjustments to reconcile net income (loss) to net cash provided by operating activities:






Deferred income tax benefit

(96
)


Depletion, depreciation and amortization

63,098


45,553

Non-cash stock-based compensation, net

7,406


9,339

Mark-to-market on derivatives:






(Gain) loss on derivatives, net

48,365


(9,010
)
Settlements received (paid) for matured derivatives, net

102


(2,236
)
Change in net present value of derivative deferred premiums

95


211

Premiums paid for derivatives

(4,016
)

(4,024
)
Amortization of debt issuance costs

846


793

Amortization of operating lease right-of-use assets
 
3,056

 

Other, net

3,779


4,304

(Increase) decrease in accounts receivable
 
(13,373
)
 
1,147

Increase in other current assets
 
(2,769
)
 
(2,483
)
Decrease (increase) in other noncurrent assets
 
57

 
(100
)
Increase in accounts payable and accrued liabilities
 
7,140

 
30,516

Increase in undistributed revenue and royalties
 
2,889

 
2,541

Decrease in other current liabilities
 
(30,637
)
 
(16,226
)
Increase (decrease) in other noncurrent liabilities
 
1,007

 
(374
)
Net cash provided by operating activities
 
77,458

 
146,471

Cash flows from investing activities:






Capital expenditures:






Oil and natural gas properties

(152,729
)

(195,025
)
Midstream service assets

(2,262
)

(3,362
)
Other fixed assets

(505
)

(3,963
)
Proceeds from disposition of equity method investee, net of selling costs
 

 
1,655

Proceeds from dispositions of capital assets, net of selling costs

43


1,021

Net cash used in investing activities

(155,453
)

(199,674
)
Cash flows from financing activities:






Borrowings on Senior Secured Credit Facility

80,000


55,000

Share repurchases
 

 
(53,714
)
Stock exchanged for tax withholding

(2,612
)

(4,353
)
Net cash provided by (used in) financing activities

77,388


(3,067
)
Net decrease in cash and cash equivalents

(607
)

(56,270
)
Cash and cash equivalents, beginning of period

45,151


112,159

Cash and cash equivalents, end of period

$
44,544


$
55,889

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

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, and midstream and marketing services, primarily in the Permian Basin of West Texas . LMS and GCM (together, the "Guarantors") guarantee all of Laredo's debt instruments. 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, 2018 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 March 31, 2019 and results of operations and cash flows for each of the three months ended March 31, 2019 and 2018 .
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 2018 Annual Report.
Significant accounting policies
See Note 2 in the 2018 Annual Report for discussion of significant accounting policies and Note 3 for those related to the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 842, Leases ("ASC 842").
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 2018 Annual Report, Note 3 pertaining to the Company's leases and Note  6.c pertaining to the Company's 2019 performance unit awards.
Note 2—Recently issued or adopted accounting pronouncements
The Company considers the applicability and impact of all accounting standard updates ("ASU") issued by the FASB. The discussion of the ASU listed below was determined to be meaningful to the Company's unaudited consolidated financial statements and footnotes during the three months ended March 31, 2019 .    
a.    Leases
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach and applying the optional transition method as of the beginning of the period of adoption. Results for the period beginning after January 1, 2019 are presented under ASC 842, while prior periods are not adjusted and continue to be reported under ASC 840. The Company utilized the transition package of expedients to leases that commenced before the effective date. ASC 842 supersedes previous lease guidance in ASC 840, Leases ("ASC 840"). The core principle of the new guidance is that a lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term related to its leases. For leases with a term of 12 months or less, a lessee is permitted to make

5

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


an accounting policy election, by class of underlying asset, not to recognize lease assets and lease liabilities. See Note 3 for further discussion of the ASC 842 adoption impact on the Company's unaudited consolidated financial statements.
Note 3 —Leases
a.      Impact of ASC 842 adoption
Prior to January 1, 2019, the Company accounted for leases under ASC 840 and did not record any right-of-use assets or corresponding lease liabilities. Upon the adoption of ASC 842 on January 1, 2019, the Company recognized $22.1 million in operating lease right-of-use assets and $25.3 million in operating lease liabilities on the unaudited consolidated balance sheets for operating leases with a term greater than 12 months. The difference between the two balances of $3.2 million is mainly due to free rent and lease build-out incentives that were recorded as deferred lease liabilities under ASC 840. These deferred lease liabilities are subtracted from the right-of-use asset opening balance under ASC 842. The transition did not result in a material impact to the unaudited consolidated statements of operations nor was there a related impact to the unaudited consolidated statements of stockholders' equity.
The Company utilized the modified retrospective approach in adopting the new standard and applied the optional transition method as of the beginning of the period of adoption, along with the transition package of practical expedients, and implemented certain accounting policy decisions which include: (i) short-term lease recognition exemption, (ii) establishing a balance sheet recognition capitalization threshold, (iii) not evaluating existing or expired land easements that were not previously accounted for as leases under ASC 840 and (iv) accounting for certain asset classes at a portfolio level by not separating the lease and non-lease components and accounting for the agreement as a single lease component.
The Company determines whether a contract is or contains a lease at inception of the contract, based on answers to a series of questions that address whether an identified asset exists and whether the Company has the right to obtain substantially all of the benefit of the asset and to control its use over the full term of the agreement. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company's leases do not provide a readily determinable implicit rate, In such cases, the Company is required to use its incremental borrowing rate ("IBR"). The Company determines its IBR using both a "credit notching" approach and a "recovery method" approach. The results of these approaches are then weighted equally and averaged in order to determine the concluded IBR. This concluded IBR is utilized to discount the lease payments based on information available at lease commencement. There are no material residual value guarantees, nor any restrictions or covenants included in the Company's lease agreements.
Mineral leases, including oil and natural gas leases granting the right to explore for those natural resources and rights to use the land in which those natural resources are contained, are not included in the scope of ASC 842.
The Company has recognized in the unaudited consolidated balance sheets leases of commercial real estate with lease terms extending through 2027 and drilling, completion, production and other equipment leases with lease terms extending through 2020. We have various other drilling, completion and production equipment leases on a short-term basis reflected in our short-term lease costs.
Certain of the Company's leases include provisions for variable payments. These variable payments are typically determined based on a measure of throughput, actual days or another measure of usage and are not included in the calculation of lease liabilities and right-of-use assets. For our drilling rigs, the variable lease costs include the payments that depend on the performance or usage of the underlying asset, the costs to move and the costs to repair the drilling rigs. For certain of our commercial office buildings, utilities and common area maintenance charges are variable and are included as an operating lease expense. For our equipment leases, the variable lease cost is the amount incurred under our contracts that are beyond the minimum rental fee, inclusive of maintenance.
The Company's short-term lease costs include those that are recognized in net income (loss) during the period and capitalized as part of the cost of another asset in accordance with other GAAP. The costs related to drilling, completion 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 March 31, 2019, the Company had an average working interest of 97% in all Laredo-operated currently producing wells in its core operating area.
The Company does not have any significant finance leases.
Certain of the Company's lease asset classes include options to renew on a month-to-month basis. The Company considers contract-based, asset-based, market-based, and entity-based factors to determine the term over which it is reasonably certain to extend the lease in determining its right-of-use assets and liabilities.

6

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


The Company's material leases do not include options to purchase the leased property.
Of the Company's commercial leases, the Company subleases certain office space to third parties where it is the primary obligor under the head lease. The lease terms on those subleases each contain renewal options that do not extend past the term of the head lease. The subleases do not contain residual value guarantees. Sublease income is recognized based on the contract terms and, upon the adoption of ASC 842, is included as a reduction of lease expense under our head lease.
Lease costs
The table below presents certain information related to the lease costs for the Company's operating leases for the period presented:
(in thousands)
 
Three months ended March 31, 2019
Components of total lease cost:
 
 
Operating lease cost
 
$
3,528

Short-term lease cost
 
46,326

Variable lease cost
 
518

Sublease income
 
(247
)
Total lease cost
 
$
50,125


Other information
See Note 11 for disclosure of cash paid for amounts included in the measurement of lease liabilities and supplemental non-cash adjustments. See Note 15 for disclosure of related-party lease amounts.
Lease terms and discount rates
The table below presents certain information related to the weighted-average remaining lease term and weighted-average discount rate for the Company's operating leases as of the date presented:
 
 
March 31, 2019
Operating leases:
 
 
Weighted-average remaining lease term
 
4.00 years

Weighted-average discount rate
 
8.28
%


7

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


Maturities of operating lease liabilities
The table below reconciles the undiscounted cash flows for each of the first five years and the total remaining years to the operating lease liabilities recorded on the unaudited consolidated balance sheet as of the date presented:
(in thousands)
 
March 31, 2019
Operating leases:
 
 
Remaining 2019
 
$
12,260

2020
 
3,331

2021
 
3,029

2022
 
2,360

2023
 
1,252

Thereafter
 
4,243

Total minimum lease payments
 
26,475

Less: lease liability expense
 
(4,278
)
Present value of future minimum lease payments
 
22,197

Less: current obligations under leases
 
(10,896
)
Long-term lease obligations
 
$
11,301


Disclosure for the period prior to adoption of ASC 842    
The Company leases office space under operating leases expiring on various dates through 2027. The following table presents future minimum rental payments required:
(in thousands)
 
December 31, 2018
2019
 
$
3,092

2020
 
3,179

2021
 
3,128

2022
 
2,560

2023
 
1,358

Thereafter
 
4,556

  Total future minimum rental payments required
 
$
17,873


The Company subleases office space with $5.9 million of total future minimum rentals to be received as of December 31, 2018. For the period prior to the adoption of ASC 842, rent income is included in "Other income, net" on the unaudited consolidated statements of operations.

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)
 
March 31, 2019
 
December 31, 2018
Evaluated oil and natural gas properties
 
$
6,951,343

 
$
6,752,631

Less accumulated depletion and impairment
 
(4,913,384
)
 
(4,854,017
)
Evaluated oil and natural gas properties, net
 
2,037,959

 
1,898,614

 
 
 
 
 
Unevaluated oil and natural gas properties not being depleted
 
92,467

 
130,957

 
 
 
 
 
Midstream service assets
 
175,681

 
172,308

Less accumulated depreciation and impairment
 
(44,563
)
 
(42,063
)
Midstream service assets, net
 
131,118

 
130,245

 
 
 
 
 
Depreciable other fixed assets
 
45,591

 
45,431

Less accumulated depreciation and amortization
 
(24,752
)
 
(23,871
)
Depreciable other fixed assets, net
 
20,839

 
21,560

 
 
 
 
 
Land
 
18,259

 
18,259

 
 
 
 
 
Total property and equipment, net
 
$
2,300,642

 
$
2,199,635


For the three months ended March 31, 2019 and 2018 , depletion expense for the Company's evaluated oil and natural gas properties was $8.76 per barrel of oil equivalent ("BOE") sold and $7.34 per BOE sold, respectively.
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 related employee costs incurred for the purpose of exploring for or developing oil and natural gas properties, are capitalized and depleted on a composite unit-of-production method based on proved oil, NGL and natural gas reserves. Such amounts 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 related employee costs, associated with production and general corporate activities are expensed in the period incurred. 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.
The following table presents capitalized related employee costs incurred for the purpose of exploring for or developing oil and natural gas properties for the periods presented:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Capitalized related employee costs
 
$
6,682

 
$
6,529


The Company excludes the costs directly associated with the acquisition and evaluation of unevaluated properties 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. Capitalized interest becomes a part of the cost of the unevaluated properties and is 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 evaluated 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.
    

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 development costs, for the periods presented:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Property acquisition costs:
 
 

 
 

Evaluated
 
$

 
$

Unevaluated
 

 

Exploration costs
 
7,505

 
6,137

Development costs
 
152,717

 
149,038

Total costs incurred
 
$
160,222

 
$
155,175


Note 5—Debt
a.     March 2023 Notes
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 will mature on March 15, 2023 and bear 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 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"). The Company may redeem, at its option, all or part of the March 2023 Notes at any time at a price of 103.125% of face value with call premiums declining annually to 100% of face value on March 15, 2021 and thereafter plus accrued and unpaid interest to, but not including, the date of redemption.
b.      January 2022 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 will mature on January 15, 2022 and bear 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 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 Releases. The Company may redeem, at its option, all or part of the January 2022 Notes at any time at a price of 101.406% of face value with call premiums declining to 100% of face value on January 15, 2020 and thereafter plus accrued and unpaid interest to, but not including, the date of redemption.
c.      Senior Secured Credit Facility
The Senior Secured Credit Facility matures on April 19, 2023, provided that if either the January 2022 Notes or March 2023 Notes have not been refinanced on or prior to the date (as applicable, the "Early Maturity Date") that is 90 days before their respective stated maturity dates, the Senior Secured Credit Facility will mature on such Early Maturity Date. As of March 31, 2019 , the Senior Secured Credit Facility had a maximum credit amount of $2.0 billion , a borrowing base of $1.3 billion and an aggregate elected commitment of $1.2 billion , with $270.0 million outstanding and was subject to an interest rate of 3.75% . 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 March 31, 2019 and December 31, 2018 , the Company had one letter of credit outstanding of $14.7 million under the Senior Secured Credit Facility. For additional information see Note 7.d in the 2018 Annual Report. See Note 17.a for discussion of the regular semi-annual borrowing base redetermination of the Senior Secured Credit Facility subsequent to March 31, 2019 .

10

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


d.      Long-term debt, net
The following table summarizes the net presentation of the Company's long-term debt and debt issuance costs on the unaudited consolidated balance sheets as of the dates presented:
 
 
March 31, 2019
 
December 31, 2018
(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
 
$
450,000

 
$
(2,766
)
 
$
447,234

 
$
450,000

 
$
(3,010
)
 
$
446,990

March 2023 Notes
 
350,000

 
(3,153
)
 
346,847

 
350,000

 
(3,354
)
 
346,646

Senior Secured Credit Facility (1)
 
270,000

 

 
270,000

 
190,000

 

 
190,000

Total
 
$
1,070,000

 
$
(5,919
)
 
$
1,064,081

 
$
990,000

 
$
(6,364
)
 
$
983,636

______________________________________________________________________________
(1)
Debt issuance costs, net related to our Senior Secured Credit Facility of $6.6 million and $7.0 million as of March 31, 2019 and December 31, 2018 , respectively, are reported in "Other noncurrent assets, net" on the unaudited consolidated balance sheets.
Note 6—Stockholders' equity and Equity Incentive Plan
a.     Share repurchase program
In February 2018, the Company's board of directors authorized a $ 200 million share repurchase program commencing in February 2018. The repurchase program expires in February 2020. Share repurchases under the share repurchase program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions and block trades. The timing and actual number of share repurchases will depend upon several factors, including market conditions, business conditions, the trading price of the Company's common stock and the nature of other investment opportunities available to the Company. During the year ended December 31, 2018, the Company repurchased 11,048,742 shares of common stock at a weighted-average price of $8.78 per common share for a total of $97.1 million under this program. All shares were retired upon repurchase. There were no share repurchases under this program during the three months ended March 31, 2019.
b.   Treasury stock
Treasury stock is recorded at cost, which includes incremental direct transaction costs, and is retired upon acquisition as a result (i) from share repurchases under the share repurchase program, (ii) from the withholding of shares of stock to satisfy tax withholding obligations that arise upon the lapse of restrictions on restricted stock awards and the exercise of stock options at the awardee's election and (iii) share repurchases to cover the cost of the exercise of stock options at the awardee's election.
c.   Equity Incentive Plan
The Laredo Petroleum, Inc. Omnibus 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, performance unit awards and other awards. The Equity Incentive Plan provides for the issuance of up to 24,350,000 shares of Laredo's common stock. On March 20, 2019, the Company's compensation committee recommended, and the Company's board of directors adopted, subject to stockholder approval, an amendment (the "Second Amendment") to the Equity Incentive Plan to, among other things, increase the number of shares of common stock available for issuance under the Equity Incentive Plan by 5,500,000 shares, which would bring the total available shares to issue to 29,850,000 . The Company is seeking stockholder approval of the Second Amendment at its 2019 Annual Meeting of Stockholders on May 16, 2019.
The Company recognizes the fair value of stock-based compensation awards and performance unit awards, expected to vest over the requisite service period, as a charge against earnings, net of amounts capitalized. The Company's stock-based compensation awards are accounted for as equity awards and are included in "General and administrative" on the unaudited consolidated statements of operations. The Company's performance unit awards are accounted for as liability awards and are included in "General and administrative" on the unaudited consolidated statements of operations and the corresponding liabilities are included in "Other noncurrent liabilities" on the unaudited consolidated balance sheets. The Company capitalizes a portion of stock-based compensation and performance unit award 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 stock-based compensation and performance unit award compensation is included in "Evaluated properties" on the unaudited consolidated balance sheets.

11

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


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 an employee terminates employment prior to the restriction lapse date for reasons other than death or disability, the awarded shares are forfeited and canceled and are no longer considered issued and outstanding. If the employee's 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 officers and employees vest in a variety of vesting schedules that mainly include (i) 33% , 33% and 34% per year beginning on the first anniversary of the grant date and (ii) fully on the first anniversary of the grant date. Stock awards granted to non-employee directors vest immediately on the grant date.
The following table reflects the restricted stock award activity for the three months ended March 31, 2019 :
(in thousands, except for weighted-average grant-date fair value)
 
Restricted
stock
awards
 
Weighted-average
grant-date fair value
(per award)
Outstanding as of December 31, 2018
 
4,196

 
$
9.91

Granted
 
5,986

 
$
3.43

Forfeited
 
(48
)
 
$
6.25

Vested (1)
 
(2,261
)
 
$
10.05

Outstanding as of March 31, 2019
 
7,873

 
$
4.96

_____________________________________________________________________________
(1)
The total intrinsic value of vested restricted stock awards for the three months ended March 31, 2019 was $8.6 million .
The Company utilizes the closing stock price on the grant date to determine the fair value of restricted stock awards. As of March 31, 2019 , unrecognized stock-based compensation related to the restricted stock awards expected to vest was $34.3 million . Such cost is expected to be recognized over a weighted-average period of 2.34 years .
Stock option awards
Stock option awards granted under the Equity Incentive Plan vest and become exercisable in four equal installments on each of the four anniversaries of the grant date. As of March 31, 2019 , the 2,466,022 outstanding stock option awards have a weighted-average exercise price of $ 12.64 per award and a weighted-average remaining contractual term of 3.05 years . There were de minimis exercises and expirations or cancellations of stock option awards during the three months ended March 31, 2019 . There were no grants or forfeits of stock option awards during the three months ended March 31, 2019 .
The Company utilizes the Black-Scholes option pricing model to determine the fair value of stock option awards and recognizes the associated expense on a straight-line basis over the four -year requisite service period of the awards. Determining the fair value of equity-based awards requires judgment, including estimating the expected term that stock option awards will be outstanding prior to exercise and the associated expected volatility. As of March 31, 2019 , unrecognized stock-based compensation related to stock option awards expected to vest was $3.0 million . Such cost is expected to be recognized over a weighted-average period of 1.35 years .
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 awards with market criteria or portions of awards with market criteria, which include: (i) the relative three-year total shareholder return comparing the Company's shareholder return to the shareholder return of the peer group specified in the award agreement ("RTSR Performance Percentage"), (ii) the Company's absolute three-year total shareholder return ("ATSR Appreciation") and (iii) the Company's total shareholder return ("TSR"), a Monte Carlo simulation prepared by an independent third party is utilized to determine the grant-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 grant-date fair value is equal to the Company's closing stock price on the grant date, and for each reporting period, the associated expense fluctuates and is adjusted based on an estimated probability of how many shares are to be awarded for the three -year performance period. Such estimated shares, if earned, are expected to be issued in the first quarter following the completion of the requisite service period based on the achievement of certain market and performance criteria.    
    

12

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


The following table reflects the performance share award activity for the three months ended March 31, 2019:
(in thousands, except for weighted-average grant-date fair value)
 
Performance
share
awards
 
Weighted-average
grant-date fair value
(per award)
Outstanding as of December 31, 2018
 
3,436

 
$
13.74

Vested (1)
 
(1,503
)
 
$
17.68

Outstanding as of March 31, 2019
 
1,933

 
$
10.68

______________________________________________________________________________
(1)
The performance share awards granted on May 25, 2016 had a performance period of January 1, 2016 to December 31, 2018 and, as their market criteria were not satisfied, resulted in a TSR modifier of 0 % based on the Company finishing in the ninth 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 first quarter of 2019.
As of March 31, 2019 , unrecognized stock-based compensation related to the performance share awards expected to vest was $9.1 million . Such cost is expected to be recognized over a weighted-average period of 1.56 years .
Stock-based compensation expense
The following has been recorded to stock-based compensation expense for the periods presented:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Restricted stock award compensation
 
$
5,323

 
$
6,045

Stock option award compensation
 
818

 
1,069

Performance share award compensation
 
3,164

 
4,327

Total stock-based compensation, gross
 
9,305

 
11,441

Less amounts capitalized in evaluated oil and natural gas properties
 
(1,899
)
 
(2,102
)
Total stock-based compensation, net
 
$
7,406

 
$
9,339


See Note 17.d for discussion of the Company's workforce reduction subsequent to March 31, 2019 .
Performance unit awards
Performance unit awards, which the Company has determined are liability awards, are subject to a combination of market, performance and service vesting criteria and can be settled in cash, stock or a combination of cash and stock at the election of the Company's board of directors. For portions of awards with market criteria, which include the RTSR Performance Percentage (as defined above) and the ATSR Appreciation (as defined above), a Monte Carlo simulation prepared by an independent third party is utilized to determine the grant-date fair value and is re-measured on the last day of each reporting period until settlement, with the associated expense adjusted, in accordance with GAAP. For portions of awards with performance criteria, which is the ROACE Percentage (as defined above), the grant-date fair value is equal to the Company's closing stock price on the grant date, and subsequently the fair value is equal to the Company's closing stock price on the last day of each reporting period until settlement, with the associated expense adjusted, in accordance with GAAP. Additionally, the associated expense related to awards with performance criteria fluctuates and is adjusted based on an estimated probability of payout that will be awarded for the three -year performance period as of the last day of each reporting period until settlement. The performance unit award compensation expense is recognized on a straight-line basis over the three -year requisite service period of the awards. These awards are accounted for as liability awards as the current election by the Company's board of directors is to settle the awards in cash, and if earned, are expected to be paid in the first quarter following the completion of the requisite service period, based on the achievement of certain market and performance criteria.
    

13

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


The following table reflects the performance unit award activity for the three months ended March 31, 2019 :
(in thousands)
 
Performance unit awards
Outstanding as of December 31, 2018
 

Granted (1)
 
2,813

Outstanding as of March 31, 2019
 
2,813

______________________________________________________________________________
(1)
The amount potentially payable in cash at the end of the requisite service period for the performance unit awards granted on February 28, 2019 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 granted at the maturity date. In computing the Performance Multiple, the RTSR Factor is given a 25% weight, the ATSR Factor a 25% weight and the ROACE Factor a 50% weight. These awards have a performance period of January 1, 2019 to December 31, 2021.
As of March 31, 2019 , unrecognized performance unit award compensation related to the performance unit awards expected to vest was $8.2 million . Such cost is expected to be recognized over a weighted-average period of 2.92 years.
The assumptions used to estimate the fair value of the performance unit awards as of the date presented are as follows:
 
 
March 31, 2019 (1)
(.25) RTSR Factor + (.25) ATSR Factor fair value assumptions:
 
 
Remaining performance period
 
2.76 years

Risk-free interest rate (2)
 
2.20
%
Dividend yield
 
%
Expected volatility (3)
 
55.13
%
Closing stock price on March 29, 2019
 
$
3.09

Fair value per performance unit award (market criteria)
 
$
3.18

 
 
 
(.50) ROACE Factor fair value assumption:
 
 
Closing stock price on March 29, 2019
 
$
3.09

Fair value per performance unit award (performance criteria)
 
$
3.09

 
 
 
Combined fair value per performance unit award
 
$
3.14

______________________________________________________________________________
(1)
The $3.14 per unit fair value consists of a (i) $3.18 per unit fair value, determined utilizing a Monte Carlo simulation on March 31, 2019 , for the combined (.25) RTSR Factor and (.25) ATSR Factor and (ii) $3.09 per unit fair value for the (.50) ROACE Factor determined based on the closing price of the Company's common stock on the New York Stock Exchange on March 29, 2019 and based on a 100% estimated probability of payout to be awarded for the three-year performance period as of March 31, 2019 .
(2)
The risk-free interest rate was derived using a term-matched zero-coupon yield derived from the U.S. Treasury constant maturities yield curve on March 29, 2019.
(3)
The Company utilized its own historical volatility in order to develop the expected volatility.




14

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


Performance unit award compensation expense
The following has been recorded to performance unit award compensation expense for the periods presented:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Performance unit award compensation, gross
 
$
238

 
$

Less amounts capitalized in evaluated oil and natural gas properties
 
(46
)
 

Total performance unit award compensation, net
 
$
192

 
$


Note 7—Derivatives
Due to the inherent volatility in oil, NGL and natural gas prices, commodity transportation costs 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 derivative transactions, such as puts, swaps, collars and basis swaps to hedge price risk associated with a portion of the Company's anticipated production. By removing a portion of the price volatility associated with future production, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See Notes 2.f and 9 in the  2018  Annual Report for discussion of the Company's accounting policies for derivatives and information on the transaction types and settlement indexes, respectively.





15

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


The following table summarizes open derivative positions as of March 31, 2019, for derivatives that were entered into through March 31, 2019, for the settlement periods presented:
 
 
Remaining year 2019
 
Year 2020
 
Year 2021
Oil:
 
 
 
 

 
 
Puts:
 
 

 
 

 
 
Volume (Bbl)
 
6,050,000

 
366,000

 

Weighted-average floor price ($/Bbl)
 
$
47.45

 
$
45.00

 
$

Volume with deferred premium (Bbl)
 
3,575,000

 

 

Weighted-average deferred premium price ($/Bbl)
 
$
3.21

 
$

 
$

Swaps:
 
 

 
 

 
 
Volume (Bbl)
 
495,000

 
695,400

 

Weighted-average price ($/Bbl)
 
$
53.45

 
$
52.18

 
$

Collars:
 
 

 
 

 
 
Volume (Bbl)
 

 
1,134,600

 
912,500

Weighted-average floor price ($/Bbl)
 
$

 
$
45.00

 
$
45.00

Weighted-average ceiling price ($/Bbl)
 
$

 
$
76.13

 
$
71.00

Totals:
 
 
 
 
 
 
Total volume with floor price (Bbl)
 
6,545,000

 
2,196,000

 
912,500

Weighted-average floor price ($/Bbl)
 
$
47.91

 
$
47.27

 
$
45.00

Total volume with ceiling price (Bbl)
 
495,000

 
1,830,000

 
912,500

Weighted-average ceiling price ($/Bbl)
 
$
53.45

 
$
67.03

 
$
71.00

Basis Swaps:
 
 
 
 
 
 
WTI Midland to WTI NYMEX:
 
 
 
 
 
 
Volume (Bbl)
 
1,840,000

 

 

Weighted-average price ($/Bbl)
 
$
(2.89
)
 
$

 
$

WTI Midland to WTI formula basis:
 
 
 
 
 
 
Volume (Bbl)
 
552,000

 

 

Weighted-average price ($/Bbl)
 
$
(4.37
)
 
$

 
$

WTI Houston to WTI Midland:
 
 
 
 
 
 
Volume (Bbl)
 
910,000

 

 

Weighted-average price ($/Bbl)
 
$
7.30

 
$

 
$

NGL:
 
 
 
 
 
 
Swaps - Purity Ethane:
 
 
 
 
 
 
Volume (Bbl)
 
1,787,500

 
366,000

 
912,500

Weighted-average price ($/Bbl)
 
$
14.22

 
$
13.60

 
$
12.01

Swaps - Non-TET Propane:
 
 
 
 
 
 
Volume (Bbl)
 
1,430,000

 
1,244,400

 
730,000

Weighted-average price ($/Bbl)
 
$
27.97

 
$
26.58

 
$
25.52

Swaps - Non-TET Normal Butane:
 
 
 
 
 
 
Volume (Bbl)
 
550,000

 
439,200

 
255,500

Weighted-average price ($/Bbl)
 
$
30.73

 
$
28.69

 
$
27.72

Swaps - Non-TET Isobutane:
 
 
 
 
 
 
Volume (Bbl)
 
137,500

 
109,800

 
67,525

Weighted-average price ($/Bbl)
 
$
31.08

 
$
29.99

 
$
28.79

Swaps - Non-TET Natural Gasoline:
 
 
 
 
 
 
Volume (Bbl)
 
467,500

 
402,600

 
237,250

Weighted-average price ($/Bbl)
 
$
45.80

 
$
45.15

 
$
44.31

TABLE CONTINUES ON NEXT PAGE
 
 
 
 
 
 


16

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


 
 
Remaining year 2019
 
Year 2020
 
Year 2021
Total NGL volume (Bbl)
 
4,372,500

 
2,562,000

 
2,202,775

Natural gas:
 
 

 
 

 
 
Henry Hub NYMEX Swaps:
 
 

 
 

 
 
Volume (MMBtu)
 
29,425,000

 
23,790,000

 
14,052,500

Weighted-average price ($/MMBtu)
 
$
3.09

 
$
2.72

 
$
2.63

Basis Swaps:
 
 

 
 

 
 
Volume (MMBtu)
 
29,425,000

 
32,574,000

 
23,360,000

Weighted-average price ($/MMBtu)
 
$
(1.51
)
 
$
(0.76
)
 
$
(0.47
)

See Note 8.a for the fair value measurement of derivatives. See Note 17.c for the Company's subsequent hedge restructuring and corresponding summary of open derivative positions as of March 31, 2019 for derivative terminations and trade activity through May 1, 2019 .

17

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


Note 8—Fair value measurements
See Note 10 in the  2018  Annual Report for discussion of the Company's accounting policies for fair value measurements.
a.      Fair value measurement on a recurring basis
The following tables summarize the Company's derivatives' fair value hierarchy by commodity and current and noncurrent assets and liabilities on a gross basis and the net presentation included in "Derivatives" on the unaudited consolidated balance sheets as of the dates presented:
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total gross fair value
 
Amounts offset
 
Net fair value presented on the unaudited consolidated balance sheets
As of March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Oil derivatives
 
$

 
$
4,911

 
$

 
$
4,911

 
$
(5,242
)
 
$
(331
)
NGL derivatives
 

 
7,541

 

 
7,541

 
(6,210
)
 
1,331

Natural gas derivatives
 

 
19,694

 

 
19,694

 
(5,943
)
 
13,751

Oil derivative deferred premiums
 

 

 

 

 
(7,141
)
 
(7,141
)
Noncurrent:
 
 
 
 
 
 
 
 
 
 
 
 
Oil derivatives
 
$

 
$
2,432

 
$

 
$
2,432

 
$
(646
)
 
$
1,786

NGL derivatives
 

 
2,518

 

 
2,518

 
(1,506
)
 
1,012

Natural gas derivatives
 

 
3,446

 

 
3,446

 
(274
)
 
3,172

Oil derivative deferred premiums
 

 

 

 

 

 

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Oil derivatives
 
$

 
$
(11,996
)
 
$

 
$
(11,996
)
 
$
5,242

 
$
(6,754
)
NGL derivatives
 

 
(5,871
)
 

 
(5,871
)
 
6,210

 
339

Natural gas derivatives
 

 
(5,082
)
 

 
(5,082
)
 
5,943

 
861

Oil derivative deferred premiums
 

 

 
(12,644
)
 
(12,644
)
 
7,141

 
(5,503
)
Noncurrent:
 
 
 
 
 
 
 
 
 
 
 
 
Oil derivatives
 
$

 
$
(2,991
)
 
$

 
$
(2,991
)
 
$
646

 
$
(2,345
)
NGL derivatives
 

 
(3,916
)
 

 
(3,916
)
 
1,506

 
(2,410
)
Natural gas derivatives
 

 
918

 

 
918

 
274

 
1,192

Oil derivative deferred premiums
 

 

 

 

 

 

Net derivative asset (liability) positions
 
$

 
$
11,604

 
$
(12,644
)
 
$
(1,040
)
 
$

 
$
(1,040
)

18

Laredo Petroleum, Inc.
 
Condensed notes to the consolidated financial statements
(Unaudited)


(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total gross fair value
 
Amounts offset
 
Net fair value presented on the unaudited consolidated balance sheets
As of December 31, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
 
 
 
 
 
Oil derivatives
 
$