Laredo Petroleum, Inc. (NYSE: LPI) ("Laredo" or the "Company")
today announced the signing of a purchase and sale agreement to
acquire the assets of Sabalo Energy, LLC ("Sabalo"), a portfolio
company of EnCap Investments L.P. ("EnCap"), and a non-operating
partner for approximately $715 million, subject to customary
closing price adjustments, comprised of $625 million in cash and
approximately 2.5 million shares of Laredo common equity.
Additionally, the Company announced the sale of 37.5% of its
operated proved developed producing ("PDP") reserves in its legacy
leasehold in Reagan and Glasscock counties ("Legacy") to an
affiliate of Sixth Street Partners, LLC ("Sixth Street") for
proceeds of $405 million and additional potential cash-flow based
earn-out payments over the next six years. None of the PDP reserves
are located in Howard or Western Glasscock counties. Both
transactions are expected to close July 1, 2021.
"The transformational impact for Laredo of the
combined transactions is significant," stated Jason Pigott,
President and Chief Executive Officer. "Upon closing, we will be
positioned for sustainable Free Cash Flow1 generation and
significant deleveraging, have more than 30,000 highly productive,
contiguous net acres in Howard County and a near-term pathway to
increasing our oil cut to more than 50% from the current 30%. The
value derived from employing our efficient, low-cost operations in
Howard County has already been established on our current leasehold
and we expect to perform equally well on this new acreage.
Additionally, we will be applying our ESG best practices to the
development of this acreage, maintaining our prior commitments to
reducing greenhouse gas intensity, methane emissions and
eliminating routine flaring."
Financial Highlights:
- Combined transactions expected to be accretive to long-term
Free Cash Flow1 and Adjusted EBITDA1 per share
- Transforms the cash generation profile of the Company, expected
to drive total Free Cash Flow1 through FY-25 of >$700 million at
current strip prices
- Anticipated deleveraging beginning in second half of 2021, with
Net Debt/TTM Adjusted EBITDA1 approaching 1.5x by YE-22 and 1.0x by
YE-25
- Enables mid-single digit annualized oil production growth at
50%-70% reinvestment rate through FY-25
- Company oil cut expected to rise to 50% of total production by
YE-21, increasing margins per barrel of oil equivalent ("BOE")
Acquisition Highlights:
- ~21,000 contiguous net acres (86% operated, 100% held by
production) directly offsetting Laredo's existing Howard County
leasehold
- ~120 operated oil-weighted locations (91% WI) and ~150
non-operated locations (12% WI)
- 83% of locations are capital efficient long laterals of 10,000
feet or greater
- Currently producing ~14,500 BOE per day (83% oil, three stream)
of low-decline production with an estimated next 12-month oil
decline of 35%
- PDP reserves of approximately 30 million BOE (73% oil, three
stream)
- Ideally situated for Laredo's efficient, low-cost operating
structure
- Development and spacing assumptions of 12 wells per drilling
spacing unit
"This transaction complements Laredo’s existing
asset base and strategy and accelerates the Company’s
transformation to becoming a leading independent operator in the
Midland Basin," commented Doug Swanson, Managing Partner of EnCap.
"Laredo is well positioned to maximize value from the Sabalo assets
and we view this transaction as compelling for Laredo shareholders,
including EnCap, as part of this transaction."
Divestiture Highlights:
- Proceeds of $405 million from Sixth Street for the sale of
37.5% of Laredo's working interest in operated PDP reserves in
gas-weighted Legacy assets, which does not include the Western
Glasscock acreage acquired in late 2019
- Divested reserves of approximately 94 million BOE (18% oil)
with associated production of approximately 25,000 BOE per day (23%
oil), at closing
- Wellbore working interest only, Laredo retains all undeveloped
locations
Acquisition Financing
Details:
- Funded through the partial sale of Legacy PDP reserves,
borrowings on the Company's Senior Secured Credit Facility and the
issuance of approximately 2.5 million common shares to EnCap
- Senior Secured Credit Facility borrowing base reaffirmed at
$725 million
1Non-GAAP financial measure; please see
definitions of non-GAAP financial measures at the end of this
release.
Citigroup and Houlihan Lokey provided advisory
services on the Sabalo acquisition and Houlihan Lokey acted as
financial advisor on the PDP sale to Sixth Street. Akin Gump and
Willkie Farr & Gallagher served as Laredo’s legal advisors.
Jefferies acted as exclusive financial advisor to Sabalo and
Bracewell served as Sabalo's legal advisor. White & Case acted
as legal advisor to Sixth Street.
About Laredo
Laredo Petroleum, Inc. is an independent energy
company with headquarters in Tulsa, Oklahoma. Laredo's business
strategy is focused on the acquisition, exploration and development
of oil and natural gas properties, primarily in the Permian Basin
of West Texas.
Additional information about Laredo may be found
on its website at www.laredopetro.com.
Forward-Looking Statements This
press release and any oral statements made regarding the contents
of this release contain forward-looking statements as defined under
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, that address
activities that Laredo assumes, plans, expects, believes, intends,
projects, indicates, enables, transforms, estimates or anticipates
(and other similar expressions) will, should or may occur in the
future are forward-looking statements. The forward-looking
statements are based on management’s current belief, based on
currently available information, as to the outcome and timing of
future events. General risks relating to Laredo include, but are
not limited to, the decline in prices of oil, natural gas liquids
and natural gas and the related impact to financial statements as a
result of asset impairments and revisions to reserve estimates, oil
production quotas or other actions that might be imposed by the
Organization of Petroleum Exporting Countries and other producing
countries ("OPEC+"), the outbreak of disease, such as the
coronavirus ("COVID-19") pandemic, and any related government
policies and actions, changes in domestic and global production,
supply and demand for commodities, including as a result of the
COVID-19 pandemic and actions by OPEC+, long-term performance of
wells, drilling and operating risks, the increase in service and
supply costs, tariffs on steel, pipeline transportation and storage
constraints in the Permian Basin, the possibility of production
curtailment, hedging activities, the impacts of severe weather,
including the freezing of wells and pipelines in the Permian Basin
due to cold weather, possible impacts of litigation and
regulations, the impact of the Company's transactions, if any, with
its securities from time to time, the impact of new laws and
regulations, including those regarding the use of hydraulic
fracturing, the impact of new environmental, health and safety
requirements applicable to the Company's business activities, the
possibility of the elimination of federal income tax deductions for
oil and gas exploration and development and other factors,
including those and other risks described in its Annual Report on
Form 10-K for the year ended December 31, 2020 and those set forth
from time to time in other filings with the Securities and Exchange
Commission ("SEC"). These documents are available through Laredo's
website at www.laredopetro.com under the tab "Investor
Relations" or through the SEC's Electronic Data Gathering and
Analysis Retrieval System at www.sec.gov. Any of these factors
could cause Laredo's actual results and plans to differ materially
from those in the forward-looking statements. Therefore, Laredo can
give no assurance that its future results will be as estimated. Any
forward-looking statement speaks only as of the date on which such
statement is made. Laredo does not intend to, and disclaims any
obligation to, correct update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise, except as required by applicable law.
The SEC generally permits oil and natural gas
companies, in filings made with the SEC, to disclose proved
reserves, which are reserve estimates that geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions, and certain probable and
possible reserves that meet the SEC's definitions for such terms.
In this press release and the conference call, the Company may use
the terms "resource potential," "resource play," "estimated
ultimate recovery" or "EURs," "type curve" and "standardized
measure," each of which the SEC guidelines restrict from being
included in filings with the SEC without strict compliance with SEC
definitions. These terms refer to the Company’s internal estimates
of unbooked hydrocarbon quantities that may be potentially
discovered through exploratory drilling or recovered with
additional drilling or recovery techniques. "Resource potential" is
used by the Company to refer to the estimated quantities of
hydrocarbons that may be added to proved reserves, largely from a
specified resource play potentially supporting numerous drilling
locations. A "resource play" is a term used by the Company to
describe an accumulation of hydrocarbons known to exist over a
large areal expanse and/or thick vertical section potentially
supporting numerous drilling locations, which, when compared to a
conventional play, typically has a lower geological and/or
commercial development risk. "EURs" are based on the Company’s
previous operating experience in a given area and publicly
available information relating to the operations of producers who
are conducting operations in these areas. Unbooked resource
potential and "EURs" do not constitute reserves within the meaning
of the Society of Petroleum Engineer’s Petroleum Resource
Management System or SEC rules and do not include any proved
reserves. Actual quantities of reserves that may be ultimately
recovered from the Company’s interests may differ substantially
from those presented herein. Factors affecting ultimate recovery
include the scope of the Company’s ongoing drilling program, which
will be directly affected by the availability of capital, decreases
in oil, natural gas liquids and natural gas prices, well spacing,
drilling and production costs, availability and cost of drilling
services and equipment, lease expirations, transportation
constraints, regulatory approvals, negative revisions to reserve
estimates and other factors, as well as actual drilling results,
including geological and mechanical factors affecting recovery
rates. "EURs" from reserves may change significantly as development
of the Company’s core assets provides additional data. In addition,
the Company's production forecasts and expectations for future
periods are dependent upon many assumptions, including estimates of
production decline rates from existing wells and the undertaking
and outcome of future drilling activity, which may be affected by
significant commodity price declines or drilling cost increases.
"Type curve" refers to a production profile of a well, or a
particular category of wells, for a specific play and/or area. The
"standardized measure" of discounted future new cash flows is
calculated in accordance with SEC regulations and a discount rate
of 10%. Actual results may vary considerably and should not be
considered to represent the fair market value of the Company’s
proved reserves. This press release and any accompanying
disclosures include financial measures that are not in accordance
with generally accepted accounting principles ("GAAP"), such as
Adjusted EBITDA and Free Cash Flow. While management believes that
such measures are useful for investors, they should not be used as
a replacement for financial measures that are in accordance with
GAAP. For definitions of such non-GAAP financial measures, please
see the supplemental financial information at the end of this press
release. Unless otherwise specified, references to "average sales
price" refer to average sales price excluding the effects of the
Company's derivative transactions.
All amounts, dollars and percentages presented in
this press release are rounded and therefore approximate.
Free Cash Flow (Unaudited)
Free Cash Flow is a non-GAAP financial measure
that the Company defines as net cash provided by operating
activities (GAAP) before changes in operating assets and
liabilities, net, less costs incurred, excluding non-budgeted
acquisition costs. Free Cash Flow does not represent funds
available for future discretionary use because it excludes funds
required for future debt service, capital expenditures,
acquisitions, working capital, income taxes, franchise taxes and
other commitments and obligations. However, management believes
Free Cash Flow is useful to management and investors in evaluating
operating trends in its business that are affected by production,
commodity prices, operating costs and other related factors. There
are significant limitations to the use of Free Cash Flow as a
measure of performance, including the lack of comparability due to
the different methods of calculating Free Cash Flow reported by
different companies.
The Company is unable to provide a reconciliation
of the forward-looking Free Cash Flow projection contained in this
press release to net cash provided by operating activities, the
most directly comparable GAAP financial measure, because it cannot
reliably predict certain of the necessary components of net cash
provided by operating activities, such as changes in working
capital, without unreasonable efforts. Such unavailable reconciling
information may be significant.
Adjusted EBITDA (Unaudited)
Adjusted EBITDA is a non-GAAP financial measure
that the Company defines as net income or loss (GAAP) plus
adjustments for share-settled equity-based compensation, depletion,
depreciation and amortization, impairment expense, mark-to-market
on derivatives, premiums paid or received for commodity derivatives
that matured during the period, accretion expense, gains or losses
on disposal of assets, interest expense, income taxes and other
non-recurring income and expenses. Adjusted EBITDA provides no
information regarding a company's capital structure, borrowings,
interest costs, capital expenditures, working capital movement or
tax position. Adjusted EBITDA does not represent funds available
for future discretionary use because it excludes funds required for
debt service, capital expenditures, working capital, income taxes,
franchise taxes and other commitments and obligations. However,
management believes Adjusted EBITDA is useful to an investor in
evaluating the Company's operating performance because this
measure:
- is widely used by investors in the oil and natural gas industry
to measure a company's operating performance without regard to
items that can vary substantially from company to company depending
upon accounting methods, the book value of assets, capital
structure and the method by which assets were acquired, among other
factors;
- helps investors to more meaningfully evaluate and compare the
results of the Company's operations from period to period by
removing the effect of its capital structure from its operating
structure; and
- is used by management for various purposes, including as a
measure of operating performance, in presentations to the Company's
board of directors and as a basis for strategic planning and
forecasting.
There are significant limitations to the use of
Adjusted EBITDA as a measure of performance, including the
inability to analyze the effect of certain recurring and
non-recurring items that materially affect the Company's net income
or loss and the lack of comparability of results of operations to
different companies due to the different methods of calculating
Adjusted EBITDA reported by different companies. The Company's
measurements of Adjusted EBITDA for financial reporting as compared
to compliance under its debt agreements differ.
Net Debt
Net Debt, a non-GAAP financial measure, is
calculated as the face value of long-term debt less cash and cash
equivalents. Management believes Net Debt is useful to management
and investors in determining the Company's leverage position since
the Company has the ability, and may decide, to use a portion of
its cash and cash equivalents to reduce debt.
Net Debt to TTM Adjusted
EBITDA
Net Debt to TTM Adjusted EBITDA is calculated as
Net Debt divided by trailing twelve-month Adjusted EBITDA. Net Debt
to Adjusted EBITDA is used by the Company's management for various
purposes, including as a measure of operating performance, in
presentations to our board of directors and as a basis for
strategic planning and forecasting.
Investor Contact: Ron Hagood
918.858.5504 rhagood@laredopetro.com
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