TULSA, OK, Feb. 15, 2017 (GLOBE NEWSWIRE) — Laredo Petroleum, Inc. (NYSE:LPI) (“Laredo” or the “Company”) today announced its 2016 fourth-quarter and full-year results. For the fourth quarter of 2016, the Company reported a net loss attributable to common stockholders of $18.4 million, or $0.08 per diluted share, which includes a loss on derivatives of $43.6 million reflecting matured and new contracts and changes of the market prices in the forward curves of oil, natural gas liquids (“NGL”) and natural gas. Adjusted Net Income, a non-GAAP financial measure, for the fourth quarter of 2016 was $38.8 million, or $0.16 per adjusted diluted share. Adjusted EBITDA, a non-GAAP financial measure, for the fourth quarter of 2016, was $134.9 million.
For the year ended December 31, 2016, the Company reported a net loss attributable to common stockholders of $260.7 million, or $1.16 per diluted share, including a non-cash full cost ceiling impairment charge of $161.1 million taken in the first quarter of 2016. Adjusted Net Income for the year ended December 31, 2016 was $112.6 million, or $0.49 per adjusted diluted share, and Adjusted EBITDA was $461.3 million. Please see supplemental financial information at the end of this news release for reconciliation of the non-GAAP financial measures.
- Produced a Company record 53,141 barrels of oil equivalent (“BOE”) per day in the fourth quarter of 2016, resulting in full-year 2016 production growth of approximately 11% from full-year 2015
- Grew proved developed reserves organically by approximately 40% in 2016 at a proved developed finding and development (“F&D”) cost of $5.12 per BOE
- Replaced 322% of production organically with proved developed reserves
- Completed 45 horizontal development wells in 2016 at an average anticipated rate of return on invested capital of greater than 40%
- Reduced unit lease operating expenses (“LOE”) to $3.56 per BOE in the fourth quarter of 2016, resulting in a full-year 2016 unit LOE reduction of approximately 37% from full-year 2015
- Recognized approximately $24 million of cash benefits from Laredo Midstream Services, LLC (“LMS”) field infrastructure investments through reduced capital and operating costs and increased revenue
- Received approximately $185.6 million of net cash settlements on commodity derivatives that matured during 2016, increasing the average sales price for oil by $20.34 per barrel and for natural gas by $0.47 per thousand cubic feet compared to pre-hedged average sales prices
- Grew annual transported volumes on the Medallion Gathering & Processing, LLC (“Medallion-Midland Basin”) system, of which LMS is a 49% owner, by 159% in 2016 to 39.3 million barrels of oil, with a fourth-quarter daily average rate of 129,087 barrels of oil per day (“BOPD”)
“From the moment that Laredo leased its first acre in the Midland Basin, the Company’s primary strategy has been maximizing Laredo’s total value through efficient resource development,” stated Randy A. Foutch, Chairman and Chief Executive Officer. “Building a contiguous acreage position, gathering data for the proprietary Earth Model, investing in field infrastructure, developing production corridors and forming a partnership to build the Medallion-Midland Basin system are all part of that goal. In 2016, our strategy provided a substantive, repeatable benefit to the Company.”
“Laredo’s 2016 development drilling activities achieved anticipated field level returns on invested capital exceeding 40% by leveraging a combination of factors and staying focused on our strategy. The Company’s contiguous acreage position enabled the drilling of high-return, long and extended-reach laterals. We utilized the Earth Model to optimize location and landing point selection and completion design, resulting in substantial outperformance versus our historic Upper Wolfcamp, Middle Wolfcamp and Cline type curves. Our field infrastructure and production corridor assets drove capital and operating costs to levels among the lowest in the Midland Basin. These factors enabled Laredo to grow production 11% during the year, organically grow proved developed reserves 41% at a proved developed F&D cost of $5.12 per BOE and fund our drilling program with operating cash flow. Utilizing our Earth Model to optimize location and landing point selection and completion design for wells has continued the strong performance of our drilling program in 2016 and has led the Company to increase its type curves for the Upper and Middle Wolfcamp to 1.3 million BOE.”
“We believe 2017 is positioned to be another outstanding year for Laredo. We expect to continue capitalizing on past strategic investments while continually refining our development program. We anticipate drilling even longer laterals, further refining our completion techniques and testing multiple landing points within formations. Our prior infrastructure investments are expected to continue increasing efficiencies and lessen the impact to the Company of rising service costs. The potential to enhance the value of our acreage is still growing. We have multiple years of high-value inventory and our prior investments have positioned the Company to take full advantage of that potential.”
Increased Type Curves
Through the application of the Company’s proprietary multivariate Earth Model to optimize landing points and the design and completion of horizontal wells, Laredo’s development drilling results substantially outperformed the Company’s historic type curves. As a result, Laredo has increased the type curves for 10,000-foot horizontal wells in the Upper and Middle Wolfcamp to 1.3 million BOE, from 1.1 million BOE and 1.0 million BOE, respectively. The increases are driven by a 10% uplift in both oil and natural gas volumes to reflect the performance associated with utilization of the multivariate Earth Model. The remaining increase in natural gas volumes reflects historical production data showing gas production outperforming type-curve expectations in later years.
From this point forward, these increased type curves will be the basis for comparing production performance for horizontal wells in the Upper and Middle Wolfcamp within all Company press releases and presentations.
In the fourth quarter of 2016, Laredo produced a Company record 53,141 BOE per day, up 32% from fourth-quarter 2015, resulting in production for full-year 2016 of 18.1 million BOE, an increase of approximately 11% from the 2015 volume. Laredo recognized anticipated field-level returns of greater than 40% for the 2016 development drilling program, driven by increasing average lateral lengths to approximately 10,000 feet, utilization of the multivariate Earth Model to optimize landing points and completions and efficiency-related cost reductions.
The Company completed 10 horizontal development wells in the fourth quarter of 2016 in two multi-well packages. The four-well Taylor package targeting the Middle Wolfcamp was completed early in the quarter utilizing 1,800 pounds of sand per lateral foot. This package is currently outperforming the oil type curve and three-stream type curve of the 1.3 million BOE Middle Wolfcamp type curve by 29% and 35%, respectively, adjusted for lateral length. The remaining six wells were developed as a package targeting the Upper Wolfcamp. These wells were completed late in the quarter and require longer-run data to make appropriate comparisons to Company type curves, although current production trends for the package are encouraging.
Fourth-quarter 2016 production growth was positively impacted by the timing of the seven-well Sugg 171/185 package, which was completed near the end of the third quarter of 2016. These wells targeted the Upper and Middle Wolfcamp and were completed utilizing 2,400 pounds of sand per lateral foot and were produced utilizing a managed drawdown protocol. The results of these larger completions are very encouraging as the package is currently outperforming the oil type curve and three-stream type curve of the 1.3 million BOE Upper and Middle Wolfcamp type curves by 41% and 24%, respectively, adjusted for lateral length. Production trends indicate the type curve outperformance may still be increasing and the Company will continue to monitor the results to determine the long-term, incremental uplift from both the larger completion and the utilization of a managed drawdown protocol.
Four of the wells in the Sugg 171/185 package were extended-reach laterals, with drilled lateral lengths averaging approximately 13,400 feet. The wells averaged 18 days to drill, from rig accept to rig release, the best of which was drilled in a Company record 16 days. The superior economics of drilling long laterals combined with the Company’s success in executing extended-reach laterals is expected to continue to drive higher returns as the average lateral length increases in Laredo’s overall development plan. The Company has identified more than 2,000 locations that support lateral lengths of 10,000 feet or longer on its contiguous acreage base and expects the average drilled lateral length of its 2017 drilling program to be approximately 10,000 feet.
In 2016, Laredo completed 44 of its 45 horizontal development wells as multi-well packages. Through extensive data collection and analysis with the multivariate Earth Model, the Company has continued to optimize resource development to minimize the impact of pressure depletion on future drilling locations. Additionally, multi-well packages enable highly efficient batch drilling and completions operations which reduce well costs and minimize non-productive time. The Company’s strategy of building production corridors and other field infrastructure enables the cost-efficient drilling and completion of multi-well packages. The completion of a five-well package requires approximately 3 million barrels of frac water in a two-week period. The Company’s infrastructure handles the supply and takeaway of flowback and produced water for the multi-well packages. This facilitates execution logistics and reduces the risks and costs associated with the completion operations, all of which could diminish returns.
Lease operating expenses continue to be driven lower as costs benefit from the Company’s prior investments in water handling infrastructure and centralized gas lift, as well as the increased activity along Laredo’s production corridors. These infrastructure-related savings, which Laredo retains permanently, reduced fourth-quarter unit LOE by approximately $0.51 per BOE. As a result, unit LOE decreased to $3.56 per BOE in the fourth quarter of 2016, down approximately 39% from the 2015 rate of $5.83 per BOE and down more than 7% sequentially from the third-quarter 2016 rate.
2017 Development Program
The Company expects to complete 12 horizontal development wells in the first quarter of 2017. The wells are being drilled as a nine-well package and a package of three wells, with 11 wells targeting the Upper and Middle Wolfcamp and one targeting the Cline. The completion timing of the nine-well package is expected to push the commencement of production on both packages to the later part of the quarter. This is expected to result in first-quarter completions having minimal impact on first quarter production but contributing meaningfully to production growth in the second quarter of 2017.
Throughout 2017, Laredo expects to apply results from the completions optimization and multivariate Earth Model workflows to test several concepts that could, if successful, have a substantial positive impact on stockholder value. The Upper and Middle Wolfcamp have a combined average thickness greater than 1,000 feet across the Company’s acreage with proven horizontal productivity across at least four distinct landing points within these two targets. Well packages designed to co-develop several landing points within the same target are planned in 2017, with the goal of adding additional high-value locations.
Laredo Midstream Services Update
Laredo’s midstream strategy of investing in field infrastructure continues to produce growing operating and financial benefits for the Company. LMS’ oil and gas gathering, water system and centralized compression assets generated a combined cash benefit and capital and operating cost savings of approximately $5.5 million to the Company in the fourth quarter of 2016.
LMS’ water system assets are a key component of the Company’s field infrastructure and production corridor system. Water assets consist of approximately 78 miles of pipeline, a recycling plant capable of processing 30,000 barrels of water per day (“BWPD”) and linked water storage assets with a storage capacity of more than 5 million barrels of water. In the fourth quarter of 2016, LMS’ water system assets transported approximately 65% of the Company’s produced water on pipe, of which 56% was recycled by Laredo, reducing the need for fresh water.
The Company’s strategy of securing firm takeaway capacity led to its 49% ownership in the Medallion-Midland Basin system. Laredo’s investment in the system generated income of $3.1 million and Adjusted EBITDA, a non-GAAP financial measure, of $6.4 million in the fourth quarter of 2016 and income of $9.4 million and Adjusted EBITDA of $20.4 million for full-year 2016, net to the Company’s 49% interest in the system. Please see supplemental financial information at the end of this news release for reconciliation of the non-GAAP financial measures.
The Company’s investment in the Medallion-Midland Basin system continues to add value as the system’s throughput has grown rapidly. Upon completion of current projects, the system will consist of more than 650 miles of pipeline, of which more than 500 miles are six-inch pipe or larger. The system accesses many of the most productive areas of the Midland Basin, can deliver more than 500,000 BOPD into four delivery locations and has more than 520,000 net acres dedicated to the system or supporting firm transportation commitments. Approximately 80% of transported volumes are from third-party producers, up from approximately 35% at the inception of the system. In the fourth quarter of 2016, volumes grew to an average of approximately 129,000 BOPD, an increase of approximately 87% from the fourth quarter of 2015. Average daily volumes exited 2016 at approximately 133,000 BOPD and are expected to grow by greater than 75% by the end of 2017.
“The Medallion-Midland Basin system was built to provide flexibility to transport the Company’s oil to delivery locations outside of the Midland market, enabling Laredo to access long-haul pipelines to the Gulf Coast and creates optionality for the best pricing,” commented Mr. Foutch. “As other operators recognized the value of the system, Medallion expanded and the value of Laredo’s 49% interest has grown dramatically. The original rationale for building the pipeline, to provide operational flexibility, has been realized through the Company’s contract for 30,000 BOPD of firm capacity on the system. The investment also provides financial flexibility for Laredo as the EBITDA and value of the investment continue to grow.”
Reserves and Locations
Laredo’s 2016 development drilling plan, in conjunction with upward performance revisions and operating cost reductions that increased the economic life of producing wells added 58 million BOE of proved developed reserves, replacing 322% of production. The exceptional well performance and operational efficiencies that reduced drilling and completion costs resulted in a proved developed F&D cost of $5.12 per BOE.
Total proved reserves at year-end 2016 increased 41 million BOE to 167 million BOE, growing 33% from year-end 2015. Proved developed reserves increased 41% to 141 million BOE and represent 84% of total proved reserves, an increase from 80% at year-end 2015. Proved undeveloped (“PUD”) reserves were essentially unchanged as Laredo, beginning in 2016, purposely reduced PUD bookings. This strategy enables the Company to develop its acreage in the most efficient manner possible and provides it the most flexibility to enhance shareholder value at prevailing conditions. The Company has identified more than 3,500 locations capable of generating at least a 10% field level rate of return in the current commodity price and service cost environment. Included in this count is approximately a decade of inventory, at the Company’s current rig cadence, of horizontal wells capable of at least a 40% rate of return at current commodity prices and service costs.
The standardized measure of the Company’s proved reserves at year-end 2016 was $978.5 million, an increase of 18% from the standardized measure at year-end 2015 of $830.7 million. The volume and value of the Company’s proved reserves increased despite an 18% percent decrease in the price of oil and a 6% decrease in the price of natural gas and NGL used to calculate the value of the reserves.
2016 Capital Program
Laredo outperformed its anticipated 2016 production while spending significantly less than planned. The Company executed its 2016 capital program for $334 million, 20% below its $420 million budget. The trend of higher production with lower capital expenditures throughout 2016 resulted in steadily increasing quarterly cash flow from operations, which fully funded the full-year capital program, excluding acquisitions and investments in the Medallion-Midland Basin system.
During the fourth quarter of 2016, Laredo invested approximately $78.2 million in exploration and development activities, approximately $12.3 million in bolt-on acquisitions and approximately $12.6 million in infrastructure held by LMS and the Medallion-Midland Basin system. For full-year 2016, Laredo invested approximately $317.2 million in exploration and development activities, approximately $148.9 million in bolt-on acquisitions and approximately $45.2 million in infrastructure held by LMS and the Medallion-Midland Basin system.
At December 31, 2016, the Company had cash and cash equivalents of approximately $33 million and undrawn capacity under the senior secured credit facility of $745 million. At February 14, 2017, the Company had cash and cash equivalents of approximately $24 million and undrawn capacity under the senior secured credit facility of $800 million, resulting in total liquidity of approximately $824 million.
Laredo maintains a disciplined hedging program to reduce the variability in its anticipated cash flow due to fluctuations in commodity prices. At December 31, 2016, the Company had hedges in place for 2017 for 6,852,875 barrels of oil at a weighted-average floor price of $55.82 per barrel, representing approximately 70% of anticipated oil production in 2017. Approximately 80% of total anticipated oil production in 2017 retains significant upside to an increase in the price of oil with those volumes either having a weighted-average ceiling price of $86.00 per barrel or no ceiling at all. Additionally, the Company had hedges in place for 2017 for 27,056,500 million British thermal units (“MMBtu”) of natural gas at a WAHA weighted-average floor price of $2.75 per MMBtu, 444,000 barrels of ethane at $11.24 per barrel and 375,000 barrels of propane at $22.26 per barrel.
The Company is reiterating is previously stated anticipated full-year 2017 production growth guidance of at least 15%. The table below reflects the Company’s production guidance for the first and second quarters of 2017 and cost guidance for the first quarter of 2017:
|Production (MBOE/d)||52 – 54||55 – 58|
|Product % of total production:|
|Crude oil||44% – 46%||45% – 47%|
|Natural gas liquids||27% – 28%||*|
|Natural gas||27% – 28%||*|
|Price Realizations (pre-hedge):|
|Crude oil (% of WTI)||~90%||*|
|Natural gas liquids (% of WTI)||~32%||*|
|Natural gas (% of Henry Hub)||~72%||*|
|Operating Costs & Expenses:|
|Lease operating expenses ($/BOE)||$3.50 – $4.00||*|
|Midstream expenses ($/BOE)||$0.20 – $0.30||*|
|Production and ad valorem taxes (% of oil, NGL and natural gas revenue)||6.75%||*|
|General and administrative expenses:|
|Cash ($/BOE)||$3.35 – $3.85||*|
|Non-cash stock-based compensation ($/BOE)||$2.00 – $2.25||*|
|Depletion, depreciation and amortization ($/BOE)||$7.50 – $8.00||*|
* Not provided
Fourth-Quarter and Full-Year 2016 Earnings Conference Call
Laredo will host a conference call on Thursday, February 16, 2017 at 7:30 a.m. CT (8:30 a.m. ET) to discuss its fourth-quarter and full-year 2016 financial and operating results and management’s outlook. Individuals who would like to participate on the call should dial 877.930.8286 (international dial-in 253.336.8309), using conference code 53302066 or listen to the call via the Company’s website at www.laredopetro.com, under the tab for “Investor Relations.” A telephonic replay will be available approximately two hours after the call on February 16, 2017 through Thursday, February 23, 2017. Participants may access this replay by dialing 855.859.2056, using conference code 53302066.
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, and the transportation of oil and natural gas from such properties, primarily in the Permian Basin in West Texas.
Additional information about Laredo may be found on its website at www.laredopetro.com.