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Laredo Petroleum Announces 2016 First-Quarter Financial and Operating Results

Laredo Petroleum, Inc. LPI, +20.75% ("Laredo" or "the Company") today announced its 2016 first-quarter results, reporting a net loss attributable to common stockholders of $180.4 million, or $0.85 per diluted share, which includes a pre-tax, non-cash full cost ceiling impairment charge of $161.1 million. Adjusted Net Income, a non-GAAP financial measure, for the first quarter of 2016 was $17.3 million, or $0.08 per diluted share. Adjusted EBITDA, a non-GAAP financial measure, for the first quarter of 2016 was $96.1 million.

2016 First-Quarter Highlights

  • Produced 46,202 barrels of oil equivalent ("BOE") per day, approximately 48% of which was oil, and increased anticipated production for full-year 2016 from a range midpoint of 15.5 million BOE to 15.95 million BOE

  • Completed nine horizontal wells with an average completed lateral length of approximately 9,600 feet and peak 30-day initial production ("IP") rates averaging 1,192 BOE per day, or 129% of type curve

  • Reduced unit lease operating expenses ("LOE") to $4.88 per BOE, down approximately 36% from the first-quarter 2015 rate of $7.58 per BOE

  • Recognized more than $6.2 million in cash benefits from Laredo Midstream Services, LLC ("LMS") field infrastructure investments through reduced costs and increased revenue

  • Grew transported volumes on the Medallion-Midland Basin pipeline system to 83,251 barrels of oil per day ("BOPD"), increasing from 10,681 BOPD in the approximately 60 days during the first quarter of 2015 in which the system was operational

  • Received approximately $64.1 million of net cash settlements on commodity derivatives that matured, net of premiums paid, during first-quarter 2016, increasing the average sales price for oil by $29.33 per barrel and for natural gas by $0.77 per thousand cubic feet compared to pre-hedged average sales prices

Please see supplemental financial information at the end of this news release for reconciliations of non-GAAP financial measures.

"Our impressive operating results in the first quarter of 2016 are a continued validation of the Laredo model of strategically investing in data and infrastructure to fundamentally improve results," commented Randy A. Foutch, Chairman and Chief Executive Officer. "The uplift in well results we are seeing from utilizing our Earth Model, optimizing completions and investments in field infrastructure are having a meaningful positive impact on the capital efficiency of the Company. Additional capital efficiency benefits are derived from our long-range planning to structure our drilling obligations so that they are met with horizontal drilling, replacing the need to drill less profitable vertical wells."

"Our 49% ownership of the Medallion pipeline system continues to increase in value as volumes on the system grow and the Midland Basin affirms its distinction as the premier oil producing basin in the United States. Transported volumes in the first quarter of 2016 topped 80,000 barrels per day and in the second quarter of 2016 are expected to average approximately 105,000 barrels per day."

"We are raising the mid-point of our annual production guidance by 450,000 BOE to reflect both the well results in the first quarter as well as the benefits of our infrastructure investments that have reduced downtime in our wells and the lost production that results from it. Based on our increased guidance, operational and capital cost reductions and the recent increase in NGL prices, we now expect cash flow from operations to fund approximately 90% of our budgeted capital expenditures. With all of our expected oil production for the remainder of 2016 hedged with floors at about $67 per barrel, we are extremely well-positioned for a variable commodity price environment."

Operational Update

In the first quarter of 2016, Laredo produced 46,202 BOE per day, of which approximately 73% was oil and natural gas liquids ("NGL"). The Company completed nine horizontal wells during the first quarter of 2016 with an average lateral length of approximately 9,600 feet and an average working interest of 99%. The Company's proprietary Earth Model was used in all of these wells to land and steer the lateral and aid in optimizing completions, resulting in the average of the wells' 30-day peak IP rates performing 29% above type curve.

In the first quarter of 2016, LOE was $4.88 per BOE, a decrease of approximately 36% from the first quarter of 2015. Among other factors, previous investments in field infrastructure, primarily in the Company's four production corridors, such as water takeaway and recycle facilities, centralized compression and SCADA systems, lowered costs and reduced well downtime. The Company also continues to focus on the usage and procurement of products and services related to direct operating costs.

During the quarter, the Company completed wells in the Upper and Middle Wolfcamp and Cline zones. They are, on average, performing well above their respective type curves, further affirming the highly productive potential of Laredo's multi-zone, stacked resource. The results for the nine horizontal wells are detailed in the following table.

Well Name Zone Completed Lateral Length (feet) 30-Day Average IP (BOE) % of Type Curve(1)
SUGG-E-208-209-8SU Upper WC 7,304 1,041 144 %
SUGG-A-171-5SU Upper WC 9,939 1,034 109 %
SUGG-E-197-195-2SU Upper WC 10,029 1,203 126 %
SUGG-E-197-195-1SU Upper WC 10,029 1,329 140 %
SUGG-A-197-195-5SU Upper WC 9,937 770 81 %
SUGG-E-197-195-3SU Upper WC 9,937 1,119 118 %
SUGG-A-197-195-4SU Upper WC 10,029 903 95 %
BODINE-A-174-173-2RM Middle WC 9,757 1,872 226 %
BODINE-A-174-173-2RC Cline 9,381 1,456 123 %
1Q-16 Average 9,594 1,192 129 %

(1) Adjusted for lateral length.

Early in the first quarter of 2016, the Company completed the Sugg-A-171-5SU, the final well of an 11-well package that was started in the third quarter of 2015 and drilled along the largest of the Company's four production corridors. The 11 wells, on average, are performing in-line with their type curves and were drilled and completed below AFE cost.

The Gas Technology Institute ("GTI") selected Laredo to host an $18 million research study within the 11-well package. GTI chose Laredo for the Company's operating expertise and the unique nature of the package, which leveraged Laredo's acreage position to drill a large number of wells at high density in multiple zones. The GTI consortium fully funded the collection of a comprehensive hydraulic fracturing dataset that provides a first-ever look at how induced underground fractures spread, at no direct cost to Laredo. According to GTI, this is the most comprehensive fracturing dataset ever captured in unconventional shale, and was gathered in the heart of Laredo's acreage. Laredo's operations team planned and executed the data collection portion of the project on-time and within budget, without impacting ongoing field operations. The data is being used to improve the understanding of how fractures propagate in reservoirs, specifically within Laredo's core acreage block in the Midland Basin. The dataset is providing unique insights into the behavior of the Company's reservoirs, with early proprietary analysis being integrated into Laredo's operations.

The Company is continuing to drive capital efficiency with peer-leading drilling operations. In the first quarter of 2016, Laredo further improved its drilling efficiency by approximately 9% from the fourth quarter of 2015, drilling on average 917 feet per day from rig acceptance to rig release. Two wells spud during the first quarter were each drilled with lateral lengths of 11,200 feet in 15 days, from rig acceptance to rig release.

In the first quarter, the Company continued to have success utilizing optimized completions in tandem with its proprietary Earth Model. Reservoir data that helps identify where to land the lateral incorporates attributes that are directly correlated to positive completion outcomes. When combined with higher sand concentrations and varying stage and cluster spacing the Company has to date realized an average uplift on oil production of greater than 30% of the oil type curve on the 18 horizontal wells drilled, to date, in the Upper and Middle Wolfcamp and Cline zones.

Laredo is currently operating three horizontal rigs and anticipates completing 11 horizontal wells during the second quarter of 2016, with a Laredo working interest of 100%. Six of the wells target the Upper Wolfcamp and five target the Middle Wolfcamp and have an expected average completed lateral length of approximately 9,500 feet. The Company is able to meet all drilling obligations with horizontal wells and does not have plans to drill vertical wells in 2016.

Laredo Midstream Services Update

The Company's oil and gas gathering, water infrastructure and centralized compression investments, primarily in the Company's four production corridors, continue to drive efficiency and cost improvements. In the first quarter of 2016 these investments provided a combined cash benefit to Laredo of approximately $6.2 million. Approximately 54% of the Company's gross operated oil production was transported on LMS' crude gathering system, reducing the cost and inconsistency of trucking. Barrels that are transported on the gathering system instead of being trucked benefit from a $0.95 per barrel price uplift and generate $0.75 per barrel in revenue that the buyer pays to transport the oil on the system. Additionally, Laredo transported approximately 55% of flowback and produced water by pipe in the first quarter of 2016, saving on average more than $1.00 per barrel versus water hauled by truck. Approximately 57% of the water transported by pipe was delivered to LMS' water recycling facility, saving $0.40 per barrel against average disposal costs. Approximately 15% of Laredo's water usage was supplied by recycled water from the LMS facility, at a savings of $0.30 per barrel versus fresh water.

The Medallion Gathering & Processing, LLC ("Medallion-Midland Basin") pipeline system, in which LMS owns a 49% interest, grew transported volumes by more than 20% in the first quarter of 2016 compared to the fourth quarter of 2015 as additional operators dedicated acreage to the system. The system transported an average of 83,251 BOPD...