Q1 2021 Laredo Petroleum Inc Earnings Call

Good day, ladies and gentlemen, and welcome to Laredo Petroleum first quarter 2021 and earnings conference call. My name is Carol and that will be your operator for today at this time all participants are in listen only mode.

We will be conducting a question and answer session. After the financial and operations report and.

As a reminder, this conference is being recorded for replay purposes.

It is now my pleasure to introduce Mr. Ron Hagood, Vice President Investor Relations you May proceed Sir.

Thank you and good morning, joining me today are adjacent Tiger, President and Chief Executive Officer, Karen Chandler Senior Vice President and Chief Operations Officer, and Brian Lemmerman, Senior Vice President and Chief Financial Officer, as well as additional members of our management team.

Before we begin this morning, let me remind you that during today's call we will be making forward looking statements. These statements, including those describing our beliefs goals expectations forecast and assumptions are intended to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95.

Hi.

Hello, and a quarter and so we continue to reduce well cost, which entire and reduce capital expenditures.

So chairs under the ATM program for about $27 million and net proceeds and reduced borrowings under a revolver by $35 million.

Our long term trend of drilling and completion deficiency improvements and innovations such as our company owned sand mine are indicative of our drive for continuous improvement.

Capital efficiency improvements from our transition to Howard County, and came to fruition. This quarter production from our first package of wealth and Howard County had a substantial impact on production during the quarter. Despite downtime due to February is winter storms.

Royal production grew 11% sequentially versus the fourth quarter of 2020, and we expect sequential oil growth of 9% to 13% and the second quarter is our second package of wells reaches peak production.

We continue to do well on our ESG metrics flaring are betting only 0.22% of produced natural gas during the quarter. The company has put board and ambitious plan to reduce greenhouse gas emissions and reducing and ultimately eliminating reaching glaring as a key component of the plant.

To conclude I would like to recognize the efforts of our operational team to quickly and more importantly safely restore production after the winter storms and February with that care and will provide more details on our operations.

Jason.

I'd like to begin by secondhand and cables comments on the efforts and the entire operation.

And get it back up and running after this and whether that occurred and February.

It was all hands on debt and it took a lot of focus and discipline and all of the tables for kids quickly and safely as we did and minimize the impact.

Results and the first quarter continue to reflect our successful transition of activity to Howard County.

We continue to make significant progress on reducing oil costs.

With our first and packages and Howard County named delivered at $525 per foot.

One of the main drivers of this success hesitant and our company Oh Sam.

So for our operating costs and that lower than we originally anticipated.

We've been testing the application and high rate high pressure gas lift on a few wells to evaluate the impact on both production and operating costs.

We also continue to optimize and water forecast as we gain more production data.

And we've transitioned the majority of our facilities and wells the purchase power.

All of which could positively impact our operating cost going forward.

We expect to deliver steady oil production growth throughout 2021, as we bring on one well package per quarter and Howard County.

Running one continuous frac crews.

While there can be some lumpiness to production based on timing of the large 12, and 13, well packages and our development plan.

We expect sequential oil production growth throughout 2021.

As well as an increase and our oil cut.

The early production results to date and Howard County are within the range of our expectations.

As we showed in last quarter's release the first package.

Howard County development program drove free cash flow of $22 million for the first quarter.

And February we initiated hour at the market equity program.

Authorized for $75 million. The ATM program allows us to Opportunistically sell equity from time to time, we put the program and place with the intention of using the proceeds to pay down a portion of our credit facility that had been used and the fourth quarter of 2022 repurchase 61 million of notes at 62, and five per cent of car and to finance a b.

On transaction, and Howard County, where we bought acreage and a little over $2000 per undeveloped acre.

These opportunistic very accretive transactions total about $50 million when.

When we announced the ATM program our stock was in the mid thirties. Subsequently, we were able to sell 723000 shares and an average price of approximately $38.75 for net proceeds of $26.9 million.

These proceeds combined with the free cash flow enabled us to pay down our credit facility by $35 million during the quarter mile also make and and interest payment on our notes of approximately $46 million.

Going forward our goal is to continue to pay down debt and strengthen our balance sheet recent commodity price increases have enhanced the free cash flow generation profile of the company. During the first quarter, we added to our 2022 oil hedges and we intend to add more as a year progresses further increasing our confidence and our 2021 and 20.

Two free cash flow profile and debt reduction capabilities.

With that I will ask the operator to please open the lines for questions.

Thank you if you have a question at this time please press star.

Oh by the number one from your Touchtone telephone. If your question has been answered all you wish to remove yourself from the queue. Please press the pound key.

And we'll pause for just a moment to compiled the roster.

And once again that is star one for any questions or comments.

And your view did the recent larger Midland transaction and the base until the A&D environment from a buyer's market to a seller's market. Our <unk> sellers can can see that it was somewhat of an anomaly.

Most of the folks that we've talked to and a lot of the analysts that looked at it.

That's an anomalous transaction again.

Fit for the purchaser, there, but I don't think that the expectations have been raised by.

Debt level across the base and there is lots of things that are on the market. So again, it's a good time I think the bid ask is narrowing and especially again as prices have risen a little bit it was difficult to do things and a much lower price environment and I do think we're and our price environment today, where we can be successful with.

Transactions.

Fantastic Congrats on your success to date and thanks for your time.

Alright, Thank you Derek and can you.

And once again to ask a question you May press star followed by the number one at this time. Your next question comes from the line of Noel Parks with Tuohy Brothers.

Good morning.

Good morning.

And just wondering.

Could you.

Just sort of.

Review a little bit.

Spacing history of what <unk> been doing since your Howard County acquisition initial one.

And going on three years ago, and memory serves me and.

And just sort of what the spacing assumptions were under the legacy operator.

And what you started out our debt.

And where you are now and also could you just kind of review that.

Geological characteristics that help determine what spacing works, where last quarter I guess the completion completion choices. Thanks a lot.

Yes.

Karen do you have any kind of step back and talk a little bit about the history and the acreage sale, we acquired the acreage and kind of close and the Howard County acreage that we're developing right now.

And in late 2019 at the end of 2000 and non <unk>.

And one of the reasons that disposition was very attractive to us because it really had not been developed.

And so there really no parent wells. So it was a good location for us to go in and go into kind of full development and this area. So no real spacing and outlined prior to that.

We actually transitioned very quickly and 2022 and.

And the operations and Howard County, but then delay completions and Howard County, just given the.

And the environment that we ran and early 2020 with COVID-19 and other things. So we actually started completion operations and set.

September of 2012.

So we've only been actually operating with active completions falling back since really the big and the very end of 2020, so four to five months on the first package and so that's why we kind of refer to the early well performance here and we're really getting the first.

And then look first look at the well results coming back from Howard County, and the first two packages, which is what we're showing on slide eight and the earnings release.

As we began development in Howard County.

And design that we've talked about.

As for wells and the Sprayberry 12 wells and the Wolfcamp that was the the development plan and we went in for the first two well packages.

Billboard and transit and Whitmarsh is we refer to them and Thats, what the two packages that applauded for.

And for the Howard County Wells on Slide eight hour and we.

And kind of got into that and development continuing to look at all the work that was being done by the offset operators just really a lot of technical work and completions.

And clearly the drilling and rig as well out in front of the completions.

Completion crew and so we decided to.

Really a space, a little bit and Howard County, and part of even getting any of these well results back and that's what we've been doing over the next packages and it'll be pulling back and subsequent quarters.

So what we are.

The up spacing design is still for wells and the sprayberry.

Eight wells and the Wolfcamp is currently what we're doing.

Overall looking at the well results on slide eight overall these are strong packages.

It's early in their history, we're happy with their performance. These wells that are flowing back right now are supporting our overall company strategy.

<unk> is capital efficient wells high rates of returns high rates returns really supporting our strategy.

Free cash flow generation and paying down debt. So these first two packages are clearly supporting that and.

As we continue to bring on the upstate packages, which will be the packages and we're bringing on and the next couple of quarters. We just think that they will help support more consistent results and continue to support that strategy. So that's kind of the history that we've been on acquiring and Howard County acreage.

Great. Thanks.

Thanks, a lot and that's helpful and.

And could you just talk a minute about.

Uh huh.

What youre thinking is going forward on steel cost and I was wondering if you would.

And thinking about building up your inventory or maybe you already had.

Or what are your thoughts.

Maybe just kind of a temporary blip.

Upwards for for steel and.

We might be might be in better shape cutting into future quarters.

Yeah overall, so we added supply chain team that really works every aspect.

Of our business and skills and interest and one which is impacted by the broader global market at times, but we do see some fluctuations up and down overall, we're not really seeing any impact our well costs. Currently we do have <unk>.

Contracts in place.

And that we work.

That we were out and time to make sure that we're managing both the cost of inventory on all of our key dealers and everything so really not seeing any significant impacts currently to our business.

Great.

Your next question comes from the line of Richard Tullis with capital one Securities.

Yes.

Hey, good morning, everyone.

Question for you maybe adjacent O'brien.

Given the recent uptick and commodity prices that certainly helped.

Cash flow for the quarter.

Does this present, an opportunity to potentially look at monetizing.

Some of the.

Less core acreage and 100000 plus acres that you hold on the legacy properties outside of.

The current focus area and Howard we've seen a couple of.

Other E&P sales and sort of non core acreage over the past couple of months and the recent announcements. So I just wanted to see if maybe it's.

Items your interest at all and and maybe looking to part with some of the legacy acreage.

Yeah, that's a great question.

Think that it is something thats on our radar.

And as everyone knows and on the call. We are looking to continue to bring in higher quality inventory today, and our core position there and it provides the cash flow debt funds that but depending on how much PDP and might come in with a transaction selling down our sales and selling a non op interest or carving.

And a portion of the field is something that we would consider taking and just help strengthen the.

Our balance sheet and not just bring on straight debt. So those those are things that we think about a lot of it will just depend on kind of the day.

The M&A work and in the future.

Okay. Thanks, Jason question for Karen.

Obviously really nice well cost average for the packages and Howard County online year to date.

How sustainable do you think the $5 25 per lateral foot is as we go forward and I mean.

Is there potential to even lower that more.

Yes, we've talked about prior and that we were expecting to come in a little bit.

Below where we were at $540 a foot, but really.

The first package is coming through and we wanted to have actual clear performance.

And going in and and really starting to completions operations and our capital so with the first two well packages for her list at this point and you know really felt comfortable coming out with actual oil costs at the bond 25.

And so as we all talk about are there potential pressures on service costs.

And there is though that that dialogue continues and we're not seeing any really significant upward pressure there.

As far as continuing to optimize our design.

And for performance improvement, Yes, I think theres opportunities that will be really just kind of battling quotes and you'll have.

And to drive performance improvements and drilling and completions operations.

And make sure that we're managing any type of cost pressure that we're gaining on the service side of the day.

<unk> talked about our stand our own our own mine that we have.

We are.

And just from.

Our Frac service providers external companies hearing that there is pressure on and for Ensign both trucking and fan. So right now we're really insulated from that which is which is a good position to deal with debt with the same that we're providing on the viral and location.

So overall I think we're set up pretty well and we shared again the performance of both drilling and completions, we've been doing that on a quarterly basis, even with the severe winter storm that impacted us for a few days in February.

Staying really good performance and continued performance improvement there. So I do think there's opportunity for that debt to component.

Thanks, Karen and that.

It was helpful and thanks to everyone for them for their response.

Thank you.

And ladies and gentlemen.

Come to the conclusion of our Q&A session for today and now I'll turn the call back over to Mr. Ron Hey, good for the closing comments.

Thank you for joining us for our call. This morning, we appreciate your interest and Laredo. This concludes our call and have a great moving.

Ladies and gentlemen. This concludes today's conference. Thank you for participating you have a wonderful day you may now all disconnect.

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