SailingStone Capital Partners, one of Laredo’s major shareholders, urged the company earlier this year to take several steps to right-size itself and improve shareholder value. (Source: Shutterstock.com)
Laredo Petroleum Inc. slashed its payroll by 25% and parted ways with one-fifth of its workforce, including its CFO, on April 8 as the Tulsa, Okla.-based oil and gas company works to address shareholder concerns that its stock is undervalued.
The cuts seek to reduce Laredo’s general and administrative (G&A) expenses and capitalized employee costs, though analysts said Laredo could have cut more. The company also promoted Michael T. Beyer to senior vice president and CFO, immediately replacing former CFO Richard C. Buterbaugh.
In a statement, Laredo CEO Randy Foutch indicated that 40% of the cost reductions were aimed at the company’s executive team.
“While these actions are always difficult, they are necessary as we focus on increasing corporate-level returns and growing within cash flow from operations,” Foutch said.
The move comes as U.S. shale producers—Laredo being one of those companies—are increasingly facing pressure from investors to grow within cash flow while still generating returns.
Earlier this year, SailingStone Capital Partners LLC, one of Laredo’s major shareholders, urged the company to take several steps to right-size itself and improve shareholder value.
“Today, Laredo shares trade close to the value of its proved developed producing reserves, implying that the company’s undeveloped acreage is worthless under the current development program,” the investment advisory firm said in a letter to Laredo, according to company filings. “We believe that this perception is the result of poor capital allocation decisions and, emphatically, not the quality of the rock.”
In order to regain value, the firm said it believed Laredo needs to lower its G&A costs as well as transition to wider spacing between its wells and adopt a business plan that prioritizes free cash flow generation.
Laredo, which operates primarily in the Permian Basin of West Texas, expects the personnel cost reduction announced on April 8 to result in roughly $30 million of annualized savings.
Analysts with Tudor, Pickering, Holt & Co. (TPH) said the cost savings from the reduction represent roughly 4% of Laredo’s market cap.
“While we’re never glad to see people lose jobs, we agree with the decision as [Laredo’s] G&A cost structure was not competitive with peers or, in our view, appropriate for the current environment,” the TPH analysts said in a research note on April 9. “The reduction is a step in the right direction, but we still see a disparity between the peer average G&A budget and pro-forma [Laredo].”
The analysts also noted that G&A remains a key focus for upstream investors and the firm expects other public E&Ps to follow in Laredo’s footsteps.
“G&A remains a key focus for upstream investors and we expect more announcements over the coming quarters as companies address right-sizing the corporate cost structure,” TPH analysts said. “For those companies who do not proactively do so [and need to], we foresee increasing pressure from shareholders.”
Foutch said Beyer’s appointment to CFO was a part of a senior leadership succession planning process that began with the promotion of Karen Chandler to COO in October 2018.
“Since the fourth quarter of 2018, we have named a new chief operating officer, chief financial officer and general counsel,” he said. “I welcome Michael’s expanded leadership role as the company sharpens it’s focus on full-cycle economics and corporate-level returns.”
Beyer served as the company’s chief accounting officer since 2014. He joined Laredo in 2007.
The departure of Laredo’s former CFO, Buterbaugh, was not the result of any dispute or disagreement with the company relating to the company’s accounting practices or financial statements, according to filings with the U.S. Securities and Exchange Commission on April 8.
Buterbaugh, who has more than 35 years of experience in the oil and gas industry, had served as Laredo’s CFO since 2012. Prior to joining the company, he held various financial positions with Quicksilver Resources Inc. and Kerr-McGee Corp.
“[Buterbaugh’s] dedication to Laredo is truly appreciated and I wish him well in his future endeavors,” Foutch said.
Emily Patsy can be reached at epatsy@hartenergy.com.
Recommended Reading
BP Profit Falls On Weak Oil Prices, May Slow Share Buybacks
2024-10-30 - Despite a drop in profit due to weak oil prices, BP reported strong results from its U.S. shale segment and new momentum in the Gulf of Mexico.
Utica Oil E&P Infinity Natural Resources’ IPO Gains 7 More Bankers
2024-11-27 - Infinity Natural Resources’ IPO is expected to provide a first-look at the public market’s valuation of the Utica oil play.
Oxy’s Hollub Drills Down on CrownRock Deal, More M&A, Net-zero Oil
2024-11-01 - Vicki Hollub is leading Occidental Petroleum through the M&A wave while pioneering oil and gas in EOR and DAC towards the goal of net-zero oil.
Post Oak Backs New Permian Team, But PE Faces Uphill Fundraising Battle
2024-10-11 - As private equity begins the process of recycling inventory, likely to be divested from large-scale mergers, executives acknowledged that raising funds has become increasingly difficult.
Sheffield: E&Ps’ Capital Starvation Not All Bad, But M&A Needs Work
2024-10-04 - Bryan Sheffield, managing partner of Formentera Partners and founder of Parsley Energy, discussed E&P capital, M&A barriers and how longer laterals could spur a “growth mode” at Hart Energy’s Energy Capital Conference.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.