Laredo Petroleum Inc. on Jan. 6 revealed a production beat along with plans to improve its debt structure through a $900 million senior note offering.

In a company release, Laredo pre-announced a fourth-quarter oil production beat and a 23.2% increase in year-end 2019 proved reserves. The Tulsa, Okla.-based oil and gas producer said the results were driven by consistent operational efficiency gains that positively impacted cycle times and wider-spaced well packages, primarily in the Permian Basin in West Texas.

Throughout the year, Laredo’s well packages averaged 16% better than the company’s oil type curve for Upper/Middle Wolfcamp wells on its established acreage in the Permian, the company release said.

Laredo estimates fourth-quarter 2019 oil production of 27,300 barrels per day of oil, beating guidance by 5%. The company’s estimated total production of 84,000 barrels of oil equivalent per day beat guidance by 10%.

Jason Pigott, who took over as Laredo’s CEO in October, attributed the strong performance to the company’s new focus. Since taking the helm, Pigott has implemented his strategic vision for the company, which includes opportunistically pursuing transactions of high-margin inventory to improve capital efficiency and free cash flow generation.

In particular, the 55 million-barrel growth in Laredo’s total proved reserves to 293 million barrels of oil equivalent was partially driven by operational gains as well as proved undeveloped bookings, primarily related to its recently acquired acreage in Howard County, Texas, according to the company release.

The company also tacked on additional acreage in Glasscock County, Texas, in an acquisition that closed in early December.

“Results in 2019 were driven by our outstanding operational performance and improved well productivity related to wider-spaced development,” Pigott said in a statement adding that development in 2020 “will shift to our recent Howard County acquisition, as we seek to further improve corporate returns and free cash flow generation through accretive acquisitions that target oily, high-margin inventory.”

In a separate release on Jan. 6, Laredo said it intends to offer $450 million senior unsecured notes due 2025 and $450 million due 2028. Plans for net proceeds include refinancing its $450 million 2022 notes and $350 million 2023 notes plus paying down a portion of its outstanding credit facility.

As of Jan. 3, pro forma for acquisitions and assuming the debt refinancing, Gabriele Sorbara, managing director with Siebert Williams Shank & Co. LLC, said he calculates Laredo with about $1.2 billion of total debt, including $295 million on its revolver.

“We expect shares to outperform on the fourth-quarter 2019 production beat, proved reserves update and debt refinancing,” Sorbara said in a Jan. 6 research note. “We maintain our Buy rating on valuation and the continuation of a positive step-change in the [Laredo Petroleum] story.”

BofA Securities, Wells Fargo Securities, BMO Capital Markets, Goldman Sachs & Co. LLC, Barclays and Capitol One Securities are joint book-running managers for the debt offering.

Comments