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Laredo Petroleum Announces 29% Growth in Year-End Proved Reserve Estimates
Year-End 2017 Reserves and Operating Results Highlights
- 17% increase in production in 2017 to a Company record 21.3 million barrels of oil equivalent ("MMBOE")
- 36% organic growth in proved developed reserves, an increase of 50 MMBOE
- 336% of production replaced organically with proved developed reserves at a proved developed finding and development ("F&D") cost, a non-GAPP financial measure, of
- 81% increase in the value of the Company's reserves to approximately
Please see supplemental financial information at the end of this news release for the calculation of the non-GAAP financial measure.
"Laredo's 2017 development plan generated impressive results," stated
"Initial confirmatory data from recent spacing tests has the potential to positively impact long-term corporate-level returns and value creation," continued Mr. Foutch. "Our 2018 development program is expected to capitalize upon the 2017 testing program while generating greater than 10% production growth and aligning capital expenditures with operating cash flow by the end of the year. Expected operational efficiencies from increased development density in our premium Upper and Middle Wolfcamp formations anchor this concept. Larger well packages targeting these formations, well productivity in-line with our type curve, longer lateral lengths and measured increases in activity are anticipated drivers of accelerated value creation in 2018 and beyond."
The value of Laredo's proved reserves increased to approximately
Consistent with the booking methodology for proved undeveloped ("PUD") reserves Laredo adopted at year-end 2015, the Company booked a minimal number of PUD locations. For year-end 2017, the Company booked 26 PUD locations, a decrease from 31 locations booked at year-end 2016, although estimated reserves associated with PUD bookings only decreased by 1 MMBOE from year-end 2016. All 31 PUD locations booked at year-end 2016 were drilled and converted to proved developed locations in 2017.
Changes in total proved reserves for 2017 are summarized in the following table:
|Beginning of year - December 31, 2016||64||50||317||167|
|Revisions of previous estimates||10||13||74||35|
|Extensions, discoveries and other additions||15||10||60||35|
|Sales of reserves in place||—||—||—||—|
|End of year - December 31, 2017(1)||79||67||415||216|
|Standardized measure of discounted future net cash flows - ($ millions)||$||1,770|
(1) Figures may not add due to rounding.
Laredo added proved developed reserves of 71 MMBOE during 2017, including increases due to positive pricing and performance revisions. Proved developed reserve additions replaced 336% of Company-record production and were added at a preliminary proved developed F&D cost of
2018 Capital Budget
Laredo's Board of Directors has approved a
The Company continues to increase operational efficiencies. The budgeted 2018 development plan increases activity levels from 2017 based on completed lateral feet while utilizing, on average, fewer drilling rigs. Laredo is currently operating three horizontal rigs and expects to increase to four horizontal rigs in the second half of 2018. In 2018, Laredo anticipates completing 60-65 net wells with an average completed lateral length of 10,400 feet.
Laredo's current 2018 development plan primarily targets the Company's premium Upper and Middle Wolfcamp formations. Knowledge gained from the accelerated 2017 testing program will be applied to new well packages as the Company designs spacing tests that co-develop multiple landing zones in the Upper and Middle Wolfcamp formations. The 2018 development plan is expected to generate both liquids and total production growth of more than 10% compared to full-year 2017 volumes.
The Company's 2018 budget is based on benchmark pricing of
Fourth-Quarter 2017 Operational Update
In the fourth quarter of 2017, the Company completed 18 wells and had total capital expenditures of approximately
Total production in the fourth quarter of 2017 was a Company record 61,922 BOE per day, comprised of 43% oil, 28% NGL and 29% natural gas. In addition to delays pushing well completions later into the quarter and into 2018, production was adversely impacted by two horizontal wells in the Company's western
Although management does not expect these numbers to change, they are preliminary and unaudited.
Tax Rate Change
In response to recent changes in the tax code, the Company will modify its statutory tax rate to 22% in its calculation of Adjusted EPS, a non-GAAP financial measure, beginning in the fourth quarter of 2017. Previously, Laredo included at statutory tax rate of 36%.
Commodity Derivatives Update
For the three months ended
Laredo maintains a disciplined hedging program to reduce the variability in its anticipated cash flow due to fluctuations in commodity prices. The Company utilizes a combination of puts, swaps and collars, entering into contracts solely with banks that are part of its Senior Secured Credit Facility. Laredo currently has hedges in place for approximately 90% of anticipated oil production in 2018 and has increased oil hedges through 2020. Laredo has also entered into NGL and natural gas hedges through 2018 and basis hedges through 2019. Details of the Company's hedge position are included in the YE-17 Reserves & 2018 Budget Presentation available on the Company's website at www.laredopetro.com.
Laredo records all derivatives on its balance sheet as either assets or liabilities measured at their estimated fair value. Laredo has not designated any derivatives as hedges for accounting purposes and Laredo does not enter into such instruments for speculative trading purposes. Gain (loss) on derivatives is reported under "Non-operating income (expense)" in Laredo's consolidated statement of operations.
Weighted-Average Shares Outstanding
For the three months ended
Fourth-Quarter and Full-Year 2017 Earnings Conference Call
Laredo plans to release complete fourth-quarter and full-year 2017 earnings on
Additional information about Laredo may be found on its website at www.laredopetro.com.
This press release and any oral statements made regarding the subject of this release, including in the conference call referenced herein, contain forward-looking statements as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities that Laredo assumes, plans, expects, believes, intends, projects, estimates or anticipates (and other similar expressions) will, should or may occur in the future are forward-looking statements. The forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.
General risks relating to Laredo include, but are not limited to, the decline in prices of oil, natural gas liquids and natural gas and the related impact to financial statements as a result of asset impairments and revisions to reserve estimates, the increase in service costs, the impact of Laredo's sale of its interest in the
Supplemental non-GAAP financial measure
Non-GAAP financial measure
The non-GAAP financial measure of proved developed Finding & Development Cost, as defined by us, may not be comparable to similarly titled measures used by other companies. Therefore, this non-GAAP measure should be considered in conjunction with net income or loss and other performance measures prepared in accordance with GAAP, such as operating income or loss or cash flow from operating activities. Proved developed Finding and Development Cost should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss, standardized measure of discounted future net cash flows or any other GAAP measure of liquidity or financial performance.
Proved Developed Finding and Development Cost (Unaudited)
Proved developed finding and development ("F&D") cost is calculated by dividing (x) development costs for the period, by (y) proved developed reserve additions for the period, defined as the change in proved developed reserves, less purchased reserves, plus sold reserves and plus sales volumes during the period. The method we use to calculate our proved developed F&D cost may differ significantly from methods used by other companies to compute similar measures. As a result, our proved developed F&D cost may not be comparable to similar measures provided by other companies. We believe that providing the measure of proved development F&D cost is useful in evaluating the cost, on a per BOE basis, to added proved developed reserves.
However, this measure is provided in addition to, and not as an alternative for, and should be read in conjunction with, the information contained in our financial statements prepared in accordance with GAAP. Due to various factors, including timing differences in the addition of proved reserves and the related costs to develop those reserves, proved developed F&D cost do not necessarily reflect precisely the costs associated with particular proved reserves. As a result of various factors that could materially affect the timing and amounts of future increases in proved reserves and the timing and amounts of future costs, we cannot assure you that our future proved developed F&D cost will not differ materially from those presented.
|(dollars in millions, except per BOE amount, reserves and sales volumes in MMBOE)||Proved developed
|Development costs (x)||$||561|
|Proved developed reserves:|
|As of December 31, 2017||191|
|As of December 31, 2016||(141||)|
|Change in proved developed reserves||50|
|Plus sales of proved developed reserves during 2017||—|
|Plus 2017 sales volumes||21|
|Proved developed reserve additions (y)||71|
|Proved developed F&D cost per BOE||$||7.90|
Ron Hagood: (918) 858-5504 - RHagood@laredopetro.com
Source: Laredo Petroleum, Inc.