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Laredo Petroleum Provides 2022 Capital Budget and Outlook
Plan expected to deliver >
Company expects to achieve deleveraging targets ahead of schedule
- Allocates capital to highest-return opportunities, prioritizing the generation of Free Cash Flow1 and leverage reduction
- Maintains capital discipline with flat activity levels versus 2021, with expected total capital expenditures of
~$520 million, including ~$20 millionfor non-operated activity and ~$10 millionfor ESG focused investments
- Generates expected Free Cash Flow1 of >
$300 millionat $80WTI and $4.65 Henry Hub
- Accelerates achievement of deleveraging targets by approximately six months. Company expects to achieve 1.5x Net Debt/Adjusted EBITDA1 ratio in third-quarter 2022 and below 1.0x by the second half of 2023
- Holds oil production approximately flat with 4Q-21 levels and generates expected full-year oil production growth of 24 -34% versus prior year, driven primarily by production acquired in the second-half of 2021
- Improves capital efficiency through longer-lateral completions, with average lateral length for 2022 expected to be ~11,800 feet, including 18 15,000-foot wells
"Our 2022 capital budget and expectations are a direct result of the transformational nature of the transactions we executed in 2021," stated
Laredo’s 2022 capital budget maintains the Company’s commitment to capital discipline, holding its rig and completions crew count flat with 2021. Activity and capital levels are front-end loaded, with the year’s highest level of investment occurring in the first quarter of 2022, during which the Company is operating three drilling rigs and two completions crews for much of the quarter. Laredo plans to release one drilling rig and one completions crew by the end of the first quarter and operate a constant two drilling rigs and one completions crew for the balance of 2022.
The Company’s 2022 development plan is focused entirely on capital efficient, oil-weighted Howard County inventory. Efficiencies are expected to further improve with 18 15,000-foot wells in the 2022 plan and average lateral length increasing ~18% to 11,800 feet. Laredo expects to hold full-year 2022 average daily oil production relatively flat with Q4-21 levels.
The primary driver for the expected increase in 2022 capital expenditures versus 2021 is a robust inflationary environment, with Laredo anticipating average inflation of ~15% for 2022. The Company has contracted a significant portion of its services and tangible goods through the first half of 2022. Other significant differences from 2021 investments include
1Non-GAAP financial measure; please see definitions of non-GAAP financial measures at the end of this release.
Full-Year 2022 Guidance
The table below reflects the Company's guidance for total and oil production, incurred capital expenditures and selected activity metrics.
|Total production (MBOE per day)||82.0 - 86.0|
|Oil production (MBOPD)||39.5 - 42.5|
|Incurred capital expenditures, excluding non-budgeted acquisitions ($ MM)||~520|
|Average drilling rigs||2.3|
|Average completions crews||1.2|
|Average lateral length (ft.)||11,800|
This press release and any oral statements made regarding the contents of this release 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, indicates, enables, transforms, 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. Such statements are not guarantees of future performance and involve risks, assumptions and uncertainties.
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 ability of the Company to execute its strategies, including its ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to its financial results and to successfully integrate acquired businesses, assets and properties, oil production quotas or other actions that might be imposed by the
Free Cash Flow (Unaudited)
Free Cash Flow is a non-GAAP financial measure that the Company defines as net cash provided by operating activities (GAAP) before changes in operating assets and liabilities, net, less incurred capital expenditures, excluding non-budgeted acquisition costs. Free Cash Flow does not represent funds available for future discretionary use because it excludes funds required for future debt service, capital expenditures, acquisitions, working capital, income taxes, franchise taxes and other commitments and obligations. However, management believes Free Cash Flow is useful to management and investors in evaluating operating trends in its business that are affected by production, commodity prices, operating costs and other related factors. There are significant limitations to the use of Free Cash Flow as a measure of performance, including the lack of comparability due to the different methods of calculating Free Cash Flow reported by different companies.
Adjusted EBITDA (Unaudited)
Adjusted EBITDA is a non-GAAP financial measure that the Company defines as net income or loss (GAAP) plus adjustments for share-settled equity-based compensation, depletion, depreciation and amortization, impairment expense, mark-to-market on derivatives, premiums paid or received for commodity derivatives that matured during the period, accretion expense, gains or losses on disposal of assets, interest expense, income taxes and other non-recurring income and expenses. Adjusted EBITDA provides no information regarding a company's capital structure, borrowings, interest costs, capital expenditures, working capital movement or tax position. Adjusted EBITDA does not represent funds available for future discretionary use because it excludes funds required for debt service, capital expenditures, working capital, income taxes, franchise taxes and other commitments and obligations. However, management believes Adjusted EBITDA is useful to an investor in evaluating the Company's operating performance because this measure:
- is widely used by investors in the oil and natural gas industry to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon accounting methods, the book value of assets, capital structure and the method by which assets were acquired, among other factors;
- helps investors to more meaningfully evaluate and compare the results of the Company's operations from period to period by removing the effect of its capital structure from its operating structure; and
- is used by management for various purposes, including as a measure of operating performance, in presentations to the Company's board of directors and as a basis for strategic planning and forecasting.
There are significant limitations to the use of Adjusted EBITDA as a measure of performance, including the inability to analyze the effect of certain recurring and non-recurring items that materially affect the Company's net income or loss and the lack of comparability of results of operations to different companies due to the different methods of calculating Adjusted EBITDA reported by different companies. The Company's measurements of Adjusted EBITDA for financial reporting as compared to compliance under its debt agreements differ.
Net Debt (Unaudited)
Net Debt, a non-GAAP financial measure, is calculated as the face value of long-term debt less cash and cash equivalents. Management believes Net Debt is useful to management and investors in determining the Company's leverage position since the Company has the ability, and may decide, to use a portion of its cash and cash equivalents to reduce debt.
Net Debt to TTM Adjusted EBITDA (Unaudited)
Net Debt to TTM Adjusted EBITDA is calculated as Net Debt divided by trailing twelve-month Adjusted EBITDA. Net Debt to Adjusted EBITDA is used by the Company's management for various purposes, including as a measure of operating performance, in presentations to its board of directors and as a basis for strategic planning and forecasting.
Source: Laredo Petroleum, Inc.