SEC Filing | Laredo Petroleum, Inc.

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lpi-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35380

Laredo Petroleum, Inc.

(Exact name of registrant as specified in its charter)


Delaware						45-3007926
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


15 W. Sixth Street	Suite 900
Tulsa	Oklahoma	74119
(Address of principal executive offices)			(Zip code)

(918) 513-4570

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	LPI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐


Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of registrant's common stock outstanding as of August 3, 2020: 11,996,028

LAREDO PETROLEUM, INC.

TABLE OF CONTENTS


			Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			iii
Part I			1
Item 1. Consolidated Financial Statements (Unaudited)			1
Consolidated balance sheets as of June 30, 2020 and December 31, 2019			1
Consolidated statements of operations for the three and six months ended June 30, 2020 and 2019			2
Consolidated statements of stockholders' equity for the three and six months ended June 30, 2020 and 2019			3
Consolidated statements of cash flows for the six months ended June 30, 2020 and 2019			5
Condensed notes to the consolidated financial statements:			6
Note 1—Organization and basis of presentation			6
Note 2—New accounting standards			6
Note 3—Acquisitions and divestitures			7

Note 4—Property and equipment			9
Note 5—Leases			11
Note 6—Debt			11
Note 7—Stockholders' equity			13
Note 8—Equity Incentive Plan			14
Note 9—Derivatives			20
Note 10—Fair value measurements			23
Note 11—Net income (loss) per common share			26
Note 12—Commitments and contingencies			27

Note 13—Supplemental cash flow and non-cash information			28
Note 14—Asset retirement obligations			28
Note 15—Revenue recognition			29
Note 16—Income taxes			29
Note 17—Related parties			29
Note 18—Organizational restructurings			30
Note 19—Subsequent events			31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			57
Item 4. Controls and Procedures			60
Part II			62
Item 1. Legal Proceedings			62
Item 1A. Risk Factors			62
Item 2. Purchases of Equity Securities			66
Item 3. Defaults Upon Senior Securities			67
Item 4. Mine Safety Disclosures			68
Item 5. Other Information			69
Item 6. Exhibits			70
SIGNATURES			71

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (this "Quarterly Report") are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, natural gas liquids ("NGL") and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:

•the threat, occurrence, potential duration or other implications of epidemic or pandemic diseases, including the recent outbreak of a novel strain of coronavirus ("COVID-19"), or any government response to such occurrence or threat;

•changes in domestic and global production, supply and demand for oil, NGL and natural gas, including the recent decrease in demand and oversupply of oil and natural gas as a result of the COVID-19 pandemic and actions by OPEC+;

•the volatility of oil, NGL and natural gas prices, including in our area of operation in the Permian Basin, and the extent and duration of price reductions and increased production by the Organization of the Petroleum Exporting Countries members and other oil exporting nations ("OPEC+");

•the pipeline and storage constraints in the Permian Basin and the possibility of future production curtailment in the State of Texas;

•revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;

•impacts of impairment write-downs on our financial statements;

•the effectiveness of our internal control over financial reporting and our ability to remediate a material weakness in our internal control over financial reporting;

•the potential impact of suspending drilling programs and completions activities or shutting in a portion of our wells, as well as costs to later restart, and co‐development considerations such as horizontal spacing, vertical spacing and parent‐child interactions on production of oil, NGL and natural gas from our wells;

•conditions of the energy industry and changes in the regulatory environment and in United States or international legal, tax, political, administrative or economic conditions, including trade policies or regulations that restrict imports or exports from the United States or prohibit or restrict our ability to apply hydraulic fracturing to our oil and natural gas wells and to access and dispose of water used in these operations;

•the ongoing instability and uncertainty in the United States and international energy, financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;

•our ability to maintain listing on the New York Stock Exchange ("NYSE") and to prevent the decrease in market price and liquidity of our common stock;

•our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;

•capital requirements for our operations and projects;

•the long-term performance of wells that were completed using different technologies;

iii

Table of Contents

•the availability and costs of drilling and production equipment, supplies, labor and oil and natural gas processing and other services;

•the availability and costs of sufficient pipeline and transportation facilities and gathering and processing capacity;

•our ability to maintain the borrowing capacity under our Fifth Amended and Restated Senior Secured Credit Facility (as amended, the "Senior Secured Credit Facility") or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;

•our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties;

•our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;

•the impact of repurchases, if any, of securities from time to time;

•restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our Senior Unsecured Notes (as defined below), as well as debt that could be incurred in the future;

•our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;

•the potentially insufficient refining capacity in the United States Gulf Coast to refine all of the light sweet crude oil being produced in the United States, which could result in widening price discounts to world oil prices and potential shut-in of production due to lack of sufficient markets;

•risks related to the geographic concentration of our assets;

•our ability to secure or generate sufficient electricity to produce our wells without limitations;

•our ability to hedge and regulations that affect our ability to hedge;

•legislation or regulations that prohibit or restrict our ability to drill new allocation wells;

•our ability to execute our strategies;

•competition in the oil and natural gas industry;

•drilling and operating risks, including risks related to hydraulic fracturing activities,

•and those related to inclement weather impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time; and

•our ability to comply with federal, state and local regulatory requirements.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," under "Part II, Item 1A. Risk Factors" and elsewhere in this Quarterly Report and our first-quarter 2020 Quarterly Report, under "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Annual Report") and those set forth from time to time in our other filings with the Securities and Exchange Commission (the "SEC"). These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report or, if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

Table of Contents

Part I

Item 1. Consolidated Financial Statements (Unaudited)

Laredo Petroleum, Inc.

Consolidated balance sheets

(in thousands, except share data)

(Unaudited)


	June 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	15,747	$	40,857
Accounts receivable, net	69,113		85,223
Derivatives	151,704		51,929




Other current assets	19,695		22,470

Total current assets	256,259		200,479
Property and equipment:
Oil and natural gas properties, full cost method:
Evaluated properties	7,689,108		7,421,799
Unevaluated properties not being depleted	127,116		142,354
Less accumulated depletion and impairment	(6,429,794)		(5,725,114)
Oil and natural gas properties, net	1,386,430		1,839,039
Midstream service assets, net	116,826		128,678
Other fixed assets, net	33,001		32,504
Property and equipment, net	1,536,257		2,000,221

Derivatives	40,258		23,387

Operating lease right-of-use assets	23,844		28,343
Other noncurrent assets, net	13,970		12,007

Total assets	$	1,870,588	$	2,264,437
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	47,433	$	40,521

Accrued capital expenditures	21,304		36,328
Undistributed revenue and royalties	22,597		33,123


Derivatives	192		7,698


Operating lease liabilities	11,696		14,042
Other current liabilities	54,567		39,184

Total current liabilities	157,789		170,896
Long-term debt, net	1,258,164		1,170,417
Derivatives	602		—

Asset retirement obligations	62,352		60,691
Operating lease liabilities	14,670		17,208
Other noncurrent liabilities	991		3,351

Total liabilities	1,494,568		1,422,563
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of June 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value, 22,500,000 shares authorized and 11,939,307 and 11,864,604 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively ⁽¹⁾	119		2,373
Additional paid-in capital	2,392,564		2,385,355
Accumulated deficit	(2,016,663)		(1,545,854)

Total stockholders' equity	376,020		841,874
Total liabilities and stockholders' equity	$	1,870,588	$	2,264,437

______________________________________________________________________________

(1)Common stock shares were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020. See Note 7.a.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

Laredo Petroleum, Inc.

Consolidated statements of operations

(in thousands, except per share data)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2020		2019		2020		2019
Revenues:
Oil sales	$	70,105	$	160,030	$	190,083	$	289,201
NGL sales	13,228		22,197		24,786		54,432
Natural gas sales	10,810		1,636		15,159		13,606
Midstream service revenues	2,281		2,610		4,964		5,493
Sales of purchased oil	14,164		30,170		80,588		62,858
Total revenues	110,588		216,643		315,580		425,590
Costs and expenses:
Lease operating expenses	20,591		23,632		42,631		46,241
Production and ad valorem taxes	6,938		11,328		16,182		18,547
Transportation and marketing expenses	11,181		4,891		24,725		9,650
Midstream service expenses	815		607		1,985		2,210

Costs of purchased oil	16,117		30,172		95,414		62,863
General and administrative	10,659		11,056		23,221		32,575
Organizational restructuring expenses	4,200		10,406		4,200		10,406

Depletion, depreciation and amortization	66,574		65,703		127,876		128,801

Impairment expense	406,448		—		593,147		—
Other operating expenses	1,117		1,020		2,223		2,072
Total costs and expenses	544,640		158,815		931,604		313,365
Operating income (loss)	(434,052)		57,828		(616,024)		112,225
Non-operating income (expense):
Gain (loss) on derivatives, net	(90,537)		88,394		207,299		40,029


Interest expense	(27,072)		(15,765)		(52,042)		(31,312)
Litigation settlement	—		42,500		—		42,500
Loss on extinguishment of debt	—		—		(13,320)		—
Gain (loss) on disposal of assets, net	152		(670)		(450)		(1,609)
Other income (expense), net	(16)		2,846		75		3,713
Write-off of debt issuance costs	(1,103)		—		(1,103)		—
Total non-operating income (expense), net	(118,576)		117,305		140,459		53,321
Income (loss) before income taxes	(552,628)		175,133		(475,565)		165,546
Income tax benefit (expense):

Deferred	7,173		(1,751)		4,756		(1,655)
Total income tax benefit (expense)	7,173		(1,751)		4,756		(1,655)


Net income (loss)	$	(545,455)	$	173,382	$	(470,809)	$	163,891
Net income (loss) per common share ⁽¹⁾:



Basic	$	(46.75)	$	14.99	$	(40.44)	$	14.19



Diluted	$	(46.75)	$	14.98	$	(40.44)	$	14.15
Weighted-average common shares outstanding⁽¹⁾:
Basic	11,667		11,570		11,642		11,547
Diluted	11,667		11,578		11,642		11,586

______________________________________________________________________________

(1)Net income (loss) per common share and weighted-average common shares outstanding were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020 as discussed in Note 7.a.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

Laredo Petroleum, Inc.

Consolidated statements of stockholders' equity

(in thousands)

(Unaudited)


	Common stock					Additional paid-in capital		Treasury stock (at cost)								Accumulated deficit
	Shares ⁽¹⁾	Amount					Shares ⁽¹⁾			Amount					Total
Balance, March 31, 2020	11,970	$	2,394	$	2,388,035	—		$	—		$	(1,471,208)	$	919,221

Reverse stock split	—	(2,277)		2,277		—		—			—		—
Restricted stock awards⁽²⁾	13	2		(2)		—		—			—		—
Restricted stock forfeitures⁽²⁾	(37)	—		—		—		—			—		—


Stock exchanged for tax withholding	—	—		—		7		(122)			—		(122)

Retirement of treasury stock⁽²⁾	(7)	—		(122)		(7)		122			—		—

Share-settled equity-based compensation	—	—		2,376		—		—			—		2,376



Net loss	—	—		—		—		—			(545,455)		(545,455)
Balance, June 30, 2020	11,939	$	119	$	2,392,564	—		$	—		$	(2,016,663)	$	376,020

	Common stock					Additional paid-in capital		Treasury stock (at cost)								Accumulated deficit
	Shares ⁽¹⁾	Amount					Shares ⁽¹⁾			Amount					Total
Balance, March 31, 2019	11,960	$	2,392	$	2,381,926	—		$	—		$	(1,212,886)	$	1,171,432
Restricted stock awards	53	11		(11)		—		—			—		—
Restricted stock forfeitures	(138)	(28)		28		—		—			—		—


Stock exchanged for tax withholding	—	—		—		1		(34)			—		(34)

Retirement of treasury stock	(1)	—		(34)		(1)		34			—		—



Share-settled equity-based compensation	—	—		(459)		—		—			—		(459)
Net income	—	—		—		—		—			173,382		173,382
Balance, June 30, 2019	11,874	$	2,375	$	2,381,450	—		$	—		$	(1,039,504)	$	1,344,321

______________________________________________________________________________

(1) Shares presented were retroactively adjusted for the Company's 1-for-20 reverse stock split effective June 1, 2020 as discussed in Note 7.a.

(2)