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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, 2022
 or
     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)
Delaware45-3007926
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
15 W. Sixth Street Suite 900 
TulsaOklahoma74119
(Address of principal executive offices)(Zip code)
(918513-4570
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, $0.01 par value per shareLPINew 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 filerAccelerated 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 2, 2022: 17,104,049



LAREDO PETROLEUM, INC.
TABLE OF CONTENTS
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Glossary of Oil and Natural Gas Terms
The following terms are used throughout this Quarterly Report on Form 10-Q (this "Quarterly Report"):
"Basin"—A large natural depression on the earth's surface in which sediments, generally brought by water, accumulate.
"Bbl" or "barrel"—One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate, natural gas liquids or water.
"Benchmark Prices"—The unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials, as required by SEC guidelines.
"BOE"—One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.
"BOE/D"—BOE per day.
"Brent"—A light (low density) and sweet (low sulfur) crude oil sourced from the North Sea, used as a pricing benchmark for ICE oil futures contracts.
"Btu"—British thermal unit, the quantity of heat required to raise the temperature of a one pound mass of water by one degree Fahrenheit.
"Completion"—The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
"Developed acreage"—The number of acres that are allocated or assignable to productive wells or wells capable of production.
"Dry hole"—A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
"Exchange Act" — The Securities Exchange Act of 1934, as amended.
"Formation"—A layer of rock which has distinct characteristics that differ from nearby rock.
"Fracturing" or "Frac"—The propagation of fractures in a rock layer by a pressurized fluid. This technique is used to release petroleum and natural gas for extraction.
"GAAP"—Generally accepted accounting principles in the United States.
"GCM"—Garden City Minerals, LLC.
"Gross acres" or "gross wells" — The total acres or wells, as the case may be, in which a working interest is owned.
"Henry Hub"—A natural gas pipeline delivery point in south Louisiana that serves as the benchmark natural gas price underlying NYMEX natural gas futures contracts.
"Horizon" — A term used to denote a surface in or of rock, or a distinctive layer of rock that might be represented by a reflection in seismic data.
"Horizontal drilling" — A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.
"ICE"—The Intercontinental Exchange.
"Initial Production"The measurement of production from an oil or gas well when first brought on stream. Often stated in terms of production during the first thirty days.
"Liquids"—Describes oil, condensate and natural gas liquids.
"LMS"—Laredo Midstream Services, LLC.
"MBbl"—One thousand barrels of crude oil, condensate or natural gas liquids.
"MBOE"—One thousand BOE.
"MMBOE"—One million BOE.
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"Mcf"—One thousand cubic feet of natural gas.
"MMBtu"—One million Btu.
"MMcf"—One million cubic feet of natural gas.
"Natural gas liquids" or "NGL"—Components of natural gas that are separated from the gas state in the form of liquids, which include propane, butanes and ethane, among others.
"Net acres"—The percentage of gross acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.
"NYMEX"—The New York Mercantile Exchange.
"OPEC"—The Organization of the Petroleum Exporting Countries.
"Productive well"—A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.
"Proved reserves"—The estimated quantities of oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
"Realized Prices"—Prices which reflect adjustments to the Benchmark Prices for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point without giving effect to our commodity derivative transactions.
"Reservoir"—A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.
"Royalty interest" — An interest that gives an owner the right to receive a portion of the resources or revenues without having to carry any development costs, which may be subject to expiration.
"SEC" — The Securities and Exchange Commission.
"Securities Act" — The Securities Act of 1933, as amended.
"Senior Secured Credit Facility" — The Fifth Amended and Restated Credit Agreement among Laredo Petroleum, Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent, Laredo Midstream Services, LLC and Garden City Minerals, LLC, as guarantors, and the banks signatory thereto.
"Spacing"—The distance between wells producing from the same reservoir.
"Standardized measure"—Discounted future net cash flows estimated by applying Realized Prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.
"Undeveloped acreage"—Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.
"Wellhead natural gas"—Natural gas produced at or near the well.
"Working interest" or "WI"—The right granted to the lessee of a property to explore for and to produce and own crude oil, natural gas liquids, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.
"WTI"—West Texas Intermediate grade crude oil. A light (low density) and sweet (low sulfur) crude oil, used as a pricing benchmark for NYMEX oil futures contracts.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in or incorporated by reference into this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, NGLs 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 possibility of instability and uncertainty in the U.S. 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;
changes in domestic and global production, supply and demand for oil, NGL and natural gas, including actions by OPEC members and other oil exporting nations ("OPEC+");
the volatility of oil, NGL and natural gas prices, including in our area of operation in the Permian Basin;
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;
United States ("U.S.") and international economic conditions and legal, tax, political and administrative developments, including the effects of energy, trade and environmental policies and existing and future laws and government regulations;
war and political instability in Ukraine and Russian efforts to destabilize the government of Ukraine and the global hydrocarbon market;
changes in general economic, business or industry conditions, including changes in interest rates and inflation rates and concerns over a potential recession;
the effects, duration, government response or other implications of the coronavirus ("COVID-19") pandemic, or the threat and occurrence of other epidemic or pandemic diseases;
our ability to comply with federal, state and local regulatory requirements;
restrictions on the use of water, including limits on the use of produced water and a moratorium on new produced water well permits recently imposed by the Railroad Commission of Texas, in an effort to control induced seismicity in the Permian Basin;
our ability to execute our strategies, including our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate and realize the anticipated benefits of acquired businesses, assets and properties;
competition in the oil and natural gas industry;
our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;
drilling and operating risks impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time, including risks related to hydraulic fracturing activities and inclement or extreme weather;
the long-term performance of wells that were completed using different technologies;
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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;
our ability to continue to maintain the borrowing capacity under our Senior Secured Credit Facility or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;
our ability to comply with restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;
our ability to generate sufficient cash to service our indebtedness, fund our capital requirements for our operations and projects and generate future profits;
our ability to hedge, and regulations that affect our ability to hedge;
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 gathering, processing, storage and export capacity in the Permian Basin and refining capacity in the U.S. Gulf Coast;
the impact of repurchases, if any, of securities from time to time;
the effectiveness of our internal control over financial reporting and our ability to remediate a material weakness in our internal control over financial reporting;
our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;
risks related to the geographic concentration of our assets; and
our ability to secure or generate sufficient electricity to produce our wells without limitations.
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", "Part II, Item 1A. Risk Factors" and elsewhere in this Quarterly Report, under "Part II, Item 1A. Risk Factors" in our first-quarter 2022 Quarterly Report, and 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, 2021 (the "2021 Annual Report") and those set forth from time to time in our other filings with 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.
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Part I

Item 1.    Consolidated Financial Statements (Unaudited)

Laredo Petroleum, Inc.
Consolidated balance sheets
(in thousands, except share data)
(Unaudited)
  June 30, 2022December 31, 2021
Assets  
Current assets:  
Cash and cash equivalents$147,546 $56,798 
Accounts receivable, net205,767 151,807 
Derivatives5,174 4,346 
Other current assets15,476 22,906 
Total current assets373,963 235,857 
Property and equipment: 
Oil and natural gas properties, full cost method: 
Evaluated properties9,318,212 8,968,668 
Unevaluated properties not being depleted124,182 170,033 
Less: accumulated depletion and impairment(7,164,277)(7,019,670)
Oil and natural gas properties, net2,278,117 2,119,031 
Midstream service assets, net92,690 96,528 
Other fixed assets, net36,761 34,590 
Property and equipment, net2,407,568 2,250,149 
Derivatives34,905 32,963 
Other noncurrent assets, net56,573 32,855 
Total assets$2,873,009 $2,551,824 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable and accrued liabilities$62,752 $71,386 
Accrued capital expenditures64,758 50,585 
Undistributed revenue and royalties257,398 117,920 
Derivatives274,409 179,809 
Other current liabilities140,059 107,213 
Total current liabilities799,376 526,913 
Long-term debt, net1,291,242 1,425,858 
Derivatives2,089  
Asset retirement obligations70,254 69,057 
Other noncurrent liabilities30,592 16,216 
Total liabilities2,193,553 2,038,044 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of June 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value, 40,000,000 and 22,500,000 shares authorized, and 17,212,383 and 17,074,516 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
172 171 
Additional paid-in capital2,778,538 2,788,628 
Accumulated deficit(2,099,254)(2,275,019)
Total stockholders' equity679,456 513,780 
Total liabilities and stockholders' equity$2,873,009 $2,551,824 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Laredo Petroleum, Inc.
Consolidated statements of operations
(in thousands, except per share data)
(Unaudited)
 Three months ended June 30, Six months ended June 30,
 2022202120222021
Revenues:
Oil sales$410,359 $157,722 $757,802 $285,423 
NGL sales72,505 43,494 137,660 85,172 
Natural gas sales66,606 31,110 105,195 64,188 
Midstream service revenues1,891 1,257 4,235 2,553 
Sales of purchased oil8,795 60,788 87,659 107,265 
Total revenues560,156 294,371 1,092,551 544,601 
Costs and expenses:
Lease operating expenses42,014 19,771 82,890 38,689 
Production and ad valorem taxes33,001 14,737 60,488 28,020 
Transportation and marketing expenses10,994 10,690 25,737 22,817 
Midstream service expenses1,733 700 3,147 1,558 
Costs of purchased oil6,780 64,737 89,744 114,653 
General and administrative16,999 21,101 38,943 34,174 
Organizational restructuring expenses 9,800  9,800 
Depletion, depreciation and amortization78,135 39,976 151,627 78,085 
Impairment expense 1,613  1,613 
Other operating (income) expense, net(736)2,899 283 4,042 
Total costs and expenses188,920 186,024 452,859 333,451 
Operating income371,236 108,347 639,692 211,150 
Non-operating income (expense):
Loss on derivatives, net(65,927)(216,942)(391,743)(371,307)
Interest expense(32,807)(25,870)(65,284)(51,816)
Loss on extinguishment of debt, net(798) (798) 
Gain (loss) on disposal of assets, net38 66 (222)(6)
Other income (expense), net(2,104)416 335 1,795 
Total non-operating expense, net(101,598)(242,330)(457,712)(421,334)
Income (loss) before income taxes269,638 (133,983)181,980 (210,184)
Income tax (expense) benefit:
Current(4,513) (5,731) 
Deferred(2,579)1,322 (484)2,084 
Total income tax (expense) benefit(7,092)1,322 (6,215)2,084 
Net income (loss)$262,546 $(132,661)$175,765 $(208,100)
Net income (loss) per common share:
Basic$15.60 $(10.47)$10.46 $(16.92)
Diluted$15.41 $(10.47)$10.31 $(16.92)
Weighted-average common shares outstanding:
Basic16,834 12,674 16,800 12,298 
Diluted17,039 12,674 17,040 12,298 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Laredo Petroleum, Inc.
Consolidated statements of stockholders' equity
(in thousands)
(Unaudited)
Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit 
 SharesAmountSharesAmountTotal
Balance, March 31, 202217,302 $173 $2,785,415  $ $(2,361,800)$423,788 
Restricted stock awards5 — — — — — — 
Restricted stock forfeitures(3)— — — — — — 
Share repurchases— — — 85 (9,071)— (9,071)
Stock exchanged for tax withholding— — — 7 (742)— (742)
Retirement of treasury stock(92)(1)(9,812)(92)9,813 —  
Share-settled equity-based compensation— — 2,935 — — — 2,935 
Net income— — — — — 262,546 262,546 
Balance, June 30, 202217,212 $172 $2,778,538  $ $(2,099,254)$679,456 
Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit
SharesAmountSharesAmountTotal
Balance, March 31, 202112,900 $129 $2,426,769  $ $(2,495,466)$(68,568)
Restricted stock awards6 — — — — — — 
Restricted stock forfeitures(40)— — — — — — 
Stock exchanged for tax withholding— — — 7 (451)— (451)
Retirement of treasury stock(7)— (451)(7)451 —  
Share-settled equity-based compensation— — 1,772 — — — 1,772 
Issuance of common stock, net of costs714 7 45,619 — — — 45,626 
Net loss— — — — — (132,661)(132,661)
Balance, June 30, 202113,573 $136 $2,473,709  $ $(2,628,127)$(154,282)

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


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Laredo Petroleum, Inc.
Consolidated statements of stockholders' equity
(in thousands)
(Unaudited)
 Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit 
 SharesAmountSharesAmountTotal
Balance, December 31, 202117,075 $171 $2,788,628  $ $(2,275,019)$513,780 
Restricted stock awards237 2 (2)— — —  
Restricted stock forfeitures(7)— — — — — — 
Share repurchases— — — 85 (9,071)— (9,071)
Stock exchanged for tax withholding— — — 83 (6,589)— (6,589)
Retirement of treasury stock(168)(2)(15,658)(168)15,660 —  
Share-settled equity-based compensation— — 5,571 — — — 5,571 
Performance share conversion75 1 (1)— — — — 
Net income— — — — — 175,765 175,765 
Balance, June 30, 202217,212 $172 $2,778,538  $ $(2,099,254)$679,456 
Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit
SharesAmountSharesAmountTotal
Balance, December 31, 202012,020 $120 $2,398,464  $ $(2,420,027)$(21,443)
Restricted stock awards194 2 (2)— — —  
Restricted stock forfeitures(41)— — — — — — 
Stock exchanged for tax withholding— — — 44 (1,741)— (1,741)
Retirement of treasury stock(44)— (1,741)(44)1,741 —  
Share-settled equity-based compensation— — 4,510 — — — 4,510 
Issuance of common stock, net of costs1,438 14 72,478 — — — 72,492 
Performance share conversion6 — — — — — — 
Net loss— — — — — (208,100)(208,100)
Balance, June 30, 202113,573 $136 $2,473,709  $ $(2,628,127)$(154,282)

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Laredo Petroleum, Inc.
Consolidated statements of cash flows
(in thousands)
(Unaudited)
  Six months ended June 30,
  20222021
Cash flows from operating activities:
  
Net income (loss)$175,765 $(208,100)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-settled equity-based compensation, net4,657 3,798 
Depletion, depreciation and amortization151,627 78,085 
Impairment expense 1,613 
Mark-to-market on derivatives:
Loss on derivatives, net391,743 371,307 
Settlements paid for matured derivatives, net(297,824)(98,781)
Premiums received for commodity derivatives 9,041 
Amortization of debt issuance costs3,214 2,099 
Amortization of operating lease right-of-use assets10,735 5,764 
Loss on extinguishment of debt, net798  
Deferred income tax benefit (expense) 484 (2,084)
Other, net1,345 2,497 
Changes in operating assets and liabilities:
Accounts receivable, net(53,960)(26,633)
Other current assets6,844 (4,412)
Other noncurrent assets, net(34,057)(12,649)
Accounts payable and accrued liabilities(8,634)9,784 
Undistributed revenue and royalties139,460 21,557 
Other current liabilities32,819 29,952 
Other noncurrent liabilities13,991 4,859 
Net cash provided by operating activities539,007 187,697 
Cash flows from investing activities:
Acquisitions of oil and natural gas properties, net(7,887) 
Capital expenditures:
Oil and natural gas properties(282,750)(166,077)
Midstream service assets(689)(1,561)
Other fixed assets(4,263)(1,236)
Proceeds from dispositions of capital assets, net of selling costs2,049 307 
Net cash used in investing activities(293,540)(168,567)
Cash flows from financing activities:
Borrowings on Senior Secured Credit Facility135,000 245,000 
Payments on Senior Secured Credit Facility(240,000)(120,000)
Extinguishment of debt(32,334) 
Proceeds from issuance of common stock, net of offering costs 72,492 
Share repurchases(9,071) 
Stock exchanged for tax withholding(6,589)(1,741)
Payments for debt issuance costs(1,725)(1,452)
Other 2,798 
Net cash (used in) provided by financing activities(154,719)197,097 
Net increase in cash, cash equivalents and restricted cash90,748 216,227 
Cash, cash equivalents and restricted cash, beginning of period56,798 48,757 
Cash, cash equivalents and restricted cash, end of period$147,546 $264,984 

 The accompanying notes are an integral part of these unaudited consolidated financial statements.
5

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 1—Organization and basis of presentation
Organization
Laredo Petroleum, Inc. ("Laredo"), together with its wholly-owned subsidiaries, is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties in the Permian Basin of West Texas. The Company has identified one operating segment: exploration and production. In these notes, the "Company" refers to Laredo, LMS and GCM collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.
Basis of presentation
The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with GAAP. All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.
The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2021 is derived from the Company's audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of June 30, 2022, results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021.
Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2021 Annual Report.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. There was no impact on previously reported total assets, total liabilities, net income (loss) or stockholders' equity for the periods presented.
Significant accounting policies
There have been no material changes in the Company's significant accounting policies during the six months ended June 30, 2022. See Note 2 in the 2021 Annual Report for discussion of significant accounting policies.
Use of estimates
The preparation of the unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.
See Note 2 in the 2021 Annual Report for further information regarding the use of estimates and assumptions.
Note 2—New accounting standards
The Company considered the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of June 30, 2022. Additionally, the Company did not adopt any new ASUs during the six months ended June 30, 2022.
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Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 3—Acquisitions and divestitures
2021 Acquisitions and divestiture
Pioneer Acquisition
On September 17, 2021, the Company entered into a purchase and sale agreement (the "Pioneer PSA") with Pioneer Natural Resources USA, Inc ("PXD"), DE Midland III, LLC ("DEM"), Parsley Minerals, LLC ("PM") and Parsley Energy, L.P. ("PE" and collectively with PXD, DEM, and PM, the "Seller") pursuant to which the Company agreed to purchase (the "Pioneer Acquisition"), effective as of July 1, 2021, certain oil and natural gas properties in the Midland Basin, including approximately 20,000 net acres, and approximately 135 gross (121 net) operated locations, located in western Glasscock County, Texas, as well as related assets and contracts (the "Pioneer Assets").
On October 18, 2021 ("Pioneer Closing Date"), the Company closed the Pioneer Acquisition for an aggregate purchase price of $206.3 million, comprised of (i) $131.6 million in cash, (ii) 959,691 shares of the Company's common stock, par value $0.01 per share (the "common stock"), based upon the share price as of the Pioneer Closing Date and (iii) $3.8 million in transaction related expenses, inclusive of customary closing adjustments, subject to post-closing adjustments.
The Company determined that the Pioneer Acquisition was an asset acquisition, as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. Accordingly, the consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values and all transaction costs associated were capitalized.
The following table presents components of the purchase price, inclusive of customary closing adjustments:
(in thousands, except for share and share price data)As of October 18, 2021
Shares of Company common stock959,691
Company common stock price at the Pioneer Closing Date$73.90 
Value of Company common stock consideration$70,921 
Cash consideration$131,633 
Transaction costs3,775 
Total purchase price$206,329 
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on the Pioneer Closing Date:
(in thousands)As of October 18, 2021
Evaluated properties$139,859 
Unevaluated properties74,192 
Revenue suspense liabilities assumed(7,722)
Allocated purchase price$206,329 
The Company funded the cash portion of the aggregate purchase price and related transaction costs with respect to the Pioneer Acquisition with cash on hand and borrowings under its Senior Secured Credit Facility.
During the year ended December 31, 2021, in connection with the Pioneer Acquisition, the Company acquired additional interests in the Pioneer Assets through additional sellers that exercised their "tag-along" sales rights, for total cash consideration of $2.9 million, excluding customary purchase price adjustments. These acquisitions were accounted for as asset acquisitions.
Sabalo/Shad Acquisition
On May 7, 2021, the Company entered into two separate purchase and sale agreements, one (the "Sabalo PSA") with Sabalo Energy, LLC and its subsidiary, Sabalo Operating, LLC (collectively, "Sabalo"), and the other (the "Shad PSA" and together with the Sabalo PSA, the "Sabalo/Shad PSAs") with Shad Permian, LLC ("Shad"), to acquire certain Midland Basin oil and natural gas
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Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
properties, including approximately 21,000 net acres and approximately 120 gross (109 net) operated locations and approximately 150 gross (18 net) non-operated locations, located in Howard and Borden Counties, Texas, (collectively, the "Sabalo/Shad Acquisition"). Sabalo and Shad are unaffiliated, but owned interests in the same assets.
On July 1, 2021 ("Sabalo/Shad Closing Date"), the Company closed the Sabalo/Shad Acquisition, effective April 1, 2021, for an aggregate purchase price of $863.1 million, comprised of (i) $606.1 million in cash (ii) 2,506,964 shares of the Company's common stock, based upon the share price as of the Sabalo/Shad Closing Date, and (iii) $17.0 million in transaction related expenses, inclusive of post-closing adjustments.
The Sabalo/Shad Acquisition was accounted for as a single transaction because the Sabalo PSA and Shad PSA were entered into at the same time and in contemplation of one another to form a single transaction designed to achieve an overall economic effect. The Company determined that the Sabalo/Shad Acquisition was an asset acquisition, as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. Accordingly, the consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values and all transaction costs associated were capitalized.
The following table presents components of the purchase price, inclusive of customary closing adjustments:
(in thousands, except for share and share price data)As of July 1, 2021
Shares of Company common stock2,506,964
Company common stock price at the Sabalo/Shad Closing Date$95.72 
Value of Company common stock consideration$239,967 
Cash consideration$606,126 
Transaction costs17,020 
Total purchase price$863,113 
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on the Sabalo/Shad Closing Date:
(in thousands)As of July 1, 2021
Evaluated properties$503,005 
Unevaluated properties362,977 
Revenue suspense liabilities assumed(4,269)
Inventory1,400 
Allocated purchase price$863,113 
The Company funded the cash portion of the aggregate purchase price and related transaction costs with respect to the Sabalo/Shad Acquisition with proceeds from borrowings under its Senior Secured Credit Facility and the Working Interest Sale described below.
Working Interest Sale
On May 7, 2021, the Company entered into a purchase and sale agreement (the "Sixth Street PSA") with Piper Investments Holdings, LLC, an affiliate of Sixth Street Partners, LLC ("Sixth Street"), to sell 37.5% of the Company's working interest in certain producing wellbores and the related properties primarily located within Glasscock and Reagan Counties, Texas, subject to certain excluded assets and title diligence procedures (the "Working Interest Sale").
On July 1, 2021 (the "Sixth Street Closing Date"), the Company closed the Working Interest Sale for cash proceeds of $405.0 million. In addition to such proceeds, the Sixth Street PSA also provided the Company with the right to receive up to a maximum of $93.7 million in additional cash consideration if certain cash flow targets related to divested oil and natural gas property operations are met ("Sixth Street Contingent Consideration"). The Sixth Street Contingent Consideration is made up of quarterly payments through June 2027 totaling up to $38.7 million and a potential balloon payment of $55.0 million in June 2027. On the Sixth Street Closing Date, the fair value of the Sixth Street Contingent Consideration was determined to be $33.8 million. The Sixth Street Contingent Consideration is accounted for as a contingent consideration derivative, with all
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Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
gains and losses as a result of changes in the fair value of the contingent consideration derivative recognized in earnings in the period in which the changes occur. See Notes 8 and 9 for further discussion of the Sixth Street Contingent Consideration.
Subsequent to the Sixth Street Closing Date, the Company continues to own and operate its remaining working interest in the properties sold to Sixth Street; however, the results of operations and cash flows related to the 37.5% working interests sold were eliminated from the Company's financial statements. This divestiture did not represent a strategic shift and will not have a major effect on the Company's future operations or financial results.
Pursuant to the rules governing full cost accounting, the Company recorded a gain on the Working Interest Sale of $93.5 million, net of transaction expenses of $11.6 million, on the Company's consolidated statements of operations, inclusive of post-closing adjustments, as this divestment represented more than 25% of the Company's June 30, 2021 proved reserves. For the purposes of calculating the gain, total capitalized costs were allocated between reserves sold and reserves retained as of the Sixth Street Closing Date.
Exchange of unevaluated oil and natural gas properties
From time to time, the Company exchanges undeveloped acreage with third parties. The exchanges are recorded at fair value and the difference is accounted for as an adjustment of capitalized costs with no gain or loss recognized pursuant to the rules governing full cost accounting, unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.
Note 4—Property and equipment
The following table presents the Company's property and equipment as of the dates presented:
(in thousands)June 30, 2022December 31, 2021
Evaluated oil and natural gas properties$9,318,212 $8,968,668 
Less accumulated depletion and impairment(7,164,277)(7,019,670)
Evaluated oil and natural gas properties, net2,153,935 1,948,998 
Unevaluated oil and natural gas properties not being depleted124,182 170,033 
Midstream service assets165,352 165,232 
Less accumulated depreciation and impairment(72,662)(68,704)
Midstream service assets, net92,690 96,528 
Depreciable other fixed assets46,883 43,381 
Less accumulated depreciation and amortization(29,537)(27,692)
Depreciable other fixed assets, net17,346 15,689 
Land19,415 18,901