Laredo Petroleum Inc. continues to look for more Permian Basin opportunities after recently bolting on 7,360 net acres in West Texas, the management team said.
CEO Jason Pigott, who led a conference call to discuss third quarter results for the Tulsa-based independent, said the company has a $130 million agreement with an undisclosed seller that would add a 96%-operated leasehold in Howard County. The deal, set to be completed by year’s end, includes 750 net royalty acres.
“We do not expect this transaction to be a unique occurrence," Pigott said. "We will continue to pursue acquisitions of high-margin inventory that improve our corporate returns when developed with cash flow from our existing production.”
The current business environment for the industry “is presenting an opportunity to add high quality acreage at multi-year low valuations by being very selective on acreage quality and price,” said the CEO. “We tend to make acquisitions that are quickly accretive...
“Additionally, we see opportunities to increase scale through consolidation. Combining applications to eliminate redundancies and leveraging our...low cost structure to achieve synergies can drive increased return to our stakeholders. In each transaction, we need to make operational sense,” which “ultimately results in a stronger balance sheet.”
The Howard County acreage already has significant offset development activity, weighted around 80% to oil in the first year of production. The first year oil productivity also is 55% higher than expectations for legacy Laredo drilling in the Wolfcamp formation and 20% higher than in its Cline program, management said.
Laredo expects to develop 100 net drilling locations in early 2020 to target the Lower Spaberry, as well as the Upper and Middle Wolfcamp. Additionally, third-party oil, gas and processed water infrastructure is in place, which should limit the need for upfront capital expenditures.
Because the leasehold is mostly undeveloped, management doesn’t expect to have many parent-child well issues. However, to minimize interactions, Laredo plans to co-develop three primary targets with four wells in the Lower Spraberry and six wells in each of the Upper and Middle Wolfcamp formations. The first well package is expected to be completed during 3Q2020.
In the latest quarter, Laredo produced 81,921 boe/d, beating guidance by 4%. Oil output alone totaled 27,830 b/d, which exceeded guidance by 2%. Combined unit lease operating expenses and unit cash general/administrative expenses fell to $4.41/boe, a 27% decrease from full-year 2018 results of $6.07. Well costs fell 14% from the end of 2018 to average $660/lateral foot using the company’s standard completion design.
Twelve net wells were completed in the Permian during the quarter using a wider spacing plan, with average lateral lengths of 10,100 feet. To date this year, Laredo has completed four wider spaced packages comprised of 23 wells.
In the final three months of this year, Laredo expects to complete 12 net horizontals with average lateral lengths of 9,900 feet. The company is operating three drilling rigs and one completions crew, which would be maintained to the end of the year.
For the remainder of 2019, Laredo has hedged 95% of anticipated oil production at a weighted-average floor price of $60.42/bbl. For 2020, the company has hedged 7.54 million bbl at $58.79.
Net losses totaled $264.60 million (minus $1.41/share) in 3Q2019, which included a one-time impairment of nearly $398 million. In 3Q2018, Laredo earned $55.05 million (24 cents).