Vital Energy(VTLE) - 2021 Q1 - Quarterly Report

Form 10-Q Cover Page This section identifies Laredo Petroleum, Inc. as an accelerated filer and provides key filing details for the quarter ended March 31, 2021 - Registrant is Laredo Petroleum, Inc., an accelerated filer[2][3] Filing Information | Metric | Value | | :----- | :---- | | Quarterly Period Ended | March 31, 2021 | | Commission File Number | 001-35380 | | Common Stock Outstanding (as of May 3, 2021) | 12,898,823 shares | Cautionary Statement Regarding Forward-Looking Statements This statement outlines the inherent uncertainties and risks associated with forward-looking information concerning the company's operations, financial performance, and market conditions - Forward-looking statements encompass operations, performance, business strategy, and capital resources, including oil, NGL, and natural gas reserves and drilling program expenditures[6] - Key risks involve the COVID-19 pandemic, fluctuations in domestic and global production, and the volatility of oil, NGL, and natural gas prices[7] - Significant factors affecting the business include maintaining borrowing capacity, complying with debt agreements, generating sufficient cash, and managing operational risks[10] Part I. Financial Information This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Consolidated Financial Statements (Unaudited) This section provides the unaudited consolidated financial statements for Laredo Petroleum, Inc., including the balance sheets, statements of operations, stockholders' equity, and cash flows, for the periods ended March 31, 2021, and December 31, 2020 (balance sheet), or March 31, 2021, and 2020 (income, equity, cash flow) These statements are accompanied by condensed notes detailing accounting policies, acquisitions, debt, equity, derivatives, and other financial information Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Total Current Assets | $138,089 | $136,590 | $1,499 | 1.1% | | Property and Equipment, net | $1,303,372 | $1,271,711 | $31,661 | 2.5% | | Total Assets | $1,474,903 | $1,442,610 | $32,293 | 2.2% | | Total Current Liabilities | $292,243 | $197,595 | $94,648 | 47.9% | | Long-Term Debt, net | $1,145,374 | $1,179,266 | $(33,892) | (2.9)% | | Total Liabilities | $1,543,471 | $1,464,053 | $79,418 | 5.4% | | Total Stockholders' Equity | $(68,568) | $(21,443) | $(47,125) | (219.8)% | - Total current liabilities significantly increased by 47.9%, primarily due to a substantial rise in derivatives liabilities from $31.8 million to $128.4 million[13] Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss for the three months ended March 31, 2021, and 2020 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total Revenues | $250,230 | $204,992 | $45,238 | 22.1% | | Total Costs and Expenses | $147,427 | $386,964 | $(239,537) | (61.9)% | | Operating Income (Loss) | $102,803 | $(181,972) | $284,775 | 156.5% | | Total Non-Operating Income (Expense), net | $(179,004) | $259,035 | $(438,039) | (169.1)% | | Net Income (Loss) | $(75,439) | $74,646 | $(150,085) | (201.1)% | | Basic Net Income (Loss) per Common Share | $(6.33) | $6.43 | $(12.76) | (198.4)% | - The company shifted from a net income of $74.6 million in Q1 2020 to a net loss of $75.4 million in Q1 2021, primarily due to a significant loss on derivatives[15] - Total costs and expenses decreased by 61.9%, driven by the absence of $186.7 million in impairment expense during Q1 2021[15] Consolidated Statements of Stockholders' Equity This section outlines changes in the company's stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the periods presented Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance, Dec 31, 2020 | March 31, 2021 Activity | Balance, Mar 31, 2021 | | :-------------------------------- | :-------------------- | :---------------------- | :-------------------- | | Common Stock (Shares) | 12,020 | 880 | 12,900 | | Common Stock (Amount) | $120 | $9 | $129 | | Additional Paid-in Capital | $2,398,464 | $28,305 | $2,426,769 | | Accumulated Deficit | $(2,420,027) | $(75,439) | $(2,495,466) | | Total Stockholders' Equity | $(21,443) | $(47,125) | $(68,568) | - Total stockholders' equity decreased from a deficit of $21.4 million at December 31, 2020, to $68.6 million at March 31, 2021, primarily due to the net loss[20] - The company issued 724 thousand shares of common stock, generating $26.9 million in net proceeds, and recognized $2.7 million in share-settled equity-based compensation during Q1 2021[20] Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Net Cash Provided by Operating Activities | $71,151 | $109,589 | $(38,438) | (35.1)% | | Net Cash Used in Investing Activities | $(69,020) | $(159,791) | $90,771 | 56.8% | | Net Cash (Used in) Provided by Financing Activities | $(6,626) | $72,122 | $(78,748) | (109.2)% | | Net (Decrease) Increase in Cash and Cash Equivalents | $(4,495) | $21,920 | $(26,415) | (120.5)% | | Cash and Cash Equivalents, End of Period | $44,262 | $62,777 | $(18,515) | (29.5)% | - Net cash provided by operating activities decreased by 35.1%, primarily due to changes in net settlements for matured derivatives, despite increased oil, NGL, and natural gas sales revenues[24][209] - Net cash used in investing activities decreased by 56.8%, mainly due to lower capital expenditures for oil and natural gas properties and reduced acquisitions[24][212] - Financing activities shifted from providing $72.1 million in Q1 2020 to using $6.6 million in Q1 2021, reflecting net payments on the Senior Secured Credit Facility and common stock issuance proceeds[24][217] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, debt, equity, and derivative instruments Note 1—Organization and Basis of Presentation This note describes Laredo Petroleum, Inc.'s business as an independent energy company focused on the Permian Basin and the basis for preparing its unaudited financial statements - Laredo Petroleum, Inc. is an independent energy company focused on oil and natural gas properties, primarily in the Permian Basin of West Texas[26] - The company operates solely within the exploration and production segment[26] - Unaudited consolidated financial statements adhere to GAAP and include all necessary adjustments for fair presentation[27][28] Note 2—New Accounting Standards This note confirms that no new accounting standard updates not yet adopted are meaningful for disclosure as of March 31, 2021 - No new accounting standard updates (ASUs) not yet adopted are considered meaningful for disclosure as of March 31, 2021[33] Note 3—Acquisitions and Divestiture This note details the company's bolt-on acquisitions in Howard County, Texas, and a divestiture in Glasscock County, Texas, during 2020 - In 2020, the company completed bolt-on acquisitions in Howard County, Texas, for 2,938 net acres and 210 BOE per day, with an aggregate purchase price of $11.6 million plus a potential $1.2 million contingent payment[34][35][38] - The company divested 80 net acres and working interests in two producing wells in Glasscock County, Texas, for $0.7 million in April 2020, without a strategic shift[40] - Unevaluated oil and natural gas property exchanges are recorded at fair value as adjustments to capitalized costs, with no gain or loss recognized unless the adjustment significantly alters the relationship between capitalized costs and proved reserves[41] Note 4—Leases This note details the company's operating lease right-of-use assets and liabilities for real estate and equipment, along with its average working interest in productive wells - The company recognizes operating lease right-of-use assets and liabilities for commercial real estate (extending to 2027) and equipment leases (extending to 2022)[42] - As of March 31, 2021, the company held an average working interest of 97% in Laredo-operated active productive wells[43] Note 5—Property and Equipment This note provides a breakdown of the company's property and equipment, including oil and natural gas properties, midstream assets, and land, along with related costs and depletion Property and Equipment, Net (in thousands) | Asset Category | March 31, 2021 | December 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Evaluated oil and natural gas properties, net | $1,100,453 | $1,056,983 | $43,470 | 4.1% | | Unevaluated oil and natural gas properties not being depleted | $60,260 | $70,020 | $(9,760) | (13.9)% | | Midstream service assets, net | $111,083 | $112,697 | $(1,614) | (1.4)% | | Depreciable other fixed assets, net | $12,675 | $13,110 | $(435) | (3.3)% | | Land | $18,901 | $18,901 | $0 | 0.0% | | Total property and equipment, net | $1,303,372 | $1,271,711 | $31,661 | 2.5% | - The company uses the full cost method for oil and natural gas properties, capitalizing acquisition, exploration, and development costs, which are depleted based on proved reserves[47] Oil and Natural Gas Properties Costs Incurred (in thousands) | Cost Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Property acquisition costs: Evaluated | $0 | $7,586 | $(7,586) | (100.0)% | | Property acquisition costs: Unevaluated | $0 | $15,556 | $(15,556) | (100.0)% | | Exploration costs | $3,957 | $6,710 | $(2,753) | (41.0)% | | Development costs | $64,492 | $146,158 | $(81,666) | (55.9)% | | Total oil and natural gas properties costs incurred | $68,449 | $176,010 | $(107,561) | (61.1)% | Depletion Expense of Evaluated Oil and Natural Gas Properties | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Depletion expense (in thousands) | $34,725 | $57,752 | | Depletion expense per BOE sold | $4.88 | $7.33 | - No full cost ceiling impairment was recorded as of March 31, 2021, compared to $177.2 million in Q1 2020, due to improved commodity prices[55] Note 6—Debt This note details the company's long-term debt, including senior unsecured notes and the Senior Secured Credit Facility, outlining issuance, repurchases, and outstanding balances - In January 2020, the company issued $600.0 million of 9 1/2% senior unsecured notes due 2025 and $400.0 million of 10 1/8% senior unsecured notes due 2028 to fund tender offers and repay debt[56][58] - The company repurchased $22.1 million of 2025 Notes and $39.0 million of 2028 Notes in 2020, recognizing a $22.3 million gain on extinguishment[59][61] - The Senior Secured Credit Facility, maturing April 19, 2023, had $220.0 million outstanding as of March 31, 2021, with a $725.0 million borrowing base and elected commitment[65] Long-Term Debt, Net (in thousands) | Debt Instrument | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | January 2025 Notes, net | $569,982 | $569,237 | | January 2028 Notes, net | $355,392 | $355,029 | | Senior Secured Credit Facility | $220,000 | $255,000 | | Total Long-Term Debt, net | $1,145,374 | $1,179,266 | Note 7—Stockholders' Equity This note details changes in stockholders' equity, including the establishment of an ATM equity program, a reverse stock split, and treasury stock transactions - The company established an ATM equity program on February 23, 2021, to sell up to $75.0 million of common stock, raising $26.9 million in net proceeds by March 31, 2021, to reduce debt[73][75] - Effective June 1, 2020, the company completed a 1-for-20 reverse stock split, reducing authorized common stock from 450 million to 22.5 million shares[77][79] - Treasury stock is recorded at cost and retired upon acquisition, primarily for tax withholding on share-settled equity awards[80] Note 8—Equity Incentive Plan This note describes the company's Omnibus Equity Incentive Plan, detailing restricted stock awards, performance share awards, performance unit awards, and related compensation expenses - The Omnibus Equity Incentive Plan allows for various awards, with 1,492,500 shares of common stock available for issuance after the reverse stock split adjustment[81] Restricted Stock Award Activity (in thousands, except per share data) | Metric | Outstanding Dec 31, 2020 | Granted | Forfeited | Vested | Outstanding Mar 31, 2021 | | :-------------------------------- | :----------------------- | :------ | :-------- | :----- | :----------------------- | | Restricted Stock Awards | 309 | 188 | (1) | (103) | 393 | | Weighted-average grant-date fair value (per share) | $44.88 | $34.45 | $83.04 | $65.07 | $34.50 | - Performance share awards, subject to market and performance criteria, resulted in a 43% payout for February 2018 awards, converting to 6,343 common shares in Q1 2021[87][88][90] - Cash-settled performance unit awards are subject to market (Relative TSR, Absolute Return) and performance (EBITDAX/Total Debt, Inventory Growth) criteria, with payouts ranging from 0% to 250% for market and 0% to 200% for performance[94][95] Equity-Based Compensation Expense (in thousands) | Expense Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total share-settled equity-based compensation, net | $2,068 | $2,376 | | Total cash-settled equity-based compensation, net | $1,128 | $39 | | Total equity-based compensation, net | $3,196 | $2,415 | Note 9—Derivatives This note explains the company's use of commodity and interest rate derivatives to hedge price and interest rate risks, detailing gains/losses and open positions - The company uses commodity derivatives (puts, swaps, collars, basis swaps) to hedge price risk for oil, NGL, and natural gas, and an interest rate derivative swap for its Senior Secured Credit Facility[103][105][112] Gain (Loss) on Derivatives, Net (in thousands) | Derivative Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Commodity | $(154,033) | $291,361 | | Interest rate | $4 | $0 | | Contingent consideration | $(336) | $6,475 | | Total Gain (Loss) on Derivatives, net | $(154,365) | $297,836 | - In Q1 2021, the company restructured hedges by selling 2.25 million calendar year 2021 Brent ICE puts for $9.0 million in premiums and entering 2.25 million Brent ICE swaps at a weighted-average price of $55.09 per barrel[107] Open Oil Derivative Positions as of March 31, 2021 | Derivative Type | Remaining Year 2021 Volume (Bbl) | Remaining Year 2021 Wtd-Avg Price ($/Bbl) | Year 2022 Volume (Bbl) | Year 2022 Wtd-Avg Price ($/Bbl) | | :-------------------------------- | :------------------------------- | :-------------------------------------- | :--------------------- | :-------------------------------------- | | Brent ICE - Swaps | 5,651,250 | $51.29 | 3,759,500 | $47.05 | | Brent ICE - Collars (Floor) | 440,000 | $45.00 | 821,250 | $53.67 | | Brent ICE - Collars (Ceiling) | 440,000 | $59.50 | 821,250 | $62.40 | Note 10—Fair Value Measurements This note discusses the fair value measurements of the company's derivatives and debt instruments, highlighting changes in derivative liabilities and the absence of impairments - The company's derivatives are primarily Level 2 fair value measurements, with a net derivative liability of $158.2 million as of March 31, 2021, up from $36.0 million at December 31, 2020[118][120] - The fair value of the contingent consideration derivative liability increased from $0.8 million at December 31, 2020, to $1.1 million at March 31, 2021[121] - No impairments of inventory or long-lived assets were recorded in Q1 2021, compared to $1.3 million for inventory and $8.2 million for long-lived assets in Q1 2020[122][123] Fair Values of Debt Instruments (in thousands) | Debt Instrument | Carrying Amount (Mar 31, 2021) | Fair Value (Mar 31, 2021) | Carrying Amount (Dec 31, 2020) | Fair Value (Dec 31, 2020) | | :-------------------------------- | :----------------------------- | :------------------------ | :----------------------------- | :------------------------ | | January 2025 Notes | $577,913 | $556,288 | $577,913 | $499,299 | | January 2028 Notes | $361,044 | $346,064 | $361,044 | $299,667 | | Senior Secured Credit Facility | $220,000 | $220,130 | $255,000 | $255,187 | | Total | $1,158,957 | $1,122,482 | $1,193,957 | $1,054,153 | Note 11—Net Loss Per Common Share This note presents the calculation of basic and diluted net income or loss per common share for the periods, noting the anti-dilutive effect of equity awards in Q1 2021 Net Income (Loss) Per Common Share | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) (in thousands) | $(75,439) | $74,646 | | Weighted-average common shares outstanding (Basic) | 11,918 | 11,618 | | Weighted-average common shares outstanding (Diluted) | 11,918 | 11,673 | | Basic Net income (loss) per common share | $(6.33) | $6.43 | | Diluted Net income (loss) per common share | $(6.33) | $6.39 | - For Q1 2021, all equity awards were anti-dilutive due to the company's net loss and were excluded from diluted EPS calculation[127] Note 12—Commitments and Contingencies This note outlines the company's legal proceedings, operating leases, firm sale and transportation commitments, and a sand purchase commitment - The company is subject to various legal proceedings, none of which are expected to have a material adverse effect on its business or financial position[131] - The company holds operating leases for drilling rigs, with potential early termination penalties, and firm sale and transportation commitments[132][133] - Firm transportation payments on excess pipeline capacity of $1.6 million were expensed in Q1 2021, with an estimated aggregate liability of $4.4 million as of March 31, 2021[133] - A sand purchase commitment requires the company to purchase a certain volume or incur a $3.4 million shortfall payment by contract end[134] Note 13—Supplemental Cash Flow and Non-Cash Information This note provides additional details on cash paid for interest, changes in accrued capital expenditures, and capitalized equity-based compensation and asset retirement costs Supplemental Cash Flow and Non-Cash Information (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for interest, net | $48,030 | $23,697 | | Change in accrued capital expenditures | $(351) | $16,272 | | Capitalized share-settled equity-based compensation | $670 | $965 | | Capitalized asset retirement cost | $397 | $886 | Note 14—Asset Retirement Obligations This note details the changes in the company's asset retirement obligation liability, including additions, accretion expense, and settlements Asset Retirement Obligation Liability (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Liability at beginning of period | $68,326 | $62,718 | | Liabilities added | $397 | $886 | | Accretion expense | $1,143 | $1,106 | | Liabilities settled/removed | $(57) | $(497) | | Liability at end of period | $69,809 | $64,213 | Note 15—Revenue Recognition This note outlines the company's policies for recognizing revenue from oil, NGL, and natural gas sales, sales of purchased oil, and midstream services - Oil, NGL, natural gas sales, and sales of purchased oil are recognized upon transfer of control to the customer[140] - Midstream service revenues are recognized over time as the customer receives and consumes the benefits[140] Note 16—Income Taxes This note details the company's federal net operating loss carryforwards, valuation allowance against deferred tax assets, and income tax benefit or expense - As of March 31, 2021, the company had $2.1 billion in federal net operating loss carryforwards, with $1.7 billion expiring in 2026 and $397.6 million having no expiration but potential limitations[141] - A total valuation allowance of $505.1 million has been recorded against federal and Oklahoma net deferred tax assets, resulting in a Texas net deferred tax asset of $2.2 million[144] Income Tax Benefit (Expense) (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Deferred Income Tax Benefit (Expense) | $762 | $(2,417) | Note 17—Related Parties This note discloses transactions with related parties, specifically capital expenditures paid to Halliburton for drilling and completions services - Halliburton, where the company's Chairman also serves, provides drilling and completions services to Laredo Petroleum[145] Capital Expenditures for Oil and Natural Gas Properties Paid to Halliburton (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Capital expenditures | $11,780 | $27,225 | Note 18—Subsequent Events This note reports on events occurring after March 31, 2021, including additional borrowings and payments on the Senior Secured Credit Facility and new derivative positions - Subsequent to March 31, 2021, the company borrowed an additional $20.0 million and made a $10.0 million payment on the Senior Secured Credit Facility, resulting in a $230.0 million outstanding balance as of May 3, 2021[148] - The company entered new Brent ICE swaps for 365,000 barrels at a weighted-average price of $61.55 per barrel for January 2022 - December 2022[149] Updated Open Oil Derivative Positions as of May 3, 2021 | Derivative Type | Remaining Year 2021 Volume (Bbl) | Remaining Year 2021 Wtd-Avg Price ($/Bbl) | Year 2022 Volume (Bbl) | Year 2022 Wtd-Avg Price ($/Bbl) | | :-------------------------------- | :------------------------------- | :-------------------------------------- | :--------------------- | :-------------------------------------- | | Total Brent ICE (Volume) | 6,091,250 | $50.83 (Floor) / $51.88 (Ceiling) | 4,945,750 | $49.22 (Floor) / $50.67 (Ceiling) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020 It covers an executive overview, recent developments, pricing and reserves, detailed analysis of revenues and expenses, liquidity and capital resources, and critical accounting policies Executive Overview This overview introduces Laredo Petroleum, Inc. as an independent energy company in the Permian Basin and highlights key financial and operating performance for Q1 2021 and 2020 - Laredo Petroleum, Inc. is an independent energy company focused on oil and natural gas properties, primarily in the Permian Basin of West Texas[152] - As of March 31, 2021, the company had assembled 133,352 net acres in the Permian Basin[152] Key Financial and Operating Performance Highlights (in thousands, except volumes) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Oil sales volumes (MBbl) | 2,183 | 2,655 | | Oil equivalents sales volumes (MBOE) | 7,109 | 7,874 | | Oil, NGL and natural gas sales | $202,457 | $135,885 | | Net income (loss) | $(75,439) | $74,646 | | Free Cash Flow (non-GAAP) | $21,760 | $(57,523) | | Adjusted EBITDA (non-GAAP) | $93,323 | $116,848 | Recent Developments This section discusses recent events impacting the company, including an ATM equity program, winter weather production impacts, COVID-19 effects, and WTI oil price rebound - The company initiated an ATM equity program on February 23, 2021, to sell up to $75.0 million of common stock, raising $26.9 million in net proceeds by March 31, 2021, to reduce debt[154][155] - Severe winter weather in February 2021 impacted Q1 2021 production by an estimated 5,700 BOE per day total and 1,700 barrels of oil per day[156] - The COVID-19 pandemic continues to affect oil and natural gas demand, but workforce productivity remains unaffected, and the company benefited from CARES Act provisions[157][158] - WTI oil prices rebounded in late 2020, averaging $58 per barrel in Q1 2021 and $59 per barrel through April 2021, after falling to -$37 per barrel in April 2020[159] Pricing and Reserves This section discusses the company's commodity derivatives strategy to manage price volatility, realized prices for proved reserves, and the absence of full cost ceiling impairment - The company uses a multi-year commodity derivatives strategy to minimize price volatility, with oil derivatives for 6.1 million barrels at a $50.83 Brent per barrel floor for 2021, and 4.9 million barrels at $49.22 Brent per barrel for 2022[160] Realized Prices for Proved Reserves | Commodity | March 31, 2021 ($/Bbl or Mcf) | March 31, 2020 ($/Bbl or Mcf) | | :-------------------------------- | :------------------------------ | :------------------------------ | | Oil | $38.28 | $52.47 | | NGL | $9.92 | $10.47 | | Natural gas | $1.20 | $0.28 | - No full cost ceiling impairment was recorded as of March 31, 2021, compared to $889.5 million in total for 2020, due to improved commodity prices[165] - The company adopts a conservative approach to oil rate forecasts for future wells in Howard County to mitigate potential negative revisions, as oil decline rates are impacted by well spacing[166] Results of Operations This section details the Company's financial performance, analyzing changes in revenues, costs and expenses, non-operating income/expense, and income taxes for the three months ended March 31, 2021, compared to the same period in 2020 It highlights significant shifts in commodity prices, production volumes, and derivative impacts Revenues This section analyzes the company's revenue sources, including oil, NGL, natural gas sales, midstream services, and purchased oil sales, highlighting volume and price changes Sources of Revenue as a Percentage of Total Revenues | Revenue Source | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Oil sales | 51% | 59% | | NGL sales | 17% | 6% | | Natural gas sales | 13% | 2% | | Midstream service revenues | 1% | 1% | | Sales of purchased oil | 18% | 32% | Oil, NGL, and Natural Gas Sales Volumes, Revenues, and Average Sales Prices | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Oil Sales Volumes (MBbl) | 2,183 | 2,655 | | NGL Sales Volumes (MBbl) | 2,321 | 2,467 | | Natural Gas Sales Volumes (MMcf) | 15,630 | 16,512 | | Total Oil, NGL, and Natural Gas Sales Revenues | $202,457 | $135,885 | | Average Sales Price ($/BOE) | $28.48 | $17.26 | | Average Sales Price, with commodity derivatives ($/BOE) | $21.15 | $23.21 | - Oil, NGL, and natural gas sales increased by 49% due to a 65% increase in average sales price per BOE, partially offset by a 10% decrease in total volumes sold, impacted by winter storms[153][174] - Sales of purchased oil decreased by 30% due to decreased pipeline shipments, while midstream service revenues decreased by 52%[175][177] Costs and Expenses This section analyzes the company's operating costs and expenses, including lease operating, production taxes, transportation, purchased oil, G&A, LTIP, and DD&A, highlighting significant changes Total Costs and Expenses (in thousands) | Expense Type | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Lease operating expenses | $18,918 | $22,040 | | Production and ad valorem taxes | $13,283 | $9,244 | | Transportation and marketing expenses | $12,127 | $13,544 | | Midstream service expenses | $858 | $1,170 | | Costs of purchased oil | $49,916 | $79,297 | | General and administrative (excluding LTIP) | $9,635 | $10,465 | | LTIP cash | $1,620 | $133 | | LTIP non-cash | $1,818 | $1,964 | | Depletion, depreciation and amortization | $38,109 | $61,302 | | Impairment expense | $0 | $186,699 | | Other operating expenses | $1,143 | $1,106 | | Total costs and expenses | $147,427 | $386,964 | - Total costs and expenses decreased by 62%, primarily due to the absence of $186.7 million in impairment expense in Q1 2021 and lower costs of purchased oil[179] - Production and ad valorem taxes increased by 44% due to higher oil, NGL, and natural gas sales revenues[181] - General and administrative expenses (excluding LTIP) decreased by 8% due to a Q2 2020 workforce reduction, while LTIP cash expense significantly increased by 1,118% due to a shift to cash awards[185][186] - Depletion, depreciation, and amortization decreased by 38% due to full cost impairments incurred during 2020[187] Non-Operating Income (Expense) This section analyzes non-operating income and expenses, primarily focusing on the significant shift in derivative gains and losses and the absence of debt extinguishment losses Non-Operating Income (Expense), Net (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Gain (loss) on derivatives, net | $(154,365) | $297,836 | | Interest expense | $(25,946) | $24,970 | | Loss on extinguishment of debt | $0 | $(13,320) | | Loss on disposal of assets, net | $(72) | $(602) | | Other income, net | $1,379 | $91 | | Total non-operating income (expense), net | $(179,004) | $259,035 | - The significant shift in non-operating income/expense was primarily driven by a $452.2 million decrease in gain (loss) on derivatives, moving from a substantial gain in Q1 2020 to a large loss in Q1 2021[192] - The $13.3 million loss on extinguishment of debt in Q1 2020 related to tender offers and redemptions of the January 2022 and March 2023 Notes, with no such loss in Q1 2021[198] Income Tax Benefit (Expense) This section details the company's deferred income tax benefit or expense and the impact of a valuation allowance on its effective tax rate Income Tax Benefit (Expense) (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Deferred Income Tax Benefit (Expense) | $762 | $(2,417) | - The company recorded a deferred income tax benefit of $0.8 million in Q1 2021, compared to an expense of $2.4 million in Q1 2020, primarily due to deferred Texas franchise tax[200] - A total valuation allowance of $505.1 million was recorded as of March 31, 2021, against federal and Oklahoma net deferred tax assets, resulting in an expected effective tax rate at or under 1%[200] Liquidity and Capital Resources This section discusses the Company's sources and uses of capital, including cash flows from operations, equity offerings, debt, and asset dispositions It highlights the impact of commodity price volatility and the COVID-19 pandemic on liquidity, and details the Company's debt structure, contractual obligations, and non-GAAP financial measures like Free Cash Flow and Adjusted EBITDA Cash Flows This section summarizes the company's cash flows from operating, investing, and financing activities, highlighting significant changes and their drivers Cash Flow Summary (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $71,151 | $109,589 | | Net cash used in investing activities | $(69,020) | $(159,791) | | Net cash (used in) provided by financing activities | $(6,626) | $72,122 | | Net (decrease) increase in cash and cash equivalents | $(4,495) | $21,920 | - Operating cash flows decreased by $38.4 million, primarily due to a $79.4 million decrease from changes in net settlements for matured derivatives, partially offset by a $66.6 million increase in oil, NGL, and natural gas sales revenues[209] - Investing activities used $69.0 million, a 57% decrease from Q1 2020, mainly due to lower capital expenditures for oil and natural gas properties and reduced acquisitions[212][213] - Financing activities shifted from providing $72.1 million in Q1 2020 to using $6.6 million in Q1 2021, reflecting net payments on the Senior Secured Credit Facility and ATM Program proceeds[217][218] Senior Secured Credit Facility This section details the Senior Secured Credit Facility's outstanding balance, borrowing base, elected commitment, and the company's compliance with covenants - As of March 31, 2021, the Senior Secured Credit Facility had $220.0 million outstanding, a $725.0 million borrowing base and elected commitment, and a maximum credit amount of $2.0 billion, maturing April 19, 2023[219] - The company was in compliance with all financial and non-financial covenants for all periods presented[219] - As of May 3, 2021, the outstanding balance increased to $230.0 million after subsequent borrowings and payments[219] January 2025 Notes and January 2028 Notes This section provides details on the company's outstanding senior unsecured notes, including principal amounts, interest rates, and maturity years Outstanding Senior Unsecured Notes as of March 31, 2021 (in millions) | Note Type | Principal Amount | Interest Rate | Maturity Year | | :-------------------------------- | :--------------- | :------------ | :------------ | | January 2025 Notes | $577.9 | 9.500% | 2025 | | January 2028 Notes | $361.0 | 10.125% | 2028 | | Total Senior Unsecured Notes | $938.9 | | | - Net proceeds from these notes, issued in January 2020, funded tender offers and redemptions of the January 2022 and March 2023 Notes[221] Supplemental Guarantor Information This section identifies the wholly-owned subsidiaries that guarantee the senior unsecured notes and confirms no material difference from consolidated financial statements - Wholly-owned subsidiaries LMS and GCM jointly and severally guarantee the January 2025 and January 2028 Notes[222] - The company has no non-guarantor subsidiaries, ensuring the combined financial information of the issuer and guarantors is not materially different from consolidated statements[224] Obligations and Commitments This section outlines the company's significant contractual obligations, including senior unsecured notes, firm sale and transportation commitments, and lease commitments - Significant contractual obligations include Senior Unsecured Notes, firm sale and transportation commitments, Senior Secured Credit Facility, asset retirement obligations, and lease commitments[225] - Future firm sale and transportation commitments of $258.8 million are expected to be satisfied as of March 31, 2021, with $77.7 million related to pipeline transportation commitments extending into 2024[226] - The company expensed $1.6 million in firm transportation payments on excess capacity in Q1 2021 due to an inability to satisfy a portion of a commitment with produced or purchased oil[226] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, specifically Free Cash Flow and Adjusted EBITDA, providing insights into the company's operational performance and liquidity - Free Cash Flow (non-GAAP) is defined as net cash provided by operating activities before changes in operating assets and liabilities, less costs incurred, excluding non-budgeted acquisition costs[230] Free Cash Flow (non-GAAP) Reconciliation (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $71,151 | $109,589 | | Less: Change in current assets and liabilities, net | $(17,259) | $18,708 | | Less: Change in noncurrent assets and liabilities, net | $(3,275) | $(6,210) | | Cash flows from operating activities before changes in operating assets and liabilities, net | $91,685 | $97,091 | | Less costs incurred, excluding non-budgeted acquisition costs | $69,925 | $154,614 | | Free Cash Flow (non-GAAP) | $21,760 | $(57,523) | - Adjusted EBITDA (non-GAAP) is defined as net income or loss plus adjustments for share-settled equity-based compensation, DD&A, impairment, mark-to-market on derivatives, accretion, asset disposal gains/losses, interest expense, income taxes, and other non-recurring items[233] Adjusted EBITDA (non-GAAP) Reconciliation (in thousands) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $(75,439) | $74,646 | | Plus: Share-settled equity-based compensation, net | $2,068 | $2,376 | | Plus: Depletion, depreciation and amortization | $38,109 | $61,302 | | Plus: Impairment expense | $0 | $186,699 | | Plus: Mark-to-market on derivatives (Gain) loss, net | $154,365 | $(297,836) | | Plus: Settlements (paid) received for matured derivatives, net | $(41,174) | $47,723 | | Plus: Net premiums paid for commodity derivatives | $(11,005) | $(477) | | Plus: Accretion expense | $1,143 | $1,106 | | Plus: Loss on disposal of assets, net | $72 | $602 | | Plus: Interest expense | $25,946 | $24,970 | | Plus: Loss on extinguishment of debt | $0 | $13,320 | | Plus: Income tax (benefit) expense | $(762) | $2,417 | | Adjusted EBITDA (non-GAAP) | $93,323 | $116,848 | Critical Accounting Policies and Estimates This section emphasizes the role of management's estimates and assumptions in financial statement preparation and confirms no material changes in critical accounting policies - Financial statement preparation requires management to make estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[237] - No material changes occurred in critical accounting policies and procedures during the three months ended March 31, 2021[238] New Accounting Standards This section directs readers to Note 2 for a discussion of new accounting standards relevant to the consolidated financial statements - For discussion of new accounting standards, refer to Note 2 to the unaudited consolidated financial statements[239] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements, except for firm sale and transportation commitments and short-term operating leases - The company has no off-balance sheet arrangements other than firm sale and transportation commitments and certain operating leases with terms less than or equal to 12 months[240] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section provides quantitative and qualitative information about the Company's exposure to market risks, specifically related to oil, NGL, and natural gas prices, and interest rates It details the use of derivative instruments to hedge these risks and discusses counterparty and customer credit risks Oil, NGL and Natural Gas Price Exposure This section details the company's use of commodity derivatives to hedge price risk for oil, NGL, and natural gas, and provides a sensitivity analysis for price changes - The company uses commodity derivative transactions (puts, swaps, collars, basis swaps) to hedge price risk for anticipated sales volumes of oil, NGL, and natural gas, mitigating cash flow variability[243] - As of March 31, 2021, the company had a $156.9 million net liability from commodity derivatives and a $1.1 million liability from contingent consideration derivatives[244] Sensitivity Analysis of 10% Change in Forward Commodity Price Curves (in thousands) | Metric | 10% Increase | 10% Decrease | | :-------------------------------- | :------------- | :------------- | | Commodity | $(82,555) | $82,096 | | Contingent consideration | $(7) | $25 | | Total | $(82,562) | $82,121 | Interest Rate Risk This section describes the company's exposure to interest rate risk on its floating-rate Senior Secured Credit Facility and the use of an interest rate derivative swap to hedge this risk - The Senior Secured Credit Facility bears interest at a floating rate, while the January 2025 and 2028 Notes bear interest at fixed rates[245] - The company uses an interest rate derivative swap to hedge interest rate risk on a portion of its Senior Secured Credit Facility debt, paying a fixed rate over the contract term[245] - As of March 31, 2021, the company had a $0.2 million total liability position from its open interest rate derivative[246] Sensitivity Analysis of 1% Change in LIBOR Forward Curve (in thousands) | Metric | 1% Incremental Addition | 1% Incremental Subtraction | | :-------------------------------- | :---------------------- | :------------------------- | | Interest rate | $1,082 | $(1,082) | Counterparty and Customer Credit Risk This section addresses the company's exposure to credit risk from derivative counterparties and customers, outlining mitigation strategies and the ability to sell to multiple purchasers - The company faces credit risk from derivative counterparties, who are also Senior Secured Credit Facility lenders, with risk mitigated by collateralized reserves[247] - Credit risk is mitigated by limiting exposure to single counterparties, engaging only with those meeting minimum credit quality standards, and continuous monitoring[247] - The company typically sells production to a limited number of customers but believes it could sell to numerous purchasers, mitigating the risk of losing a major customer[248][249] Customer Performance Risk This section highlights the risk that customers may be unable to take physical possession of the company's oil due to market factors, potentially impacting financial results - Global oil and gas market factors, including storage constraints and the COVID-19 pandemic, pose a risk that customers may be unable to physically take possession of the company's oil, potentially affecting financial results[251][252] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and procedures and any changes in internal control over financial reporting Management concluded that disclosure controls and procedures were effective as of March 31, 2021, and there were no material changes to internal control over financial reporting during the quarter - Laredo's management concluded that disclosure controls and procedures were effective as of March 31, 2021[253] - No material changes occurred in internal control over financial reporting during Q1 2021 that affected or are reasonably likely to affect the company's internal control[254] Part II. Other Information This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity security purchases, and exhibits Item 1. Legal Proceedings This section states that the Company is involved in various legal proceedings in the ordinary course of business but does not currently believe any will have a material adverse effect on its business, financial position, results of operations, or liquidity - The company is subject to various legal proceedings arising in the ordinary course of business[257] - Management does not believe any legal proceedings will materially adversely affect the company's business, financial position, results of operations, or liquidity[257] Item 1A. Risk Factors This section refers readers to the risks discussed in the Company's 2020 Annual Report, noting that the negative impact of many of these risks may be heightened or exacerbated depending on the duration and severity of the COVID-19 pandemic and related economic repercussions - Readers should carefully consider the risks discussed in the 2020 Annual Report[259] - The negative impact of existing risks may be heightened or exacerbated by the duration and severity of the COVID-19 pandemic and related economic repercussions[259] Item 2. Purchases of Equity Securities This section summarizes the Company's purchases of common stock during the three months ended March 31, 2021, which primarily represent shares withheld to satisfy tax withholding obligations on restricted stock awards Purchases of Common Stock by Laredo (Q1 2021) | Period | Total Number of Shares Purchased | Weighted Average Price Paid Per Share | | :-------------------------------- | :------------------------------- | :------------------------------------ | | January 1, 2021 - January 31, 2021 | 197 | $20.33 | | February 1, 2021 - February 28, 2021 | 23,073 | $34.35 | | March 1, 2021 - March 31, 2021 | 14,394 | $34.24 | | Total | 37,664 | | - The purchased shares represent those withheld by the company to satisfy tax withholding obligations from restricted stock awards[261] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[263] Item 4. Mine Safety Disclosures This section addresses the Company's compliance with Federal Mine Safety and Health Administration (MSHA) regulations for its Howard County, Texas sand mine It notes that while mining operations are contracted, the Company may be considered an "operator" under the Mine Act and is subject to MSHA inspections and citations - The company's Howard County, Texas sand mine operations are subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977[264] - The company may be considered an "operator" under the Mine Act, even with contracted mining operations, and may be issued citations for violations[264] Item 5. Other Information This section indicates that there is no other information to report under this item - Not applicable[267] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, equity award agreements, certifications, mine safety disclosures, and interactive data files - Exhibits include organizational documents, equity award agreements, CEO and CFO certifications, Mine Safety Disclosures, and Inline XBRL financial information[268] Signatures This section provides the official signatures of the company's principal executive, financial, and accounting officers, certifying the accuracy of the report - The report is signed by Jason Pigott (President and CEO), Bryan J. Lemmerman (SVP and CFO), and Jessica R. Wren (Interim Principal Accounting Officer)[274] - Signatures are dated May 6, 2021[274]