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lpi-20200930

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 September 30, 2020

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

For the transition period from to

Commission File Number: 001-35380

Laredo Petroleum, Inc.

(Exact name of registrant as specified in its charter)


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


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

(918) 513-4570

(Registrant's telephone number, including area code)

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


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

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

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

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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐


Emerging growth company	☐

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

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

Number of shares of registrant's common stock outstanding as of November 2, 2020: 12,003,806

LAREDO PETROLEUM, INC.

TABLE OF CONTENTS


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

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

Note 13—Supplemental cash flow and non-cash information			28
Note 14—Asset retirement obligations			29
Note 15—Revenue recognition			29
Note 16—Income taxes			29
Note 17—Related parties			30
Note 18—Organizational restructurings			30
Note 19—Subsequent events			31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			32
Item 3. Quantitative and Qualitative Disclosures About Market Risk			56
Item 4. Controls and Procedures			59
Part II			61
Item 1. Legal Proceedings			61
Item 1A. Risk Factors			62
Item 2. Purchases of Equity Securities			63
Item 3. Defaults Upon Senior Securities			64
Item 4. Mine Safety Disclosures			65
Item 5. Other Information			66
Item 6. Exhibits			67
SIGNATURES			68

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

•the effects, duration, government response or other implications of the outbreak and continued spread of the coronavirus ("COVID-19"), or the threat and occurrence of other epidemic or pandemic diseases;

•changes in domestic and global production, supply and demand for oil, NGL and natural gas, including the decrease in demand and oversupply of oil and natural gas as a result of the COVID-19 pandemic and actions by the Organization of the Petroleum Exporting Countries 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, and the extent and duration of price reductions and increased production by OPEC+;

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

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

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

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

•conditions of the energy industry and changes in the regulatory environment and in United States ("U.S.") or international legal, tax, political, administrative or economic conditions, including new or changes to existing laws, trade policies or regulations that restrict imports or exports from the U.S., prohibit or restrict our ability to apply hydraulic fracturing to our oil and natural gas wells and to access and dispose of water used in these operations or eliminate federal income tax deductions for oil and gas exploration and development, which could be affected by the outcome of the U.S. presidential, congressional and state elections;

•the ongoing 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;

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

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

•capital requirements for our operations and projects;

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

iii

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•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 export infrastructure in the Permian Basin and U.S. Gulf Coast and gathering and processing capacity;

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

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

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

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

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

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

•the potential for pipeline and storage constraints in the Permian Basin and U.S. Gulf Coast and the possibility of future production curtailment in the State of Texas;

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

•risks related to the geographic concentration of our assets;

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

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

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

•our ability to execute our strategies;

•competition in the oil and natural gas industry;

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

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

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

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

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Part I

Item 1. Consolidated Financial Statements (Unaudited)

Laredo Petroleum, Inc.

Consolidated balance sheets

(in thousands, except share data)

(Unaudited)


	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	40,258	$	40,857
Accounts receivable, net	60,298		85,223
Derivatives	81,129		51,929




Other current assets	17,828		22,470

Total current assets	199,513		200,479
Property and equipment:
Oil and natural gas properties, full cost method:
Evaluated properties	7,773,776		7,421,799
Unevaluated properties not being depleted	83,558		142,354
Less accumulated depletion and impairment	(6,669,537)		(5,725,114)
Oil and natural gas properties, net	1,187,797		1,839,039
Midstream service assets, net	115,385		128,678
Other fixed assets, net	31,966		32,504
Property and equipment, net	1,335,148		2,000,221

Derivatives	9,117		23,387

Operating lease right-of-use assets	20,931		28,343
Other noncurrent assets, net	16,614		12,007

Total assets	$	1,581,323	$	2,264,437
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	46,090	$	40,521

Accrued capital expenditures	25,061		36,328
Undistributed revenue and royalties	25,492		33,123


Derivatives	852		7,698


Operating lease liabilities	11,812		14,042
Other current liabilities	33,801		39,184

Total current liabilities	143,108		170,896
Long-term debt, net	1,218,947		1,170,417
Derivatives	1,657		—

Asset retirement obligations	63,425		60,691
Operating lease liabilities	11,715		17,208
Other noncurrent liabilities	959		3,351

Total liabilities	1,439,811		1,422,563
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of September 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value, 22,500,000 shares authorized and 12,004,372 and 11,864,604 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively (1)	120		2,373
Additional paid-in capital	2,395,487		2,385,355
Accumulated deficit	(2,254,095)		(1,545,854)

Total stockholders' equity	141,512		841,874
Total liabilities and stockholders' equity	$	1,581,323	$	2,264,437

______________________________________________________________________________

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

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

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Laredo Petroleum, Inc.

Consolidated statements of operations

(in thousands, except per share data)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Revenues:
Oil sales	$	93,329	$	141,709	$	283,412	$	430,910
NGL sales	24,935		20,522		49,721		74,954
Natural gas sales	14,198		7,520		29,357		21,126
Midstream service revenues	1,751		3,079		6,715		8,572
Sales of purchased oil	39,334		20,739		119,922		83,597
Total revenues	173,547		193,569		489,127		619,159
Costs and expenses:
Lease operating expenses	19,840		22,597		62,471		68,838
Production and ad valorem taxes	8,753		11,085		24,935		29,632
Transportation and marketing expenses	13,161		5,583		37,886		15,233
Midstream service expenses	1,073		1,191		3,058		3,401

Costs of purchased oil	42,720		20,741		138,134		83,604
General and administrative	11,473		8,852		34,694		41,427
Organizational restructuring expenses	—		5,965		4,200		16,371

Depletion, depreciation and amortization	47,015		69,099		174,891		197,900

Impairment expense	196,088		397,890		789,235		397,890
Other operating expenses	1,102		1,005		3,325		3,077
Total costs and expenses	341,225		544,008		1,272,829		857,373
Operating loss	(167,678)		(350,439)		(783,702)		(238,214)
Non-operating income (expense):
Gain (loss) on derivatives, net	(45,250)		96,684		162,049		136,713


Interest expense	(26,828)		(15,191)		(78,870)		(46,503)
Litigation settlement	—		—		—		42,500
Loss on extinguishment of debt	—		—		(13,320)		—
Gain (loss) on disposal of assets, net	(607)		1,294		(1,057)		(315)
Other income, net	533		556		608		4,269
Write-off of debt issuance costs	—		—		(1,103)		—
Total non-operating income (expense), net	(72,152)		83,343		68,307		136,664
Loss before income taxes	(239,830)		(267,096)		(715,395)		(101,550)
Income tax benefit:

Deferred	2,398		2,467		7,154		812
Total income tax benefit	2,398		2,467		7,154		812


Net loss	$	(237,432)	$	(264,629)	$	(708,241)	$	(100,738)
Net loss per common share (1):



Basic	$	(20.32)	$	(22.86)	$	(60.76)	$	(8.72)



Diluted	$	(20.32)	$	(22.86)	$	(60.76)	$	(8.72)
Weighted-average common shares outstanding(1):
Basic	11,686		11,578		11,657		11,558
Diluted	11,686		11,578		11,657		11,558

______________________________________________________________________________

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

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

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Laredo Petroleum, Inc.

Consolidated statements of stockholders' equity

(in thousands)

(Unaudited)


	Common stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares	Amount				Shares	Amount				Total
Balance, June 30, 2020	11,939	$	119	$	2,392,564	—	$	—	$	(2,016,663)	$	376,020


Restricted stock awards	68	1		(1)		—	—		—		—
Restricted stock forfeitures	(2)	—		—		—	—		—		—


Stock exchanged for tax withholding	—	—		—		1	(12)		—		(12)

Retirement of treasury stock	(1)	—		(12)		(1)	12		—		—

Share-settled equity-based compensation	—	—		2,936		—	—		—		2,936



Net loss	—	—		—		—	—		(237,432)		(237,432)
Balance, September 30, 2020	12,004	$	120	$	2,395,487	—	$	—	$	(2,254,095)	$	141,512

	Common stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares (1)	Amount				Shares (1)	Amount				Total
Balance, June 30, 2019	11,874	$	2,375	$	2,381,450	—	$	—	$	(1,039,504)	$	1,344,321
Restricted stock awards	14	2		(2)		—	—		—		—
Restricted stock forfeitures	(4)	—		—		—	—		—		—


Stock exchanged for tax withholding	—	—		—		—	(4)		—		(4)

Retirement of treasury stock	—	—		(4)		—	4		—		—



Share-settled equity-based compensation	—	—		(436)		—	—		—		(436)
Net loss	—	—		—		—	—		(264,629)		(264,629)
Balance, September 30, 2019	11,884	$	2,377	$	2,381,008	—	$	—	$	(1,304,133)	$	1,079,252

______________________________________________________________________________

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

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 stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares (1)	Amount				Shares (1)	Amount				Total
Balance, December 31, 2019	11,865	$	2,373	$	2,385,355	—	$	—	$	(1,545,854)	$	841,874

Reverse stock split	—	(2,277)		2,277		—	—		—		—
Restricted stock awards(2)	220	31		(31)		—	—		—		—
Restricted stock forfeitures(2)	(46)	(2)		2		—	—		—		—


Stock exchanged for tax withholding	—	—		—		35	(774)		—		(774)

Retirement of treasury stock(2)	(35)	(5)		(769)		(35)	774		—		—

Share-settled equity-based compensation	—	—		8,653		—	—		—		8,653



Net loss	—	—		—		—	—		(708,241)		(708,241)
Balance, September 30, 2020	12,004	$	120	$	2,395,487	—	$	—	$	(2,254,095)	$	141,512

	Common stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares (1)	Amount				Shares (1)	Amount				Total
Balance, December 31, 2018	11,697	$	2,339	$	2,375,286	—	$	—	$	(1,203,395)	$	1,174,230

Restricted stock awards	367	73		(73)		—	—		—		—
Restricted stock forfeitures	(145)	(28)		28		—	—		—		—


Stock exchanged for tax withholding	—	—		—		35	(2,650)		—		(2,650)
Stock exchanged for cost of exercise of stock options	—	—		—		1	(76)		—		(76)
Retirement of treasury stock	(36)	(7)		(2,719)		(36)	2,726		—		—
Exercise of stock options	1	—		76		—	—		—		76


Share-settled equity-based compensation	—	—		8,410		—	—		—		8,410
Net loss	—	—		—		—	—		(100,738)		(100,738)
Balance, September 30, 2019	11,884	$	2,377	$	2,381,008	—	$	—	$	(1,304,133)	$	1,079,252

______________________________________________________________________________

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

(2)The amounts presented for common stock and additional paid-in capital include (i) unadjusted amounts for the period January 1, 2020 to May 31, 2020 and (ii) adjusted amounts for the period June 1, 2020 to September 30, 2020. See the "Reverse stock split" line item for the retroactive adjustment for the life-to-date activity through May 31, 2020.

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)


	Nine months ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(708,241)	$	(100,738)
Adjustments to reconcile net loss to net cash provided by operating activities:
Share-settled equity-based compensation, net	6,111		5,244
Depletion, depreciation and amortization	174,891		197,900
Impairment expense	789,235		397,890


Mark-to-market on derivatives:
Gain on derivatives, net	(162,049)		(136,713)
Settlements received for matured derivatives, net	186,435		48,827
Settlements received (paid) for early-terminated commodity derivatives, net	6,340		(5,409)