Morningstar | Laredo Raises 2018 Production Guidance for Second Consecutive Quarter
Laredo smashed its own production guidance in the second quarter with total volumes of 67.2 mboe/d (up 6% higher sequentially and 15% higher year over year). The beat was attributed to efficiency gains enabling faster completions, which resulted in more wells being turned to sales in the period than planned. Over the full year, approximately 70 net wells are now expected on line (five to 10 more than previously planned). That’s the main driver of the second consecutive increase in 2018 production guidance, which is now calling for 15% year-on-year growth (up from 12%). While the company now plans to add a fourth rig during August, this is probably too late to have much impact on current year volumes. But the completion cadence and the rig will both impact the firm’s capital spending, and the budget was ratcheted accordingly. The firm now plans to invest $545 million this year in upstream operations, which is $45 million more than previously expected.On the marketing side, the firm has secured 25 mbbls/d of firm capacity on the Gray Oak pipeline during the first year of service (rising to 35 mbbls/d for the following six years). Thus the firm has significantly expanded its access to premium Gulf Coast pricing. But as the pipeline won't enter service until late 2019, this won't help in the next year or so (when the regional takeaway bottleneck is at its worst). The good news is that the firm’s existing contract with Medallion enables it to ship "substantially all" of its crude to Cushing, Houston, or Corpus Christi markets, enabling it to minimize the damage from a potential Midland basis blowout. Eighty-five percent of its volumes are gathered on pipe, minimizing the need to rely on trucking (the remaining 15% is trucked over short distances only).
We plan to incorporate these operating and financial results in our model shortly, but after this first look our fair value estimate and no-moat rating remain unchanged.
Laredo Petroleum is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties, and midstream and marketing services, primarily in the Permian Basin of West Texas. The Permian Basin is comprised of several distinct geological provinces, including the Midland Basin to the east, the Delaware Basin to the west and the Central Platform in the middle. The company's primary development and production fairway is located on the east side of the Midland Basin, 35 miles east of Midland, TX. The company's acreage is contiguous in the neighboring Texas counties of Howard, Glasscock, Reagan, Sterling and Irion.
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