Laredo Petroleum Has an Oil Price Problem


Laredo Petroleum finished 2018 on a disappointing note, and nothing much has changed for the company this year. Laredo stock is down close to 30% so far in 2019 and the market seems to have turned against the company despite certain positive developments of late.

The Latest Results Were Not All That Bad

Well completions during the first quarter were 33% higher than the company’s own expectations, which allowed it to increase its overall production 20% year over year.

Laredo’s first-quarter fiscal 2019 results released at the beginning of May indicate that the company is doing better than expectations. The company beat Wall Street’s top- and bottom-line expectations thanks to solid production growth.

Laredo’s total production for the first-quarter averaged 75,276 barrels of oil equivalent per day. The company managed to achieve this record level of production thanks to an improvement in operational efficiency, completing 20 wells during the quarter.

The well completions during the first quarter were 33% higher than the company’s own expectations. This allowed it to increase its overall production 20% year over year. But this wasn’t the only positive for the company last quarter.

Laredo’s combined lease operating expenses, as well as general and administrative expenses, dropped 11% to $5.42 per barrel of oil equivalent during the quarter as compared to fiscal year 2018 levels. Thanks to this operational performance, Laredo has increased its full-year production guidance.

The company now plans to increase its total production in 2019 to the tune of 11% as compared to last year. Earlier, Laredo was expecting a 9% production growth in 2019. The increase in the company’s production will be achieved on the back of 52 well completions, which marks a substantial increase over the original estimate of 36 well completions.

Laredo now plans to spend $465 million on capital expenses in 2019 instead of its original plan for $365 million. By comparison, it had spent $575 million on capital expenses last year. Laredo is making an ambitious move by increasing its capital expense forecast for the year in a bid to increase production, but that might not be enough to boost its finances.

One Big Problem With Laredo

Laredo Petroleum’s first-quarter 2019 sales declined 20% to $209 million. This was the result of a 26% slide in the company’s average realized price, which came in at $24.68 per barrel of oil equivalent during the quarter as compared to the prior-year period’s figure of $33.34 per BOE.

Laredo witnessed weak energy prices across the board. The price of oil was down to less than $51 per barrel during the quarter as compared to nearly $62 per barrel in the year-ago period. The lower pricing impacted Laredo’s margins as well. Its cash margins per barrel of oil equivalent sold fell to just $18.61 per barrel as compared to $25.91 per barrel in the year-ago period.

Laredo’s strategy of increasing its output didn’t work last quarter. The company swung to a net loss of $9.5 million as compared to a profit of $86.5 million a year ago.

Given that oil prices could continue sliding in the coming months, it won’t be surprising to see Laredo’s financial performance dip further. As such, even though Laredo is making the right operational moves, it isn’t a good time to put money in this stock.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.
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