How Strong Is the Outlook for Laredo Petroleum?

Independent oil and gas producer Laredo Petroleum Inc. (NYSE: LPI) has a reputation as one of the most efficient producers in the Permian Basin, where it sits on proved reserves of more than 125 million barrels of oil equivalent. In a presentation last week to investors and analysts, the company increased its production guidance for 2016 by 6% and reduced its estimate on unit lease operating expenses by 7% at the midpoint of the $4.50 to $5.25 per barrel range.

The company said that it had knocked an average of 23% off its drilling and completion (D&C) costs since the end of 2015. D&C costs have fallen from $5.9 million to $4.6 million per 7,500-foot lateral well and sand costs have fallen from $1.1 million per well to $800,000. For a 10,000-foot lateral well, D&C costs have dropped from $6.8 million to $5.4 million and sand costs are down from $1.4 million to $900,000.

Laredo said that it has evaluated 2,800 drilling locations and identified more than 1,500 that will yield a greater than 10% rate of return at current prices. The company said it has drilling inventory of at least 30 years at $50 a barrel for West Texas Intermediate (WTI) crude.

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