Laredo Petroleum Announces 2020 Capital Budget and Updates Three-Year Outlook - Seite 2

Laredo expects to invest approximately $450 million in 2020, excluding non-budgeted acquisitions and the recent Howard County bolt-on transaction. This includes $390 million for drilling and completions activities and $60 million for infrastructure, land and other capitalized costs. To the extent that operating cash flow exceeds capital spending, excluding acquisitions, the Company intends to utilize the Free Cash Flow to reduce debt.

The Company is not anticipating significant changes in service costs and has budgeted such costs at current levels. Laredo is beginning to add more sand to its standard completions design, taking advantage of the current low cost of in-basin sand to potentially enhance well productivity. The enhanced completions design, utilizing 2,400 pounds of sand per foot, is expected to increase the cost for an Upper/Middle Wolfcamp 10,000-foot lateral to $6.8 million. The additional costs are incorporated into the 2020 capital program, but no productivity increase associated with larger completions has been assumed. If the Company realizes future savings driven by increased efficiencies or service cost reductions, they are expected to be utilized for debt reduction.

Laredo's 2020 budget is supported by a robust hedge position. For full-year 2020, the Company has hedged 90% of expected oil production, 40% of expected natural gas production and 25% of expected NGL production. Combined, Laredo's 2020 product and basis hedges have a value of more than $150 million at commodity prices utilized in the 2020 capital program.

2021/2022 Outlook

Laredo's transition to full-scale development in Howard County in 2020 is expected to drive a substantial improvement in capital efficiency beginning in 2021. Capital required to maintain a mid-single digit oil growth rate, assuming current service costs, is expected to decrease by 15% - 20% in 2021, improving the Company's ability to generate free cash flow. At a WTI price of $50 per barrel, cumulative Free Cash Flow over the two-year 2021 - 2022 period is expected to be at least $15 million, rising to at least $100 million at a WTI price of $55 per barrel.

Cline Update

In 2019, based on lower expected drilling and completions costs and long-term oil productivity uplift associated with larger completions, the Company incorporated the Cline formation into its development plans. In the first quarter of 2020, Laredo completed both planned 2020 Cline wells. Total average well cost, adjusted to a 10,000-foot lateral and for 2,400 pounds of sand per foot, was approximately $7.4 million, 8% less than pre-drill cost assumptions. Significantly, expected returns at the lower well cost increase by 6% and 8% at $50 per barrel and $55 per barrel WTI, respectively. Although early, initial production results are encouraging and reinforce the Company's assumption that Cline wells benefit from larger completions. Combined with the lower costs, expected returns for the Company's approximately 150 Cline locations become increasingly competitive and extend Laredo's inventory of oilier, higher-return opportunities.