Acquisition of High-Margin, Oil-Weighted Howard County Leasehold Divestiture of Gas-Weighted Reserves in Reagan/Glasscock Counties
Laredo Petroleum, Inc. ("Laredo" or the "Company") today announced the signing of a purchase and sale agreement to acquire the assets of Sabalo Energy, LLC ("Sabalo"), a portfolio company of EnCap Investments L.P. ("EnCap"), and a non-operating partner for approximately $715M, subject to customary closing price adjustments, comprised of $625M in cash and approximately 2.5 million shares of Laredo common equity. Additionally, the Company announced the sale of 37.5% of its operated proved developed producing ("PDP") reserves in its legacy leasehold in Reagan and Glasscock counties ("Legacy") to an affiliate of Sixth Street Partners, LLC ("Sixth Street") for proceeds of $405M and additional potential cashflow based earn-out payments over the next six years. None of the PDP reserves are located in Howard or Western Glasscock counties. Both transactions are expected to close July 1, 2021.
"The transformational impact for Laredo of the combined transactions is significant," stated Jason Pigott, President and Chief Executive Officer. "Upon closing, we will be positioned for sustainable Free Cash Flow1 generation and significant deleveraging, have more than 30,000 highly productive, contiguous net acres in Howard County and a near-term pathway to increasing our oil cut to more than 50% from the current 30%. The value derived from employing our efficient, low-cost operations in Howard County has already been established on our current leasehold and we expect to perform equally well on this new acreage. Additionally, we will be applying our ESG best practices to the development of this acreage, maintaining our prior commitments to reducing greenhouse gas intensity, methane emissions and eliminating routine flaring."
- Combined transactions expected to be accretive to long-term Free Cash Flow1 and Adjusted EBITDA1 per share
- Transforms the cash generation profile of the Company, expected to drive total Free Cash Flow1 through FY-25 of >$700M at current strip prices
- Anticipated deleveraging beginning in second half of 2021, with Net Debt/TTM Adjusted EBITDA1 approaching 1.5x by YE-22 and 1.0x by YE-25
- Enables mid-single digit annualized oil production growth at 50%-70% reinvestment rate through FY-25
- Company oil cut expected to rise to 50% of total production by YE-21, increasing margins per barrel of oil equivalent ("BOE")
- ~21,000 contiguous net acres (86% operated, 100% held by production) directly offsetting Laredo's existing Howard County leasehold
- ~120 operated oil-weighted locations (91% WI) and ~150 non-operated locations (12% WI)
- 83% of locations are capital efficient long laterals of 10,000 feet or greater
- Currently producing ~14,500 BOE per day (83% oil, three stream) of low-decline production with an estimated next 12-month oil decline of 35%
- PDP reserves of approximately 30 million BOE (73% oil, three stream)
- Ideally situated for Laredo's efficient, low-cost operating structure
- Development and spacing assumptions of 12 wells per drilling spacing unit
"This transaction complements Laredo’s existing asset base and strategy and accelerates the Company’s transformation to becoming a leading independent operator in the Midland Basin," commented Doug Swanson, Managing Partner of EnCap. "Laredo is well positioned to maximize value from the Sabalo assets and we view this transaction as compelling for Laredo shareholders, including EnCap, as part of this transaction."
- Proceeds of $405M from Sixth Street for the sale of 37.5% of Laredo's working interest in operated PDP reserves in gas-weighted Legacy assets, which does not include the Western Glasscock acreage acquired in late 2019
- Divested reserves of approximately 94 million BOE (18% oil) with associated production of approximately 25,000 BOE per day (23% oil), at closing
- Wellbore working interest only, Laredo retains all undeveloped locations
Acquisition Financing Details:
- Funded through the partial sale of Legacy PDP reserves, borrowings on the Company's Senior Secured Credit Facility and the issuance of approximately 2.5 million common shares to EnCap
- Senior Secured Credit Facility borrowing base reaffirmed at $725M
1Non-GAAP financial measure; please see definitions of non-GAAP financial measures at the end of this release. Citigroup and Houlihan Lokey provided advisory services on the Sabalo acquisition and Houlihan Lokey acted as financial advisor on the PDP sale to Sixth Street. Akin Gump and Willkie Farr & Gallagher served as Laredo’s legal advisors. Jefferies acted as exclusive financial advisor to Sabalo and Bracewell served as Sabalo's legal advisor. White & Case acted as legal advisor to Sixth Street.
Laredo Petroleum, Inc. is an independent energy company with headquarters in Tulsa, Oklahoma. Laredo's business strategy is focused on the acquisition, exploration and development of oil and natural gas properties, primarily in the Permian Basin of West Texas. For more information, visit www.laredopetro.com.