Good day ladies and gentlemen, and welcome to Laredo Petroleum Inc's Second Quarter 2019 Earnings Conference Call. My name is Josh and I will be your operator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session after the financial and operations report.

As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to introduce Mr. Ron Hagood, Vice President Investor Relations. You may precede, sir..

Thank you and good morning. Joining me today are Randy Foutch, Chairman and Chief Executive Officer; Jason Pigott, President; Michael Beyer, Senior Vice President and Chief Financial Officer as well as additional members of our management team.

Before we begin this morning, let me remind you that during today’s call, we will be making Forward-Looking Statements. These statements including those describing our beliefs, goals, expectations, forecasts and assumptions are intended to be covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The Company’s actual results may differ from these forward-looking statements for a variety of reasons, many of which are beyond our control. In addition, we will be making reference to non-GAAP financial measures. Reconciliations to GAAP financial measures are included in yesterday’s news release.

Yesterday afternoon, the Company issued a news release and presentation detailing its financial and operating results for second quarter of 2019. We will refer to the presentation by page during today’s call. If you do not have a copy of this news release or presentation, you may access it on the Company’s website at www.laredopetro.com.

I will now turn the call over to Randy Foutch, Chairman and Chief Executive Officer..

Thank you, Ron. Good morning, everyone, and thank you for joining us on our second quarter 2019 update call. We have led Laredo to a significant transition that we began working on three years ago with senior leadership succession planning, culminating in broad strategic and tactical changes over the last nine-months.

On Slide 3, we summarize the steps we have taken. We changed our development strategy, cut cost from every facet of the business and completely revamped the senior leadership team with all positions but one filled by long-term employees.

Laredo's results in the second quarter illustrated on the Slide 4, are direct result of decisions we have implemented over the last nine-months. Oil production beat guidance by 7%, driven in part by the performance of the Yellow Rose package.

Our first widely spaced package to be completed since we have made this strategic decision to focus on increasing rate of return rather than NAV accretion. Still on Slide 4, personnel reductions implemented in April dramatically reduced unit cash G&A expense and we continue to drive down unit LOE.

Thanks in large part to our prior investments in infrastructure. We are proud to demonstrate that these combined unit controllable cash cost are among the best in the basin. Slide 5 demonstrates a dramatic improvement in the Company's performance through 2019. 2018 was defined by lower returns with tightly space development and outspending cash flow.

For 2019, decisions to widen spacing to improve productivity and restructure our hedges to minimize cash flow risk, combined with reductions in well cost, has substantially improved well returned and propelled free cash flow generation.

Driven by these improvements, we are increasing our oil and total production growth estimates for full-year 2019, while maintaining our capital budget and increasing our cash flow generation estimates from being cash flow neutral for the year to generating $30 million in free cash flow for the full-year.

We are achieving everything we expected when we embarked on this transformation and have greatly surpassed our initial projections which we laid out both in November when we announced our move to wider spacing, and then with our initial 2019 budget in Mid-February.

With that, for those that have not met him yet, I would like to introduce Jason Pigott, again. Jason joined us from Chesapeake at the end of May as our President, and will be named CEO in the fourth quarter of the year.

Before I hand the call over to Jason, I would like to take a moment to compliment our new senior leadership team and the entire organization for what has been accomplished in a very short time.

After the reduction enforced in April, experienced employees quickly stepped up into leadership positions, restructuring the organization to do more with less. What we have accomplished is a tribute to the kind of people and depth of talent that we have here at Laredo, and their dedication to do an amazing job day-in day-out..

Thank you, Randy. I'm excited to be on the team and continue advancing the transformation you started at Laredo. In a short amount of time, one of the things I have been able to discern is that we have great people here at Laredo. Additionally, there's nothing like starting a new job with a great results we are able to release this quarter.

Turning to operational results. We completed our first widely spaced package since we committed to changing development spacing in November of 2018. Results for the Yellow Rose package are shown on Slide 6. The package began flow back in late April and has more than 100 days in production.

Currently, the Yellow Rose is outperforming a directly offset tight-spacing package Fuchs by more than 30% on a cumulative oil production per foot basis. This is a very positive result and it confirms our expectations that the 2019 drilling programs should exhibit a significant productivity increase versus 2018 program.

Wider spacing is expected to drive significant productivity improvements versus offset tighter space packages through our acreage. We view these data supporting our upper Wolfcamp middle Wolfcamp type curve.

I will point out that the Fuchs package was one of our better tightly spaced packages, so the Yellow Rose would also be expected to perform well versus our type curve. Our focused is on the productivity of the Yellow Rose relative to the Fuchs.

I want to simplify my remarks for the remainder of this presentation, I will refer to the combined upper Wolfcamp and middle Wolfcamp co-development as simply the Wolfcamp. On Slide 7, we show the progression of our well of returns as we have lowered well cost and wider spacing is improving productivity.

The 31% rate of return we show here is based on Wolfcamp type curve productivity. So, of course, the Yellow Rose returns would be higher. We are sharpening our focus on enhancing returns and minimizing risk in our development program and are working to hi-grade our inventory.

In that way we have refined how we are looking at our combined Wolfcamp development and we'll target an area of higher cline productivity where returns are expected to be similar to the Wolfcamp returns as drilling and completion cost have come down.

On Slide 8, we have illustrated the development changes and related inventory assumptions associated with these adjustments. In the Wolfcamp development strategy we took a closer look at both our data and third-party data as it applies to productivity relative to vertical spacing.

In-light of this data, we have reduced targeted lending points from 4 to 3. We feel this reduces the risk of vertical interference between zones and increases our confidence and productivity assumptions.

While this does produce the number of potential Wolfcamp co-development locations, it has a relatively small impact on the potential singles zone development locations. Continuing on Slide 8, we are returning to a region of higher productivity cline targets illustrated by the Orange Loop where we have drilled in the past.

Moving to Slide 9, we show the data that drove this decision. If you look at the green production curve, this is the average oil productivity per 10,000 feet of 28 regional cline wells completed with 1100 pounds of sands per foot.

For prospective, the average first year oil production of a cline completion in this region using 1100 pounds of sand per foot is equivalent to the first year oil production of the Wolfcamp type curve for a 1800 per foot completion.

The blue production curve is the average oil productivity of four regional cline wells completed with 1800 pounds of sand per foot, all four of which have extensive production history.

The regional cline type curve we developed using this data has generated 26% higher oil productivity assumption versus our Wolfcamp type curve in the first two years of production.

Using these assumptions the higher oil productivity more than compensates for the additional $1.2 million in well cost generating a return that is very similar to the Wolfcamp. We expect to begin to incorporate regional cline drilling into our development plan beginning in 2020.

Specifically, we expect to focus on opportunities to incorporate cline targets into well packages where we are already developing the Wolfcamp to take full advantage of drilling and completion cost reduction opportunities.

We anticipate taking a measured approach to incorporating this cline development into our drilling plans with the option to accelerate development as data supports our assumptions.

As we work to high grade our inventory and focus on enhancing returns, we also expect to increase our focus on bolt-on acquisitions and leasing in and around our existing acreage as we have begun to see more opportunities for both leasing and trades.

We view Laredo as a natural partner for transactions around our lease hold given our infrastructure investments and extensive data set covering the area. I will now hand the call over to Michael for our financial update..

Thank you, Jason. As Randy discussed, Laredo has transitioned to a position of generating free cash flow driven by improving well productivity and a pure leading cost structure. Our hedge position helps to secure our expected cash flow as illustrated on Slide 10.

For the balance of 2019, we have locked in oil price of more than $60 per barrel on 95% of our anticipated oil production. This paired with our natural gas NGL and basis hedges representing 80% of our forecasted production for the second half of 2019.

Our hedges significantly reduce the impact of a potential drop in commodity prices and help insure the company's cash flow projections for 2019. Additionally, for 2020, we have hedged 7.5 million barrels of oil at an average price of $59 per barrel and 23.8 million MMBTu at a floor price of $2.70 per MMBTu.

Our full hedge position is detailed in the appendix. Turning to Slide 11. We have no debt maturities for 30 months and more than 900 million in liquidity which will continue to improve during the second half of the year as we plan to continue reducing borrowings on facility.

In the first quarter of 2019, our front weighted capital program produced panned outspend versus cash flow of $51, on a cost incurred basis. We borrowed 80 million on our credit facility in the first quarter to fund this outspend and the increase in working capital.

In the second quarter we surpassed our commitment to be cash flow neutral by generating $40 million in free cash flow. This free cash flow enabled us to pay down 35 million on our credit facility, which we have further reduced by another 20 million during the first month of the third quarter.

We now anticipate exceeding our initial expectations of looking within cash flow for the full-year 2019 by generating 30 million of free cash flow for the year. Laredo remains strongly committed to a discipline development program that targets measured oil growth and at a minimum living within cash flow.

Our focus on improving returns as we widen spacing, reduce cost and high grade inventory, combined with our conservative debt profile, drive our ability to deliver on this commitment. Operator, please open the call for questions..

Thank you. [Operator instructions] Our first question comes from Derrick Whitfield with Stifel. You may proceed with your question..

Thanks, good morning all and congrats on a second exceptionally strong quarter.

Perhaps for Randy or Jason, based on the high grading you are outlining on Page 8 and your initial results with the Yellow Rose package, is it possible that your type curve revisions at year end were overly punitive?.

It's Jason.

I mean we feel good about the type curve right now, if you look at Slide 6 and if we compare those results -- the initial results from the Yellow Rose -- the rock is better in that area, so you could see -- look that as we compare the Yellow Rose widely space package to more densely space packaged , the Fuchs, and you can see that the Fuchs is even outperforming the type curve early on in that area.

So right now we believe in the type curve, we have one package rolling back, so we will wait for more data before changing anything on our type curve, but we feel strong with the type curve we have got represents the inventory we have highlighted..

Thanks Jason and perhaps for Randy as a follow-up, could you remind us of how the geology of your cline changes you move west and south from the area that you have outlined on Page 8?.

Derrick, thank you for your opening comments. The cline is pretty - a little higher outstood it does, but it kind of looks the same going everywhere. But having said that, when we are talking about shale deposition sequence from well-to-well, it does change some.

And for us I think the critical thing is that we get deeper in the basin as we go from East to West and the cline has a little higher maturity to produce, so it’s a little gassier. It’s going to produce across all of that acreage, the question is, what the economics are.

And keep in mind, the inventory we show on Page 8, that is not our inventory, that is our high graded inventory..

Very helpful. Thanks for your time..

Thank you..

Thank you. [Operator Instructions] Our next question from Brian Singer with Goldman Sachs. You may proceed with your question..

Thank you, good morning..

Good morning Brian..

And Jason congratulations. Just one question and that is with regards to cline, you mentioned you are going to be integrating the cline drilling into 2020.

Do you see that as incremental relative to what you would otherwise be doing before or would this be replacing drilling that would have done elsewhere in the portfolio and if where?.

I think the way that we are thinking about it right now is just, as we are developing Wolfcamp when we have got good cline opportunities there, we are going to develop it all together on the path, so that's what the planning would be going forward.

I mean the return is better and I don’t know that we are done optimizing the completion, we have got one test here with higher sand and more sense may help improve productivity even more. So there is lots to learn about the cline, I don’t think we are done yet, as we continue to improve cost and increase productivity..

Okay. So should we think of the cline over the medium term as a driver of otherwise higher growth than we thought and potentially higher capital spending or should we think of the cline as just a potentially more capital efficient way of achieving the growth at a given level of spending that you are otherwise going to do..

I don’t think you should -- the cline is having increased our capital spending. I think we are going to be pretty disciplined.

For us it’s just another validation that we have a pretty good high graded inventory and will, from an operational point of view to Jason point, will drill those most efficient way we can, but we don’t view it as increasing any time soon or capital expenditures..

Great. Thank you so much..

Thank you..

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back to Ron Hagood for any further remarks..

Thank you for joining us for our second quarter '19 update call. We appreciate your interest in Laredo. This conclude today's call and have a good morning..

Thank you, ladies and gentlemen. Thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day..