What happened
Shares of Laredo Petroleum Inc (LPI 1.45%) tumbled on Thursday and were down more than 16% at 10:00 a.m. EDT after reporting lackluster first-quarter results.
So what
Permian Basin-focused driller Laredo Petroleum produced a record 63,314 barrels of oil equivalent per day during the first quarter, which was in-line with its expectations. The company more than overcame some delays from adverse weather conditions early in the quarter by completing four more wells than projected due to efficiency gains. However, despite that solid operational start to the year, the company only earned an adjusted $57.6 million, or $0.24 per share, which missed the consensus estimate by $0.02 per share. That miss came even though the company repurchased $58.5 million shares of its stock during the quarter, which reduced its outstanding share count by nearly 2%.
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In addition to that, the company also reported that oil giant Royal Dutch Shell (RDS.A) (RDS.B) terminated its contract with Laredo to purchase and sell oil. That contract had helped Laredo obtain better pricing on its oil, but Shell sued Laredo last year after alleging that the agreement didn't accurately reflect its compensation due to a drafting mistake. While the contract is still under litigation, Shell terminated the deal, which will result in Laredo realizing less money for some of its oil this year.
Finally, the company also stated that it's experiencing some delays in securing lower cost sand in the Permian Basin as well as making some changes to its capital plan by drilling wells about 200 feet longer on average than initially expected. Because of these factors, the company expects to spend an additional $30 million this year, bringing its total capital budget up to $500 million.
Now what
Laredo Petroleum's focus on the Permian can be both a blessing and a curse. While the region offers drillers high returns on new wells, it also suffers from logistical issues, which makes it harder for smaller drillers like Laredo to get access to the sand they need to frack their wells as well as obtain the best pricing for oil. That makes Laredo a riskier and more volatile option, which is why investors might want to consider investing in one of these top oil stocks instead.
