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EX-32.1 - EXHIBIT 32.1 - Laredo Petroleum, Inc.a2q16ex321.htm
EX-31.2 - EXHIBIT 31.2 - Laredo Petroleum, Inc.a2q16ex312.htm
EX-31.1 - EXHIBIT 31.1 - Laredo Petroleum, Inc.a2q16ex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2016
 or
 o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                             to                            
Commission File Number: 001-35380
 Laredo Petroleum, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
 (State or Other Jurisdiction of
Incorporation or Organization)
 
45-3007926
 (I.R.S. Employer
Identification No.)
15 W. Sixth Street, Suite 900
 
 
Tulsa, Oklahoma
 
74119
(Address of Principal Executive Offices)
 
(Zip code)
(918) 513-4570
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý  No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ý
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý 
Number of shares of registrant's common stock outstanding as of August 1, 2016: 240,124,869




TABLE OF CONTENTS 
 
 
Page
 
Part I
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Part II
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 

ii


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (this "Quarterly Report") are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:
the volatility of, and substantial decline in, oil, natural gas liquids ("NGL") and natural gas prices, which remain at low levels;
revisions to our reserve estimates as a result of changes in commodity prices and uncertainties;
impacts to our financial statements as a result of impairment write-downs;
our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves;
uncertainties about the estimates of our oil, NGL and natural gas reserves;
changes in domestic and global production, supply and demand for oil, NGL and natural gas;
the ongoing instability and uncertainty in the United States and international financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;
capital requirements for our operations and projects;
our ability to maintain the borrowing capacity under our Senior Secured Credit Facility (as defined below) or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;
restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;
our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;
the potentially insufficient refining capacity in the United States Gulf Coast to refine all of the light sweet crude oil being produced in the United States, which could result in widening price discounts to world crude prices and potential shut-in of production due to lack of sufficient markets;
regulations that prohibit or restrict our ability to apply hydraulic fracturing to our oil and natural gas wells and to access and dispose of water used in these operations;
legislation or regulations that prohibit or restrict our ability to drill new allocation wells;
our ability to execute our strategies, including but not limited to our hedging strategies;
competition in the oil and natural gas industry;
changes in the regulatory environment and changes in international, legal, political, administrative or economic conditions;
drilling and operating risks, including risks related to hydraulic fracturing activities;
risks related to the geographic concentration of our assets;
the availability and costs of drilling and production equipment, labor and oil and natural gas processing and other services;
the availability of sufficient pipeline and transportation facilities and gathering and processing capacity;

iii


the ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties;
our ability to comply with federal, state and local regulatory requirements; and
our ability to recruit and retain the qualified personnel necessary to operate our business.
These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report, under "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Annual Report"), and those set forth from time to time in our other filings with the Securities and Exchange Commission (the "SEC"). These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

iv



PART I

Item 1.    Consolidated Financial Statements (Unaudited)

Laredo Petroleum, Inc.
Consolidated balance sheets
(in thousands, except share data)
(Unaudited)
 
 
June 30, 2016

December 31, 2015
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
19,309

 
$
31,154

Accounts receivable, net
 
88,543

 
87,699

Derivatives
 
88,965

 
198,805

Other current assets
 
14,445

 
14,574

Total current assets
 
211,262

 
332,232

Property and equipment:
 
 
 
 

Oil and natural gas properties, full cost method:
 
 
 
 

Evaluated properties
 
5,309,151

 
5,103,635

Unevaluated properties not being depleted
 
114,507

 
140,299

Less accumulated depletion and impairment
 
(4,448,482
)
 
(4,218,942
)
Oil and natural gas properties, net
 
975,176

 
1,024,992

Midstream service assets, net
 
128,052

 
131,725

Other fixed assets, net
 
40,951

 
43,538

Property and equipment, net
 
1,144,179

 
1,200,255

Derivatives
 
32,680

 
77,443

Investment in equity method investee
 
213,616

 
192,524

Other assets, net
 
8,414

 
10,833

Total assets
 
$
1,610,151

 
$
1,813,287

Liabilities and stockholders’ equity
 
 
 
 

Current liabilities:
 
 
 
 

Accounts payable
 
$
14,500

 
$
14,181

Undistributed revenue and royalties
 
25,452

 
34,540

Accrued capital expenditures
 
39,860

 
61,872

Derivatives
 
1,480

 

Other current liabilities
 
72,520

 
106,222

Total current liabilities
 
153,812

 
216,815

Long-term debt, net
 
1,392,877

 
1,416,226

Derivatives
 
3,740

 

Asset retirement obligations
 
46,716

 
44,759

Other noncurrent liabilities
 
3,844

 
4,040

Total liabilities
 
1,600,989

 
1,681,840

Commitments and contingencies
 


 


Stockholders’ equity:
 
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of June 30, 2016 and December 31, 2015
 

 

Common stock, $0.01 par value, 450,000,000 shares authorized and 227,197,566 and 213,808,003 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively
 
2,272

 
2,138

Additional paid-in capital
 
2,216,036

 
2,086,652

Accumulated deficit
 
(2,209,146
)
 
(1,957,343
)
Total stockholders’ equity
 
9,162

 
131,447

Total liabilities and stockholders’ equity
 
$
1,610,151

 
$
1,813,287


The accompanying notes are an integral part of these unaudited consolidated financial statements.

1



Laredo Petroleum, Inc.
Consolidated statements of operations
(in thousands, except per share data)
(Unaudited)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues:






 
 

 
 

Oil, NGL and natural gas sales

$
102,526


$
125,554


$
175,668


$
243,672

Midstream service revenues

1,632


1,726


3,433


3,035

Sales of purchased oil
 
42,615

 
55,051

 
74,229

 
86,318

Total revenues

146,773


182,331


253,330


333,025

Costs and expenses:

 
 
 
 
 
 
 
Lease operating expenses

19,225


29,206


39,743


61,586

Production and ad valorem taxes
 
7,982

 
9,500

 
14,417

 
18,586

Midstream service expenses
 
1,178

 
1,597

 
1,787

 
3,171

Minimum volume commitments



3,579




5,235

Costs of purchased oil
 
44,012

 
54,417

 
76,958

 
85,617

General and administrative

20,502


23,208

 
39,953

 
45,063

Restructuring expenses
 

 

 

 
6,042

Accretion of asset retirement obligations

860


593


1,704


1,172

Depletion, depreciation and amortization

34,177


72,112


75,655


144,054

Impairment expense

963


489,599


162,027


490,477

Total costs and expenses

128,899


683,811


412,244


861,003

Operating income (loss)

17,874


(501,480
)

(158,914
)

(527,978
)
Non-operating income (expense):




 
 
 
 
 
Loss on derivatives, net

(68,518
)

(63,899
)

(50,633
)

(744
)
Income from equity method investee

3,696


2,914


5,994


2,481

Interest expense

(23,512
)

(23,970
)

(47,217
)

(56,384
)
Interest and other income

11


173


110


296

Loss on early redemption of debt
 

 
(31,537
)
 

 
(31,537
)
Write-off of debt issuance costs

(842
)


 
(842
)
 

Loss on disposal of assets, net

(141
)

(1,081
)

(301
)

(1,843
)
Non-operating expense, net

(89,306
)

(117,400
)

(92,889
)

(87,731
)
Loss before income taxes

(71,432
)

(618,880
)

(251,803
)

(615,709
)
Income tax benefit:












Deferred



221,846




218,203

Total income tax benefit



221,846




218,203

Net loss

$
(71,432
)
 
$
(397,034
)

$
(251,803
)

$
(397,506
)
Net loss per common share:







 




Basic

$
(0.33
)

$
(1.88
)

$
(1.17
)
 
$
(2.13
)
Diluted

$
(0.33
)
 
$
(1.88
)

$
(1.17
)
 
$
(2.13
)
Weighted-average common shares outstanding:







 

 
 

Basic

217,564


211,078


214,562

 
186,886

Diluted

217,564


211,078


214,562

 
186,886

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

2



Laredo Petroleum, Inc.
Consolidated statement of stockholders' equity
(in thousands)
(Unaudited) 
 
 
Common Stock
 
Additional
paid-in capital
 
Treasury Stock
(at cost)
 
Accumulated deficit
 
 
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
 
Total
Balance, December 31, 2015
 
213,808

 
$
2,138

 
$
2,086,652

 

 
$

 
$
(1,957,343
)
 
$
131,447

Restricted stock awards
 
2,968

 
30

 
(30
)
 

 

 

 

Restricted stock forfeitures
 
(221
)
 
(2
)
 
2

 

 

 

 

Vested restricted stock exchanged for tax withholding
 

 

 

 
288

 
(1,541
)
 

 
(1,541
)
Retirement of treasury stock
 
(288
)
 
(3
)
 
(1,538
)
 
(288
)
 
1,541

 

 

Exercise of employee stock options
 
6

 

 
67

 

 

 

 
67

Equity issuance, net of offering costs
 
10,925

 
109

 
119,201

 

 

 

 
119,310

Stock-based compensation
 

 

 
11,682

 

 

 

 
11,682

Net loss
 

 

 

 

 

 
(251,803
)
 
(251,803
)
Balance, June 30, 2016
 
227,198

 
$
2,272

 
$
2,216,036

 

 
$

 
$
(2,209,146
)
 
$
9,162

 
The accompanying notes are an integral part of this unaudited consolidated financial statement.

3



Laredo Petroleum, Inc.
Consolidated statements of cash flows
(in thousands)
(Unaudited)
 
 
Six months ended June 30,
 
 
2016
 
2015
Cash flows from operating activities:

 


 

Net loss

$
(251,803
)

$
(397,506
)
Adjustments to reconcile net loss to net cash provided by operating activities:






Deferred income tax benefit



(218,203
)
Depletion, depreciation and amortization

75,655


144,054

Impairment expense

162,027


490,477

Loss on early redemption of debt
 

 
31,537

Non-cash stock-based compensation, net of amounts capitalized

9,911


11,056

Mark-to-market on derivatives:






Loss on derivatives, net

50,633


744

Cash settlements received for matured derivatives, net

113,319


109,737

Cash settlements received for early terminations of derivatives, net

80,000



Change in net present value of deferred premiums paid for derivatives

133


88

Cash premiums paid for derivatives

(84,263
)

(2,670
)
Amortization of debt issuance costs

2,187


2,501

Write-off of debt issuance costs

842

 

Income from equity method investee

(5,994
)

(2,481
)
Cash settlement of performance unit awards
 
(6,394
)
 
(2,738
)
Other, net

2,009


3,012

(Increase) decrease in accounts receivable
 
(844
)
 
16,586

Increase in other assets
 
(117
)
 
(9,097
)
Increase (decrease) in accounts payable
 
319

 
(15,744
)
Decrease in undistributed revenues and royalties
 
(9,088
)
 
(20,699
)
Increase (decrease) in other accrued liabilities
 
295

 
(28,341
)
(Decrease) increase in other noncurrent liabilities
 
(196
)
 
318

Increase in fair value of performance unit awards
 

 
1,674

Net cash provided by operating activities
 
138,631

 
114,305

Cash flows from investing activities:






Capital expenditures:






Oil and natural gas properties

(197,042
)

(374,508
)
Midstream service assets

(3,425
)

(34,137
)
Other fixed assets

(832
)

(6,541
)
Investment in equity method investee
 
(42,681
)
 
(14,495
)
Proceeds from dispositions of capital assets, net of costs

350


35

Net cash used in investing activities

(243,630
)

(429,646
)
Cash flows from financing activities:






Borrowings on Senior Secured Credit Facility

120,000


300,000

Payments on Senior Secured Credit Facility

(144,682
)

(475,000
)
Issuance of March 2023 Notes
 


350,000

Redemption of January 2019 Notes
 

 
(576,200
)
Proceeds from issuance of common stock, net of offering costs
 
119,310

 
754,163

Purchase of treasury stock

(1,541
)

(2,591
)
Proceeds from exercise of employee stock options

67



Payments for debt issuance costs



(6,759
)
Net cash provided by financing activities

93,154


343,613

Net (decrease) increase in cash and cash equivalents

(11,845
)

28,272

Cash and cash equivalents, beginning of period

31,154


29,321

Cash and cash equivalents, end of period

$
19,309


$
57,593

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

Note 1—Organization
Laredo Petroleum, Inc. ("Laredo"), together with its subsidiaries, Laredo Midstream Services, LLC ("LMS") and Garden City Minerals, LLC ("GCM"), is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties, and the transportation of oil and natural gas from such properties, primarily in the Permian Basin in West Texas. LMS and GCM (together, the "Guarantors") guarantee all of Laredo's debt instruments. In these notes, the "Company" refers to Laredo, LMS and GCM collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and therefore approximate.
The Company operates in two business segments: (i) exploration and production and (ii) midstream and marketing. The exploration and production segment is engaged in the acquisition, exploration and development of oil and natural gas properties primarily in the Permian Basin in West Texas. The midstream and marketing segment provides Laredo's exploration and production segment and third parties with products and services that need to be delivered by midstream infrastructure, including oil and natural gas gathering services as well as rig fuel, natural gas lift and water delivery and takeaway in and around Laredo's primary production corridors.
Note 2—Basis of presentation and significant accounting policies
a.    Basis of presentation
The accompanying unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). All material intercompany transactions and account balances have been eliminated in the consolidation of accounts. The Company uses the equity method of accounting to record its net interests when the Company holds 20% to 50% of the voting rights and/or has the ability to exercise significant influence but does not control the entity. Under the equity method, the Company's proportionate share of the investee's net income (loss) is included in the unaudited consolidated statements of operations. See Note 14 for additional discussion of the Company's equity method investment.
The accompanying consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2015 is derived from audited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of June 30, 2016, results of operations for the three and six months ended June 30, 2016 and 2015 and cash flows for the six months ended June 30, 2016 and 2015.
Certain disclosures have been condensed or omitted from these unaudited consolidated financial statements. Accordingly, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2015 Annual Report.
b.    Use of estimates in the preparation of interim unaudited consolidated financial statements
The preparation of the accompanying unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ. The interim results reflected in the unaudited consolidated financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year.
Significant estimates include, but are not limited to, (i) estimates of the Company's reserves of oil, NGL and natural gas, (ii) future cash flows from oil and natural gas properties, (iii) depletion, depreciation and amortization, (iv) asset retirement obligations, (v) stock-based compensation, (vi) deferred income taxes, (vii) fair value of assets acquired and liabilities assumed in an acquisition and (viii) fair values of derivatives, deferred premiums and performance unit awards. As fair value is a market-based measurement, it is determined based on the assumptions that would be used by market participants. These estimates and assumptions are based on management's best judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Such estimates and assumptions are adjusted when facts and circumstances dictate. Illiquid credit markets and volatile equity and energy markets have combined to increase the uncertainty inherent in such estimates and assumptions. Management believes its estimates and

5

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

assumptions to be reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual values and results could differ from these estimates. Any changes in estimates resulting from future changes in the economic environment will be reflected in the financial statements in future periods.
c.    Reclassifications
Certain amounts in the accompanying unaudited consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no impact to previously reported net loss, stockholders' equity or cash flows.
d.    Accounts receivable
The Company sells produced oil, NGL and natural gas and purchased oil to various customers and participates with other parties in the development and operation of oil and natural gas properties. The Company's accounts receivable are generally unsecured. Accounts receivable for joint interest billings are recorded as amounts billed to customers less an allowance for doubtful accounts.
Joint interest operations amounts are considered past due after 30 days. The Company determines joint interest operations accounts receivable allowances based on management's assessment of the creditworthiness of the joint interest owners. Additionally, as the operator of the majority of its wells, the Company has the ability to realize some or all of the receivables through netting of anticipated future production revenues. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging and existing industry and economic data. The Company reviews its allowance for doubtful accounts quarterly. Past due amounts greater than 90 days and over a specified amount are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is remote.
    
Accounts receivable consisted of the following components for the periods presented:
(in thousands)
 
June 30, 2016
 
December 31, 2015
Oil, NGL and natural gas sales
 
$
42,629

 
$
25,582

Joint operations, net(1)
 
18,425

 
21,375

Sales of purchased oil and other products
 
15,000

 
11,775

Matured derivatives
 
12,223

 
27,469

Other
 
266

 
1,498

Total
 
$
88,543

 
$
87,699

______________________________________________________________________________
(1)
Accounts receivable for joint operations are presented net of an allowance for doubtful accounts of $0.2 million as of both June 30, 2016 and December 31, 2015.
e.    Derivatives
The Company uses derivatives to reduce exposure to fluctuations in the prices of oil, NGL and natural gas. By removing a significant portion of the price volatility associated with future production, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations due to fluctuations in commodity prices. These transactions are in the form of puts, swaps, collars and, in prior periods, basis swaps.
Derivatives are recorded at fair value and are presented on a net basis on the unaudited consolidated balance sheets as assets or liabilities. The Company nets the fair value of derivatives by counterparty where the right of offset exists. The Company determines the fair value of its derivatives by utilizing pricing models for substantially similar instruments. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. See Note 9 for discussion regarding the fair value of the Company's derivatives. 
The Company's derivatives were not designated as hedges for accounting purposes for any of the periods presented. Accordingly, the changes in fair value are recognized in the unaudited consolidated statements of operations in the period of change. Gains and losses on derivatives are included in cash flows from operating activities. See Notes 8 and 9 for discussion regarding the Company's derivatives.

6

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

f.    Property and equipment
The following table sets forth the Company's property and equipment as of the periods presented:
(in thousands)
 
June 30, 2016
 
December 31, 2015
Evaluated oil and natural gas properties
 
$
5,309,151

 
$
5,103,635

Less accumulated depletion and impairment
 
(4,448,482
)
 
(4,218,942
)
Evaluated oil and natural gas properties, net
 
860,669

 
884,693

 
 
 
 
 
Unevaluated properties not being depleted
 
114,507

 
140,299

 
 
 
 
 
Midstream service assets
 
148,227

 
147,811

Less accumulated depreciation
 
(20,175
)
 
(16,086
)
Midstream service assets, net
 
128,052

 
131,725

 
 
 
 
 
Depreciable other fixed assets
 
46,255

 
46,799

Less accumulated depreciation and amortization
 
(20,218
)
 
(18,169
)
Depreciable other fixed assets, net
 
26,037

 
28,630

 
 
 
 
 
Land
 
14,914

 
14,908

 
 
 
 
 
Total property and equipment, net
 
$
1,144,179

 
$
1,200,255

For the three months ended June 30, 2016 and 2015, depletion expense was $7.06 per barrel of oil equivalent ("BOE") sold and $16.19 per BOE sold, respectively. For the six months ended June 30, 2016 and 2015, depletion expense was $8.01 per BOE sold and $16.13 per BOE sold, respectively.
The Company uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition, exploration and development costs, including certain related employee costs, incurred for the purpose of finding oil, NGL and natural gas are capitalized and depleted on a composite unit of production method based on proved oil, NGL and natural gas reserves. Such amounts include the cost of drilling and equipping productive wells, dry hole costs, lease acquisition costs, delay rentals and other costs related to such activities. Costs, including related employee costs, associated with production and general corporate activities are expensed in the period incurred. Sales of oil and natural gas properties, whether or not being depleted currently, are accounted for as adjustments of capitalized costs, with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil, NGL and natural gas.
The Company excludes the costs directly associated with acquisition and evaluation of unevaluated properties from the depletion calculation until it is determined whether or not proved reserves can be assigned to the properties. The Company capitalizes a portion of its interest costs on its unevaluated properties. Capitalized interest becomes a part of the cost of the unevaluated properties and is subject to depletion when proved reserves can be assigned to the associated properties. All items classified as unevaluated property are assessed on a quarterly basis for possible impairment or reduction in value. The assessment includes consideration of the following factors, among others: intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of evaluated reserves and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion.
The full cost ceiling is based principally on the estimated future net revenues from proved oil and natural gas properties discounted at 10%. Per the SEC guidelines, companies are required to use the unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials ("Benchmark Prices"). The Benchmark Prices are then adjusted for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the wellhead ("Realized Prices"). The Realized Prices are utilized to calculate the discounted future net revenues in the full cost ceiling calculation.

7

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

In the event the unamortized cost of evaluated oil and natural gas properties being depleted exceeds the full cost ceiling, as defined by the SEC, the excess is charged to expense in the period such excess occurs. Once incurred, a write-down of oil and natural gas properties is not reversible.
The following table presents the Benchmark Prices, Realized Prices and the corresponding non-cash full cost ceiling impairments recorded as of the periods presented:
 
 
For the quarters ended
 
 
June 30, 2016
 
March 31, 2016
 
December 31, 2015
 
September 30, 2015
 
June 30, 2015
Benchmark Prices
 
 
 
 
 
 
 
 
 
 
   Oil ($/Bbl)
 
$
39.63

 
$
42.77

 
$
46.79

 
$
55.73

 
$
68.17

   NGL ($/Bbl)
 
$
17.08

 
$
17.51

 
$
18.75

 
$
21.87

 
$
26.73

   Natural gas ($/MMBtu)
 
$
2.17

 
$
2.31

 
$
2.47

 
$
2.89

 
$
3.22

Realized Prices
 
 
 
 
 
 
 
 
 
 
   Oil ($/Bbl)
 
$
37.96

 
$
41.33

 
$
45.58

 
$
54.28

 
$
66.68

   NGL ($/Bbl)
 
$
10.80

 
$
11.25

 
$
12.50

 
$
15.25

 
$
19.56

   Natural gas ($/Mcf)
 
$
1.64

 
$
1.75

 
$
1.89

 
$
2.30

 
$
2.62

Non-cash full cost ceiling impairment (in thousands)
 
$

 
$
161,064

 
$
975,011

 
$
906,420

 
$
488,046

Full cost ceiling impairment expense is included in the "Impairment expense" line item in the unaudited consolidated statements of operations and in the financial information provided for the Company's exploration and production segment presented in Note 16.
g. Long-lived assets and inventory
Impairment losses are recorded on property and equipment used in operations and other long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impairment is measured based on the excess of the carrying amount over the fair value of the asset.
Materials and supplies inventory used in developing oil and natural gas properties and midstream service assets are carried at the lower of cost or market ("LCM") with cost determined using the weighted-average cost method and are included in "Other current assets" and "Other assets, net" on the unaudited consolidated balance sheets. The market price for materials and supplies is determined utilizing a replacement cost approach (Level 2).
Beginning at March 31, 2016, frac pit water inventory used in developing oil and natural gas properties is carried at LCM with cost determined using the weighted-average cost method and is included in "Other current assets" on the unaudited consolidated balance sheets. The market price for frac pit water inventory is determined utilizing a replacement cost approach.
The minimum volume of product in a pipeline system that enables the system to operate is known as line-fill and is generally not available to be withdrawn from the pipeline system until the expiration of the transportation contract. The Company owns oil line-fill in third-party pipelines, which is accounted for at LCM with cost determined using the weighted-average cost method and is included in "Other assets, net" on the unaudited consolidated balance sheets. The LCM adjustment is determined utilizing a quoted market price adjusted for regional price differentials (Level 2).

8

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

The following table presents inventory impairments recorded as of the periods presented:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
 
2016
 
2015
 
2016
 
2015
Inventory impairments:
 
 
 
 
 
 
 
 
Materials and supplies(1)
 
$
963

 
$
1,553

 
$
963

 
$
2,320

Line-fill(2)
 

 

 

 
111

Total inventory impairments
 
$
963

 
$
1,553

 
$
963

 
$
2,431

______________________________________________________________________________
(1)
Included in "Impairment expense" in the unaudited consolidated statements of operations and in "Impairment expense" for the Company's exploration and production segment presented in Note 16.
(2)
Included in "Impairment expense" in the unaudited consolidated statements of operations and in "Impairment expense" for the Company's midstream and marketing segment presented in Note 16.
h.    Debt issuance costs
Debt issuance fees, which are recorded at cost, net of amortization, are amortized over the life of the respective debt agreements utilizing the effective interest and straight-line methods. The Company capitalized $6.8 million of debt issuance costs during the six months ended June 30, 2015 mainly as a result of the issuance of the March 2023 Notes (as defined below). No debt issuance costs were capitalized in the six months ended June 30, 2016. The Company had total debt issuance costs of $20.9 million and $23.9 million, net of accumulated amortization of $19.2 million and $17.0 million, as of June 30, 2016 and December 31, 2015, respectively.
The Company wrote-off approximately $0.8 million of debt issuance costs during the six months ended June 30, 2016 as a result of changes in the borrowing base and aggregate elected commitment of the Senior Secured Credit Facility, which are included in the unaudited consolidated statements of operations in the "Write-off of debt issuance costs" line item. During the six months ended June 30, 2015, the Company wrote-off approximately $6.6 million of debt issuance costs as a result of the early redemption of the January 2019 Notes (as defined below), which are included in the unaudited consolidated statements of operations in the "Loss on early redemption of debt" line item. Unamortized debt issuance costs related to the Company's senior unsecured notes are presented in "Long-term debt, net" on the Company's unaudited consolidated balance sheets. Unamortized debt issuance costs related to the Senior Secured Credit Facility are presented in "Other assets, net" on the Company's unaudited consolidated balance sheets. See Note 5.g for additional discussion of debt issuance costs.
Future amortization expense of debt issuance costs as of the period presented is as follows:
(in thousands)
 
June 30, 2016
Remaining 2016

$
2,092

2017

4,238

2018

4,068

2019

2,915

2020

3,005

Thereafter

4,585

Total

$
20,903

i.    Other current assets and liabilities
Other current assets consist of the following components for the periods presented:
(in thousands)
 
June 30, 2016
 
December 31, 2015
Inventory(1)
 
$
6,986

 
$
6,974

Prepaid expenses and other
 
7,459

 
7,600

Total other current assets
 
$
14,445

 
$
14,574

______________________________________________________________________________
(1)
See Note 2.g for discussion of inventory held by the Company.

9

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

Other current liabilities consist of the following components for the periods presented:
(in thousands)
 
June 30, 2016
 
December 31, 2015
Accrued interest payable
 
$
24,161

 
$
24,208

Costs of purchased oil payable
 
15,629

 
12,189

Lease operating expense payable
 
11,570

 
13,205

Accrued compensation and benefits
 
8,720

 
14,342

Capital contribution payable to equity method investee(1)
 

 
27,583

Other accrued liabilities
 
12,440

 
14,695

Total other current liabilities
 
$
72,520

 
$
106,222

______________________________________________________________________________
(1)
See Notes 14 and 15 for additional discussion regarding our equity method investee.
j.    Asset retirement obligations
Asset retirement obligations associated with the retirement of tangible long-lived assets are recognized as a liability in the period in which they are incurred and become determinable. The associated asset retirement costs are part of the carrying amount of the long-lived asset. Subsequently, the asset retirement cost included in the carrying amount of the related long-lived asset is charged to expense through depletion, or for midstream service asset retirement cost through depreciation, of the associated asset. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability and as corresponding accretion expense.
The fair value of additions to the asset retirement obligation liability is measured using valuation techniques consistent with the income approach, which converts future cash flows into a single discounted amount. Significant inputs to the valuation include: (i) estimated plug and abandonment cost per well based on Company experience, (ii) estimated remaining life per well, (iii) estimated removal and/or remediation costs for midstream service assets, (iv) estimated remaining life of midstream service assets, (v) future inflation factors and (vi) the Company's average credit adjusted risk-free rate. Inherent in the fair value calculation of asset retirement obligations are numerous assumptions and judgments including, in addition to those noted above, the ultimate settlement of these amounts, the ultimate timing of such settlement and changes in legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing asset retirement obligation liability, a corresponding adjustment will be made to the asset balance.
The Company is obligated by contractual and regulatory requirements to remove certain pipeline assets and perform other remediation of the sites where such pipeline assets are located upon the retirement of those assets. However, the fair value of the asset retirement obligation cannot currently be reasonably estimated because the settlement dates are indeterminate. The Company will record an asset retirement obligation for pipeline assets in the periods in which settlement dates become reasonably determinable.
The following reconciles the Company's asset retirement obligation liability for the periods presented:
(in thousands)
 
Six months ended June 30, 2016
 
Year ended December 31, 2015
Liability at beginning of period
 
$
46,306

 
$
32,198

Liabilities added due to acquisitions, drilling, midstream service asset construction and other
 
253

 
2,236

Accretion expense
 
1,704

 
2,423

Liabilities settled upon plugging and abandonment
 
(526
)
 
(146
)
Liabilities removed due to sale of property
 

 
(2,005
)
Revision of estimates(1)
 

 
11,600

Liability at end of period
 
$
47,737

 
$
46,306

_____________________________________________________________________________
(1)
The revision of estimates that occurred during the year ended December 31, 2015 is mainly related to a change in the estimated remaining life per well due to the decline in commodity prices.

10

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

k.    Fair value measurements
The carrying amounts reported in the unaudited consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, undistributed revenue and royalties, accrued capital expenditures and other accrued assets and liabilities approximate their fair values. See Note 5.f for fair value disclosures related to the Company's debt obligations. The Company carries its derivatives at fair value. See Note 9 for details regarding the fair value of the Company's derivatives.
l.    Treasury stock
Laredo's employees may elect to have the Company withhold shares of stock to satisfy their tax withholding obligations that arise upon the lapse of restrictions on their stock awards. Such treasury stock is recorded at cost and retired upon acquisition.
m.    Compensation awards
Stock-based compensation expense, net of amounts capitalized, is included in "General and administrative" in the unaudited consolidated statements of operations over the awards' vesting periods and is based on the awards' grant date fair value. The Company utilizes the closing stock price on the grant date, less an expected forfeiture rate, to determine the fair value of service vesting restricted stock awards and a Black-Scholes pricing model to determine the fair values of service vesting restricted stock option awards. The Company utilizes a Monte Carlo simulation prepared by an independent third party to determine the fair values of the performance share awards and, in prior periods, the performance unit awards. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition, exploration and development of its oil and gas properties into the full cost pool. Capitalized stock-based compensation is included as an addition to "Oil and natural gas properties" in the unaudited consolidated balance sheets. See Note 6 for further discussion regarding the restricted stock awards, restricted stock option awards, performance share awards and performance unit awards.
n.    Environmental
The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, among other things, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed in the period incurred. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment or remediation is probable and the costs can be reasonably estimated. Such liabilities are generally undiscounted unless the timing of cash payments is fixed and readily determinable. Management believes no materially significant liabilities of this nature existed as of June 30, 2016 or December 31, 2015.
o.    Non-cash investing and supplemental cash flow information
The following presents the non-cash investing and supplemental cash flow information for the periods presented:
 
 
Six months ended June 30,
(in thousands)
 
2016
 
2015
Non-cash investing information:
 
 
 
 
Change in accrued capital expenditures
 
$
(22,012
)
 
$
(53,209
)
Change in accrued capital contribution to equity method investee(1)
 
$
(27,583
)
 
$
27,917

Capitalized asset retirement cost
 
$
253

 
$
1,402

Supplemental cash flow information:
 
 
 
 
Capitalized interest
 
$
115

 
$
178

______________________________________________________________________________
(1)
See Notes 14 and 15 for additional discussion regarding our equity method investee.
Note 3—Equity offerings
On May 16, 2016, the Company completed the sale of 10,925,000 shares of Laredo's common stock (the "May 2016 Equity Offering") for net proceeds of $119.3 million, after underwriting discounts, commissions and offering expenses. See Note 19.e for discussion regarding the completion of an equity offering subsequent to June 30, 2016.
On March 5, 2015, the Company completed the sale of 69,000,000 shares of Laredo's common stock (the "March 2015 Equity Offering") for net proceeds of $754.2 million, after underwriting discounts, commissions and offering expenses. Entities

11

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

affiliated with Warburg Pincus LLC ("Warburg Pincus") purchased 29,800,000 shares in the March 2015 Equity Offering, following which Warburg Pincus owned 41.0% of Laredo's common stock.
Note 4—Divestiture
a. 2015 Divestiture of non-strategic assets
On September 15, 2015, the Company completed the sale of non-strategic and primarily non-operated properties and associated production totaling 6,060 net acres and 123 producing properties in the Midland Basin to a third-party buyer for a purchase price of $65.5 million. After transaction costs reflecting an economic effective date of July 1, 2015, the net proceeds were $64.8 million, net of working capital adjustments and post-closing adjustments. The purchase price, excluding post-closing adjustments, was allocated to oil and natural gas properties pursuant to the rules governing full cost accounting.
Effective at closing, the operations and cash flows of these properties were eliminated from the ongoing operations of the Company, and the Company has no continuing involvement in the properties. This divestiture does not represent a strategic shift and will not have a major effect on the Company's operations or financial results.

The following table presents revenues and expenses of the oil and natural gas properties sold included in the accompanying unaudited consolidated statements of operations for the periods presented:
(in thousands)
 
Three months ended June 30, 2015
 
Six months ended June 30, 2015
Oil, NGL and natural gas sales
 
$
1,970

 
$
4,048

Expenses(1)
 
2,098

 
4,710

_____________________________________________________________________________
(1)
Expenses include (i) lease operating expense, (ii) production and ad valorem tax expense, (iii) accretion expense and (iv) depletion expense.
Note 5—Debt
a.   March 2023 Notes
On March 18, 2015, the Company completed an offering of $350.0 million in aggregate principal amount of 6 1/4% senior unsecured notes due 2023 (the "March 2023 Notes"). The March 2023 Notes will mature on March 15, 2023 and bear an interest rate of 6 1/4% per annum, payable semi-annually, in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2015. The March 2023 Notes are fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain automatic customary releases, including the sale, disposition or transfer of all of the capital stock or of all or substantially all of the assets of a subsidiary guarantor to one or more persons that are not the Company or a restricted subsidiary, exercise of legal defeasance or covenant defeasance options or satisfaction and discharge of the applicable indenture, designation of a subsidiary guarantor as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the applicable indenture, release from guarantee under the Senior Secured Credit Facility, or liquidation or dissolution (collectively, the "Releases").
b.    January 2022 Notes
On January 23, 2014, the Company completed an offering of $450.0 million in aggregate principal amount of 5 5/8% senior unsecured notes due 2022 (the "January 2022 Notes"). The January 2022 Notes will mature on January 15, 2022 and bear an interest rate of 5 5/8% per annum, payable semi-annually, in cash in arrears on January 15 and July 15 of each year, commencing July 15, 2014. The January 2022 Notes are fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
c.    May 2022 Notes
On April 27, 2012, the Company completed an offering of $500.0 million in aggregate principal amount of 7 3/8% senior unsecured notes due 2022 (the "May 2022 Notes"). The May 2022 Notes will mature on May 1, 2022 and bear an interest rate of 7 3/8% per annum, payable semi-annually, in cash in arrears on May 1 and November 1 of each year, commencing November 1, 2012. The May 2022 Notes are fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.

12

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

d.    January 2019 Notes
On January 20, 2011, the Company completed an offering of $350.0 million 9 1/2% senior unsecured notes due 2019 (the "January Notes") and on October 19, 2011, the Company completed an offering of an additional $200.0 million 9 1/2% senior unsecured notes due 2019 (the "October Notes" and together with the January Notes, the "January 2019 Notes"). The January 2019 Notes were due to mature on February 15, 2019 and bore an interest rate of 9 1/2% per annum, payable semi-annually, in cash in arrears on February 15 and August 15 of each year. The January 2019 Notes were fully and unconditionally guaranteed on a senior unsecured basis by LMS, GCM and certain of the Company's future restricted subsidiaries, subject to certain Releases.
On April 6, 2015 (the "Redemption Date"), utilizing a portion of the proceeds from the March 2015 Equity Offering and the March 2023 Notes offering, the entire $550.0 million outstanding principal amount of the January 2019 Notes was redeemed at a redemption price of 104.750% of the principal amount of the January 2019 Notes, plus accrued and unpaid interest up to the Redemption Date. The Company recognized a loss on extinguishment of $31.5 million related to the difference between the redemption price and the net carrying amount of the extinguished January 2019 Notes.
e.    Senior Secured Credit Facility
As of June 30, 2016, the Fourth Amended and Restated Credit Agreement (as amended, the "Senior Secured Credit Facility"), which matures on November 4, 2018, had a maximum credit amount of $2.0 billion, a borrowing base and an aggregate elected commitment of $815.0 million with $110.3 million outstanding and was subject to an interest rate of 2.00%. It contains both financial and non-financial covenants, all of which the Company was in compliance with as of June 30, 2016. Laredo is required to pay an annual commitment fee on the unused portion of the financial institutions' commitment of 0.375% to 0.5%, based on the ratio of outstanding revolving credit to the total commitment under the Senior Secured Credit Facility. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity or $20.0 million. No letters of credit were outstanding as of June 30, 2016 or 2015.
See Note 19.a for discussion of additional borrowings and payments on the Senior Secured Credit Facility subsequent to June 30, 2016.
f.    Fair value of debt
The Company has not elected to account for its debt instruments at fair value. The following table presents the carrying amount and fair values of the Company's debt for the periods presented:
 
 
June 30, 2016
 
December 31, 2015
(in thousands)
 
Long-term
debt
 
Fair
value
 
Long-term
debt
 
Fair
value
January 2022 Notes
 
$
450,000

 
$
426,564

 
$
450,000

 
$
388,301

May 2022 Notes
 
500,000

 
501,250

 
500,000

 
460,000

March 2023 Notes
 
350,000

 
349,965

 
350,000

 
301,000

Senior Secured Credit Facility
 
110,318

 
110,261

 
135,000

 
134,993

Total value of debt
 
$
1,410,318

 
$
1,388,040

 
$
1,435,000

 
$
1,284,294

The fair values of the debt outstanding on the January 2022 Notes, May 2022 Notes and the March 2023 Notes were determined using the June 30, 2016 and December 31, 2015 quoted market price (Level 1) for each respective instrument. The fair values of the outstanding debt on the Senior Secured Credit Facility as of June 30, 2016 and December 31, 2015 were estimated utilizing pricing models for similar instruments (Level 2). See Note 9 for information about fair value hierarchy levels.

13

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

g.    Debt issuance costs
The following table summarizes the net presentation of the Company's long-term debt and debt issuance cost on the unaudited consolidated balance sheets for the periods presented:
 
 
June 30, 2016
 
December 31, 2015
(in thousands)
 
Long-term debt
 
Debt issuance costs, net
 
Long-term debt, net
 
Long-term debt
 
Debt issuance costs, net
 
Long-term debt, net
January 2022 Notes
 
$
450,000

 
$
(5,451
)
 
$
444,549

 
$
450,000

 
$
(5,939
)
 
$
444,061

May 2022 Notes
 
500,000

 
(6,624
)
 
493,376

 
500,000

 
(7,066
)
 
492,934

March 2023 Notes
 
350,000

 
(5,366
)
 
344,634

 
350,000

 
(5,769
)
 
344,231

Senior Secured Credit Facility(1)
 
110,318

 

 
110,318

 
135,000

 

 
135,000

Total
 
$
1,410,318

 
$
(17,441
)
 
$
1,392,877

 
$
1,435,000

 
$
(18,774
)
 
$
1,416,226

______________________________________________________________________________
(1)
Debt issuance costs related to our Senior Secured Credit Facility are recorded in "Other assets, net" on the unaudited consolidated balance sheets.
Note 6—Employee compensation
The Company has a Long-Term Incentive Plan (the "LTIP"), which provides for the granting of incentive awards in the form of restricted stock awards, restricted stock option awards, performance share awards, performance unit awards and other awards. In the second quarter of 2016, shareholders approved an increase in the maximum number of shares of the Company's common stock issuable under the LTIP from 10,000,000 shares to 24,350,000 shares (the "Amendment").
The Company recognizes the fair value of stock-based compensation awards expected to vest over the requisite service period as a charge against earnings, net of amounts capitalized. The Company's stock-based compensation awards are accounted for as equity instruments, and in prior periods, its performance unit awards were accounted for as liability awards. Stock-based compensation is included in "General and administrative" in the unaudited consolidated statements of operations. The Company capitalizes a portion of stock-based compensation for employees who are directly involved in the acquisition, exploration and development of oil and natural gas properties into the full cost pool. Capitalized stock-based compensation is included as an addition to "Oil and natural gas properties" in the unaudited consolidated balance sheets.
a.    Restricted stock awards
All restricted stock awards are treated as issued and outstanding in the accompanying unaudited consolidated financial statements. Per the award agreement terms, if an employee terminates employment prior to the restriction lapse date for reasons other than death or disability, the awarded shares are forfeited and canceled and are no longer considered issued and outstanding. If the employee's termination of employment is by reason of death or disability, all of the holder's restricted stock will automatically vest. Historically, restricted stock awards granted to officers and employees vest in a variety of vesting schedules including (i) 33%, 33% and 34% per year beginning on the first anniversary date of the grant, (ii) 50% in year two and 50% in year three, (iii) fully on the first anniversary of the grant date and (iv) fully on the third anniversary of the grant date. Restricted stock awards granted to non-employee directors vest fully on the first anniversary of the grant date.
    

14

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

The following table reflects the outstanding restricted stock awards for the six months ended June 30, 2016:
(in thousands, except for weighted-average grant date fair values)
 
Restricted
stock
awards
 
Weighted-average
grant date
fair value (per award)
Outstanding as of December 31, 2015
 
2,539

 
$
15.26

Granted
 
2,968

 
$
12.27

Forfeited
 
(221
)
 
$
15.16

Vested(1)
 
(1,124
)
 
$
16.06

Outstanding as of June 30, 2016
 
4,162

 
$
12.92

______________________________________________________________________________
(1)
The vesting of certain restricted stock awards could result in federal and state income tax expense or benefit related to the difference between the market price of the common stock at the date of vesting and the date of grant. See Note 7 for additional discussion regarding the tax impact of vested stock awards.
The Company utilizes the closing stock price on the grant date to determine the fair value of service vesting restricted stock awards. As of June 30, 2016, unrecognized stock-based compensation related to the restricted stock awards expected to vest was $44.3 million. Such cost is expected to be recognized over a weighted-average period of 2.26 years.
b.    Restricted stock option awards
Restricted stock option awards granted under the LTIP vest and are exercisable in four equal installments on each of the four anniversaries of the grant date. The following table reflects the stock option award activity for the six months ended June 30, 2016:
(in thousands, except for weighted-average price and contractual term)
 
Restricted
stock option
awards
 
Weighted-average
 price
(per option)
 
Weighted-average
remaining contractual term
(years)
Outstanding as of December 31, 2015
 
1,778

 
$
17.86

 
7.91
Granted
 
1,016

 
$
4.18

 

Exercised
 
(6
)
 
$
11.93

 

Expired or canceled
 
(35
)
 
$
22.40

 

Forfeited
 
(229
)
 
$
13.62

 

Outstanding as of June 30, 2016
 
2,524

 
$
12.69

 
8.06
Vested and exercisable at end of period(1)
 
916

 
$
19.49

 
6.41
Expected to vest at end of period(2)
 
1,600

 
$
8.75

 
9.02
_____________________________________________________________________________
(1)
The vested and exercisable options as of June 30, 2016 had no aggregate intrinsic value.
(2)
The restricted stock options expected to vest as of June 30, 2016 had $6.1 million aggregate intrinsic value.
The Company utilizes the Black-Scholes option pricing model to determine the fair value of restricted stock option awards and recognizes the associated expense on a straight-line basis over the four-year requisite service period of the awards. Determining the fair value of equity-based awards requires judgment, including estimating the expected term that stock option awards will be outstanding prior to exercise and the associated volatility. As of June 30, 2016, unrecognized stock-based compensation related to restricted stock option awards expected to vest was $13.5 million. Such cost is expected to be recognized over a weighted-average period of 2.55 years.
    

15

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

The assumptions used to estimate the fair value of the 22,324 restricted stock options granted on April 1, 2016 and the 994,022 restricted stock options granted on May 25, 2016 are as follows:
 
 
April 1, 2016
 
May 25, 2016
Risk-free interest rate(1)
 
1.44
%
 
1.58
%
Expected option life(2)
 
6.25 years

 
6.25 years

Expected volatility(3)
 
61.34
%
 
61.94
%
Fair value per stock option
 
$
4.44

 
$
9.75

(1)
United States Treasury yields as of the grant date were utilized for the risk-free interest rate assumption, correlating the treasury yield terms to the expected life of the option.
(2)
As the Company had limited exercise history at the time of valuation relating to terminations and modifications, expected option life assumptions were developed using the simplified method in accordance with GAAP.
(3)
The Company utilized its own historical volatility in order to develop the expected volatility.     
In accordance with the LTIP and stock option agreement, the options granted will become exercisable in accordance with the following schedule based upon the number of full years of the optionee's continuous employment or service with the Company, following the date of grant:
Full years of continuous employment
 
Incremental percentage of
option exercisable
 
Cumulative percentage of
option exercisable
Less than one
 
%
 
%
One
 
25
%
 
25
%
Two
 
25
%
 
50
%
Three
 
25
%
 
75
%
Four
 
25
%
 
100
%
No shares of common stock may be purchased unless the optionee has remained in continuous employment with the Company for one year from the grant date. Unless terminated sooner, the option will expire if and to the extent it is not exercised within 10 years from the grant date. The unvested portion of a stock option award shall expire upon termination of employment, and the vested portion of a stock option award shall remain exercisable for (i) one year following termination of employment by reason of the holder's death or disability, but not later than the expiration of the option period, or (ii) 90 days following termination of employment for any reason other than the holder's death or disability, and other than the holder's termination of employment for cause. Both the unvested and the vested but unexercised portion of a stock option award shall expire upon the termination of the option holder's employment or service by the Company for cause.
c.    Performance share awards
The performance share awards granted to management in the second quarter of 2016 (the "2016 Performance Share Awards"), February 27, 2015 (the "2015 Performance Share Awards") and on February 27, 2014 (the "2014 Performance Share Awards") are subject to a combination of market and service vesting criteria. A Monte Carlo simulation prepared by an independent third party was utilized to determine the grant date fair value of these awards. The Company has determined these awards are equity awards and recognizes the associated expense on a straight-line basis over the three-year requisite service period of the awards. These awards will be settled, if at all, in stock at the end of the requisite service period based on the achievement of certain performance criteria.
The 1,742,469 outstanding 2016 Performance Share Awards have a performance period of January 1, 2016 to December 31, 2018, and any shares earned under such awards are expected to be issued in the first quarter of 2019 if the performance criteria are met. The 475,518 outstanding 2015 Performance Share Awards have a performance period of January 1, 2015 to December 31, 2017, and any shares earned under such awards are expected to be issued in the first quarter of 2018 if the performance criteria are met. The 210,126 outstanding 2014 Performance Share Awards have a performance period of January 1, 2014 to December 31, 2016, and any shares earned under such awards are expected to be issued in the first quarter of 2017 if the performance criteria are met.
    
    

16

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

The following table reflects the performance share award activity for the six months ended June 30, 2016:
(in thousands, except for weighted-average grant date fair values)
 
Performance
share
awards
 
Weighted-average
grant date fair value
(per award)
Outstanding as of December 31, 2015
 
874

 
$
20.06

Granted
 
1,801

 
$
17.71

Forfeited
 
(247
)
 
$
19.69

Vested
 

 
$

Outstanding as of June 30, 2016
 
2,428

 
$
18.36

As of June 30, 2016, unrecognized stock-based compensation related to the performance share awards was $35.3 million. Such cost is expected to be recognized over a weighted-average period of 2.47 years.
The assumptions used to estimate the fair value of the 32,495 performance share awards granted on April 1, 2016 and the 1,768,297 performance share awards granted on May 25, 2016 are as follows:
 
 
April 1, 2016
 
May 25, 2016
Risk-free rate(1)
 
0.87
%
 
1.02
%
Dividend yield
 
%
 
%
Expected volatility(2)
 
71.54
%
 
74.73
%
Laredo stock closing price on grant date
 
$
7.71

 
$
12.36

Fair value per performance share
 
$
9.83

 
$
17.86

______________________________________________________________________________
(1)
The risk-free rate was derived using a term-matched zero-coupon yield derived from the Treasury Constant Maturities yield curve on the grant date.
(2)
The Company utilized its own historical volatility over a lookback period equal to the length of the remaining performance period from the grant date in order to develop the expected volatility.
d.    Stock-based compensation award expense
The following has been recorded to stock-based compensation expense for the periods presented:
 
 
Three months ended June 30,

Six months ended June 30,
(in thousands)
 
2016

2015

2016

2015
Restricted stock award compensation
 
$
4,692

 
$
4,520

 
$
8,460

 
$
7,458

Restricted stock option award compensation
 
777

 
1,279

 
1,401


1,949

Restricted performance share award compensation
 
1,593

 
1,378

 
1,821


2,273

Total stock-based compensation, gross
 
7,062

 
7,177

 
11,682


11,680

Less amounts capitalized in oil and natural gas properties
 
(989
)
 
(909
)
 
(1,771
)
 
(624
)
Total stock-based compensation, net of amounts capitalized
 
$
6,073

 
$
6,268

 
$
9,911

 
$
11,056

e.    Performance unit awards
The performance unit awards issued to management on February 15, 2013 (the "2013 Performance Unit Awards") and on February 3, 2012 (the "2012 Performance Unit Awards") were subject to a combination of market and service vesting criteria. These awards were accounted for as liability awards as they were settled in cash at the end of the requisite service period based on the achievement of certain performance criteria.
The 44,481 settled 2013 Performance Unit Awards had a performance period of January 1, 2013 to December 31, 2015 and, as their performance criteria were satisfied, they were paid at $143.75 per unit during the first quarter of 2016. The 27,381 settled 2012 Performance Unit Awards had a performance period of January 1, 2012 to December 31, 2014 and, as their performance criteria were satisfied, they were paid at $100.00 per unit during the first quarter of 2015.

17

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

For the three and six months ended June 30, 2015, compensation expense for the 2013 Performance Unit Awards is included in "General and administrative" in the Company's unaudited consolidated statements of operations, and as of December 31, 2015, the corresponding liability is included in "Other current liabilities" on the unaudited consolidated balance sheets. Due to the quarterly re-measurement of the fair value of the 2013 Performance Unit Awards as of June 30, 2015, compensation expense for the three and six months ended June 30, 2015 was $0.7 million and $1.7 million, respectively.
Note 7—Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry-forwards. Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date.
The Company evaluates uncertain tax positions for recognition and measurement in the unaudited consolidated financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more-likely-than-not threshold is measured to determine the amount of benefit to be recognized in the unaudited consolidated financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The Company had no unrecognized tax benefits related to uncertain tax positions in the unaudited consolidated financial statements as of June 30, 2016 or December 31, 2015.
The Company is subject to federal and state income taxes and the Texas franchise tax. Income tax benefit for the periods presented consisted of the following:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)

2016
 
2015
 
2016
 
2015
Current taxes

$

 
$


$

 
$

Deferred taxes


 
221,846

 

 
218,203

Income tax benefit

$

 
$
221,846


$

 
$
218,203

Income tax benefit differed from amounts computed by applying the applicable federal income tax rate of 35% to pre-tax earnings as a result of the following:
 

Three months ended June 30,
 
Six months ended June 30,
(in thousands)

2016
 
2015
 
2016
 
2015
Income tax benefit computed by applying the statutory rate

$
25,001

 
$
216,608

 
$
88,131

 
$
215,498

State income tax and change in valuation allowance

(541
)
 
5,776

 
187

 
5,867

Non-deductible stock-based compensation


 
(15
)
 

 
(106
)
Stock-based compensation tax deficiency

(190
)
 
(381
)
 
(4,012
)
 
(2,838
)
Increase in deferred tax valuation allowance

(24,323
)
 
(11
)
 
(84,218
)
 
(16
)
Other items

53

 
(131
)
 
(88
)
 
(202
)
Income tax benefit

$

 
$
221,846

 
$

 
$
218,203

 
For the three and six months ended June 30, 2016, the effective tax rate was not meaningful due to the valuation allowance recorded. For the three and six months ended June 30, 2015, the effective tax rate was 36% and 35%, respectively. The Company's effective tax rate is affected by changes in valuation allowances, recurring permanent differences and by discrete items that may occur in any given year, but are not consistent from year to year.
A valuation allowance is established to reduce deferred tax assets if it is determined that it is more likely than not that the related tax benefit will not be realized. On a quarterly basis, management evaluates the need for and adequacy of valuation allowances based on the expected realizability of the deferred tax assets and adjusts the amount of such allowances, if necessary. During the year ended December 31, 2015 and the six months ended June 30, 2016, in evaluating whether it was more likely than not that the Company's net deferred tax assets were realizable through future net income, management considered all available positive and negative evidence, including (i) its earnings history, (ii) its ability to recover net operating loss carry-forwards, (iii) the existence of significant proved oil, NGL and natural gas reserves, (iv) its ability to use tax planning

18

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

strategies, (v) its current price protection utilizing oil and natural gas hedges, (vi) its future revenue and operating cost projections and (vii) the current market prices for oil, NGL and natural gas. Based on all the evidence available, during the year ended December 31, 2015, management determined it was more likely than not that the net deferred tax assets were not realizable, and therefore recorded a valuation allowance of $676.0 million. During the six months ended June 30, 2016, an additional valuation allowance of $83.7 million was recorded.
The impact of significant discrete items is separately recognized in the quarter in which the discrete items occur. The vesting of certain restricted stock awards could result in federal and state income tax expense or benefits related to the difference between the market price of the common stock at the date of vesting and the grant date. The exercise of stock option awards could result in federal and state income tax expense or benefits related to the difference between the fair value of the stock option at the grant date and the intrinsic value of the stock option when exercised. The tax impact resulting from vestings of restricted stock awards and exercise of option awards are discrete items. During the three and six months ended June 30, 2016 and 2015, certain shares related to restricted stock awards vested at times when the Company's stock price was lower than the fair value of those shares at the time of the grant. As a result, the income tax deduction related to such shares is less than the expense previously recognized for book purposes. During the three and six months ended June 30, 2016, certain stock options were exercised. No stock options were exercised during the three and six months ended June 30, 2015. The income tax deduction related to the intrinsic value of the options was less than the expense previously recognized for book purposes. In accordance with GAAP, such shortfalls reduce additional paid-in capital to the extent windfall tax benefits have been previously recognized. However, the Company has not previously recognized any windfall tax benefits. Therefore, such shortfalls are included in income tax expense.
The following table presents the tax impact of these shortfalls for the periods presented:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
 
2016
 
2015
 
2016
 
2015
Vesting of restricted stock
 
$
(182
)
 
$
(388
)
 
$
(4,057
)
 
$
(2,889
)
Exercise of restricted stock options
 
(10
)
 

 
(10
)
 

Tax expense due to shortfalls
 
$
(192
)
 
$
(388
)
 
$
(4,067
)
 
$
(2,889
)
Significant components of the Company's net deferred tax asset for the periods presented are as follows:
(in thousands)
 
June 30, 2016
 
December 31, 2015
Oil and natural gas properties, midstream service assets and other fixed assets
 
$
282,612

 
$
306,997

Net operating loss carry-forward
 
528,625

 
479,022

Derivatives
 
(41,577
)
 
(98,675
)
Stock-based compensation
 
9,340

 
11,597

Equity method investee
 
(25,612
)
 
(31,711
)
Accrued bonus
 
2,544

 
4,763

Capitalized interest
 
2,173

 
2,525

Other
 
2,901

 
2,820

Net deferred tax asset before valuation allowance
 
761,006

 
677,338

Valuation allowance
 
(761,006
)
 
(677,338
)
Net deferred tax asset
 
$

 
$

The Company had federal net operating loss carry-forwards totaling $1.5 billion and state of Oklahoma net operating loss carry-forwards totaling $41.0 million as of June 30, 2016. These carry-forwards begin expiring in 2026. Additionally, these carry-forwards include windfall tax deductions from vestings of certain restricted stock awards and stock option exercises that were not recorded in the Company's income tax provision. The amount of windfall tax benefit recognized in additional paid-in capital is limited to the amount of benefit realized currently in income taxes payable. As of June 30, 2016, the Company had suspended additional paid-in capital credits of $4.5 million related to windfall tax deductions. Upon realization of the net operating loss carry-forwards from such windfall tax deductions, the Company would record a benefit of up to $4.5 million in additional paid-in capital.
The Company's income tax returns for the years 2012 through 2015 remain open and subject to examination by federal tax authorities and/or the tax authorities in Oklahoma and Texas, which are the jurisdictions where the Company has or had operations. Additionally, the statute of limitations for examination of federal net operating loss carry-forwards typically does not begin to run until the year the attribute is utilized in a tax return.

19

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

Note 8—Derivatives
a. Derivatives
The Company engages in derivative transactions such as puts, swaps, collars and, in prior periods, basis swaps to hedge price risks due to unfavorable changes in oil and natural gas prices related to its production. As of June 30, 2016, the Company had 25 open derivative contracts with financial institutions that extend from July 2016 to December 2018. None of these contracts were designated as hedges for accounting purposes. The contracts are recorded at fair value on the unaudited consolidated balance sheets and gains and losses are recognized in current period earnings. Gains and losses on derivatives are reported on the unaudited consolidated statements of operations on the "Gain (loss) on derivatives, net" line item.
Each put transaction has an established floor price. The Company pays its counterparty a premium, which can be deferred until settlement, to enter into the put transaction. When the settlement price is below the floor price, the counterparty pays the Company an amount equal to the difference between the settlement price and the fixed price multiplied by the hedged contract volume. When the settlement price is above the floor price, the put option expires.
Each swap transaction has an established fixed price. When the settlement price is below the fixed price, the counterparty pays the Company an amount equal to the difference between the settlement price and the fixed price multiplied by the hedged contract volume. When the settlement price is above the fixed price, the Company pays its counterparty an amount equal to the difference between the settlement price and the fixed price multiplied by the hedged contract volume.
Each collar transaction has an established price floor and ceiling. When the settlement price is below the price floor established by these collars, the Company receives an amount from its counterparty equal to the difference between the settlement price and the price floor multiplied by the hedged contract volume. When the settlement price is above the price ceiling established by these collars, the Company pays its counterparty an amount equal to the difference between the settlement price and the price ceiling multiplied by the hedged contract volume.
In the prior year, the oil basis swap transactions had an established fixed basis differential. The Company's oil basis swaps' differential was between the West Texas Intermediate-Argus Americas Crude (Midland) ("WTI Midland") index crude oil price and the West Texas Intermediate NYMEX ("WTI NYMEX") index crude oil price. When the WTI NYMEX price less the fixed basis differential was greater than the actual WTI Midland price, the difference multiplied by the hedged contract volume was paid to the Company by the counterparty. When the WTI NYMEX price less the fixed basis differential was less than the actual WTI Midland price, the difference multiplied by the hedged contract volume was paid by the Company to the counterparty.

During the six months ended June 30, 2016, the Company successfully completed a hedge restructuring by early terminating the floors of certain derivative contract collars that resulted in a termination amount of $80 million, which was settled in full by applying the proceeds to prepay the premiums on two new derivatives entered into during the restructuring.

During the six months ended June 30, 2016, the following derivatives were terminated:
 
 
Aggregate volumes
 
Floor price
 
Contract period
Oil (volumes in Bbl):
 
 

 
 
 
 
Put portion of the associated collars
 
2,263,000

 
$
80.00

 
January 2017 - December 2017
    
    

20

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

During the six months ended June 30, 2016, the following derivatives were entered into:
 
 
Aggregate volumes
 
Floor price
 
Ceiling price
 
Contract period
Oil (volumes in Bbl):
 
 

 
 
 
 
 
 
Put(1)
 
2,263,000

 
$
60.00

 
$

 
January 2017 - December 2017
Put(2)
 
2,098,750

 
$
60.00

 
$

 
January 2017 - December 2018
Put(3)
 
600,000

 
$
40.00

 
$

 
     May 2016 - December 2016
Swap
 
1,095,000

 
$
52.12

 
$

 
January 2018 - December 2018
Natural gas (volumes in MMBtu):(4)
 
 
 
 
 
 
 
 
Put
 
8,040,000

 
$
2.50

 
$

 
January 2017 - December 2017
Put
 
8,220,000

 
$
2.50

 
$

 
January 2018 - December 2018
Collar
 
5,256,000

 
$
2.50

 
$
3.05

 
January 2017 - December 2017
Collar
 
4,635,500

 
$
2.50

 
$
3.60

 
January 2018 - December 2018
_____________________________________________________________________________
(1)
As part of the Company's hedge restructuring, this put replaced the early terminated put portion of the restructured derivative contract collars. A premium of $40.0 million was paid at contract inception.
(2)
As part of the Company's hedge restructuring, a premium of $40.0 million was paid at contract inception.
(3)
There are $1.2 million in deferred premiums associated with this contract.
(4)
There are $5.1 million in deferred premiums associated with these contracts.

The following represents cash settlements received for derivatives, net for the periods presented:
 
 
Three months ended June 30,
 
Six months ended June 30,
(in thousands)
 
2016
 
2015
 
2016
 
2015
Cash settlements received for matured derivatives, net
 
$
47,382

 
$
46,596

 
$
113,319

 
$
109,737

Cash settlements received for early terminations of derivatives, net(1)
 

 

 
80,000

 

Cash settlements received for derivatives, net
 
$
47,382

 
$
46,596

 
$
193,319

 
$
109,737

_____________________________________________________________________________
(1)
The settlements amount for the six months ended June 30, 2016 includes $4.0 million in deferred premiums which were settled net with the early terminated contracts from which they derive.
    
    

21

Laredo Petroleum, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)

The following table summarizes open positions as of June 30, 2016, and represents, as of such date, derivatives in place through December 2018 on annual production volumes:
 
 
Remaining year
2016
 
Year
2017
 
Year
2018
Oil positions:(1)
 
 

 
 
 
 

Puts:
 
 

 
 

 
 

Hedged volume (Bbl)
 
1,098,000

 
1,049,375

 
1,049,375

Weighted-average price ($/Bbl)
 
$
42.95

 
$
60.00

 
$
60.00

Swaps:
 
 

 
 

 
 

Hedged volume (Bbl)
 
791,200

 

 
1,095,000

Weighted-average price ($/Bbl)
 
$
84.82

 
$

 
$
52.12

Collars:
 
 

 
 

 
 

Hedged volume (Bbl)
 
1,833,500

 
2,628,000

 

Weighted-average floor price ($/Bbl)
 
$
73.98

 
$
60.00

 
$

Weighted-average ceiling price ($/Bbl)
 
$
89.62

 
$
97.22

 
$

Totals:
 
 
 
 
 
 
Total volume hedged with floor price (Bbl)
 
3,722,700

 
3,677,375

 
2,144,375

Weighted-average floor price ($/Bbl)
 
$
67.13

 
$
60.00

 
$
55.98

Total volume hedged with ceiling price (Bbl)
 
2,624,700

 
2,628,000

 
1,095,000

Weighted-average ceiling price ($/Bbl)
 
$
88.18

 
$
97.22

 
$
52.12

Natural gas positions:(2)
 
 

 
 

 
 

Puts:
 
 
 
 
 
 
Hedged volume (MMBtu)
 

 
8,040,000

 
8,220,000

Weighted-average price ($/MMBtu)
 
$

 
$
2.50

 
$
2.50

Collars:
 
 

 
 

 
 

Hedged volume (MMBtu)
 
9,384,000

 
10,731,000

 
4,635,500

Weighted-average floor price ($/MMBtu)
 
$
3.00

 
$
2.76

 
$
2.50

Weighted-average ceiling price ($/MMBtu)
 
$
5.60

 
$
3.53

 
$
3.60

Totals: