lpi

Laredo Petroleum (LPI) Q4 2021 Earnings Call Transcript

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Laredo Petroleum (NYSE: LPI)
Q4 2021 Earnings Call
Feb 23, 2022, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to Laredo Petroleum Inc.'s fourth quarter 2021 earnings conference call. My name is Shannon, and I'll be your operator for today. [Operator instructions] 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 proceed, sir.

Ron Hagood -- Vice President, Investor Relations

Thank you, and good morning. Joining me today are Jason Pigott, president and chief executive officer; Karen Chandler, senior vice president and chief operations officer; and Bryan Lemmerman, senior vice president and chief financial officer, as well as other additional members of our management team. During today's call, we'll be making forward-looking statements. These statements, including those describing our beliefs, goals, expectations, forecast and assumptions, are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Our actual results may differ from these forward-looking statements for a variety of reasons, many of which are beyond our control. In addition, we'll be making reference to non-GAAP financial measures, reconciliations to GAAP financial measures are included in the two press releases and presentation we issued yesterday that detail our financial and operating results for the fourth quarter and full year 2021, as well as our 2022 capital budget and outlook. These press releases and presentation can be accessed on our website at www.laredopetro.com. I'll now turn the call over to Jason Pigott, president and chief executive officer.

10 stocks we like better than Laredo Petroleum
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Laredo Petroleum wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 20, 2022

Jason Pigott -- President and Chief Executive Officer

Thank you, Ron. Good morning and thanks for joining us today. We performed exceptionally well in 2021 safely navigating the second year of a global pandemic, capturing important acquisitions that extended our inventory life, and making great strides to improve our balance sheet. Our results were quite strong, and our strategy to create future value for our shareholders is well defined and on track.

Our fourth quarter 2021 results were outstanding. Both total and oil production are above the top end of guidance. We generated $25 million of free cash flow and adjusted EBITDA of $182 million. During full year 2021, first, we materially increased our runway of high return oil way to drilling locations.

We were able to identify and capture two significant acquisitions that fit as perfectly, adding more than 40,000 acres in Howard and Western Glasscock counties. These deals were accretive to shareholders and de-leveraging. These deals initially added about 250 locations, but importantly, recent drilling success has added an additional 125 locations across areas where we ascribe no value at the time of the acquisition. We now have eight years of oil weighted high margin inventory in Howard and Western Glasscock counties.

Second, we grew improved oil reserves by nearly 80%, and oil now makes up nearly 40% of our total reserves. The benefits of increased oil reserves paired with the sale of lower margin gas-weighted assets is apparent in our margins and a 260% increase in the SEC PV-10 value. Added WTI price of $75 more reflective of the current environment, we estimate our reserve value would increase by almost $1 billion from the SEC PV-10 to approximately $4.6 billion. Third, we significantly improved our capital structure, the reduction of leverage and increased liquidity.

We issued $400 million of senior notes at an attractive rate and raised $73 million with the issuance of common stock through our ATM program. Our investments have been disciplined, allowing us to reduce our 4Q annualized net debt to adjusted EBITDA ratio to 1.9 times at year-end 2021, compared to a 2.4 times a year ago. Lastly, we continue to demonstrate our commitment to ESG and issued comprehensive ESG and climate risk report with data through year-end in 2020. We established meaningful targets to reduce greenhouse gas and methane emissions, as well as the elimination of routine flaring by 2025.

We understand shareholder expectations for our industry and our board management team and other employees are committed to leading the way. We aligned the board oversight responsibilities for ESG, and appointed a chief sustainability officer reporting directly to me. Additionally, we included EEO-1 data in our 2021 ESG report providing clarity into the diversity of our workforce. Our 2021 achievements provide a strong foundation for 2022.

Yesterday, we issued our outlook for this year, which aligns with our focus on capital efficient investments, the generation of free cash flow, and the continued strengthening of our balance sheet. Our leverage reduction is six months ahead of previous expectations of year-end 2022, benefiting from higher commodity prices. We are quickly moving toward a time when we will be able to return significant cash to shareholders. We are excited about 2022, and the financial and operating opportunities that we see in front of us.

We expect to generate about $300 million in free cash flow in 2022 of the current commodity prices. Put this in perspective, that's about one quarter of our market cap today, and over the next two years, we see the opportunity to deliver free cash flow equivalent to half our current market cap. We understand the importance of leverage reduction, $300 million of free cash flow is equivalent to about $17 per share. We believe that paying down debt is the most shareholder friendly initiative that we can deliver today.

We expect our leverage ratio will be 1.5 times by the third quarter, and we have line of sight to 1 times by midyear 2023. Our capital investments are disciplined and are being allocated to our best opportunities. We are fortunate to have a strong portfolio of high return oil projects in the USS Premier Oil Basin. We are maintaining our capital discipline, keeping activity levels flat from 2021, keeping oil production approximately flat from our Q4 '21 exit rate.

From a field to the office, our people are dedicated to delivering results that will build value for our shareholders. I will now turn the call over to Karen for an operations update.

Karen Chandler -- Senior Vice President and Chief Operations Officer

Thank you, Jason. Our operations teams executed extremely well in 2021, as we seamlessly integrated two acquisitions posted strong will result in Howard County and further extended our oil weighted inventory with the appraisal of two additional formations. These achievements in 2021 underpinned our capital efficient 2022 development plan. In Howard County, we closed the Sabalo deal in July and went to work on new wells that are today among the best performing wells of all of our Howard County packages, driving oil production above the high-end of guidance for the fourth quarter.

In Western Glasscock County, we completed the 10 well books package at the end of the fourth quarter. Results of the 8 wells in the lower Sprayberry and Wolfcamp A and B formations are benefiting from our optimized completion design, and are outperforming the previous package we completed in Western Glasscock County by approximately 38%. These recent acquisitions in Howard and Western Glasscock counties, and our subsequent appraisal activities have extended our all weighted inventory runway to approximately 8 years at current activity levels with a breakeven oil prices of $55 or below. The slots in our deck have details to help you understand the quality and depth of our inventory in each of our operating areas.

As Jason said, our forward development strategy allocates our capital to our highest return projects in Howard county. Returns and efficiencies benefit from the fact that our acreages contiguous, and in many areas we can drill extended laterals and we plan to drill 18 15,000-foot lateral wells in 2022. Our corporate strategy continues to be focused on leverage reduction. In order to accomplish this, we are maintaining flat activity levels this year as we keep oil production relatively flat, and generate strong free cash flows.

To optimize our capital efficiency for the year and synchronize our drilling and completion crews, we are currently operating 3 drilling rigs and 2 completions crews, and planned to release 1 rig and 1 crew by the end of the first quarter. After that, we will maintain 2 rigs and 1 crew through the end of 2022. Like the rest of the industry, we are impacted by service cost inflation. From fourth quarter actuals, we have factored in an approximately 15% inflation into our 2022 capital budget, and had locked in much of our pricing for services through the first half of the year, including frac services, sand and casing cost.

We are currently working to extend our service contracts into the second half of 2022 and optimize our inventory management to further de-risk our full year capital budget from any additional inflationary pressures. I will now turn the call over to Bryan for a financial update.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Thank you, Karen. We've made exceptional progress over the last year, both financially and operationally. These accomplishments have allowed us to enter 2022 with strong momentum and confidence in our ability to generate free cash flow, reduce leverage, and position us to return cash to shareholders in the near future. For 2022, we expect to generate about $300 million of free cash flow at current commodity prices, and this cash flow will be directed toward leverage reduction.

Turning to our capital budget, for 2022 investment program is approximately $520 million. This plan entails flat activity levels when compared to 2021, offset by industry wide inflationary pressures in the oilfield service cost and higher non-operated activity levels. Our budget also includes ESG focused investments of about $10 million to work toward the company's achievement of our announced 2025 emissions targets. Our capital is being allocated to our highest return projects and is expected to hold our production flat with fourth quarter 2021 levels.

This will generate full year oil production growth of 24% to 34%. There's no doubt that the recent run in oil price has led to industrywide inflation and higher costs at the field level. Our people are focused on mitigating higher costs through cost innovation and new efficiency gains. We have locked in a significant portion of our costs for the first half of the year and, as Karen noted, are working toward extending this price certainty into the second half of 2022.

To underpin our capital budget and de-leveraging goals, we continue to focus on hedging. We have a strong track record of mitigating risk and ensuring strong returns for our capital investments. Our free cash flow and leverage ratio projections are supported by our current hedge positions, covering about 75% of our projected oil production in 2022. We expect minor adjustments to our position throughout this year as we lock in near-term prices to facilitate our leverage reduction goals.

For 2023, we have begun building our oil hedge position using colors with the floors, lined to further our leverage goals and ultimately returning cash to shareholders in 2023. The current hedge volumes for 2023 are heavily weighted toward the front half of the year, giving us more confidence in achieving our leverage goals on the timelines previously messaged. As previously discussed, A&D has been and continues to be at focus for us. Since 2019, we have transformed Laredo through oil-weighted high-margin acquisitions and significant production and locations with higher oil cuts.

These transactions accelerated our de-leveraging or accretive to shareholders and put us in a position to deliver capital to shareholders well ahead of what we would have otherwise been able to do. Our strategy is well-defined, and shareholders should expect that any future acquisitions would complement our strategy to return value to shareholders made possible by continuing balance sheet improvement. We will continue to seek opportunities to grow our inventory of high-margin wells to achieve the economies of scale necessary to drive sustainable free cash flow and to reduce volatility in our operations, and in our equity performance. I will now turn the call back over to Jason for closing comments.

Jason Pigott -- President and Chief Executive Officer

Before we take your questions, I would like to sum up what our accomplishments in 2021 and really back to 2019 mean. With 8 years of high-margin oil weighted inventory, we are now in a position for sustainable long-term free cash flow generation. This means we believe that we can meet our leverage target of 1.0 times by midyear 2023 and begin to return capital to shareholders in 2023. While we will continue to look at acquisitions, we can be patient and opportunistic in what transactions we pursue.

We have the right team, the right assets, and are excited to come to work every day and deliver on our value creation strategy. Operator, please open the line for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from Karl Blunden with Goldman Sachs. Your line is open.

Karl Blunden -- Goldman Sachs -- Analyst

Hi, good morning. Thanks so much for the time. I think you did mention that you'd be prudent with regard to M&A. You may have used a different word, but certainly activity has been high, generally in the oil patch.

Be interested in more of your thoughts around if you would to pursue that, what kind of acquisitions you're looking for now that you feel relatively comfortable inventory position? And then perhaps layer on top of that. Historically, you've used some equity funding, you've used some debt funding. It's when you think about how to how to work with the balance sheet as you continue this transition. Be interested in any thoughts on that?

Jason Pigott -- President and Chief Executive Officer

Great question. I think the future acquisitions would be just held to the similar standard to the deals we've done in the past. They need to be accretive to shareholders, be de-leveraging in a short amount of time, and we would anticipate any transaction we would do would accelerate our de-leveraging. So that's one of the key principles for it.

There's several packages that will be out there this year. I think what we've tried to highlight today, though, is the urgency for doing deals isn't as high because we have built up that inventory. We are focused on, again, using our cash flows to pay down debt. So anything that we would do would be similar in nature to what we've done that have really allowed us to, we hadn't done those acquisitions we've done before, we wouldn't be in the position we are today to deliver this type of cash flow and deal ever more quickly.

With respect to the the balance sheet and how to fund it. I'll turn it over to Bryan.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Thanks, Jason. Yeah. I would just add to that, that it will need to be a combination of cash and equity in order to facilitate both the de-leveraging and being accretive to shareholders. And that's where we've done in the past.

You know, as Jason said, these transactions would be used for us to to grow our business and we still have to finance them in a way that still fits within those two frameworks. And so I would expect a balanced approach like we've done in the last two going forward.

Karl Blunden -- Goldman Sachs -- Analyst

It's very helpful. Just looking forward a bit. You did mention the hedges for the first half of 2023. Appreciate that hedging gets tougher and more expensive as you go further out.

But, as you think about overall, how much of the production you'd like to have hedged as you move into this new zone of leverage, if you will, right? So you've delivered pretty substantially and you're looking to deliver more. Is your hedging approach going to change and how much of your volume you'll be hedged? Is that going to change longer term or any color on that would be helpful.

Jason Pigott -- President and Chief Executive Officer

Yeah. We put in collars for the first quarter, which allows us to early next year, which allows us to, again, protect the downside, but also gives us exposure to the upside as we de-lever and achieve those milestones. You're correct, we don't need to be hedged at the same levels that we do have in the past. But as we look to start delivering a dividend or return cash to shareholders, we would want to be in a position that we feel confident we can do those, and price fluctuations wouldn't mitigate our ability to deliver cash to shareholders.

So, we're going to consider all those things, but we will not need to be as hedged at the levels that we are today, as we achieve those milestones. But right now, the hedging is focused on allowing us to get there. And so that's why we've got the hedges that we do on place.

Karl Blunden -- Goldman Sachs -- Analyst

Thanks, Jason. Thanks, Bryan. Appreciate it.

Jason Pigott -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Derrick Whitfield with Stifel. The line is open.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Thanks, and good morning, all.

Jason Pigott -- President and Chief Executive Officer

Morning.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Good morning.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

For my first question, I wanted to focus on your preference for allocation of free cash flow over the next couple of years, assuming the leverage reduction targets as noted. How should we think about your preference for return of capital between dividends and share repurchases? And specifically, if your valuation remains depressed, as outlined on Page 6, and it just seems like there's a remarkable buying opportunity of your stock and you can purchase it at a price lower than your PDP value.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Sure. That's obviously a great reason why you would like to have both options on the table. I think, where we sit today, I would approach it from a balance using both. It is too early for us to say where we are in the market and where our share prices will be at the time that we would get to those de-leveraging targets.

But I think both of those would be on the table. And as we know, as we get below 1.5 and have 1.0 clearly in our sights, we'll articulate that that plan much more clearly.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

[Inaudible] for a follow up, I'd like to shift over to the technical side. Perhaps for Karen. In light of your 2022 operating plan, could you speak to your comfort in drilling and completing 15,000-foot laterals and comment on when you're targeting your first within the 2022 plan?

Karen Chandler -- Senior Vice President and Chief Operations Officer

Yeah, sure. So as we transition the program to North Tower and [Inaudible] expanding those laterally to give us efficiencies in our overall well cost and economics. We mentioned that we've got 18 in the plan for this year, all in Howard County. It's been a couple of years since we've drove 15,000-foot laterals, although we have drilled extended laterals in the past, actually quite significantly.

In the Central Howard area, that acreage position just laid out perfectly force per 10,000-foot laterals, so that's what we were developing for 2021. But as now, we're moving into north power, we really seeing those extended laterals be able to come in and impact our overall economics. Currently, we are finishing a package in Howard County that will have a first 15,000-foot laterals in recent development. Those wells have been drilled, completed, and in the final stages of drilling those out.

So overall, from just an operations standpoint, everything's going well on those packages and we're expecting the results on a profit basis similar to what we've what we've seen in our county.

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Great update. Thanks for your time.

Operator

Our next question, Nicholas Pope with Seaport Research, your line is open.

Nicholas Pope -- Seaport Research Partners -- Analyst

Morning, everyone.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Morning , Nick.

Nicholas Pope -- Seaport Research Partners -- Analyst

I was just curious if you could get a little more detail on the well cost 15% inflationary pressure you're seeing. I guess, with the activity of currently going with the 3 rigs and dropping 1 at the end of the the end of the quarter, how much is locked in? how much have you already seen versus what anticipatory on those well costs? I guess, I guess try to understand where we are in that whole spectrum.

Karen Chandler -- Senior Vice President and Chief Operations Officer

Yeah, sure. So as we talked about and what we're saying was fairly significant cost pressures as we move through 4Q, and now into into early 2022, the supply chain team has worked really hard at really defining where we're locked in, either through fixed contracts or fixed inventory versus where we're potentially still exposed to additional inflationary pressures as we move forward. I mentioned in just my comments that some of our larger components we've got locked in through the first half that includes all of our frac services, that includes all of our casing, aa we've mentioned many times in the past, we are providing our own sand from our own third party operating sand mine. So we've got that contract in place basically through the rest of the year, which significantly helps us offset additional inflationary pressures in sand which are quite high right now in this market.

So overall, when we take a look at everything that we've got locked in, we feel very good about first half. That we're pretty much locked in across the board on cost, and can deliver all the capital budget as planned there. As we continue to work in the second half, we're really trying to get everything pushed out further and really tighten up third quarter and fourth quarter. So we're doing that currently with areas such as casing and tubing, and we'll just continue to work that through the program for the year.

Nicholas Pope -- Seaport Research Partners -- Analyst

Got it. That's very helpful. And just real quick, how do you anticipate the split for the year between Glasscock and and Howard County on the activity front?

Karen Chandler -- Senior Vice President and Chief Operations Officer

So as we finished up 2021, we [Audio gap] our second package of Western Glasscock wells, the most wells which we've referred to and shows some detail in those came on right at the end of 4Q. We've transitioned to Howard County and the expectation is all of our remaining completions, these all run through in Howard County or Central or North Howard County for 2021 or 2022.

Jason Pigott -- President and Chief Executive Officer

Page 10 on our deck, if you have access to that online, we've put in a top right, there's a graph that just shows where all the bills are coming from. So we've got some wells coming in from Central Howard, but then it all transitions to North Howard.

Nicholas Pope -- Seaport Research Partners -- Analyst

Got it. That's very helpful. That's all I have. Thanks.

Operator

Our next question comes from Eric Seeve with GoldenTree. Your line is open.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Hey, guys. Thanks for the call and to this slide, they give a lot of good transparency. We appreciate that. On Slide 10, you guys in the upper left hand quadrant, you guys feel your capex by category.

I was hoping you could give us a little bit more color on the facilities and land capex, and the corporate capex. If you could breakout facilities versus land that would be or it was a rough sense that would be appreciated. And if you could give us a little more color on what corporate capex is and for both of these categories are the amount you're spending in 2022. Are they normal going forward? Or are they elevated for any reason this year? Thanks.

Karen Chandler -- Senior Vice President and Chief Operations Officer

So I can comment on the facilities and land components, and then also will point out there, we're starting to work in or non-op activity, so you can see that split out as well. So from the facilities and land in this is a category that we report out on detail, and I think we have them split out for all of our 4Q in 2021 spin in the release. Pretty much the we run at about a 15% on our DC&E for spend on facilities, land, [Inaudible] masses. So this is pretty much in line with that.

We did call out in the release that we've got $10 million in the year for facilities, retrofit kits, and just the work that we're doing that we provide in the deck on ESG. So that would also be in that component.

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

And then on the corporate side, that is predominantly capitalized interest in G&A. And if you look at this on a historical perspective of the percent of budget that's allocated to DC&E and then what we've just traditionally called other, it's very much in line with past years with DC&E representing approximately 85% of the total budget, and that's very much in line. We just gave a little bit more granularity this time around in the breakout.

Eric Seeve -- GoldenTree Asset Management -- Analyst

OK. Terrific. Thanks, I appreciate the presentation and congratulations on strong results.

Jason Pigott -- President and Chief Executive Officer

Thanks, Eric.

Operator

Our next question from Gregg Brody with Bank of America. Your line is open.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Morning, guys, and a second Eric's comments of presentation slides are very helpful and very well done. I was looking at Page 7, and you mentioned this in your press release and holiday, your near-term development focus is going to be on the need books to be the $40 to $45 breakeven opportunities in your inventory. How do you think about stepping out to approach the $15 to $55 that are still very good in today's environment? And why not do some of that now when we're in this environment?

Jason Pigott -- President and Chief Executive Officer

Yeah. That's a great question. Again, if you put the spreadsheet, your biggest benefit is drilling your best wells first, so [Inaudible]. And if you look at that lowest bucket, you see more of that is in Howard County than it is Western Glasscock.

So that's the plan for us is to drill our best stuff first. It's generating the most cash flow and the highest price environment. That's what allows us to de-lever at the rate we're able to de-lever because those unless Howard wells are so strong, so there is a risk. As you mentioned, if prices collapse, you may not get to the wells that are in that at those higher buckets.

But right now, we've got a lot of cushion. So that's how we allocate to drill the best stuff first. We are excited about the new tests that open up additional wells and Howard County, we highlighted the middle Sprayberry, those wells are new, but they are both really strong and have achieved almost 900 barrels a day, and are much flatter declining profile so far. And so those are separated by 700-feet of rock.

So we have an opportunity for those middle Sprayberry wells to either co-develop or, we believe, come back and develop them later, which allows us to reuse the facilities or not have to build facilities for those wells when they're at the right time. So that may be the most efficient development option for us. And it's also these are they eastern most wells that we see in the middle Sprayberry so far. So there is further delayed delineation that can be done to help prove it up more middle Sprayberry wells in Howard County.

So, I'd say that's how we focus it. And then again, something new for this presentation, we've broken into the three groups; Howard, Western Glasscock and Eastern. There are wells in the Eastern that the team has looked at that don't require a whole lot of work to really get them drill schedule ready. Those are things that you might think through a drill fond or something like that at some point to accelerate the value of those in this price environment.

But again, we start including those we built out almost 11 years worth of inventory to $55 breakeven or less. So a lot of words, but hopefully it gives you some character. But it's really drilling our best stuff first accelerates our de-leveraging as we think about it.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

And that's very helpful. And you covered some additional questions to have there. So the hope is that some of the higher cost inventory becomes lower as you can drill a longer potentially in those areas or -- you can go there, and then I'll just add to that, the Eastern legacy stuff, I was going to ask you about that. Is there some capital allocated this year? And you mentioned maybe I think I heard you say, is that something that you could actually see this year?

Jason Pigott -- President and Chief Executive Officer

We haven't really talked a lot about it, but it's just something that we think about in ways to create or accelerate value out there. It's a higher cost of capital to do those things, but it's an option. And what's interesting is, we think through these wells, there are 5,000-foot wells out there, 5,000-foot laterals, and we really debate a lot on, "do you include them? not include them?" Because you could own 50% of a 10,000-foot well, but you've got to go get the deal signed to own that 50% of a 10,000 or farm into somebody else or get them to sell it to you. So I think there's more even more if you look at an inverse report or something like that, they have even more inventory than we highlight here.

But it just they require some deals. And because those are at the back of the schedule, we're not working on those like we do, getting Howard County rig schedule prepped and ready to go.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

And just just two more for you here, if you don't mind. You noticed that on your balance sheet, your accrued capex and undistributed revenues and royalties increased a bit over the previous quarter, should we expect a negative working capital flow this year? And is that in some of the guidance you've given?

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Yeah. I would expect it to fluctuate as prices go up, but we do need to capture that, yes.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

And then in the last -- but my last question for you is just debt reduction. You talked about doing it this year. Clearly, I think you dedicate all your free cash flow to pay off a credit facility, you would have excess cash flow to maybe reduce your total quantum of senior debt. Is that something you're thinking about today? Or is it obviously if you do it, if you've just been M&A, that may change that, but I'm just curious what your current thoughts are? And maybe -- to 25, is that something you would maybe consider paying down some for a few months if in fact, you should be financing to that?

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Yeah. So, well, throughout this year and next year, we'll constantly be looking at all the liability management options. I am more focused on paying it off than I am extending it, so it's callable now. It's callable next January at a lower rate, a lot of our cash build is in the back half of the year.

And so we'll just really have to see where things are. If I'm able to get some of those back this year at a rate that makes sense and is accretive to the company, it's clearly something we would do. It's not my goal to stock cash on the balance sheet and have senior notes outstanding. So it's just managing through that process, and everything can change from this month to next month on the best ways to do that.

But, it's something that we're constantly evaluating and monitoring the different options we have, but that is our focus through this year.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much, guys.

Operator

Our next question is follow from Eric Seeve with GoldenTree. Your line is open.

Eric Seeve -- GoldenTree Asset Management -- Analyst

We've got Greg. Greg just ask my question. The final one for me is just on hedging. It sounds like you don't believe you have to hedge as much in '23 as you did in '22, given you expect to make some progress on the balance sheet.

Can you just maybe give us some ballpark sense of parameters of what you're thinking about?

Jason Pigott -- President and Chief Executive Officer

We will continue to layer on some hedges, again, we have traditionally been, again, 75% hedged as we enter a year like we are this year. So we're watching commodity prices, again, we've favored these wider collars with bigger spreads just because if the oil price should fall again it protects us, and we don't lose the progress that we've gained, so we'll continue to look at those. Again, we are favoring the first half of 2023 versus the full year. So it's a decision that we can look at and talk about.

We don't get specific parameters and we're going to be 50% page, but I'd say, it's more likely to be 50% for hedge, then 75%. But again, we're going to just continue to monitor prices, see how things go. Again, we don't want to lose the ground, we've gained on leverage reduction, and so we will put those hedges in so that we once we get to those points, we have more flexibility, but we're not there yet. We haven't achieved the 1.5 yet.

So we've got to get the 1.5 before we can mark start reducing our hedging activity, I guess, is the way to think about them.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Thanks. And I guess, one of the one of the problems with setting a leverage target in a $90 a barrel oil price environment is, what might look like prudent leverage at this point of cycle might not look like prudent leverage is another point in the cycle. Do you have other metrics that you're keeping an eye on with respect to your target leverage balance?

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Well, I'd say long-term. My goal would be to get us if we're in this type of price environment below 1 times, I think of a 10 in that $55 to $60 price range is ideal, but we have to get there first. Like Jason said, we're in such a substantially different place than we were a year ago because of price and because of the steps we took. It's easy for us to look forward and say, we've got 10 there, but we're not until we get to 15 until we get to 10.

We've got to keep our heads down, but our goal would be to be below 1.0 at a price environment like this and target up a 1.0 in that 55 to 60 dollar range. And that's obviously easier said than done on a smaller company. But that's where we're heading and that's what that's our focus.

Eric Seeve -- GoldenTree Asset Management -- Analyst

Thanks, guys, appreciate the call.

Operator

Thank you. And this concludes the question-and-answer session. I would now turn the call back over to Ron Hagood for closing remarks.

Ron Hagood -- Vice President, Investor Relations

We appreciate your interest in Laredo. Thanks for joining us for our call this morning. And this concludes the call. Thank you.

Operator

[Operator signoff]

Duration: 39 minutes

Call participants:

Ron Hagood -- Vice President, Investor Relations

Jason Pigott -- President and Chief Executive Officer

Karen Chandler -- Senior Vice President and Chief Operations Officer

Bryan Lemmerman -- Senior Vice President and Chief Financial Officer

Karl Blunden -- Goldman Sachs -- Analyst

Derrick Whitfield -- Stifel Financial Corp. -- Analyst

Nicholas Pope -- Seaport Research Partners -- Analyst

Eric Seeve -- GoldenTree Asset Management -- Analyst

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

More LPI analysis

All earnings call transcripts

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.