2017 Q4 Form 10-Q Financial Statement

#000152812917000145 Filed on November 02, 2017

View on sec.gov

Income Statement

Concept 2017 Q4 2017 Q3 2016 Q3
Revenue $240.3M $205.8M $159.7M
YoY Change 30.4% 28.85% 6.25%
Cost Of Revenue $84.70M $77.70M $72.10M
YoY Change 13.39% 7.77% -11.1%
Gross Profit $155.6M $128.1M $87.60M
YoY Change 41.97% 46.23% 26.41%
Gross Profit Margin 64.74% 62.24% 54.84%
Selling, General & Admin $23.70M $25.00M $26.10M
YoY Change -7.78% -4.21% 13.97%
% of Gross Profit 15.23% 19.52% 29.79%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $45.10M $41.21M $35.16M
YoY Change 20.27% 17.22% -47.35%
% of Gross Profit 28.98% 32.17% 40.13%
Operating Expenses $69.80M $67.70M $62.10M
YoY Change 8.72% 9.02% -31.15%
Operating Profit $85.83M $60.45M $25.49M
YoY Change 88.81% 137.14% -102.75%
Interest Expense $349.2M $23.70M $23.08M
YoY Change -649.92% 2.69% -1.16%
% of Operating Profit 406.84% 39.2% 90.53%
Other Income/Expense, Net -$49.43M -$16.01M
YoY Change 208.77% -113.19%
Pretax Income $410.4M $11.03M $9.485M
YoY Change -2330.43% 16.26% -101.18%
Income Tax $1.800M $0.00 $0.00
% Of Pretax Income 0.44% 0.0% 0.0%
Net Earnings $408.6M $11.03M $9.485M
YoY Change -2317.91% 16.26% -101.12%
Net Earnings / Revenue 170.0% 5.36% 5.94%
Basic Earnings Per Share $1.71 $0.05 $0.04
Diluted Earnings Per Share $1.70 $0.05 $0.04
COMMON SHARES
Basic Shares Outstanding 242.5M shares 239.3M shares 234.6M shares
Diluted Shares Outstanding 244.9M shares 238.1M shares

Balance Sheet

Concept 2017 Q4 2017 Q3 2016 Q3
SHORT-TERM ASSETS
Cash & Short-Term Investments $112.2M $20.80M $30.40M
YoY Change 243.12% -31.58% -60.21%
Cash & Equivalents $112.2M $20.82M $30.36M
Short-Term Investments
Other Short-Term Assets $15.69M $16.20M $14.33M
YoY Change 9.76% 13.03% 0.86%
Inventory $9.100M $8.600M $8.000M
Prepaid Expenses $6.538M
Receivables $100.6M $89.84M $81.22M
Other Receivables $5.245M $80.00K $282.0K
Total Short-Term Assets $235.4M $142.5M $190.4M
YoY Change 52.08% -25.17% -49.29%
LONG-TERM ASSETS
Property, Plant & Equipment $1.768B $1.631B $1.306B
YoY Change 29.38% 24.94% -38.39%
Goodwill
YoY Change
Intangibles
YoY Change
Long-Term Investments $0.00 $276.4M $229.9M
YoY Change -100.0% 20.24% 43.52%
Other Assets $16.11M $11.76M $8.626M
YoY Change 100.59% 36.36% -27.23%
Total Long-Term Assets $1.788B $1.924B $1.566B
YoY Change 9.85% 22.85% -36.26%
TOTAL ASSETS
Total Short-Term Assets $235.4M $142.5M $190.4M
Total Long-Term Assets $1.788B $1.924B $1.566B
Total Assets $2.023B $2.066B $1.756B
YoY Change 13.52% 17.64% -37.99%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $58.34M $22.80M $20.03M
YoY Change 11.76% 13.79% -15.28%
Accrued Expenses $181.7M $151.6M $102.6M
YoY Change 58.69% 47.76% -9.2%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due
YoY Change
Total Short-Term Liabilities $277.4M $223.3M $160.3M
YoY Change 47.61% 39.32% -45.03%
LONG-TERM LIABILITIES
Long-Term Debt $791.9M $1.441B $1.353B
YoY Change -41.51% 6.48% -4.4%
Other Long-Term Liabilities $134.1M $3.330M $3.743M
YoY Change 3603.12% -11.03% -9.61%
Total Long-Term Liabilities $925.9M $1.444B $1.357B
YoY Change -31.79% 6.44% -4.42%
TOTAL LIABILITIES
Total Short-Term Liabilities $277.4M $223.3M $160.3M
Total Long-Term Liabilities $925.9M $1.444B $1.357B
Total Liabilities $1.258B $1.720B $1.569B
YoY Change -21.48% 9.61% -10.0%
SHAREHOLDERS EQUITY
Retained Earnings -$1.669B -$2.078B -$2.200B
YoY Change -24.75% -5.55% 121.58%
Common Stock $2.435B $2.424B $2.387B
YoY Change 1.5% 1.56% 14.67%
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $765.6M $346.2M $187.1M
YoY Change
Total Liabilities & Shareholders Equity $2.023B $2.066B $1.756B
YoY Change 13.52% 17.64% -37.99%

Cashflow Statement

Concept 2017 Q4 2017 Q3 2016 Q3
OPERATING ACTIVITIES
Net Income $408.6M $11.03M $9.485M
YoY Change -2317.91% 16.26% -101.12%
Depreciation, Depletion And Amortization $45.10M $41.21M $35.16M
YoY Change 20.27% 17.22% -47.35%
Cash From Operating Activities $112.8M $115.2M $106.9M
YoY Change 1.81% 7.76% -3.87%
INVESTING ACTIVITIES
Capital Expenditures -$170.5M -$155.4M -$196.2M
YoY Change 69.31% -20.8% 65.01%
Acquisitions
YoY Change
Other Investing Activities $822.4M -$23.80M -$16.00M
YoY Change -10510.13% 48.75% -195.24%
Cash From Investing Activities $652.0M -$179.3M -$212.3M
YoY Change -700.92% -15.54% 107.53%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -673.5M 50.00M 116.4M
YoY Change -57.04% 1075.76%
NET CHANGE
Cash From Operating Activities 112.8M 115.2M 106.9M
Cash From Investing Activities 652.0M -179.3M -212.3M
Cash From Financing Activities -673.5M 50.00M 116.4M
Net Change In Cash 91.30M -14.10M 11.00M
YoY Change 3869.57% -228.18% -41.49%
FREE CASH FLOW
Cash From Operating Activities $112.8M $115.2M $106.9M
Capital Expenditures -$170.5M -$155.4M -$196.2M
Free Cash Flow $283.3M $270.6M $303.1M
YoY Change 33.95% -10.72% 31.73%

Facts In Submission

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44232000 USD
us-gaap Cost Of Purchased Oil And Gas
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121190000 USD
CY2017Q3 us-gaap Cost Of Purchased Oil And Gas
CostOfPurchasedOilAndGas
47385000 USD
us-gaap Cost Of Purchased Oil And Gas
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141661000 USD
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134242000 USD
us-gaap Costs And Expenses
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546486000 USD
CY2017Q3 us-gaap Costs And Expenses
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145366000 USD
us-gaap Costs And Expenses
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5905000 USD
us-gaap Costs Incurred Acquisition Of Oil And Gas Properties With Proved Reserves
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5905000 USD
CY2017Q3 us-gaap Costs Incurred Acquisition Of Oil And Gas Properties With Proved Reserves
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0 USD
us-gaap Costs Incurred Acquisition Of Oil And Gas Properties With Proved Reserves
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0 USD
CY2016Q3 us-gaap Costs Incurred Acquisition Of Unproved Oil And Gas Properties
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110800000 USD
us-gaap Costs Incurred Acquisition Of Unproved Oil And Gas Properties
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110800000 USD
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0 USD
us-gaap Costs Incurred Acquisition Of Unproved Oil And Gas Properties
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0 USD
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72411000 USD
us-gaap Costs Incurred Development Costs
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225103000 USD
CY2017Q3 us-gaap Costs Incurred Development Costs
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160359000 USD
us-gaap Costs Incurred Development Costs
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397255000 USD
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6718000 USD
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33750000 USD
CY2017Q3 us-gaap Costs Incurred Exploration Costs
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7136000 USD
us-gaap Costs Incurred Exploration Costs
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28337000 USD
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195834000 USD
us-gaap Costs Incurred Oil And Gas Property Acquisition Exploration And Development Activities
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375558000 USD
CY2017Q3 us-gaap Costs Incurred Oil And Gas Property Acquisition Exploration And Development Activities
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167495000 USD
us-gaap Costs Incurred Oil And Gas Property Acquisition Exploration And Development Activities
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425592000 USD
CY2016Q4 us-gaap Debt Instrument Carrying Amount
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CY2017Q3 us-gaap Debt Instrument Carrying Amount
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16091000 USD
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20411000 USD
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0 USD
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0 USD
CY2017Q3 us-gaap Deferred Income Tax Expense Benefit
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0 USD
us-gaap Deferred Income Tax Expense Benefit
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0 USD
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35158000 USD
us-gaap Depreciation Depletion And Amortization
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110813000 USD
CY2017Q3 us-gaap Depreciation Depletion And Amortization
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41212000 USD
us-gaap Depreciation Depletion And Amortization
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113327000 USD
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15611000 USD
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3763000 USD
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8718000 USD
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4345000 USD
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20993000 USD
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4170000 USD
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5694000 USD
CY2017Q3 us-gaap Derivative Liabilities Noncurrent
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362000 USD
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0.04
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0.04
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0.05
us-gaap Earnings Per Share Diluted
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1992000 USD
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1870000 USD
us-gaap Employee Service Share Based Compensation Allocation Of Recognized Period Costs Capitalized Amount
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5642000 USD
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243953000 USD
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276435000 USD
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-43783000 USD
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us-gaap Gain Loss On Derivative Instruments Net Pretax
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38127000 USD
CY2016Q3 us-gaap Gain Loss On Sale Of Property Plant Equipment
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us-gaap Gain Loss On Sale Of Property Plant Equipment
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-379000 USD
CY2017Q3 us-gaap Gain Loss On Sale Of Property Plant Equipment
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us-gaap Gain Loss On Sale Of Property Plant Equipment
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us-gaap General And Administrative Expense
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66058000 USD
CY2017Q3 us-gaap General And Administrative Expense
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25000000 USD
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us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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11027000 USD
us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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140413000 USD
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265000 USD
us-gaap Income Loss From Equity Method Investments
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6259000 USD
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2371000 USD
us-gaap Income Loss From Equity Method Investments
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7910000 USD
CY2016Q3 us-gaap Income Tax Expense Benefit
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0 USD
us-gaap Income Tax Expense Benefit
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0 USD
CY2017Q3 us-gaap Income Tax Expense Benefit
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0 USD
us-gaap Income Tax Expense Benefit
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0 USD
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23077000 USD
us-gaap Interest Expense
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5852000 USD
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2973000 USD
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0 USD
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4785000 USD
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594000 USD
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3220000 USD
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33000 USD
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143000 USD
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199000 USD
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24152000 USD
CY2017Q3 us-gaap Interest Payable Current
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21832000 USD
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243953000 USD
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276435000 USD
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19594000 USD
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CY2017Q3 us-gaap Liabilities
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CY2016Q4 us-gaap Liabilities And Stockholders Equity
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1782346000 USD
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CY2017Q3 us-gaap Liabilities Current
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us-gaap Net Cash Provided By Used In Financing Activities
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us-gaap Nonoperating Income Expense
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CY2016Q4 us-gaap Oil And Gas Joint Interest Billing Receivables Current
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12175000 USD
CY2017Q3 us-gaap Oil And Gas Joint Interest Billing Receivables Current
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CY2017Q3 us-gaap Oil And Gas Property Full Cost Method Net
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1459010000 USD
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17213000 USD
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us-gaap Oil And Gas Sales Revenue
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290473000 USD
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157558000 USD
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438131000 USD
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25492000 USD
us-gaap Operating Income Loss
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60452000 USD
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8031000 USD
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11762000 USD
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CY2017Q3 us-gaap Other Liabilities Noncurrent
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3330000 USD
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2973000 USD
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3445000 USD
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CY2017Q3 us-gaap Other Receivables Net Current
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us-gaap Payments For Repurchase Of Common Stock
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us-gaap Payments Of Debt Issuance Costs
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0 USD
us-gaap Payments Of Debt Issuance Costs
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4732000 USD
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115600000 USD
us-gaap Payments To Acquire Businesses Gross
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115600000 USD
us-gaap Payments To Acquire Businesses Gross
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0 USD
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us-gaap Payments To Acquire Equity Method Investments
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24572000 USD
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982000 USD
us-gaap Payments To Acquire Other Productive Assets
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3604000 USD
CY2016Q3 us-gaap Payments To Acquire Productive Assets
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80649000 USD
us-gaap Payments To Acquire Productive Assets
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281948000 USD
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155430000 USD
us-gaap Payments To Acquire Productive Assets
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396449000 USD
us-gaap Payments To Explore And Develop Oil And Gas Properties
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276735000 USD
us-gaap Payments To Explore And Develop Oil And Gas Properties
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381165000 USD
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0.01
CY2016Q4 us-gaap Preferred Stock Shares Authorized
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CY2017Q3 us-gaap Preferred Stock Shares Authorized
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0 shares
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0 USD
CY2017Q3 us-gaap Preferred Stock Value
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0 USD
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7573000 USD
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0 USD
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214682000 USD
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155000000 USD
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365000 USD
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208000 USD
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358000 USD
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7066000 USD
us-gaap Production Tax Expense
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21483000 USD
CY2017Q3 us-gaap Production Tax Expense
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9558000 USD
us-gaap Production Tax Expense
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26811000 USD
CY2016Q4 us-gaap Property Plant And Equipment Net
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1631319000 USD
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44773000 USD
CY2017Q3 us-gaap Property Plant And Equipment Other Net
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41902000 USD
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279682000 USD
us-gaap Repayments Of Long Term Lines Of Credit
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70000000 USD
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CY2017Q3 us-gaap Retained Earnings Accumulated Deficit
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42441000 USD
us-gaap Revenue From Purchased Oil And Gas
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45814000 USD
us-gaap Revenue From Purchased Oil And Gas
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135546000 USD
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us-gaap Sales Revenue Net
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413064000 USD
CY2017Q3 us-gaap Sales Revenue Net
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205818000 USD
us-gaap Sales Revenue Net
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581825000 USD
us-gaap Share Based Compensation
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19562000 USD
us-gaap Share Based Compensation
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26877000 USD
us-gaap Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Share Based Liabilities Paid
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6394000 USD
us-gaap Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Share Based Liabilities Paid
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CY2016Q3 us-gaap Sharebased Compensation Arrangement By Sharebased Payment Award Compensation Cost1
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11643000 USD
us-gaap Sharebased Compensation Arrangement By Sharebased Payment Award Compensation Cost1
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23325000 USD
CY2017Q3 us-gaap Sharebased Compensation Arrangement By Sharebased Payment Award Compensation Cost1
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10836000 USD
us-gaap Sharebased Compensation Arrangement By Sharebased Payment Award Compensation Cost1
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32519000 USD
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0 USD
us-gaap Stock Issued During Period Value Restricted Stock Award Gross
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0 USD
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358000 USD
CY2016Q4 us-gaap Stockholders Equity
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CY2017Q3 us-gaap Stockholders Equity
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346225000 USD
us-gaap Threshold Period Past Due For Writeoff Of Trade Accounts Receivable
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P90D
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TreasuryStockRetiredCostMethodAmount
0 USD
CY2016Q3 us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
238108000 shares
us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
221303000 shares
CY2017Q3 us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
244887000 shares
us-gaap Weighted Average Number Of Diluted Shares Outstanding
WeightedAverageNumberOfDilutedSharesOutstanding
244693000 shares
CY2016Q3 us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
234639000 shares
us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
221303000 shares
CY2017Q3 us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
239306000 shares
us-gaap Weighted Average Number Of Shares Outstanding Basic
WeightedAverageNumberOfSharesOutstandingBasic
239017000 shares
us-gaap Well Service Expense
WellServiceExpense
0 USD
us-gaap Well Service Expense
WellServiceExpense
0 USD
CY2016Q3 us-gaap Write Off Of Deferred Debt Issuance Cost
WriteOffOfDeferredDebtIssuanceCost
0 USD
us-gaap Write Off Of Deferred Debt Issuance Cost
WriteOffOfDeferredDebtIssuanceCost
842000 USD
CY2017Q3 us-gaap Write Off Of Deferred Debt Issuance Cost
WriteOffOfDeferredDebtIssuanceCost
0 USD
us-gaap Write Off Of Deferred Debt Issuance Cost
WriteOffOfDeferredDebtIssuanceCost
0 USD
us-gaap Concentration Risk Credit Risk
ConcentrationRiskCreditRisk
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:16px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;"></font><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Credit risk</font></div><div style="line-height:120%;padding-bottom:10px;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company's oil, NGL and natural gas sales are made to a variety of purchasers, including intrastate and interstate pipelines or their marketing affiliates and independent marketing companies. The Company's joint operations accounts receivable are from a number of oil and natural gas companies, partnerships, individuals and others who own interests in the oil and natural gas properties operated by the Company. The Company's sales of purchased oil are generally made to </font><font style="font-family:inherit;font-size:10pt;">one</font><font style="font-family:inherit;font-size:10pt;"> </font><font style="font-family:inherit;font-size:10pt;">customer</font><font style="font-family:inherit;font-size:10pt;">. Management believes that any credit risk imposed by a concentration in the oil and natural gas industry is offset by the creditworthiness of the Company's customer base and industry partners. The Company routinely assesses the recoverability of all material trade and other receivables to determine collectability.</font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company uses derivatives to hedge its exposure to oil, NGL and natural gas price volatility. These transactions expose the Company to potential credit risk from its counterparties. In accordance with the Company's standard practice, its derivatives are subject to counterparty netting under agreements governing such derivatives; therefore, the credit risk associated with its derivative counterparties is somewhat mitigated.</font></div></div>
us-gaap Nature Of Operations
NatureOfOperations
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:10px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;"></font><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Organization</font><font style="font-family:inherit;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Laredo Petroleum,&#160;Inc. ("Laredo"), together with its wholly-owned 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 </font><font style="font-family:inherit;font-size:10pt;">gathering of oil and liquids-rich natural gas</font><font style="font-family:inherit;font-size:10pt;"> 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. </font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As of September 30, 2017, LMS held </font><font style="font-family:inherit;font-size:10pt;">49%</font><font style="font-family:inherit;font-size:10pt;"> of the ownership units of Medallion Gathering &amp; Processing, LLC, a Texas limited liability company formed on October 12, 2012, which, together with its wholly-owned subsidiaries (collectively, "Medallion"), is focused on developing midstream solutions and providing midstream infrastructure in the Midland Basin. Prior to the sale of Medallion, the Company accounted for Medallion as an equity method investment. See Note </font><font style="font-family:inherit;font-size:10pt;">16.a</font><font style="font-family:inherit;font-size:10pt;"> for discussion of the disposition of Medallion subsequent to September 30, 2017.</font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company operates in </font><font style="font-family:inherit;font-size:10pt;">two</font><font style="font-family:inherit;font-size:10pt;"> 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. 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 liquids-rich natural gas gathering services as well as rig fuel, natural gas lift and water delivery and takeaway.</font></div></div>
us-gaap Prior Period Reclassification Adjustment Description
PriorPeriodReclassificationAdjustmentDescription
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:10px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;"></font><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Reclassifications</font><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;"> </font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Certain amounts in the accompanying unaudited consolidated financial statements have been reclassified to conform to the 2017 presentation. These reclassifications had no impact on previously reported balance sheets or stockholders' equity.</font></div></div>
us-gaap Use Of Estimates
UseOfEstimates
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:10px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;"></font><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Use of estimates in the preparation of interim unaudited consolidated financial statements</font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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. </font></div><div style="line-height:120%;padding-top:10px;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">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) impairments, (v) asset retirement obligations, (vi) stock-based compensation, (vii) deferred income taxes, (viii) fair value of assets acquired and liabilities assumed in an acquisition, (ix) fair value of derivatives and deferred premiums and (x) contingent liabilities. 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 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.</font></div></div>

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