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Ultra Continuing Pinedale Focus, Planning Asset Sale to Shrink Debt

Ultra Petroleum Corp. is targeting an asset sale by year’s end as the Houston-based exploration and production (E&P) company looks to reduce its debt and continue focusing production on its Pinedale Anticline in the Green River Basin of Wyoming.

CEO Michael Watford discussed the planned asset sale in a conference call to discuss third quarter results with investors last week. He said Ultra has “too much debt” and the company is “closing in on an asset sale that should provide a fair amount of relief.”

Ultra plans to strike a deal by the end of the year and is looking at “a couple of highly actionable, reasonable opportunities, so I think we’ll go down the path and select one of those and get it done.” He declined to specify how much production might be included in an asset sale.

The third quarter was characterized by further efficiency gains in the Pinedale and a shift away from its Marcellus Shale holdings in Pennsylvania (see Shale Daily, Aug. 3). Drilling and completion operations in Utah remained suspended.

Overall production in 3Q2015 was 75.4 Bcfe, a 7% increase over the previous quarter and a 21% increase year/year. Onshore gas production jumped year/year to 70.19 MMcf from 56.98 MMcf. Oil and condensate output declined to 863,361 bbl from 927,320 bbl in 3Q2014.

Ultra realized an average natural gas price of $3.33/Mcf including hedging, a 26 cent decline year/year. Average realized price oil prices were $39.43/bbl, $43.34 lower year/year.

“The third quarter 2015 overall corporate price differential, when comparing average wellhead per Mcf prices to first-of-the-month Henry Hub prices, was 11 cents,” Shaw said. “This compares to a 35 cent differential in the same quarter last year. This 24 cents/Mcf improvement is due to the fact that only 5% of our total gas production came from the Marcellus this quarter, as opposed to 21% in the third quarter of 2014.”

Shaw said Ultra continues “ to see the benefits of shifting our focus away from the Marcellus relative to our cash margins. For the quarter in Wyoming, our field-level margins were $2.01/Mcfe, while in Pennsylvania, they were only 70 cents/Mcfe.”

The company drilled 55 wells, including 34 operated, in Wyoming for the quarter, with increasing cost-effectiveness in the Pinedale play, according to Senior Vice President of Operations C. Bradley Johnson.

“Ultra’s operated well costs averaged $2.85 million per well. This represents an 8% cost reduction from last quarter, and a 25% reduction from a year ago,” Johnson said.

The company achieved a new record spud to total depth (TD) time of 6.5 days in the quarter, with the average spud to TD time down 18% year/year, he said.

“Our four-rig program delivered 34 wells this past quarter, a pace that would have required five rigs just a year ago,” Johnson said. “However, due to significant reductions in well costs, the 24% increase in net well count only required a 9% increase in capital.”

In response to a question about whether Ultra will scale back its drilling program in response to commodity prices, Watford indicated Ultra may be able to maintain its drilling program at a lower cost thanks to the efficiency improvements. Though the company’s 2016 capital guidance won’t be released until after its asset sale is complete, he indicated Ultra likely won’t approach the $500 million budget for 2015.

“I think we need to look at not rigs but capital expenditures, because clearly we’re going to be able to get done with four rigs what we used to be able to do with five rigs...so it’s going to be more of a capital issue and less of a rig activity issue,” Watford said.

Ultra ended the quarter with net debt of $3.4 billion, the same as 2Q2015, with $2.1 billion of that held with subsidiary Ultra Resources and $1.3 billion with the parent company.

Ultra lost $3.096 million (minus 2 cents/share) in the quarter, versus $125 million in profits for the year-ago period. The company reported a cash flow of $125 million ($0.82/share) for the quarter and an EBITDA [earnings before interest, tax, depreciation and amortization] of $168 million. Capital expenditures for the quarter stood at $123 million. Total operating revenues for 3Q2015 fell to $222.5 million from $288.6 million in the year-ago period.

According to Shaw, Ultra Resources ended the quarter with “a debt-to-12 month trailing EBITDA ratio of 2.9 times and with $352 million of liquidity under our revolving credit facility.” The subsidiary’s debt cannot exceed a 3.5 times debt-to-12 month trailing EBITDA, Shaw said.

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