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Ultra Petroleum Cuts Rigs, Accelerates Horizontal Drilling Program

Ultra Petroleum Corp. reduced its operated rig fleet from seven to four in 1Q2018, but plans to accelerate its horizontal drilling program while reducing well costs for the remainder of the year.

The Houston-based company, which plans to move its headquarters to Englewood, CO, by the end of September, reported total 1Q2018 production of 72.3 Bcfe, a 13% increase from the year-ago quarter (64 Bcfe). While natural gas production increased 13.7% (to 68.2 Bcf, up from 60 Bcf), oil and condensate production increased 2.3% (to 677,843 bbl, up from 662,897 bbl).

Ultra said it plans to complete 25-30 horizontal wells in 2018, ramping up to more than 36 wells in 2019. According to an earnings presentation released Thursday, the company drilled seven wells between January and April, with a focus on the Lower Lance A interval in the Warbonnet area of the Pinedale Anticline. So far this year Ultra has brought three wells online, at an average cost of $8.6 million per well, or 4% below budget case.

The three completed wells, each targeting the Lower Lance A, were the WB 9-23 A-2H, WB 9-23 A-3H and WB 8-25 A-1H. The first well was brought online in February and had initial production (IP) of 54.5 MMcfe/d (873 b/d, 10% oil), while the second and third wells came online in April and had IP rates of 11.7 MMcfe/d (146 b/d, 7% oil) and 28.5 MMcfe/d (441 b/d, 9% oil), respectively.

Ultra is focused on the Pinedale Anticline and the Uinta Basin. It sold the last of its Marcellus Shale assets late last year to an affiliate of Alta Resources LLC.

During the first quarter, Ultra and its partners brought 48 gross (35.9 net) vertical wells online in the Pinedale. The average IP rate for the new vertical wells was 7.7 MMcfe/d.

Ultra raised its full-year production guidance for 2018 to 285-295 Bcfe. The company said it expects 2Q2018 production to average between 780-800 MMcfe/d, which would include production of 1.1 Bcfe from its assets in Utah.

"We'll continue to do landing zones or target different areas within the Lower Lance A," said CEO Brad Johnson during an earnings call Thursday. "We've shared, over the last couple of months, the schematic that was depicting four discrete zones in the Lower Lance A, but our guys have 10 zones if they wanted to test within that 1,500-foot column."

"We are seeing, as we drill these wells, the continued range of net to gross certainly within an acceptable range to us to continue to ramp-up this program...We're excited about the results so far and we're excited about the upcoming wells. Collectively, all that gives us the confidence to go faster."

The company plans to relocate its headquarters from Houston to Englewood by Sept 30, at which point the offices in Houston will be closed. "Our office in the Denver area has long served as the hub for our operations, with over 65 employees," Johnson said. "Consolidating our Houston and Denver activities into one office provides enhanced focus and cost savings as we pursue increased shareholder value." 

Ultra reported net income of $47.5 million (24 cents/share) in 1Q2018, compared to a net loss of $89.7 million (minus $1.12) in the year-ago quarter. Total operating revenues were $225.4 million in 1Q2018, compared to $221 million in 1Q2017.

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