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Ultra Drops One Rig, Scales Back Pinedale Horizontal Program

Ultra Petroleum Corp. lowered its annual production guidance and said it plans to drop one rig, leaving three working for the remainder of the year, as it scales back its strategy to develop its position in Wyoming's Pinedale Anticline.

The Houston-based company, which plans to move its headquarters to Englewood, CO, by the end of September, said two rigs would continue to drill vertical wells targeting five intervals of the Lower Lance formation, while a third rig would drill horizontal wells. Ultra also lowered its full-year production guidance to 273-283 Bcfe from 285-295 Bcfe.

"It will take time and patience as we optimize...and delineate the Pinedale's significant horizontal potential," CEO Brad Johnson said during an earnings call Thursday. "While we anticipated variable results and had some encouraging results from our horizontal program, overall the average performance of these wells in the second quarter was below expectations. With the forward strip suggesting lower gas prices into 2019, it is appropriate to ramp down the horizontal program...

"Our conviction remains strong regarding the potential returns from horizontal wells in the Pinedale field. However, as we take a systematic approach to this program, we want our shareholders to understand that, like any new or extending play, there will be variability in our horizontal well results. The amount of data recently collected in an enhanced integrated workflow will help us in our future development and we believe ultimately drive significant long-term shareholder value."

Ultra reduced its operated rig fleet from seven to four in 1Q2018, as it announced plans to accelerate the Pinedale horizontal program.

Despite dropping one rig, Ultra reaffirmed its 2018 capital budget of $400 million and plans to have 22 horizontals completed during the year.

"We came in heavy for the second quarter as a result of higher well costs, both on our vertical and horizontal program," Johnson said. "So as we ramp down activity, we do expect our capital burn to be reduced. But because of the capital in the second quarter, that's keeping our full-year guidance right at $400 million for now."

Ultra reported 70.9 Bcfe of production in 2Q2018, a 5.6% increase year/year (y/y). While natural gas production increased 6% y/y to 66.9 Bcf, crude oil and condensate production declined 1.2% y/y to 667,038 bbl. The company expects production to be 710-750 MMcfe/d in 3Q2018.

During the quarter, Ultra drilled and completed 11 gross (8.1 net) horizontal wells targeting four of the five intervals of the Lower Lance, which it designated with the letters A-E and the numbers 1-2 at ever increasing depths. The company said four of the wells targeted the A1 zone, while another four wells were drilled into A2, two targeted C1 and one was drilled into E1.

Ultra and its partners brought 18 gross (10.6 net) vertical wells online in the Pinedale during 2Q2018. The average 24-hour initial production rate for the wells was 8.8 MMcfe/d.

The company reported a net loss of $20.6 million (minus 10 cents/share), compared to net income of $499 million ($2.76) in the year-ago quarter. Total operating revenues declined 10.6% y/y, to $190.1 million.

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