Ultra Petroleum Corp. will invest more in Wyoming's Pinedale Anticline and Utah's Uinta Basin in 2014, part of a development plan to triple oil production and leave in the rear-view mirror two years the company would rather forget.
Last October, Houston-based Ultra acquired oil-producing properties in the Uinta Basin for $650 million (see Shale Daily, Oct. 22, 2013). At that time, the properties recorded net production of 4,000 b/d from 38 wells and net risked reserves of at least 90 million bbl. The deal closed on Dec. 12 for $649.8 million.
"We are very excited about the well performance and operational results being achieved in this asset," Jason Gaines, director of business development, said during a conference call to discuss 4Q2013 and full-year 2013 earnings on Thursday.
Gaines added that since the deal closed Ultra has "quickly made several enhancements to our field operations that have led to increased efficiencies. We're already drilling wells in record low times, and most recently drilled one well to total depth in less than three days.
"With these improvements, we have reduced our expected well cycle times from eight days to five-and-a-half days."
Gaines said Ultra has drilled 10 wells and brought nine wells online since the acquisition, bringing the total number of wells drilled to 60 and the number of producing wells to 54.
"We completed the buildout of the infield gas gathering system and started marketing gas this week," Gaines said. "Recall that when the acquisition was announced in October...we expected to enter 2014 at 5,000 boe/d and exit 2014 at approximately 10,000 boe/d. We are currently producing [more than] 7,100 boe/d from 51 wells, nearly at the midpoint of the entrance/exit rate expectation for 2014."
Ultra raised its production guidance for full-year 2014 to 243-253 Bcfe, and for 1Q2014 to 56-58 Bcfe. The company estimates that 71% of its annual production will come from the Rockies, while 23% will come from Appalachia and 6% from the Uinta.
"We have revised our production forecast upward for the year...based on the impressive well performance, testing...[and] improved well cycle time, [which] will increase the number of wells that we will bring online throughout the year," Gaines said. "We expect to produce an average of [more than] 7,000 boe/d net. These incremental volumes will cause a tripling of company oil volumes in 2014 relative to 2013. And our 2014 exit rate is expected to be [more than] 9,000 boe/d net or 11,000 boe/d gross."
Ultra plans to spend $560 million on capital expenditures in 2014, including $515 million for drilling, $5 million for gathering and facilities and $2 million for land acquisition costs. Of the $515 million earmarked for drilling, the company plans to spend $395 million in the Rockies, $95 million in the Uinta and $25 million in Appalachia.
CEO Michael Watford said Ultra's development plans for 2014 were "fairly conservative" and follow a year during which the company had "a bottoming out." Last year, he called 2012 "a train wreck" after the company adhered to gas production despite low gas prices (see Daily GPI, Feb. 20, 2013).
"We plan to invest where our margins returns are improving, and want to continue generating free cash in our core positions, core assets," Watford said. "With our $560 million capital budget, production grows 7% to 8%, but that's not the key item here. What's more important is our cash flow and EBITDA [earnings before interest, taxes, depreciation, and amortization] growth of 40%. And that includes $1.25/Mcfe basis differential in the Marcellus.
"We are putting more money to work in Wyoming and Utah and withdrawing capital from Pennsylvania. The result will be a tripling of oil production, fairly constant natural gas production, and we should generate more than $150 million of free cash."
Watford said that in Wyoming, where natural gas prices are estimated at $4.50/Mcf and well completion costs are about $3.8 million, Ultra expects a return of more than 70%. Meanwhile, he said returns should be above 500% in the Uinta, where wellhead oil prices are $80/bbl and well completion costs are $1.5 million.
"At a reduced oil price of $64/bbl, we still expect returns exceeding 300%," Watford said. "Development will be focused in the best areas of the field, where realized oil prices as low as the mid-$20, would still yield returns in excess of 20%."
Ultra holds more than 84,000 gross (49,000 net) acres in Wyoming's Green River Basin, including the Jonah and Pinedale gas fields. The company held 500,000 gross (260,000 net) acres in the Marcellus at the end of 2012.
Production figures for 4Q2013 and the full-year 2013 illustrate Ultra's shift away from dry gas.
The company produced 56.8 Bcfe during 4Q2013, down 5.4% from the 60.1 Bcfe produced in the preceding fourth quarter. Gas production fell 6.1% during the same time frame (from 58.4 Bcf to 54.8 Bcf), but crude oil and condensate production rose 17.8% (from 0.28 million bbl to 0.33 million bbl).
For the full-year 2013, Ultra produced 232.1 Bcfe, down 9.7% from the 257.0 Bcfe produced in 2012. Gas production declined 9.8% between the two years (from 249.3 Bcf to 224.9 Bcf), as did crude oil and condensate production, which fell 6.7% (from 1.28 million bbl to 1.20 million bbl).
Adjusted net income totaled $253.2 million ($1.64/share) for the full-year 2013, down 23% from the $328.6 million ($2.15/share) earned in 2012.
Ultra's proved reserves totaled 3.6 Tcfe at the end of 2013, an 18% increase over 2012 when the company reported 3.1 Tcfe.