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Ultra Triples Oil Production, Focusing on Wyoming

Ultra Petroleum Corp. nearly tripled its annual oil production in 2014, and it plans to continue focusing on Wyoming's Pinedale Anticline with a capital expenditure (capex) budget trimmed by more than two-thirds to $460 million.

Houston-based Ultra reported production of 70.6 Bcfe in 4Q2014, a 24.3% increase from the previous fourth quarter, which was 56.8 Bcfe. Oil production more than tripled between the two quarters, from 331,263 bbl to 1.06 million bbl. Natural gas production also increased, from 54.8 Bcf to 64.2 Bcf.

The company produced 249 Bcfe in 2014, a 7.3% increase from the 232.1 Bcfe produced in 2013. Oil production surged between the two years, from 1.2 million bbl to 3.4 million bbl (see Shale Daily, Feb. 21, 2014).

In Wyoming, Ultra and its partners drilled 48 gross (29 net) wells into the Lance formation of the Pinedale Anticline during the fourth quarter, and placed 50 gross (30 net) wells into production. Net production from Wyoming averaged 682 Mcfe/d during 4Q2014. For the year, Ultra and its partners drilled 168 gross (105 net) Lance wells and placed 177 gross (109 net) wells into production. Ultra said it produced 188.4 Bcfe in Wyoming during 2014.

For the 105 net Pinedale wells completed in 2014, average initial production was 8.8 Mcfe/d, while estimated ultimate recovery averaged 4.4 Bcfe.

The company said drilling and completion costs for an operated Pinedale well averaged $3.7 million in 4Q2014, a $100,000 reduction from 3Q2014. Ultra said it took an average of 10 days to drill an operated well in 4Q2014, down from 10.5 days in 3Q2014 and 11.0 days in 4Q2013.

Last August, Ultra said it had signed an agreement with SWEPI LP, an affiliate of Royal Dutch Shell plc, to acquire its properties in Wyoming's Pinedale Anticline for $925 million. At the time, production from SWEPI's stake in the field averaged 189 MMcfe/d. It was also estimated at the time that the deal would boost Ultra's net proved reserves by 1.8 Tcfe, PV-10 value by $1.8 billion, and total operated production from 62% to 82%.

The agreement also called for Ultra to give SWEPI approximately 155,000 net acres in the Marcellus Shale -- primarily in Pennsylvania's Potter and Tioga counties -- which included about 100 MMcfe/d of natural gas production. The deal closed in September.

In Utah's Uinta Basin, Ultra drilled 16 gross (16 net) wells and placed 21 gross (21 net) wells into production during the fourth quarter, with net production averaging 7,230 boe/d -- a 4.2% increase in from 3Q2014, which averaged 6,937 boe/d. For the year, Ultra drilled 75 gross (75 net) wells in the Uinta, and placed 75 gross (75 net) wells into production.

Ultra retained 90,800 net acres in the Marcellus after the SWEPI deal, which produced about 52 MMcfe/d from 53 net wells. During 2014, the company said it participated in drilling and initiated production from six gross (three net) wells. Ultra said Marcellus production averaged 42.4 MMcfe/d in 4Q2014, while cumulative production totaled 47.3 Bcfe for 2014.

The company said it plans to spend $460 million on capex in 2015, the lion's share ($395 million) of which will go toward development drilling in Wyoming, with another $15 million for drilling in Utah. Although the 2015 capex budget is a 69.3% reduction from the $1.5 billion spent on capex in 2014, the latter figure includes the $925 million spent on the Pinedale deal with SWEPI. The company spent $600 million on operations in 2014.

During an earnings conference call Thursday, CEO Mike Watford said there are no plans to defer completions in the Pinedale.

"We're anticipating $3.5 million to $3.4 million well costs, with our hedge position in particular for 2015 providing us with gas prices that are well above the $3 we're referencing today," Watford said. "We have returns that are probably 40-50% IRR [internal rate of return] so we don't see any reason to put [them on hold]. We're also producing gas in the western basins where there's only declining production, so there's a fair amount of demand for us to be able to reach.”

Watford said the company would probably have an inventory of about 20 wells awaiting completion in the Uinta.

"We've got a couple things moving," Watford said. "We have WTI [West Texas Intermediate] oil prices moving hopefully in a positive direction over the course of the year. We also have the discount off that that we're able to sell our oil there for. That discount, when we acquired the properties in December 2013, was [more than] $20. Through this year it was down to $17. We think we can get it to $12-ish over the next couple of months, and maybe improve it to $10. So that's helping us, and then the other part of it is well cost reduction."

He added that production through 2015 and into 2016 would be "pretty flat."

"It's going to wobble one or two [Bcfe] per quarter, but we're going to be 69-71 [Bcfe] per quarter and just kind of rock along."

Ultra said its production guidance for 2015 is 275-285 Bcfe, with Wyoming expected to account for 91% of annual production, followed by Pennsylvania (5%) and Utah (4%).

Adjusted net income for 4Q2014 was $96.3 million (62 cents/share), a 42.6% increase over the $67.5 million (44 cents/share) reported in 4Q2013. For the full-year 2014, adjusted net income was $402.8 million ($2.60/share), a 52.7% increase from the $263.7 million ($1.71/share) reported for 2013.

Ultra said its proved reserves totaled 5.37 Tcfe at the end of 2014, a 48.8% increase over the 3.6 Tcfe the company reported at the end of 2013. The proved reserves total for 2014 included 4.8 Tcf of natural gas, 67.8 million bbl of crude oil and 22 million bbl of natural gas liquids (NGL). The PV-10 value of Ultra's proved reserves increased 71.8%, from $4.1 billion in 2013 to $7.1 billion in 2014.

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