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Ultra Sets $500M CapEx Budget; Eyes Exit From Chapter 11

Less than a year after filing voluntary Chapter 11 bankruptcy, Houston-based Ultra Petroleum Corp. last Wednesday set a $500 million capital expenditure budget for this year and said it expects to exit from Chapter 11 next month.

Ultra's board approved planned 2017 drilling and completion capital at the half-a-billion-dollar level targeting production in the range of 795-820 MMcfe/d, which is estimated to be a 7-10% increase over the independent company's 2016 exit production rates. Overall production is expected to increase to the 290-300 Bcfe range this year, compared to the 281.7 Bcfe reached last year.

The new capex budget represents a 46% increase over last year's pullback budget and is targeted to produce 5% year-over-year production growth for Ultra. The bulk of the new budget is expected to be focused on Ultra's legacy holdings on more than 104,000 gross (68,000 net) acres in and around the Pinedale and Jonah Fields in southwest Wyoming’s Sublette County.

Ultra also has 149,000 (74,000 net) acres in the Marcellus Shale play in north-central Pennsylvania and 9,000 acres in the Uinta Basin in northeast Utah.

Ultra underscored the emphasis on Wyoming this year in noting that its capex plan calls for participating in approximately 245 total gross (193 net) Wyoming wells in 2017, compared to just 110 total gross (78 net) wells last year.

Last Tuesday, the U.S. Bankruptcy Court for the Southern District of Texas issued an order confirming Ultra's reorganization plan and determining the company's plan value at $6 billion. "This clears the way for Ultra to exit Chapter 11 once the financing transactions to fund its plan of reorganization are closed, which is expected to occur on or about March 31," an Ultra spokesperson said.

Last month, Ultra CEO Mike Watford predicted growth for the company this year after a rough 2016 in which low natural gas prices hurt the bottom line and suppressed the level of capex.         

During an earnings conference call in February, Watford said that "the trough has passed, with capex, production, EBITDA and cash flow all growing, and a plan to finalize restructuring." When it filed for Chapter 11, Ultra had about $3.76 billion in unsecured debt last April. At the time, the company's subsidiary debts accounted for about $2.46 billion, with the remaining $1.3 billion from senior notes.

This year's expected rebound in capex is based on assumptions for Ultra's realized natural gas prices to be about 4-5% below the Nymex price due to regional differentials, the company said; this is before any hedging activity. "Realized pricing for oil is expected to be about 5-6% less than the average Nymex crude oil price," the company said.

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