Ultra Petroleum Corp. continued focusing on its vertical well program in Wyoming's Pinedale Anticline during the third quarter and plans to continue running a three-rig drilling program for the rest of the year as it looks to further reduce well costs.
Production at the company, which has moved its headquarters to Englewood, CO, averaged 734 MMcfe/d in 3Q2018, above the midpoint of guidance (710-750 MMcfe/d) for the quarter and up 0.8% from the year-ago quarter, but down 5.8% sequentially. Production volumes for 3Q2018 included 63.8 Bcf of natural gas and 624,200 bbl of crude oil and condensate.
During 3Q2018, Ultra and its partners brought online 17.7 net vertical wells in the Pinedale, with an average 24-hour initial production (IP) rate of 7.4 MMcfe/d. The company also completed 2.2 net wells targeting the A1 zone of the Lower Lance formation as part of its horizontal program. Ultra said it now has nine producing wells targeting the Lower Lance A1, with an average 24-hour IP rate of 20.8 MMcfe/d.
Ultra plans to continue running a three-rig drilling program for the remainder of 2018, all focused on drilling vertical wells; the company said its horizontal drilling program was still undergoing changes. Ultra cut its operated rig fleet from seven to four in 1Q2018, then dropped another rig last August as it scaled back its strategy to develop its Pinedale position.
The company lowered its vertical well costs to $3.3 million, down 8.3% sequentially. During an earnings call last week to discuss 3Q2018, Ultra's executive team said the cost cutting is expected to continue.
"Our primary focus for the team is to further reduce well costs, and we expect to continue to bring down these costs materially going forward into 2019," interim CEO Brad Johnson said. "We continue to advance the evaluation of our horizontal program and remain confident that further well data analysis and optimization will allow us to drill successful horizontal wells next year."
COO Jay Stratton said the company was "still absorbing the inefficiencies from the horizontal program, but the teams are rapidly pivoting back to the other previous efficiency in the vertical program. We've already seen, in the third quarter, three wells below $2.9 million, and we have a larger mix of those types of wells in the fourth quarter. So, we see an opportunity both for efficiency gains and also some technical gains from some innovation that still is occurring with the team."
The company narrowed its full-year production guidance to 274-278 Bcfe, and raised its capital budget for the year to $400-415 million. Previous guidance was 273-283 Bcfe for production and $400 million for capital. Fourth quarter production is expected to average 690-730 MMcfe/d.
Last month, Ultra closed on the sale of its Utah assets for $75 million. The company used most of the $69.3 million net proceeds to pay down its revolving credit facility. The company had liquidity of about $338 million at the end of 3Q2018.
Ultra reported net income of $18.6 million (9 cents/share) in 3Q2018, compared with a net loss of $327.7 million (minus $1.67) in the year-ago quarter. Operating revenues totaled $203.8 million in 3Q2018, compared with $217.6 million in 3Q2017.
Ultra also announced that it had appointed David Honeyfield as CFO and Andrew Kidd as general counsel. Honeyfield recently served as CFO at PDC Energy Inc. and Jonah Energy LLC, while Kidd is a former CEO at Samson Resources Corp. Honeyfield replaces Garland Shaw as CFO, while Kidd replaces Garrett Smith as counsel.