Wyoming pure-play Ultra Petroleum Corp. plans to drop another drilling rig in the third quarter in pursuit of positive free cash flow (FCF).
The independent would operate a single rig as a result, continuing its trend from the second quarter when it dropped from three rigs to two. The single-rig drilling program contributes to the company’s overall capital expenditure reduction plan for the remainder of the year.
Ultra plans to reduce full-year 2019 spending by roughly 18% from the previous forecast and is now guiding for $260-290 million of spending this year.
With only one rig, Ultra predicts capital expenditures (capex) will amount to $50 million per quarter, per rig, said CEO Brad Johnson. The rig reduction would result in some production decline as well. The company is betting on its cost reductions to outweigh the production decline, helping the operator toward its goal of positive free cash flow by 2020.
The capexl reduction “is 18% and the production is only at a 2% decline, so that indicates that there will be a fair amount of free cash flow,” said CFO David Honeyfield.
Ultra’s 2Q2019 production was 62.5 Bcfe, a 12% reduction from 2Q2018 volumes of 70.9 Bcfe. The company produced 59.8 Bcf of natural gas and 449 bbl of oil and condensate.
Ultra’s strategy involves a “two-string” wellbore design for its Pinedale field assets in southwestern Wyoming’s Sublette County.
Ultra continues to focus on vertical drilling after it scaled back its horizontal drilling program late last year. The company continues to further study horizontal development techniques. It plans to build an inventory of horizontal well locations in the second half of the year to better appraise its opportunities.
Net income was $57.1 million (29 cents/share) in the second quarter, compared with a net loss of $20.6 million (minus 10 cents) in 2Q2018.