Despite low Rockies natural gas basis prices last year, which for a period forced Ultra Petroleum Corp. to shut in some of its wells (see NGI, Nov. 5, 2007), CEO Michael D. Watford last week said that "somehow, someway" the company "persevered and then prospered" in 2007.
For this year, Ultra upped its capital spending for 2008 to $755 million as part of a development plan to boost its Rockies-directed domestic natural gas production by 18-22%.
The Houston-based independent, which issued its 4Q2007 and full-year results on Wednesday, reported that it produced 121.3 Bcfe in 2007, well ahead of the 91.6 Bcfe in 2006. For 2008 Ultra is forecasting production of 135-140 Bcfe. Nearly all of the organic growth is expected to be from Ultra's legacy assets in the Pinedale Anticline in the Rocky Mountains.
With the start-up of the Rockies Express Pipeline (REX) and today's higher across-the-board gas prices, "it is as though the clouds have lifted...and it's great to be in the sunlight again," Watford told financial analysts during a conference call. He said Ultra could "easily see a 50% increase in natural gas realizations in 2008."
REX, said Watford, is "part of the answer," but news that additional pipeline infrastructure is being planned also is a positive. "The basis to differentials that were averaging 44% last year [in Rockies gas prices]...will never happen again...2008 looks awfully bright to me."
This year Ultra expects to drill 240 gross (113 net) wells in Wyoming and accelerate its delineation well drilling plans.
"It is extremely important for us to continue defining the Pinedale Field so we can get our arms around the actual size of the resource," said Watford. "We are planning 2008's drilling program with about 20% of our net wells to be devoted to delineation. These wells cost more to drill and take longer, but are instrumental to resource expansion and key to value creation."
Two years ago Ultra made two "strategic decisions" that set the stage for the company's current growth, the CEO noted. The first was to initiate a plan to develop its core legacy assets in Wyoming, which included a joint venture with Questar Corp. and Shell Oil Co. The second decision was to invest in infrastructure development in the Rockies -- including the push to REX's start-up. Those decisions have paid off, Watford told analysts.
"Today REX is operating, and we are just beginning to enjoy the benefits of more takeaway capacity from the Rockies to the rest of the country," he said.
Ultra replaced 601% of 2007 production at year-end 2007. Total proved oil and gas reserves were 2.980 Tcfe, up 25% from 2006. Finding and development costs in 2007 were 98 cents/Mcfe, a decrease from $1.10 in 2006. Total proved, probable and possible reserves increased to 10.7 Tcfe, up from 9.9 Tcfe at year-end 2006.
"As more pipeline projects begin taking shape [in the Rockies], we will continue to make some of the same decisions today that we made two years ago," Watford said. "We've never been in as good a position as we are currently. We think that 2008 will be the best year ever. We'll now wait two more years and see where we are."
Net income in the final quarter rose to $110 million (70 cents/share), compared with $60.6 million (38 cents) for the same period of 2006. Ultra sold its Chinese-based Sino-American Energy Corp. for $223 million in 4Q2007. Excluding proceeds from the sale and previous earnings, Ultra earned 30 cents/share from continuing operations, compared with 36 cents in 4Q2006. Revenue in 4Q2007 jumped to $162 million from $150.5 million. Wall Street analysts were forecasting earnings to average around 32 cents/share on revenue of $156 million.
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