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Ultra Says Rockies Gas Pricing 'Continues to Strengthen'

Rockies natural gas pricing "continues to strengthen on a relative basis," and new pipelines scheduled for completion this year will provide even more market access, Ultra Petroleum Corp. CEO Michael Watford said during a first quarter earnings conference call.

Watford and his executive team shared a microphone, laying out the gas producer's execution in its two key areas: the tight gas in the Pinedale Anticline and Jonah fields in the Green River Basin of Wyoming, and early stage exploration in Pennsylvania's Marcellus Shale.

In spite of "the most challenging weather faced for quite some time in Pinedale," Ultra performed above expectations, Watford told analysts. Among the highlights was a record gas well that was completed "in just under nine days."

The Houston-based producer hopes to gain an advantage from two new pipelines that will be running from the Rockies this year.

"With the completion of new pipeline projects in 2011, Ultra's Wyoming gas production will enjoy unprecedented access to gas markets across the United States," Watford said.

El Paso Corp.'s Ruby Pipeline, which is designed to transport as much as 1.5 Bcf/d of gas from the Rockies to West Coast markets, is scheduled for completion in July. A Kern River Gas Transmission expansion is to follow. TransCanada Corp.'s Bison Pipeline, which has an initial capacity of 407 MMcf/d, has started service from the Powder River Basin to Midwest markets; it ramped up early this year (see Daily GPI, Jan. 19).

"Post-pipeline completions, excess takeaway capacity will approach 4 Bcf/d in the Rockies, which should further reduce the discount to Henry Hub pricing," Watford said. "In the face of declining production [across the Rockies] we see capacity extending for quite some time..."

In the first three months of this year Ultra drilled 59 gross (32 net) Lance wells in its Wyoming acreage, and "there are more than 5,000 wells remaining to be drilled in the field," said the CEO.

The total number of active Ultra-operated rig-days in Pinedale in the latest period fell to 695, compared with 749 a year ago. "This metric is meaningful considering the company drilled 11% more operated wells in the first quarter with 7% fewer rig-days."

The wells to date have only improved in the Wyoming operations, said the CEO. Ultra and its partners ramped up production on 57 gross (35 net) wells in the Wyoming basin in the first quarter, with average initial production (IP) rates of 6.8 MMcf/d.

"Ultra continues to improve upon previous records set in number of days to drill," said Watford. "The number of days to drill an Ultra-operated well, measured by spud to total depth (TD), averaged less than 13 days during the first quarter. This record low for Ultra compares to an earlier milestone in the first quarter of 2010 of 16 days per well spud to TD, a 19% improvement." Completed well costs averaged $4.8 million per well.

In Pennsylvania results also were strong in the first quarter. Ultra and its partners drilled 31 gross (17 net) horizontal wells. Since entering the Marcellus Shale in 2009 the producer and its partners have drilled 185 gross (111 net) horizontal wells in the play. Production was initiated from 13 gross (eight net) horizontal wells, with average IP rates of 6.5 MMcf/d.

Ultra in the latest period increased operating cash flow by 15% year/year to $216.3 million from $188.9 million on higher gas volumes. Earnings year/year were up 3% to $87.6 million (57 cents/share), compared with $85 million (55 cents) in the year-ago period. Total production was 55.8 Bcfe up 15% from the year-ago quarter.

"Ultra is off to a strong start for the first three months of the year with increasing cash flow, earnings, and production. We maintained industry-leading returns and margins, a key measure of profitable results. Our early results have set the stage for continued success through the end of 2011," said Watford.

Ultra's realized natural gas price was $4.29/Mcf in 1Q2011, versus $5.38 in 1Q2010. Including realized gains and losses on commodity derivatives, the average price for natural gas in the latest quarter was $5.13/Mcf, down slightly from $5.37 a year earlier.

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