Houston-based Ultra Petroleum Corp. executives focused on the positive in their second quarter earnings conference call, reporting that costs in the natural gas-heavy Pinedale Anticline in Wyoming continued to move down while returns increased.

Some analysts, however, pointed out that Ultra’s equity barely exceeded its overall debt (52%) at the end of the second quarter, compared to being 62% a year earlier.

“Our strategy to focus on higher-margin western basin natural gas is improving our capital efficiency and our profitability,” said CEO Mike Watford. He estimated that the average internal returns from Pinedale wells for 2015 would exceed 40% “even at today’s low commodity prices.”

Watford reiterated that nearly 90% of Ultra’s capital budget is being deployed in the Pinedale. Overall production for 2Q2015 was 70.5 Bcfe, of which 65.1 Bcf was natural gas and 900,000 bbls of oil and condensate. The overall total was nearly identical to its 4Q2014 volumes (see Shale Daily, Feb. 19).

Ultra executives on the quarterly earning conference call last Thursday outlined why so much emphasis is given to the company’s Wyoming plays as it has cut back in other areas such as Utah and the Marcellus Shale in Pennsylvania as a result of the continued low commodity prices. Gas prices in Wyoming were 94% of the Henry Hub price in 2Q2015, while Pennsylvania prices were just 50%.

Ultra’s daily average production increased 4% in 2Q2015 compared to the first quarter, and 59% year/year, said Brad Johnson, vice president for operations. “We plan to maintain the same activity level the rest of the year, and we expect Wyoming production to grow another 3-5% by year-end,” he said.

He noted that Ultra suspended drilling in Utah in May as planned. The company expects to complete 22 wells through the rest of this year, but it is unlikely Ultra would complete any more wells until next year.

In Pinedale, drilling times and costs are being cut, and Ultra should drill up to 128 net wells in the play this year, Johnson said. “This represents a 24% increase in the net well count, compared to our original budget,” and even with the increased drilling, capital spending in Pinedale should remain about $500 million for the year.

In response to an analyst’s question regarding debt, Watford said Ultra has several options if it gets close to reaching debt limits. One would be to transfer more debt from the subsidiary company to the parent, and others include asset sales and debt repayment with share repurchases. “Selling equity at this point doesn’t make any sense because asset values are way above equity,” he said. “We’re not uncomfortable having debt stay where it is” and expanding gross cash flow.

For 2Q2015, Ultra reported adjusted net income of $32.1 million (21 cents/share), compared with $83.8 million (54 cents) in the year-ago period.