Ultra Petroleum, one of the star producers of natural gas in the Green River Basin, reported a record 63% increase in its Wyoming gas production for 2Q2007. Combined gas and crude oil production volume was up 57%, totaling 30.5 Bcfe, from 19.5 Bcfe in 2Q2006, and output in the first six months jumped to 59 Bcfe, up 49% from the first half of 2006. The gains led the Houston-based producer to increase its full-year 2007 production outlook.

Increased production, improved drilling efficiencies and effective hedging contributed to Ultra’s none-too-shabby financial performance, company officials said. Ultra reported earnings of $49.1 million, almost unchanged from 2Q2006 earnings of $50.7 million. Earnings for the first half of 2007 totaled $115.7 million, also essentially unchanged from $118.1 million reported a year earlier.

Ultra CEO Michael D. Watford characterized the company’s favorable 2Q2007 margins as “resilient given the depressed Rockies natural gas prices during the quarter.” Ultra’s all-in costs of $2.62/Mcf made it “most likely the lowest [cost producer] in the industry and helps position us to continue our sector leadership in growth and returns.” He praised the company’s strong production in the period, which he noted had come “entirely from organic drillbit growth.”

Total production for the quarter consisted of 26.6 Bcf of domestic gas, 221,800 bbl of condensate and 434,600 bbl of crude oil from its Chinese assets. Domestic condensate prices were down 7%; Chinese oil prices were down by about 8% from the same period of 2006.

The company’s realized gas prices were $4.38/Mcf, including the effects of hedging, which was down 25% from a year earlier. Ultra CFO Mark Smith noted during a conference call Wednesday that for 2008, Ultra has more than “31% of our forecast production in Wyoming hedged at roughly $7.45/Mcf.” A “smaller portion” is hedged in 2009 at $8.15/Mcf.

Steve Miller, vice president of exploration, said the company plans to quicken its pace of development in the Pinedale Anticline of the Jonah field. One of Ultra’s biggest cost advantages over other producers has been its increased rig efficiency in Pinedale, he noted. Since the beginning of the year, Ultra has reduced by 33% the amount of time it takes to drill wells from spud to total depth. Wells now are being drilled in an average of 40 days, compared with an average of 61 days per well in 2006.

Ultra brought 59 gross (26.1 net) new producing wells on stream in the quarter. In the first six months, 90 gross (44.1 net) new wells were ramped up, which on a net-well basis is a 275% increase over the first half of 2006, said Miller. The company jumped to 95 from 75 the total number of wells that it expects to drill in the Pinedale leasehold this year. Ultra also increased its capital expenditure budget by 23% to $740 million from the previously planned $600 million.

For the year, Ultra raised its forecast to 116.5 Bcfe from an earlier forecast of 114 Bcfe. Even with the increase, Ultra intentionally omitted its 4Q2007 output from China because the company is considering selling its assets there. The forecast also excludes output currently affected by shut-ins by an undisclosed operator in the Pinedale Anticline. The company warned that the shut-ins could continue through the end of the year.

If Ultra achieves its revised production forecast, the producer would come in at levels 27% higher than in 2006. It also is preparing for the start-up of the Rockies Express Pipeline West (REX). The independent is one of the main shippers on REX, with firm capacity commitments of 200 MMcf/d.

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