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Ultra Drills Two-Mile Pinedale Lateral; Selling Marcellus, Uinta

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   |    Wednesday,November 15,2017

[Summary: Ultra reported its Q3 2017 results. Highlights include:

  • Production grew 6% compared to second quarter 2017, with oil and natural gas volumes of 71.1 Bcfe
  • Trimming Portfolio: In the final stages of selecting investment banks to begin the marketing process for non-core Uinta and Marcellus assets

2-Mile Pinedale Lateral (10,300')

Drilled on the East flank of the play, the well is currently flowing at 21 MMcfe/d (10% condensate) and increasing

]

ORIGINAL RELEASE:

Ultra Petroleum Corp. (NASDAQ:UPL) announces financial and operating results for the third quarter of 2017. 

Third Quarter 2017 Financial and Operating Highlights:

  • Production grew 6% compared to second quarter 2017, with oil and natural gas volumes of 71.1 Bcfe,
     
  • Successfully drilled and completed a 2-mile horizontal well on the east flank of Pinedale.  Currently flowing at 21 MMcfe/d (10% condensate) and increasing,

  • Posted detailed investor presentation with increased disclosure to website,
     
  • Maintained cash flow neutrality (operating cash flow(1) less capital expenditures) through the third quarter of 2017,
     
  • Improved year-over-year cash operating margins(10) by 13% to $2.16 per Mcfe, 
     
  • Increased liquidity to approximately $400.0 million at September 30, 2017 by issuing $175.0 million incremental term loan and using proceeds of the loan to pay down borrowings under the revolver, and

  • In the final stages of selecting investment banks to begin the marketing process for non-core Uinta and Marcellus assets.

"The third quarter was a solid one for us as we transition from a more reactive, restructuring phase to one focused on thoughtful, strategic capital allocation that balances growth with free cash flow generation and resource expansion," said Michael D. Watford, Chairman, President and Chief Executive Officer.

Third Quarter Financial Results

During the third quarter of 2017, total revenues increased 9% to $217.6 million as compared to $199.3 million during the third quarter of 2016. The Company’s production of natural gas and oil was 71.1 billion cubic feet equivalent (Bcfe), an increase of 6% sequentially, with 66.8 billion cubic feet (Bcf) of natural gas and 705.1 thousand barrels (MBbls) of oil and condensate.

During the third quarter of 2017, Ultra Petroleum’s average realized natural gas price was $2.87 per thousand cubic feet (Mcf), which includes realized gains on commodity hedges. Excluding the realized gains from commodity derivatives, the Company’s average price for natural gas was $2.74 per Mcf, compared to $2.62 per Mcf for the third quarter of 2016. The Company’s average realized oil and condensate price was $45.86 per barrel (Bbl) for the quarter ended September 30, 2017 as compared to $41.55 per Bbl for the same period in 2016.

Ultra Petroleum’s reported net loss was $(327.7) million, or $(1.67) per diluted share. Ultra reported adjusted net income(2) of $78.8 million, or $0.40 per diluted share for the quarter ended September 30, 2017.

Year to Date 2017 Financial Results

During the nine months ended September 30, 2017, total revenues increased 29% to $651.2 million as compared to $505.2 million during the same period in 2016. During the first nine months of 2017, production of natural gas and oil was 202.2 Bcfe, which was comprised of 189.9 Bcf of natural gas and 2.0 million barrels of oil and condensate.

During the first nine months of 2017, Ultra Petroleum’s average realized natural gas price was $2.95 per Mcf, including realized gains on commodity hedges. Excluding the realized gains from commodity derivatives, the Company’s average price for natural gas was $2.91 per Mcf compared to $2.13 per Mcf for the same period in 2016. The Company’s average realized oil and condensate price was $46.21 per Bbl for the nine months ended September 30, 2017 as compared to $35.98 per Bbl for the same period in 2016.

Ultra Petroleum’s reported net income for the nine months ended September 30, 2017 was $81.6 million, or $0.53 per diluted share, with adjusted net income(2) of $249.6 million, or $1.63 per diluted share.

Hedging Activity

Ultra Petroleum enters into hedges for volumes equivalent to a portion of expected future production volumes in order to increase the predictability of its cash flows and to help maintain a strong, flexible financial position. At September 30, 2017, the Company has the following hedges in place:

 
NYMEX   Q4 
2017
    Q1 
2018
    Q2 
2018
    Q3 
2018
    Q4 
2018
 
Natural Gas Swaps:                                        
Volume (Bcf)     16.9             10.2       10.4       3.5  
$/Mcf   $ 3.34     $     $ 3.15     $ 3.15     $ 3.15  
                                         
Natural Gas Collars:                                        
Volume (Bcf)           3.4                    
Floor Price: $/Mcf   $     $ 3.45     $     $     $  
Ceiling Price: $/Mcf   $     $ 3.76     $     $     $  
Based on a 1.065 BTU uplift                                        
                                         

Third Quarter 2017 Operational Highlights, Horizontal Well Success and New Investor Presentation

Ultra has updated its investor presentation. Please see www.ultrapetroleum.com under the Investors tab, “Events & Presentations” for the presentation entitled “Investor Update”.

Pinedale Horizontal Program Update

The Company recently drilled and completed a two-mile horizontal well on the east flank of Pinedale.  This well targeted the Lower Lance A section and encountered significant gas shows throughout the entire 10,300’ lateral.  Flowback was initiated on November 1st and the well is currently flowing at 21 MMcfed (10% condensate) and is still increasing.  The Company expects the clean-up period of the flow-back operation to continue for 2-3 weeks.  The total well cost is estimated at $9 million, which is expected to decrease over time as more horizontals are drilled.

Currently, the Company is drilling another horizontal well on the east flank that is targeting a deeper interval in the Mesaverde formation.  This well should be drilled and completed by year-end 2017.  A third well, designed as a half-mile offset to the recent well in the Lower Lance A, is scheduled to spud by the end of December 2017.

Wyoming Operations

During the third quarter, the Company and its partners brought online 63 gross (45.2 net) vertical wells in Pinedale with an average initial production (IP) rate for new operated vertical wells brought online of 6.8 million cubic feet equivalent (MMcfe) per day. The average condensate yield from these third quarter wells was 10.5 barrels per million cubic feet (MMcf).  Contributing to this increase in production and activity was the Company’s ramp up to eight operated rigs in Pinedale by the end of August.

Year-to-date results for new operated Pinedale vertical wells are tabulated below:

 
  Operated Well
Count Onlines
 

IP, MMcfe per day
Condensate Yield, 
Bbl/MMcf
1Q17 34 6.1 15.1
2Q17 39 7.4 11.2
3Q17 47 6.8 10.5
YTD 120 6.8 11.9
       

“With the additional rigs added to the fleet in 2017, we drilled a number of wells on the eastern flank of the field due largely to constraints related to our bankruptcy process.  While IP’s are lower in this part of the field, condensate yields are higher and provide a boost to returns.  As vertical drilling moves more to the core of the field over the next two years, we expect IP’s to increase back towards our historical averages,” said Brad Johnson, Senior Vice President, Operations.

During the third quarter, the Company produced a total of 67.0 Bcfe in Wyoming, averaging 728 MMcfe per day comprised of 693 MMcf per day of natural gas and 5,851 barrels of condensate per day.

Since August 30, 2017, the Company’s volumes have been impacted by third-party gas gathering system outages. We continue to work with the gatherer to resolve the issue and anticipate resolution during the fourth quarter. In addition, the Company’s non-operated assets in the northern Pinedale field were impacted by drilling and completion schedule interruptions caused by operator ownership changes. In aggregate, the total impact to production related to these two events is estimated to be 2.0 billion cubic feet during 2017.

The Company averaged 8.4 days to drill an operated vertical well in the third quarter, as measured by spud to total depth (TD). This compares to 9.4 days to drill an operated vertical well in the second quarter. The decreased cycle time of one day reflects improved efficiencies now that the new rigs have been fully integrated into the fleet. Total days per vertical well, measured by rig-release to rig-release, averaged 10.6 days in the third quarter, which compares to 11.4 days in the second quarter of 2017.

Utah Operations

During the  third quarter of 2017, net production in Utah was 213.8 thousand barrels of oil equivalent, or 2,324 barrels of oil equivalent per day.

Pennsylvania Operations

The Company produced 2.8 Bcf, averaging 31 MMcf per day during the third quarter of 2017.

Liquidity and Asset Sales

Liquidity

The Company increased its liquidity to approximately $400.0 million as of September 30, 2017 with the closing of a $175.0 million incremental senior secured term loan offering. The proceeds of the loan were used to refinance borrowings under the Senior Secured RBL Revolving Credit Facility.

Asset Sales

The Company has interviewed investment banks to explore divesting non-core assets in the Uinta basin and in the Marcellus shale and is in the final stages of selecting investment banks. 

Fourth Quarter and Year-to Date 2017 Guidance

Capital Investment: The Company is reaffirming its 2017 total capital budget at $540 million, which includes $15 million related to acquisitions during the second quarter.

Production: The Company expects that fourth quarter 2017 production will be approximately 75 Bcfe, which has been impacted by unplanned downtime caused by a third party provider and ownership transition in the Company’s non-operated Pinedale properties.

Price Realizations and Differentials: During the fourth quarter, the Company's realized natural gas price per Mcf is expected to average 3 to 5 percent below the NYMEX price due to regional differentials, before consideration of any hedging activity. Realized pricing for oil is expected to be approximately 4 to 5 percent less than the average NYMEX crude oil price in the fourth quarter.


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