- Achieved record annual natural gas and crude oil production of 257.0 Bcfe for 2012.
- Invested $610.9 million in net capital expenditures, generating approximately $100.0 million of free cash flow.
- Monetized liquids gathering system in Pinedale for $228.0 million.
Ultra Petroleum Corp. (NYSE: UPL) reported fourth quarter and full-year 2012 operating and financial results. Highlights include:
- Achieved record annual natural gas and crude oil production of 257.0 Bcfe for 2012
- Reported operating cash flow of $713.1 million, or $4.67 per diluted share for the year ended December 31, 2012
- Invested $610.9 million in net capital expenditures, generating approximately $100.0 million of free cash flow
- Earnings of $328.6 million for the full-year 2012, or $2.15 per diluted share – adjusted
- Monetized liquids gathering system in Pinedale for $228.0 million
- Strong margins in 2012 (adjusted): 64 percent operating cash flow margin and 29 percent net income margin
Fourth Quarter Results
Ultra Petroleum produced 60.1 billion cubic feet equivalent (Bcfe) of natural gas and crude oil during the fourth quarter 2012. The company's quarterly production was comprised of 58.4 billion cubic feet (Bcf) of natural gas and 281.3 thousand barrels (Mbls) of condensate.
Ultra's fourth quarter realized natural gas price was $4.08 per thousand cubic feet (Mcf), including realized gains and losses on commodity hedges. Exclusive of these effects, the company's average realized natural gas price was $3.33 per Mcf. During the fourth quarter, Ultra's average price for condensate was $81.48 per barrel (Bbl).
Ultra Petroleum reported operating cash flow of $149.3 million, or $0.98 per diluted share during the fourth quarter. Ultra recognized $43.7 million of realized gains, or $0.29 per diluted share, as a result of the company's commodity price hedges during the fourth quarter. Adjusted net income was $77.8 million, or $0.51 per diluted share for the quarter. Fourth quarter results include a $496.5 million non-cash, ceiling test write-down of the company's carrying value of its natural gas and crude oil properties prompted by significantly depressed natural gas prices. The trailing 12-month average commodity prices used for the fourth quarter ceiling test calculation were $2.76 per MMbtu for Henry Hub natural gas and $94.71 per barrel for West Texas Intermediate oil, prior to adjustments for market differentials.
During the fourth quarter, Ultra closed the sale of its Pinedale liquids gathering system (LGS) for $228.0 million to a real estate investment trust. The LGS transports water and condensate through the Pinedale Anticline and was constructed as part of the Bureau of Land Management's Record of Decision in 2008 to reduce field emissions from vehicle traffic.
Course summary This module is designed for people interested in the exploration and production of oil and gas who do not have a subsurface technical background. It provides a brief introduction to geology and geophysics for non-ge...
Ultra Petroleum achieved annual record production in 2012. The company produced 257.0 Bcfe, comprised of 249.3 Bcf of natural gas and 1.3 million barrels (MMbls) of condensate.
For the year, the company's average realized natural gas price, including realized gains on commodity hedges, was $4.01 per Mcf. Excluding this item, Ultra's average price for natural gas was $2.79 per Mcf, while the average realized condensate price in 2012 was $89.08 per Bbl.
Ultra Petroleum reported operating cash flow for the year of $713.1 million, or $4.67 per diluted share. Ultra recognized $304.0 million of realized gains, or $1.99 per diluted share, as a result of the company's 2012 commodity price hedges. Adjusted net income was $328.6 million, or$2.15 per diluted share for the year ended December 31, 2012.
"We expected 2012 to be a challenging year for our business; however, we did not anticipate natural gas prices plunging to such a low level. As a result, we aggressively withdrew capital and reduced our pace of activity. We were still able to achieve our goals for the year, producing record volumes and delivering healthy margins despite weak natural gas fundamentals," stated Michael D. Watford, Chairman, President and Chief Executive Officer.
2012 Oil and Natural Gas Proved Reserves
Ultra Petroleum reported natural gas and crude oil proved reserves of 3.1 trillion cubic feet equivalent (Tcfe) for the year ended December 31, 2012. The pre-tax estimated future net cash flows discounted at ten percent (PV-10) of the year-end 2012 proved reserves is $2.3 billion. Ultra's reserves were determined using an average natural gas price of $2.63 per Mcf and an average crude oil price $87.85 per Bbl, according to the methodology established by the Securities and Exchange Commission (SEC).
The table below provides two sensitivities on proved reserves. The first sensitivity is an estimate of the year-end 2012 proved reserve volumes, but evaluated at year-end 2011 pricing of $4.04 per Mcf. The second sensitivity builds upon the first by adding back proved undeveloped (PUD) development capital included in 2011's report. Both sensitivities are intended to demonstrate that the quality and certainty of the proved reserves remain similar to year-end 2011.
| || Gas |
| PUD |
| Net |
| YE12 Proved Reserves || $2.63 || $1,386 || 3,075 || $2,263 |
| Sensitivity 1: YE12 1P Reserves @ YE11 Pricing || $4.04 || $1,386 || 3,167 || $4,221 |
| Sensitivity 2: YE12 1P Reserves @ YE11 Pricing & Capital || $4.04 || $4,088 || 4,975 || $5,250 |
| YE11 Proved Reserves || $4.04 || $4,088 || 4,977 || $5,297 |
The year-end 2012 reserves evaluated at the 2011 SEC gas price of $4.04 per Mcf have a PV-10 value of $4.2 billion, an increase of almost $2.0 billion. Taking this a step further, restoring the 2011 PUD future development capital of $4.1 billion adds another $1.0 billion in PV-10 and an additional 1.8 Tcfe of reserves.
"What's important is our resource did not change. Our 2P reserves of 11.2 Tcfe are similar to last year and include nearly 2.3 Tcfe of transfers from the PUD to probable category due to lower pricing. These reserves remain in our 5-year development plan and are economic at current gas price levels. Our 3P reserve base increased to 17.1 Tcfe with future development capital of less than $1.50 per Mcf. We believe we have weathered the trough of the commodity price cycle and are positioned well for value creation," stated Watford.
Wyoming - Operational Highlights
Ultra Petroleum and its partners drilled 31 gross (14 net) Wyoming Lance wells during the fourth quarter and placed on production 27 gross (15 net) wells. Ultra's average fourth quarter net production was 459 million cubic feet equivalent (MMcfe) per day. After suspending its completions program at the end of April, the company resumed completion operations mid-way through the fourth quarter and currently operates one frac crew and two drilling rigs in Pinedale. Initial production (IP) rates from the 18 new operated wells brought online during the quarter averaged 10.9 MMcfe per day. For the remaining wells in this area, pre-drill estimated ultimate recoveries (EURs) will average approximately 5.0 Bcfe per well.
For the year, Ultra and its partners drilled 136 gross (55 net) Wyoming Lance wells and placed on production 103 gross (44 net) wells. The company produced a total of 185.3 Bcfe in Wyoming, averaging 506 MMcfe per day.
The company's spud to total depth (TD) average was 11.6 days to drill an operated well in the fourth quarter. In addition, 92 percent of the Ultra-operated wells were drilled to TD in 15 days or less, while two-thirds of the wells were drilled in less than 10 days. Rig-release to rig-release, which measures total days per well, averaged 14.7 days in the fourth quarter.
| Sustaining Operational Efficiencies |
| || 2009 || 2010 || 2011 || 2012 || Q4 2012 |
| Spud to TD (days) || 20 || 14 || 12 || 12 || 12 |
| Rig release to rig release (days) || 24 || 17 || 15 || 15 || 15 |
| % wells drilled < 15 days || 22% || 76% || 95% || 95% || 92% |
| Well cost – pad ($MM) || $5.0 || $4.7 || $4.8 || $4.7 || $4.6 |
Pennsylvania - Operational Highlights
During the fourth quarter, Ultra and its partners drilled 5 gross (3 net) horizontal Marcellus wells and initiated production from 19 gross (5 net) wells. The company's average net production during the quarter was 194 MMcfe per day. Ultra's fourth quarter Marcellus production grew 30 percent year-over-year from 149 MMcfe per day average in the fourth quarter 2011.
Ultra Petroleum and its partners drilled 68 gross (28 net) horizontal Marcellus wells during 2012 and initiated production from 117 gross (47 net) wells. The company produced a total of 71.7 Bcfe from the Pennsylvania region, representing approximately 28 percent of the company's total 2012 production. Ultra's Marcellus production for the year grew 66 percent year-over-year from 43.3 Bcfe of Marcellus volumes produced during 2011.
In Tioga County, the IP rates for the 8 Marcellus wells brought online during the fourth quarter averaged 7.2 MMcfe per day. The 11 Marcellus wells brought online in Clinton and Lycoming counties during the fourth quarter had average IP rates of 6.7 MMcfe per day, under a restricted flow back program.
Ultra continues to affirm the viability of Upper Devonian Geneseo potential across its Pennsylvania acreage position. Using the information collected to date, including 6 horizontal wells, nearly 500 square miles of 3D seismic, and extensive regional analysis of geologic characteristics, the company estimates this zone could add an additional 3.3 Tcfe of net resource to Ultra's portfolio, which is currently not included in the company's 2012 3P reserve base.
The graph below provides normalized average daily production for Ultra's horizontal wells in the Marcellus. The grey dashed lines represent five and seven Bcfe type curves. The solid black line illustrates well performance in the company's Clinton and Lycoming County areas. The black dotted line charts well performance results from Ultra's activity in Potter and Tioga counties.
Ultra Petroleum's ending-year debt balance was $1.8 billion with 85 percent of the company's outstanding borrowings comprised of long-term, fixed-rate debt with an average remaining term of 7.3 years and a 5.6 percent weighted-average coupon rate.
Ultra completed the monetization of its Pinedale LGS in the fourth quarter for $228.0 million. The $224.3 million in net proceeds were used to reduce outstanding borrowings under Ultra's senior credit facility to $277.0 million. Following the transaction, Ultra Petroleum will continue to utilize the LGS and incur an additional approximately $20.0 million of lease operating expense in 2013 to account for the lease rental fee.
Ultra's debt to trailing 12-months EBITDA ratio registered 2.2 times at the end of 2012 with $1.1 billion in unused senior debt capacity. Ultra relies on total debt to EBITDA as a measure of leverage because it appropriately removes the effect of certain non-cash items, such as impairment charges.
2013 Capital Investment Program
The board of directors approved Ultra's 2013 capital investment program of $415.0 million for the year. This compares to the 2012 capital investment program of $835.2 million. The company plans to allocate its capital investments according to the table below:
| 2013 Capital Investment Program ($ millions) |
| Development drilling || |
| Rockies || $ 260 |
| Appalachia || 105 |
| Total development drilling || 365 |
| Gathering and facilities || 35 |
| Land || 5 |
| Corporate || 10 |
| Total Capital Budget || $ 415 |
First Quarter and Full-Year 2013 Production Guidance
Ultra's 2013 annual production is expected to range between 228 – 238 Bcfe, as the company has reduced its capital investments in half from 2012. Based on the mid-point of the company's guidance, approximately 70 percent of the company's production will come from the Rockies and 30 percent of total company production will come from Appalachia.
| || 1st Quarter || Full-Year 2013 |
| 2013 Estimated Total Production (Bcfe) || 57.5 – 59.5 || 228 – 238 |
First Quarter 2013 Price Realizations and Differentials Guidance
In the first quarter of 2013, the company's realized natural gas price is expected to average 2 to 4 percent below the NYMEX price due to regional differentials. Realized pricing for condensate is expected to be about $7.00 less than the average NYMEX crude oil price.
First Quarter 2013 Expense Guidance
The following table presents the company's expected expenses per Mcfe in the first quarter of 2013 assuming a $3.28 per MMbtu Henry Hub natural gas price and a $93.00 per Bbl NYMEX crude oil price:
| Costs Per Mcfe || || Q1 2013 |
| Lease operating expenses || || $ 0.37 – 0.40 |
| Production taxes || || $ 0.27 – 0.29 |
| Gathering fees || || $ 0.20 – 0.22 |
| Total lease operating costs || || $ 0.84 – 0.91 |
| || || |
| Transportation charges || || $ 0.34 – 0.36 |
| Depletion and depreciation || || $ 1.07 – 1.10 |
| General and administrative – total || || $ 0.10 – 0.12 |
| Interest and debt expense || || $ 0.42 – 0.44 |
| Total operating costs per Mcfe || || $ 2.77 – 2.93 |
2013 Annual Income Tax Guidance
Ultra currently projects a zero book tax rate for 2013 with annual cash taxes forecasted of approximately $5.0 million.
New Executive Appointment
Ultra Petroleum's Board of Directors has promoted Garland R. Shaw to the executive leadership team of the company as Vice President and Controller. In his new role, Mr. Shaw will lead Ultra's accounting and treasury functions and provide valuable insights and perspectives to the strategic goals and objectives of the corporation. Mr. Shaw joined Ultra in 2006 and brings over 28 years of experience with increasing leadership and responsibility that includes accounting, financial analysis, and economic evaluation for large multi-national energy companies. Mr. Shaw earned an undergraduate degree in Accounting from Oklahoma State University and holds an MBA from the University of Dallas. He is a Certified Public Accountant in the state of Texas.
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