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.
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
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