Ultra Petroleum Corp

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Button well site, 2009, West Branch Twp., Potter Co., PA
- Photo credit - Marcellus Shale in Pennsylvania - Gas Well Locations

Englewood, Colorado-based Ultra Petroleum Corp. (NYSE: UPL) is an oil and gas exploration and production company. Its Marcellus shale acreage has been focused on the north central Pennsylvania counties of Bradford, Centre, Clinton, Lycoming, Potter, Sullivan and Tioga.

At the end of July, 2010 Ultra's net Marcellus shale leasehold in Pennsylvania stood at around 255,000 net or 470,000 gross acres.


Latest Operating Results

During the first half of 2010, Ultra drilled or participated in 64 gross horizontal wells, or 38 net, in the Marcellus shale formation. 37 of these (22 net) had been drilled during the second quarter. An average horizontal well during 2010 had a 4,400 foot lateral and 12 frac stages. 21 horizontals (14 net) had been brought online to sales with peak production at the close of the first half at 44 Mmcf/d. (It had averaged 33 Mmcf/d during the second quarter.) In total, Ultra had 33 horizontal Marcellus wells (22 net) producing. Production had remained strong with all wells producing in excess of 3 Mmcf/d after 60 days.

The company had increased its Marcellus leasehold from around 320,000 gross acres (170,000 net) up to 470,000 (or 255,000 net), adding about 85,000 net acres during the first half of 2010. The company's core acreage position, including the additions, was in Centre, Clinton, Lycoming, Potter, and Tioga Counties.

2008 Development Timeline

During 2008, Ultra pursued a joint venture with East Resources in north central Pennsylvania.

Joint Venture with East Resources

Ultra was reported in September, 2008 to have owned a 270,000 gross acre leasehold in Pennsylvania. The company had been testing both the Oriskany and Marcellus shale horizons. One of two Oriskany test wells had potential estimated production of 5 Mmcf/d. Ultra owned a 50% working interest. East Resources, who operated the wells, was the other 50% joint venture partner with Ultra.

The Marshlands Project

Ultra had several wells either drilled or in the process of being drilled in Potter County, Pennsylvania in an isolated location approximately 20 miles west of Wellsboro called Marshlands.

2009 Development Timeline

2009 was a year of steady progress drilling wells both with its joint venture partner and separately. Ultra built on successes in other parts of the country to get ahead of the learning curve in the Marcellus shale.

Applying for water withdrawal permits

A May, 2009 report found Ultra applying to the Susquehanna River Basin Commission to withdraw water from Pine Creek in Tioga County. The water was to be use for hydro-fracturing gas wells in the area. The Commission approved Ultra's withdrawal plan.

JV progress - 2nd quarter - Oriskany wells

According to Ultra's second quarter, 2009 update, issued in early August, 2009 four net Oriskany sandstone wells (eight gross) had been drilled in the joint venture with East Resources. Ultra had already shot 100 square miles of 3-D seismic and planned another 92 square miles before the end of 2009. This represented 40% of Ultra's acreage in northeastern Pennsylvania.

The company had begun production in mid-July from two wells that had a combined rate of 13 Mmcf/d. It had also opened an office in the Borough of Wellsboro in Tioga County close to drilling activities.

JV progress - 2nd quarter - Marcellus wells

At the time of the August report, Ultra and East Resources had drilled 13 vertical test wells and nine horizontal ones in the Marcellus shale formation. 7 of the 9 horizontal wells had been completed and two were still awaiting completion. A tenth horizontal was in the process of being drilled. These horizontal wells had laterals ranging from 3,500 to 4,000 feet. Each well was to be shared on a 50-50 basis with East. As with the Potter County Oriskany wells, East acted as well operator on these ones too. Several of the horizontal wells were producing to sales as was one of the vertical wells. Five of the horizontal wells had initial flow rates averaging 5.3 Mmcfe/d. East and Ultra planned to drill 24 additional wells on their joint acreage by the end of 2009.

Good as the Barnett's sweet spot

In Ultra's leasehold, the Marcellus averages about 150 feet thick and the formation is at a depth of 4,000 to 7,000 feet. There is good pressure at this depth and the gas is dry. Gas production on Ultra's leasehold is considered to be as good as that of the sweet spot in the Barnett shale.

JV's vs. the wholly-owned acreage

By August, Ultra's leasehold had increased to 320,000 gross and 170,000 net acres. The individual leases there were all largely contiguous. Ultra owned 100% of the leases on 30,000 acres. This wholly-owned land was located on the Potter-Tioga County line. The acreage co-owned with East Resources was due east of the Potter-Tioga line in Tioga County. It stood in an area 30 miles across and 40 miles wide. Ultra had pipeline capacity there of 80 Mmcf/d and planned to increase capacity to 300 Mmcf/d by the end of 2009. Ultra also expected to have 50 miles of gathering system installed by yearend. Ultra had 4 pipeline interconnects: one was with Dominion South and three with Tennessee.

Ultra had two wells on its wholly-owned 30,000 acreage on the county line. It planned to do microseismic on these two wells during August, 2009.

Chesapeake Bay Foundation lawsuit

An August, 2009 report found Ultra drilling in the southwestern corner of Tioga County in Gaines and Elk townships. The Pennsylvania Department of Environmental Protection (PDEP) had issued a permit for the drilling, but it had become the object of litigation by the Chesapeake Bay Foundation who challenged the lack of an appropriate technical review of the permit application by PDEP prior to issuing Ultra the permit. The Foundation was not objecting to the drilling per se, but rather to potential stormwater runoff issues related to construction of the pipeline supporting the Ultra well. It was charged that this runoff could pollute environmentally sensitive trout streams located in the area. It was not clear from the report whether this was one of the wholly-owned Ultra wells or not, but the location certainly seems consistent with it having been one.

3rd quarter progress

According to an October 30, 2009 Ultra update, the company had drilled 12 horizontal wells with an average lateral length of 4,000 feet during the third quarter of 2009. The company planned to drill yet another 15 to 20 horizontal wells in the 4th quarter of the year. It wasn't clear whether these were being drilled with East Resources or not, although probably it was the case.

Strategic acquisition

A company press release in the second half of December, 2009 mentioned that Ultra had agreed to acquire 80,000 net acres in north central Pennsylvania or 160,000 gross acres from an undisclosed seller at the cost of $400 million. This increased Ultra's leasehold to 250,000 acres net or 480,000 acres gross. The purchase was to close in February, 2010. It appears this new acreage probably was covered by the joint venture with East Resources. However, another source indicated that a partner had been Anadarko Petroleum. (pending further clarification)

Year end progress

Together with partners, Ultra had drilled 35 horizontal test wells and two Oriskany ones during 2009. 18 horizontals had been completed (fraced) and 13 were producing to sales. 13 of the horizontals brought online during 2009 had initial production averaging 7.5 Mmcf/d, and the best initial production for a well had been 10.46 Mmcf/d. The average 30-day production rate on these wells exceeded 4.8 Mmcf/d with the highest one being 7.86 Mmcf/d. Ultra was expecting estimated ultimate recovery (EUR) on these wells to be 3.75 Bcfe.

In terms of Ultra's own wells in the Marshlands, where it owned 100% of the working interest, the company had completed 8 horizontal wells by yearend 2009. One of the wells in the Marshlands project, operated by Ultra, was the T-Pierson 801 5-H. This horizontal well had a lateral stretching 4,097 feet and had been completed in 13 stages. It had an inital production rate of 10.4 Mmcf/d which settled out to a 7.7 Mmcf/d 30 day production rate.

2010 Development Timeline

By February, 2010 the company had deployed 3 horizontal rigs in the Pennsylvania Marcellus. It had added two more wells since year-end 2009 to its Marshlands project bringing the total wells drilled there in 2009-2010 up to 10.

The company planned to drill 110 horizontal Marcellus wells during 2010. It also intended to add another 80 square miles of seismic data bringing its coverage up to around two thirds of its acreage.

Pipe Rupture Near Galeton

A news item appeared in June, 2010, that mentioned an Ultra drilling site on Lick Run Road off State Hwy. #6 near Galeton in Tioga Co., PA. Two workers had been injured and transported by medical helicopter to Guthrie Medical Center when a pressurized pipe burst as they were connecting it.

Spotlight Issues

  • With 560 Mmcf/d of capacity available upon completion of its pipeline expansion in 2010, the company should be in excellent position to transport its production to market.
  • Ultra seemed to be benefiting from learning curve economics, as it applied its pre-existing experience in the Pinedale project out west to the Marcellus shale. As it drilled more in the play, production increased, and the costs came down. The same as many other shale drillers, it was adding more length to its laterals and additional frac stages.
  • The strategic acquisition in December should benefit the company as some of the new acreage appeared even more prospective than Ultra's existing leasehold.

Key Executive Contacts

  • Michael D. (Mike) Watford is Ultra's Chairman, President, and CEO.
  • Mark Smith is the company's CFO.
  • Bill Picquet is Vice President of Operations, Rocky Mountains.
  • Douglas Selvius is Director of Exploration.
  • Sally Zinke is Director of New Ventures.
  • Brad Johnson is Ultra's Director of Reservoir Engineering and Planning.
  • Kelly Whitley is Manager of Investor Relations.
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