|Re: Moving target to 63. Upping stop to 53.|
Out 1/2 remaining shares 48.50 from 38.60.
What do the Green River Basin of southwestern Wyoming and the shallow waters of China's Bohai Bay have in common?
They're also the two main properties of exploration and production company Ultra Petroleum.
Southwestern Wyoming is the site of Ultra's prized possession. At the end of last year the company had proven reserves of more than 1 trillion cubic feet of gas equivalent (tcfe) in the area, which is divided into two fields: the Jonah field and the Pinedale Anticline.
Ultra officials say the fields could hold a combined 20 to 30 tcfe of gross recoverable reserves of natural gas.
"We don't understand fully how large it is," Chief Executive Michael Watford said. "We continue to drill wells. Wyoming has turned out to be a very special resource. We think ourselves and the other companies active there will be producing wells in Wyoming for 20 years."
Ultra came out with strong second-quarter results, thanks to a 63% rise in production and 20% increase in natural gas prices. Sales for the quarter gained 96% from the prior year to $46 million. Earnings more than doubled to 23 cents a share.
Analysts polled by First Call expect full-year earnings to rise 88% to $1.09 a share, then move up 28% to $1.39 in 2005.
Things weren't always so rosy. When Watford came on board as CEO in January 1999, the company had dug itself down deeper than the oil and gas it drills, with a steady string of annual losses and a stock that traded for pennies a share.
Watford rattled off a laundry list of problems plaguing the company, from owing money it didn't have to unsuccessful drilling efforts to poor relations with field partners and investors. It took about a year to restore confidence, settle lawsuits and sell off properties to repay debts.
"It was pretty miserable," Watford said.
Analyst Michael Scialla of A.G. Edwards credits Watford for much of the turnaround.
"(Watford) really fixed up the balance sheet," Scialla said. "They sold some assets to survive . and hung on to the lion's share of the Pinedale Anticline, which since 2000 has turned into one of the largest natural gas discoveries in the U.S."
Under Watford, the company also made its 2001 buy of Pendaries Petroleum, which brought aboard the Bohai Bay assets.
Ultra began drilling its first oil in the two fields in Bohai Bay on July 18. It's now drilling enough to produce 30,000 barrels of oil a day and expects to drill 65,000 barrels of oil a day next year, Watford says. That doesn't include seven other fields Ultra has found in Bohai Bay.
Watford compares Bohai Bay to the Gulf of Mexico in the 1960s, when oil drillers started to go offshore. Along the coast of Bohai Bay, some 10 billion barrels of oil have been produced. Now drilling has moved into the water.
"It's a nice complement to what they're doing in the Pinedale Anticline area, because for one thing it's oil," said A.G. Edwards' Scialla. "Even though the Pinedale Anticline is a tremendous asset, you like to see a little bit of balance."
Scialla expects the Bohai Bay property to make up 15% of revenue next year.
"Production there is not only going to climb, but you're going to get a full year's worth of benefit of having that production online," he said. "That's why it'll be a much bigger piece of the puzzle."
As Ultra ramps up production off China's coast, it'll continue to increase its well count in Wyoming.
The company has identified 600 drilling sites using 40-acre spacing. But it's begun a 20-acre pilot program that would essentially double the number of wells.
The 20-acre program began when Ultra realized it wasn't extracting all the natural gas with 40-acre spacing, CEO Watford explains.
Meanwhile, Ultra's Wyoming fields have benefited from improvements in technology. The fields are referred to as tight gas sand plays. It's more difficult to remove gas from this type of field.
Better fracture technology, which refers to the use of sand or other proppant to hold open cracks in the Earth, is the most important advance.
A close second is 3D seismic technology, Watford says. It lets drillers identify underground reservoirs with far greater accuracy than 2D seismic, reducing the number of dry wells drilled.
Ultra also benefits from an expanding pipeline infrastructure. Natural gas from the Rockies trades for less than in other parts of the country because of a lack of transport.
"There just isn't enough transportation capacity out of the area, in particular to get it to the Northeast markets," said analyst Ronald Mills of Johnson Rice.
Still, the situation has improved with the May 2003 expansion of the Kern River pipeline. When Kern came on, the price differential "shrank overnight," Watford said.
"Our gas price increased a buck and a half between April 30 and May 1, 2003," he said.
Another project, the Cheyenne Plains Gas Pipeline, will increase Wyoming's export capacity by 560 million cubic feet of gas per day. It will be completed in December or January, Watford says.
Since Ultra sits on two attractive assets, it might make for a nice takeover target. Watford doesn't rule out the possibility. He says Ultra's goal is to do what's best for shareholders.
"If the company ends up growing for 10 to 15 years into a very large company, that's fine," he said. "Or if someone comes along with an offer that we just can't say no to the shareholders, then that's OK too."
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| Reply to briellepat - Msg #7 - 09/27/2004 12:51|
Out 1/2 remaining shares 48.50 from 38.60. Will hold rest for original 51 target w/stop 45.