Last week Ultra Petroleum (Nasdaq: UPL) emerged from bankruptcy. Ultra Petroleum was on top of the independent E&P world a decade ago, prior to the US shale boom. The company stood as the low cost natural gas producer in the Rockies, awaiting new pipeline capacity to connect the company’s resources with large demand markets elsewhere. But the decade following the in-service of the Rockies Express (REX) pipeline was not what Ultra or other Rockies natural gas producers might have imagined. Instead of Rockies natural gas growing to support the country’s incremental gas needs, the production glut unleashed by shale development technology drove natural gas prices down to the point where Ultra couldn’t meet the cash payments for the company’s pipeline commitments, sending the company into bankruptcy.
A rebound in natural gas prices and a lightened cost structure post-bankruptcy has Ultra increasing activity. Earlier this year, the company announced a capital spending program seeking to reverse production declines and grow production 7-10% year over year. But Ultra isn’t alone in ramping up activity in the Rockies’ more gas-focused plays. A look at recent drilling activity shows that others may be trying to find a niche in the natural gas supply stack as well.
Rig counts in the Rockies outside of the DJ and PRB fell to a low in mid-2016 when natural gas prices hovered around $2.00/MMbtu. But since that time, rig counts have rebounded materially in the Green River, Uinta and Piceance.
Despite activity picking up off recent lows and Ultra expecting to grow it’s own production, BTU Analytics’ forecasts call for continued declines in natural gas production out of the Green River Basin, Piceance and Uinta.
As both the Northeast and Permian emerge as the new power centers of natural gas production, the opportunities for other gas producing basins appear limited. But small niches may remain, particularly for producers in the most productive core areas of plays or with low entry costs into overlooked basins.
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