Ultra Petroleum is snapping up oil-producing assets in Utah’s Uinta Basin for $650 million, a debt-financed deal that would cut into the Houston producer’s high natural gas concentration.
The company said Monday the assets in Northeastern Utah would produce 4,000 barrels of oil per day and have estimated reserves of 160 million to 380 million barrels of oil.
U.S. producers across the industry are moving their focus focus from natural gas to oil as commodity prices dictate the economics of capital-intensive drilling and production. Though the Uinta Basin deal increases the company’s exposure to oil, Ultra Petroleum still would be heavily weighted toward natural gas. The company estimated it had 1.8 trillion cubic feet of gas in proved reserves at the end of 2012 and 10.5 million barrels of oil, according to regulatory filings.
Ultra Petroleum, which owns natural gas assets in southwest Wyoming, north-central Pennsylvania and eastern Colorado, did not disclose the seller but said the deal is expected to close in December.
The deal “fits our strategy of profitable growth with exceptional returns at oil prices well below $75 per barrel,” said Michael Watford, chief executive for Ultra Petroleum, in a written statement.
The thirty-eight wells across the 8,200 acres could double production next year, pushing natural gas down from 98 percent to 93 percent of the company’s commodities mix in 2014, David Tameron, a senior analyst for Wells Fargo, said in a written statement Monday.
In investor materials, Ultra Petroleum estimates the assets’ production could climb to more than 10,000 barrels per day by 2017.
The company expects to see further expansion opportunities in the Uinta Basin, though it’s only looking for high-return assets, William Picquet, senior vice president of operations, said during an investor call Monday.
“Although market perception is not likely to be the same as buying Bakken assets given some takeaway/permitting constraints in the Uinta, we believe shares will move higher this morning,” Tameron of Wells Fargo wrote.
Ultra Petroleum’s stock price rose 4.7 percent to $21.88 per share in early trading Monday.