Wyoming tight-sands gas production in the Jonah and Pinedale fields has peaked in performance, according to Bernstein Research analysts’ review of production and fracturing data of more than 2,300 wells from 2003 to 2008.

But not all is so sour for gas production trends in Jonah, where initial production (IP) rates are lower in comparison with aggressive drilling strategies in Pinedale, the analysts add.

Ben Dell, senior E&P analyst, and Noam Lockshin, associate analyst, focused primarily on production and fracturing data from Ultra Petroleum Corp.’s (NYSE: UPL) Pinedale Field and EnCana Corp.’s (NYSE: ECA) Jonah Field. The adjacent plays accounted for much of the growth in Wyoming’s gas production for the past five years, and together produced 33% of the state’s gas in 2008.

“We believe that both plays have passed their peaks in terms of productivity, as average IP adjusted for fracturing stages are falling due to down spacing and straying from core regions,” the analysts report. However, as they have argued in the past with regards to tight-sand plays, looking at IP rates alone without adjusting for the type of completion can be misleading, and assert that examining fracturing data is more viable.

They point out that, in 2006, Ultra was able to achieve IP rates above 5 million cubic feet per day, using about 21 fractures per well. However, Ultra’s average well began to get smaller in 2007 so the company increased its average fracturing count to 23 by the end of 2007. By 2009, the average fracture count was approximately 24, which finally managed to increase IP rates.

“While Ultra did indeed increase its IP rates, it had to have more fracturing to do it. This was better than other operators in the play, who also increased their fracturing counts in 2007 and 2008 but failed to show meaningful improvements in IP,” Dell and Lockshin report.

However, it may be that the other operators simply did not do enough fracturing stages, they add, since Ultra’s average number of stages in 2008 was 23, while the other operators had only 17.

Pinedale’s falling production trends were more apparent with Ultra’s wells beginning to decline in 2007, despite an increase in the fracture count. The analysts’ research shows that productivity dropped as Ultra’s finding and development (F&D) costs inflated more quickly than that of any other gas company there.

The analysts obtained detailed production and fracturing information for 1,153 Pinedale wells and 1,173 Jonah wells. Ultra operates the most wells in Pinedale (38% of the total), but Shell Oil Co. (NYSE: RDS) and Questar Corp. (NYSE: STR) have more than 25%. In contrast, EnCana dominates the Jonah acreage having drilled 71% of the wells there; BP Plc (NYSE: BP) has drilled 22%, and Ultra has drilled 6%.

Dell and Lockshin examined 93 Pinedale sections and found that the best parts of the play were exhausted. They conclude that drilling more wells on each section will drive average IP per fracturing stage down significantly.

For Ultra, the average well from sections drilled on 20-acre spacing had an IP per fracturing stage that was 17% lower than the average well drilled on 40-acre spacing. They point out that moving to 10-acre spacing reduced IP per stage by a further 21%.

“It’s important to show how Ultra’s wells have deteriorated in the past and how its F&D has inflated, but the company’s costs are still far lower than those of its competitors. Thus, if the company could hold its cost structure flat from 2008 levels, it would remain well positioned in the industry, especially if new pipeline capacity reduces the discount of Rockies gas pricing to (the) Henry Hub (price).”

The analysts’ results indicate that the Pinedale is not likely to improve through a wave of new undrilled sections since the number of new sections drilled in the past two years has fallen from more than nine to four per year. In addition, the average IP rate from the newly drilled sections continue to decrease as well.

However, not all is discouraging, according to Dell and Lockshin, who have researched gas production trends in Jonah, where EnCana dominates. “One crucial difference between Jonah and Pinedale is the role of interference,” they report.

“Within Ultra’s Pinedale sections, it’s clear that as Ultra drills more wells, the average IP falls, which implies there is a high degree of interference between wells. For EnCana in Jonah, though, the IP rates are all lower but there is no deterioration over time in individual sections, which may mean that EnCana is pursuing a strategy of less aggressive fracturing, allowing each well to drain gas from a smaller area.”

Dell and Lockshin examined 23 sections in Pinedale with at least 16 wells drilled, and looked at how many wells were drilled when the maximum IP rate occurred. They found that, in 17 of 23 sections, the best well was one of the first eight. “This strikes us as significant and means that interference begins early in the life of the section.”

Examining further total wells per section, they compared actual drilling patterns with what Ultra discloses. Ultra has reported that it can drill on 40-acre spacing (16 wells per section), and was exploring 20-acre spacing (32 wells).

In Pinedale, 13 sections were drilled to 40-acre spacing, seven to 20-acre spacing, and three to 10-acre spacing. Dell and Lockshin conclude that most of the sections appear to have reached their maximum number of wells within five to seven years after the initial well.

The analysts agree that, as time elapses, the marginal cost of production from Pinedale and Jonah will continue to increase, with Ultra particularly hard hit since it currently produces nearly all of its gas from Pinedale. Jonah’s production deterioration may be slower and may have begun more recently and the field is less important as a percentage of EnCana’s production than Pinedale is for Ultra, they add.

“We continue to believe that gas prices will rise in the first half of 2010 and that gas exploration and production companies will benefit. We rate EnCana Outperform, but rate Ultra Market Perform, since we believe that deteriorating operational results may lead to multiple contraction.”

The analysts say that their recent research on gas-well fracturing has highlighted that unconventional plays are not homogeneous, that these plays mature over time and that operator performance can affect the economics of production.

They add that nowhere is this debate more important than in the outlook for Ultra, whose performance relies on Pinedale and to a lesser extent for EnCana in Jonah. “Data from both of these plays show that the best times may have passed and will not last. While Pinedale was ‘best in class,’ the average well continues to decline with down-spacing, while the number of new sections available to drill has run out.”

While the number of new sections to drill in Jonah is limited, the deterioration in average well performance was more modest due to what appears to be a more conservative development plan, Dell and Lockshin add. However, Ultra’s F&D will continue to rise versus that of its peers and the name remains “a multiple compression story.”

For EnCana, Jonah appears to be a weaker performer in its portfolio, but, given that it represents 18% of production, growth in the Haynesville, Eagle Ford and other emerging plays would soften the overall decline, they add.