Less attractive growth/returns, better upside elsewhere; Neutral
UPL reported adjusted 4Q 2012 EPS/EBITDA of $0.51/$189 mn, in line with GS and consensus. 2013 capex guidance of $415 mn implies UPL aims to cut spending by 50% yoy. UPL resumed limited Pinedale Anticline drilling activity during 4Q after stopping in April. In the Marcellus Shale, UPL said partner Anadarko Petroleum will not run any rigs in 2013 and partner Shell will be down to one rig by March. UPL concluded its 140K acres in the DJ Basin were not commercial and does not plan to drill any more exploration wells. We revise 2013E-15E EPS to $1.75/$1.40/$1.40 from $0.74/$1.30/$1.21 on changes to volumes, production costs and DD&A.
We reiterate our Neutral rating for UPL. We believe UPL and its partners are being prudent by significantly reducing dry gas drilling activity until gas prices materially improve. Further success targeting the Geneseo zone in Appalachia could drive resource upside, though UPL indicated it would not be able to develop the zone independent from the Marcellus. While UPL is among the most levered to our view that natural gas prices will recover during 2013, we do not expect UPL to outperform due to more attractive combinations of lower-cost Marcellus assets, liquids exposure and exploration upside for other gassy peers under coverage. To become more positive we would need to expect gas prices to rise to a greater extent, see much better economics in the Pinedale or Shell’s Marcellus acreage or see UPL have greater success entering new resource plays.
￼￼￼￼￼￼￼￼￼￼￼20th Ultra Petroleum (UPL)
￼￼Americas Energy Peer Group Average
* Returns = Return on Capital
12 month price target ($) Market cap ($ mn)
Revenue ($ mn) New
Revenue ($ mn) Old
EPS ($) New
EPS ($) Old P/E (X) EV/EBITDA (X) ROE (%)
Price performance chart
26 25 24
For a complete description of the investment profile measures please refer to the disclosure section of this document.
1.84 8.7 6.3 NM
0.74 9.2 6.7 NM
1.30 11.4 6.1 NM
1.21 11.4 5.7 504.8
1,750 1,700 1,650 1,600 1,550 1,500 1,450 1,400 1,350 1,300 1,250
￼￼￼￼￼￼￼￼￼￼￼UPL trades at 7.0X/5.9X 2013/14 EV/EBITDA vs. 9.4X/7.4X for SMID-cap
gassy peers. We lower our 12-month DCF- and multiples-based target to
22 21 20 19
￼￼￼$18 from $24 to reflect negative adjustments to our NAV – mostly a slower 18
￼pace of drilling and less favorable type curve for UPL’s Marcellus assets.
Gas prices, drilling results, well costs and government pronouncements.
I have made a ton in the market by frankly ignoring all the "expert" opinions. Not saying I am smarter- its just that had I listened to many of these firms including Goldman I wont no have done well at all. Most of them if not all are great manipulators and really not to be trusted. At the end of the day you have to use your own good judgement, and gut common sense. We all know that NG prices are terrible, we all know that UPL has debt, and we all know that the share price is correlated to the future of NG prices. So net net Goldman did not tell me a thing I didnt know. I listened to the CC and am very confident that this management team knows the story full well. Analysts are notorious for telling people to sell when its way too late and to buy when the share prices are very high. UPL at these levels is a great risk vs reward play for those who believe that NG prices will return to normal levels. If you think NG will stay well below 4 or 5 for a long time, then dont buy any pure NG producers. JMHO D
Very much agree! Been watching this stock for about 6-8 months. Bought my first $10k worth today. I'm not an expert in NG, but seems to be a well managed company whose product prices are definitely going to increase over the next 3-5 years. I'll buy more later!
I'm in full agreement. I've been a watcher of UPL for a couple years and bought today for the first time. I think risk/reward has tipped in a positive way. I wanted to add one thing--I see analyst downgrades as the BEST time to buy. At times, you can see a huge haircut of 15-20% and you can get in unusally cheap. The best of all is that nothing has changed from the prior day. GL