Ultra Petroleum Tops, Rev Lags

Zacks Equity Research

Natural gas producer Ultra Petroleum Corporation (UPL) reported mixed first quarter 2012 results, aided by robust operating performance and partially offset by reduced realized prices and steeper costs.

Earnings per share, excluding special items, came in at 32 cents, beating the Zacks Consensus Estimate of 29 cents.

However, compared with the year-earlier period, Ultra Petroleum’s adjusted earnings per share declined 43.9% from 57 cents, impacted by a weak natural gas price scenario.

Total operating revenues, at $226.1 million, fell shy of the Zacks Consensus Estimate of $277.0 million and were below the year-ago level of $257.3 million.


Production during the quarter increased 23.2% year over year to a record 68.8 billion cubic feet equivalent (Bcfe), reflecting the company’s successful drilling activities. Natural gas volumes – accounting for approximately 97% of the total – jumped 23.3% year over year to 66.6 billion cubic feet (Bcf), while oil production increased 19.2% to 359,042 barrels.

Realized Prices

Ultra Petroleum's average realized price on natural gas fell 33.1% to $2.87 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $3.81 per Mcf, down 23.3% from the prior-year level. The average oil price for the quarter, at $97.77 per barrel, was up from the first quarter 2011 level of $84.24 per barrel.

Costs, Expenses & Margins

Lease operating expense rose 37.1% from the prior-year quarter to $17.0 million. During the first three months of 2012, the company reported all-in costs of $3.08 per Mcfe, up 7.3% from the same period in 2011. Ultra Petroleum’s competitive cost structure enabled it to achieve a 64% cash flow margin and a 17% net income margin.

Capital Investment & Balance Sheet

During the quarter, Ultra Petroleum spent $288.6 million for the development of oil and gas plays. As of March 31, 2012, the company had cash and cash equivalents of $2.5 million and long-term debt of $2.0 billion.

Production & Capital Investment Guidance

Ultra Petroleum expects its full-year 2012 production in the range of approximately 250–260 Bcfe, implying an increase of 2% to 6% from the 2011 level. For the second quarter, the company is looking to produce 63–65 Bcfe.

Ultra Petroleum lowered its 2012 capital investment plans to $825 million (about $550 million will be directed toward development activity) from $925 million, reflecting the depressing natural gas prices.


Despite Ultra Petroleum’s impressive production and reserve-growth prospects and its exposure to the high-return Marcellus Shale play, we expect the company to continue to struggle unless the outlook for natural gas fundamentals improves.

Ultra Petroleum, which operates within the energy space with other firms such as Range Resources Corp. (RRC) and Cabot Oil & Gas Corporation (COG), currently, retains a Zacks #3 Rank (short-term Hold rating).

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