Natural gas producer Ultra Petroleum Corporation’s (UPL) third quarter results came in better than expected, primarily due to increased production. Earnings per share, excluding non-cash mark-to-market charge, came in at 57 cents, topping the Zacks Consensus Estimate by 11.8%.

However, in line with other onshore natural gas-focused companies – Devon Energy Corp. (DVN), XTO Energy Inc. (XTO), Anadarko Petroleum Corp. (APC) and Chesapeake Energy Corp. (CHK) – earnings and revenue comparisons with the year-earlier period were quite weak, severely hampered by the slump in commodity prices. Ultra’s adjusted earnings per share fell 26.9% (from 78 cents to 57 cents), while operating revenues declined 47.9% to $155.2 million.

Record Quarterly Production
Production during the quarter increased 26.5% year over year and 3.2% sequentially to a record 45.9 billion cubic feet equivalent (Bcfe), reflecting the company’s successful drilling activities. Natural gas volumes jumper 26.9% year over year to 43.9 billion cubic feet (Bcf), while oil production increased 18.9% year over year to 341,485 barrels.

Realized Prices Down
Ultra Petroleum’s average realized price on natural gas declined 59.9% to $3.09 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $5.13 per Mcf, down 37.5% from the prior-year level. The average oil price for the quarter, at $57.47 per barrel, was 46.9% lower year over year.

Costs, Expenses & Margins
Lease operating expense rose 14.6% from the third quarter of 2008 to $9.7 million, mainly on the back of increased production volumes. During the quarter, the company reported all-in costs of $2.48 per Mcfe, down 22.0% from the same period in 2008. As a result of Ultra’s low cost structure, it was able to achieve a 71% cash flow margin and a 35% net income margin amid low natural gas prices.

Balance Sheet
As of Sept 30, 2009, the company had cash and cash equivalents of $13.0 million and long-term debt of $730 million, representing a debt-to-capitalization ratio of 57.0% versus 57.8% as on June 30, 2009.

Guidance
The company said that it expects full-year 2009 production to exceed the upper end of its previous outlook range of 172 – 177 Bcfe, implying an increase of at least 22% from 2008. Ultra further guided towards 15 – 20% per annum growth for 2010 and 2011.

Zacks Investment Research
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