(UPL) Ultra Petroleum Beats Expectations – Keeps Forward View

Natural gas producer Ultra Petroleum Corp. (UPL) has reported impressive third quarter 2011 results, buoyed by higher volumes from Wyoming and Pennsylvania regions along with reduced transportation charges and lower general and administrative costs.

Earnings per share, excluding special items, came in at 72 cents, breezing past the Zacks Consensus Estimate of 65 cents. Comparing year over year, Ultra Petroleum’s results leaped 20% from 60 cents.

Total operating revenue of $293.1 million was way below the Zacks Consensus Estimate of $341.0 million. However, compared with the prior-year quarter, sales improved 21.9% from $240.4 million.

Production

Production increased 14.4% year over year to 63.4 billion cubic feet equivalent (Bcfe) during the quarter, reflecting the company’s successful drilling activities. Natural gas volumes –– accounting for approximately 96% of the total –– jumped 14.4% year over year to 61.1 billion cubic feet (Bcf) and oil production increased 14.5% to 390,099 barrels.

Realized Prices

Ultra Petroleum’s average realized price on natural gas increased 5.1% to $4.29 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $5.17 per Mcf, up 6.8% from the prior-year level. The average oil price for the quarter, at $79.45 per barrel, was much higher than the third quarter 2010 level of $66.00 per barrel.

Costs, Expenses & Margins

Lease operating expense increased 14.1% from the prior-year quarter to $12.4 million. During the quarter, the company reported all-in costs of $2.78 per Mcfe, up 10.3% from the same period in 2010. Notwithstanding the rise, Ultra Petroleum’s competitive cost structure enabled it to achieve a healthy 74% cash flow margin and a 32% net income margin.

Balance Sheet

As of September 30, 2011, the company had cash and cash equivalents of $12.3 million and outstanding debt of $1.8 billion.

Guidance

Ultra Petroleum reaffirmed its full-year 2011 production in the range of approximately 245–255 Bcfe, implying an increase of 15% to 19% from 2010.

Outlook

We believe that Ultra Petroleum’s industry-leading production and reserve-growth prospects reflect its strong position in the attractive Green River Basin of Wyoming. Moreover, the company’s competitive cost structure contributes to the consistency of its growth and returns throughout the business cycle.

However, the company’s exposure to natural gas fluctuations, a volatile macro environment and operational hindrances remain key areas of concern. Ultra Petroleum, which competes with other established onshore natural gas-focused firms like Devon Energy Corp. (DVN), Anadarko Petroleum Corp. (APC) and Chesapeake Energy Corp. (CHK), currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

ANADARKO PETROL (APC): Free Stock Analysis Report

CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

DEVON ENERGY (DVN): Free Stock Analysis Report

ULTRA PETRO CP (UPL): Free Stock Analysis Report

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