This is the first U.S. brokerage analysis of Ultra. The company is Hibernia Southcoast Capital of New Orleans, LA.
The columns will be out of alignment so it'll take a little sorting out. Key is the $6.00 Target Price is US currency!
Ultra Petroleum Corp. Exploration & Production
UPL/AMEX Pierre E. Conner, III (pconner@sccc.com)
David M. Heikkinen (dheikkinen@sccc.com)
(504) 528-9174
Rating 1 / 1 FYE: Dec 4Q99A 1999A 1Q00A 2Q00A 3Q00A 4Q00E 2000E 2001E 2002E
Price $3.18 EPS ($/share) $0.04 ($0.06) $0.01 $0.01 $0.03 $0.11 $0.15 $0.52 $0.52
Target Price $6.00 CFPS ($/share) $0.03 $0.15 $0.02 $0.02 $0.04 $0.12 $0.19 $0.61 $0.65
52 Wk. Range $3.50 -$0.50 Price/Cash Flow 21.2x 16.7x 5.2x 4.9x
Shares Out. (million) 71.7 EV/EBITDA NM 15.5x 5.4x 5.1x
Mkt. Cap. (Million) $227.97 Production (Bcfe) 0.97 4.69 0.88 0.87 1.30 2.37 5.42 11.74 17.41
Avg. Volume 101,380 % Prod. Growth 72% 16% 117% 48%
Net Asset Value $4.00
Percent Natural Gas 94%
Initiating Coverage with a sShort term and lLong tTerm STRONG BUY rRating and a $6.00 Target Price
Ultra Petroleum Corporation. (UPL) is an independent oil and gas company engaged in the exploration, development, exploitation, and production of natural gas and crude oil. The Ccompany's operations are currently focused on natural gas exploration and development in the Green River Basin, Wyoming. The Ccompany has 275,000 gross, 200,000 net acres in the basin, operates 60% of the acreage with an average 65% working interest. As of June 30, 2000 the company had 125 Bcfe in proved reserves on its acreage. Ultra recently purchased Pendaries Petroleum Ltd., acquiring an 18.2% working interest in Block 04/36 and 15% working interest in Block 05/36 in the Bohai Bay, China.
SUMMARY
We are initiating coverage of Ultra Petroleum Corp. with a STRONG BUY rating with significant upside from the current price to our $6.00 target price. Ultra is currently under valued compared to the other small cap stocks we follow. The company has significant acreage in the Green River Basin in Wyoming with hundreds of long-life natural gas drilling locations. We also are excited about the company's Bohai Bay exploration potential with Kerr-McGee Corporation (KMG-$67.94__) and Newfield Exploration (NFX-$__). The CFD 11-1 discovery is estimated to contain 100-150 MMboe, UPL owns approximately 10% of reserves on this block.
Price/ Price/ EV/ Production Net Price/
Rating Price Mkt. EPS CFPS EBITDA Growth Asset Net Asset
Company TKR ST / LT 02/13/01 Cap 2001E 2002E 2001E 2002E 2001E 2002E 2001E 2002E Value Value
Chieftain International CID 2/2 $24.53 $398 6.9x 7.3x 3.4x 3.4x 2.7x 2.7x 25% 13% $20.00 123%
McMoRan Exploration2&7 MMR 1/1 $16.85 $267 NM NM 3.1x 2.5x 3.2x 2.6x 93% 54% $23.00 73%
Southwestern Energy SWN 2/1 $10.10 $253 5.4x 6.2x 2.0x 2.1x 4.2x 4.4x 10% 10% $18.00 56%
Remington Oil and Gas ROIL 1/1 $15.31 $329 4.7x 5.5x 3.1x 3.3x 2.9x 3.1x 36% 20% $15.00 102%
Ultra Petroleum Corp. UPL 1/1 $3.18 $228 6.1x 6.1x 5.2x 4.9x 5.4x 5.1x 117% 48% $4.00 80%
Small-Cap Average 5.8x 6.3x 3.3x 3.2x 3.7x 3.6x 87%
DISCUSSION
Ultra offers the investor access to 1.02 Tcfe in North American natural gas potential and 1.0 billion boe in gross crude oil potential in China. The company plans to domestically replace 1300% of production keeping finding and development costs below $0.45 per Mcfe. Comparing UPL's low F&D costs to $1.40-$1.50/Mcfe for the value of the Wyoming reserves in the ground shows the company is generating strong return on capital.
$6.00 Target Price
We set our 12-month target price at $6.00 per share based upon ending the year at 225 Bcfe of reserves on UPL's Pinedale Anticline properties and the acquisitions of 12.5 MMboe in the Bohai Bay, East China Sea. Our calculation of net asset value is shown on following page. Our year-end 2000E net asset value is $3.704.00 per share based upon the company having 160 170 Bcfe in reserves in Wyoming and the September 30, 2000 balance sheet.
Year End 2000E Net Asset Value
We calculate UPL's year-end 2000 net asset value at $4.00 per share. We expect the company to end the year around 170 Bcfe in total reserves with current debt of $16 million, and $17 million for proprietary 3-D seismic, unevaluated acreage, and other assets. We are excited about UPL's exploration potential in both areas of operations. If successful Ultra will have production in the two hottest worldwide growth areas: North American natural gas and Asian crude oil.
Wyoming Exploration Program - 1,020 Bcf in net, risked potential
Ultra Petroleum believes that in the Pinedale-Jonah project area it has 270 net Bcfe of risked potential in the Mesa area and 750 net Bcfe of risked potential in the New Fork area. The Jonah Field directly south of UPL's Pinedale Anticline properties may provide a useful analog for the untapped potential located on Ultra's property. In 1997, the Jonah Field had an Environmental Impact Study (EIS) pending, 36 wells producing 47 MMcf/d, and little technical interpretation. By 2000, 156 wells were drilled producing 270 MMcf/d, 3-D seismic is interpreted, and the field has an estimated ultimate recovery of 2-3 Tcf.
As of January 1, 2000, Ultra's 200,000 net acres in the Pinedale Anticline had 53 wells producing 22 MMcf/d, a 3-D seismic shoot was being interpreted and the Pinedale EIS was in review. In June, an EIS for 700 producing well surface locations on 40 acre spacing was approved. Ultra participated in 10 wells on the northern end of the Anticline last fall. Ultra via interpretation of its 250 sq. miles of 3-D seismic has significantly reduced the geologic risk, while the mechanical risk of drilling deep geo-pressured wells remains.
Mesa Area New Fork Area
Leased Prospective (acres) 12,000 20,000
Potential Locations (40-acre spacing) 300 500
Gross Bcfe/location 6 Bcfe / location 6 Bcfe / location
Average Working Interest 30% 50%
Risk Factor 50% 50%
Potential Net Bcfe 270 Bcfe 750 Bcfe
2000 Activity Update
Ultra had ongoing operations in the Jonah Field and the Pinedale Anticline. In the Jonah Field Ultra enjoyed success on 100% of its 14 wells in 2000. We believe going forward applying a 90% success rate in the Jonah Field is reasonable. In the Pinedale Anticline area Ultra enjoyed success on 100% of the 11 wells it drilled in 2000. We believe going forward a 50-75% success rate is reasonable. Of significance the Warbonnet 15-23 well in the southern portion of the Anticline has been drilled and eleven of seventeen stages have been completed with initial production of 4.2 MMcf/d. Ultra believes the best sands, on the logs, will be completed in the next two weeks. This well reinforces Ultra's interpretation of the southern productive fairway as they extend drilling in 2001.
Bohai Bay Exploration - 150-1,000 MMboe
Ultra Petroleum completed the $43 million acquisition of Pendaries Petroleum on January 16, 2001. In the Bohai Bay, China, a potentially significant string of discoveries on Block 04/36 (18% WI; 130-150 MMboe) and Block 05/36 (15% WI; under evaluation) could provide cash flow in late 2002 or early 2003. The CFD 11-1-1 discovery well on Block 04/36 logged more than 280 feet of oil pay and tested at 2,483 bopd. The CFD 12-1-1 discovery well on Block 05/36 tested at 2,562 bopd of 34-degree API gravity oil in two selected zones in the Guantao formation. Current seismic suggests the Guantao could cover 5,000 acres. These fields are located in approximately 65 feet of water. The company has acquired 1200 square kilometers of new 3D seismic over the area, which was completed in the fourth quarter, with processing ongoing through 2001. Kerr-McGee, the operator, plans to drill several appraisal wells, to evaluate development economics and a number of lower risk exploration wells in 2001. Ultra believes on the three remaining prospects with Chinese tests and shows have a gross potential of 580 MMboe. On two additional structures Ultra has 567 MMboe in gross, unrisked potential with 15 additional untested structures. We estimate the development cost for each prospect would range from $400-$600 million.
Financial Position
Ultra Petroleum currently has a $28 million senior credit facility. As of September 30, 2000 the company had $16.5 million outstanding under this facility. We expect the company to generate about $43.5 million in 2001 and $46.9 million in 2002 cash flow from operations. Ultra expects to spend $48.8 million in CAPEX in 2001 including $36.5 million in Wyoming and 12.3 million in Bohai Bay. Currently they have $10 million of availability under the current credit facility and could have a redetermination as early as April of this year.
Management
Michael Watford serves as Chairman, President and Chief Executive Officer since February 1, 1999. Prior to joining Ultra Mr. Watford held various positions at Torch, Superior and Shell and was President and CEO of Nueuvo Energy from 19194-1997 during which time Neuvo's market cap grew from $200 million to over $1 billion. When he joined Ultra was severely under capitalized. The company was overstaffed, over-levered, and unable to access the depressed equity markets. To improve the company's balance sheet, Ultra sold half of its interest in 15,760 net acres in the northern end of the Anticline to industry partners for $13.2 million. He also reduced the staff count from 36 to 17, reassigning responsibilities, and contracted out certain functions.
CONCLUSION
We see Ultra as a great opportunity for investor to participate in a company turnaround. The company has excellent growth potential both domestically with the Bohai Bay exploration providing lagniappe. We believe the company is trading at a significant discount, therefore we are initiating coverage of Ultra Petroleum Corporation with a STRONG BUY / STRONG BUY rating based upon significant upside from the current price to our $6 target price. UPL is currently under valued on an asset value basis compared to the other small cap stocks we follow and provides significant exploration upside that should not be missed.
Year End 2001E Net Asset Value
Value Total
Quantity $ Per (000s) (000s)
Reserves YE 01
Liquids (Mbbls) 13,500 $6.08 82,036
Gas (MMcf) 225,000 $1.46 329,104
Other Assets at Book Value 486
Unevaluated WY Property (acres) 200,000 50.00 10,000
Unevaluated China Property (1/2 purchase price) 21,500
Total 443,126
Consolidated Balance Sheet Data:
As of September 2000
Working Capital 264
Long Term Debt (16,517)
Exercise Of Options: 11,358
Total Asset Valuation 438,230
Fully-Diluted Shares 75,004
Asset Value--$/Share $5.84
Shares Outstanding 71,689
Outstanding Warrants/Options 3,315 |
