The following are the fundamentals of Ultra as of April 18, 2006 using Ultra’s 12/31/2005 results (Ultra is “Best in Class” in almost every metric):
Ultra’s principal revenue is from NG wells in the Pinedale (PDA) area of Wyoming where they hold the major portion. The wells are long life - about 50 plus years.
Ultra’s CAPEX, at present, is funded entirely by internally generated cash flow.
Past 5-year revenue growth is 89.7% vs. 20.1 for the sector, 27.6 % for the industry, & 9.7% for S&P 500.
Gross margin (TTM) is 83.2% vs. 35.6 for the sector, 54.3% for the industry & 45.2% for S&P.
Operating margin (TTM) is 69.6% vs. 20.6 for the sector, 31.8% for the industry & 20.8% for S&P.
Net Income Margin (TTM) is 44.8% vs. 13.1 for the sector, 19.1% for the industry & 13.8% for S&P.
Cash flow margin is 79%.
Lowest Asset intensity (% cash flow req’d to have prod. & reserves stay flat) is 8% vs. industry median of 40%. Estimate for 2007 is 15% for Ultra & 58% median for industry.
Lowest F&D Costs in the US at $0.56 /Mcfe vs. industry avg. of well over $1.79/Mcfe
Lowest total costs of any O&G co. in the US at approx. $2.24 /Mcfe vs. $4.22/Mcfe est’d avg. for the industry. Five of the eight basins Pickering Energy Partners examined are uneconomic at ~$7/mcf gas prices. Thus, in order to enable domestic supply growth (or at least stabilized production), gas prices in the $8/mcf range will be required.
Net income break even achieved as low as Opal NG price of $1.68/Mcfe
Companies with high ROE (UPL’s is 54.4%) and low total debt to capitalization (0%) are exceptional. Ultra is best. UPL’s ROE is 54.4% vs. 27.2% for the industry, 27.4% for the sector and 19.8% for S&P.
ROCE is 49% vs. 14.7% for the industry, 16.6% for the sector and 12.1% for the S&P
Return on assets (TTM) is 31.4% vs. 11.8% for the industry, 13.1% for the sector & 8.2% for S&P.
Highest Reserve Replacement Ratio in the industry at 773 %.
Proved Reserve CAGR is 64% (past 6 years); estimated CAGR through 2008 is 45%.
2P Reserve CAGR is 73% (past 3 years).
Production CAGR is 68% (past 6 years); estimated CAGR through 2008 is 50%.
Far less leveraged than the average for the industry with zero debt.
Companies with higher than average EBITD margin and revenue growth are doing well. Ultra ranks far better than all but XEC. Ultra’s EBITD TTM margin was 79.9% and their TTM revenue growth was 98.9%. The sector EBITD TTM margin was 28.2% and the S&P was 22.8%.
At $6.30/Mcfd ($5.95/MMBtu) Opal gas price, Ultra’s payback on the costs of drilling a well is one year, yielding an ROR of over 100%.
Ultra operated gas well sites have been 98% successful.
Ultra operates over 60% of their gas producing lands.
Ultra’s average working interest in the Green River area (Jonah, Pinedale, etc.) is greater than 50%. Their average net revenue interest in all of Pinedale (PDA) is somewhere between 37.5% and 43%.
Ultra is the largest landowner in the Pinedale Anticline, which appears to have at least 5 times the amount of NG as Jonah, or 65+ Tcfe GIP or 55.3+ Tcfe recoverable from the currently proved/probable productive area (80 sections). An old DOE Report estimated that Pinedale has 159Tcf of NG in place. Ultra has stated that PDA has 44 Tcfe or more of gas in place yielding a conservative 7 to 9Tcfe net or more to Ultra at 10-acre spacing with a 60% recovery (this is for the presently defined productive area and does not include deeper zones or expansions).
Ultra has over 2,717 gross drillable sites lined up in Wyoming at approved spacing (as of 2/8/2006), with a total of approximately 5,500 at 10 acre spacing and the possibility of over 9,000 at 5 acre spacing. 10 acre field wide spacing in PDA will occur within one to two years with the future probability of 5 acres for most areas. Questar & Shell have received partial approvals.
Ultra can drill year round in the southern part of PDA. Questar has received approval to drill year round with limits on completions & Ultra has a 25 to 30 % interest in most of Questar’s PDA lands. Ultra has applied for year round drilling & completions in the northern areas of PDA. Ultra will have about 160 new gross wells producing in PDA this year.
Ultra’s proved reserve booking policy is the most conservative in the industry, considerably understating proved reserves (1 P).
Probability/possibility of east-west expansion of productive areas on the PDA.
Probability of additional, deeper pay-zones on the Pinedale. Questar is testing this. Ultra will drill their deep wells in 2006. Ultra’s 3-D seismic data indicates that you can see the deeper interval over the whole area.
Continuing improvements in completion techniques have resulted in several record-breaking NG wells exceeding expectations. Average production and reserves for new wells appears to be increasing.
Bohai Bay will produce at least 1.85 million Bbls net to Ultra in 2005.
A well has been drilled in PA that will be tied into a production line ASAP.
NG supplies in US and Canada are decreasing (limited short term increase in US from more expensive marginal sources) with no near term competition or alternatives and demand is generally flat or increasing (depending on NG prices) while Ultra’s low cost production and reserves continuously increase. Worldwide demand for oil, NG and LNG is increasing particularly due to China and India. China is aggressively locking up long term O & G supply agreements with various governments including Venezuela and Canada. US LNG facilities were not able to operate at capacity (in 2005) since other countries were outbidding for LNG.
Only 20% of UPL production is hedged for 2006 (apparently negative short term but probably positive longer term).
Ultra has entered into an agreement for new NG processing plants and a new pipeline to transport gas eastward to the midwest and northeast markets. Ultra is changing their rig fleet to new, far more efficient, built for purpose drilling rigs, contracted for multi-years at largely spring of 2005 rig rates and has entered into multi-year fracing and completion work contracts at basically mid-year 2005 pricing. |
