Ultra Petroleum (UPL) Message Board

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Gold/Mining/Energy : Ultra Petroleum (UPL)

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From: Dennis Roth	8/8/2007 8:43:44 AM
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Production strong, acceleration happening earlier than expected - Goldman Sachs - August 08, 2007 News Ultra reported adjusted EPS of $0.31, in-line with our estimate but above the First Call consensus estimate of $0.29. Production was 336 MMcfe/d versus our estimate of 308 MMcfe/d. Operating cash flow was $109 million versus our $102 million. The company raised its capital expenditures budget to $740 million versus $600 million previously. Ultra raised its 2007 production guidance to 116.5 Bcfe from 114.0 Bcfe, although when adjusting for reclassification of China production Ultra essentially increased guidance to 119.1 Bcfe (30% growth). Production guidance for full-year 2008 and 2009 of 135.0 Bcfe and 160.0 Bcfe respectively, is unchanged. Analysis The increased production guidance and capital spending reflects acceleration in activity at the Pinedale Anticline and potentially improved well performance. We believe even the company's revised production guidance seems conservative given the number of Pinedale wells Ultra is bringing online. Management noted it is assuming unspecified shut-in production from a peer operator in its guidance. Implications We continue to rate Ultra Buy. The acceleration in Pinedale completions is a positive, especially as we believe it will hasten the arrival of free cash flow. With the Supplemental Environmental Impact Statement nearing expected record of decision, we believe Ultra management is at a strategic crossroads towards whether to focus on production acceleration, monetize cash flow potentially via a Master Limited Partnership or sell the company. We believe each of these options would be a positive catalyst for the stock. We see 22% potential upside to our $67 12-month discounted cash flow based target price. Key risks include commodity price volatility, drilling results, cost pressures and government pronouncements.

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