Ultra Petroleum (UPL) Message Board

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Gold/Mining/Energy : Ultra Petroleum (UPL)

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From: Dennis Roth	9/28/2007 11:09:06 AM
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Asset quality, gas momentum remain positive drivers for shares - Goldman Sachs - September 28, 2007 News Ultra shares rose almost 5% on Sept. 27 after the company announced before the open it plans to sell its China assets for $223 mn. Ultra indicated it expects pro forma production growth of above 20% in 2008 and 2009. Analysis The China sale was expected and the price is generally in line with Street expectations. We continue to believe Ultra’s production guidance is conservative for 2008 and 2009 and are assuming growth of 23% in 2009. We believe the company is likely to use proceeds for debt paydown and to continue with its share repurchases. Implications Following the Sept. 27 rally, we now see 18% upside to a $73 12-month DCF based target price. This is similar upside versus other E&Ps. However, we continue to rate Ultra Buy as we see Street sentiment improving on natural gas and Rockies gas in particular. Commodity price volatility, drilling results, cost pressures and gov’t pronouncements are key risks. We believe Ultra is at a strategic crossroads as it evaluates whether there is greater value from accelerating drilling once the SEIS gets approved versus considering a more free cash flow-maximization strategy that could involve a Master Limited Partnership. In our view, consideration of the sale of the company is likely necessary before settling on faster drilling/an MLP. We believe 4Q 2007 results for Ultra and other Rockies producers could be quite volatile, due to low Rockies gas price realizations that have resulted from unplanned pipeline downtime and general oversupply. Ultra shares have held up more recently, which in our view reflects the selloff in May and June on Rockies-related issues. Near-term earnings volatility is more than offset by our bullish views of the Pinedale Anticline, gas prices, and the expected 1H 2008 approval of the Supplemental Environmental Impact Statement that would allow for drilling acceleration. Our price target and estimates are unchanged.

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