Ultra Petroleum (UPL) Message Board

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Gold/Mining/Energy : Ultra Petroleum (UPL)

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From: Dennis Roth	2/21/2008 6:38:36 AM
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Ultra Petroleum (UPL): Production trends remain strong; 3P resource weaker than expected - Goldman Sachs - 02/20/2008 News Ultra reported adjusted EPS of $0.30 versus the First Call consensus estimate of $0.32 and our estimate of $0.28. Production was 365 MMcfe/d versus our estimate of 343 MMcfe/d. Operating cash flow was $120 million versus our $102 million. F&D cost was an industry-low $0.98/Mcfe, although at 62% Ultra has a much greater percentage of proved undeveloped reserves versus others. 3P resource increased to 10.7 Tcfe from 9.9 Tcfe at yearend 2006. 2008 production guidance was maintained at 135-140 Bcfe versus our 146 Bcfe estimate, 2009 production guidance raised to 170-175 Bcfe versus our 180 Bcfe estimate, and 2010 production guidance initiated at 200-205 Bcfe versus our 202 Bcfe estimate. Analysis The bulk of the quarterly results were positive versus our estimates. However, we believe the stock tends to trade on the Street's view of unbooked resource potential at Pinedale. Management in recent calls discussed the potential for about 12 Tcfe, which led us to believe the actual results at yearend could be higher and in fact needed to be higher for outperformance out of earnings. Management has shown multiple successful delineation wells at Pinedale with the intention of extending the field. However, evidently there had not been enough results by yearend for the reserves engineers to give Ultra 3P resource potential of greater than 12 Tcfe. Today's trading will be a test on the relative importance of this number. We believe ultimately this resource potential can be achieved. Implications We have been assuming about 10 Tcfe in our net asset value, so we see little reason for any downside to our $85 12-month DCF-based target, with commodity price volatility, drilling results, cost pressures and government pronouncements key risks. We rate Ultra Neutral relative to an Attractive coverage view. We believe the stock will benefit from our bullish view on natural gas prices, but we have preferred other stocks. We would use a pullback as an opportunity to consider getting more aggressive.

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