Ultra Petroleum (UPL) Message Board

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Gold/Mining/Energy : Ultra Petroleum (UPL)

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To: Gerald Atwater who wrote (4147)	6/4/1999 11:22:00 AM
From: Elizabeth Andrews	Read Replies (3) of 4851

Gerald, these are all good questions and you appear to have the type of speculative mind required to link all these factors together and conclude that a stock may be undervalued or not. However, the oil and gas business is very simple once you find the oil or gas. To give value to the equity the company has to get its money back within 3 years. The "cash flow", which mainly consists of depreciation and depletion allowances, has to be reinvested in drilling more wells. Usually a new company has to borrow or sell equity to make up the short fall and as production grows and to keep it growing the working capital requirements get fairly large in a hurry. Consequently, the balance sheet is usually not a pretty sight but not the judgement either. A few mistakes where the company drills wells that are not productive enough or the flow rate declines more rapidly than expected or other problems develop with the reservoirs' capability once in production....mother nature, you know. Then there's the problem of gas prices, forecasting of which appears to be as easy as predicting the price of gold! At this stage in Ultra's short life the company is really a financial exercise to manage the assets already acquired. The target looks like it's identified. Money goes in and money comes out. The value of the company is now based on how much capital it requires to get the money out of the ground and the rate at which it comes out. This is now a managed business not a promotion. The sale of future production is just a sign of this. We don't know whether the company made or lost on this deal yet but we do know that they need money and that, presumably, was the best place to get it. If you check back a few hundred posts I believe that you will find that I switched my focus to the quarterly reports. This is why. I'm waiting for the next one as it will give the evidence of the business decisions that are now required to get the stock price higher. As Donald has rightly said the promoters have gone but that in itself doesn't mean Ultra is going to disappear. They just have to start making a new set of decisions with different people. Does this clarify my apparent waffling?

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