Natural gas producer Ultra Petroleum Corp. (UPL) reported weak fourth quarter 2010 results, as lower natural gas prices more than offset the effects of higher production.
Earnings per share, excluding special items, came in at 50 cents, missing the Zacks Consensus Estimate of 54 cents and slightly below the year-ago income of 51 cents. Operating revenue, at $237.5 million, was shy of the Zacks Consensus Estimate of $293.0 million but was up 11.3% year over year.
For full-year 2010, Ultra Petroleum earned $2.18 per share on revenues of $979.4 million.
Production
Production during the quarter increased 20.2% year over year and 3.3% sequentially to a record 57.3 billion cubic feet equivalent (Bcfe), reflecting the company’s successful drilling activities. Natural gas volumes jumped 20.9% year over year to 55.2 billion cubic feet (Bcf), while oil production increased by 4.4% to 343,931 barrels.
For the year-ended December 31, 2010, production of natural gas and crude oil reached a record high of 213.6 Bcfe, up 18.6% from 2009.
Realized Prices
Ultra Petroleum’s average realized price on natural gas decreased 8.8% to $3.83 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $4.54 per Mcf, down 6.6% from the prior-year level. The average oil price for the quarter, at $75.45 per barrel, was up handsomely from the fourth quarter 2009 level of $65.97 per barrel.
Costs, Expenses & Margins
Lease operating expense rose 25.4% from the fourth quarter of 2009 to $13.2 million, mainly on the back of higher severance and production taxes, but somewhat offset by reductions in unit production costs.
During the quarter, the company reported all-in costs of $2.77 per Mcfe, up 7.0% from the same period in 2009. Notwithstanding the rise, Ultra Petroleum’s competitive cost structure enabled it to achieve a healthy 72% cash flow margin and a 28% net income margin.
Balance Sheet
As of December 31, 2010, the company had cash and cash equivalents of $70.8 million and long-term debt of $1.6 billion.
Guidance
Ultra Petroleum expects full-year 2011 production to be in the range of approximately 245–255 Bcfe, implying an increase of up to 19% from 2010. The company further guided toward a capital investment program of $1.1 billion.
Our Recommendation
Ultra Petroleum – which competes with other established onshore natural gas-focused firms like Devon Energy Corp. (DVN), Anadarko Petroleum Corp. (APC), Chesapeake Energy Corp. (CHK), etc. – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term ‘Neutral’ recommendation on the stock.
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