Natural gas producer Ultra Petroleum Corp.’s (UPL) fourth quarter results came in better than expected, primarily due to increased production that was partly offset by lower realized natural gas prices. Earnings per share, excluding special items, came in at 51 cents, 4 cents above the Zacks Consensus Estimate and 8 cents above the prior-year period. Operating revenues increased 2.9% to $213.3 million.
Estimates Surprise Trend & Outlook
It was the company’s fourth consecutive positive earnings surprise. Ultra Petroleum has performed consistently well during this period with its average earnings surprise being 12.9%. This implies that the company has beaten the Zacks Consensus Estimate by 12.9% over the last four quarters.
However, looking ahead to the first quarter and full-year 2010, the overall trend in estimate revisions for Ultra Petroleum has been erratic and lacks any specific trend. Over the last 7 days, one of the 18 analysts covering the stock lowered estimates for the first quarter 2010, while there were no positive revisions.
During the last 30 days, 4 analysts have raised their estimates and 3 have truncated their forecasts. The yearly estimate has seen the same number of estimate revisions during the past week (1 each in either direction) and past month (6 each in either direction).
This indicates lack of clear directional pressure on the performance of the stock in the upcoming quarters. As a result, our short-term as well as long-term recommendations on Ultra Petroleum remain Hold (Zacks Rank #3) and Neutral, respectively.
Record Quarterly Production
Production during the quarter increased 17.2% year over year and 3.8% sequentially to a record 47.6 billion cubic feet equivalent (Bcfe), reflecting the company’s successful drilling activities. Full year production came at 180.1 Bcfe, up 24.0%. Natural gas volumes jumped 17.6% year over year to 45.7 billion cubic feet (Bcf), while oil production increased 8.3% year over year to 329,344 barrels.
Realized Natural Gas Prices Down
Ultra Petroleum’s average realized price on natural gas declined 15.7% to $4.20 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $4.86 per Mcf, down 9.8% from the prior-year level. The average oil price for the quarter, at $65.97 per barrel, was 41.7% higher year over year.
Costs, Expenses & Margins
Lease operating expense rose 14.7% from the fourth quarter of 2008 to $10.6 million, mainly on the back of increased production volumes. During the quarter, the company reported all-in costs of $2.59 per Mcfe, down 11.0% from the same period in 2008. As a result of Ultra’s low cost structure, it was able to achieve a 71% cash flow margin and a 32% net income margin amid low natural gas prices.
Balance Sheet
As of Dec 31, 2009, the company had cash and cash equivalents of $14.3 million and long-term debt of $795 million.
Year-End Proved Reserves
As of year-end 2009, Ultra had 3,912 Bcfe in proved reserves, of which roughly 96% was natural gas. The company’s 2009 year-end proved reserves tally was 11% above the year-earlier level, while its reserve replacement of 319% was achieved organically. Ultra’s finding and development costs in 2009 were $1.29 per Mcfe.
Guidance
The company said that it expects full-year 2010 production to be approximately 215 Bcfe, implying an increase of more than 19% from 2009. It is also looking forward to 20% per annum growth for 2011 and 2012. Ultra further guided towards a capital investment program of $1.5 billion. This includes the previously announced Marcellus leasehold acquisition of $400 million, which is expected to close late February 2010.
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