Natural gas producer Ultra Petroleum Corp. (UPL) reported marginally weaker-than-expected first quarter 2011 results, hurt by lower prices.
Earnings per share, excluding special items, came in at 57 cents, missing the Zacks Consensus Estimate by a penny.
However, compared with the year-earlier period, Ultra Petroleum’s adjusted earnings per share rose 3.6% (from 55 cents to 57 cents) due to higher production.
Total operating revenues, at $257.3 million, were shy of the Zacks Consensus Estimate of $315.0 million and were also down from the year-ago level of $273.1 million.
Production
Production during the quarter increased 15.1% year over year to 55.8 billion cubic feet equivalent (Bcfe), reflecting the company’s successful drilling activities. Natural gas volumes – accounting for approximately 97% of the total – jumped 16.0% year over year to 54.0 billion cubic feet (Bcf) but oil production decreased by 6.4% to 301,224 barrels.
Realized Prices
Ultra Petroleum's average realized price on natural gas fell 20.3% to $4.29 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $5.13 per Mcf, down 4.5% from the prior-year level. The average oil price for the quarter, at $84.24 per barrel, was up handsomely from the first quarter 2010 level of $69.52 per barrel.
Costs, Expenses & Margins
Lease operating expense rose 19.7% from the previous year quarter to $12.4 million. During the first three months of 2011, the company reported all-in costs of $2.87 per Mcfe, up 2.5% from the same period in 2010. Notwithstanding the rise, Ultra Petroleum’s competitive cost structure enabled it to achieve a healthy 72% cash flow margin and a 29% net income margin.
Capital Investment & Balance Sheet
During the quarter, Ultra Petroleum spent $319.2 million on capital investment. As of March 31, 2011, the company had cash and cash equivalents of $22.9 million and long-term debt of $1.6 billion (debt-to-capitalization ratio of 57.6%).
Guidance
Ultra Petroleum reaffirmed its full-year 2011 production to be in the range of approximately 245–255 Bcfe, implying an increase of up to 19% from 2010. For the second quarter, the company is looking to produce 59.5–61.5 Bcfe.
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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