Shares of the natural gas producer Ultra Petroleum Corporation (UPL) fell about 2% on the NYSE to slip to a 52-week low of $12.82 on Dec 30. Weak natural gas prices have led to this decline. Also, year to date, the stock has witnessed a fall of nearly 40%.
What Led to the Share Price Decline?
Upstream energy players like Ultra Petroleum are finding it difficult to remain afloat in the current market scenario where natural gas and crude oil prices are on a downfall.
The company is predominantly a natural gas producer and generates a major portion of its revenue, earnings and cash flow from natural gas sales. The company’s primary focus on natural gas increases its sensitivity to gas price fluctuations compared to its more diversified peers. Recently, gas price dipped below $3.0 for the first time since Sep 2012 which is likely to hamper financials for the company.
Also, per Energy Information Administration (“EIA”), natural gas storage inventories have exceeded year-ago levels and production is on the rise but winter heating demands remain modest. This could negatively affect natural gas sales for Ultra Petroleum, thus hurting revenues.
Moreover, though Ultra Petroleum has lower oil exposure compared to some of its peers, the current weakness in crude price would nevertheless affect earnings. The commodity has tanked substantially and is currently trading in the mid-$50s level. This will result in lower realizations for the company.
With profitability becoming a challenge and debt levels on the rise – long-term debt was $3.4 billion as of Sep 30 – the company could be in troubled waters ahead.
Zacks Rank & Other Stock Picks
Currently, Ultra Petroleum carries a Zacks Rank #5 (Strong Sell).
However, better-ranked stocks from the energy sector worth consideration include Atlas Pipeline Partners, L.P. (APL), LRR Energy, L.P. (LRE), Midstates Petroleum Company, Inc. (MPO). While Atlas Pipeline Partners sports a Zacks Rank #1 (Strong Buy), LRR Energy and Midstates Petroleum hold a Zacks Rank #2 (Buy).
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