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Is Natural Gas Exposure a Risk to Growth at Ultra Petroleum?

We issued an updated research report on natural gas producer, Ultra Petroleum Corp.UPL on Oct 15, 2015. Ultra Petroleum holds substantial acreage in and around the prolific Jonah natural gas field and the Pinedale Anticline area in the Green River Basin. However, the company's lofty exposure to natural gas raises its sensitivity to price volatility.

This balanced view is reflected in the company's Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Both the Jonah natural gas field and the Pinedale Anticline area are endowed with rich natural gas reserves, which have remained largely untapped to date. Moreover, Ultra Petroleum has amassed a large acreage position (91,000 net acres) in the prolific Marcellus Shale play, a key natural gas drilling area located throughout Western Pennsylvania and much of the Appalachian Basin. This provides the company with a multi-year inventory of low-risk development drilling opportunities.

Additionally, Ultra Petroleum maintains a competitive cost structure, which contributes to the consistency of its growth and returns throughout the business cycle. The company's average well cost during second-quarter 2015 came at $3.10 million, down more than 18% from the average figure of $3.80 million in 2014.

On top of that, the company continues to deliver strong production growth. For 2015, Ultra Petroleum has guided production in the 283-290 Bcfe range, up from the earlier guidance of 280-290 Bcfe. The midpoint of the guidance reflects 15% year-over-year growth.

However, Ultra Petroleum's high natural gas exposure raises its sensitivity to gas price fluctuation relative to its more-diversified independent peers with higher oil production. The company, which derives around 92% of its reserves/production from natural gas, has seen fluctuations in its sales and income in recent quarters due to sharp volatility in gas prices.

Stocks to Consider

One can consider better-ranked players in the energy sector like Exterran Partners LP EXLP , Natural Gas Services Group Inc. NGS and Matrix Service Company MTRX . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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MATRIX SERVICE (MTRX): Free Stock Analysis Report

ULTRA PETRO CP (UPL): Free Stock Analysis Report

EXTERRAN PTNRS (EXLP): Free Stock Analysis Report

NATURAL GAS SVC (NGS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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