Ultra Petroleum's Impressive Asset Base Makes It a Good Pick

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May 28, 2015

Ultra Petroleum (UPL, Financial) had a good start to fiscal 2015. It impressed everyone with good financial performance. The main contribution to its performance came in mainly due to a 23% increase in the production. But now with the growing demand in the natural gas segment, the stock is attracting investors leading to increase in the market share. Investors received the first-quarter results positively, and the stock gained 9% soon after Ultra Petroleum reported its results. Let us see if there is some more room for the stock to grow, or is it just a bubble?

Positives vs. negatives

However, if we look at the financials, Ultra Petroleum posted revenue of $219.3 million, which fell shy of consensus estimates of $240.6 million. While on the earnings front, Ultra Petroleum reported EPS of $0.14 per share beating analysts’ estimates of $0.50 per share. But a big reason to worry for the company is a significant decline in the bottom line to $0.89 per share. Let us have a look at some of the measures that Ultra Petroleum is undertaking to improve its financial and operational performance.

There are many positive growth signs that Ultra is seeing. The commodity market is stiff and it is difficult for the companies to maintain a good profit margin, but Ultra thinks that initiatives are concrete and can help it to be profitable even in this soft market condition. It is now mainly focusing on the aspects, which are yielding maximum returns. The asset portfolio of Ultra is also promising with internal rate of return above 35%. On the back of these, a profitable future can be anticipated for Ultra Petroleum.

Strong potential

Moving on to wells, Wyoming is performing really well and Ultra Petroleum sees lot of potential in it. Further, the company has also acquired wells in Pinedale recently. It is now focusing on its optimization of legacy. This will lead to improved run times and production uplift. On the other hand, Ultra’s wells in Utah and Pennsylvania are not performing up to the mark, and, it is hurting its margins. Ultra expects that the production from Wyoming will grow in the future, which will offset the negative of their underperformance.

The company also has expansion plans in the pipeline. It is expecting to bring 118 wells in 2015. But things don’t look easy, as on the other hand, Ultra is also seeing reduction in the company activity including decline in the rig counts especially in the Bakken. To deal with this, Ultra is trying to achieve further reduction in service costs while improving efficiencies of rig personnel and performance. In addition, Ultra is also advancing its waterflood pilot in Three Rivers. Another exciting fact that can be profitable for the company is that it has also received the underground injection control permit from the EPA. Subsequently, Ultra has also filed its startup plan and begun the process of downhole work from five producing wells in order to convert them to injectors.

Conclusion

Now, if we look at the fundamentals, the stock is cheap with a trailing P/E of just 4.97 while the forward P/E of 23.57 indicates good earnings growth in the near term. With a solid profit margin of 44.13%, the stock definitely can attract new investors, leading to good growth in the market share as well. All these valuation levels are indicating that Ultra Resources is definitely a stock worth your dollars as of now.