Ultra Petroleum Tops EPS, Lags Revs

Natural gas producer Ultra Petroleum Corporation ( UPL - Analyst Report ) reported mixed third-quarter 2012 results, reflecting better margin and a drop in production taxes and gathering fees, partially offset by less liquids volume.

Earnings per share, excluding special items, came in at 64 cents, moving ahead of the Zacks Consensus Estimate of 51 cents.

However, compared with the year-earlier period, Ultra Petroleum’s adjusted earnings per share declined 11.1% from 72 cents, impacted by a weak natural gas price scenario.

Total operating revenue, at $196.4 million, was well below the Zacks Consensus Estimate of $275.0 million and year-ago level of $293.1 million.

Production

Production during the quarter remained almost in line at 63.1 billion cubic feet equivalent (Bcfe). Natural gas volumes — accounting for approximately 97.0% of the total — were up marginally to 61.1 billion cubic feet (Bcf). Oil production dropped 20.6% year over year to 309,573 barrels.

Realized Prices

Ultra Petroleum's average realized price on natural gas fell 35.4% to $2.77 per thousand cubic feet (Mcf). Including commodity derivative gains/losses, average realized natural gas price for the quarter was $4.13 per Mcf, down 20.1% from the prior-year level. The average oil price for the reported quarter reached $86.51 per barrel, higher than the third-quarter 2011 figure of $79.45 per barrel.

Costs, Expenses & Margins

Lease operating expense rose 34.7% from the prior-year quarter to $16.7 million. During the third quarter of 2012, the company reported all-in costs of $2.88 per Mcfe, up 3.6% from the comparable quarter last year. Ultra Petroleum’s competitive cost structure enabled it to achieve a 67% cash flow margin and a 35% net income margin.

Balance Sheet

As of September 30, 2012, the company had cash and cash equivalents of $59.2 million and long-term debt of $2.2 billion.

Production Guidance

Ultra Petroleum expects its full-year 2012 production in the range of approximately 250–260 Bcfe, implying an increase of 2% to 6% from the 2011 level.

Our Take

Another natural gas firm Cabot Oil & Gas Corporation ( COG - Analyst Report ) reported strong third-quarter 2012 results of 21 cents, breezing past the Zacks Consensus Estimate of 15 cents. Cabot’s performance also improved considerably from the year-ago adjusted profit of 17 cents per share.

Ultra Petroleum currently retains a Zacks #2 Rank (short-term Buy rating). The company seems well positioned to sustain the strong growth momentum for quite some time based on its impressive exposure to the high-return Marcellus Shale play, Green River Basin of Wyoming, Jonah natural gas field and the Pinedale Anticline area.