Ultra Petroleum Could Double Within 3 Years UPRO $61.26

A low-cost producer with a stable balance sheet, UPL is positively levered to a likely rise in natural gas prices, says investment advisor Tim Travis.' on 6/23/2013

Often the best investment opportunities occur when quality companies struggle with short-term issues, which allow the investor to benefit from a time arbitrage as the short-term issues are worked out over the course of time. Ultra Petroleum (UPL) offers an excellent opportunity for the investor to benefit from the long-term increasing utilization of natural gas as a primary fuel source for the global economy, spurred on by the abundance of supply in North America due to new drilling technologies. While over the short term, excess supply has hurt prices and UPL's bottom line, over the long term, the economic and environmental forces will help foster an increase in the utilization of the gas. In addition, drillers have and will continue to reduce production to ensure adequate profitability, but the shift takes time. Moving forward, I believe that UPL offers to be one of the most attractive risk/reward opportunities in the energy space for long-term investors.

Ultra Petroleum is one of the low-cost producing natural gas drillers with all-in costs of $3.00 per MCF in 2012. To be a low-cost driller, the company focuses on sustainable, lower-risk, repeatable, high return drilling projects. 97% of the company's production and 90% of its revenues, after realized gains on hedging transactions, were attributable to natural gas in 2012, with the balance attributable to condensate associated with the natural gas. The average realized price per Mcf for Ultra's natural gas production, before realized gains on hedging transactions, for 2008, 2009, 2010, 2011 and 2012 was $7.11, $3.49, $4.31, $4.15 and $2.79, respectively. Low natural gas prices forced the company to take a $2.9 billion, non-cash, ceiling test write-down of the carrying value of its oil and gas properties during 2012. This also reduced the company's proved undeveloped reserves at year-end, but it is important to note that these impairments have no bearing on the intrinsic value of the company. Ultimately, the viability of Ultra's resources will be determined by future natural gas prices and the company's ability to continuously lower its cost structure.

As of 12/31/2012, Ultra Petroleum recorded a full valuation allowance against its net deferred tax asset balance of $49.8MM, which can potentially be reversed should the company post profits in the future.