Ultra Petroleum Makes the Right Moves to Hit 52-Week High - Analyst Blog

Shares of Ultra Petroleum Corp. UPL hit a 52-week high of $27.26 on Mar 28. In fact, the Houston, Texas-based predominantly natural gas producer has seen its stock price climb some 25% over the past three months. This price appreciation can be attributed to the company's focus on profitable growth.

Why the Bullishness?

Ultra Petroleum is noted for growing its reserve base through balanced acquisitions, as well as through development and exploration programs. This has been supplemented by successful drilling activities, which helped the company boost its year-end 2013 proven reserves by 18% to 3.61 trillion cubic feet equivalent.

Ultra Petroleum controls substantial acreage in and around the prolific Jonah natural gas field and the Pinedale Anticline area in the Green River Basin. Both of these areas are endowed with rich natural gas reserves, which have remained largely untapped to date.

However, concerned by the volatility in gas prices, Ultra Petroleum management now focuses on the promising liquids-rich Niobrara Formation in Colorado. In the last quarter of 2013, the company achieved oil production of 331,263 barrels, representing an 18% year-over-year increase. The recent purchase of high-return oil-rich acreage in Utah's Uinta basin will is expected to further drive Ultra Petroleum's liquids volumes.

The acquired properties consist of 38 operating wells that generate roughly 4,000 barrels of oil each day. Management anticipates strong earnings from the assets even if there is a drop in oil prices to below $75 per barrel.

Finally, Ultra Petroleum maintains a very competitive cost structure, which contributes to the consistency of its growth and returns throughout the business cycle. During 2013, the company reported all-in operating costs of $2.86 per thousand cubic feet equivalent – one of the best in its peer group. As a result of Ultra's low cost base, it was able to achieve a 55% cash flow margin and a 28% net income margin amid low natural gas prices.

Zacks Rank & Stock Picks

With Ultra Petroleum shares trading at 52-week high, any upside from here may be limited, as suggested by the company's Zacks Rank #3 (Hold).

Some better-ranked stocks in the domestic upstream sector include Range Resources Corp. RRC, Clayton Williams Energy Inc. CWEI and Abraxas Petroleum Corp. AXAS. While Range Resources and Clayton Williams hold a Zacks Rank #1 (Strong Buy), Abraxas Petroleum carries a Zacks Rank #2 (Buy).