Ultra Petroleum to Sell LGS - Analyst Blog

Natural gas producer Ultra Petroleum Corporation (UPL) entered into an agreement with Leawood-based CorEnergy Infrastructure Trust Inc (CORR) to sell its Liquids Gathering System (LGS). The deal was finalized at $225 million.

The transaction will be financed through three sources to which CorEnergy – an energy infrastructure investor – will contribute $130 million and Prudential Capital Group will add $30 million. The remaining $65 million will be financed through a non-recourse debt.

The LGS is located in the Pinedale field in Wyoming. It is among the top five natural gas fields in the U.S.

Through a long-term lease agreement, Ultra Petroleum will continue to operate the LGS. Minimum annual rent of $20 million will be paid by the company. The rent will be based on the volume of liquids.

Management at CorEnergy believes that this deal will prove to be a beneficial tool in fulfilling the aim of being a real estate investment trust.

Houston, Texas-based Ultra Petroleum Corp. is an independent energy firm engaged in the acquisition, development, exploration and production of oil and gas properties. The company's operations are focused on the Green River Basin of southwest Wyoming, mainly covering the Pinedale and Jonah fields.

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 these areas are endowed with rich natural gas reserves, which have remained largely untapped to date.

However, a significant portion of Ultra Petroleum's production growth in the last few years has come from asset acquisitions, exposing it to acquisition-related risks. The company may find it difficult to complete accretive transactions in the future, which may negatively impact its growth rate.

The company retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.