More Ultra Performance From Ultra Petroleum

It's hard to believe, but there was actually a time when Ultra Petroleum (AMEX: UPL  ) was a small and generally unknown energy player with some promising assets in the Rockies. Now it's bigger than Newfield (NYSE: NFX  ) and Pioneer Natural Resources (NYSE: PXD  ) .

I'd hardly say there's any secret to what has made Ultra so successful; you see it again in this quarter's earnings report. Revenue was up 17% on 10% higher production, while pre-tax income rose 14%. Perhaps that doesn't sound too impressive on the surface, but relative to Devon Energy (NYSE: DVN  ) or Canadian Natural (NYSE: CNQ  ) (just to name two), it's pretty respectable. I'm also impressed with the pace of costs at Ultra -- while it's not necessarily true that "gas is gas," it is still true that low-cost producers win in the end.

It also seems that Ultra might be working to diversify its asset base in the Appalachian region of Pennsylvania. While it has plenty of natural gas under the ground in the Rockies, as well as a stake in China's Bohai Bay, it doesn't hurt to have more productive assets. Moreover, ConocoPhillips (NYSE: COP  ) , Anadarko, and EOG have shown some interest in this area as well, and where there's smoke, there may be fire.

My concern with high-quality operators ranging from Chesapeake (NYSE: CHK  ) to Ultra isn't the quality of the business(es), nor the long-term outlook for energy demand. Instead, it's the market's behavior with respect to energy prices. Whether hedged or not, low-cost or not, growing production or not, investors often seem to just lump all these companies together, then move the stocks up or down in time with natural-gas spot prices. I expect individual company quality to matter at some point, but it can be frustrating to see a stock's trading price so divorced from its underlying fundamentals (which don't change nearly so quickly).

In the short run, nobody knows what will happen with natural gas prices. See a hurricane in the Gulf, and prices will jump up. See mild weather, and high storage inventories and prices will fall. My best advice, then, is for potential new owners to wait for another bout of pessimism, while current owners may do well to just try to plug their ears and forget about the day-to-day or week-to-week gyrations.

For more Foolish thoughts on oil and gas:

Get all the inside information you need in our collection ofinvesting newsletters. From wallflowerish small caps to swashbuckling Rule Breakers, we've got something for every investor.Get in on the actiontoday; all of our newsletters offer a 30-day risk-free trial.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 515332, ~/Articles/ArticleHandler.aspx, 10/28/2016 12:44:31 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,246.55 76.87 0.42%
S&P 500 2,139.27 6.23 0.29%
NASD 5,229.08 13.10 0.25%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 12:29 PM
UPLMQ $6.42 Up +0.25 +4.05%
Ultra Petroleum CAPS Rating: ***
CHK $5.96 Down -0.12 -2.04%
Chesapeake Energy CAPS Rating: ***
CNQ $32.63 Up +0.11 +0.34%
Canadian Natural R… CAPS Rating: ***
COP $45.58 Up +1.58 +3.59%
ConocoPhillips CAPS Rating: ****
DVN $39.99 Down -0.47 -1.16%
Devon Energy CAPS Rating: ****
NFX $42.16 Up +0.23 +0.55%
Newfield Explorati… CAPS Rating: ***
PXD $184.22 Up +1.55 +0.85%
Pioneer Natural Re… CAPS Rating: **