What happened

Shares of Ultra Petroleum Corp. (OTC:UPL) continued to sell off in August, falling another 23.8% last month, pushing its year-to-date decline to a stunning 85.5%. Driving the most recent plunge was its disappointing second-quarter report.

So what

Ultra Petroleum cratered after reporting second-quarter results that came in below analyst expectations. Overall, the natural gas producer earned $34 million, or $0.17 per share, of adjusted net income, which was $0.03 per share lower than the consensus estimate. The culprit was production, which didn't meet expectations due to the poor performance of several newly drilled horizontal wells in the Pinedale formation of Wyoming.

A drilling rig in Wyoming with a sunset in the background.

Image source: Getty Images.

As a result, the company is adjusting its strategy for the remainder of the year by dropping its rig count from four to three, two of which will focus on drilling vertical wells. That's a 180-degree turn from May, when it said that it would stop drilling vertical wells and only complete horizontal ones this year after reporting some strong results in the first quarter. That shift seemed like a risky bet at the time since it was still in the early stages of testing the impact of drilling horizontal wells into the Pinedale.

Now what

Ultra Petroleum's abrupt shift to drilling horizontal wells earlier this year didn't pay off as expected. Because of that, the company is now backtracking on its plan, which has further eroded investors' confidence. While there's a case that this natural gas stock is now significantly undervalued, the near-term upside appears limited until management starts proving that it knows what it's doing by delivering more consistent drilling results out of the Pinedale.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.