If you're a U.S. natural gas producer, the fittingly named Rockies are about as inhospitable an operating region as they come. Chesapeake Energy
Despite the geographic odds, Pinedale player Ultra Petroleum
At this time last year, I said that "it would take a nat-gas nuclear meltdown to take Ultra out of the gas game." Little did I know that we'd see something pretty close to this worst-case scenario unfold over the ensuing 12 months. Before the impact of hedges, Ultra saw its natural gas price realizations drop from $7.66 per thousand cubic feet (mcf) to a touch below $4. Given the steep discounts we've observed on Rockies gas over the past few quarters -- more like years, actually -- I'm surprised the number wasn't quite a bit lower.
Ultra's hedging impact was very modest, boosting price realizations by just 13%, to $4.46/mcf. Compare that to EnCana
On the conference call, in addition to identifying an operating breakeven level of about $1/mcf, management suggested that theirs is "probably the lowest cost in the industry." I think Contango Oil & Gas
Fools, don't let Ultra's $673 million non-cash ceiling test writedown distract you. With a 66% cash flow margin this quarter, Ultra remains a supremely low-cost company with plenty of incentives to keep creating value for shareholders, wherever natural gas may trade in the short term.
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