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Woody Allen once quipped that "Bisexuality immediately doubles your chance for a date on Saturday night." Similarly, I like to keep my options open in my investments, and look for stocks with multiple upside catalysts.

Enter my pick for The Motley Fool's "11 O'Clock Stock:" Ultra Petroleum (NYSE: UPL), a natural gas-focused exploration and production company that makes its living drilling in Wyoming's Green River Basin and Pennsylvania's Marcellus Shale. Depressed natural gas prices, secular tailwinds on gas consumption, first-class assets with great potential, and a management team focused on shareholder value, combined with a compelling valuation, leave a lot of potential for things to go well.

Fast facts on Ultra Petroleum

Market Capitalization

$6.73 billion


Oil & Gas

Revenue (TTM)

$870 million

Earnings (TTM)

$351 million

Source: Capital IQ, a division of Standard & Poor's. TTM is trailing 12 months.

Economics paging reality
I know what you're thinking. "Natural gas prices have been low for a loonnngg time. Are prices ever going to recover?" In a word, yes. But to understand the future, join me for a brief (recent) history of natural gas.

Natural gas crested $12 per thousand cubic feet (mcf) in the heady days of 2008; exploration and production (E&Ps) companies loaded up on land and cranked up their drilling programs. The consequence: too much natural gas. When the U.S. economy imploded, commercial and industrial consumption of natural gas declined and concerns over the supply glut were exacerbated. Natural gas dropped below $4/mcf as natural gas stores swelled to the highest monthly level on record in November 2009 and investors worried over the economy's state.

This is a categorically unsustainable condition. It just cannot continue. Estimates peg the marginal cost of producing natural gas at $5-$7/mcf, and some point to $6-$8/mcf. In lay terms, the marginal cost is the natural gas price where higher-cost producers break even. At $4/mcf, E&Ps should've pulled rigs from the ground, which would've eased supply concerns and primed natural gas prices for a bounce (if the U.S. economy held its ground).

But that hasn't happened, as looming lease expirations and favorable hedges have compelled drillers to ignore economics, and keep drilling. In time, cold, hard economics will prevail, natural gas prices will eventually bounce back to $6 or $7 per mcf, and the earnings of natural gas-focused E&Ps will follow.

Remember how you hate oil?
Fossil fuels, oil in particular, have been a hot-button policy issue in recent years, as policymakers consider their carbon consequence and dwindling domestic oil supplies.

While natural gas may not be the alternative that environmentalists seek, its carbon footprint is substantially lower than its fossil fuel counterparts oil and coal. Because the economics of solar energy, ethanol subsidies, and olive oil cars are uncertain -- and natural gas comparatively predictable -- that makes it an ideal bridge fuel. Recent shale discoveries account for 1,000 trillion cubic feet of natural gas, enough to supply our nation's energy needs for 45 years. And so, while politicians and peak-oil theorists are fretting over our domestic oil-producing capacity, natural gas can fill the gap.

That makes a powerful secular case for increasing natural gas demand, and accompanying higher prices. ExxonMobil (NYSE: XOM) agrees: Its $41 billion acquisition of XTO Energy , a leader in domestic unconventional natural gas production, amounts to a levered bet on the future of natural gas.

Ultra: the ultimate
Ultra lives up to its name, since it possesses some of the lowest-cost assets in the business: its Green River Basin and Marcellus Shale holdings. Its 2009 all-in costs of production, at $2.61/mcfe, are some of the best in the business, and well below those of industry biggies Chesapeake Energy (NYSE: CHK), Devon (NYSE: DVN), and Southwestern (NYSE: SWN). For investors, it means that Ultra makes good money even if natural gas prices muddle along, and even if they dip to $3/mcf.

Many growth companies, and growth-oriented E&Ps, pursue a growth-at-any-cost mentality, and returns are an afterthought. Ultra's different. Management keeps a ruthless focus on returns on capital, and unlike many of its peers, it opts for a conservative capital structure. The proof is in the numbers: Even as natural gas prices collapsed in 2009, Ultra posted 25% returns on capital. For shareholders, that's a recipe for value creation.

So what am I getting?
I'd wager that $6 natural gas is a reasonable long-term price. At that price, the estimated present value of cash flows from Ultra's proved reserves is $10.4 billion, compared to its $6.7 billion market cap. After netting the company's debt, that leaves close to 40% upside potential. Here's what that stat misses: A good chunk of those reserves are proved undeveloped, but even so, Ultra's only developed 13,000 of the 212,000 acres it holds rights to at last year's close. If Ultra drills its undeveloped acreage with even moderate success, the upside could be mammoth.

Add it up. Best-in-class assets, value-focused management, and a cyclically depressed commodity? That's the opportunity in Ultra. Count me in.

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