Ultra Petroleum: Independent oil company extraordinaire

Posted Jun 4th 2009 3:20PM by Joseph Lazzaro
Filed under: Stocks to Buy

Readers of this space know that one of the preferred sectors is oil / oil services, and with the aforementioned in mind, Ultra Petroleum Corp. (NYSE: UPL) is worth a review.

In general, analysts expect good things in FY2009 from independent oil and natural gas producer Ultra Petroleum. Production should rise 20% in FY2009, following an equally-impressive 20% rise in FY2008.

Further, UPL has one of the lowest cost structures in the sector, and its reserve replacement and production growth are above the sector's average. Also, the Pinedale Anticline field in Wyoming is a standout: it's one the highest-returning oil / natural gas regions in the U.S. The First Call FY2009/FY2010 EPS estimates for UPL are $1.62 to $2.08.

The qualifiers? A delay in the U.S. economic recovery would weigh on oil prices, and hence would hurt UPL's results over the next two years. Potential new environment regulations restricting hydrocarbon development in the Rocky Mountain region also add risk to the equation, but not enough to negate a Buy rating.

Stock Analysis: Ultra Petroleum is a moderate-risk stock. Consider buying a 25% position in UPL now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your UPL position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $22.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Ultra Petroleum, UPL