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Ultra Petroleum: Midstream Sale Boosts Liquidity

 January 02, 2013 04:11 PM

(By Mani) Ultra Petroleum Corp. (NYSE: UPL) has sold Pinedale midstream assets for $228 million, which provides a nice boost to near-term liquidity.

The company closed the sale of its midstream assets in the Pinedale for $228 million, which is slightly better than its prior expectations of $200 million. It would receive $205 million in cash and about $23 million in master limited partnership (MLP) units from the buyer.

"This transaction provides a nice boost to UPL's near-term liquidity but should result in a $0.07-$0.08/Mcf increase to the Company's LOE on a per-unit basis," RBC Capital Markets analyst Leo Mariani said in a client note.

[Related -Ultra Petroleum Corp. (UPL): This 'Pure Play' Energy Stock Has 82% Upside]

Importantly, Ultra Petroleum will remain the operator of the midstream assets, which should prevent any operational snags.

Overall, the sale strengthens the balance sheet as the $205 million cash portion of the transaction price should pay down the company's revolver and sets the table for further balance sheet de-leveraging throughout 2013.

"After the transaction, we expect UPL's YE12 Debt/2013 EBITDA ratio to drop from 3.2x to 2.9x," Mariani said.

Ultra Petroleum has guided to a preliminary 2013 Capex budget of $450 million, which would be $100 million under estimated cash flow with a $3.75/mcf gas deck.

"We expect Ultra to have roughly $210 million drawn on its $1 billion revolver at YE13, down nearly $400 million from 9/30/12 levels," the analyst said.

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Assuming 80 percent of the company's Marcellus acreage works, and one of the company's partners brings its well costs down closer to the industry average, it would yield a new NAV of roughly $38 and the value for this stock under the bull scenario would be $30.

Ultra Petroleum is a Houston, Texas-based exploration and production company with a concentrated property base in the Jonah and Pinedale fields of Wyoming and the Marcellus Shale in Appalachia.

The probable and possible reserve-valuation gives Ultra Petroleum credit for the ability to drill up the entire area of Pinedale (51,000 net acres) successfully which is deemed prospective by the third-party reserve engineers as well as 40 percent of its Marcellus Shale acreage.

Ultra's current Pennsylvania Marcellus Shale position is about 500,000 gross (260,000 net) acres. Over the past 13 years, Ultra has grown proved reserves more than 6,500 percent to approximately 4.98 trillion cubic feet equivalent (Tcfe). Production for the last 13 years increased at a compound annual growth rate of 41 percent to approximately 245 Bcfe in 2011.


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