Is Ultra Petroleum Still Capable of Ultra Performance?
With natural gas near multiyear lows, we offer some perspective.
Ongoing U.S. oversupply combined with mild winter weather has weighed heavily on U.S. natural gas prices over the past few months. Nymex Henry Hub is currently at $2.50 per thousand cubic feet, 50% below this time last year, with gas prices down 30% since November alone. Not surprisingly, the stock prices of dry gas producers such as Ultra Petroleum (UPL), Range Resources (RRC), and Chesapeake Energy (CHK) are all down 20% or more in the past few months.
Uncertainty about the extent of oversupply over the next few years is adding to the current bearish sentiment on natural gas. Unknowns include exploration and production efficiency (getting more production from less investment), gas associated with liquids production, well inventory waiting on completion, weather (always a wild card), and the potential uptick in demand to absorb excess supply. Oversupply may end up being less bad than the futures market predicts over the next several quarters, thanks to marginal gas producers pulling back on drilling activity (in part because of hedge books that have rolled off) and E&Ps achieving held-by-production status in regions like the Haynesville.
Mark Hanson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.