Ultra Petroleum (UPL)

Q4 2010 Earnings Call

February 18, 2011 11:00 am ET

Executives

Michael Watford - Chairman, Chief Executive Officer and President

Kelly Whitley - Investor Relations Manager

William Picquet - Vice President of Operations and Vice President of Operations for Rocky Mountains

Douglas Selvius -

Brad Johnson -

Marshal Smith - Chief Financial Officer

Analysts

Brian Singer - Goldman Sachs Group Inc.

Leo Mariani - RBC Capital Markets, LLC

David Tameron - Wells Fargo Securities, LLC

Joseph Allman - JP Morgan Chase & Co

Noel Parks - Ladenburg Thalmann & Co. Inc.

Presentation

Operator

Compare to:
Previous Statements by UPL
» Ultra Petroleum CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Ultra Petroleum Q2 2010 Earnings Call Transcript
» Ultra Petroleum Q1 2010 Earnings Call Transcript

Great day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Ultra Petroleum Corp. Earnings Conference Call. My name is Thelma, and I will be your coordinator for today's event. [Operator Instructions] I would now like to turn the presentation over to Ms. Kelly Whitley, Director, Investor Relations. Please go ahead.

Kelly Whitley

Thank you, Thelma. Good morning, ladies and gentlemen, and welcome to Ultra Petroleum's 2010 year end earnings conference call. On the call with me this morning to discuss 2010 results and reserves and our 2011 guidance are Mike Watford, Chairman, President and Chief Executive Officer; Mark Smith, Senior Vice President, Chief Financial Officer; Bill Picquet, Senior Vice President, Operations; Brad Johnson, Vice President, Reservoir, Engineering and Development; and Doug Selvius, Director, Exploration.

Before turning the call over to Mike, I'd like to cover a few administrative items. First, this call will contain forward-looking statements that involve risk factors and uncertainties detailed in our SEC filings. All statements other than statements of historical facts included in this call are forward-looking statements.

Also, this call may contain certain non-GAAP financial measures. Reconciliation and calculation schedules for the non-GAAP financial measures can be found in our 10-K and other filings with the SEC available on our website. SEC permits oil and gas companies in their filings to disclose proved reserves, probable reserves and possible reserves. References in this call to 3P reserves include estimates from each category of reserves are forward-looking statements. Once again, investors can find the disclosure in our 10-K and other filings with the SEC available on our website.

Second, Ultra will be participating in several conferences over the next few weeks. To name a few, we will be at the Raymond James Institutional Investors Conference in Orlando on March 7 and the Howard Weil Energy Conference in New Orleans on March 30. Please visit our website to view updated presentations and listen to webcasts.

Now let me turn the call over to Mike.

Michael Watford

Thanks, Kelly. Good morning. Thanks for joining us. With me today to discuss our year-end results are Mark Smith for the financial update; Brad Johnson on reserves; Bill Picquet to discuss Wyoming operations; and Doug Selvius, our Pennsylvania results.

Let me start by noting that 2010 was a good year for Ultra Petroleum. We delivered double-digit growth in reserves, production, cash flow and earnings. We enjoyed the largest capital budget in our history, that allowed for the acceleration of development of a second core area. Budget was funded from internally generated cash flow and inexpensive debt, no equity.

We maintained our healthy margins and earned superior returns. Of particular note is our net income margin of 31%, a return on equity of 39%. We grew our reserves in volume and value. A development program in the Wyoming Lance play is hitting on all cylinders, as we increase productivity and lower cost.

Our down spacing efforts have been well received, with positive resource and financial impact. In the Pennsylvania Marcellus play, our evaluation and exploration effort has gained scale and understanding. We now control 260,000 net acres in the fairway and our ultraconservative third-party reservoir engineering firm estimates in excess of 5 trillion cubic feet of natural gas reserves net to Ultra, on only 50% of the acreage. And again, I think we've lived up to our reputation as the low cost producer.

With that, let me ask Mark to share our financial results.

Marshal Smith

Thanks, Mike, and good morning. As Mike outlined and as you have seen from our press release, we had a very good 2010 despite weakened natural gas prices during the year. We saw strong performance in the field, with ongoing improvement in drilling efficiency, record production levels and reduced cost.

In terms of natural gas price for the year, Ultra’s realized corporate natural gas price before the effective hedges, increased 24% year-over-year and registered 98% of Henry Hub.

Operating cash flow per share was up 18% year-over-year at $4.96 per diluted share, with adjusted earnings up 17% to $2.18 per diluted share. On a balance sheet perspective we continue to be very well positioned. As of year end, we had $70.9 million of cash and cash equivalents on hand and $1.56 billion in outstanding senior debt with a weighted average cost of 5.6% and an average life over nine years.

Our debt capacity is excess of $2.5 billion, providing us with roughly $1 billion in unused senior debt capacity, and we continue with our strong organic growth, while maintaining our industry-leading margins and returns, maintaining our financial flexibility.

For 2010, our production was up 19% to a record 213.6 Bcfe. Again, this was an all-time high for the company. Bill will address our operations in a bit.

Although natural gas prices remained at relatively low levels through calendar 2010, our average unhedged gas price increased 24% to $4.31 per Mcf compared to prior year levels of $3.49. Additionally, our natural gas hedge positions improved our average realized gas price by another $0.57 to $4.88 per Mcf. As a result of our increased production levels I discussed earlier, revenues, including effects of our hedges, registered $1.1 billion for the year.

Read the rest of this transcript for free on seekingalpha.com