Ahead of the Bell: Ultra Petroleum
NEW YORK (AP) — Expectations that natural gas prices will linger in the cellar combined with a run-up in the share price at Ultra Petroleum brought a downgraded for the energy company Thursday at Sterne, Agee & Leach Equity Research.
Natural gas producers like Ultra have struggled for much of this year, as a glut of gas on the market and lower-than-usual winter demand due to warmer-than-normal weather during the winter have resulted in record-low prices.
Sterne Agee analyst Tim Rezvan also set a $20 price target for the Houston natural gas producer, noting that its share prices has risen about 28 percent since June 13, despite its confirmation that it will let production roll over next year as it waits for a recovery in natural gas prices. But Rezvan said he expects natural gas prices to remain around $3.60 per thousand cubic feet next year, which means Ultra's shares are overvalued.
Natural gas slipped 1 cent to $2.81 per gallon Thursday on the New York Mercantile Exchange.
"Ultra is waiting for $5 per thousand cubic feet gas to accelerate production, a scenario we don't envision in the foreseeable future, and the company may issue equity to fund a near-term liquids growth opportunity," Rezvan wrote in a note to investors.
But Rezvan said the decision by the company's management to put off the completion of wells and lower some of its production isn't a bad one, noting that it will allow Ultra to keep its spending within its cash flow and leave it with a backlog of wells that are ready to be completed.
"Given this approach, our downgrade is based on the fact that we do not see gas prices at or above $5 any time through 2014," he said.
Ultra shares fell 39 cents to $22.45 in premarket trading.