An Ultra-Bad 2011 for Ultra Petroleum's Stock

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As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Ultra Petroleum (NYS: UPL) . Natural gas prices tumbled again in 2011, as big supplies from shale gas and other new energy plays overwhelmed demand. While other energy companies pushed their production toward the oil side of the market, Ultra remains the best of the lot in natural gas -- but it needs the price of natural gas to break its slump. Below, I'll take a closer look at the events that moved shares of Ultra Petroleum this year.

Stats on Ultra Petroleum

2011 YTD Return(36.7%)
Market Cap$4.61 billion
1-Year Revenue Growth21.3%
1-Year Earnings Growth(31.2%)
Cash / Debt$12 million / $1.84 billion
CAPS Rating (out of 5)*****

Source: S&P Capital IQ.

Why did Ultra Petroleum do so badly this year?
As a major producer of natural gas, Ultra Petroleum largely relies on the gas market for its profits. In 2011, gas prices fell from already low levels, mostly trading between $3 and $5 per thousand cubic feet and ending near the lows of the year. Yet low prices haven't stopped the industry from producing more gas, with 20% growth in just the past five years.

But Ultra Petroleum has an enviable position in the natural gas industry as the low-cost provider. Companies like Chesapeake Energy (NYS: CHK) and Range Resources (NYS: RRC) have production costs well above the market price, and even Southwestern Energy (NYS: SWN) starts to have trouble earning a profit when natural gas falls below $4 per mcf. But Ultra's low costs keep it in the black even through tough times -- although its profits have certainly suffered.

One good sign for Ultra is that rivals are moving away from gas production. Chesapeake and SandRidge Energy (NYS: SD) have moved toward more lucrative oil plays. That leaves the field more open for Ultra, which is developing its Marcellus shale holdings in conjunction with EOG Resources (NYS: EOG) and EXCO Resources.

Eventually, demand from new projects like Cheniere Energy's (ASE: LNG) Sabine Pass liquefied natural gas export facility should eventually boost natural gas prices. Until that happens, Ultra should benefit from its competitive advantage as other players slowly get pushed out of the space.

If you like the prospects for natural gas, we've got another stock you need to look at right now. Read about it right here in the Motley Fool's special free report to learn the name of this natural-gas game-changer, but you won't want to wait long -- get it today.

Click hereto add Ultra Petroleum to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Ultra Petroleum. Motley Fool newsletter services have recommended buying shares of Range Resources, Chesapeake Energy, and Ultra Petroleum, as well as writing puts in Southwestern Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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