Long NG Producers Thesis

NG Consumption divided equally by 3 sectors

2012 NG Review

NG Price Roller Coaster

NG production has been flat since 4Q 2011

Industrial Sector Demand for NG stable R&C, Electricity Sectors source of volatility

Price volatility of 2012 caused by Residential /Commercial(R&C) and Electricity Sectors. Price moves match seasonality of the sectors.

The sharp price fall in Q1 caused by 4th warmest winter on record The sharp rise back since May driven by Coal-to-NG switching for summer electricity production

Current NG prices back at Dec 2011 levels. NG producers equity has not recovered. Market has its doubts on NG price recovery.

NG Price Roller Coaster

Winter SellOff

Summer Rally

Warm winter caused sharp NG price fall in Q1 2012 Weak NG heating demand from R&C sector

2011-12 winter 4th warmest on record

Contiguous U.S. temperatures for winter (the months of December January February), from 1895 2012. The winter of 2011 2012 was the 4th warmest winter on record, behind 2000, 1999, and 1992.

NG Price recovery started in May as summer electricity cycle started with Coal-to-NG switch due to low NG prices

Coal to NG switching in 2012

Whats in store for 2012-13 winter

NG production as same level as 2011-12 winter

A Fresh Start NG inventories back to Nomal

More Normal Winter Forecast

According to the National Oceanic and Atmospheric Administration's (NOAA) most recent projection of heating degree days The Northeast, Midwest, and South will be about 2 percent warmer than the 30-year average (1971 - 2000), but still 20 percent to 27 percent colder than last winter While the West is projected to be only about 1 percent colder than last winter

Consumer NG Heating demand to be +14% YOY for 2012-13 Winter

Consumer Electricity Heating demand to be +8% YOY for 2012-13 Winter

More normal NG inventory cycle for 2013

More normal $4 NG for 2013

$4 NG would mean UPL at $40-50

Why Ultra Petroleum (UPL)

UPL is the lowest cost pure play NG producer Profitable at even current NG prices

UPL Cash Flow Break Even at $1.30 NG 20% ROE for Q2 2012

Why now
Winter outlook getting clearer. Expected to be colder than last year. NG producers to move with clarity. Inventory build season has peaked and about to end. NG producers lagging the commodity.

The build has peaked

Risks

 A abnormally warm winter again

Unlikely as NOAA and Accuweather both forecasting a more normal winter

Further increase in NG production

Unlikely as rig counts still falling Even at $4, NG prices lower than industry average production cost

Switch back to Coal for Electricity production

Part reversal in market share likely but will an have impact only in summer if any

Rig Counts Still Declining

Even flat rig counts means lower production in short term

Fracked well faces 80% decline in production in the first year of production

Coal Vs NG competitiveness Any price dip below $3.5 will bring back switching

NG likely to have more normal inventory cycle for 2013 and a stable price of close $4 That implies huge upside for NG producers Trade: Long UPL