* Ultra becomes player in Marcellus; GMX now in Bakken oil
* Gas companies confront low prices amid production boom
By Daniel Trotta
NEW YORK, March 31 Ultra Petroleum UPL.N and
GMX Resources GMXR.N join the Thomson Reuters shale gas index
TRSHALEGAS in the second quarter, putting the spotlight on
two companies undergoing strategic changes.
Houston-based Ultra, an established player in the
unconventional Pinedale natural gas field in Wyoming, has
expanded into the Marcellus Shale in Pennsylvania in recent
years to join the boom in shale gas production.
Oklahoma City-based GMX has diversified from its shale gas
operations in the Haynesville Shale in Texas and Louisiana by
adding oil exploration in the Bakken formation in North Dakota
and the Niobrara formation in Wyoming.
They replace Apache Corp (APA.N) and Cimarex Energy Co
(XEC.N), two companies that investors view more as oil
companies than natural gas investments.
While Ultra trades at a slight premium with an EV/EBITDA
ratio of 8 versus 6.5 for the index as a whole, GMX enters the
index trading near the bottom on an EV/EBITDA basis at 5.2 as
the company has raised equity and debt to pay for its Bakken
Ultra has mineral rights to some 260,000 acres (105,000
hectares) under lease in the Marcellus, which is expected to
account for 15 percent of the company's 250 billion cubic feet
of production forecast for this year.
Pinedale is a "tight sand" formation requiring technology
similar to the modern hydraulic fracturing or "fracking"
technique that has led to a boom in the Marcellus and other
"In Pinedale we do more complicated frack jobs, drilling
deeper wells that are more expensive and at higher pressures in
an area where there is no water around in Wyoming," said Kelly
Whitley, Ultra's director of investor relations.
GMX Resources has been mostly a shale gas producer in
Haynesville but has joined the rush to drill for oil in the
"They've been primarily a Haynesville producer on the East
Texas side where you probably need gas prices closer to $6 for
that area to be economic," said Biju Perincheril, an analyst at
Jeffries and Company.
"The challenge is making that transition (to oil
production) is not cheap. They probably will need additional
funding," Perincheril said.
Gas prices NGc1 have been trending lower in recent years,
trading in the range of $4.30 per mmBtu on Thursday after
spiking above $13 in July 2008.
Many analysts are bearish on prices for the near future in
what the U.S. Energy Information Administration said could be a
record year for U.S. production in 2011, potentially breaking a
Proponents say onshore natural gas extracted from shale and
other unconventional geological formations can provide the
United States with an important domestic energy source, though
industry has come under scrutiny from environmentalists
concerned about the effects of fracking.
The Thomson Reuters shale gas index, using estimates by
Thomson Reuters I/B/E/S, measures 20 companies based on their
valuation ratios of price to earnings; enterprise value over
earnings before interest, tax, depreciation and amortization;
and price to net asset value.
Its constituents are chosen by Reuters News, and the
second-quarter rebalance will appear starting on Monday.
(Reporting by Daniel Trotta, editing by Dave Zimmerman)