Stressed Out: Is Bankruptcy the Best Place for Ultra Petroleum?

 | Jun 15, 2016 | 4:23 PM EDT
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Ultra Petroleum (UPL) may have found itself in restructuring, but that doesn't mean its equity is going to be wiped clean.

Shares of Ultra, a member of Real Money's Stressed Out watch list, were buoyed more than 3% Wednesday on an upgrade by Stifel Nicolaus to Market Perform, with analyst Michael Scialla saying the shares "still have residual value."

This may sound counterintuitive, given the company filed for Chapter 11 bankruptcy protection in early May, after obtaining a 30-day grace period on a $26 million interest payment due April 1.But Ultra may be able to work out a deal with the creditors of its roughly $3.9 billion in debt as well as shareholders given the rise in natural gas and oil prices, Scialla said in a phone interview with Real Money Wednesday.

Ultra posted about $1.3 billion in assets, largely tied to natural gas, in its Chapter 11 filing.  

"Obviously the equity is last in line, but if everyone gets paid off there will be some benefits for equity holders," Scialla said, noting Stifel also increased its outlook on crude oil in its Wednesday report, bumping price expectations for the second half of 2016 to $50 from $40, while hiking natural gas price forecasts to $275 from $250 per million British thermal units. 

"We didn't want to tell people to continue to sell now that the bankruptcy process is well under way, because it's not really a short any longer, in my opinion," Scialla added. "It looks like there will be some residual value for equity holders."

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: U.S. Steelmakers Suffer From Concerns of Oversupply

Stressed Out: Ultra Petroleum Files for Chapter 11

Stressed Out: Southwestern Energy Gets Creative in Turning Itself Around

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