SAN FRANCISCO -- In lightly attended sessions at the IPAA’s recent OGIS West investment conference in San Francisco, Ultra Petroleum Corp. and Gastar Exploration Ltd. laid out their contrasting strategies. Both firms are long-time natural gas producers, and these days their products are not in favor with anyone but contrarian investors.

Ultra holds long-life, dry-gas assets in Wyoming and Pennsylvania. While it remains one of the lowest-cost natural-gas producers in the market, current commodity prices are just too depressed to make even Ultra’s lean-and-mean operating strategy profitable. The company has responded to the market by hunkering down. It has reduced its 2012 capex and is deferring completions of its Wyoming wells.

“There’s no reason to complete wells in this environment,” said Mike Watford, chairman, president and CEO. In addition, Ultra has dropped from six rigs to two in its Pennsylvania Marcellus play and has paid $18 million in rig-cancellation costs.

In 2011, Ultra produced 245 billion cubic feet equivalent (Bcfe) and deployed a $1.5-billion capital budget. This year is markedly different: “What you see from Ultra in 2012 is reduction in capex and reduction in the intent to grow. We will sit back and wait for natural gas prices to improve,” said Watford. The company will spend net capex of just $625 million this year, and expects to produce between 250 and 260 Bcfe. “We are de-accelerating development and pulling back on the reins as hard as we can.”

Natural gas comprises 98% of Ultra’s production, so the current prices are more than painful. “The natural gas commodity price cycle caused by overinvestment in the business during the past three to five years, and by low demand over the past 12 months, tells us now is not the right time to grow,” said Watford.

An alternative approach is being pursued by Gastar Exploration. The company has historically grown through the drillbit. Its main assets are in Pennsylvania’s Marcellus play and in East Texas. Last year, Gastar produced an average of 35 million cubic feet equivalent per day. Now, the company is aggressively pursuing liquids production.

“For 2012, we are pushing the company to a new level,” said J. Russell Porter, CEO. About 17% of its production is currently liquids; Gastar’s goal is to push that split to between 20% and 25%. Its 2012 capital budget of $134 million is flowing into the liquids-rich Marcellus in Marshall and Wetzel counties, West Virginia. This year, it plans to drill 23 wells and complete 25 wells in the region. It’s high-Btu, high-condensate yield,” says Porter.

Furthermore, Gastar has layered a stealth Midcontinent oil play into its portfolio. This new play, in an undisclosed location, is still in the leasing phase. The company has accumulated 25,000 gross acres to date and has drilled and completed its first well. If all goes well, the play could take $30- to $40 million of Gastar’s 2013 budget. Economics appear very solid, said Porter, and early results are encouraging. “It will certainly change the outlook for Gastar, and maybe give me a reason to take the ‘gas’ portion out of our name and become anything other than Gastar,” he said.

“We think that we have done a good job of beginning to shift the company to a more liquids-production profile. The Marcellus shale and new Midcontinent play give us multiple years of organic growth and production.”

Whether investors agree with Ultra’s approach or Gastar’s strategy, each company is making crucial decisions to survive these turbulent times. Natural gas producers are indeed in the midst of a fearsome storm.

Contact the author, Peggy Williams, at pwilliams@hartenergy.com.