SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________
Commission file number 0-29370
ULTRA PETROLEUM CORP.
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
16801 Greenspoint Park Drive, Suite 370, Houston, Texas 77060
(Address of Principal Executive Offices) (Zip Code)
(281) 876-0120
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of common shares, without par value, of Ultra Petroleum Corp.,
outstanding as of May 1, 2002 was 73,732,043.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
March 31,
---------------------------------
2002 2001
-------------- --------------
Revenues
Natural gas sales $ 8,399,946 $ 15,977,343
Oil sales
706,373 770,031
------------ ------------
9,106,319 16,747,374
Expenses
Production expenses and taxes 2,488,932 2,868,625
Depletion and depreciation 2,108,297 1,610,329
General and administrative 1,219,196 1,058,839
Interest 514,061 289,547
------------ ------------
6,330,486 5,827,340
Operating income 2,775,833 10,920,034
Other income:
Interest 6,990 58,395
Other -- 52,407
------------ ------------
6,990 110,802
Income for the period, before income tax provision 2,782,823 11,030,836
Income tax provision - deferred 1,071,387 1,145,661
Income for the period 1,711,436 9,885,175
Retained earnings (deficit), beginning of period 2,734,356 (15,144,472)
------------ ------------
Retained earnings (deficit), end of period $ 4,445,792 $ (5,259,297)
============ ============
Income per common share - basic $ 0.02 $ 0.14
============ ============
Income per common share - fully diluted $ 0.02 $ 0.13
============ ============
Weighted average common shares outstanding - basic 73,492,883 70,003,821
============ ============
Weighted average common shares outstanding - fully
diluted 77,059,031 73,234,532
============ ============
2
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Expressed in U.S. Dollars) Three Months Ended
March 31,
------------------------------
2002 2001
------------- -------------
Cash provided by (used in):
Operating activities:
Income for the period $ 1,711,436 $ 9,885,175
Add (deduct)
Items not involving cash:
Depletion and depreciation 2,108,297 1,610,329
Deferred income taxes 1,071,387 1,145,661
Stock compensation 370,885 --
Net changes in non-cash working capital:
Restricted cash (768) (2,258)
Accounts receivable 441,251 1,213,259
Prepaid expenses and other current assets 2,080,688 4,496
Note receivable -- (683,137)
Accounts payable and accrued liabilities (1,673,281) 2,573,518
Deferred revenue (25,000) (25,000)
------------ ------------
6,084,895 15,722,043
Investing activities:
Oil and gas property expenditures (16,046,135) (11,434,824)
Purchase of capital assets (521,132) (95,104)
Cash received from Pendaries Merger -- 312,365
------------ ------------
(16,567,267) (11,217,563)
Financing activities:
Long-term debt 12,500,000 (459,762)
Proceeds from exercise of options 594,693 348,388
------------ ------------
13,094,693 (111,374)
Increase in cash during the period 2,612,321 4,393,106
Cash and cash equivalents, beginning of period 1,379,462 1,143,591
------------ ------------
Cash and cash equivalents, end of period $ 3,991,783 $ 5,536,697
============ ============
Supplemental statements of cash flows information
Supplemental schedule of non-cash investing activities:
Acquisitions
Fair value of assets acquired $ -- $ 43,950,263
Less: liabilities assumed -- (4,225,978)
Cash acquired -- 312,365
----------- ------------
Fair value of stock issued -- 40,036,650
=========== ============
3
ULTRA PETROLEUM CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Expressed in U.S. Dollars)
March 31, December 31,
2002 2001
--------- ------------
Assets
Current assets
Cash and cash equivalents $ 3,991,783 $ 1,379,462
Restricted cash 207,947 207,179
Accounts receivable 6,917,491 7,358,742
Prepaid expenses and other current assets 742,925 2,823,613
------------ ------------
11,860,146 11,768,996
Oil and gas properties, using the full cost method
of accounting 163,336,872 155,221,187
Capital assets 1,052,440 592,605
------------ ------------
Total assets $176,249,458 $167,582,788
============ ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 16,632,545 $ 21,096,348
Long-term debt 55,500,000 46,092,928
Deferred income taxes 6,045,395 4,974,008
Deferred revenue 75,000 100,000
Shareholders' equity
Share capital 93,550,726 92,585,148
Retained earnings 4,445,792 2,734,356
------------ ------------
97,996,518 95,319,504
------------ ------------
Total liabilities and shareholders' equity $176,249,458 $167,582,788
============ ============
4
ULTRA PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars unless otherwise noted)
Three months ended March 31, 2002 and 2001
DESCRIPTION OF THE BUSINESS:
Ultra Petroleum Corp. (the "Corporation") is incorporated under the laws of
British Columbia, Canada. At March 1, 2000 the Corporation was continued under
the laws of the Yukon Territory, Canada. Its principal business activity is the
exploration and development of oil and gas properties located in the United
States. The Corporation also has operations in China.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements, other than the balance sheet data as of
December 31, 2001, are unaudited and were prepared from our records. Balance
sheet data as of December 31, 2001 was derived from our audited financial
statements, but do not include all disclosures required by U.S. generally
accepted accounting principles. Our management believes that these financial
statements include all adjustments necessary for a fair presentation of our
financial position and results of operations. All adjustments are of a normal
and recurring nature unless specifically noted. We prepared these statements on
a basis consistent with our annual audited statements and Regulation S-X.
Regulation S-X allows us to omit some of the footnote and policy disclosures
required by generally accepted accounting principles and normally included in
annual reports on Form 10-K. You should read these interim financial statements
together with the financial statements, summary of significant accounting
policies and notes to our most recent annual report on Form 10-K.
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiaries UP Energy Corporation, Ultra Resources, Inc
and Sino-American Energy Corporation.
All material intercompany transactions and balances have been eliminated upon
consolidation.
(b) Accounting principles:
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada.
(c) Income taxes:
The Corporation uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
future tax consequences. Accordingly, deferred tax liabilities and assets are
determined based on the temporary differences between the financial statement
and tax basis of assets and liabilities, using the enacted tax rates in effect
for the year in which differences are expected to reverse.
(d) Earnings per share:
Basic earnings per share is computed by dividing net earnings attributable to
common stock by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is computed by adjusting the average
number of common shares outstanding for the dilutive effect, if any, of stock
options. The Company uses the treasury stock method to determine the dilutive
effect.
The following table provides a reconciliation of the components of basic and
diluted net income per common share for the periods ended March 31, 2002 and
2001:
March 31,2002 March 31,2001
------------- -------------
Net income $ 1,711,436 $ 9,885,175
=========== ===========
Weighted average of common shares
outstanding during the period 73,492,883 70,003,821
Effect of dilutive instruments 3,566,148 3,230,711
----------- -----------
Weighted average common shares outstanding
during the period including the effects of
dilutive instruments 77,059,031 73,234,532
=========== ===========
Basic earnings per share $ 0.02 $ 0.14
=========== ===========
Diluted earnings per share $ 0.02 $ 0.13
=========== ===========
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(e) Foreign currency translation:
The Corporation has adopted the United States dollar as its reporting currency,
which is also its functional currency. The Corporation and its subsidiaries are
considered to be integrated operations and accounts in Canadian dollars are
translated using the temporal method. Under this method, monetary assets and
liabilities are translated at the rates of exchange in effect at the balance
sheet date; non-monetary assets at historical rates and revenue and expense
items at the average rates for the period other than depletion and depreciation
which are translated at the same rates of exchange as the related assets. The
net effect of the foreign currency translation is included in current
operations.
(f) Use of estimates:
Preparation of consolidated financial statements in accordance with generally
accepted accounting principles in Canada requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(g) Reclassifications:
Certain amounts in the financial statements of the prior years have been
reclassified to conform to the current year financial statement presentation.
2. OIL AND GAS PROPERTIES:
March 31, December 31,
2002 2001
------------- -------------
Developed Properties:
Acquisition, equipment, exploration drilling
and environmental costs $ 107,981,889 $ 100,574,404
Less accumulated depletion, depreciation
and amortization (15,546,605) (13,499,605)
------------- -------------
92,435,284 87,074,799
Unproven Properties:
China 58,088,409 55,894,246
Acquisition and exploration costs 12,813,179 12,252,142
------------- -------------
$ 163,336,872 $ 155,221,187
============= =============
3. LONG-TERM DEBT:
March 31, December 31,
2002 2001
------------- -------------
Bank indebtedness $ 55,500,000 $ 43,000,000
Short term obligations to be refinanced -- 3,092,928
============= =============
$ 55,500,000 $ 46,092,928
============= =============
The Corporation (through its subsidiary) participates in a long-term credit
facility with a group of banks led by Bank One N.A. The agreement specifies a
maximum loan amount of $150 million and an aggregate borrowing base of $80
million at March 1, 2002. At March 31, 2002, the Corporation had $55.5 million
outstanding and $24.5 million unused and available on the credit facility.
The credit facility matures on March 1, 2005. The note bears interest at either
the bank's prime rate plus a margin of one-half of one percent (0.50%) to one
and one quarter percent (1.25%) based on the percentage of available credit
drawn or at LIBOR plus a margin of one and one-half percent (1.5%) to two and
one-quarter (2.25%) based on the percentage of available credit drawn. An
average annual commitment fee of 0.375% is charged quarterly for any unused
portion of the credit line.
The borrowing base is subject to periodic (at least semi-annual) review and
re-determination by the bank and may be decreased or increased depending on a
number of factors including the Corporation's proved reserves and the bank's
forecast of future oil and gas prices. Additionally, the Corporation is subject
to quarterly reviews of compliance with the covenants under the bank facility
including minimum coverage ratios relating to interest, working capital, general
and administrative expenditures and advances to Sino-American Energy
Corporation. In the event of a default under the covenants, the Corporation may
not be able to access funds otherwise available under the facility. As of March
31, 2002, the Corporation was in compliance with the covenants and required
ratios.
The Corporation has secured this debt by a majority of it's proved domestic oil
and gas properties.
4. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
THE UNITED STATES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada, ("Canadian GAAP"), which may
differ in certain respects from generally accepted accounting principles in the
United States, ("US GAAP"). The Corporation currently has no significant
differences.
6
5. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to
record the fair value of liabilities for retirement obligations of acquired
assets. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. Management is currently assessing the impact, if any, of SFAS No. 143 on
the Corporation's consolidated financial statements for future periods.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 VS. QUARTER ENDED MARCH 31, 2001
OPERATING REVENUES
Oil and gas revenues decreased to $9,106,379 or 46% for the quarter ended March
31, 2002 from $16,747,374 for the same period in 2001. This decrease was
attributable to a decrease in prices received for that production. During this
quarter, the Corporation's production increased to 3.8 Bcf of gas, and 34,000
barrels of condensate, up from 2.6 Bcf of gas and 28,000 barrels of condensate
for the same period in 2001. During the quarter ended March 31, 2002 the average
product prices for gas and condensate were $2.24 per Mcf and $20.58 per barrel,
respectively, compared to $6.07 per Mcf and $27.06 per barrel for the same
period in 2001.
PRODUCTION EXPENSES AND TAXES
During the quarter ended March 31, 2002 production expenses and taxes decreased
13% to $2,488,932 from $2,868,625 for the quarter ended March 31, 2001. Direct
lease operating expenses increased 108% to $486,867 for the quarter ended March
31, 2002 from $234,533 for the same period in 2001. On a per unit of production
basis, these costs increased to $.12 per Mcfe in March 2002, as compared to $.08
per Mcfe in March 2001. Production taxes for the first quarter 2002 were
$935,587, compared to $1,879,217 in first quarter 2001 or $.24 per Mcfe in first
quarter 2002, compared to $.67 per Mcfe in first quarter 2001. Production taxes
are calculated based on a percentage of revenue from production, therefore lower
realized prices contributed to the decrease. Gathering fees for the quarter
ended March 31, 2002 increased 41% to $1,066,478 from $754,875 for the same
period in 2001, attributable to higher production volumes.
DEPLETION AND DEPRECIATION
Depletion, depreciation and amortization expenses (DD&A) increased to $2,108,297
during the quarter ended March 31, 2002 from $1,610,329 for the same period in
2001. On a per unit basis, DD&A decreased to $.53 per Mcfe, from $.58 in 2001
primarily as a result of increases in the Corporation's proved reserves and
lower estimated future development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 15% to $1,219,196 during the
quarter ended March 31, 2002 from $1,058,839 for the same period in 2001. The
increase was attributable to legal, professional and compensation expenses that
coincide with the Corporation's increased activity in both Wyoming and China.
INTEREST
Interest expense for the period increased 78% to $514,061 in first quarter 2002
from $289,547 in first quarter 2001. This increase was attributable to the
increase in borrowings under the senior credit facility.
INCOME TAXES
The Corporation recorded deferred income tax expense of $1,071,387 at an
effective rate of 38.5% for the quarter ended March 31, 2002, compared to
$1,145,661 at an effective rate of 10.3% for the quarter ended March 31, 2001.
Although the Corporation is not expected to pay cash taxes in 2002, in
accordance with FAS 109 and specifically, the guidance concerning intraperiod
tax allocations, the Corporation is required to recognize tax expense evenly
throughout the year. In the prior year, income tax expense, as calculated at the
statutory rate including estimated state income tax effect, was offset by
recognition of deferred tax assets for which a valuation allowance had
previously been provided.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $6,084,895 for the three months ended
March 31, 2002 compared to $15,722,043 for the three months ended March 31,
2001. Operating cash flow in the three month period decreased compared to the
prior year due to decreased oil and gas prices and higher operating and other
expenses.
Cash flow used in investing activities was $16,567,267 for the three months
ended March 31, 2002 compared to $11,217,563 for the three months ended March
31, 2001. In 2002, oil and gas property and capital asset expenditures were
$16,046,135 and $521,132, respectively, compared to $11,434,824 and $95,104 in
the prior year. Amounts expended in the prior year were also offset by cash
received from the Pendaries Merger.
Net cash provided by financing activities was $13,094,693 for the three months
ended March 31, 2002 compared to net cash used of $111,374 for the three months
ended March 31, 2001. Cash received in 2002 represented borrowings of
$12,500,000 on the credit facility and proceeds from the exercise of options of
$594,693. In the prior year, net cash paid on the credit facility was $459,762,
offset by proceeds from the exercise of options of $348,388.
7
In the three-month period ending March 31, 2002 the Corporation relied on its
existing cash flow and availability under it's credit facility to finance its
capital expenditures. The Corporation participated in continued activity from
the 2001 program on the Pinedale Anticline in Wyoming. Capital costs in China
were related to development plans for the drilling program in Bohai Bay. For the
three-month period ending March 31, 2002 capital expenditures were $10,162,685
($7,968,521 in Wyoming and $2,194,163 in Bohai Bay). At March 31, 2002, the
Corporation reported a cash position of $3,991,783 compared to $1,379,462 at
December 31, 2001. Working capital at March 31, 2002 was $(4,772,399) as
compared to $(9,327,352) at December 31, 2001.
Based on forecasted gas prices, production and bank availability, management
believes that the Corporation's continued positive cash flow from operations and
the availability under the senior credit facility will be sufficient to fund the
Corporation's budgeted capital expenditures for 2002, which are estimated to be
$50 million. However, future cash flows and continued availability of financing
are subject to a number of uncertainties beyond the Corporation's control such
as production rates, the price of gas and oil, continued favorable results of
the Corporation's drilling program and the general condition of the capital
markets for oil and gas companies. There can be no assurances that adequate
funding will be available to execute the Corporation's planned future capital
program.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements, including the
Corporation's outlook for the remainder of 2002 with regard to plans for funding
operations and capital expenditures, are based on a number of risks and
uncertainties the are outside the Corporation's control. For example, future
cash flows and continued availability of financing are subject to a number of
uncertainties beyond the Corporation's control. There can be no assurances that
adequate funding will be available to execute the Corporation's planned future
capital program.
Other risks and uncertainties include, but are not limited to, fluctuations in
the price we receive for oil and gas production, reductions in the quantity of
oil and gas sold due to increased industry-wide demand and/or curtailments in
production from specific properties due to mechanical, marketing or other
problems, operating and capital expenditures that are either significantly
higher or lower than anticipated because the actual cost of identified projects
varied from original estimates and/or from the number of exploration and
development opportunities being greater or fewer than currently anticipated and
increased financing costs due to a significant increase in interest rates.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's revenues are derived from the sale of its crude oil and
natural gas production. The prices for oil and gas have decreased from the
prices prevailing on January 1, 2001; however, they remain extremely volatile
and sometimes experience large fluctuations as a result of relatively small
changes in supplies, weather conditions, economic conditions and government
actions. At this time the Corporation has not entered into any derivative
financial instruments to hedge oil and gas price risks for the production
volumes to which the hedge relates. However, the Corporation may enter into
hedges in the future that would reduce the Corporation's exposure on the hedged
volumes to decreases in commodity prices and limit the benefit the Corporation
might otherwise receive from any increases in commodity prices on the hedged
volumes. There have been no significant changes in market risks faced by the
Corporation since the end of 2000.
PART 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
3.1 Certificate of Continuance of Ultra Petroleum Corp. (incorporated by
reference to Exhibit 3.1 to the Corporation's quarterly report on form
10-Q for the period ended June 30, 2001)
3.2 By-Laws of Ultra Petroleum Corp. (incorporated by reference to Exhibit
3.2 to the Corporation's quarterly report on form 10-Q for the period
ended June 30, 2001)
8
4.1 Specimen common share certificate (incorporated by reference to
Exhibit 3.2 to the Corporation's quarterly report on form 10-Q for the
period ended June 30, 2001)
10.1 First Amended and Restated Credit Agreement dated March 1, 2002 among
Bank One N.A., Union Bank of California N.A., Guaranty Bank FSB,
Hibernia National Bank, Ultra Resources, Inc. and Banc One Capital
Markets, Inc. (incorporated by reference to Exhibit 10.1 to the
Corporation's annual report on Form 10K for the period ended December
31, 2001)
(b) Reports on Form 8-K
None
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRA PETROLEUM CORP.
Date May 13, 2002 By: /s/ Michael D. Watford
-------------------------------
Name: Michael D. Watford
Title: Chief Executive Officer
By: /s/ Kristen J. Marron
-------------------------------
Name: Kristen J. Marron
Title: Financial Reporting Manager
10