e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-29370
ULTRA PETROLEUM CORP.
(Exact name of registrant as
specified in its charter)
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Yukon Territory, Canada
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N/A
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. employer
identification number)
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363 North Sam Houston Parkway,
Suite 1200, Houston, Texas
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77060
(Zip code)
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(Address of principal executive
offices)
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(281) 876-0120
(Registrants 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 þ NO o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in
Rule 12b-2
of the Exchange
Act). YES þ NO o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12b-2
of the Exchange Act.
Large Accelerated
Filer þ Accelerated
Filer o Non-Accelerated
Filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). YES o NO þ
The number of common shares, without par value, of Ultra
Petroleum Corp., outstanding as of October 24, 2007 was
152,387,812.
PART I
FINANCIAL INFORMATION
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ITEM 1
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FINANCIAL
STATEMENTS
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ULTRA
PETROLEUM CORP.
CONSOLIDATED
STATEMENTS OF INCOME
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For the Nine Months
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For the Three Months Ended September 30,
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Ended September 30,
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2007
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2006
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2007
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2006
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(Unaudited)
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(Amounts in thousands of U.S. dollars, except
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per share data)
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Revenues:
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Natural gas sales
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$
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103,847
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$
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116,365
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$
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367,552
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$
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330,202
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Oil sales
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13,368
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11,168
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37,111
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27,971
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Total operating revenues
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117,215
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127,533
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404,663
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358,173
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Expenses:
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Production expenses and taxes
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26,051
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25,469
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81,982
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65,062
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Depletion and depreciation
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31,864
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19,556
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94,084
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50,189
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General and administrative
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3,470
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4,225
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10,109
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12,093
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Total operating expenses
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61,385
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49,250
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186,175
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127,344
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Operating income
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55,830
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78,283
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218,488
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230,829
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Other income (expense):
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Interest expense
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(5,550
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)
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(872
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)
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(12,471
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)
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(1,183
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)
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Interest income
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203
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285
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839
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1,629
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Total other income (expense)
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(5,347
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)
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(587
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)
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(11,632
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)
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446
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Income before income tax provision
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50,483
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77,696
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206,856
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231,275
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Income tax provision
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17,727
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35,940
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73,705
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91,865
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Net income from continuing operations
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32,756
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41,756
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133,151
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139,410
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Income from discontinued operations, net of tax
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4,644
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10,719
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19,909
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31,215
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Net income
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37,400
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52,475
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153,060
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170,625
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Retained earnings, beginning of period
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740,444
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511,739
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624,784
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393,589
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Retained earnings, end of period
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$
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777,844
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$
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564,214
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$
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777,844
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$
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564,214
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Basic Earnings per Share:
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Income per common share from continuing operations
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$
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0.22
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$
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0.27
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$
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0.88
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$
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0.90
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Income per common share from discontinued operations
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$
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0.03
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$
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0.07
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$
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0.13
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$
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0.20
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Net Income per common share
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$
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0.25
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$
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0.34
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$
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1.01
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$
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1.10
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Fully Diluted Earnings per Share:
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Income per common share from continuing operations
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$
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0.21
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$
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0.26
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$
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0.84
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$
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0.86
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Income per common share from discontinued operations
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$
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0.03
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$
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0.07
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$
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0.12
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$
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0.19
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Net Income per common share
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$
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0.24
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$
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0.33
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$
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0.96
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$
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1.05
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Weighted average common shares outstanding basic
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151,530
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153,351
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151,825
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154,591
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Weighted average common shares outstanding fully
diluted
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158,224
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160,920
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158,768
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162,447
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See accompanying notes to consolidated financial statements.
3
ULTRA
PETROLEUM CORP.
CONSOLIDATED
BALANCE SHEETS
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September 30,
|
|
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December 31,
|
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2007
|
|
|
2006
|
|
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(Unaudited)
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(Amounts in thousands of U.S. dollars)
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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8,740
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$
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14,574
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Restricted cash
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2,150
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|
667
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Accounts receivable
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87,924
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87,805
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Deferred tax asset
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8,512
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8,266
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Derivative assets
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7,467
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Inventory
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16,412
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18,929
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Assets related to operations held for sale (see Note 8)
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118,011
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119,285
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Prepaid drilling costs and other current assets
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751
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Total current assets
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249,967
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249,526
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Oil and gas properties, net, using the full cost method of
accounting
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Proved
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1,398,176
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978,000
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Unproved
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36,004
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28,998
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Capital assets
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1,752
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|
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1,775
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Deferred financing costs, derivative assets and other
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6,432
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Total assets
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$
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1,692,331
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$
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1,258,299
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities
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Accounts payable and accrued liabilities
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$
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111,861
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$
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75,458
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Current taxes payable
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|
2,678
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2,207
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Liabilities associated with operations held for sale (see
Note 8)
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13,238
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|
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13,162
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Other current liabilities
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|
530
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|
Capital cost accrual
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|
95,312
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|
|
|
94,867
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|
|
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Total current liabilities
|
|
|
223,089
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|
|
|
186,224
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Long-term debt
|
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|
395,000
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|
165,000
|
|
Deferred income tax liability
|
|
|
309,990
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|
|
|
252,808
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Other long-term obligations
|
|
|
34,265
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|
|
|
25,262
|
|
Shareholders equity
|
|
|
|
|
|
|
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|
Share capital
|
|
|
4,042
|
|
|
|
5,415
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|
Treasury stock
|
|
|
(60,439
|
)
|
|
|
(1,194
|
)
|
Retained earnings
|
|
|
777,844
|
|
|
|
624,784
|
|
Accumulated other comprehensive income
|
|
|
8,540
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total shareholders equity
|
|
|
729,987
|
|
|
|
629,005
|
|
|
|
|
|
|
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Total liabilities and shareholders equity
|
|
$
|
1,692,331
|
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$
|
1,258,299
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See accompanying notes to consolidated financial statements.
4
ULTRA
PETROLEUM CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands of U.S. dollars)
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
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Operating activities:
|
|
|
|
|
|
|
|
|
Net income for the period
|
|
$
|
153,060
|
|
|
$
|
170,625
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
|
(19,909
|
)
|
|
|
(31,215
|
)
|
Depletion and depreciation
|
|
|
94,084
|
|
|
|
50,189
|
|
Deferred income taxes
|
|
|
69,987
|
|
|
|
82,908
|
|
Excess tax benefit from stock based compensation
|
|
|
(13,561
|
)
|
|
|
(9,516
|
)
|
Stock compensation
|
|
|
2,138
|
|
|
|
1,022
|
|
Other
|
|
|
94
|
|
|
|
|
|
Net changes in non-cash working capital:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(1,483
|
)
|
|
|
(2
|
)
|
Accounts receivable
|
|
|
(119
|
)
|
|
|
(10,170
|
)
|
Prepaid drilling costs and other current assets
|
|
|
(1,142
|
)
|
|
|
22
|
|
Accounts payable and accrued liabilities
|
|
|
36,403
|
|
|
|
31,583
|
|
Other long-term obligations
|
|
|
7,117
|
|
|
|
5,255
|
|
Taxes payable
|
|
|
(2,150
|
)
|
|
|
(3,565
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities from continuing
operations
|
|
|
324,519
|
|
|
|
287,136
|
|
Net cash provided by operating activities from discontinued
operations
|
|
|
33,683
|
|
|
|
42,171
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
358,202
|
|
|
|
329,307
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Oil and gas property expenditures
|
|
|
(517,132
|
)
|
|
|
(323,566
|
)
|
Investing activities from discontinued operations
|
|
|
(13,910
|
)
|
|
|
(18,972
|
)
|
Change in capital cost accrual
|
|
|
445
|
|
|
|
34,798
|
|
Inventory
|
|
|
2,517
|
|
|
|
(2,555
|
)
|
Purchase of capital assets
|
|
|
(438
|
)
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(528,518
|
)
|
|
|
(310,861
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Borrowings on long-term debt
|
|
|
230,000
|
|
|
|
110,000
|
|
Deferred financing costs
|
|
|
(1,082
|
)
|
|
|
|
|
Repurchased shares
|
|
|
(84,515
|
)
|
|
|
(174,319
|
)
|
Stock issued for compensation
|
|
|
|
|
|
|
1,741
|
|
Excess tax benefit from stock based compensation
|
|
|
13,561
|
|
|
|
9,516
|
|
Proceeds from exercise of options
|
|
|
6,518
|
|
|
|
7,493
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
164,482
|
|
|
|
(45,569
|
)
|
Decrease in cash during the period
|
|
|
(5,834
|
)
|
|
|
(27,123
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
14,574
|
|
|
|
43,968
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
8,740
|
|
|
$
|
16,845
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
5
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All dollar amounts in this Quarterly Report on
Form 10-Q
are expressed in Thousands of U.S. dollars (except per
share data) unless otherwise noted)
DESCRIPTION
OF THE BUSINESS:
Ultra Petroleum Corp. (the Company) is an
independent oil and gas company engaged in the acquisition,
exploration, development, and production of oil and gas
properties. The Company is incorporated under the laws of the
Yukon Territory, Canada. The Companys principal business
activities are in the Green River Basin of Southwest Wyoming.
|
|
1.
|
SIGNIFICANT
ACCOUNTING POLICIES:
|
The accompanying financial statements, other than the balance
sheet data as of December 31, 2006, are unaudited and were
prepared from the Companys records. Balance sheet data as
of December 31, 2006 was derived from the Companys
audited financial statements, but does not include all
disclosures required by U.S. generally accepted accounting
principles. The Companys management believes that these
financial statements include all adjustments necessary for a
fair presentation of the Companys financial position and
results of operations. All adjustments are of a normal and
recurring nature unless specifically noted. The Company prepared
these statements on a basis consistent with the Companys
annual audited statements and
Regulation S-X.
Regulation S-X
allows the Company 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 the Companys most recent annual
report on
Form 10-K.
(a) Basis of presentation and principles of
consolidation: The consolidated financial
statements include the accounts of the Company and its wholly
owned subsidiaries UP Energy Corporation, Ultra Resources, Inc.
and
Sino-American
Energy Corporation. The Company presents its financial
statements in accordance with U.S. GAAP. All material
inter-company 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 the United
States.
(c) Cash and cash equivalents: We
consider all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(d) Restricted cash: Restricted cash
represents cash received by the Company from production sold
where the final division of ownership of the production is
unknown or in dispute. Wyoming law requires that these funds be
held in a federally insured bank in Wyoming.
(e) Capital assets other than oil and gas
properties: Capital assets are recorded at cost
and depreciated using the declining-balance method based on a
seven-year useful life.
(f) Oil and gas properties: The Company
uses the full cost method of accounting for exploration and
development activities as defined by the Securities and Exchange
Commission (SEC). Under this method of accounting,
the costs of unsuccessful, as well as successful, exploration
and development activities are capitalized as properties and
equipment on a
country-by-country
basis. This includes any internal costs that are directly
related to exploration and development activities but does not
include any costs related to production, general corporate
overhead or similar activities. The carrying amount of oil and
gas properties also includes estimated asset retirement costs
recorded based on the fair value of the asset retirement
obligation when incurred. Gain or loss on the sale or other
disposition of oil and gas properties is not recognized, unless
the gain or loss would significantly alter the relationship
between capitalized costs and proved reserves of oil and natural
gas attributable to a country.
6
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The sum of net capitalized costs and estimated future
development costs of oil and gas properties are amortized using
the unit-of-production method based on the proven reserves as
determined by independent petroleum engineers. Oil and gas
reserves and production are converted into equivalent units
based on relative energy content. Operating fees received
related to the properties in which the Company owns an interest
are netted against expenses. Fees received in excess of costs
incurred are recorded as a reduction to the full cost pool.
Certain costs of oil and gas properties are excluded from
capitalized costs being amortized. These amounts represent
investments in unproved properties and major development
projects. The Company excludes these costs on a
country-by-country
basis until proved reserves are found or until it is determined
that the costs are impaired. All costs excluded are reviewed
quarterly to determine if impairment has occurred. The amount of
any impairment is transferred to the capitalized costs being
amortized (the depreciation, depletion and amortization
(DD&A) pool) or a charge is made against
earnings for those international operations where a reserve base
has not yet been established. For international operations where
a reserve base has not yet been established, an impairment
requiring a charge to earnings may be indicated through
evaluation of drilling results, relinquishing drilling rights or
other information.
Under the full cost method of accounting, a ceiling test is
performed each quarter. The full cost ceiling test is an
impairment test prescribed by SEC
Regulation S-X
Rule 4-10.
The ceiling test determines a limit, on a
country-by-country
basis, on the book value of oil and gas properties. The
capitalized costs of proved oil and gas properties, net of
accumulated DD&A and the related deferred income taxes, may
not exceed the estimated future net cash flows from proved oil
and gas reserves, generally using prices in effect at the end of
the period held flat for the life of production excluding the
estimated abandonment cost for properties with asset retirement
obligations recorded on the balance sheet and including the
effect of derivative contracts that qualify as cash flow hedges,
discounted at 10%, net of related tax effects, plus the cost of
unevaluated properties and major development.
SEC
Regulation S-X
Rule 4-10 states
that if prices in effect at the end of a quarter are the result
of a temporary decline and prices improve prior to the issuance
of the financial statements, the increased price may be applied
in the computation of the ceiling test. At September 30,
2007, prices in effect in southwest Wyoming were temporarily low
due to a confluence of the following factors: (i) a fire at
a compressor station on a major pipeline that exports natural
gas from Wyoming; (ii) scheduled and unscheduled
maintenance on pipelines in the region; and, (iii) lack of
demand due to mild temperatures in the Rockies region.
Since September 30, 2007, prices have recovered such that
the Companys future net cash flows (as described above)
are in excess of the Companys capitalized costs of proved
oil and gas properties, net of accumulated DD&A and the
related deferred income taxes. If the Company had applied the
price in effect at September 30, 2007 ($0.67 per Mcf), it
would have recognized a ceiling test impairment of
$489.5 million.
(g) Inventories: Crude oil products and
materials and supplies inventories are carried at the lower of
current market value or cost. Inventory costs include
expenditures and other charges directly and indirectly incurred
in bringing the inventory to its existing condition and location
and the Company uses the weighted average method to record its
inventory. Selling expenses and general and administrative
expenses are reported as period costs and excluded from
inventory cost. Inventories of materials and supplies are valued
at cost or less. Drilling and completion supplies inventory of
$16.4 million primarily includes the cost of pipe and
equipment that will be utilized during the 2007 and 2008
drilling programs.
(h) Forward natural gas sales
transactions: The Company primarily relies on
fixed price physical delivery contracts to manage its commodity
price exposure. The Company may, from time to time and to a
lesser extent, use derivative instruments as one way to manage
its exposure to commodity prices. (See Note 7).
(i) Income taxes: Income taxes are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the
7
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial statement carrying amounts of existing assets and
liabilities and their respective tax basis and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. The Companys total income tax expense for
the nine-months ended September 30, 2007 totaled
$73.7 million from continuing operations and
$10.7 million from discontinued operations. (See
Note 6).
(j) 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 common stock
equivalents. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
37,400
|
|
|
$
|
52,475
|
|
|
$
|
153,060
|
|
|
$
|
170,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding during the period
|
|
|
151,530
|
|
|
|
153,351
|
|
|
|
151,825
|
|
|
|
154,591
|
|
Effect of dilutive instruments
|
|
|
6,694
|
|
|
|
7,569
|
|
|
|
6,943
|
|
|
|
7,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding during the period
including the effects of dilutive instruments
|
|
|
158,224
|
|
|
|
160,920
|
|
|
|
158,768
|
|
|
|
162,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
0.25
|
|
|
$
|
0.34
|
|
|
$
|
1.01
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share fully diluted
|
|
$
|
0.24
|
|
|
$
|
0.33
|
|
|
$
|
0.96
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k) Use of estimates: Preparation of
consolidated financial statements in accordance with accounting
principles generally accepted in the United States 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.
(l) Accounting for share-based
compensation: On January 1, 2006, the
Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R) which requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors
including employee stock options based on estimated fair values.
The Company adopted SFAS No. 123R using the modified
prospective transition method, which requires the application of
the accounting standard as of January 1, 2006, the first
day of the Companys fiscal year 2006. Share-based
compensation expense recognized under SFAS No. 123R
for the nine-months ended September 30, 2007 and 2006 was
$1.6 million and $0.7 million, respectively, which
consisted of stock-based compensation expense related to
employee stock options. See Note 4 for additional
information.
(m) Revenue Recognition. Natural gas
revenues are recorded on the entitlement method. Under the
entitlement method, revenue is recorded when title passes based
on the Companys net interest. The Company records its
entitled share of revenues based on estimated production
volumes. Subsequently, these estimated
8
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
volumes are adjusted to reflect actual volumes that are
supported by third party pipeline statements or cash receipts.
Since there is a ready market for natural gas, the Company sells
the majority of its products soon after production at various
locations at which time title and risk of loss pass to the
buyer. Gas imbalances occur when the Company sells more or less
than its entitled ownership percentage of total gas production.
Any amount received in excess of the Companys share is
treated as a liability. If the Company receives less than its
entitled share, the underproduction is recorded as a receivable.
Oil revenues are recognized when production is sold to a
purchaser at a fixed or determinable price, when delivery has
occurred and title is transferred.
(n) Other Comprehensive Earnings
(Loss): Other comprehensive earnings (loss) is a
term used to define revenues, expenses, gains and losses that
under generally accepted accounting principles impact
Shareholders Equity, excluding transactions with
shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
37,400
|
|
|
$
|
52,475
|
|
|
$
|
153,060
|
|
|
$
|
170,625
|
|
Unrealized gain on derivative instruments, net of tax
|
|
|
6,575
|
|
|
|
|
|
|
|
8,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
43,975
|
|
|
$
|
52,475
|
|
|
$
|
161,600
|
|
|
$
|
170,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o) Reclassifications: Certain amounts in
the financial statements of the prior periods have been
reclassified to conform to the current period financial
statement presentation.
(p) Impact of recently issued accounting
pronouncements: In September 2006, the Financial
Accounting Standards Board (FASB) issued
SFAS No. 157, Fair Value Measurements
(SFAS No. 157). This Statement defines
fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or
permit fair value measurements. Accordingly, this Statement does
not require any new fair value measurements. The changes to
current practice resulting from the application of this
Statement relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about
fair value measurements. SFAS No. 157 is effective as
of the beginning of an entitys first fiscal year that
begins after November 15, 2007. The Company does anticipate
that the implementation of SFAS No. 157 will have a
material impact on consolidated results of operations, financial
position or liquidity.
|
|
2.
|
OIL AND
GAS PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Developed Properties:
|
|
|
|
|
|
|
|
|
Acquisition, equipment, exploration, drilling and environmental
costs Domestic
|
|
$
|
1,688,004
|
|
|
$
|
1,174,683
|
|
Less accumulated depletion, depreciation and
amortization Domestic
|
|
|
(289,828
|
)
|
|
|
(196,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,398,176
|
|
|
|
978,000
|
|
Unproven Properties:
|
|
|
|
|
|
|
|
|
Acquisition and exploration costs Domestic
|
|
|
36,004
|
|
|
|
28,998
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,434,180
|
|
|
$
|
1,006,998
|
|
|
|
|
|
|
|
|
|
|
9
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Bank indebtedness
|
|
$
|
395,000
|
|
|
$
|
165,000
|
|
Other long-term obligations
|
|
|
34,265
|
|
|
|
25,262
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
429,265
|
|
|
$
|
190,262
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness: The Company (through its
subsidiary) is a party to a revolving credit facility with a
syndicate of banks led by JP Morgan Chase Bank, N.A. which
matures in April 2012. This agreement provides an initial loan
commitment of $500.0 million and may be increased to a
maximum aggregate amount of $750.0 million at the request
of the Company. Each bank has the right, but not the obligation,
to increase the amount of its commitment as requested by the
Company. In the event the existing banks increase their
commitment to an amount less than the requested commitment
amount, then it would be necessary to add new financial
institutions to the credit facility.
Loans under the credit facility are unsecured and bear interest,
at our option, based on (A) a rate per annum equal to the
higher of the prime rate or the weighted average fed funds rate
on overnight transactions during the preceding business day plus
50 basis points, or (B) a base Eurodollar rate,
substantially equal to the LIBOR rate, plus a margin based on a
grid of our consolidated leverage ratio (0.875 basis points
per annum as of September 30, 2007).
At September 30, 2007, we had $395.0 million in
outstanding borrowings and $105.0 million of available
borrowing capacity under our credit facility.
The facility has restrictive covenants that include the
maintenance of a ratio of consolidated funded debt to EBITDAX
(earnings before interest, taxes, DD&A and exploration
expense) not to exceed
31/2
times; and as long as our debt rating is below investment grade,
the maintenance of an annual ratio of the net present value of
our oil and gas properties to total funded debt of at least 1.75
to 1.00. At September 30, 2007, we were in compliance with
all of our debt covenants.
Other long-term obligations: These costs
relate to the long-term portion of production taxes payable, a
liability associated with imbalanced production, the long-term
portion of costs associated with our compensation programs and
our asset retirement obligations.
|
|
4.
|
SHARE
BASED COMPENSATION
|
Valuation
and Expense Information under SFAS 123R
The following table summarizes share-based compensation expense
related to employee stock options under SFAS No. 123R
for the nine months ended September 30, 2007 and 2006,
respectively, which was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Total cost of share-based payment plans
|
|
$
|
3,317
|
|
|
$
|
1,406
|
|
Amounts capitalized in fixed assets
|
|
$
|
1,679
|
|
|
$
|
684
|
|
Amounts charged against income, before income tax benefit
|
|
$
|
1,638
|
|
|
$
|
722
|
|
Amount of related income tax benefit recognized in income
|
|
$
|
575
|
|
|
$
|
253
|
|
The fair value of each share option award is estimated on the
date of grant using a Black-Scholes pricing model based on
assumptions noted in the following table. The Companys
employee stock options have
10
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
various restrictions including vesting provisions and
restrictions on transfers and hedging, among others, and are
often exercised prior to their contractual maturity. Expected
volatilities used in the fair value estimate are based on
historical volatility of the Companys stock. The Company
uses historical data to estimate share option exercises,
expected term and employee departure behavior used in the
Black-Scholes pricing model. Groups of employees (executives and
non-executives) that have similar historical behavior are
considered separately for purposes of determining the expected
term used to estimate fair value. The assumptions utilized
result from differing pre- and post-vesting behaviors among
executive and non-executive groups. The risk-free rate for
periods within the contractual term of the share option is based
on the U.S. Treasury yield curve in effect at the time of
grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2007
|
|
|
September 30, 2006
|
|
|
|
Non-Executives
|
|
|
Executives
|
|
|
Non-Executives
|
|
|
Executives
|
|
|
Expected volatility
|
|
|
41.55 43.70
|
%
|
|
|
44.4
|
%
|
|
|
44.2 45.8
|
%
|
|
|
43.5
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
4.75 5.02
|
|
|
|
5.53
|
|
|
|
2.75 4.71
|
|
|
|
3.58
|
|
Risk free rate
|
|
|
4.16 5.07
|
%
|
|
|
4.69
|
%
|
|
|
4.56 5.03
|
%
|
|
|
4.84
|
%
|
Expected forfeiture rate
|
|
|
14.0
|
%
|
|
|
14.0
|
%
|
|
|
20.0
|
%
|
|
|
20.0
|
%
|
Changes
in Stock Options and Stock Options Outstanding
The following table summarizes the changes in stock options for
the nine months ended September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
Options
|
|
|
(US$)
|
|
|
Balance, December 31, 2006
|
|
|
9,082,756
|
|
|
$
|
0.26 to $67.73
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
385,976
|
|
|
$
|
45.95 to $62.23
|
|
Exercised
|
|
|
(880,250
|
)
|
|
$
|
0.38 to $55.58
|
|
Forfeited
|
|
|
(76,432
|
)
|
|
$
|
47.19 to $63.05
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2007
|
|
|
8,512,050
|
|
|
$
|
0.26 to $67.73
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE
SHARE PLANS:
Long-Term Equity-Based Incentives. In 2005, we
adopted the Long Term Incentive Plan (LTIP) in order
to further align the interests of key employees with
shareholders and give key employees the opportunity to share in
the long-term performance of the Company by achieving specific
corporate financial and operational goals. Participants are
recommended by the CEO and approved by the Compensation
Committee. Selected officers, managers and other key employees
are eligible to participate in the LTIP which has two
components, an LTIP Stock Option Award and an LTIP Common Stock
Award.
Under the LTIP, each year the Compensation Committee establishes
a percentage of base salary for each participant which is
multiplied by the participants base salary to derive an
LTI Value (Long Term Incentive Value). With respect
to LTIP Stock Option Awards, options are awarded equal to one
half of the LTI Value based on the fair value on the date of
grant (using Black-Scholes methodology).
The other half of the LTI Value is the target amount
that may be awarded to the participant as an LTIP Common Stock
Award at the end of a three-year performance period. The
Compensation Committee establishes performance measures at the
beginning of each three-year overlapping performance period.
Each participant is also
11
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assigned threshold and maximum award levels in the event that
performance is below or above target levels. Awards are
expressed as dollar targets and become payable in common shares
at the end of each performance period based on the
Companys overall performance during such period. A new
three-year period begins each January. Participants must be
employed by the Company at the end of a performance period in
order to receive an award.
For the first (January 2005 December 2007), second
(January 2006 December 2008) and third (January
2007 December 2009) performance periods, the
Compensation Committee established the following performance
measures: return on equity, reserve replacement ratio, and
production growth.
Also in 2005, we established a Best in Class program for all
employees. The Best in Class program recognizes and financially
rewards the collective efforts of all of our employees in
achieving sustained industry leading performance and the
enhancement of shareholder value. Under the Best in Class
program, on January 1, 2005 or the employment date if
subsequent to January 1, 2005, all employees received a
contingent award of stock units equal to $50,000 worth of our
common stock based on the average high and low share price on
the date of grant. Employees joining the Company after
January 1, 2005 will participate on a pro rata basis based
on their length of employment during the performance period. The
number of units that will vest and become payable is based on
our performance relative to the industry during a three-year
performance period beginning January 1, 2005, and ending
December 31, 2007, and are set at threshold (50%), target
(100%) and maximum (150%) levels. For each vested unit, the
participant will receive one share of common stock. The
performance measures are all sources finding and development
cost and full cycle economics.
For the nine months ended September 30, 2007, the Company
recognized $0.4 million, $0.4 million and
$0.4 million in pre-tax compensation expense related to the
2005 LTIP, 2006 LTIP and 2007 LTIP, respectively. For the nine
months ended September 30, 2006, the Company recognized
$0.3 million and $0.3 million in pre-tax compensation
expense related to the 2005 LTIP and 2006 LTIP, respectively.
The amounts recognized during the first nine months of 2007 and
2006 assume that maximum performance objectives are attained. If
the Company ultimately attains maximum performance objectives,
the associated total compensation cost, estimated at
September 30, 2007, for the three year performance periods
would be approximately $2.2 million, $2.6 million and
$2.9 million (before taxes) related to the 2005 LTIP, 2006
LTIP and 2007 LTIP, respectively.
For the nine months ended September 30, 2007, the Company
recognized $0.5 million in pre-tax compensation expense
related to the Best in Class program. For the nine months ended
September 30, 2006, the Company recognized
$0.3 million in pre-tax compensation expense related to the
Best in Class program. The amount recognized to date assumes
that maximum performance levels are achieved. If the Company
ultimately attains the maximum performance level, the associated
total compensation cost will be approximately $3.6 million
before income taxes, of which the Company has expensed
$3.1 million as of September 30, 2007.
|
|
5.
|
SHARE
REPURCHASE PROGRAM:
|
On May 17, 2006, the Company announced that its Board of
Directors authorized a share repurchase program for up to an
aggregate $1 billion of the Companys outstanding
common stock which has been and will be funded by cash on hand
and the Companys senior credit facility. Pursuant to this
authorization, the Company has commenced a program to purchase
up to $500.0 million of the Companys outstanding
shares through open market transactions or privately negotiated
transactions. The stock repurchase will be funded with cash held
in an Ultra Resources bank account or the Companys senior
credit facility.
During the nine months ended September 30, 2007, the
Company repurchased 1,431,170 shares of its common stock in
open market transactions for an aggregate $78.9 million at
a weighted average price of $55.12 per share. Since the
programs inception in May 2006, the Company has purchased
a total of 5.4 million shares in open market transactions
for an aggregate $276.4 million at a weighted average price
of $51.19 per share.
12
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the shares repurchased in open market
transactions during the nine months ended September 30,
2007, the Company also acquired 82,797 shares delivered by
employees for $4.9 million to satisfy the exercise price of
the employees stock options and tax withholding
obligations to satisfy tax withholding obligations in connection
with the vesting of equity shares of common stock issued
pursuant to the Companys employee incentive plans.
In total, during the nine months ended September 30, 2007,
the Company repurchased 1,513,967 shares of its common
stock for an aggregate $83.8 million dollars at a weighted
average price of $55.36 per share. Since the programs
inception in May 2006, the Company has repurchased
5.5 million shares of its common stock for an aggregate
$282.1 million at a weighted average price of $51.18 per
share.
In June 2006, the FASB issued FIN 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, Accounting for Income Taxes.
This interpretation addresses the determination of whether
tax benefits claimed or expected to be claimed on a tax return
should be recorded in the financial statements. Under
FIN 48, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The
tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that
has a greater than fifty percent likelihood of being realized
upon ultimate settlement. FIN 48 also provides guidance on
derecognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased
disclosures. The Company adopted the provisions of FIN 48
on January 1, 2007.
The Company did not have any unrecognized tax benefits and there
was no effect on our financial condition or results of
operations as a result of implementing FIN 48. The amount
of unrecognized tax benefits did not materially change as of
September 30, 2007.
It is expected that the amount of unrecognized tax benefits may
change in the next twelve months; however Ultra does not expect
the change to have a significant impact on the results of
operations or the financial position of the Company.
The Company files a consolidated federal income tax return in
the United States Federal jurisdiction and various combined,
consolidated, unitary, and separate filings in several state and
foreign jurisdictions. For all material jurisdictions, the
Company is no longer subject to U.S. Federal, state and
local, or
non-U.S. income
tax examinations by tax authorities for years before 1997.
Estimated interest and penalties related to potential
underpayment on any unrecognized tax benefits are classified as
a component of tax expense in the Consolidated Statement of
Operations. As of the date of adoption of FIN 48, Ultra did
not have any accrued interest or penalties associated with any
unrecognized tax benefits, nor were any interest expense or
penalties recognized during the nine months ended
September 30, 2007.
The Company does not anticipate that total unrecognized tax
benefits will significantly change due to the settlement of
audits and the expiration of statute of limitations prior to
September 30, 2008.
13
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the components of Income Tax
Expense for the three and nine months ended September 30,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
For the Three Months Ended September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current State tax payments
|
|
$
|
10
|
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
$
|
25
|
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
Current US AMT payments
|
|
|
1,100
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
2,625
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Current Withholding taxes
|
|
|
|
|
|
|
0.0
|
%
|
|
|
5,159
|
|
|
|
6.6
|
%
|
|
|
1,068
|
|
|
|
0.5
|
%
|
|
|
8,957
|
|
|
|
3.9
|
%
|
Deferred tax expense
|
|
|
16,617
|
|
|
|
32.9
|
%
|
|
|
30,781
|
|
|
|
39.6
|
%
|
|
|
69,987
|
|
|
|
33.8
|
%
|
|
|
82,908
|
|
|
|
35.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision Continuing Operations
|
|
$
|
17,727
|
|
|
|
35.1
|
%
|
|
$
|
35,940
|
|
|
|
46.2
|
%
|
|
$
|
73,705
|
|
|
|
35.6
|
%
|
|
$
|
91,865
|
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current taxes China
|
|
$
|
2,374
|
|
|
|
33.2
|
%
|
|
$
|
390
|
|
|
|
3.5
|
%
|
|
$
|
12,019
|
|
|
|
39.2
|
%
|
|
$
|
14,215
|
|
|
|
31.3
|
%
|
Deferred tax expense China
|
|
|
126
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
(1,299
|
)
|
|
|
(4.2
|
)%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Provision Discontinued Operations
|
|
$
|
2,500
|
|
|
|
35.0
|
%
|
|
$
|
390
|
|
|
|
3.5
|
%
|
|
$
|
10,720
|
|
|
|
35.0
|
%
|
|
$
|
14,215
|
|
|
|
31.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Provision
|
|
$
|
20,227
|
|
|
|
35.1
|
%
|
|
$
|
36,330
|
|
|
|
40.9
|
%
|
|
$
|
84,425
|
|
|
|
35.5
|
%
|
|
$
|
106,080
|
|
|
|
38.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
DERIVATIVE
FINANCIAL INSTRUMENTS:
|
The Companys major market risk exposure is in the pricing
applicable to its natural gas and oil production. Realized
pricing is primarily driven by the prevailing price for the
Companys Wyoming natural gas production. Historically,
prices received for natural gas production have been volatile
and unpredictable. Pricing volatility is expected to continue.
Gas price realizations averaged $4.76 per Mcf during the nine
months ended September 30, 2007.
The Company primarily relies on fixed price forward gas sales to
manage its commodity price exposure. These fixed price forward
gas sales are considered normal sales. The Company may, from
time to time and to a lesser extent, use derivative instruments
as one way to manage its exposure to commodity prices. The
Company has periodically entered into fixed price to index price
swap agreements in order to hedge a portion of its production.
The oil and natural gas reference prices of these commodity
derivatives contracts are based upon crude oil and natural gas
futures, which have a high degree of historical correlation with
actual prices the Company receives. Under SFAS No. 133
all derivative instruments are recorded on the balance sheet at
fair value. Changes in the derivatives fair value are
recognized currently in earnings unless specific hedge
accounting criteria are met. For qualifying cash flow hedges,
the gain or loss on the derivative is deferred in accumulated
other comprehensive income (loss) to the extent the hedge is
effective. For qualifying fair value hedges, the gain or loss on
the derivative is offset by related results of the hedged item
in the income statement. Gains and losses on hedging instruments
included in accumulated other comprehensive income (loss) are
reclassified to oil and natural gas sales revenue in the period
that the related production is delivered. Derivative contracts
that do not qualify for hedge accounting treatment are recorded
as derivative assets and liabilities at market value in the
consolidated balance sheet, and the associated unrealized gains
and losses are recorded as current expense or income in the
consolidated statement of operations. The Company currently does
not have any derivative contracts in place that do not qualify
as a cash flow hedge.
14
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At September 30, 2007, the Company had the following open
commodity derivative contracts to manage price risk on a portion
of its natural gas production whereby the Company receives the
fixed price and pays the variable price (all prices NWPL Rockies
basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume-
|
|
|
Average
|
|
|
Unrealized
|
|
|
|
|
|
MMBTU/
|
|
|
Price/
|
|
|
Gain at
|
|
Type
|
|
Remaining Contract Period
|
|
Day
|
|
|
MMBTU
|
|
|
09/30/2007*
|
|
|
Swap
|
|
Oct 2007 Dec 2007
|
|
|
10,000
|
|
|
$
|
4.59
|
|
|
$
|
1,271,989
|
|
Swap
|
|
Apr 2008 Oct 2008
|
|
|
60,000
|
|
|
$
|
6.82
|
|
|
$
|
7,145,957
|
|
Swap
|
|
Jan 2009 Dec 2009
|
|
|
30,000
|
|
|
$
|
7.35
|
|
|
$
|
4,741,349
|
|
|
|
|
* |
|
Unrealized gains are not adjusted for income tax effect. |
The Company also utilizes fixed price forward physical delivery
contracts at southwest Wyoming delivery points to hedge its
commodity price exposure. The Company had the following fixed
price physical delivery contracts in place on behalf of its
interest and those of other parties at September 30, 2007.
(The Companys approximate average net interest in physical
gas sales is 80%.)
|
|
|
|
|
|
|
|
|
|
|
Volume-
|
|
|
Average
|
|
Remaining Contract Period
|
|
MMBTU/Day
|
|
|
Price/MMBTU
|
|
|
October 2007
|
|
|
40,000
|
|
|
$
|
6.20
|
|
Calendar 2008
|
|
|
100,000
|
|
|
$
|
6.83
|
|
Calendar 2009
|
|
|
10,000
|
|
|
$
|
7.51
|
|
|
|
8.
|
DISCONTINUED
OPERATIONS:
|
During the third quarter of 2007, we made the decision to
dispose of
Sino-American
Energy Corporation, which owned our Bohai Bay assets in China in
order to focus on our legacy asset in the Pinedale Field in
southwest Wyoming. The reserve volumes sold represent all of
Ultras international assets and, previously, were the only
results included in our foreign operating segment.
On September 26, 2007, Ultra Petroleum Corp.s
wholly-owned subsidiary, UP Energy Corporation, a Nevada
corporation, entered into a definitive share purchase agreement
to sell all of the outstanding shares of
Sino-American
Energy Corporation
(Sino-American),
a Texas corporation, for a total purchase price of
US$223.0 million, subject to adjustments.
Sino-American
held all of Ultra Petroleum Corp.s interests in oil and
gas production sharing contracts in Bohai Bay, China. The
purchaser is SPC E&P (China) Pte. Ltd., a wholly-owned
subsidiary of Singapore Petroleum Company. For tax purposes,
this transaction will be treated as an asset sale as the Company
agreed to make a 338(h)(10) election in the stock purchase
agreement. See Note 9 for further discussion on the
completion of the sale.
The Company has accounted for its
Sino-American
operations as discontinued operations and has reclassified prior
period financial statements to exclude these businesses from
continuing operations. A summary of financial information
related to the Companys discontinued operations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Operating revenues
|
|
$
|
19,254
|
|
|
$
|
17,833
|
|
|
$
|
64,821
|
|
|
$
|
68,336
|
|
Operating expenses
|
|
|
12,110
|
|
|
|
6,724
|
|
|
|
34,192
|
|
|
|
22,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
7,144
|
|
|
|
11,109
|
|
|
|
30,629
|
|
|
|
45,430
|
|
Income tax provision
|
|
|
2,500
|
|
|
|
390
|
|
|
|
10,720
|
|
|
|
14,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
4,644
|
|
|
$
|
10,719
|
|
|
$
|
19,909
|
|
|
$
|
31,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major classes of Assets related to operations held for
sale and Liabilities associated with operations held
for sale on the Balance Sheet at September 30, 2007
and December 31, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
100
|
|
|
$
|
132
|
|
Accounts receivable
|
|
|
6,200
|
|
|
|
2,294
|
|
Inventory
|
|
|
|
|
|
|
408
|
|
Prepaid drilling costs and other current assets
|
|
|
|
|
|
|
4,025
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,300
|
|
|
|
6,859
|
|
Oil and gas properties, net, using the full cost method of
accounting
|
|
|
111,711
|
|
|
|
112,371
|
|
Capital assets
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total assets related to operations held for sale
|
|
$
|
118,011
|
|
|
$
|
119,285
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,529
|
|
|
$
|
833
|
|
Current taxes payable
|
|
|
2,454
|
|
|
|
4,635
|
|
Deferred revenues
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,279
|
|
|
|
5,468
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Deferred income tax liability
|
|
|
6,572
|
|
|
|
6,383
|
|
Other long-term obligations
|
|
|
1,387
|
|
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
Total liabilities associated with operations held for sale
|
|
$
|
13,238
|
|
|
$
|
13,162
|
|
|
|
|
|
|
|
|
|
|
On October 22, 2007, the sale of
Sino-American
Energy Corporation closed for a total purchase price of
US$223.0 million which will result in an after-tax gain on
sale of properties during the quarter ended December 31,
2007 of approximately $70.5 million.
The Company is currently involved in various routine disputes
and allegations incidental to its business operations. While it
is not possible to determine the ultimate disposition of these
matters, the Company believes that the resolution of all such
pending or threatened litigation is not likely to have a
material adverse effect on the Companys financial position
or results of operations.
16
|
|
ITEM 2
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
The following discussion of the financial condition and
operating results of the Company should be read in conjunction
with the consolidated financial statements and related notes of
the Company. Except as otherwise indicated all amounts are
expressed in U.S. dollars. We operate in one industry
segment, natural gas and oil exploration and development with
one geographical segment; the United States. (See Note 8
for a discussion regarding the sale of our Chinese assets).
The Company currently generates the majority of its revenue,
earnings and cash from the production and sales of natural gas
and oil from its property in southwest Wyoming. The price of
natural gas in the southwest Wyoming region is a critical factor
to the Companys business. The price of gas in southwest
Wyoming historically has been volatile. The average realizations
for the period
2003-2007
have ranged from $3.84 to $8.64 per Mcf. This volatility could
be detrimental to the Companys financial performance. The
Company seeks to limit the impact of this volatility on its
results by entering into fixed price forward physical delivery
contracts and swap agreements for gas in southwest Wyoming. The
average realization for the Companys gas during the
quarter ended September 30, 2007 was $4.04 per Mcf.
The Company has grown its natural gas and oil production from
continuing operations significantly over the past three years
and management believes it has the ability to continue growing
production by drilling already identified locations on its
leases in Wyoming. The Company delivered 26% production growth
from continuing operations on an Mcfe basis during the quarter
ended September 30, 2007 as compared to the same quarter in
2006.
On September 27, 2007, the company announced the execution
of a stock purchase agreement for the sale of
Sino-American
Energy Corporation which represents all of Ultras interest
in Bohai Bay, China for $223 million. Proved reserves at
year-end 2006 for
Sino-American
were approximately 4 MMBbls which represented 1% of
Ultras total booked proved reserves. Despite having owned
Sino-American
in the third quarter of 2007, under generally accepted
accounting principles (GAAP), its operations have
been reclassified as Discontinued Operations for the
entire quarter and for the prior-year period. As a result,
production, revenues and expenses associated with
Sino-American
have been removed from continuing operations and reclassified to
discontinued operations. The sale closed on October 22,
2007, with an effective date of June 30, 2007. The
purchaser of
Sino-American
Energy Corporation is SPC E&P (China) Pte Ltd, a
wholly-owned subsidiary of Singapore Petroleum Company Limited.
On January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS No. 123R) which requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors,
including employee stock options, based on estimated fair
values. The Company adopted SFAS No. 123R using the
modified prospective transition method, which requires the
application of the accounting standard as of January 1,
2006, the first day of the Companys fiscal year 2006.
Share-based compensation expense recognized under
SFAS No. 123R for the nine months ended
September 30, 2007 and 2006 was $1.6 million and
$0.7 million, respectively, which consisted of stock-based
compensation expense related to employee stock options. At
September 30, 2007, there was $8.8 million of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under stock incentive plans.
That cost is expected to be recognized over a weighted average
period of 2.24 years. See Note 4 for additional
information.
SFAS No. 123R requires companies to estimate the fair
value of share-based payment awards on the date of grant using
an option-pricing model. The Company utilized a Black-Scholes
option pricing model to measure the fair value of stock options
granted to employees. The value of the portion of the award that
is ultimately expected to vest is recognized as expense over the
requisite service periods in the Companys Consolidated
Statement of Operations. The Companys determination of
fair value of share-based payment awards on the date of grant
using an option-pricing model is affected by the Companys
stock price as well as assumptions regarding a number of highly
complex and subjective variables. These variables include, but
are not limited to, the Companys expected stock price
volatility over the term of the awards, and actual and projected
employee stock option exercise behaviors.
17
The Company uses the full cost method of accounting for oil and
gas operations whereby all costs associated with the exploration
for and development of oil and gas reserves are capitalized on a
country-by-country
basis. Such costs include land acquisition costs, geological and
geophysical expenses, carrying charges on non-producing
properties, costs of drilling both productive and non-productive
wells and overhead charges directly related to acquisition,
exploration and development activities. Substantially all of the
oil and gas activities are conducted jointly with others and,
accordingly, the amounts reflect only the Companys
proportionate interest in such activities. Inflation has not had
a material impact on the Companys results of operations
and is not expected to have a material impact on the
Companys results of operations in the future.
Under the full cost method of accounting, a ceiling test is
performed each quarter. The full cost ceiling test is an
impairment test prescribed by SEC
Regulation S-X
Rule 4-10.
The ceiling test determines a limit, on a
country-by-country
basis, on the book value of oil and gas properties. The
capitalized costs of proved oil and gas properties, net of
accumulated DD&A and the related deferred income taxes, may
not exceed the estimated future net cash flows from proved oil
and gas reserves, generally using prices in effect at the end of
the period held flat for the life of production excluding the
estimated abandonment cost for properties with asset retirement
obligations recorded on the balance sheet and including the
effect of derivative contracts that qualify as cash flow hedges,
discounted at 10%, net of related tax effects, plus the cost of
unevaluated properties and major development.
SEC
Regulation S-X
Rule 4-10 states
that if prices in effect at the end of a quarter are the result
of a temporary decline and prices improve prior to the issuance
of the financial statements, the increased price may be applied
in the computation of the ceiling test. At September 30,
2007, prices in effect in southwest Wyoming were temporarily low
due to a confluence of the following factors: (i) a fire at
a compressor station on a major pipeline that exports natural
gas from Wyoming; (ii) scheduled and unscheduled
maintenance on pipelines in the region; and, (iii) lack of
demand due to mild temperatures in the Rockies region.
Since September 30, 2007, prices have recovered such that
the Companys future net cash flows (as described above)
are in excess of the Companys capitalized costs of proved
oil and gas properties, net of accumulated DD&A and the
related deferred income taxes. If the Company had applied the
price in effect at September 30, 2007 ($0.67 per Mcf), it
would have recognized a ceiling test impairment of
$489.5 million.
RESULTS
OF OPERATIONS
QUARTER
ENDED SEPTEMBER 30, 2007 VS. QUARTER ENDED SEPTEMBER 30,
2006
During the third quarter of 2007, production from continuing
operations increased 26% on an equivalent basis to
26.9 Bcfe from 21.4 Bcfe for the same quarter in 2006
attributable to the Companys successful drilling
activities during 2006 and in the first nine months of 2007.
Average realized prices for natural gas decreased 29% due to a
fire at a compressor station on a major pipeline that exports
natural gas from Wyoming, scheduled and unscheduled maintenance
on pipelines in the region and lack of demand due to mild
temperatures in the Rockies region to $4.04 per Mcf in the
third quarter of 2007 as compared to $5.68 for the third quarter
of 2006. The decrease in realized average natural gas prices
offset by the increase in production contributed to an 8%
decrease in revenues from continuing operations to
$117.2 million as compared to $127.5 million in 2006.
Lease operating expense (LOE) increased to
$6.4 million at September 30, 2007 compared to
$5.4 million at September 30, 2006 due to increased
production volumes along with increased water disposal costs in
Wyoming. On a unit of production basis, LOE costs decreased to
$0.24 per Mcfe at September 30, 2007 compared to $0.25 per
Mcfe at September 30, 2006 due to increased production
volumes. During the third quarter of 2007, production taxes were
$13.0 million compared to $14.5 million during the
third quarter of 2006, or $0.48 per Mcfe, compared to $0.68 per
Mcfe. The decrease in per unit taxes is attributable to the
lower realized gas price received during the quarter ended
September 30, 2007 as compared to the same period in 2006.
Production taxes are calculated based on a percentage of revenue
from production. Gathering fees increased to $6.7 million
at September 30, 2007 compared to $5.5 million at
September 30, 2006 largely due
18
to increased production volumes. On a per unit basis, gathering
fees remained relatively flat at $0.25 per Mcfe for the three
months ended September 30, 2007 as compared to $0.26 per
Mcfe for the same period in 2006.
Depletion, depreciation and amortization (DD&A)
expenses increased to $31.9 million during the quarter
ended September 30, 2007 from $19.6 million for the
same period in 2006, attributable to increased production
volumes and a higher depletion rate, due mainly to forecasted
increased future development costs. On a unit basis, DD&A
increased to $1.18 per Mcfe at September 30, 2007 from
$0.91 at September 30, 2006.
General and administrative expenses declined to
$3.5 million ($0.13 per Mcfe) at September 30, 2007
compared to $4.2 million ($0.20 per Mcfe) for the same
period in 2006. This decrease was primarily attributable to a
reduction in year over year compensation expense in combination
with higher production volumes during the quarter ended
September 30, 2007 as compared to the same period in 2006.
Interest expense increased to $5.6 million during the
quarter ended September 30, 2007 from $0.9 million
during the same period in 2006. The increase is related to
higher outstanding balances under the Companys credit
facility during the quarter ended September 30, 2007 as compared
to the same period in 2006. At September 30, 2007, the
outstanding balance under the credit facility was
$395.0 million while the outstanding balance at
September 30, 2006 was $110.0 million.
Net income before income taxes decreased to $50.5 million
for the quarter ended September 30, 2007 from
$77.7 million for the same period in 2006 primarily as a
result of decreased natural gas prices offset by increased
production.
The income tax provision decreased to $17.7 million for the
three months ended September 30, 2007 as compared to
$35.9 million for the three months ended September 30,
2006 due to lower pre-tax income and lower withholding tax
related to share repurchases (See Note 6).
Discontinued operations, net of tax, (which is comprised
entirely of results associated with the Chinese assets)
decreased to $4.6 million for the quarter ended
September 30, 2007 from $10.7 million for the same
period in 2006. The decrease is primarily related to decreased
oil production and increased LOE and DD&A.
For the quarter ended September 30, 2007, net income
decreased to $37.4 million or $0.24 per diluted share as
compared with $52.5 million or $0.33 per diluted share for
the same period in 2006 primarily attributable to reduced gas
prices realized in 2007.
NINE
MONTHS ENDED SEPTEMBER 30, 2007 VS. NINE MONTHS ENDED SEPTEMBER
30, 2006
During the nine-months ended September 30, 2007, production
from continuing operations increased 45% on an equivalent basis
to 80.8 Bcfe from 55.9 Bcfe for the same nine-month
period in 2006. The increase is primarily attributable to the
additional wells drilled and completed during 2006 along with
the increased drilling and completion during the nine-months
ended September 30, 2007. Average realized prices for
natural gas decreased 23% due to a fire at a compressor station
on a major pipeline that exports natural gas from Wyoming,
scheduled and unscheduled maintenance on pipelines in the region
and lack of demand due to mild temperatures in the Rockies
region to $4.76 per Mcf for the nine months ended
September 30, 2007 as compared to $6.18 for the same period
in 2006. The increase in production offset by the decrease in
realized average natural gas price contributed to a 13% increase
in revenues to $404.7 million as compared to
$358.2 million in 2006.
LOE increased to $16.7 million for the nine months ended
September 30, 2007 compared to $10.2 million during
the same period in 2006 due to increased production volumes as
well as increased water disposal costs in Wyoming. On a unit of
production basis, LOE costs increased to $0.21 per Mcfe during
the nine months ended September 30, 2007 as compared to
$0.18 per Mcfe during the same period ended September 30,
2006 due to increased water disposal costs in Wyoming. During
the nine months ended September 30, 2007 production taxes
were $45.2 million compared to $41.2 million during
the same period in 2006, or $0.56 per Mcfe during nine months
ended September 30, 2007 as compared to $0.74 per Mcfe
during the same period in 2006. Production taxes are calculated
based on a percentage of revenue from production. Gathering fees
increased to $20.1 million during the first nine months of
2007 compared to $13.6 million during the nine
19
months ended September 30, 2006 largely due to increased
production volumes. On a per unit basis, gathering fees remained
relatively flat at $0.25 per Mcfe for the nine months ended
September 30, 2007 compared to $0.24 per Mcfe for the same
period in 2006.
DD&A expenses increased to $94.1 million during the
nine months ended September 30, 2007 from
$50.2 million for the same period in 2006, attributable to
increased production volumes and a higher depletion rate, due to
forecasted increased future development costs. On a unit basis,
DD&A increased to $1.16 per Mcfe for the nine months ended
September 30, 2007 from $0.90 per Mcfe for the same period
in 2006.
General and administrative expenses decreased by 16% to
$10.1 million during the nine months ended
September 30, 2007 compared to $12.1 million for the
same period in 2006. On a per unit basis, general and
administrative expenses decreased to $0.13 per Mcfe during the
nine months ended September 30, 2007 compared with $0.22
per Mcfe for the same period in 2006. This decrease was
primarily attributable to a reduction in year over year
compensation expense in combination with higher production
volumes.
Interest expense increased to $12.5 million during the nine
months ended September 30, 2007 from $1.2 million
during the same period in 2006. The increase is related to
higher outstanding balances under the Companys credit
facility during the first nine months of 2007 as compared to the
same period in 2006.
Net income before income taxes decreased by 11% to
$206.9 million for the nine months ended September 30,
2007 from $231.3 million for the same period in 2006.
The income tax provision decreased 20% to $73.7 million for
the nine months ended September 30, 2007 as compared to
$91.9 million for the nine months ended September 30,
2006 attributable to a decrease in pre-tax income and lower
withholding tax related to share repurchases (See Note 6).
Discontinued operations, net of tax, (which is comprised
entirely of results associated with the Chinese assets)
decreased to $19.9 million for the quarter ended
September 30, 2007 from $31.2 million for the same
period in 2006. The decrease is primarily related to decreased
oil production and increased LOE and DD&A.
For the nine months ended September 30, 2007, net income
decreased by 10% to $153.1 million or $0.96 per diluted
share as compared with $170.6 million or $1.05 per diluted
share for the same period in 2006.
The discussion and analysis of the Companys financial
condition and results of operations is based upon consolidated
financial statements, which have been prepared in accordance
with U.S. GAAP. In addition, application of generally
accepted accounting principles requires the use of estimates,
judgments and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial
statements as well as the revenues and expenses reported during
the period. Changes in these estimates, judgments and
assumptions will occur as a result of future events, and,
accordingly, actual results could differ from amounts estimated.
LIQUIDITY
AND CAPITAL RESOURCES
During the nine month period ended September 30, 2007, the
Company relied on cash provided by operations along with
borrowings under the senior credit facility to finance its
capital expenditures. The Company participated in the drilling
of 144 wells in Wyoming. For the nine-month period ended
September 30, 2007, net capital expenditures were
$531.0 million ($517.1 from continuing operations and
$13.9 million from discontinued operations). At
September 30, 2007, the Company reported a cash position of
$8.7 million compared to $16.8 million at
September 30, 2006. Working capital at September 30,
2007 was $26.9 million compared to a deficit of
$36.9 million at September 30, 2006. As of
September 30, 2007, the Company had $395.0 million in
bank indebtedness outstanding and $105.0 million of
available borrowing capacity under our facility. Other long-term
obligations of $34.3 million comprised of items payable in
more than one year, primarily related to production taxes.
The Companys positive cash provided by operating
activities, along with the availability under the senior credit
facility, are projected to be sufficient to fund the
Companys budgeted capital expenditures for 2007, which are
currently projected to be $740 million. Of the
$740 million budget, the Company plans to allocate
approximately 94% to Wyoming and 4% to Pennsylvania. The
remaining 2% was allocated to Bohai Bay, China.
20
The Company (through its subsidiary) is a party to a revolving
credit facility with a syndicate of banks led by JP Morgan Chase
Bank, N.A. which matures in April 2012. This agreement provides
an initial loan commitment of $500.0 million and may be
increased to a maximum aggregate amount of $750.0 million
at the request of the Company. Each bank has the right, but not
the obligation, to increase the amount of its commitment as
requested by the Company. In the event the existing banks
increase their commitment to an amount less than the requested
commitment amount, then it would be necessary to add new
financial institutions to the credit facility.
Loans under the credit facility are unsecured and bear interest,
at our option, based on (A) a rate per annum equal to the
higher of the prime rate or the weighted average fed funds rate
on overnight transactions during the preceding business day plus
50 basis points, or (B) a base Eurodollar rate,
substantially equal to the LIBOR rate, plus a margin based on a
grid of our consolidated leverage ratio (0.875 basis points
per annum as of September 30, 2007).
The facility has restrictive covenants that include the
maintenance of a ratio of consolidated funded debt to EBITDAX
(earnings before interest, taxes, DD&A and exploration
expense) not to exceed
31/2
times; and as long as our debt rating is below investment grade,
the maintenance of an annual ratio of the net present value of
our oil and gas properties to total funded debt of at least 1.75
to 1.00. At September 30, 2007, we were in compliance with
all of our debt covenants.
During the nine months ended September 30, 2007, net cash
provided by operating activities was $358.2 million, a 9%
increase over the $329.3 million for the same period in
2006. The increase in net cash provided by operating activities
was largely attributable to the increase in production during
the nine months ended September 30, 2007, partially offset
by decreased realized natural gas prices during the nine months
ended September 30, 2007 as compared to the same period in
2006.
During the nine months ended September 30, 2007, net cash
used in investing activities was $528.5 million as compared
to $310.9 million for the same period in 2006. The increase
in net cash used in investing activities is largely due to
increased capital expenditures associated with the
Companys drilling activities in 2007.
During the nine months ended September 30, 2007, net cash
provided by financing activities was $164.5 million as
compared to net cash used in financing activities of
$45.6 million for the same period in 2006. The change in
net financing activities is primarily attributable to borrowings
under the Companys senior credit facility during 2007
offset by increased share repurchases under the Companys
share repurchase program during the nine months ended
September 30, 2006 (See Note 5).
OFF
BALANCE SHEET ARRANGEMENTS
The Company did not have any off-balance sheet arrangements as
of September 30, 2007.
CAUTIONARY
STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts included in this
document, including without limitation, statements in
Managements Discussion and Analysis of Financial Condition
and Results of Operations regarding our financial position,
estimated quantities and net present values of reserves,
business strategy, plans and objectives of the Companys
management for future operations, covenant compliance and those
statements preceded by, followed by or that otherwise include
the words believe, expects,
anticipates, intends,
estimates, projects, target,
goal, plans, objective,
should, or similar expressions or variations on such
expressions are forward-looking statements. The Company can give
no assurances that the assumptions upon which such
forward-looking statements are based will prove to be correct
nor can the Company assure adequate funding will be available to
execute the Companys planned future capital program.
21
Other risks and uncertainties include, but are not limited to,
fluctuations in the price the Company receives 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.
See the Companys annual report on
Form 10-K
for the year ended December 31, 2006 for additional risks
related to the Companys business.
|
|
ITEM 3
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
The Companys major market risk exposure is in the pricing
applicable to its natural gas and oil production. Realized
pricing is primarily driven by the prevailing price for the
Companys Wyoming natural gas production. Historically,
prices received for natural gas production have been volatile
and unpredictable. Pricing volatility is expected to continue.
Gas price realizations averaged $4.76 per Mcf during the nine
months ended September 30, 2007.
The Company primarily relies on fixed price forward gas sales to
manage its commodity price exposure. These fixed price forward
gas sales are considered normal sales. The Company may, from
time to time and to a lesser extent, use derivative instruments
as one way to manage its exposure to commodity prices. The
Company has periodically entered into fixed price to index price
swap agreements in order to hedge a portion of its production.
The oil and natural gas reference prices of these commodity
derivatives contracts are based upon crude oil and natural gas
futures, which have a high degree of historical correlation with
actual prices the Company receives. Under SFAS No. 133
all derivative instruments are recorded on the balance sheet at
fair value. Changes in the derivatives fair value are
recognized currently in earnings unless specific hedge
accounting criteria are met. For qualifying cash flow hedges,
the gain or loss on the derivative is deferred in accumulated
other comprehensive income (loss) to the extent the hedge is
effective. For qualifying fair value hedges, the gain or loss on
the derivative is offset by related results of the hedged item
in the income statement. Gains and losses on hedging instruments
included in accumulated other comprehensive income (loss) are
reclassified to oil and natural gas sales revenue in the period
that the related production is delivered. Derivative contracts
that do not qualify for hedge accounting treatment are recorded
as derivative assets and liabilities at market value in the
consolidated balance sheet, and the associated unrealized gains
and losses are recorded as current expense or income in the
consolidated statement of operations. The Company currently does
not have any derivative contracts in place that do not qualify
as a cash flow hedge.
At September 30, 2007, the Company had the following open
commodity derivative contracts to manage price risk on a portion
of its natural gas production whereby the Company receives the
fixed price and pays the variable price (all prices NWPL Rockies
basis).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume-
|
|
|
Average
|
|
|
Unrealized
|
|
|
|
|
|
MMBTU/
|
|
|
Price/
|
|
|
Gain at
|
|
Type
|
|
Remaining Contract Period
|
|
Day
|
|
|
MMBTU
|
|
|
09/30/2007*
|
|
|
Swap
|
|
Oct 2007 Dec 2007
|
|
|
10,000
|
|
|
$
|
4.59
|
|
|
$
|
1,271,989
|
|
Swap
|
|
Apr 2008 Oct 2008
|
|
|
60,000
|
|
|
$
|
6.82
|
|
|
$
|
7,145,957
|
|
Swap
|
|
Jan 2009 Dec 2009
|
|
|
30,000
|
|
|
$
|
7.35
|
|
|
$
|
4,741,349
|
|
|
|
|
* |
|
Unrealized gains are not adjusted for income tax effect. |
22
The Company also utilizes fixed price forward physical delivery
contracts at southwest Wyoming delivery points to hedge its
commodity price exposure. The Company had the following fixed
price physical delivery contracts in place on behalf of its
interest and those of other parties at September 30, 2007.
(The Companys approximate average net interest in physical
gas sales is 80%.)
|
|
|
|
|
|
|
|
|
|
|
Volume-
|
|
|
Average
|
|
Remaining Contract Period
|
|
MMBTU/Day
|
|
|
Price/MMBTU
|
|
|
October 2007
|
|
|
40,000
|
|
|
$
|
6.20
|
|
Calendar 2008
|
|
|
100,000
|
|
|
$
|
6.83
|
|
Calendar 2009
|
|
|
10,000
|
|
|
$
|
7.51
|
|
|
|
ITEM 4
|
CONTROLS
AND PROCEDURES
|
|
|
(a)
|
Evaluation
of Disclosure Controls and Procedures
|
We have performed an evaluation under the supervision and with
the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures, as
defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act). Our disclosure controls and procedures are the
controls and other procedures that we have designed to ensure
that we record, process, accumulate and communicate information
to our management, including our Chief Executive Officer and
Chief Financial Officer, to allow timely decisions regarding
required disclosures and submissions within the time periods
specified in the SECs rules and forms. All internal
control systems, no matter how well designed, have inherent
limitations. Therefore, even those determined to be effective
can provide only a reasonable assurance with respect to
financial statement preparation and presentation. Based on the
evaluation, our management, including our Chief Executive
Officer and Chief Financial Officer, concluded that our
disclosure controls and procedures were effective as of
September 30, 2007. There were no changes in our internal
control over financial reporting during the nine months ended
September 30, 2007 that have materially affected or are
reasonably likely to affect, our internal control over financial
reporting.
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
The Company is currently involved in various routine disputes
and allegations incidental to its business operations. While it
is not possible to determine the ultimate disposition of these
matters, the Company believes that the resolution of all such
pending or threatened litigation is not likely to have a
material adverse effect on the Companys financial
position, or results of operations.
There have been no material changes with respect to the risk
factors disclosed in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006.
23
|
|
ITEM 2.
|
CHANGES
IN SECURITIES AND USE OF PROCEEDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
(or Approximate
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
Dollar Value)
|
|
|
|
|
|
|
|
|
|
as Part of
|
|
|
of Shares That
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
|
May Yet be
|
|
|
|
Total Number
|
|
|
Average
|
|
|
Announced
|
|
|
Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Plans or
|
|
|
Under the
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Plans or Programs
|
|
|
Jan 1 Jan 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
802 million
|
|
Feb 1 Feb 28, 2007
|
|
|
18,179
|
|
|
$
|
51.87
|
|
|
|
18,179
|
|
|
$
|
801 million
|
|
Mar 1 Mar 31, 2007
|
|
|
149,900
|
|
|
$
|
52.66
|
|
|
|
149,900
|
|
|
$
|
793 million
|
|
Apr 1 Apr 30, 2007
|
|
|
217,350
|
|
|
$
|
55.01
|
|
|
|
217,350
|
|
|
$
|
781 million
|
|
May 1 May 31, 2007
|
|
|
46,142
|
|
|
$
|
62.88
|
|
|
|
46,142
|
|
|
$
|
778 million
|
|
Jun 1 Jun 30, 2007
|
|
|
272,000
|
|
|
$
|
56.41
|
|
|
|
272,000
|
|
|
$
|
763 million
|
|
Jul 1 Jul 31, 2007
|
|
|
312,296
|
|
|
$
|
56.40
|
|
|
|
312,296
|
|
|
$
|
745 million
|
|
Aug 1 Aug 31, 2007
|
|
|
307,000
|
|
|
$
|
54.31
|
|
|
|
307,000
|
|
|
$
|
729 million
|
|
Sep 1 Sep 30, 2007
|
|
|
191,100
|
|
|
$
|
54.85
|
|
|
|
191,100
|
|
|
$
|
718 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,513,967
|
|
|
$
|
55.36
|
|
|
|
1,513,967
|
|
|
$
|
718 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 17, 2006, the Company announced that its Board of
Directors authorized a share repurchase program for up to an
aggregate $1 billion of the Companys outstanding
common stock which has been and will be funded by cash on hand
and the Companys senior credit facility. Pursuant to this
authorization, the Company has commenced a program to purchase
up to $500.0 million of the Companys outstanding
shares through open market transactions or privately negotiated
transactions. The stock repurchase will be funded with cash held
in an Ultra Resources bank account or the Companys senior
credit facility.
During the nine months ended September 30, 2007, the
Company repurchased 1,431,170 shares of its common stock in
open market transactions for an aggregate $78.9 million at
a weighted average price of $55.12 per share. Since the
programs inception in May 2006, the Company has purchased
a total of 5.4 million shares in open market transactions
for an aggregate $276.4 million at a weighted average price
of $51.19 per share.
In addition to the shares repurchased in open market
transactions during the nine months ended September 30,
2007, the Company also acquired 82,797 shares delivered by
employees for $4.9 million to satisfy the exercise price of
the employees stock options and tax withholding
obligations to satisfy tax withholding obligations in connection
with the vesting of equity shares of common stock issued
pursuant to the Companys employee incentive plans.
In total, during the nine months ended September 30, 2007,
the Company repurchased 1,513,967 shares of its common
stock for an aggregate $83.8 million dollars at a weighted
average price of $55.36 per share. Since the programs
inception in May 2006, the Company has repurchased
5.5 million shares of its common stock for an aggregate
$282.1 million at a weighted average price of $51.18 per
share.
|
|
ITEM 3.
|
DEFAULTS
IN SENIOR SECURITIES
|
None.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
|
None.
|
|
ITEM 5.
|
OTHER
INFORMATION
|
None.
24
|
|
ITEM 6.
|
EXHIBITS AND
REPORTS ON
FORM 8-K
|
(a) Exhibits
|
|
|
|
|
|
3
|
.1
|
|
Articles of Incorporation of Ultra Petroleum Corp.
(incorporated by reference to Exhibit 3.1 of the
Companys Quarterly Report on Form 10Q for the period
ended June 30, 2001.)
|
|
3
|
.2
|
|
By-Laws of Ultra Petroleum Corp-(incorporated by reference to
Exhibit 3.2 of the Companys Quarterly Report on
Form 10Q for the period ended June 30, 2001.)
|
|
3
|
.3
|
|
Articles of Amendment to Articles of Incorporation of Ultra
Petroleum Corp. (incorporated by reference to Exhibit 3.3
of the Companys Report on
Form 10-K/A
for the period ended December 31, 2005)
|
|
4
|
.1
|
|
Specimen Common Share Certificate (incorporated by
reference to Exhibit 4.1 of the Companys Quarterly
Report on Form 10Q for the period ended June 30, 2001.)
|
|
10
|
.1
|
|
Credit Agreement dated as of April 30, 2007 among Ultra
Resources, Inc., JPMorgan Chase Bank, N.A. as Administrative
Agent, J.P. Morgan Securities Inc. as Sole Bookrunner and
Sole Lead Arranger, and the Lenders party thereto
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on
Form 10-Q
for the period ended March 31, 2007).
|
|
10
|
.2
|
|
Employment Agreement between the Company and Michael D. Watford
dated August 6, 2007 (incorporated by reference
to Exhibit 10.2 of the Companys Quarterly Report on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.3
|
|
Share Purchase Agreement dated September 26, 2007 between
UP Energy Corporation and SPC E&P (China) Pte.
Ltd. (incorporated by reference to Exhibit 10.1
of the Companys Report on
Form 8-K
filed on September 26, 2007).
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
25
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.
|
|
|
|
By:
|
/s/ Michael
D. Watford
|
Name: Michael D. Watford
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
Date: November 1, 2007
|
|
|
|
By:
|
/s/ Marshall
D. Smith
|
Name: Marshall D. Smith
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: November 1, 2007
26
|
|
|
|
|
|
3
|
.1
|
|
Articles of Incorporation of Ultra Petroleum Corp.
(incorporated by reference to Exhibit 3.1 of the
Companys Quarterly Report on Form 10Q for the period
ended June 30, 2001.)
|
|
3
|
.2
|
|
By-Laws of Ultra Petroleum Corp-(incorporated by reference to
Exhibit 3.2 of the Companys Quarterly Report on
Form 10Q for the period ended June 30, 2001.)
|
|
3
|
.3
|
|
Articles of Amendment to Articles of Incorporation of Ultra
Petroleum Corp. (incorporated by reference to Exhibit 3.3
of the Companys Report on
Form 10-K/A
for the period ended December 31, 2005)
|
|
4
|
.1
|
|
Specimen Common Share Certificate (incorporated by
reference to Exhibit 4.1 of the Companys Quarterly
Report on Form 10Q for the period ended June 30, 2001).
|
|
10
|
.1
|
|
Credit Agreement dated as of April 30, 2007 among Ultra
Resources, Inc., JPMorgan Chase Bank, N.A. as Administrative
Agent, J.P. Morgan Securities Inc. as Sole Bookrunner and
Sole Lead Arranger, and the Lenders party thereto
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on
Form 10-Q
for the period ended March 31, 2007).
|
|
10
|
.2
|
|
Employment Agreement between the Company and Michael D. Watford
dated August 6, 2007 (incorporated by reference
to Exhibit 10.2 of the Companys Quarterly Report on
Form 10-Q
for the period ended June 30, 2007).
|
|
10
|
.3
|
|
Share Purchase Agreement dated September 26, 2007 between
UP Energy Corporation and SPC E&P (China) Pte.
Ltd. (incorporated by reference to Exhibit 10.1
of the Companys Report on
Form 8-K
filed on September 26, 2007).
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
27