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
June 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 July 31, 2007 was
152,219,226.
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 Six Months
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For the Three Months Ended June 30,
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Ended June 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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116,420
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$
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96,044
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$
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263,705
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$
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213,837
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Oil sales
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40,402
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33,849
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69,310
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67,306
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Total operating revenues
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156,822
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129,893
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333,015
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281,143
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Expenses:
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Production expenses and taxes
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33,744
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24,829
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66,665
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49,672
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Depletion and depreciation
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38,239
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18,048
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73,263
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36,688
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General and administrative
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3,675
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3,714
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6,943
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7,916
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Total operating expenses
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75,658
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46,591
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146,871
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94,276
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Operating income
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81,164
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83,302
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186,144
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186,867
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Other income (expense):
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Interest expense
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(4,221
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)
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(139
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(6,921
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(311
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Interest income
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309
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770
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636
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1,344
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Total other income (expense)
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(3,912
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631
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(6,285
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1,033
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Income, before income tax provision
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77,252
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83,933
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179,859
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187,900
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Income tax provision
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28,183
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33,258
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64,199
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69,751
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Net income
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49,069
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50,675
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115,660
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118,149
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Retained earnings, beginning of
period
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691,375
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461,063
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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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740,444
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$
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511,738
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$
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740,444
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$
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511,738
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Income per common
share basic
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$
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0.32
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$
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0.33
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$
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0.76
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$
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0.76
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Income per common
share fully diluted
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$
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0.31
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$
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0.31
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$
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0.73
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$
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0.72
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Weighted average common shares
outstanding basic
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152,022
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155,223
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151,975
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155,222
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Weighted average common shares
outstanding fully diluted
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158,992
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162,966
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159,056
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163,115
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See accompanying notes to consolidated financial statements.
3
ULTRA
PETROLEUM CORP.
CONSOLIDATED
BALANCE SHEETS
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June 30,
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December 31,
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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)
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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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17,481
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$
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14,707
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Restricted cash
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1,874
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667
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Accounts receivable
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108,597
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90,099
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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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1,412
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Inventory
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13,166
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19,337
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Prepaid drilling costs and other
current assets
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649
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3,495
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Total current assets
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151,691
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136,571
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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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1,332,960
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1,048,308
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Unproved
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77,764
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71,060
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Capital assets
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1,679
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1,830
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Other
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2,407
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Total assets
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$
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1,566,501
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$
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1,257,769
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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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122,639
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$
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76,291
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Current taxes payable
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6,133
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6,842
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Capital cost accrual
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85,115
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94,867
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Total current liabilities
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213,887
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178,000
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Long-term debt
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300,000
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165,000
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Deferred income tax liability
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300,400
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259,191
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Other long-term obligations
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26,071
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26,573
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Shareholders equity
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Share capital
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478
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5,415
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Treasury stock
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(16,744
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(1,194
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Retained earnings
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740,444
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624,784
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Accumulated other comprehensive
income
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1,965
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Total shareholders equity
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726,143
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629,005
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Total liabilities and
shareholders equity
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$
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1,566,501
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$
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1,257,769
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See accompanying notes to consolidated financial statements.
4
ULTRA
PETROLEUM CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
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Six Months Ended
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June 30,
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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)
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Cash provided by (used in):
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Operating activities:
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Net income for the period
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$
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115,660
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$
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118,149
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Adjustments to reconcile net
income to net cash provided by operating activities:
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Depletion and depreciation
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73,263
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36,688
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Deferred income taxes
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51,945
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52,128
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Excess tax benefit from stock
based compensation
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(11,548
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)
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(8,058
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Stock compensation
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1,648
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524
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Other
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43
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Net changes in non-cash working
capital:
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Restricted cash
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(1,207
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)
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(1
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)
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Accounts receivable
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(18,498
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)
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3,677
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Inventory
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106
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794
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Prepaid expenses and other current
assets
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3,018
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15
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Accounts payable and accrued
liabilities
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46,349
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28,198
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Deferred revenue
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780
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Other long-term obligations
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(1,748
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)
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1,092
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Taxes payable
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(1,205
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)
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3,725
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Net cash provided by operating
activities
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257,826
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237,711
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Investing activities:
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Oil and gas property expenditures
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(361,507
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(185,940
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Change in capital cost accrual
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(9,752
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)
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8,777
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Inventory
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5,837
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(2,435
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)
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Purchase of capital assets
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(219
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(394
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)
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Net cash used in investing
activities
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(365,641
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(179,992
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Financing activities:
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Borrowings on long-term debt, gross
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135,000
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Payments on long-term debt, gross
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Deferred financing costs
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(1,082
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)
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Repurchased shares
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(39,744
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)
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(73,346
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)
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Stock issued for compensation
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1,741
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Excess tax benefit from stock
based compensation
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11,548
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8,058
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Proceeds from exercise of options
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4,867
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6,682
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Net cash provided by (used in)
financing activities
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110,589
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(56,865
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)
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Increase in cash during the period
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2,774
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|
854
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Cash and cash equivalents,
beginning of period
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14,707
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|
|
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44,395
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Cash and cash equivalents, end of
period
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$
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17,481
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$
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45,249
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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 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.
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1.
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SIGNIFICANT
ACCOUNTING POLICIES:
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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.
(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. Crude oil product inventory at June 30,
2007 includes depletion and lease operating expenses of
$0.1 million associated with the Companys crude oil
production in China. Drilling and completion supplies inventory
of $13.1 million primarily includes the cost of pipe that
will be utilized during the 2007 drilling program.
(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 8).
(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 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 six-months ended June 30,
2007 totaled $64.2 million.
(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
7
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
49,069
|
|
|
$
|
50,675
|
|
|
$
|
115,660
|
|
|
$
|
118,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding during the period
|
|
|
152,022
|
|
|
|
155,223
|
|
|
|
151,975
|
|
|
|
155,222
|
|
Effect of dilutive instruments
|
|
|
6,970
|
|
|
|
7,743
|
|
|
|
7,081
|
|
|
|
7,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding during the period including the effects of dilutive
Instruments
|
|
|
158,992
|
|
|
|
162,966
|
|
|
|
159,056
|
|
|
|
163,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.32
|
|
|
$
|
0.33
|
|
|
$
|
0.76
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
$
|
0.73
|
|
|
$
|
0.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 six-months ended June 30, 2007 and 2006 was
$1.1 million and $0.3 million, respectively, which
consisted of stock-based compensation expense related to
employee stock options. See Note 4 for additional
information.
(m) Revenue Recognition. Within the
Companys United States segment, 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 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.
In China, revenues are recognized when production is sold to a
purchaser at a fixed or determinable price, when delivery has
occurred and title is transferred.
8
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(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 June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
Net income
|
|
$
|
49,069
|
|
|
$
|
50,675
|
|
|
$
|
115,660
|
|
|
$
|
118,149
|
|
Unrealized gain on derivative
instruments, net of tax
|
|
|
1,965
|
|
|
|
|
|
|
|
1,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
51,034
|
|
|
$
|
50,675
|
|
|
$
|
117,625
|
|
|
$
|
118,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o) 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:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Developed Properties:
|
|
|
|
|
|
|
|
|
Acquisition, equipment,
exploration, drilling and environmental costs
Domestic
|
|
$
|
1,520,944
|
|
|
$
|
1,174,683
|
|
Acquisition, equipment,
exploration, drilling and environmental costs China
|
|
|
107,560
|
|
|
|
96,874
|
|
Less accumulated depletion,
depreciation and amortization Domestic
|
|
|
(258,267
|
)
|
|
|
(196,683
|
)
|
Less accumulated depletion,
depreciation and amortization China
|
|
|
(37,277
|
)
|
|
|
(26,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,332,960
|
|
|
|
1,048,308
|
|
Unproven Properties:
|
|
|
|
|
|
|
|
|
Acquisition and exploration
costs Domestic
|
|
|
35,427
|
|
|
|
28,998
|
|
Acquisition and exploration
costs China
|
|
|
42,337
|
|
|
|
42,062
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,410,724
|
|
|
$
|
1,119,368
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Bank indebtedness
|
|
$
|
300,000
|
|
|
$
|
165,000
|
|
Other long-term obligations
|
|
|
26,071
|
|
|
|
26,573
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
326,071
|
|
|
$
|
191,573
|
|
|
|
|
|
|
|
|
|
|
9
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Bank indebtedness: As of April 30, 2007,
the Company (through its subsidiary) entered into a new
revolving credit facility with a syndicate of banks led by JP
Morgan Chase Bank, N.A. which matures in April 2012. This new
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 new 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 June 30, 2007).
At June 30, 2007, we had $300.0 million in outstanding
borrowings under our new credit facility and $200.0 million
of available borrowing capacity under our new facility.
The new 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 June 30, 2007, we were in compliance with all
of our debt covenants.
Prior to April 30, 2007, the Company (through its
subsidiary) participated in a revolving credit facility with a
group of banks led by JP Morgan Chase Bank, N.A. The agreement
specified a maximum loan amount of $500.0 million, an
aggregate borrowing base of $1.1 billion and a commitment
amount of $250.0 million. This agreement was replaced by
the new agreement dated April 30, 2007.
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 six months ended June 30, 2007 and 2006,
respectively, which was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Total cost of share-based payment
plans
|
|
$
|
2,342
|
|
|
$
|
611
|
|
Amounts capitalized in fixed assets
|
|
|
1,194
|
|
|
|
287
|
|
Amounts recognized in income for
amounts previously capitalized in inventory and fixed assets
|
|
|
|
|
|
|
|
|
Amounts charged against income,
before income tax benefit
|
|
$
|
1,148
|
|
|
$
|
324
|
|
Amount of related income tax
benefit recognized in income
|
|
$
|
403
|
|
|
|
114
|
|
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 various restrictions including
vesting provisions and restrictions on transfers and hedging,
among others, and
10
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
Non-Executives
|
|
|
Executives
|
|
|
Non-Executives
|
|
|
Executives
|
|
|
Expected volatility
|
|
|
42.54 43.70
|
%
|
|
|
44.4
|
%
|
|
|
45.0 45.8
|
%
|
|
|
43.5
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected term (in years)
|
|
|
4.75 5.02
|
|
|
|
5.53
|
|
|
|
2.75 4.70
|
|
|
|
3.58
|
|
Risk free rate
|
|
|
4.52 5.07
|
%
|
|
|
4.69
|
%
|
|
|
4.84 5.03
|
%
|
|
|
4.84
|
%
|
Expected forfeiture rate
|
|
|
14.0
|
%
|
|
|
14.0
|
%
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Changes
in Stock Options and Stock Options Outstanding
The following table summarizes the changes in stock options for
the six months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
Options
|
|
|
(US$)
|
|
|
Balance, December 31, 2006
|
|
|
9,082,756
|
|
|
$
|
0.26 to $67.73
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
380,976
|
|
|
$
|
45.95 to $62.23
|
|
Exercised
|
|
|
(704,108
|
)
|
|
$
|
0.38 to $55.58
|
|
Forfeited
|
|
|
(76,432
|
)
|
|
$
|
47.19 to $63.05
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
|
8,683,192
|
|
|
$
|
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. 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 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 assigned threshold and maximum award levels in the event
that performance is below or above target levels. Awards are
11
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 six months ended June 30, 2007, the Company
recognized $268,802, $280,006 and $274,130 in pre-tax
compensation expense related to the 2005 LTIP, 2006 LTIP and
2007 LTIP, respectively. For the six months ended June 30,
2006, the Company recognized $335,678 and $344,547 in pre-tax
compensation expense related to the 2005 LTIP and 2006 LTIP,
respectively. The amounts recognized during the first six months
of 2007 and 2006 assume that maximum performance objectives are
attained. If the Company ultimately attains maximum performance
objectives, the associated total compensation expense, estimated
at June 30, 2007, for the three year performance periods
would be approximately $2.1 million, $2.6 million and
$2.9 million (before taxes) related to the 2005 LTIP, 2006
LTIP and 2007 LTIP, respectively.
For the six months ended June 30, 2007, the Company
recognized $266,154 in pre-tax compensation expense related to
the Best in Class Incentive Compensation Plan. For the six
months ended June 30, 2006, the Company recognized $544,168
in pre-tax compensation expense related to the Best in Class
plan. 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 expense will be approximately $3.5 million
before income taxes, of which the Company has expensed
$2.7 million as of June 30, 2007.
12
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has two reportable operating segments, one domestic
and one foreign, which are in the business of natural gas and
crude oil exploration and production. The accounting policies of
the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates
performance based on profit or loss from oil and gas operations
before price-risk management and other, general and
administrative expenses and interest expense. The Companys
reportable operating segments are managed separately based on
their geographic locations. Financial information by operating
segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Domestic
|
|
|
China
|
|
|
Total
|
|
|
Domestic
|
|
|
China
|
|
|
Total
|
|
|
Oil and gas sales
|
|
$
|
130,872
|
|
|
$
|
25,950
|
|
|
$
|
156,822
|
|
|
$
|
104,822
|
|
|
$
|
25,071
|
|
|
$
|
129,893
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation
|
|
|
32,591
|
|
|
|
5,648
|
|
|
|
38,239
|
|
|
|
15,377
|
|
|
|
2,671
|
|
|
|
18,048
|
|
Lease operating expenses
|
|
|
5,574
|
|
|
|
2,982
|
|
|
|
8,556
|
|
|
|
2,398
|
|
|
|
1,926
|
|
|
|
4,324
|
|
Production taxes
|
|
|
14,694
|
|
|
|
3,514
|
|
|
|
18,208
|
|
|
|
12,049
|
|
|
|
4,093
|
|
|
|
16,142
|
|
Gathering
|
|
|
6,980
|
|
|
|
|
|
|
|
6,980
|
|
|
|
4,363
|
|
|
|
|
|
|
|
4,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
71,033
|
|
|
|
13,806
|
|
|
|
84,839
|
|
|
|
70,635
|
|
|
|
16,381
|
|
|
|
87,016
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
3,675
|
|
|
|
|
|
|
|
|
|
|
|
3,714
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
3,912
|
|
|
|
|
|
|
|
|
|
|
|
(631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
77,252
|
|
|
|
|
|
|
|
|
|
|
$
|
83,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
191,494
|
|
|
$
|
3,235
|
|
|
$
|
194,729
|
|
|
$
|
105,645
|
|
|
$
|
7,095
|
|
|
$
|
112,740
|
|
Net oil and gas properties at
June 30, 2007 and December 31, 2006, respectively
|
|
$
|
1,298,104
|
|
|
$
|
112,620
|
|
|
$
|
1,410,724
|
|
|
$
|
1,006,998
|
|
|
$
|
112,370
|
|
|
$
|
1,119,368
|
|
13
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Domestic
|
|
|
China
|
|
|
Total
|
|
|
Domestic
|
|
|
China
|
|
|
Total
|
|
|
Oil and gas sales
|
|
$
|
287,448
|
|
|
$
|
45,567
|
|
|
$
|
333,015
|
|
|
$
|
230,639
|
|
|
$
|
50,504
|
|
|
$
|
281,143
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation
|
|
|
62,220
|
|
|
|
11,043
|
|
|
|
73,263
|
|
|
|
30,633
|
|
|
|
6,055,438
|
|
|
|
36,688
|
|
Lease operating expenses
|
|
|
10,251
|
|
|
|
5,609
|
|
|
|
15,860
|
|
|
|
4,807
|
|
|
|
4,714
|
|
|
|
9,521
|
|
Production taxes
|
|
|
32,207
|
|
|
|
5,125
|
|
|
|
37,332
|
|
|
|
26,674
|
|
|
|
5,365
|
|
|
|
32,039
|
|
Gathering
|
|
|
13,473
|
|
|
|
|
|
|
|
13,473
|
|
|
|
8,112
|
|
|
|
|
|
|
|
8,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
169,297
|
|
|
|
23,790
|
|
|
|
193,087
|
|
|
|
160,413
|
|
|
|
34,370
|
|
|
|
194,783
|
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
6,943
|
|
|
|
|
|
|
|
|
|
|
|
7,916
|
|
Other (income) expense
|
|
|
|
|
|
|
|
|
|
|
6,285
|
|
|
|
|
|
|
|
|
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
179,859
|
|
|
|
|
|
|
|
|
|
|
$
|
187,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
350,547
|
|
|
$
|
10,960
|
|
|
$
|
361,507
|
|
|
$
|
172,185
|
|
|
$
|
13,755
|
|
|
$
|
185,940
|
|
Net oil and gas properties at
June 30, 2007 and December 31, 2006, respectively
|
|
$
|
1,298,104
|
|
|
$
|
112,620
|
|
|
$
|
1,410,724
|
|
|
$
|
1,006,998
|
|
|
$
|
112,370
|
|
|
$
|
1,119,368
|
|
|
|
6.
|
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 six months ended June 30, 2007, the Company
repurchased 639,250 shares of its common stock in open
market transactions for an aggregate $35.2 million at a
weighted average price of $55.05 per share. Since the
programs inception in May 2006, the Company has purchased
a total of 4.6 million shares in open market transactions
for an aggregate $232.7 million at a weighted average price
of $50.50 per share.
In addition to the shares repurchased in open market
transactions, the Company also acquired 64,321 shares
delivered by employees for $3.8 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 six months ended June 30, 2007, the
Company repurchased 703,571 shares of its common stock for
an aggregate $39.0 million dollars at a weighted average
price of $55.48 per share. Since the programs inception in
May 2006, the Company has repurchased 4.7 million shares of
its common stock for an aggregate $237.3 million at a
weighted average price of $50.48 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
14
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
June 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 was any interest expense
recognized during the six months ended June 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
June 30, 2008.
The following table summarizes the components of Income Tax
Expense for the three and six months ended June 30, 2007
and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
$
|
|
|
Rate
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China
|
|
$
|
5,661
|
|
|
|
7.3
|
%
|
|
$
|
7,290
|
|
|
|
8.7
|
%
|
|
$
|
9,645
|
|
|
|
5.3
|
%
|
|
$
|
13,825
|
|
|
|
7.4
|
%
|
US AMT, other
|
|
|
15
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
1,541
|
|
|
|
0.9
|
%
|
|
|
|
|
|
|
0.0
|
%
|
Withholding taxes-stock
distribution
|
|
|
1,068
|
|
|
|
1.4
|
%
|
|
|
3,797
|
|
|
|
4.5
|
%
|
|
|
1,068
|
|
|
|
0.6
|
%
|
|
|
3,798
|
|
|
|
2.0
|
%
|
Deferred tax expense
|
|
|
21,440
|
|
|
|
27.8
|
%
|
|
|
22,171
|
|
|
|
26.4
|
%
|
|
|
51,945
|
|
|
|
28.9
|
%
|
|
|
52,128
|
|
|
|
27.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Provision
|
|
$
|
28,183
|
|
|
|
36.5
|
%
|
|
$
|
33,258
|
|
|
|
39.6
|
%
|
|
$
|
64,199
|
|
|
|
35.7
|
%
|
|
$
|
69,751
|
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
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 $5.13 per Mcf during the six
months ended June 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
15
ULTRA
PETROLEUM CORP.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 June 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
|
|
|
06/30/2007*
|
|
|
Swap
|
|
|
Apr 2008 Oct 2008
|
|
|
|
10,000
|
|
|
$
|
7.10
|
|
|
$
|
926,771
|
|
Swap
|
|
|
Apr 2008 Oct 2008
|
|
|
|
10,000
|
|
|
$
|
7.12
|
|
|
$
|
1,009,952
|
|
Swap
|
|
|
Apr 2008 Oct 2008
|
|
|
|
10,000
|
|
|
$
|
7.16
|
|
|
$
|
1,090,443
|
|
|
|
|
* |
|
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 June 30, 2007. (The
Companys approximate average net interest in physical gas
sales is 80%.)
|
|
|
|
|
|
|
|
|
|
|
Volume -
|
|
|
Average
|
|
Remaining Contract Period
|
|
MMBTU/Day
|
|
|
Price/MMBTU
|
|
|
April 2007 October 2007
|
|
|
40,000
|
|
|
$
|
6.20
|
|
Calendar 2008
|
|
|
100,000
|
|
|
$
|
6.83
|
|
April 2008 October 2008
|
|
|
30,000
|
|
|
$
|
7.13
|
|
Calendar 2009
|
|
|
10,000
|
|
|
$
|
7.51
|
|
Subsequent to June 30, 2007 and through August 3,
2007, the Company has entered into the following 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
|
|
Type
|
|
Remaining Contract Period
|
|
|
MMBTU/Day
|
|
|
Price/MMBTU
|
|
|
Swap
|
|
|
Aug 2007 Dec 2007
|
|
|
|
10,000
|
|
|
$
|
4.59
|
|
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
two geographical segments; the United States and China.
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 June 30, 2007 was $4.38 per Mcf. The
Companys average realized crude oil price for its Bohai
Bay production was $59.72 USD per barrel for the quarter ended
June 30, 2007.
The Company has grown its natural gas and oil production
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 57% production growth on an Mcfe basis during
the quarter ended June 30, 2007 as compared to the same
quarter in 2006.
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 six months ended June 30,
2007 and 2006 was $1.1 million and $0.3 million,
respectively, which consisted of stock-based compensation
expense related to employee stock options. At June 30,
2007, there was $10.8 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
2.49 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.
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 to
the Companys cost centers. 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. Separate cost centers are maintained for the United
States and China. 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.
17
RESULTS
OF OPERATIONS
QUARTER
ENDED JUNE 30, 2007 VS. QUARTER ENDED JUNE 30,
2006
During the first quarter of 2007, production increased 57% on an
equivalent basis to 30.5 Bcfe from 19.5 Bcfe for the
same quarter in 2006 attributable to the Companys
successful drilling activities during 2006 and in the first half
of 2007 along with continued production in China. Average
realized prices for natural gas decreased 25% to $4.38 per Mcf
in the second quarter of 2007 as compared to $5.85 for the
second quarter of 2006. The increase in production offset by the
decrease in realized average natural gas price contributed to a
21% increase in revenues to $156.8 million as compared to
$129.9 million in 2006.
Domestically, lease operating expense (LOE)
increased to $5.6 million at June 30, 2007 compared to
$2.4 million at June 30, 2006 due to increased
production volumes along with increased water disposal costs in
Wyoming. On a unit of production basis, LOE costs increased to
$0.20 per Mcfe at June 30, 2007 compared to $0.14 per Mcfe
at June 30, 2006 due to increased water disposal costs in
Wyoming. During the first quarter of 2007, production taxes were
$14.7 million compared to $12.0 million during the
second quarter of 2006, or $0.53 per Mcfe, compared to $0.70 per
Mcfe. The decrease in per unit taxes is attributable to the
lower realized gas price received during the quarter ended
June 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 $7.0 million
at June 30, 2007 compared to $4.4 million at
June 30, 2006 largely due to increased production volumes.
On a per unit basis, gathering fees remained flat at $0.25 per
Mcfe for the three months ended June 30, 2007 as compared
to the same period in 2006.
Domestically, depletion, depreciation and amortization
(DD&A) expenses increased to $32.6 million
during the quarter ended June 30, 2007 from
$15.4 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 $1.17 per Mcfe at June 30, 2007 from
$0.89 at June 30, 2006.
In China, LOE increased to $3.0 million for the quarter
ended June 30, 2007 ($1.14 per Mcfe or $6.84 per BOE)
compared to $1.9 million ($0.83 per Mcfe and $4.98 per BOE)
for quarter ended June 30, 2006. The increase in production
costs is largely attributable to higher costs associated with
new fields brought on production during 2006. Severance taxes in
China decreased to $3.5 million ($1.35 per Mcfe or $8.10
per BOE) for the three months ended June 30, 2007 from
$4.1 million ($1.77 per mcfe or $10.62 per BOE) for the
three months ended June 30, 2006. The decrease is due
primarily to lower assessments under the Petroleum Special
Profits Tax levied by the Chinese government beginning in April
2006 as a result of lower realized oil prices during the second
quarter of 2007 as compared to the same period in 2006.
DD&A expense in China was $5.6 million ($2.17 per Mcfe
or $13.02 per BOE) for the quarter ended June 30, 2007 as
compared to $2.7 million ($1.16 per Mcfe or $6.96 per BOE)
for the same period in 2006. This increase is largely
attributable to increased costs being allocated from unevaluated
properties to the full cost pool.
General and administrative expenses remained flat at
$3.7 million ($0.12 per Mcfe) at June 30, 2007
compared to $3.7 million ($0.19 per Mcfe) for the same
period in 2006. This decrease in per unit costs is attributable
to higher production volumes during the quarter ended
June 30, 2007 as compared to the same period in 2006.
Interest expense increased to $4.2 million during the
quarter ended June 30, 2007 from $0.1 million during
the same period in 2006. The increase is related to higher
outstanding balances under the Companys credit facility
during the quarter ended June 30, 2007 as compared to the
same period in 2006. At June 30, 2007, the outstanding
balance under the credit facility was $300.0 million while
the outstanding balance at June 30, 2006 was zero.
Net income before income taxes decreased to $77.3 million
for the quarter ended June 30, 2007 from $83.9 million
for the same period in 2006. The income tax provision decreased
to $28.2 million for the three months ended June 30,
2007 as compared to $33.3 million for the three months
ended June 30, 2006. For the
18
quarter ended June 30, 2007, net income decreased slightly
to $49.1 million or $0.31 per diluted share as compared
with $50.7 million or $0.31 per diluted share for the same
period in 2006.
SIX
MONTHS ENDED JUNE 30, 2007 VS. SIX MONTHS ENDED JUNE 30,
2006
During the six-months ended June 30, 2007, production
increased 49% on an equivalent basis to 59.0 Bcfe from
39.6 Bcfe for the same six-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 first six-months of 2007.
Average realized prices for natural gas decreased 21% to $5.13
per Mcf for the six months ended June 30, 2007 as compared
to $6.49 for the same period in 2006. The increase in production
offset by the decrease in realized average natural gas price
contributed to an 18% increase in revenues to
$333.0 million as compared to $281.1 million in 2006.
Domestically, LOE increased to $10.3 million for the six
months ended June 30, 2007 compared to $4.8 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 $0.19 per
Mcfe during the six months ended June 30, 2007 as compared
to $0.14 per Mcfe during the same period ended June 30,
2006 due to increased water disposal costs in Wyoming. During
the six months ended June 30, 2007 production taxes were
$32.2 million compared to $26.7 million during the
same period in 2006, or $0.60 per Mcfe during six months ended
June 30, 2007 as compared to $0.77 per Mcfe during the
first half of 2006. Production taxes are calculated based on a
percentage of revenue from production. Gathering fees increased
to $13.5 million during the first half of 2007 compared to
$8.1 million during the six months ended June 30, 2006
largely due to increased production volumes. On a per unit
basis, gathering fees increased slightly to $0.25 per Mcfe for
the six months ended June 30, 2007 from $0.24 per Mcfe for
the same period in 2006.
Domestically, DD&A expenses increased to $62.2 million
during the first half of 2007 from $30.6 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 $1.15 per Mcfe for the six months ended June 30, 2007
from $0.89 per Mcfe for the same period in 2006.
In China, LOE was $5.6 million during the six months ending
June 30, 2007 ($1.10 per Mcfe or $6.60 per BOE) compared to
$4.7 million ($0.92 per Mcfe or $5.52 per BOE) during the
same period in 2006. The increase is largely attributable to
higher costs associated with new fields brought on production
during 2006. Severance taxes in China decreased slightly to
$5.1 million ($1.00 per Mcfe or $6.00 per BOE) for the six
months ended June 30, 2007 from $5.4 million ($1.05
per Mcfe or $6.30 per BOE) for the same period in 2006. The
decrease is due primarily to lower assessments under the
Petroleum Special Profits Tax levied by the Chinese government
beginning in April 2006 as a result of lower realized oil prices
during the first half of 2007 as compared to the same period in
2006.
DD&A expense in China was $11.0 million ($2.16 per
Mcfe or $12.96 per BOE) for the first half of 2007 as compared
to $6.1 million ($1.19 per Mcfe or $7.14 per BOE) for the
same period in 2006. This increase is largely attributable to
higher DD&A rates as a result of costs being allocated from
unevaluated properties to the full cost pool.
General and administrative expenses decreased by 12% to
$6.9 million during the first half of 2007 compared to
$7.9 million for the same period in 2006. On a per unit
basis, general and administrative expenses decreased to $0.12
per Mcfe during the six months ended June 30, 2007 compared
with $0.20 per Mcfe for the same six months ended June 30,
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 $6.9 million during the six
months ended June 30, 2007 from $0.3 million during
the same period in 2006. The increase is related to higher
outstanding balances under the Companys credit facility
during the first half of 2007 as compared to the same period in
2006.
Net income before income taxes decreased slightly by 4% to
$179.9 million for the six months ended June 30, 2007
from $187.9 million for the same period in 2006. The income
tax provision decreased 8% to $64.2 million for the six
months ended June 30, 2007 as compared to
$69.8 million for the six months ended
19
June 30, 2006, attributable to a decrease in pre-tax
income. For the six months ended June 30, 2007, net income
decreased slightly by 2% to $115.7 million or $0.73 per
diluted share as compared with $118.1 million or $0.72 per
diluted share for the same period in 2006. The increase in
diluted earnings per share is attributable to the Companys
share repurchase program, which was implemented beginning in May
2006 (See Note 6).
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 six month period ended June 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 90 wells in Wyoming and continued to participate in the
exploration and development processes in the China blocks
including the ongoing batch drilling program for the development
wells. For the six-month period ended June 30, 2007, net
capital expenditures were $361.5 million. At June 30,
2007, the Company reported a cash position of $17.5 million
compared to $45.2 million at June 30, 2006. Working
capital at June 30, 2007 was a deficit of
$62.2 million compared to a deficit of $0.6 million at
June 30, 2006. As of June 30, 2007, the Company had
$300.0 million in bank indebtedness outstanding and
$200.0 million of available borrowing capacity under our
facility. Other long-term obligations of $26.1 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 93% to Wyoming, 4% to Pennsylvania and 3% to China.
As of April 30, 2007, the Company (through its subsidiary)
entered into a new revolving credit facility with a syndicate of
banks led by JP Morgan Chase Bank, N.A. which matures in April
2012. This new 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 new 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 June 30, 2007).
At June 30, 2007, we had $300.0 million in outstanding
borrowings under our new credit facility and $200.0 million
of available borrowing capacity under our new facility.
The new 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 June 30, 2007, we were in compliance with all
of our debt covenants.
Prior to April 30, 2007, the Company (through its
subsidiary) participated in a revolving credit facility with a
group of banks led by JP Morgan Chase Bank, N.A. The agreement
specified a maximum loan amount
20
of $500.0 million, an aggregate borrowing base of
$1.1 billion and a commitment amount of
$250.0 million. This agreement was replaced by the new
agreement dated April 30, 2007.
During the six months ended June 30, 2007, net cash
provided by operating activities was $257.8 million, an 8%
increase over the $237.7 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 first half of 2007, partially offset by decreased realized
prices during the six months ended June 30, 2007 as
compared to the same period in 2006.
During the six months ended June 30, 2007, net cash used in
investing activities was $365.6 million as compared to
$180.0 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 six months ended June 30, 2007, net cash
provided by financing activities was $110.6 million as
compared to net cash used in financing activities of
$56.9 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 six months ended
June 30, 2006 (See Note 6).
OFF
BALANCE SHEET ARRANGEMENTS
The Company did not have any off-balance sheet arrangements as
of June 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.
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 $5.13 per Mcf during the six
months ended June 30, 2007.
21
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 June 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).
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Volume-
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Average
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Unrealized
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MMBTU/
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Price/
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|
Gain at
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Type
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|
Remaining Contract Period
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Day
|
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MMBTU
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06/30/2007*
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Swap
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Apr 2008 Oct 2008
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10,000
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$
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7.10
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$
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926,771
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Swap
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Apr 2008 Oct 2008
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10,000
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$
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7.12
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$
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1,009,952
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Swap
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Apr 2008 Oct 2008
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10,000
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$
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7.16
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$
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1,090,443
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* |
|
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 June 30, 2007. (The
Companys approximate average net interest in physical gas
sales is 80%.)
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Volume-
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Average
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Remaining Contract Period
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MMBTU/Day
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Price/MMBTU
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April 2007 October 2007
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40,000
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$
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6.20
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Calendar 2008
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100,000
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$
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6.83
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April 2008 October 2008
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30,000
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$
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7.13
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Calendar 2009
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10,000
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$
|
7.51
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|
Subsequent to June 30, 2007 and through August 3,
2007, the Company has entered into the following 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):
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Volume
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Average
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Type
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|
Remaining Contract Period
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MMBTU/Day
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Price/MMBTU
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Swap
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Aug 2007 Dec 2007
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10,000
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$
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4.59
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ITEM 4
|
CONTROLS
AND PROCEDURES
|
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(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
22
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
June 30, 2007. There were no changes in our internal
control over financial reporting during the six months ended
June 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.
|
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ITEM 2.
|
CHANGES
IN SECURITIES AND USE OF PROCEEDS
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Total Number
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Maximum Number
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of Shares
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(or Approximate
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Purchased
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Dollar Value)
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as Part of
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of Shares That
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Publicly
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May Yet be
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Total Number
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Average
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Announced
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Purchased
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|
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
|
|
|
|
18,179
|
|
|
$
|
778 million
|
|
Jun 1 Jun 30, 2007
|
|
|
272,000
|
|
|
$
|
56.41
|
|
|
|
272,000
|
|
|
$
|
763 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
703,571
|
|
|
$
|
55.48
|
|
|
|
703,571
|
|
|
$
|
763 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 an initial program to
purchase up to $500.0 million of shares of its common stock
through open market transactions or privately negotiated
transactions. During the six months ended June 30, 2007,
the Company has repurchased 639,250 shares of its common
stock in open market transactions for an aggregate
$35.2 million at a weighted average price of $55.05 per
share. Since the programs inception in May 2006, the
Company has purchased a total of 4.6 million shares in open
market transactions for an aggregate $232.7 million at a
weighted average price of $50.50 per share.
23
In addition to the shares repurchased in open market
transactions, the Company also acquired 64,321 shares
delivered by employees for $3.8 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 six months ended June 30, 2007, the
Company repurchased 703,571 shares of its common stock for
an aggregate $39.0 million dollars at a weighted average
price of $55.48 per share. Since the programs inception in
May 2006, the Company has repurchased 4.7 million shares of
its common stock for an aggregate $237.3 million at a
weighted average price of $50.48 per share.
|
|
ITEM 3.
|
DEFAULTS
IN SENIOR SECURITIES
|
None.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
|
The Company held its annual meeting on June 14, 2007. At
the annual meeting the entire board of directors of the Company
was elected. The votes cast for each of the directors proposed
by the Companys definitive proxy statement on
Schedule 14A was as follows:
|
|
|
|
|
Michael D. Watford
|
|
|
|
127,487,357 voted in favor, zero
voted against and 268,954 votes withheld.
|
W. Charles Helton
|
|
|
|
126,196,192 voted in favor, zero
voted against and 1,561,067 votes withheld.
|
Stephen J. McDaniel
|
|
|
|
126,714,729 voted in favor, zero
voted against and 1,042,530 votes withheld.
|
James C. Roe
|
|
|
|
127,025,213 voted in favor, zero
voted against and 732,046 votes withheld.
|
Robert E. Rigney
|
|
|
|
125,317,592 voted in favor, zero
voted against and 2,438,719 votes withheld.
|
The shareholders of the Company approved the appointment of
Ernst & Young, LLP as the Companys independent
auditors for 2007. There were 127,622,914 votes in favor of
approval of the appointment of Ernst & Young, LLP as
the Companys auditors, zero votes against and 134,346
votes withheld.
The shareholders of the Company voted against the shareholder
proposal with 48,940,007 votes against, 21,093,126 votes in
favor of the proposal, 25,963,710 votes withheld and 31,762,417
Broker Non-votes.
A total of 127,759,260 shares were voted by
220 shareholders, representing 84% of the Companys
outstanding shares.
|
|
ITEM 5.
|
OTHER
INFORMATION
|
The Company and Michael D. Watford entered into an employment
agreement, effective as of February 1, 2007 similar to the
previous employment agreement between the Company and
Mr. Watford. The agreement has an initial term of three
years, and will be automatically extended for successive
one-year periods unless earlier terminated or upon the election
of the Companys board of directors not to renew the
agreement. Under the agreement, Mr. Watford agrees to serve
as chairman, CEO and president of the Company for a salary of
$600,000 per year. The salary is to be reviewed annually by the
Companys compensation committee, which may recommend
increases to the board of directors based on
Mr. Watfords performance and then-current market
conditions for comparable positions. Mr. Watford is
entitled to participate in long-term incentive plans adopted by
the Company, to reimbursement of reasonable business expenses,
to participate in and receive all rights and benefits under any
life insurance, disability, medical and dental, health and
accident plans, and to participate in programs adopted for
senior employees of the Company, including rights and benefits
under the Companys insurance program. The agreement
provides that the Company will provide Mr. Watford with an
automobile and will pay actual operating costs of the automobile.
The Company is entitled to terminate the Agreement at any time
for cause, in which case Mr. Watford will be entitled to no
severance or other termination benefit. Cause includes the
willful failure or refusal of Mr. Watford to render
services to the Company in accordance with the employment
agreement, the
24
commission by Mr. Watford of an act of fraud or
embezzlement against the Company or any other act which is
materially and demonstrably injurious to the Company, or if
Mr. Watford has been convicted of a felony.
Mr. Watford is entitled to a one-time severance payment
equal to 100% of his salary for the 12 months immediately
preceding the termination plus an amount equal to
Mr. Watfords most recent annual bonus if:
|
|
|
|
|
Mr. Watford and the Company cannot agree to the terms of an
extension of the agreement, or if the Company elects not to
renew the agreement at the end of the initial term or any
extended term,
|
|
|
|
The agreement is terminated by the Company other than for just
cause (except in connection with a change of control), or
|
|
|
|
Mr. Watford terminates the Agreement because his
responsibilities or duties with the Company materially change,
the Company fails to provide to Mr. Watford the
compensation he is entitled to under the agreement,
Mr. Watford is required to relocate outside of Houston,
Texas, or there is a material breach by the Company of any
provision of the agreement (provided such termination is within
two years of any such event).
|
Mr. Watford is entitled to a one-time severance payment
equal to two and a half times the sum of 100% of his salary for
the 12 months immediately preceding the termination plus an
amount equal to his most recent bonus upon the termination by
either Mr. Watford or the Company of this agreement
following a change of control. Change of control is
defined in the employment agreement. In addition, all stock
options shall immediately vest in full, all outstanding Best in
Class stock awards shall become 150% vested and awards under the
Companys long term incentive plan shall vest and be
payable at the maximum award level.
The agreement also provides that Mr. Watford is entitled to
tax gross up payments in certain cases.
|
|
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.
|
|
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
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ULTRA PETROLEUM CORP.
|
|
|
|
By:
|
/s/ Michael
D. Watford
|
Name: Michael D. Watford
|
|
|
|
Title:
|
Chairman, President and Chief Executive Officer
|
Date: August 8, 2007
|
|
|
|
By:
|
/s/ Marshall
D. Smith
|
Name: Marshall D. Smith
|
|
|
|
Title:
|
Chief Financial Officer
|
Date: August 8, 2007
26
EXHIBIT INDEX
|
|
|
|
|
|
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.
|
|
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