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 MARCH 31, 2006 |
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 |
(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 |
(Address of principal executive offices)
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(Zip code) |
(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 May 2,
2006 was 155,547,929.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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March 31, |
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2006 |
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2005 |
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Revenues: |
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Natural gas sales |
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$ |
117,792,848 |
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$ |
73,950,973 |
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Oil sales |
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33,457,394 |
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15,413,043 |
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151,250,242 |
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89,364,016 |
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Expenses: |
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Production expenses and taxes |
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24,842,626 |
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16,614,588 |
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Depletion and depreciation |
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18,640,141 |
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11,239,509 |
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General and administrative expenses |
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4,202,345 |
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3,176,361 |
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47,685,112 |
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31,030,458 |
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Operating income |
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103,565,130 |
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58,333,558 |
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Other (expense) income: |
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Interest expense |
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(171,781 |
) |
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(900,643 |
) |
Interest income |
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573,053 |
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74,865 |
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401,272 |
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(825,778 |
) |
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Income for the period, before income tax provision |
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103,966,402 |
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57,507,780 |
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Income tax provision |
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36,492,207 |
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20,185,231 |
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Net income for the period |
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67,474,195 |
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37,322,549 |
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Retained earnings, beginning of period |
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393,588,558 |
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165,288,311 |
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Retained earnings, end of period |
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$ |
461,062,753 |
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$ |
202,610,860 |
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Net income per common share basic |
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$ |
0.43 |
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$ |
0.25 |
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Net income per common share diluted |
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$ |
0.41 |
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$ |
0.23 |
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Weighted average common shares outstanding basic |
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155,220,836 |
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150,862,214 |
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Weighted average common shares outstanding diluted |
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163,204,385 |
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160,950,546 |
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2
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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(Expressed in U.S. Dollars) |
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Three Months Ended |
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March 31, |
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2006 |
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2005 |
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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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$ |
67,474,195 |
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$ |
37,322,549 |
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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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18,640,141 |
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11,239,509 |
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Deferred income taxes |
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29,957,207 |
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20,185,231 |
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Stock compensation |
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668 |
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614,576 |
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Net changes in non-cash working capital: |
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Restricted cash |
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(581 |
) |
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(412 |
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Accounts receivable |
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8,900,403 |
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10,339,753 |
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Inventory |
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711,000 |
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(675,463 |
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Prepaid expenses and other current assets |
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7,402 |
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(2,560,819 |
) |
Accounts payable and accrued liabilities |
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(269,022 |
) |
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15,528,963 |
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Other long-term obligations |
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6,413,817 |
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248,147 |
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Taxes payable |
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2,970,010 |
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Net cash provided by operating activities |
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134,805,240 |
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92,242,034 |
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Investing activities: |
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Oil and gas property expenditures |
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(73,199,932 |
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(53,816,245 |
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Change in capital cost accrual |
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(10,148,123 |
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(18,726,012 |
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Inventory |
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981,635 |
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(9,512,988 |
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Purchase of capital assets |
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(139,039 |
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(74,059 |
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Net cash used in investing activities |
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(82,505,459 |
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(82,129,304 |
) |
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Financing activities: |
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Borrowings on long-term debt, gross |
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13,000,000 |
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Payments on long-term debt, gross |
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(28,000,000 |
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Tax benefit realized from share options exercised |
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1,741,003 |
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Proceeds from exercise of options |
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2,360,352 |
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5,568,316 |
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Net cash provided by (used in) financing activities |
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4,101,355 |
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(9,431,684 |
) |
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Increase in cash during the period |
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56,401,136 |
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681,046 |
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Cash and cash equivalents, beginning of period |
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44,394,775 |
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16,932,661 |
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Cash and cash equivalents, end of period |
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$ |
100,795,911 |
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$ |
17,613,707 |
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Supplemental disclosures of cash flow information
Non-cash tax benefit of stock options exercised |
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$ |
3,024,435 |
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$ |
16,225,922 |
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3
ULTRA PETROLEUM CORP.
CONSOLIDATED BALANCE SHEETS
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(Expressed in U.S. Dollars) |
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March 31, |
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December 31, |
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2006 |
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2005 |
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(unaudited) |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
100,795,911 |
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$ |
44,394,775 |
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Restricted cash |
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214,480 |
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213,899 |
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Accounts receivable |
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66,755,628 |
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75,656,031 |
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Deferred tax asset |
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234 |
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Inventory |
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19,779,550 |
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22,062,585 |
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Prepaid expenses and other current assets |
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120,642 |
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128,044 |
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Total current assets |
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187,666,445 |
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142,455,334 |
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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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662,314,858 |
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612,960,790 |
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Unproved |
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95,878,333 |
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89,702,465 |
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Capital assets |
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2,050,358 |
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2,147,528 |
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Total assets |
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$ |
947,909,994 |
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$ |
847,266,117 |
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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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$ |
49,028,839 |
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$ |
49,297,861 |
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Current taxes payable |
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6,535,000 |
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3,564,990 |
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Capital cost accrual |
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36,731,166 |
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46,879,289 |
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Total current liabilities |
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92,295,005 |
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99,742,140 |
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Deferred income tax liability |
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182,679,460 |
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|
155,746,465 |
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Other long-term obligations |
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27,133,936 |
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20,576,574 |
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Shareholders equity |
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Share capital |
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185,932,490 |
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178,806,030 |
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Treasury stock |
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(1,193,650 |
) |
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(1,193,650 |
) |
Retained earnings |
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|
461,062,753 |
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393,588,558 |
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Total shareholders equity |
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645,801,593 |
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571,200,938 |
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Total liabilities and shareholders equity |
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$ |
947,909,994 |
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$ |
847,266,117 |
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4
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 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 and Bohai Bay, China.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements, other than the balance sheet data as of December 31, 2005,
are unaudited and were prepared from the Companys records. Balance sheet data as of December 31,
2005 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: 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.
Effective with the adoption of Statement of Financial Accounting Standard No. 143 Accounting for
Asset Retirement Obligations (SFAS No. 143) in 2003, 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.
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. Effective with the adoption of SFAS No. 143,
asset retirement obligations are included in the base costs for calculating depletion.
Oil and gas properties include costs that 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 at least 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.
5
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. The effect of implementing SFAS No. 143 had no effect on the ceiling test
calculation as the future cash outflows associated with settling asset retirement obligations are
excluded from this calculation.
(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 March 31, 2006
includes depletion and lease operating expenses of $155,000 associated with the Companys crude oil
production in China. Drilling and completion supplies inventory of $19.8 million primarily includes
the cost of pipe that will be utilized during the 2006 drilling program.
(h) Derivative transactions: The Company has, in the past, used derivative instruments as one way
to manage its exposure to commodity prices. As of March 31, 2006, the Company had no open
derivative contracts to manage its price risk on its production.
(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.
(j) Earnings per share: Basic earnings per share is computed by dividing net earnings attributable
to common stock by the weighted average number of common shares outstanding during each period.
Diluted earnings per share is computed by adjusting the average number of common shares outstanding
for the dilutive effect, if any, of common stock equivalents. The Company uses the treasury stock
method to determine the dilutive effect. The earnings per share information has been updated to
reflect the 2 for 1 stock split on May 10, 2005.
The following table provides a reconciliation of the components of basic and diluted net
income per common share:
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|
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|
|
|
|
Three Months Ended |
|
|
|
March 31, 2006 |
|
|
March 31, 2005 |
|
Net income |
|
$ |
67,474,195 |
|
|
$ |
37,322,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
during the period |
|
|
155,220,836 |
|
|
|
150,862,214 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive instruments |
|
|
7,983,549 |
|
|
|
10,088,332 |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
during the period including the effects of dilutive
Instruments |
|
|
163,204,385 |
|
|
|
160,950,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Basic earnings per share |
|
$ |
0.43 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted earnings per share |
|
$ |
0.41 |
|
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$ |
0.23 |
|
|
|
|
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|
(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) Reclassifications: Certain amounts in the financial statements of the prior years have been
reclassified to conform to the current year financial statement presentation.
(m) 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. SFAS No. 123R supersedes the Companys previous accounting under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) for periods
beginning in fiscal year 2006. In March 2005, the SEC issued Staff Accounting Bulletin No. 107
(SAB 107) relating to SFAS No. 123R. The Company has applied the provisions of SAB 107 in its
adoption of SFAS No. 123R.
6
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. The Companys Consolidated Financial Statements as of and for the three months
ended March 31, 2006 reflect the impact of SFAS No. 123R. In accordance with the modified
prospective transition method, the Companys Consolidated Financial Statements for prior periods
have not been restated to reflect, and do not include, the impact of SFAS No. 123R. Share-based
compensation expense recognized under SFAS No. 123R for the three months ended March 31, 2006 was
$668, which consisted of stock-based compensation expense related to employee stock options. There
was no stock-based compensation expense related to employee stock options recognized during the
three months ended March 31, 2005. See Note 5 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 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 Income. Prior to the adoption of SFAS No. 123R, the Company
accounted for stock-based awards to employees and directors using the intrinsic value method in
accordance with APB No. 25 as allowed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). Under the intrinsic value method, no
stock-based compensation expense had been recognized in the Companys Consolidated Statement of
Income because the exercise price of the Companys stock options granted to employees and directors
equaled the fair market value of the underlying stock at the date of grant.
Under SFAS No. 123R, share-based compensation expense recognized during the period is based on the
value of the portion of share-based payment awards that is ultimately expected to vest during the
period. Share-based compensation expense recognized in the Companys Consolidated Statement of
Income for the three months ended March 31, 2006 includes compensation expense for share-based
payment awards granted subsequent to January 1, 2006 based on the grant date fair value estimated
in accordance with the provisions of SFAS No. 123R. As of December 31, 2005, all stock options
granted to date had fully vested. Compensation expense attributable to awards granted subsequent
to January 1, 2006 is recognized using the straight-line method. As share-based compensation
expense recognized in the Consolidated Statement of Income for the first quarter of 2006 is based
on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123R
requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. In the Companys pro forma information
required under SFAS No. 123 for the periods prior to January 1, 2006, the Company accounted for
forfeitures as they occurred.
Under SFAS No. 123 (and APB No. 25), the Company utilized a Black-Scholes option pricing model to
measure the fair value of stock options granted to employees. For additional information, see Note
5. 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.
Option-pricing models were developed for use in estimating the value of traded options that have no
vesting or hedging restrictions and are fully transferable. Because the Companys employee stock
options have certain characteristics that are significantly different from traded options, and
because changes in the subjective assumptions can materially affect the estimated value, in
managements opinion, the existing valuation models may not provide an accurate measure of the fair
value of the Companys employee stock options. Although the fair value of employee stock options is
determined in accordance with SFAS No. 123R and SAB 107 using a Black-Scholes option-pricing model,
that value may not be indicative of the fair value observed in a willing buyer/willing seller
market transaction. The Company is responsible for determining the assumptions used in estimating
the fair value of its share-based payment awards.
(n) 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.
(o) Impact of recently issued accounting pronouncements: As of January 1, 2006, the Company adopted
SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and
SFAS No. 3 (SFAS No. 154). SFAS No. 154 requires retrospective application of voluntary changes
in accounting principles, unless it is impracticable. The Company does not expect this standard to
have a material impact on its financial statements.
2. ASSET RETIREMENT OBLIGATIONS:
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,
Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No. 143 requires the Company to
record the fair value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived assets that result
from the acquisition, construction, development and/or normal use of the assets. The Company has
recorded a liability of $3,744,893 ($2,975,289 U.S and $769,604 China) to account for future
obligations associated with its assets in both the United States and China.
7
3. OIL AND GAS PROPERTIES:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Developed Properties: |
|
|
|
|
|
|
|
|
Acquisition, equipment, exploration, drilling and environmental
costs Domestic |
|
$ |
767,101,312 |
|
|
$ |
700,425,880 |
|
Acquisition, equipment, exploration, drilling and environmental
costs China |
|
|
44,312,399 |
|
|
|
43,890,413 |
|
Less accumulated depletion, depreciation and amortization Domestic |
|
|
(133,136,985 |
) |
|
|
(118,172,467 |
) |
Less accumulated depletion, depreciation and amortization China |
|
|
(15,961,868 |
) |
|
|
(13,183,036 |
) |
|
|
|
|
|
|
|
|
|
|
662,314,858 |
|
|
|
612,960,790 |
|
|
|
|
|
|
|
|
|
|
Unproven Properties: |
|
|
|
|
|
|
|
|
Acquisition and exploration costs Domestic |
|
|
17,584,361 |
|
|
|
17,647,300 |
|
Acquisition and exploration costs China |
|
|
78,293,972 |
|
|
|
72,055,165 |
|
|
|
|
|
|
|
|
|
|
$ |
758,193,191 |
|
|
$ |
702,663,255 |
|
|
|
|
|
|
|
|
4. LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Bank indebtedness |
|
|
|
|
|
|
|
|
Other long-term obligations |
|
|
27,133,936 |
|
|
|
20,576,574 |
|
|
|
|
|
|
|
|
|
|
$ |
27,133,936 |
|
|
$ |
20,576,574 |
|
|
|
|
|
|
|
|
Bank indebtedness: The Company (through its subsidiary) participates in a revolving credit
facility with a group of banks led by JP Morgan Chase Bank, N.A. The agreement specifies a
maximum loan amount of $500 million, an aggregate borrowing base of $800 million and a
commitment amount of $200 million at November 14, 2005. The commitment amount may be
increased up to the lesser of the borrowing base amount or $500 million at any time at the
request of the Company. Each bank shall have the right, but not the obligation, to increase
the amount of their commitment as requested by the Company. In the event that the existing
banks increase their commitment to an amount less than the requested commitment amount, then
it would be necessary to bring additional banks into the facility. At March 31, 2006, the
Company had no amounts outstanding and $200 million unused and available under the current
committed amount.
The credit facility matures on May 1, 2010. The note bears interest at either (A) the banks
prime rate plus a margin of zero percent (0.00%) to three-quarters of one percent (0.75%)
based on the percentage of available credit drawn or at (B) LIBOR plus a margin of one
percent (1.00%) to one and three-quarters of one percent (1.75%) based on the percentage of
available credit drawn. For purposes of calculating interest, the available credit is equal
to the borrowing base. An average annual commitment fee of 0.25% to 0.375%, depending on the
percentage of available credit drawn, is charged quarterly for any unused portion of the
commitment amount.
The borrowing base is subject to periodic (at least semi-annual) review and re-determination
by the banks and may be decreased or increased depending on a number of factors, including
the Companys proved reserves and the banks forecast of future oil and gas prices. If the
borrowing base is reduced to an amount less than the balance outstanding, the Company has
sixty days from the date of written notice of the reduction in the borrowing base to pay the
difference. Additionally, the Company is subject to quarterly reviews of compliance with the
covenants under the bank facility including minimum coverage ratios relating to interest,
working capital and advances to Sino-American Energy Corporation. In the event of a default
under the covenants, the Company may not be able to access funds otherwise available under
the facility. As of March 31, 2006, the Company was in
compliance with required covenants of
the bank facility.
The debt outstanding under the credit facility is secured by a majority of the Companys
proved domestic oil and gas properties.
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 (See Note 2).
5. SHARE BASED COMPENSATION
Share-Based Payment Arrangements
The Companys Stock Incentive Plans are administered by the Board of Directors (the Plan
Administrator). The Plan Administrator may make awards of stock options to employees,
directors, officers and consultants of the Company as long as the aggregate number of common
shares issuable to any one person pursuant to incentives does not exceed 5% of the number of
common shares outstanding at the time of the award. In addition, no participant may receive
during any fiscal year of the Companys awards of incentives covering an aggregate of more
than 500,000 common shares. The Plan Administrator determines the vesting requirements and
any vesting restrictions or forfeitures that occur in certain circumstances. Incentives may
not have an exercise period longer than 10 years. The exercise price of the stock may not be
less than the fair market value of the common shares at the time of award, where fair
market value means the weighted average trading price of the common shares for the five
trading days preceding the date of the award.
8
On April 29, 2005, the shareholders approved the adoption of the 2005 Stock Incentive
Plan (2005 Stock Incentive Plan). The 2005 Stock Incentive Plan authorizes the Plan
Administrator to award incentives from the effective date of the 2005 Stock Incentive
Plan. The 2005 Stock Incentive Plan is in addition to the Companys existing stock
option plans (the 2000 Option Plan and the 1998 Stock Plan). The 2000 Option Plan
and the 1998 Stock Plan remain effective and the Company will make grants under each
of the existing plans.
The purpose of the 2005 Stock Incentive Plan is to foster and promote the long-term
financial success of the Company and to increase shareholder value by attracting, motivating
and retaining key employees, consultants and directors and providing such participants in
the 2005 Stock Incentive Plan with a program for obtaining an ownership interest in the
Company that links and aligns their personal interests with those of the Companys
shareholders, thus enabling such participants to share in the long-term growth and success
of the Company. To accomplish these goals, the 2005 Stock Incentive Plan permits the
granting of incentive stock options, non-statutory stock options, stock appreciation rights,
restricted stock, and other stock-based awards, some of which may require the satisfaction
of performance-based criteria in order to be payable to participants. The 2005 Stock
Incentive Plan is an important component of the total compensation package offered to
employees and directors, reflecting the importance that the Company places on motivating and
rewarding superior results with long-term, performance-based incentives.
The purposes of the 2000 Option Plan and the 1998 Stock Plan are: (i) to associate the
interests of management of the Company and its subsidiaries and affiliates closely with the
stockholders to generate an increased incentive to contribute to the Companys future
success and prosperity, thus enhancing the value of the Company for the benefit of its
stockholders; (ii) to maintain competitive compensation levels thereby attracting and
retaining highly competent and talented directors, employees and consultants; and (iii) to
provide an incentive to such management for continuous employment with the Company.
Accounting for share-based compensation
In December 2004, the FASB issued SFAS No. 123R. SFAS No. 123R is a revision of SFAS No. 123
and supersedes APB Opinion 25. Among other items, SFAS No. 123R eliminates the use of APB
Opinion 25 and the intrinsic value method of accounting, and requires companies to recognize
the cost of employee services received in exchange for awards of equity instruments, based
on the grant date fair value of those awards, in the financial statements. Pro forma
disclosure is no longer an alternative under the new standard. Accordingly, the Company
adopted SFAS No. 123R as of January 1, 2006.
SFAS No. 123R provides specific guidance on income tax accounting and clarifies how SFAS No.
109, Accounting for Income Taxes, should be applied to stock-based compensation. For
example, the expense for certain types of option grants is only deductible for tax purposes
at the time that the taxable event takes place, which could cause variability in the
Companys effective tax rates recorded throughout the year. SFAS No. 123R does not allow
companies to predict when these taxable events will take place. Furthermore, it requires
that the benefits associated with the tax deductions in excess of recognized compensation
cost be reported as a financing cash flow, rather than as an operating cash flow as required
under SFAS No. 123. This requirement will reduce net operating cash flows and increase net
financing cash flows in periods. These future amounts cannot be estimated, because they
depend on, among other things, when employees exercise stock options.
Valuation and Expense Information under SFAS 123R
The following table summarizes share-based compensation expense related to employee stock
options under SFAS 123R for the three months ended March 31, 2006 which was allocated as
follows:
|
|
|
|
|
|
|
Three Months |
|
|
Ended |
|
|
March 31, 2006 |
Total cost of share-based payment plans |
|
$ |
325,114 |
|
Amounts capitalized in inventory and fixed assets |
|
|
|
|
Amounts recognized in income for amounts previously
capitalized in inventory and fixed assets |
|
|
|
|
Amounts charged against income, before income tax benefit |
|
$ |
668 |
|
Amount of related income tax benefit recognized in income |
|
$ |
234 |
|
|
|
|
|
|
Cumulative effect from adoption of SFAS No. 123R on : |
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
668 |
|
Income before income taxes |
|
|
668 |
|
Net income |
|
|
434 |
|
Cash flow from operations |
|
|
|
|
Cash flow from financing activities |
|
$ |
1,741,003 |
|
Basic earnings per share |
|
|
|
|
Diluted earnings per share |
|
|
|
|
9
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 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 n the U.S.
Treasury yield curve in effect at the time of grant. There were no options granted to
executives during the first quarter of 2006.
|
|
|
|
|
|
|
Non-Executives |
Expected volatility |
|
|
45.70 |
% |
Expected dividends |
|
|
0 |
% |
Expected term (in years) |
|
|
2.75 |
|
Risk free rate |
|
|
4.84 |
% |
Expected forfeiture rate |
|
|
25.00 |
% |
Securities Authorized for Issuance Under Equity Compensation Plans
As of March 31, 2006, the Corporation had the following securities issuable pursuant to
outstanding award agreements or reserved for issuance under the Corporations previously approved
stock incentive plans. (Upon exercise, shares issued will be newly issued shares).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Securities to |
|
|
|
|
|
|
Number of Securities |
|
|
|
Be Issued |
|
|
|
|
|
|
Remaining Available for |
|
|
|
Upon |
|
|
Weighted- |
|
|
Future Issuance Under |
|
|
|
Exercise |
|
|
Average |
|
|
Equity Compensation |
|
|
|
of |
|
|
Exercise Price of |
|
|
Plans (Excluding |
|
|
|
Outstanding |
|
|
Outstanding |
|
|
Securities Reflected in |
|
Plan Category |
|
Options |
|
|
Options |
|
|
the First Column) |
|
|
|
|
Equity compensation plans approved by security holders |
|
|
9,234,900 |
|
|
$ |
9.03 |
|
|
|
11,104,000 |
|
Equity compensation plans not approved by security holders |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,234,900 |
|
|
$ |
9.03 |
|
|
|
11,104,000 |
|
Changes in Stock Options and Stock Options Outstanding
The following table summarizes the changes in stock options for the year ended December 31, 2005
and the three months ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Number of |
|
|
Exercise Price |
|
|
|
Options |
|
|
(US$) |
|
|
|
|
Balance, December 31, 2004 |
|
|
12,703,400 |
|
|
$ |
0.26 to $24.31 |
|
|
|
|
|
|
|
|
Granted |
|
|
1,529,000 |
|
|
$ |
23.90 to $58.71 |
|
Exercised |
|
|
(4,793,700 |
) |
|
$ |
0.32 to $25.68 |
|
Forfeited |
|
|
(50,000 |
) |
|
$ |
25.68 to $25.68 |
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
9,388,700 |
|
|
$ |
0.26 to $58.71 |
|
|
|
|
|
|
|
|
Granted |
|
|
15,000 |
|
|
$ |
63.14 to $63.14 |
|
Exercised |
|
|
(168,800 |
) |
|
$ |
0.57 to $33.80 |
|
Forfeited |
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2006 |
|
|
9,234,900 |
|
|
$ |
0.26 to $63.14 |
|
|
|
|
|
|
|
|
The following tables summarize information about the stock options outstanding at March 31,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Average |
|
Aggregate |
Range of Exercise |
|
Number |
|
Remaining |
|
Exercise Price |
|
Intrinsic Value |
Price ($US) |
|
Outstanding |
|
Contractual Life |
|
($US) |
|
($US) |
$0.38 - 0.46 |
|
|
2,627,500 |
|
|
|
2.83 |
|
|
$ |
0.46 |
|
|
$ |
162,511,065 |
|
$0.25 0.57 |
|
|
800,000 |
|
|
|
4.05 |
|
|
$ |
0.35 |
|
|
$ |
49,568,000 |
|
$1.49 2.61 |
|
|
1,400,000 |
|
|
|
4.96 |
|
|
$ |
1.91 |
|
|
$ |
84,566,400 |
|
$3.91 4.43 |
|
|
680,000 |
|
|
|
6.11 |
|
|
$ |
4.39 |
|
|
$ |
39,384,400 |
|
$4.83 - 7.10 |
|
|
931,200 |
|
|
|
7.11 |
|
|
$ |
5.04 |
|
|
$ |
53,328,304 |
|
$11.68 - 24.21 |
|
|
1,439,000 |
|
|
|
8.06 |
|
|
$ |
15.99 |
|
|
$ |
66,650,770 |
|
$23.90 - 58.71 |
|
|
1,342,200 |
|
|
|
9.24 |
|
|
$ |
35.48 |
|
|
$ |
36,014,330 |
|
$63.14 - 63.14 |
|
|
15,000 |
|
|
|
10.00 |
|
|
$ |
63.14 |
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
|
|
|
Remaining |
|
Average |
|
Aggregate |
Range of Exercise |
|
Number |
|
Contractual |
|
Exercise Price |
|
Intrinsic Value |
Price ($US) |
|
Exercisable |
|
Life |
|
($US) |
|
($US) |
$0.38 - 0.46 |
|
|
2,627,500 |
|
|
|
2.83 |
|
|
$ |
0.46 |
|
|
$ |
162,511,065 |
|
$0.25 0.57 |
|
|
800,000 |
|
|
|
4.05 |
|
|
$ |
0.35 |
|
|
$ |
49,568,000 |
|
$1.49 2.61 |
|
|
1,400,000 |
|
|
|
4.96 |
|
|
$ |
1.91 |
|
|
$ |
84,566,400 |
|
$3.91 4.43 |
|
|
680,000 |
|
|
|
6.11 |
|
|
$ |
4.39 |
|
|
$ |
39,384,400 |
|
$4.83 - 7.10 |
|
|
931,200 |
|
|
|
7.11 |
|
|
$ |
5.04 |
|
|
$ |
53,328,304 |
|
$11.68 - 24.21 |
|
|
1,439,000 |
|
|
|
8.06 |
|
|
$ |
15.99 |
|
|
$ |
66,650,770 |
|
$23.90 - 58.71 |
|
|
1,342,200 |
|
|
|
9.24 |
|
|
$ |
35.48 |
|
|
$ |
36,014,330 |
|
$63.14 - 63.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value in the preceding tables represents the total pre-tax intrinsic
value, based on the Companys closing stock price of $62.31 on March 31, 2006, which would
have been received by the option holders had all option holders exercised their options as
of that date. The total number of in-the-money options exercisable as of March 31, 2006 was
9,219,900.
The weighted-average grant-date fair value of share options granted during the three months
ended March 31, 2006 was $21.67. The total intrinsic value of share options exercised
during the three months ended March 31, 2006 was $8.6 million.
At March 31, 2006, there was $243,167 of total unrecognized compensation cost related to
non-vested share-based compensation arrangements granted under the Stock Incentive Plans.
That cost is expected to be recognized over a weighted average period of one year.
Prior to adoption of SFAS No. 123R on January 1, 2006, the Company followed SFAS No. 123
which allowed for the continued measurement of compensation cost for such plans using the
intrinsic value based method prescribed by APB Opinion No. 25 provided that pro forma
results of operations were disclosed for those options granted. Accordingly, the Company
accounted for stock options granted to employees and directors of the Company under the
intrinsic value method. Had the Company reported compensation costs as determined by the
fair value method of accounting for option grants to employees and directors, net income and
net income per common share would approximate the following pro forma amounts: (The earnings
per share amounts have been adjusted to reflect the 2 for 1 stock
split on May 10,
2005).
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2005 |
|
Net income as reported: |
|
$ |
37,322,549 |
|
Add: Stock based employee compensation, net of tax |
|
|
|
|
|
|
|
|
|
Deduct: Stock based employee compensation, net of tax |
|
|
(1,844,100 |
) |
|
|
|
|
Pro Forma |
|
$ |
35,478,449 |
|
|
|
|
|
|
Basic Earnings per share: |
|
|
|
|
As Reported |
|
$ |
0.25 |
|
Pro Forma |
|
$ |
0.24 |
|
|
|
|
|
|
Diluted Earnings per share: |
|
|
|
|
As Reported |
|
$ |
0.23 |
|
Pro Forma |
|
$ |
0.22 |
|
For purposes of pro forma disclosures, the estimated fair value of options is amortized to
expense over the options vesting period. The weighted-average fair value of each option
granted is estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions at March 31, 2005:
|
|
|
|
|
Expected volatility |
|
|
38.40 |
% |
Expected dividends |
|
|
0 |
% |
Expected term (in years) |
|
|
6.50 |
|
Risk free rate |
|
|
3.57 |
% |
Expected forfeiture rate |
|
Actual forfeitures |
PERFORMANCE SHARE PLANS:
Long-Term Incentive Plan
Also in 2005, the Corporation adopted a 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 Corporation by achieving specific
corporate financial and operational goals. Under the LTIP, the Compensation Committee
establishes certain performance measures at the beginning of each three-year overlapping
performance period. Performance measures may vary for performance periods. In the event of
a change of control of the Corporation, all outstanding awards are paid at target levels in
cash. The event of a change of control is not currently probable.
11
Each participant in the LTIP is assigned threshold, target and maximum award levels
that are expressed as a percentage of his or her base salary. Selected officers, managers
and other key employees are eligible to participate in the LTIP. Participants are
recommended by the CEO and approved by the Compensation Committee and are assigned to a
specific eligibility level. The participation levels are as follows (the respective
percentage award is calculated based upon the participants base salary at the beginning of
the award period), (i) if threshold performance objectives are attained, the incentive
award opportunities range from 6% to 38%; (ii) if target performance objectives are
attained, the incentive award opportunities range from 20% to 125%; and (iii) if maximum
performance objectives are attained, the incentive award opportunities range from 30% to
188%. The threshold award level is not the minimum award, but is the award at the threshold
performance level. Awards are expressed as dollar targets and become payable in common
shares issued under the Stock Plans at the end of each three-year performance period based
on the overall performance of the Corporation during such period. A new three-year period
begins each January, beginning January 1, 2005. Participants must be employed by the
Corporation at the end of a performance period in order to receive an award. Employees
joining the Corporation after January 1, 2005 will participate on a pro rata basis based on
their length of employment during the performance period.
For the first performance period (January 2005 December 2007), the Compensation Committee
has established the following performance measures: return on equity, reserve replacement
ratio, and production growth. At the discretion of the Compensation Committee, additional
metrics may be added to individual participants.
For the
three months ended March 31, 2006, the Company recognized
$122,757 and $126,402 in pre-tax compensation expense related to the
2005 LTIP and 2006 LTIP, respectively. The amounts recognized during
the first quarter of 2006 assumes that maximum performance objectives
are attained. If the Company ultimately attains maximum performance
objectives, the associated total compensation expense, estimated at
March 31, 2006, for the three year performance periods would be
approximately $1.6 million and $1.5 million (before taxes) related to
the 2005 LTIP and 2006 LTIP, respectively.
Best in Class
In 2005, the Company also established a Best in Class program for all employees of the
Corporation, including executive officers. The purpose of the program is to recognize and
financially reward the collective efforts of all the Corporations 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 of the Corporation received a contingent award of stock
units equal to $50,000 worth of the Corporations common stock based on the average of the
high and low share price on the date of grant. Employees joining the Corporation 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 the Corporations 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 emphasis of this plan is to recognize and reward the Corporations employees for
performance that is recognized in the industry as clearly outstanding. Performance metrics
will be developed and measured by an accepted third party research organization. The total
vested award will be the sum of the vesting percentage for each metric. The maximum units
that may be vested is 150% of the original award. Performance results will be determined
after the end of the performance period and publication of the applicable industry reports.
A participant must be employed when payments are made in order to receive an award.
For the
three months ended March 31, 2006, the Company recognized $207,954 in
pre-tax compensation expense related to the Best in Class Incentive
Compensation Plan. The amount recognized during the first quarter of
2006 assumes that target performance levels are achieved. If the
Company ultimately attains the target performance level, the
associated total compensation expense, estimated at March 31, 2006,
for the entire three year performance period would be approximately
$3.4 million before income taxes.
6. SEGMENT INFORMATION
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 March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
Domestic |
|
|
China |
|
|
Total |
|
|
Domestic |
|
|
China |
|
|
Total |
|
Oil and gas sales |
|
$ |
125,818,264 |
|
|
$ |
25,431,978 |
|
|
$ |
151,250,242 |
|
|
$ |
78,910,389 |
|
|
$ |
10,453,627 |
|
|
$ |
89,364,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and
depreciation |
|
|
15,256,929 |
|
|
|
3,383,212 |
|
|
|
18,640,141 |
|
|
|
9,669,509 |
|
|
|
1,570,000 |
|
|
|
11,239,509 |
|
Lease operating expenses |
|
|
2,409,388 |
|
|
|
2,787,000 |
|
|
|
5,196,388 |
|
|
|
1,985,306 |
|
|
|
1,454,000 |
|
|
|
3,439,306 |
|
Production taxes |
|
|
14,625,254 |
|
|
|
1,271,637 |
|
|
|
15,896,891 |
|
|
|
9,022,063 |
|
|
|
522,676 |
|
|
|
9,544,739 |
|
Gathering |
|
|
3,749,347 |
|
|
|
|
|
|
|
3,749,347 |
|
|
|
3,630,543 |
|
|
|
|
|
|
|
3,630,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
89,777,346 |
|
|
|
17,990,129 |
|
|
|
107,767,475 |
|
|
|
54,602,968 |
|
|
|
6,906,951 |
|
|
|
61,509,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative |
|
|
|
|
|
|
|
|
|
|
4,202,345 |
|
|
|
|
|
|
|
|
|
|
|
3,176,361 |
|
Other (income) expense |
|
|
|
|
|
|
|
|
|
|
(401,272 |
) |
|
|
|
|
|
|
|
|
|
|
825,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
$ |
103,966,402 |
|
|
|
|
|
|
|
|
|
|
$ |
57,507,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
66,539,139 |
|
|
$ |
6,660,793 |
|
|
$ |
73,199,932 |
|
|
$ |
46,602,144 |
|
|
$ |
7,214,101 |
|
|
$ |
53,816,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net oil and gas properties |
|
$ |
651,548,688 |
|
|
$ |
106,644,503 |
|
|
$ |
758,193,191 |
|
|
$ |
418,851,914 |
|
|
$ |
98,200,384 |
|
|
$ |
517,052,298 |
|
12
7. LONG TERM CONTRACTS:
On December 19, 2005, the Company signed two Precedent Agreements with Rockies Express
Pipeline, LLC and Entrega Gas Pipeline LLC governing how the parties will proceed through
the design, regulatory process and construction of the pipeline facilities and, subject
to certain
conditions precedent, the Company will take firm transportation service if and when the
pipeline facilities are constructed. The Companys Board of Directors approved the
Precedent Agreements on February 6, 2006 and Kinder Morgan, as the Managing Member of the
Rockies Express Pipeline LLC advised the Company of their final approval of the Precedent
Agreements, and their intent to proceed with the construction of the Rockies Express
Pipeline on February 28, 2006.
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
annual realizations for the period 2003-2005 have ranged from $3.84 to $8.64 per Mcf. This
volatility could be very detrimental to the Companys financial performance. The Company
seeks to limit the impact of this volatility on its results by entering into derivative and
forward sales contracts for gas in southwest Wyoming. The average realization for the
Companys gas during the first quarter of 2006 was $7.13 per Mcf, basis Opal, Wyoming. The
Companys average realized crude oil price for its Bohai Bay production was $54.56 USD per
barrel for the quarter ended March 31, 2006
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 and by bringing into production the
already discovered oilfields in China. The Company delivered 28% production growth on an
Mcfe basis during the quarter ended March 31, 2006 as compared to the same quarter in 2005.
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.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2006 VS. QUARTER ENDED MARCH 31, 2005
During the first quarter of 2006, production increased 28% on an equivalent basis to 20.1
Bcfe from 15.7 Bcfe for the same quarter in 2005 attributable to the Companys successful
drilling activities during 2005 and in the first quarter of 2006 along with continued
production in China. Average realized price for natural gas increased 28% to $7.13 per Mcf
in the first quarter of 2006 as compared to $5.58 for the first quarter of 2005, such
increase contributing to a 69% increase in revenues to $151.3 million as compared to $89.4
million in 2005.
In Wyoming, production costs increased to $2.4 million at March 31, 2006 compared to $2.0
million at March 31, 2005 due to increased production volumes. On a unit of production
basis, LOE costs remained flat at $0.14 per Mcfe at March 31, 2006 and March 31, 2005.
During the first quarter of 2006 production taxes were $14.6 million compared to $9.0 million
during the first quarter of 2005, or $0.85 per Mcfe, compared to $0.65 per Mcfe. Production
taxes are calculated based on a percentage of revenue from production. Therefore, higher
prices received increased the costs on a per unit basis. Gathering fees increased slightly
to $3.7 million at March 31, 2006 compared to $3.6 million at March 31, 2005. On a per unit
basis, gathering fees decreased to $0.22 per Mcfe for the three months ended March 31, 2006
from $0.26 per Mcfe for the same period in 2005. Such decrease is attributable to revised
gathering and processing arrangements.
In Wyoming, depletion, depreciation and amortization (DD&A) expenses increased to $15.3
million during the quarter ended March 31, 2006 from $9.7 million for the same period in
2005, 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 $0.88 per
Mcfe at March 31, 2006 from $0.70 at March 31, 2005.
In China, production costs were $2.8 million at March 31, 2006 ($1.00 per Mcfe or $5.98 per
BOE) compared to $1.5 million ($0.78 per Mcfe and $4.68 per BOE) at March 31, 2005. The
increase is attributable to increased production volumes associated with four fields
producing during the first quarter of 2006 compared with two during the same period in 2005.
Severance taxes in China increased to $1.3 million for the three months ended March 31, 2006
from $0.5 million for the three months ended March 31, 2005. The increase is due to
increased production volumes during the period.
DD&A expense in China was $3.4 million ($1.21 per Mcfe or $7.26 per BOE) for the quarter
ended March 31, 2006 as compared to $1.6 million ($0.84 per Mcfe or $5.06 per BOE) for the
same period in 2005. This increase is attributable to increased production volumes coupled
with cost being allocated from unevaluated properties to the full cost pool.
Net income before income taxes increased 81% to $104.0 million for the quarter ended March
31, 2006 from $57.5 million for the same period in 2005. The income tax provision increased
81% to $36.5 million for the three months ended March 31, 2006 as compared to $20.2 million
for the three months ended March 31, 2005, attributable to an increase in pre-tax income.
The Companys effective tax rate was 35.1% for the periods ended March 31, 2006 and 2005.
For the quarter ended March 31, 2006, net income increased 81%
to $67.5 million or $0.41 per
diluted share as compared with $37.3 million or $0.23 per diluted share for the same period
in 2005.
13
General and administrative expenses increased 32% to $4.2 million at March 31, 2006 compared to
$3.2 million for the same period in 2005. This increase was primarily attributable to increased
external audit fees. On a per unit basis, general and administrative expenses increased to $0.21
per Mcfe during the first quarter of 2006 as compared with $0.20 per Mcfe for the same period in
2005.
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 three month period ended March 31, 2006, the Company relied on cash provided
by operations to finance its capital expenditures. The Company participated in the
drilling of 31 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 three-month period ended March 31, 2006, net capital
expenditures were $73.2 million. At March 31, 2006, the Company reported a cash
position of $100.8 million compared to $17.6 million at March 31, 2005. Working capital
at March 31, 2006 was $95.4 million compared to a working capital deficit at March 31,
2005 of $(4.5) million. As of March 31, 2006, the Company had no bank indebtedness
outstanding and other long-term obligations of $27.1 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 2006, which are currently projected to
be $425 million. Of the $425 million budget, the Company plans to spend approximately
$400 million of its 2006 budget in Wyoming and approximately $20 million in China with
the balance allocated to evaluating other areas. Of the $400 million for Wyoming, the
Company plans to drill or participate in an estimated 160 gross wells in 2006, of which
approximately 25% will be exploration wells and the remaining will be development wells.
Of the $20 million budgeted for China, approximately 33% will be for
exploratory/appraisal activity and the balance will be for development activity. The
Company currently has no budget for acquisitions in 2006.
The Company (through its subsidiary) participates in a revolving credit facility with a
group of banks led by JP Morgan Chase Bank, N.A. The agreement specifies a maximum loan
amount of $500 million, an aggregate borrowing base of $800 million and a commitment
amount of $200 million at November 14, 2005. The commitment amount may be increased up
to the lesser of the borrowing base amount or $500 million at any time at the request of
the Company. Each bank shall have the right, but not the obligation, to increase the
amount of their commitment as requested by the Company. In the event that the existing
banks increase their commitment to an amount less than the requested commitment amount,
then it would be necessary to bring additional banks into the facility. At March 31,
2006, the Company had no amounts outstanding and $200 million unused and available under
the current committed amount.
The credit facility matures on May 1, 2010. The note bears interest at either (A) the
banks prime rate plus a margin of zero percent (0.00%) to three-quarters of one percent
(0.75%) based on the percentage of available credit drawn or at (B) LIBOR plus a margin
of one percent (1.00%) to one and three-quarters of one percent (1.75%) based on the
percentage of available credit drawn. For purposes of calculating interest, the
available credit is equal to the borrowing base. An average annual commitment fee of
0.25% to 0.375%, depending on the percentage of available credit drawn, is charged
quarterly for any unused portion of the commitment amount.
The borrowing base is subject to periodic (at least semi-annual) review and re-determination
by the banks and may be decreased or increased depending on a number of factors, including
the Companys proved reserves and the banks forecast of future oil and gas prices. If the
borrowing base is reduced to an amount less than the balance outstanding, the Company has
sixty days from the date of written notice of the reduction in the borrowing base to pay the
difference. Additionally, the Company is subject to quarterly reviews of compliance with the
covenants under the bank facility including minimum coverage ratios relating to interest,
working capital and advances to Sino-American Energy Corporation. In the event of a default
under the covenants, the Company may not be able to access funds otherwise available under
the facility. As of March 31, 2006, the Company was in
compliance with required covenants of
the bank facility.
During the three-months ended March 31, 2006, net cash provided by operating activities was
$134.8 million as compared to $92.2 million for the three-months ended March 31, 2005. The
increase in cash provided by operating activities was largely attributable to the increase
in earnings.
During the three-months ended March 31, 2006, cash used in investing activities was $82.5
million as compared to $82.1 million for the three-months ended March 31, 2005.
During the three-months ended March 31, 2006, cash provided by (used in) financing
activities was $4.1 million as compared to ($9.4) million for the three-months ended March
31, 2005. The change is primarily attributable to an absence of repayments under the senior
credit facility during the three months ended March 31, 2006 as there were no amounts
outstanding.
OFF BALANCE SHEET ARRANGEMENTS
The Company did not have any off-balance sheet arrangements as of March 31, 2006.
14
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, 2005 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 gas and oil
production. Realized pricing is primarily driven by the prevailing price for the Companys
Wyoming natural gas production. Historically, prices received for gas production have been
volatile and unpredictable. Pricing volatility is expected to continue. Gas price
realizations averaged $7.13 per Mcf during the three months ended March 31, 2006.
The Company may, from time to time, 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 March 31, 2006, the Company had no open derivative contracts to manage price risk on its
natural gas production.
The Company also utilizes fixed price forward gas sales contracts at southwest Wyoming
delivery points to hedge its commodity exposure. The Company had the following fixed price
physical delivery contracts in place on behalf of its interest and those of other parties
at March 31, 2006. (The Companys approximate average net interest in physical gas sales
is 80%.)
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Remaining |
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Volume |
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Average |
Contract |
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MMBTU |
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Price / |
Period |
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/ day |
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MMBTU |
Calendar 2006 |
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70,000 |
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$ |
5.86 |
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The above derivative and forward gas sales contracts represent approximately 24% of the
Companys currently forecasted gas production for the balance of 2006.
ITEM 4 CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms and that such information is
accumulated and communicated to our management, including the Chief Executive Officer
and the Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
15
In connection with the preparation of the Companys Annual Report of Form 10-K for the year
ended December 31, 2005 (2005 10-K), an evaluation was performed under the supervision
and with the participation of the Companys management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Exchange Act). The Company concluded that control deficiencies in its
internal control over financial reporting as of December 31, 2005 constituted material
weaknesses within the meaning of the Public Company Accounting Oversight Boards Auditing
Standard No. 2.
The material weaknesses identified by the Company were disclosed in its 2005 10-K, which
was filed with the SEC on March 31, 2006. Based on that and subsequent evaluations, the
Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31,
2006, the Companys disclosure controls and procedures are not effective as a result of the
previously-identified material weaknesses in internal control over financial reporting. As
reported in the 2005 10-K, management is in the process of taking remedial steps to correct
these weaknesses.
(b) Changes in Internal Control Over Financial Reporting
As reported in Item 9A of the 2005 10-K, the Company determined that material weaknesses in
internal control over financial reporting existed as of December 31, 2005. These material
weaknesses also existed as of March 31, 2006, and therefore are reported in this Form 10-Q:
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The Company did not maintain effective company level controls. Specifically,
(i) certain of its accounting personnel in key roles did not possess an
appropriate level of technical expertise, and (ii) the Companys monitoring of
the internal audit function was not sufficient to provide management a basis to
assess the quality of the Companys internal control performance over time.
These deficiencies resulted in a more than a remote likelihood that a material
misstatement of the Companys annual or interim financial statements would not
be prevented or detected. |
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The Company did not have adequate policies and procedures regarding
supervisory review of account reconciliations and account and transaction
analyses. This deficiency resulted in material errors (as reported in the 2005
10-K) which were corrected prior to the issuance of the Companys 2005
consolidated financial statements. |
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The Company did not have adequate policies and procedures to ensure that
accurate and reliable interim and annual consolidated financial statements were
prepared and reviewed on a timely basis. Specifically, the Company did not have
sufficient personnel with the skills and experience in the application of U.S.
generally accepted accounting principles and policies and procedures regarding
the preparation and management review of footnote disclosures accompanying the
Companys financial statements. As a result of these deficiencies, material
errors were identified in the footnotes to the Companys preliminary 2005
consolidated financial statements. These errors were corrected by management
prior to the issuance of the Companys 2005 consolidated financial statements. |
Management, with oversight from the Audit Committee of the Board of Directors, has been
addressing the material weakness disclosed in its 2005 10-K and is committed to effectively
remediating known weaknesses as expeditiously as possible. Due to the fact that these
remedial steps have not been completed, the Company performed additional analysis and
procedures in order to ensure that the consolidated financial statements contained in this
Form 10-Q were prepared in accordance with generally accepted accounting principles in the
United States of America. Although the Companys remediation efforts are well underway,
control weaknesses will not be considered remediated until new internal controls over
financial reporting are implemented and operational for a sufficient period of time to
allow for effective testing and are tested, and management and its independent registered
certified public accounting firm conclude that these controls are operating effectively.
In order to remediate the material weakness described in the 2005 10-K, to date the Company
has:
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begun an internal review and assessment process regarding its financial
reporting and internal audit functions; |
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engaged Protiviti to (1) review and assess current
Sarbanes-Oxley process and control documentation and compliance plans, (2)
recommend remediation and project plans for 2006, and (3) assist management with
Sarbanes-Oxley compliance requirements during 2006;] and |
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engaged Grant Thornton LLP to assist in identifying and recommending any
necessary organization and procedural changes for improving the Companys
controls for the purposes of complying with Sarbanes-Oxley. |
Other than as described above, there has been no change in the Companys internal controls
over financial reporting during the fiscal quarter ended March 31, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal controls 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.
ITEM 1A. RISK FACTORS
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, 2005.
16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS IN SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Board of Directors has set the date for the 2006 annual meeting of stockholders (the
2006 Annual Meeting) as June 29, 2006, which is more than thirty days after the anniversary
date of the 2005 annual meeting. Therefore, in accordance with Rule 14a-5(f) under the
Securities Exchange Act of 1934 and other applicable rules of the Securities and Exchange
Commission, we are hereby notifying our stockholders that May 12, 2006 will be the deadline
for submitting stockholder proposals for inclusion in our proxy statement for the 2006 Annual
Meeting, which we believe is a reasonable time before we will begin the printing and mailing
of our proxy materials for the 2006 Annual Meeting. All stockholder proposals must be in
compliance with applicable laws and regulations in order to be considered for inclusion in
the proxy statement and form of proxy for the 2006 Annual Meeting. In addition, if we are
not notified by such deadline of an intent to present a proposal at our 2006 Annual Meeting,
management will have the right conferred by the proxies to exercise its discretionary voting
authority with respect to such proposal, if presented at the meeting. The foregoing
deadlines are later than the deadlines disclosed in the Companys proxy statement dated March
24, 2005.
Stockholder proposals should be addressed to the Secretary of Ultra Petroleum Corp. at our
principal executive offices located at 363 N. Sam Houston Parkway E., Suite 1200, Houston,
Texas 77060. Stockholder proposals received by us after May 12, 2006 will be considered
untimely and will not be included in our proxy statement for the 2006 Annual Meeting. It is
recommended that stockholders submitting proposals use certified mail, return receipt
requested, in order to provide proof of timely receipt. We reserve the right to reject, rule
out of order, or take other appropriate action with respect to any proposal that does not
comply with these and other applicable requirements.
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.)
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.
17
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.
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ULTRA PETROLEUM CORP.
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Date: May 8, 2006 |
By: |
/s/ Michael D. Watford
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Name: |
Michael D. Watford |
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Title: |
Chief Executive Officer |
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Date:
May 8, 2006
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By: |
/s/ Marshall D. Smith
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Name: |
Marshall D. Smith |
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Title: |
Chief Financial Officer |
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18
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.)
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.