HOUSTON, Nov. 4 /PRNewswire-FirstCall/ -- Ultra Petroleum Corp.
(NYSE:UPL) announced today record third quarter 2008 financial and
production results. Highlights for the third quarter 2008 include:
-- Record earnings of $0.78 per diluted share (adjusted) or $122.4
million (adjusted), an increase of 227 percent from third quarter
2007 -- Record operating cash flow(1) of $242.5 million, up 166
percent from the same period a year ago -- Record natural gas and
crude oil production of 36.3 Bcfe, up 35 percent over the same
period in 2007 -- based on continuing operations -- Superior
returns in third quarter; 77 percent cash flow margin(2), 39
percent net income margin (adjusted), 35 percent return on capital
employed, and 47 percent return on equity Net income for the third
quarter of 2008 was $149.0 million, or $0.95 per diluted share. The
results include a non-cash gain of $40.9 million ($26.6 million
after-tax), which represents the unrealized mark-to-market change
in the company's financial commodity contracts that did not meet
the technical requirements to qualify for hedge accounting
treatment. Excluding the unrealized gain on commodity derivatives,
which is typically not included by analysts in published estimates,
third quarter 2008 adjusted net income was a record $122.4 million,
or $0.78 per diluted share. For the same period in 2007, net income
was $37.4 million, or $0.24 per diluted share. Ultra Petroleum
primarily relies on fixed price forward natural gas sales to manage
its commodity price exposure. "This was a great quarter for Ultra
Petroleum, the best in our history. As is our practice, we
delivered industry leading margins, financial returns, and record
production despite shutting in three Bcf of natural gas during the
quarter," stated Michael D. Watford, Chairman, President and Chief
Executive Officer. "Our net income margin was 39 percent, cash flow
margin was 77 percent, return on capital was 35 percent, and return
on equity was 47 percent. The sustained consistency in our growth
and returns is what differentiates us from our peers and
demonstrates the company's ability to focus on best in class
metrics and capital discipline." For the quarter ended September
30, 2008, Ultra Petroleum reported adjusted net income of $122.4
million or $0.78 per diluted share, an increase of 227 percent from
$37.4 million, or $0.24 per diluted share for the same period in
2007. Operating cash flow(1) for the third quarter 2008 increased
166 percent to a record $242.5 million, compared to $91.1 million
for the same period in 2007. Ultra Petroleum's production for the
third quarter 2008 increased 35 percent to 36.3 billion cubic feet
equivalent (Bcfe) compared to production from continuing operations
of 26.9 Bcfe in the third quarter 2007. This is the largest
quarterly production level ever achieved by Ultra Petroleum. For
the third quarter of 2008, production is comprised of 34.6 billion
cubic feet (Bcf) of natural gas and 287.1 thousand barrels (MBbls)
of condensate. In the third quarter of 2008, Ultra Petroleum's
average realized natural gas price, including realized gains and
losses on commodity derivatives, was $8.21 per thousand cubic feet
(Mcf), an increase of 103 percent from $4.04 per Mcf in third
quarter 2007. During the quarter ended September 30, 2008, the
company's average price realization for natural gas was $7.57 per
Mcf, excluding realized gains and losses on commodity derivatives.
The average condensate price realized by the company in the third
quarter of 2008 was $108.16 per barrel (Bbl) up 61 percent, as
compared to $67.02 per Bbl (domestic) in the third quarter of 2007.
Adjusted earnings for the nine month period ended September 30,
2008 were $2.15 per diluted share, or $339.0 million, an increase
of 121 percent from $153.1 million, or $0.96 per diluted share for
the same period in 2007. Operating cash flow(1) for the nine month
period increased to $665.9 million, up 99 percent from $334.7
million, for the same period in 2007. Natural gas and crude oil
production from continuing operations for the nine month period
ended September 30, 2008, increased to 104.6 Bcfe compared to 80.8
Bcfe for the nine month period ended September 30, 2007, a 29
percent increase. Production for the first nine months of 2008 is
comprised of 99.7 Bcf of natural gas and 817.3 MBbls of condensate.
Including realized gains and losses on commodity derivatives,
realized natural gas prices during the nine month period were $7.98
per Mcf, compared to $4.76 per Mcf during the same period in 2007.
During the nine months ended September 30, 2008, the company's
average price realization for natural gas was $8.00 per Mcf,
excluding realized gains and losses on commodity derivatives.
Condensate prices were $102.61 per Bbl compared to $60.36 per Bbl
(domestic) during the comparable 2007 period. "From all accounts,
2008 is unfolding to be Ultra's best year ever as the company
delivers record performance, record earnings and industry leading
financial returns," stated Watford. Share Repurchases During the
three months ended September 30, 2008, Ultra Petroleum purchased
3.3 million shares of its common stock for an aggregate $216.5
million at a weighted average price of $66.27 per share. Since the
program's inception in May 2006 to the end of September 2008, the
company has purchased a total of 9.8 million shares of its common
stock for an aggregate $579.6 million at a weighted average price
of $59.10 per share. As of October 31, 2008, Ultra Petroleum's
shares outstanding, including stock options, have been reduced by
over five percent to 156,170,071 shares from the total at May 2006
when the repurchase plan was authorized. "At the end of the
quarter, our financial position and balance sheet are both very
strong. We have $150 million outstanding under our $750 million
senior bank facility, with our first debt repayment not due until
2012. Our $450 million of total debt is less than one times cash
flow. Currently, we realize that our economy is experiencing
uncertainty and volatility, and we believe that Ultra Petroleum,
with our low cost structure and financial strength, is extremely
well positioned to continue growing profitably while creating value
in 2009," stated Watford. Operations Review During the third
quarter of 2008, Ultra Petroleum continued to make significant
progress in improving drilling efficiencies. Operating 15 rigs in
Wyoming during the quarter, the company drilled and cased to total
depth (TD) 41 wells, as compared to 24 wells in the third quarter
2007. For the nine months ended September 30, 2008, the company
drilled and cased 115 wells, a 77 percent increase, as compared to
the 65 wells drilled and cased for the same time period in 2007.
The average third quarter drilling days (spud to TD) was 24 days, a
31 percent improvement from 35 days for full-year 2007. The average
time to drill for the nine month period ended September 30, 2008,
was 24 days, a 35 percent improvement from 37 days in the same
period of 2007. Largely as a result of improved drilling times, pad
well costs have trended lower. In the third quarter of 2008, well
costs decreased to $5.6 million, as compared to $6.2 million for
full year 2007. 2006 2007 Q1 2008 Q2 2008 Q3 2008 Spud to TD (days)
61 35 27 22 24 Rig release to rig release 79 48 37 30 32 % wells
drilled < 40 days 0% 74% 90% 95% 96% Well cost - pad ($MM) $7.0
$6.2 $5.7 $5.7 $5.6 "The efficiency gains that our team has made
over the past two years have been outstanding. We expect gains to
continue under the new Record of Decision (ROD) with continued
emphasis on the use of new innovative technologies," stated
Watford. The company is well on its way to drilling the planned 32
delineation wells, a 146 percent increase from the 13 delineation
wells drilled in 2007. At the end of the third quarter 2008, there
was a total of 16 delineation wells drilled and completed. Twelve
of these wells have sufficient production history to provide
reserve estimates. So far, the delineation wells drilled have a 44
percent increase in reserves as compared to pre-drill reserve
estimates. These twelve delineation wells have an average
post-drill reserve estimate of over 7 Bcfe per well and an average
initial production rate of over 11.2 Mmcf per day. Ultra Petroleum
plans to continue delineation drilling in the under-drilled
portions of the Pinedale Field. Delineation drilling is key to the
company's continued success in enlarging the size of the Pinedale
Field by increasing the Original Gas in Place (OGIP) estimate; but
more importantly, the direct result of this focused drilling is an
increase in the estimate of recoverable natural gas reserves and
production net to Ultra Petroleum. The company continues to
evaluate the low quality pay (LQ) in selected wells. To date, Ultra
Petroleum has completed 71 wells containing LQ pay representing a
total of 237 frac stages. The incremental expense of this project
is simply the cost of perforating and fracing the additional
stages. The results indicate that the LQ pay, from uncontacted sand
lenses near the wellbore that are beyond the detection range of
logging tools, can add as much as 0.5 Bcfe of reserves per well.
The LQ pay will increase the OGIP estimate of the Pinedale Field
and over time, increase Ultra Petroleum's natural gas reserves and
production. The Bureau of Land Management (BLM) issued the Pinedale
Record of Decision (ROD) on September 12, 2008. Under the ROD,
Ultra Petroleum gains year-round access to the Pinedale Field for
drilling and completion activities in concentrated development
areas. After an initial transition period, this additional access
is expected to lead to increased drilling efficiencies and allow
for accelerated development of the field. During September 2008, a
26 mile portion of the REX - West pipeline successfully completed
hydro-static testing located near the ANR delivery point in Brown
County, Kansas. As a result of the hydro-static testing, Ultra
Petroleum's firm transportation of 200 Mmcf per day was decreased
to 100 Mmcf per day for almost all of September. As previously
announced, the company shut-in the corresponding volumes during
this period. Subsequent to quarter-end, Kinder Morgan confirmed
that Ultra Petroleum will have interim access to new delivery
points on REX - East in April 2009. Upon completion in September
2009, REX - East will provide a maximum natural gas transportation
capacity of 1.8 Bcf per day from the Rockies to Clarington, Ohio,
which is an increase from the current 1.5 Bcf per day from the
Rockies to Audrain County, Missouri. Production Guidance Ultra
Petroleum is confirming 2008 annual production guidance of 143.4 to
147.4 Bcfe, a 25 to 29 percent increase over 2007's annual
production of 114.4 Bcfe from continuing operations. Production in
the fourth quarter of 2008 is expected to be 38.7 to 42.7 Bcfe. All
production growth is generated organically. "At our first quarter
2008 earnings conference call, we provided preliminary production
guidance for 2009 of 185 to 190 Bcfe based on a Wyoming development
budget of $860 million. That's still valid, but we won't finalize
our 2009 capital budget and production guidance until February
2009. We will continue to evaluate alternative capex budgets and
production growth forecasts. We have the cost structure and
resource opportunity to grow at lower commodity prices," stated
Watford. Hedges -- Derivative Contracts The company primarily
relies on fixed price forward gas sales to manage its commodity
price exposure. These fixed price forward gas sales are considered
normal sales. The company, from time to time, also uses derivative
instruments to manage its exposure to commodity prices. At
September 30, 2008, Ultra Petroleum had the following fixed price
forward physical delivery contracts in place, on behalf of its
interest and those of other parties, at southwest Wyoming delivery
points to mitigate its commodity price exposure. Type Remaining
Contract Volume - Average Price per Period mmbtu/day Mcf/mmbtu
Forward Sale Calendar 2008 100,000 $7.31 Mcf/$6.83 mmbtu Forward
Sale Oct 2008 20,000 $7.36 Mcf/$6.88 mmbtu Forward Sale Calendar
2009 10,000 $8.04 Mcf/$7.51 mmbtu Forward Sale Apr 2009 - Oct 2009
90,000 $7.55 Mcf/$7.06 mmbtu In addition to fixed price contracts,
Ultra Petroleum also utilizes open commodity derivative contracts
to manage price risk on a portion of its natural gas production
whereby the company receives the fixed price and pays the variable
monthly index price. All natural gas prices are Northwest Pipeline
Rockies basis. Type Remaining Contract Volume - Average Price per
Period mmbtu/day Mcf/mmbtu Swap Oct 2008 190,000 $7.69 Mcf/$7.19
mmbtu Swap Jan 2009 - Dec 2009 30,000 $7.86 Mcf/$7.35 mmbtu "For
2009, we have hedged 130,000 mmbtu per day at $7.70 per Mcf in
Wyoming plus the 200 Mmcf per day that we have as firm capacity on
REX that will receive Mid-Continent or East coast natural gas
pricing; we are no longer an Opal price taker," stated Watford. "We
remain confident that over the next few years the increase in
Rockies take-away capacity will more than match the increase in
production, as there are a number of slated pipeline projects that
are well advanced. In 2009, REX - East will increase its capability
by an additional 300 Mmcf per day. In 2010, the new Bison Pipeline
will be in service providing an additional 400 Mmcf per day of
capacity. Also in 2010, the Kern River expansion will be completed
providing just over 400 Mmcf per day of new capacity. In 2011, the
1,200 Mmcf per day (1.2 Bcf per day) Ruby Pipeline is expected to
be in service. The combination of these four projects alone will
increase Rockies take-away capacity over 2.3 Bcf within the next
two and half years." On October 31, 2008, in connection with the
preparation of Ultra Petroleum's quarterly report for the third
quarter 2008, the company's management and the Audit Committee of
the Board of Directors determined that the contemporaneous formal
documentation the company had prepared in the first quarter of 2008
to support the initial natural gas hedge designations for
production sold on REX did not meet the technical requirements to
qualify for hedge accounting treatment in accordance with Statement
of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). In
order to cause the hedge contracts to qualify for hedge accounting
treatment under SFAS No. 133, the company was required to predict
and document the future relationship between prices at REX sales
points and the sales prices at the Northwest Pipeline Rockies (the
basis of the hedge contract) at the time the hedge contracts were
entered into. The actual relationship between the sales prices at
the two locations was different than that predicted by the company,
which affected Ultra Petroleum's ability to effectively demonstrate
ongoing effectiveness between the derivative instrument and the
forecasted transaction as outlined in the company's contemporaneous
documentation as set forth under the requirements of SFAS No. 133.
Under SFAS No. 133, the fair value of hedge contracts is recognized
in the Consolidated Balance Sheet as an asset or liability, and the
amounts received or paid under the hedge contracts are reflected in
revenues during the period in which the underlying production
occurs. If the hedge contracts qualify for hedge accounting
treatment, the fair value of the hedge contract, net of income
taxes, is recorded in "accumulated other comprehensive income", and
changes in the fair value do not affect net income in the period.
If the hedge contract does not qualify for hedge accounting
treatment, the change in the fair value of the hedge contract, net
of income taxes, is reflected in earnings during the period as
unrealized gain or loss on commodity derivatives. The company has
restated the Consolidated Financial Statements for the periods
ended March 31, 2008 and June 30, 2008 to reflect the inability to
qualify for hedge accounting on the REX designated derivative
contracts. The effect of the restatement is to recognize a
non-cash, after tax, mark-to- market unrealized loss on commodity
derivatives of $18.0 million in the first quarter of 2008 and a
non-cash, after tax, mark-to-market unrealized gain on commodity
derivatives of $1.6 million in the second quarter of 2008. Under
this accounting treatment, the company recognized a non-cash, after
tax, mark- to-market unrealized gain on commodity derivatives of
$26.6 million in the third quarter of 2008. There is no effect in
any period on overall cash flows, total assets, total liabilities
or total stockholders' equity. These contracts were entered into
and expire in fiscal year 2008, and therefore, there will be no
change in full-year 2008 net income or operating cash flows as a
result of the change in accounting treatment of these derivative
contracts, as restated. The restatement did not have any impact on
any of the financial covenants under the company's Senior Credit
Facility or Senior Notes due 2015 and 2018. "Effective November 3,
2008, the company has changed its method of accounting for natural
gas commodity derivatives to reflect unrealized gains and losses on
commodity derivative contracts in the income statement rather than
on the balance sheet," stated Watford. Conference Call Webcast
Scheduled for November 5, 2008 Ultra Petroleum's third quarter 2008
conference call will be available via live audio webcast at 10:00
a.m. Eastern Time (9:00 a.m. Central Time) on Wednesday, November
5, 2008. To listen to this webcast, log on to
http://www.ultrapetroleum.com/. The webcast will be archived on
Ultra Petroleum's website through February 18, 2009. Financial
tables to follow Ultra Petroleum Corp. Consolidated Statement of
Operations (unaudited) All amounts expressed in US$000's For the
Nine For the Months Ended Quarter Ended 30-Sep-08 30-Sep-07
30-Sep-08 30-Sep-07 Volumes Oil liquids (Bbls) - Domestic 817,271
614,791 287,115 199,464 Natural gas (Mcf) - Domestic 99,739,893
77,144,168 34,558,450 25,727,129 MCFE from continuing operations
104,643,519 80,832,914 36,281,140 26,923,913 Oil crude (Bbls) -
discontinued operations - 1,153,293 - 301,139 MCFE - Total
104,643,519 87,752,672 36,281,140 28,730,747 Revenues Oil sales
$83,863 $37,111 $31,054 $13,368 Natural gas sales 793,140 367,552
266,573 103,847 Total revenues 877,003 404,663 297,627 117,215
Expenses Production costs 27,800 16,675 8,501 6,424
Severance/production taxes 98,336 45,166 31,625 12,960 Gathering
fees 27,621 20,141 8,857 6,667 Total lease operating costs 153,757
81,982 48,983 26,051 Transportation 33,101 - 11,431 - DD&A
130,681 94,084 45,652 31,864 General and administrative 8,176 6,191
2,138 2,289 Stock compensation 4,860 3,918 2,104 1,181 Total
expenses 330,575 186,175 110,308 61,385 Interest and other income
368 839 92 203 Interest and debt expense (14,997) (12,471) (5,183)
(5,550) Realized gain (loss) on commodity derivatives 3,083 -
17,202 - Unrealized gain (loss) on commodity derivatives 15,765 -
40,915 - Net income before income taxes 550,647 206,856 240,345
50,483 Income tax provision 201,880 73,705 91,370 17,727 Net income
from continuing operations 348,767 133,151 148,975 32,756
Discontinued operations, net of tax 415 19,909 - 4,644 Net income
$349,182 $153,060 $148,975 $37,400 Unrealized (gain) loss on
commodity derivatives (net of tax) (10,231) - (26,554) - Adjusted
net income $338,951 $153,060 $122,421 $37,400 Operating cash flows
(1) Operating cash flow from continuing operations $665,893
$301,140 $242,462 $82,418 Operating cash flow from discontinued
operations - 33,592 - 8,709 Operating cash flows $665,893 $334,732
$242,462 $91,127 (1) (see non-GAAP reconciliation) Weighted average
shares - basic 152,592 151,825 152,217 151,530 Weighted average
shares - diluted 157,326 158,768 156,072 158,224 Basic earnings per
share: Net income from continuing operations $2.29 $0.88 $0.98
$0.22 Net income from discontinued operations - $0.13 - $0.03 Net
income $2.29 $1.01 $0.98 $0.25 Fully diluted earnings per share:
Net income from continuing operations $2.22 $0.84 $0.95 $0.21 Net
income from discontinued operations - $0.12 - $0.03 Net income
$2.22 $0.96 $0.95 $0.24 Earnings per share - net of unrealized gain
(loss) on commodity derivatives: Adjusted net income - basic $2.22
$1.01 $0.80 $0.25 Adjusted net income - fully diluted $2.15 $0.96
$0.78 $0.24 Realized Prices Oil liquids (Bbls) - Domestic $102.61
$60.36 $108.16 $67.02 Oil crude (Bbls) - China - $56.21 - $63.94
Natural gas (Mcf), including realized gain (loss) on commodity
derivatives $7.98 $4.76 $8.21 $4.04 Natural gas (Mcf), excluding
realized gain (loss) on commodity derivatives $8.00 $4.76 $7.57
$4.04 Costs Per MCFE - Continuing operations Production costs $0.27
$0.21 $0.23 $0.24 Severance/production taxes $0.94 $0.56 $0.87
$0.48 Gathering fees $0.26 $0.25 $0.24 $0.25 Transportation $0.32 -
$0.32 - DD&A $1.25 $1.16 $1.26 $1.18 General and administrative
- total $0.12 $0.13 $0.12 $0.13 Interest and debt expense $0.14
$0.15 $0.14 $0.21 $3.30 $2.44 $3.18 $2.47 Note: Amounts on a per
MCFE basis may not total due to rounding. Margins - Continuing
operations Operating cash flow(2) 76% 74% 77% 70% Adjusted net
income 38% 33% 39% 28% Adjusted pre-tax income 61% 51% 63% 43%
Ultra Petroleum Corp. Reconciliation of Cash Flow and Cash Provided
by Operating Activities (unaudited) All amounts expressed in
US$000's The following table reconciles net cash provided by
operating activities with operating cash flow as derived from the
company's financial information. These statements are unaudited and
subject to adjustment. For the Nine Months For the Quarter Ended
Ended 30-Sep-08 30-Sep-07 30-Sep-08 30-Sep-07 Net cash provided by
operating activities $708,186 $358,202 $309,780 $119,562 Net
changes in working capital and other non-cash items - continuing
operations* (42,293) (23,378) (67,318) (12,920) Net changes in
working capital - discontinued operations - (92) - (15,515)
Operating cash flow $665,893 334,732 $242,462 $91,127 (1) Operating
cash flow is defined as net cash provided by operating activities
before changes in working capital and other non-cash items*.
Management believes that the non-GAAP measure of operating cash
flow is useful as an indicator of an oil and natural gas
exploration and production company's ability to internally fund
exploration and development activities and to service or incur
additional debt. The company also has included this information
because changes in operating assets and liabilities relate to the
timing of cash receipts and disbursements which the company may not
control and may not relate to the period in which the operating
activities occurred. Operating cash flow should not be considered
in isolation or as a substitute for net cash provided by operating
activities prepared in accordance with GAAP. (2) Operating cash
flow margin is defined as Operating Cash Flow divided by the sum of
Oil and Natural Gas Sales plus Realized Gain (Loss) on Commodity
Derivatives. *Other non-cash items include excess tax benefit from
stock based compensation and other. About Ultra Petroleum Ultra
Petroleum Corp. is an independent exploration and production
company focused on developing its long-life natural gas reserves in
the Green River Basin of Wyoming -- the Pinedale and Jonah Fields.
Ultra Petroleum is listed on the New York Stock Exchange and trades
under the ticker symbol "UPL". The company had 150,502,296 shares
outstanding on October 31, 2008. This release can be found at
http://www.ultrapetroleum.com/ This news release includes
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The opinions,
forecasts, projections or other statements, other than statements
of historical fact, are forward-looking statements. Although the
company believes that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance
that such expectations will prove to have been correct. Certain
risks and uncertainties inherent in the company's businesses are
set forth in our filings with the SEC, particularly in the section
entitled "Risk Factors" included in our Annual Report on Form 10-K
for our most recent fiscal year and from time to time in other
filings made by us with the SEC. These risks and uncertainties
include increased competition, the timing and extent of changes in
prices for oil and natural gas, particularly in Wyoming, the timing
and extent of the company's success in discovering, developing,
producing and estimating reserves, the effects of weather and
government regulation, availability of oil field personnel,
services, drilling rigs and other equipment, and other factors
listed in the reports filed by the company with the SEC. Full
details regarding the selected financial information provided above
will be available in the company's report on Form 10-Q for the
quarter ended September 30, 2008.
http://www.newscom.com/cgi-bin/prnh/20020226/DATU029LOGO
http://photoarchive.ap.org/ DATASOURCE: Ultra Petroleum Corp.
CONTACT: Kelly L. Whitley, Manager Investor Relations of Ultra
Petroleum Corp., +1-281-876-0120, Ext. 302, Web site:
http://www.ultrapetroleum.com/
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