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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
________________
Commission file number 0-29370
ULTRA PETROLEUM CORP.
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
16801 Greenspoint Park Drive, Suite 370, Houston, Texas 77060
(Address of Principal Executive Offices) (Zip Code)
(281) 876-0120
----------
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO______
----------
The number of common shares, without par value, of Ultra Petroleum Corp.,
outstanding as of August 1, 2002 was 74,198,168.
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues
Natural gas sales $ 7,462,282 $ 9,296,793 $ 15,862,228 $ 25,274,136
Oil sales 681,105 750,809 1,387,478 1,520,840
------------ ------------ ------------ ------------
8,143,387 10,047,602 17,249,706 26,794,976
Expenses
Production expenses and taxes 2,092,197 2,205,705 4,581,129 5,074,330
Depletion and depreciation 1,745,291 1,743,916 3,853,588 3,354,244
General and administrative 1,210,952 1,053,978 2,059,263 2,020,999
Stock compensation 425,280 -- 796,165 91,822
Interest 692,156 378,393 1,206,217 667,940
------------ ------------ ------------ ------------
6,165,876 5,381,992 12,496,362 11,209,335
Operating income 1,977,511 4,665,610 4,753,344 15,585,641
Other income:
Interest 5,346 30,307 12,336 88,702
Other -- 77,932 -- 130,340
------------ ------------ ------------ ------------
5,346 108,239 12,336 219,042
Income for the period, before income tax provision 1,982,857 4,773,849 4,765,680 15,804,683
Income tax provision - deferred 675,989 500,127 1,747,376 1,645,786
Net income for the period 1,306,868 4,273,722 3,018,304 14,158,897
Retained earnings (deficit), beginning of period 4,445,792 (5,259,297) 2,734,356 (15,144,472)
------------ ------------ ------------ ------------
Retained earnings (deficit), end of period $ 5,752,660 $ (985,575) $ 5,752,660 $ (985,575)
============ ============ ============ ============
Income per common share - basic $ 0.02 $ 0.06 $ 0.04 $ 0.20
============ ============ ============ ============
Income per common share - fully diluted $ 0.02 $ 0.06 $ 0.04 $ 0.19
============ ============ ============ ============
Weighted average common shares outstanding - basic 74,131,371 72,866,710 73,992,710 71,446,112
============ ============ ============ ============
Weighted average common shares outstanding - fully diluted 77,929,649 76,536,391 77,694,951 74,762,941
============ ============ ============ ============
2
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Expressed in U.S. Dollars) Six Months Ended
June 30,
----------------------------
2002 2001
------------ ------------
Cash provided by (used in):
Operating activities:
Net income for the period $ 3,018,304 $ 14,158,897
Add (deduct)
Items not involving cash:
Depletion and depreciation 3,853,588 3,354,244
Deferred income taxes 1,747,376 1,645,786
Stock compensation 884,765 353,241
Net changes in non-cash working capital:
Restricted cash (1,299) (4,114)
Accounts receivable 806,481 4,178,805
Prepaid expenses and other current assets 937,041 13,826
Note receivable -- (683,137)
Accounts payable and accrued liabilities (4,868,729) 4,845,496
Deferred revenue (50,000) (50,000)
------------ ------------
6,327,527 27,813,044
Investing activities:
Oil and gas property expenditures (23,527,232) (22,536,102)
Purchase of capital assets (590,407) (163,984)
Cash received from Pendaries Merger -- 312,365
------------ ------------
(24,117,639) (22,387,721)
Financing activities:
Long-term debt 18,000,000 (3,698,395)
Repurchased shares (1,133,750)
Proceeds from exercise of options 893,280 561,023
------------ ------------
17,759,530 (3,137,372)
Increase in cash during the period (30,582) 2,287,951
Cash and cash equivalents, beginning of period 1,379,462 1,143,591
------------ ------------
Cash and cash equivalents, end of period $ 1,348,880 $ 3,431,542
============ ============
Supplemental statements of cash flows information
Supplemental schedule of non-cash investing activities:
Acquisitions
Fair value of assets acquired $ -- $ 43,950,263
Less: liabilities assumed -- (4,225,978)
Cash acquired -- 312,365
------------ ------------
Fair value of stock issued $ -- $ 40,036,650
============ ============
3
ULTRA PETROLEUM CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Expressed in U.S. Dollars)
June 30, December 31,
2002 2001
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 1,348,880 $ 1,379,462
Restricted cash 208,478 207,179
Accounts receivable 6,552,261 7,358,742
Prepaid expenses and other current assets 2,791,012 2,823,613
------------- -------------
10,900,631 11,768,996
Oil and gas properties, using the full cost method of
accounting 175,609,308 155,221,187
Capital assets 1,017,425 592,605
------------- -------------
Total assets $ 187,527,364 $ 167,582,788
============= =============
Liabilities and shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 19,869,436 $ 21,096,348
Long-term debt 61,000,000 46,092,928
Deferred income taxes 6,721,385 4,974,008
Deferred revenue 50,000 100,000
Shareholders' equity
Share capital 94,363,193 92,585,148
Treasury stock (1,133,750) --
Other comprehensive income 904,440 --
Retained earnings 5,752,660 2,734,356
------------- -------------
99,886,543 95,319,504
------------- -------------
Total liabilities and shareholders' equity $ 187,527,364 $ 167,582,788
============= =============
4
ULTRA PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars unless otherwise noted)
Three months ended June 30, 2002 and 2001
DESCRIPTION OF THE BUSINESS:
Ultra Petroleum Corp. (the "Corporation") is incorporated under the laws of
British Columbia, Canada. At March 1, 2000 the Corporation was continued under
the laws of the Yukon Territory, Canada. Its principal business activity is the
exploration and development of oil and gas properties located in the United
States. The Corporation also has oil and gas properties in China.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements, other than the balance sheet data as of
December 31, 2001, are unaudited and were prepared from our records. Balance
sheet data as of December 31, 2001 was derived from our audited financial
statements, but do not include all disclosures required by U.S. generally
accepted accounting principles. Our management believes that these financial
statements include all adjustments necessary for a fair presentation of our
financial position and results of operations. All adjustments are of a normal
and recurring nature unless specifically noted. We prepared these statements on
a basis consistent with our annual audited statements and Regulation S-X.
Regulation S-X allows us to omit some of the footnote and policy disclosures
required by generally accepted accounting principles and normally included in
annual reports on Form 10-K. You should read these interim financial statements
together with the financial statements, summary of significant accounting
policies and notes to our most recent annual report on Form 10-K.
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Corporation
and its wholly owned subsidiaries UP Energy Corporation, Ultra Resources, Inc
and Sino-American Energy Corporation.
All material intercompany transactions and balances have been eliminated upon
consolidation.
(b) Accounting principles:
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada.
(c) Hedging transactions:
Beginning April 1, 2002 the Corporation has entered into commodity price risk
management transactions to manage its exposure to gas price volatility. These
transactions are in the form of price swaps with a financial institution. These
transactions have been designated by the Corporation as cash flow hedges. As
such, unrealized gains and losses related to the change in fair market value of
the derivative contracts are recorded in other comprehensive income in the
balance sheet.
(d) Income taxes:
The Corporation uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
future tax consequences. Accordingly, deferred tax assets and liabilities are
determined based on the temporary differences between the financial statement
and tax basis of assets and liabilities, using the enacted tax rates in effect
for the year in which differences are expected to reverse.
(e) Earnings per share:
Basic earnings per share is computed by dividing net earnings attributable to
common stock by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is computed by adjusting the average
number of common shares outstanding for the dilutive effect, if any, of stock
options. The Corporation uses the treasury stock method to determine the
dilutive effect.
The following table provides a reconciliation of the components of basic and
diluted net income per common share for the six-month periods ended June 30,
2002 and 2001:
Three Months Ended Six Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income $ 1,306,868 $ 4,273,722 $ 3,018,304 $14,158,897
=========== =========== =========== ===========
Weighted average of common shares outstanding
during the period 74,131,371 72,866,710 73,992,710 71,446,112
Effect of dilutive instruments 3,798,278 3,669,681 3,702,241 3,316,829
----------- ----------- ----------- -----------
Weighted average common shares outstanding
during the period including the effects of dilutive
Instruments 77,929,649 76,536,391 77,694,951 74,762,941
=========== =========== =========== ===========
Basic earnings per share $ 0.02 $ 0.06 $ 0.04 $ 0.20
=========== =========== =========== ===========
Diluted earnings per share $ 0.02 $ 0.06 $ 0.04 $ 0.19
=========== =========== =========== ===========
5
(f) Share repurchase program:
In October 2001 Ultra's board of directors approved a share repurchase program
whereby the Corporation may acquire shares issued from the exercise of options
with the intent of keeping our basic share count constant. During the second
quarter ended June 30, 2002, the Corporation bought back 125,000 shares related
to the exercise of options at $9.07 US for total of $1,133,750.00.
(g) Foreign currency translation:
The Corporation has adopted the United States dollar as its reporting currency,
which is also its functional currency. The Corporation and its subsidiaries are
considered to be integrated operations and accounts in Canadian dollars are
translated using the temporal method. Under this method, monetary assets and
liabilities are translated at the rates of exchange in effect at the balance
sheet date; non-monetary assets at historical rates and revenue and expense
items at the average rates for the period other than depletion and depreciation
which are translated at the same rates of exchange as the related assets. The
net effect of the foreign currency translation is included in current
operations.
(h) Use of estimates:
Preparation of consolidated financial statements in accordance with generally
accepted accounting principles in Canada requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Reclassifications:
Certain amounts in the financial statements of the prior years have been
reclassified to conform to the current year financial statement presentation.
2. OIL AND GAS PROPERTIES:
June 30, December 31,
2002 2001
------------- -------------
Developed Properties:
Acquisition, equipment, exploration $ 120,645,350 $ 100,574,404
drilling and environmental costs
Less accumulated depletion, depreciation and
Amortization (17,876,605) (13,499,605)
------------- -------------
102,768,745 87,074,799
Unproven Properties:
China 59,628,689 55,894,246
Acquisition and exploration costs 13,211,874 12,252,142
------------- -------------
$ 175,609,308 $ 155,221,187
============= =============
3. LONG-TERM DEBT:
June 30, December 31,
2002 2001
------------- -------------
Bank indebtedness $ 61,000,000 $ 43,000,000
Short term obligations to be refinanced -- 3,092,928
============= =============
$ 61,000,000 $ 46,092,928
============= =============
The Corporation (through its subsidiary) participates in a long-term credit
facility with a group of banks led by Bank One N.A. The agreement specifies a
maximum loan amount of $150 million and an aggregate borrowing base of $80
million at March 1, 2002. At June 30, 2002, the Corporation had $61 million
outstanding and $19 million unused and available on the credit facility.
The credit facility matures on March 1, 2005. The note bears interest at either
the bank's prime rate plus a margin of one-half of one percent (0.50%) to one
and one-quarter percent (1.25%) based on the percentage of available credit
drawn or at LIBOR plus a margin of one and one-half percent (1.5%) to two and
one-quarter percent (2.25%) based on the percentage of available credit drawn.
An average annual commitment fee of 0.375% is charged quarterly for any unused
portion of the credit line.
The borrowing base is subject to periodic (at least semi-annual) review and
re-determination by the bank and may be decreased or increased depending on a
number of factors including the Corporation's proved reserves and the bank's
forecast of future oil and gas prices. Additionally, the Corporation is subject
to quarterly reviews of compliance with the covenants under the bank facility
including minimum coverage ratios relating to interest, working capital, general
and administrative expenditures and advances to Sino-American Energy
Corporation. In the event of a default under the covenants, the Corporation may
not be able to access funds otherwise available under the facility. As of June
30, 2002, the Corporation was in compliance with the covenants and required
ratios.
The Corporation has secured this debt by a majority of it's proved domestic oil
and gas properties.
4. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
THE UNITED STATES:
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada, ("Canadian GAAP"), which may
differ in certain respects from generally accepted accounting principles in the
United States, ("US GAAP"). The Corporation currently has no differences which
would have a significant effect on reported net income or stockholders' equity.
6
5. FINANCIAL INSTRUMENTS:
In April 2002, the Corporation began hedging a portion of it's production with a
fixed price to index price swap agreement. The purpose of the hedges is to
provide a measure of stability to the Corporation's cash flows in an environment
of volatile oil and gas prices and to manage the exposure to commodity price
risk. The Corporation recognizes all derivative instruments as assets or
liabilities in the balance sheet at fair value. The accounting treatment of the
changes in fair value as specified in FAS 133 is dependent upon whether or not a
derivative instrument is designated as a hedge. For derivatives designated as
cash flow hedges, changes in fair value, to the extent the hedge is effective,
are recognized in other comprehensive income until the hedged item is recognized
in earnings as oil and gas revenue. For all other derivatives, changes in fair
value are recognized in earnings as non-operating income or expense. At June 30,
2002 the Corporation had a current derivative asset of $904,440 which is
included in other current assets in our balance sheet. Under the current swap
agreement, the Corporation receives the difference between a fixed price per
unit of production and a price based on an agreed upon third-party index if the
index price is lower. If the index price is higher, Ultra pays the difference.
By entering into swap agreements the Corporation effectively fixes the price
that it will receive in the future for the hedged production. Ultra's current
swaps are settled in cash on a monthly basis. As of April 1, 2002, Ultra had the
following swap in place based on the Northwest Pipeline Corp., Rocky Mountains;
Index as published in Inside FERC at the first of each month. The Corporation
has entered into this agreement for 10,000 MMBTU per day at $2.58 through
October 31, 2002.
6. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations". SFAS No. 143 requires entities to
record the fair value of liabilities for retirement obligations of acquired
assets. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. Management is currently assessing the impact, if any, of SFAS No. 143 on
the Corporation's consolidated financial statements for future periods.
In July 2002, the Financial Accounting Standards Board also issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146
applies to costs associated with (1) an exit activity that does not involve an
entity newly acquired in a business combination or (2) a disposal activity
within the scope of FASB Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". Those costs include (a) certain termination
benefits (so-called one-time termination benefits), (b) costs to terminate a
contract that is not a capital lease, and (c) other associated costs including
costs to consolidate facilities or relocate employees. The Statement is
effective for exit or disposal activities that are initiated after December 31,
2002, however, earlier application is encouraged. Management has not yet
assessed the impact of this statement.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2002 VS. QUARTER ENDED JUNE 30, 2001
OPERATING REVENUES
Oil and gas revenues decreased to $8,143,387 or 19% for the quarter ended June
30, 2002 from $10,047,602 for the same period in 2001. This decrease was
attributable to a decrease in prices received for that production. During this
quarter, the Corporation's gas production increased by 4% to 3.0 Bcf, up from
2.8 Bcf, while condensate decreased to 27 thousand barrels from 29 thousand
barrels for the same period in 2001. During the quarter, management estimates
that the Corporation shut-in approximately 15-20% of its available production
volumes of gas due to low prices for that gas in Wyoming primarily due to
temporary pipeline constraints that prevented certain volumes of gas from
reaching the market. Management believes that the majority of the pipeline
constraints which were evidenced during the quarter have been remedied, although
unforeseen events may cause curtailments of production in the future. Major
expansions of gathering and interstate pipeline infrastructure are scheduled to
be completed the period through 2003. During the quarter ended June 30, 2002 the
average product prices for gas and condensate were $2.52 per Mcf and $25.58 per
barrel, respectively, compared to $3.27 per Mcf and $25.83 per barrel for the
same period in 2001.
PRODUCTION EXPENSES AND TAXES
During the quarter ended June 30, 2002 production expenses and taxes decreased
5% to $2,092,197 from $2,205,705 for the quarter ended June 30, 2001. Direct
lease operating expenses increased 12% to $418,277 for the quarter ended June
30, 2002 from $372,691 for the same period in 2001. On a per unit of production
basis, these costs increased to $.13 per Mcfe in June 2002, as compared to $.12
per Mcfe in June 2001. Production taxes for the second quarter 2002 were
$783,452, compared to $1,120,386 in second quarter 2001 or $.25 per Mcfe in
second quarter 2002, compared to $.37 per Mcfe in second quarter 2001.
Production taxes are calculated based on a percentage of revenue from
production, therefore lower realized prices contributed to the decrease.
Gathering fees for the quarter ended June 30, 2002 increased 25% to $890,468
from $712,628 for the same period in 2001, primarily attributable to higher unit
charges on certain gathering systems.
DEPLETION AND DEPRECIATION
Depletion, depreciation and amortization expenses (DD&A) were $1,745,291 during
the quarter ended June 30, 2002 compared to $1,743,916 for the same period in
2001. On a per unit basis, DD&A decreased to $.56 per Mcfe, from $.58 per Mcfe
in 2001 primarily as a result of increases in the Corporation's proved reserves
and lower estimated future development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 15% to $1,210,950 during the
quarter ended June 30, 2002 from $1,053,978 for the same period in 2001. The
increase was attributable to legal, professional and compensation expenses that
coincide with the Corporation's increased activity in both Wyoming and China.
INTEREST
Interest expense for the period increased 83% to $692,156 in first quarter 2002
from $378,393 in first quarter 2001. This increase was attributable to the
increase in borrowings under the senior credit facility.
7
INCOME TAXES
The Corporation recorded deferred income tax expense of $675,989 at an effective
rate of 34% for the quarter ended June 30, 2002, compared to $500,125 at an
effective rate of 10.5% for the quarter ended June 30, 2001. Although the
Corporation is not expected to pay cash taxes in 2002, in accordance with FAS
109 and specifically, the guidance concerning intraperiod tax allocations, the
Corporation is required to recognize tax expense evenly throughout the year. In
the prior year, income tax expense, as calculated at the statutory rate
including estimated state income tax effect, was offset by recognition of
deferred tax assets for which a valuation allowance had previously been
provided.
SIX MONTHS ENDED JUNE 30, 2002 VS. SIX MONTHS ENDED JUNE 30, 2001
OPERATING REVENUES
Oil and gas revenues decreased to $17,249,706 or 36% for the six months ended
June 30, 2002 from $26,794,976 for the same period in 2001. This decrease was
attributable to a decrease in prices received for that production. During the
first half of this year, the Corporation's production increased by 23% on an Mcf
equivalent basis, to 6.7 Bcf of gas, and 60 thousand barrels of condensate, up
from 5.4 Bcf of gas and 57 thousand barrels of condensate for the same six
months in 2001. During the six months ended June 30, 2002 the average product
prices for gas and condensate were $2.36 per Mcf and $22.85 per barrel,
respectively, compared to $4.68 per Mcf and $26.50 per barrel for the same
period in 2001.
PRODUCTION EXPENSES AND TAXES
During the six months ended June 30, 2002 production expenses and taxes
decreased 10% to $4,581,129 from $5,074,330 for the six months ended June 30,
2001. Direct lease operating expenses increased to $905,144 for the six months
ended June 30, 2002 from $607,224 for the same period in 2001. On a per unit of
production basis, these costs increased 18% to $.13 per Mcfe in June 2002, as
compared to $.11 per Mcfe in June 2001. Production taxes for the first half of
2002 were $1,719,039, compared to $2,999,603 in the first six months of 2001 or
$.24 per Mcfe at June 2002, compared to $.52 per Mcfe at June 2001. Production
taxes are calculated based on a percentage of revenue from production, therefore
lower realized prices contributed to the decrease. Gathering fees for the six
months ended June 30, 2002 increased 33% to $1,956,946 from $1,467,503 for the
same period in 2001, primarily attributable to higher production volumes.
DEPLETION AND DEPRECIATION
Depletion, depreciation and amortization expenses (DD&A) increased to $3,853,588
during the six months ended June 30, 2002 compared to $3,354,244 for the same
period in 2001. On a per unit basis, DD&A decreased to $.54 per Mcfe, from $.58
per Mcfe in 2001 primarily as a result of increases in the Corporation's proved
reserves and lower estimated future development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses totaled $2,059,263 during the six months
ended June 30, 2002 as compared to $2,020,999 for the same period in 2001.
INTEREST
Interest expense for the period increased 80% to $1,206,217 in first quarter
2002 from $667,940 in first quarter 2001. This increase was attributable to the
increase in borrowings under the senior credit facility.
INCOME TAXES
The Corporation recorded deferred income tax expense of $1,747,376 at an
effective rate of 37% for the six months ended June 30, 2002, compared to
$1,645,786 at an effective rate of 10.3% for the six months ended June 30, 2001.
Although the Corporation is not expected to pay cash taxes in 2002, in
accordance with FAS 109 and specifically, the guidance concerning intraperiod
tax allocations, the Corporation is required to recognize tax expense evenly
throughout the year. In the prior year, income tax expense, as calculated at the
statutory rate including estimated state income tax effect, was offset by
recognition of deferred tax assets for which a valuation allowance had
previously been provided.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $6,327,527 for the six months ended June
30, 2002 compared to $27,813,044 for the six months ended June 30, 2001.
Operating cash flow in the six month period decreased compared to the prior year
due to decreased oil and gas prices and higher operating and other expenses.
Cash flow used in investing activities was $24,117,640 for the six months ended
June 30, 2002 compared to $22,387,721 for the six months ended June 30, 2001. In
2002, oil and gas property and capital asset expenditures were $23,527,232 and
$590,408, respectively, compared to $22,536,102 and $163,984 in the prior year.
Amounts expended in the prior year were also offset by $312,365 of cash received
from the Pendaries Merger.
Net cash provided by financing activities was $17,759,530 for the six months
ended June 30, 2002 compared to net cash used of $3,137,372 for the six months
ended June 30, 2001. Cash received in 2002 represented borrowings of $18,000,000
on the credit facility, proceeds from the exercise of options of $893,280 and
the cost to acquire stock related to options of $(1,133,750). In the prior year,
net cash paid on the credit facility was $3,698,395, offset by proceeds from the
exercise of options of $561,023.
8
In the six-month period ending June 30, 2002 the Corporation relied on its
existing cash flow and availability under it's credit facility to finance its
capital expenditures. During the first six-months of 2002, the Corporation
participated in continued activity on the Pinedale Anticline in Wyoming. The
Corporation participated in the completion of eight wells that had been drilled
or drilled and partially completed under the 2001 drilling program.
Additionally, during the six-month period the Corporation participated in the
drilling and completion of three wells and eight that were drilling at June 30,
2002. Capital expenditures in China were related to the participation in the
drilling of three wells in Bohai Bay and the preparation of the development plan
for CFD 11-1 and CFD 11-2 fields. For the six-month period ending June 30, 2002
capital expenditures were $23,527,232 ($19,792,785 in Wyoming and $3,734,447 in
Bohai Bay). At June 30, 2002, the Corporation reported a cash position of
$1,348,880 compared to $1,379,462 at December 31, 2001. Working capital at June
30, 2002 was $(8,968,805) as compared to $(9,327,352) at December 31, 2001.
Based on forecasted gas prices, production and bank availability, management
believes that the Corporation's continued positive cash flow from operations and
the availability under the senior credit facility will be sufficient to fund the
Corporation's budgeted capital expenditures for 2002, which are estimated to be
$50 million. However, future cash flows and continued availability of financing
are subject to a number of uncertainties beyond the Corporation's control such
as production rates, the price of gas and oil, continued favorable results of
the Corporation's drilling program and the general condition of the capital
markets for oil and gas companies. There can be no assurances that adequate
funding will be available to execute the Corporation's planned future capital
program.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements, including the
Corporation's outlook for the remainder of 2002 with regard to plans for funding
operations and capital expenditures, are based on a number of risks and
uncertainties that are outside the Corporation's control. For example, future
cash flows and continued availability of financing are subject to a number of
uncertainties beyond the Corporation's control. There can be no assurances that
adequate funding will be available to execute the Corporation's planned future
capital program.
Other risks and uncertainties include, but are not limited to, fluctuations in
the price we receive for oil and gas production, reductions in the quantity of
oil and gas sold due to increased industry-wide demand and/or curtailments in
production from specific properties due to mechanical, marketing or other
problems, operating and capital expenditures that are either significantly
higher or lower than anticipated because the actual cost of identified projects
varied from original estimates and/or from the number of exploration and
development opportunities being greater or fewer than currently anticipated and
increased financing costs due to a significant increase in interest rates.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk. The Corporation's major market risk exposure is in the pricing
applicable to its natural gas production. Realized pricing is primarily driven
by the prevailing price for crude oil and spot prices applicable to Ultra's
natural gas production in southwestern Wyoming which may not reflect pricing of
United States natural gas in general. Historically, prices received for gas
production have been volatile and unpredictable. Pricing volatility is expected
to continue.
Ultra's production is generally sold at prevailing market prices. However, the
Corporation periodically enters into hedging transactions for a portion of its
production when market conditions are deemed favorable in order to manage price
fluctuations and achieve a more predictable cash flow. The Corporation may use
fixed-price physical delivery contracts and derivative instruments to manage
exposures to commodity prices. The Corporation does not enter into derivative
instruments for trading purposes.
At June 30, 2002, the Corporation had the following swap in place. ("MMBtu"
means million British thermal units.)
Contract Period Instrument(s) MMBtu/day $/MMBtu
Apr 02--Oct 02 Swaps 10,000 $2.58
The swap price is based on an Index at the interstate pipeline. Various
gathering, processing and BTU content adjustments affect the price that the
Corporation ultimately reports in its financial statements.
The Corporation had no fixed-price physical delivery contracts in place at June
30, 2002.
Interest Rate Risk. At June 30, 2002, Ultra had long-term debt outstanding of
$61 million. The interest rates on the Corporation's revolving credit facility,
under which $61 million in indebtedness was outstanding at June 30, 2002, range
from LIBOR plus 2% to prime plus 1% and are variable; however, they may be fixed
at Ultra's option for periods of time between 30 to 180 days. At June 30, 2002
the Corporation had $51 million at LIBOR + 2% or approximately 4.1% through
September 6, 2002 and the balance at Prime + 1% or 5.5%. Subsequent to June 30,
2002, the balance at Prime +1% was rolled into a 180 day note at LIBOR +2% or
approximately 3.8% maturing January 31, 2003. A 10% increase in short-term
interest rates on the floating-rate debt outstanding at June 30, 2002 would
equal approximately 40 basis points. Such an increase in interest rates would
impact Ultra's annual interest expense by approximately $0.25 million assuming
borrowed amounts under the credit facility remained at $61 million.
PART 2 - 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 Company's financial position, or results of operations.
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ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRA PETROLEUM CORP.
Date August 5, 2002 By: /s/ Michael D. Watford
----------------------------------------
Name: Michael D. Watford
Title: Chief Executive Officer
By: /s/ F. Fox Benton III
----------------------------------------
Name: F. Fox Benton III
Title: Chief Financial Officer
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