10-Q 1 d10q.txt FORM 10-Q FOR QUARTER ENDED 6-30-2002 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. 9 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 10