Ultra Petroleum: Record Results for 2006

Ultra Petroleum Corp. on Tuesday reported record financial and operating results for the fourth quarter and full-year 2006.

Earnings for the year-ended December 31, 2006 were a record $231.2 million or $1.43 per diluted share, as compared to $228.3 million or $1.41 per diluted share for the same period in 2005. Operating cash flow(1) for the period 2006 increased to an all time high of $431.9 million as compared to $409.2 million for the same period in 2005.

Earnings for the fourth quarter 2006 were $60.6 million or $0.38 per diluted share, as compared to $82.2 million or $0.50 per diluted share for the fourth quarter in 2005. Operating cash flow(1) for the quarter was $118.1 million as compared to $144.7 million for the same quarter in 2005.

"In 2006, Ultra Petroleum remained focused on delivering superior financial performance while remaining true to our strategy of investing in profitable growth," commented Michael D. Watford, Chairman, President and Chief Executive Officer.

Operational Highlights

Ultra Petroleum's production for 2006 increased 24 percent to a record high of 91.6 billion cubic feet equivalent (Bcfe) compared to 73.8 Bcfe in 2005. Production for 2006 was comprised of 78.4 billion cubic feet (Bcf) of natural gas from domestic sources, 1,603.4 thousand barrels (Mbls) of crude oil from China, and 594.1 Mbls of crude oil from domestic sources. The natural gas prices realized for 2006 were $6.00 per thousand cubic feet (Mcf) as compared to $6.84 per Mcf in 2005. China crude oil prices realized in the year were $52.40 per barrel (bbl) as compared to $43.57 per bbl in 2005. Crude oil prices realized domestically were $64.52 per bbl as compared to $57.37 per bbl in 2005.

In Wyoming, Ultra Petroleum drilled 170 gross (75.87 net) wells during 2006. There were 142 new wells brought on production during 2006 with an average initial daily production rate of 8.8 Mmcf per day of natural gas. During the year, drilling activity peaked at 29 rigs running on Ultra Petroleum interest lands. At year end there were 24 rigs working on Ultra Petroleum's interest in the Pinedale and Jonah fields.

In Bohai Bay, China, Ultra Petroleum brought on production from three additional platforms during the quarter. Currently, all six platforms are producing from 79 wells at a rate of 48 Mbbls per day gross, or 4 Mbbls per day net to Ultra Petroleum.

Fourth quarter 2006 production increased 30 percent to 28.4 Bcfe, the greatest quarterly production ever achieved by the company, compared to 21.8 Bcfe for the same quarter in 2005. Fourth quarter production for 2006 was comprised of 24.9 Bcf of natural gas from domestic sources, 396.4 Mbls of crude oil from China, and 181.7 Mbls of crude oil from domestic sources. Natural gas prices realized domestically during the fourth quarter of 2006 were $5.62 per Mcf as compared to $8.49 per Mcf in the same period in 2005. China crude oil prices in the fourth quarter of 2006 were $39.53 per bbl as compared to $47.36 per bbl in the fourth quarter 2005. The realized domestic crude oil price was $57.06 per bbl as compared to $58.51 per bbl in the fourth quarter 2005.

"Our record production, all organic, mitigated the impact of substantially lower natural gas prices and rising costs. Our margins continued to provide industry leading returns with a 39 percent net income margin and a return on capital of 34 percent. Clearly, our advantage in capital efficiencies positions Ultra to continue its sector leadership in growth and economic returns," commented Watford.

Subsequent to Year-End

The Draft Supplemental Environmental Impact Study (SEIS) was issued by the Bureau of Land Management (BLM) in late December 2006 with a public comment period to follow. The public comment period is expected to close mid-April. It is anticipated that the BLM will issue the Record of Decision during the third quarter of 2007. Should this occur, Ultra Petroleum would gain access to additional acreage year round commencing in the 2007-2008 winter drilling season.

"The opportunity to drill and complete wells year-round on additional acreage in Pinedale that is currently off limits in the winter would significantly increase our ability to accelerate development. All of this would be completed while ensuring preservation of significant undisturbed wildlife habitat for the area," commented Watford.

In Pennsylvania, the Marshlands #1 is continuing to produce at a rate of 5 Mmcf of natural gas per day gross. The Marshlands Unit #2 has reached total depth and production casing is currently being run. Upon completion, the rig will begin drilling at the Marshlands Unit #3 location.

The exploration well in Bohai Bay, China at CFD 12-3-1 commenced drilling mid-January 2007 reaching total depth in mid-February. There were no shows of hydrocarbons present in the well and it was plugged and abandoned.

Share Repurchase

During the fourth quarter, Ultra purchased and retired 488,500 shares at an average price of $47.56 per share. On a cumulative basis, the company has purchased and retired stock in the amount of $197.6 million constituting 3,969,532 shares as of December 31, 2006. Total shares outstanding as of December 31, 2006 for Ultra Petroleum were 151,795,633. In conjunction with the share repurchase program during 2006, the company incurred $10.4 million of withholding tax which is included in current income tax expense for the year.


At this time, Ultra Petroleum has the following fixed price physical delivery contracts in place on behalf of its interest and those of other parties. All fixed price contracts are at the Opal, Wyoming hub.

    Contract Period             Volumes MMBTU/Day  Average Price per MMBTU/Mcf

    April 2007 - October 2007     40,000            $6.20 MMBTU/$6.73 Mcf

    January 2008 - December 2008  60,000            $6.63 MMBTU/$7.19 Mcf

    2007 Capital Expenditures & Guidance

The company's Board of Directors approved the 2007 capital budget of $600 million, an increase of 19 percent over the $503.9 million in 2006. During 2007, Ultra Petroleum anticipates 93 percent of the capital will be allocated to Wyoming, 4 percent to Pennsylvania, and 3 percent to China. The increased capital program is expected to be funded by a combination of internally generated cash flow and bank debt.


    Estimated Production in 2007

                     1st         2nd         3rd         4th       Full-Year
                   Quarter     Quarter     Quarter     Quarter        2007
      Gas (Bcf)  17.8 - 18.7 19.4 - 20.3 26.3 - 27.7 28.3 - 29.8  92.0 - 96.6
      Oil (MMbls) 507 - 514   519 - 526   571 - 581   586 - 597  2,183 - 2,218
       (Bcfe)    20.9 - 21.8 22.5 - 23.5 29.7 - 31.1 31.8 - 33.4 105.0 - 110.0

"We expect production to grow by approximately 20 percent to 110 Bcfe through the execution of our current capital expenditure plan. With three decades of identified drilling opportunities before us, all at high rates of return, we are illustrating that our differentiated asset base and operating program provide for industry leading performance," commented Watford.

Ultra Petroleum is an independent, exploration and production company focused on developing its long-life natural gas reserves in the Green River Basin of Wyoming, and crude oil reserves in Bohai Bay, offshore China.


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