Ultra Sees Record Production in Second Quarter 2007

Ultra Petroleum (NYSE: UPL) reported financial and operating results for the second quarter of 2007.

Earnings for the second quarter ended June 30, 2007 were $49.1 million, or $0.31 per diluted share, essentially flat compared to $50.7 million, or $0.31 per diluted share for the same period in 2006. Operating cash flow(1) was $109.1 million, or $0.69 per diluted share for the second quarter 2007, an increase of 19% from $91.4 million, or $0.56 per diluted share for the same period in 2006.

Ultra's natural gas and crude oil production for the quarter ended June 30, 2007 increased 57% to 30.5 billion cubic feet equivalent (Bcfe) compared to 19.5 Bcfe for the second quarter of 2006. The second quarter 2007 amount represents the largest quarterly production in the company's history. Second quarter 2007 production in Wyoming alone, at the company's core asset, increased 63% from the same period in 2006. Production for the second quarter 2007 is comprised of 26.6 billion cubic feet (Bcf) of domestic natural gas, 221.8 thousand barrels (MBbls) of domestic condensate, and 434.6 MBbls of crude oil from China. Domestic natural gas prices realized for the second quarter 2007, including the effects of hedging, were $4.38 per thousand cubic feet (Mcf), a decrease from $5.85 per Mcf for the same period in 2006. Domestic condensate prices were $65.15 per barrel (Bbl) compared to $69.72 per Bbl in the second quarter of 2006. China crude oil prices realized in the second quarter were $59.72 per Bbl, compared to $65.10 per Bbl in the second quarter of 2006.

"Our margins were resilient given the depressed Rockies natural gas prices during the quarter. At gas prices just over $4.00 per Mcf we achieved returns equivalent to many of our peers at $8.00 per Mcf. We achieved a net income margin of 31% and a cash flow margin of 70% for the quarter. Our all-in costs of $2.62 per Mcf is most likely the lowest in the industry and helps position us to continue our sector leadership in growth and returns," commented Michael D. Watford, Chairman, President and Chief Executive Officer.

Earnings for the six month period ended June 30, 2007 were $115.7 million, or $0.73 per diluted share, essentially flat from $118.1 million, or $0.72 per diluted share, for the first half of 2006. Operating cash flow(1) for the six month period increased to $242.5 million, or $1.52 per diluted share, up 17% from $207.5 million, or $1.27 per diluted share, for the same period in 2006.

Natural gas and crude oil production for the six month period ended June 30, 2007 increased to 59.0 Bcfe, compared to 39.6 Bcfe for the first six month period ended June 30, 2006, a 49% increase. Production for the first six months of 2007 is comprised of 51.4 Bcf of domestic natural gas, 415.3 MBbls of domestic condensate, and 852.2 MBbls of crude oil from China. Including the effects of hedging, realized domestic natural gas prices during the six month period were $5.13 per Mcf, compared to $6.49 per Mcf during the same period in 2006. Domestic condensate prices were $57.17 per Bbl compared to $66.07 per Bbl during the comparable 2006 period. China crude oil prices for the six months ended June 30, 2007 were $53.47 per Bbl compared to $59.33 per Bbl in 2006.

Operational Highlights

During the second quarter of 2007, there were 59 gross, 26.1 net new producing wells in Wyoming. For the first half of the year 90 gross, 44.1 net new wells were placed on production. On a net well basis, this represents a 275% increase in activity for the first six months of 2007 over the same period in 2006.

At quarter end in the Pinedale Field, Ultra had 12 operated rigs drilling while their partners were running an additional 12 rigs on Ultra interest lands. There were 33 gross, 11.4 net wells being completed or awaiting completion, largely consisting of wells drilled on Ultra's non-operated winter pads and wells being batch drilled.

Since the beginning of the year, Ultra has 36 operated wells that were drilled from spud to total depth (TD) at an average of 40 days per well. This compares to the 61 days per well in 2006. Included in the second quarter drilling results is the fastest drill time yet -- from spud to TD in 23 days.

"This continued improvement in drilling time illustrates that the initiatives we instituted late last year are paying off. With this improvement, we have begun to accelerate our drilling program in advance of the SEIS approval. This will also provide Ultra with a jump in having production ready to go when the Rockies Express Pipeline becomes operational on January 1, 2008," commented Watford.

Ultra's ongoing delineation drilling program has continued during the second quarter with five additional delineation wells reaching TD during the quarter. Early indications are that all have met or exceeded our production expectations. At this time the company plans to drill an additional 13 delineation wells prior to year-end.

In June 2007, the Wyoming Oil and Gas Conservation Commission approved Ultra's application, filed jointly with Shell, for 10-acre well density on an approximate 11.3 additional square miles in the Pinedale Field. Ultra owns an interest in approximately 71% of these lands.

Rockies Express Pipeline Update

The Federal Energy Regulatory Commission (FERC) has approved the construction of all seven segments of the Rockies Express Pipeline (REX). REX is expected to be operational on January 1, 2008. Once operational, REX will move natural gas from the Rockies to the Midwest and eventually the Northeast and is expected to significantly increase the take-away capacity for natural gas in the Rockies by an approximate 27%, allowing Ultra to diversify away from the West Coast markets. Ultra, an anchor shipper on REX, has committed to firm capacity of 200 Mmcf per day of natural gas. The increased capacity represented by REX to the Midwest and eventually Northeast, will have a positive impact on Wyoming natural gas prices as evidenced by forward price quotes.

Production and Capital Budget Update

Ultra revised its annual natural gas and crude oil production guidance for 2007 to 116.5 Bcfe, up from 2007's original guidance of 110.0 Bcfe and from the first quarter's revised guidance of 114.0 Bcfe. The current annual production guidance is a 27% increase from 2006 annual production of 91.6 Bcfe. Ultra is re-affirming preliminary guidance for 2008 and 2009 of 135.0 Bcfe and 160.0 Bcfe, respectively.

The company's plan to accelerate development of the Pinedale Field is commencing. Total net wells to Ultra planned to be drilled in 2007 has increased from 75 at the beginning of the year to 95 today, a 27% increase in net wells. Ultra's capital expenditure budget will be increased 23% to $740 million from the previous $600 million. The company plans to fund the 2007 capital budget by a combination of cash on hand and its current banking facility.

"Our new production target for 2007, reflecting a 27% increase over 2006, assumes no production contribution from our China asset in the fourth quarter and continued shut-ins by another Pinedale operator impacting us through the end of the year. With the expanding productivity of our rig fleet, we are increasing the number of wells we will drill in 2007 and correspondingly our capital budget," commented Watford.

Share Repurchase Activity

During the six months ended June 30, 2007, Ultra repurchased 703,571 shares of its common stock for an aggregate $39.0 million dollars at a weighted average price of $55.48 per share. Since the program's inception in May 2006, the company has repurchased 4.7 million shares of its common stock for an aggregate $237.3 million at a weighted average price of $50.48 per share. Total shares outstanding as of June 30, 2007 for Ultra were 151,892,002.

Hedging

Through August 3, 2007, Ultra had the following 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 price. All prices are Northwest Pipeline Rockies basis.

    Type  Remaining Contract Period  Volume - mmbtu/day  Average Price /mmbtu
    Swap  Aug 2007 - Dec 2007               10,000             $4.59
    Swap  Apr 2008 - Oct 2008               10,000             $7.10
    Swap  Apr 2008 - Oct 2008               10,000             $7.12
    Swap  Apr 2008 - Oct 2008               10,000             $7.16

At this time, Ultra 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 Mcf/mmbtu
    Apr 2007 - Oct 2007      40,000                 $6.73 Mcf/$6.20 mmbtu
    Jan 2008 - Dec 2008     100,000                 $7.41 Mcf/$6.83 mmbtu
    Apr 2008 - Oct 2008      30,000                 $7.73 Mcf/$7.13 mmbtu
    Jan 2009 - Dec 2009      10,000                 $8.15 Mcf/$7.51 mmbtu

Subsequent to Quarter-End

On August 3, 2007, the company's common stock began trading on the New York Stock Exchange under the ticker symbol "UPL".

Mr. James C. Roe retired from the Board of Directors on August 6, 2007. He served as a Director for Ultra since 2001.

"Over the past six years, Jim has been instrumental in shaping Ultra into the successful company that it is today. All of us at Ultra wish him the best in his retirement," commented Watford.

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