Ultra Delivers 22% Organic Production Growth in 3Q 2007



Ultra Petroleum reported 22% organic production growth in the third quarter of 2007. Total production in the third quarter was 28.7 billion cubic feet equivalent (Bcfe) which compares to 23.6 Bcfe in the third quarter of 2006. Both quarters include China operations. Third quarter 2007 production in Wyoming alone, at the company's core asset, increased 26% from the same period in 2006.

Production for the third quarter 2007 is comprised of 25.7 billion cubic feet (Bcf) of domestic natural gas, 199.5 thousand barrels (MBbls) of domestic condensate, and 301.1 MBbls of crude oil from China.

Earnings for the third quarter ended September 30, 2007, were $37.4 million, or $0.24 per diluted share, compared to $52.5 million, or $0.33 per diluted share for the same period in 2006. Earnings in the quarter are comprised of $0.21 per diluted share from continuing operations and $0.03 per diluted share from discontinued operations as a result of the company's sale of Sino-American Energy. Total operating cash flow, including discontinued Sino-American operations, was $90.4 million, or $0.57 per diluted share for the third quarter 2007, versus $106.3 million, or $0.66 per diluted share for the same period in 2006. Operating cash flow from continuing operations was $81.7 million, or $0.52 per diluted share for the third quarter 2007, versus $92.6 million, or $0.58 per diluted share for the same period in 2006.

"Despite the confluence of events that drove Rockies natural gas prices to unimaginable levels, we achieved margins and financial returns equal to or above our peer group. We maintained our industry leading cost structure even while shutting-in over 12% of our available production for the quarter," stated Michael D. Watford, Chairman, President and Chief Executive Officer. "Year-to-date for total operations, we achieved a net income margin of 33% and a cash flow margin of 71%. Our all-in costs of $2.65 per Mcfe ($2.46 per Mcfe domestic only) are the lowest in the industry and combined with our 30-year drilling inventory positions us to continue our sector leadership in growth and returns. As to growth, we are maintaining our 27% increased production target of 116.5 Bcfe for the year (29% on a per share basis) even after suffering lost production due to third and fourth quarter shut-ins and the sale of our Sino-American operations," Watford added.

Natural gas and crude oil production for the nine month period ended September 30, 2007 increased to 87.8 Bcfe compared to 63.2 Bcfe for the same nine months of 2006, a 39% increase. Both periods include production from China. Production for the first nine months of 2007 is comprised of 77.1 Bcf of domestic natural gas, 614.8 MBbls of domestic condensate, and 1.153 million barrels of crude oil from China operations. Including the effects of hedging, realized domestic natural gas prices during the nine-month period were $4.76 per Mcf, compared to $6.18 per Mcf during the same period in 2006. Domestic condensate prices were $60.36 per Bbl compared to $67.81 per Bbl during the comparable 2006 period. China crude oil prices for the nine months ended September 30, 2007 were $56.21 per Bbl compared to $56.62 per Bbl in 2006.

Earnings for the nine-month period ended September 30, 2007 were $153.1 million, or $0.96 per diluted share. Earnings for the nine-month period include $0.84 per diluted share from continuing operations and $0.12 per diluted share from discontinued operations as a result of the company's sale of Sino-American. Total operating cash flow (1), including discontinued operations, was $333.0 million, or $2.10 per diluted share for the nine-month period, versus $313.8 million, or $1.93 per diluted share for the same period in 2006. Operating cash flow from continuing operations (1) for the nine-month period increased to $299.4 million, or $1.89 per diluted share, up from $273.5 million, or $1.68 per diluted share, for the same period in 2006.

Operational Highlights

During the third quarter of 2007 there were 54 gross (25.0 net) new producing wells in Wyoming. Since the first of the year 144 gross (67.5 net) new producing wells were placed on production. This compares to 90 gross (42.2 net) for the same time period in 2006.

The average 24-hour delivery rate of the new Pinedale wells was 8.7 million cubic feet of gas per day (Mmcfg) with a maximum of 22.1 Mmcfg per day. The maximum was achieved on the Ultra operated Mesa 2B-34D. The average of the Ultra operated wells was 9.8 Mmcfg per day while the average of the Ultra interest non-operated wells was 8.0 Mmcfg per day.

At quarter end in the Pinedale Field, Ultra had 11 operated rigs drilling while their partners were running an additional 9 rigs on Ultra interest lands. There were 9 gross (4.4 net) wells being completed and 23 gross (8.4 net) wells waiting on completion.

Since the beginning of the year, Ultra has drilled 65 total operated wells from spud to total depth (TD). In Pinedale the company is averaging 38 days per well spud to TD. This compares to 61 days per well average for 2006. Since the end of the quarter Ultra achieved a new record in drilling time in the Pinedale Field. Ultra drilled the Warbonnet 3A1-9D well from spud to a TD of 13,380 feet in 18.6 days surpassing the previous record of 22.8 days.

The company's ongoing delineation program is in full swing with four of eleven rigs now drilling wells as part of this project. At the present time there are over 100 identified quarter sections (160 acres) for delineation drilling in and around the Pinedale Field. Current plans call for continuing the delineation drilling effort for at least the next five years in ongoing efforts to fully define the ultimate potential of this gigantic asset. Six of the planned 21 delineation wells for 2007 have sufficient production history to be able to estimate reserves. All six have reserves above the year-end 2006 reserves estimates by Netherland Sewell and Associates and on average the reserves are 167% better than these pre-drill estimates.

Included in the delineation wells, the Warbonnet 5C1-11D on the east side of the Warbonnet area came on with a 24-hour flow rate of 14.3 Mmcfg per day and the Warbonnet 4B-11D just to the north came on at a 24-hour flow rate of 10.3 Mmcfg per day. Further to the north, the Boulder 10A-30 came on for a 24-hour flow rate of 17.7 Mmcfg per day.

The evaluation of the non-pay section in Pinedale Field continues. Eight of the test wells are now completed and initial production logs have been run. These production logs indicate that the flow rates from the 21-frac stages pumped in this test have averaged over 125 Mcf gas per day per stage. If this production continues like the typical Lance completion, these zones would appear to add materially to the overall reserves and production at only the cost of the extra frac jobs. It is still early in the process and additional testing will be needed to prove the potential value that can be added from this work.

Ultra continues to move ahead at the Mesa 10D-33 deep exploration test. The top of the Blair was encountered at 16,204 feet. At 17,504 feet Ultra chose to stop drilling due to the high pressures that were encountered. At that time, the well was drilled with 17.6 pound per gallon mud and carrying a continuous gas flare. This mud weight equates to over 16,000 pounds bottom hole pressure at this depth. To evaluate the section drilled to date, an extensive suite of wireline logs were run and a large number of side-wall cores were recovered. All this data is now being evaluated to better understand what has been found so far with some 500 feet of the Blair yet to drill. These logs indicate a significant thickness of potential pay sand with better porosity than was seen at the Stewart Point 15-29 deep test. After logging the drilling liner was run to protect this part of the hole while it is still planned to drill ahead to the planned 19,500 foot total depth to test the balance of the Blair and the Hilliard. After setting the liner, the tools became stuck in cement inside the casing. Currently the company is washing over the drill string to recover the fish and hopes to be back drilling soon and finish the drilling operation during 2007.

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 in service on January 1, 2008, with a probable likelihood of interim service starting in December 2007, according to Kinder Morgan, the REX operator. At this time, over 75% of the REX pipeline has been welded, with 65% of the pipeline having been lowered and back-filled, while good progress continues with the compressor station construction. 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 approximately 27%, allowing Ultra to diversify away from 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 current forward price quotes.

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