Ultra Petroleum Announces Increased Cash Flow, Earnings, and Record Production for the Three Months and Nine Months Ended September 30, 2010

HOUSTON, Nov. 4, 2010 /PRNewswire-FirstCall/ -- Ultra Petroleum Corp. (NYSE: UPL) continued to deliver strong financial and operating performance for the three months and nine months ended September 30, 2010. Highlights for the quarter include:

• Operating cash flow(2) of $198.7 million for the quarter ended September 30, 2010, an increase of 15 percent from the same quarter a year ago
• Earnings of $91.9 million in the third quarter of 2010, or $0.60 per diluted share – adjusted(3), an increase of 7 percent from the prior year period
• Produced record volumes of 55.4 Bcfe in the third quarter of 2010, an increase of 21 percent from third quarter 2009
• Realized natural gas price increased 32 percent over the same period a year ago to $4.08 per Mcf, excluding realized gains on commodity hedges
• Superior returns in the third quarter of 2010 (adjusted): 71 percent cash flow margin(5), 33 percent net income margin(4), 42 percent annualized return on equity, and 17 percent annualized return on capital

“Ultra continued its consistency of delivering profitability and growth through the third quarter of 2010. This rare combination differentiates Ultra from its peers and results in a return on equity of 42 percent and 17 percent return on capital,” stated Michael D. Watford, Chairman, President and Chief Executive Officer.

Third Quarter Results

Ultra Petroleum recorded strong operating cash flow(2) of $198.7 million for the quarter ended September 30, 2010, a 15 percent increase over the same period in 2009. For the third quarter of 2010, Ultra’s adjusted net income(3) was $91.9 million or $0.60 per diluted share, which compares to $85.8 million, or $0.57 per diluted share in the prior year period. Third quarter results included an unrealized, mark-to-market gain of $70.7 million, net of taxes, on the company’s commodity hedges.  Inclusive of this item, reported net income was $162.6 million, or $1.05 per diluted share for the third quarter of 2010, compared to a net loss of $8.3 million, or ($0.06) per diluted share for the same period a year ago. Investors rely on adjusted earnings as a better measure of financial performance because it excludes the volatility associated with unrealized commodity hedging gains and losses.  

For the third quarter of 2010, production of natural gas and crude oil increased 21 percent to a record 55.4 billion cubic feet equivalent (Bcfe), which compares to production of 45.9 Bcfe during the third quarter of 2009. Ultra Petroleum’s third quarter 2010 production levels were the highest ever achieved by the company and represent 12 sequential quarters of production growth. The company’s production for the third quarter was comprised of 53.4 billion cubic feet (Bcf) of natural gas and 340.7 thousand barrels (MBbls) of condensate.

For the third quarter of 2010, Ultra’s average realized natural gas price increased 32 percent to $4.08 per Mcf from $3.09 per thousand cubic feet (Mcf) a year ago, excluding realized gains on commodity hedges. The company’s average realized natural gas price including realized gains on commodity hedges was $4.84 per Mcf during the third quarter 2010, a slight decrease compared to $5.13 per Mcf average realized price in the third quarter of 2009. The realized condensate price in the third quarter of 2010 was $66.00 per barrel (Bbl) in comparison to $57.47 per Bbl for the same period in 2009, an increase of 15 percent.

“Ultra’s superior returns and margins for the third quarter and year-to-date once again demonstrate that we are unique in the E&P sector. Our unhedged natural gas price during the quarter increased 32 percent from the third quarter 2009. Increased price realizations coupled with our low per unit costs result in sustainable margins. Our deep inventory of natural gas drilling locations is capable of sustaining our profitable margins throughout the price cycle,” stated Watford.

Nine Month Results

Operating cash flow(2) for the first nine months of 2010 was $565.8 million, an increase of 22 percent, as compared to $465.3 million for the nine months ended September 30, 2009. Adjusted earnings(3) for the nine month period ended September 30, 2010 increased 27 percent over the same period a year ago, registering $259.7 million or $1.68 per diluted share.

Natural gas and crude oil production for the nine month period ended September 30, 2010, increased 18 percent to 156.4 Bcfe compared to 132.5 Bcfe for the nine month period ended September 30, 2009. Production for the first nine months of 2010 was comprised of 150.4 Bcf of natural gas and 990.5 MBbls of condensate.

The average realized natural gas price during the nine month period ended September 30, 2010, was $4.49 per Mcf, excluding realized gains and losses on commodity hedges. This is an increase of 39 percent compared to $3.24 per Mcf during the nine months ended September 30, 2009. Including realized gains and losses on commodity hedges, the company’s average price for natural gas increased to $5.00 per Mcf as compared to $4.89 per Mcf for the same period a year ago. The realized condensate price was $67.69 per Bbl, an increase of 52 percent above the prior year period, as compared to $44.42 per Bbl during the nine month period ended September 30, 2009.

“We established new production records for both the quarter and the nine-month periods. Furthermore, cash flow and adjusted earnings for both periods increased when compared to year-ago levels,” stated Watford.

Capital Investment Program

Ultra Petroleum invested approximately $1,225.0 million, including net land acquisitions, during the nine months ended September 30, 2010, towards the 2010 capital investment program. As previously announced, the company’s total estimated capital investment program for 2010 is $1,450.0 million.

“Today’s capital investments are directed toward creating long-term value. The consistency of that value creation is one of the keys to our financial success,” stated Watford.

Wyoming – Operational Highlights

Ultra Petroleum’s Pinedale developmental drilling program continues to reflect superior execution and consistent efficiency gains. For the third quarter 2010, Ultra participated in drilling to total depth (TD) 61 gross (33 net) Lance wells. During the nine months ended September 30, 2010, Ultra and its partners drilled to TD 179 gross (94 net) Lance wells.

Ultra’s skilled operations team continues to drive down the average drilling time in Pinedale. For the third quarter, Ultra averaged 14 days per well spud to TD, compared to an average of 18 days in the third quarter of 2009, a 22 percent improvement over the prior year period. Further emphasizing decreased drilling times, 79 percent of the wells drilled in the third quarter reached TD in 15 days or less, while 95 percent were drilled in less than 20 days. During the third quarter, Ultra established a new Pinedale record in drilling time by reaching 13,500 feet in 10.19 days. Ultra’s sustained efficiencies led to further well-cost reductions. Ultra’s completed well costs in Wyoming averaged $4.6 million for the third quarter of 2010, a reduction of 8 percent compared to $5.0 million for the third quarter 2009.

During the third quarter, Ultra and its partners brought on production 68 gross (37 net) wells, as compared to 66 gross (30 net) wells in the third quarter 2009. Ultra and its partners brought on production 195 gross (106 net) new Pinedale wells during the nine months ended September 30, 2010, as compared to 181 gross (86 net) wells for the nine month period ended September 30, 2009.

Ultra continues to evaluate the potential for 5-acre down spacing across the Pinedale field. Throughout 2010, Ultra conducted about 30 pilot wells with preliminary results validating the company’s resource assessment of the field. The 5-acre wells accessed previously untapped reserves that could in turn increase the net present value of the total resource base to Ultra and its shareholders.

Pennsylvania – Operational Highlights

Ultra Petroleum continued the assessment of its vast 470,000 gross acres in the Marcellus. During the third quarter 2010, Ultra and its partners drilled 20 gross (12 net) horizontal Marcellus wells across the broad acreage position in Pennsylvania. The company participated in drilling 79 gross (48 net) horizontal Marcellus wells during the nine months ended September 30, 2010 and conducted three microseismic surveys. Between Ultra and its partners, the wells drilled during the third quarter 2010 averaged 5,100 feet of lateral length. For the nine month period ended September 30, 2010, the average lateral length for all wells drilled was 4,500 feet.

During the nine months ended September 30, 2010, the company averaged 15.5 days rig release to rig release for the Ultra-operated wells. More recently, the company has drilled wells averaging ten days rig release to rig release, a 35 percent improvement.

Ultra and its partners initiated production from 23 gross (16 net) new horizontal wells during the third quarter, essentially doubling the number of Marcellus wells online at the end of the second quarter 2010. During the nine months ended September 30, 2010, Ultra and its partners initiated production from 44 gross (30 net) horizontal Marcellus wells.

Commodity Hedges

Ultra Petroleum continues to mitigate its natural gas price risks through the company’s attractive commodity price hedges. Ultra opportunistically hedges to underpin the favorable economics of its capital investments. This hedging strategy helps increase certainty around cash flow to improve Ultra’s ability to meet its anticipated capital investment program requirements.

The total volume of commodity hedges for 2011 is currently 133.2 Bcf at a weighted-average price of $5.83 per Mcf. For the fourth quarter of 2010, the company has 23.7 Bcf, about 40 percent, of estimated production hedged at a weighted-average realized price of $5.50 per Mcf.

As of today, Ultra Petroleum has the following hedge positions in place to mitigate its commodity price exposure:

Natural Gas Marketing Update

“Future basis differentials continue to affirm the new trend that basis tightening is here to stay. Going forward, price spreads across the country should be relatively flat while we continue to experience price strength in the Rockies,” stated Watford.

The table below provides a historical, current, and future perspective on average basis differentials for Wyoming gas (NW Rockies) and premium markets in the Northeast (Dominion South). The basis differential is expressed as a percentage of Henry Hub.

Production Guidance

Ultra Petroleum is reaffirming its annual natural gas and crude oil production guidance for 2010 of 213 to 216 Bcfe. Production for 2010 is an 18 to 20 percent increase over 2009’s record annual production of 180.1 Bcfe.

Financial Strength

Ultra Petroleum maintains a robust, flexible balance sheet, exiting the quarter with $1.2 billion in unused debt capacity. Subsequent to quarter-end, 100 percent of the company’s outstanding debt was composed of long-term, fixed-rate debt with an average remaining term of approximately 9.6 years and a weighted-average coupon rate of 5.6 percent. As previously announced after quarter-end, Ultra Petroleum’s wholly-owned subsidiary, Ultra Resources, Inc., closed and funded a senior note offering with a group of seventeen institutional investors providing for the private placement of $525.0 million in Senior Unsecured Notes. Net proceeds from the offering were used to repay existing bank debt and for general corporate purposes. The Notes were issued in a series of tranches as described in the table below:

“The positive response from the debt market is reflected in the terms and duration of the senior notes and affirms the low-risk, long-life nature of Ultra’s oil and gas portfolio,” stated Watford.

Price Realizations and Differentials Guidance

The following table presents the company’s expected expenses per Mcfe in the fourth quarter of 2010 assuming a $3.58 per mmbtu Henry Hub natural gas price and a $82.00 per Bbl NYMEX crude oil price:

Income Tax Guidance

For the year, Ultra projects a 35.5 percent effective tax rate (based on adjusted net income(3)) with approximately 4 to 5 percent of that amount expected to be currently payable.

Conference Call Webcast Scheduled for November 4, 2010

Ultra Petroleum’s third quarter 2010 conference call will be available via live audio webcast at 11:00 a.m. Eastern Daylight Time (10:00 a.m. Central Daylight Time) Thursday, November 4, 2010. To listen to this webcast, log on to www.ultrapetroleum.com and follow the link to the webcast. The webcast replay and podcast will be archived on Ultra Petroleum’s website through February 16, 2011.

Financial tables to follow.

About Ultra Petroleum

Ultra Petroleum Corp. is an independent exploration and production company focused on developing its long-life natural gas reserves in the Green River Basin of Wyoming – the Pinedale and Jonah Fields and is in the early exploration and development stages in the Appalachian Basin of Pennsylvania. Ultra is listed on the New York Stock Exchange and trades under the ticker symbol "UPL".  The company had 152,481,063 shares outstanding on October 31, 2010.

This release can be found at http://www.ultrapetroleum.com

This news release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The opinions, forecasts, projections or other statements, other than statements of historical fact, are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Certain risks and uncertainties inherent in the company's businesses are set forth in our filings with the SEC, particularly in the section entitled "Risk Factors" included in our Annual Report on Form 10-K for our most recent fiscal year and from time to time in other filings made by us with the SEC. These risks and uncertainties include increased competition, the timing and extent of changes in prices for oil and gas, particularly in Wyoming, the timing and extent of the company's success in discovering, developing, producing and estimating reserves, the effects of weather and government regulation, availability of oil field personnel, services, drilling rigs and other equipment, and other factors listed in the reports filed by the company with the SEC. Additional financial information is available in the company's report on Form 10-Q for the quarter ended September 30, 2010.

SOURCE Ultra Petroleum Corp.