##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 OR
 o
    
    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.
  Yukon Territory, Canada
(State or other jurisdiction of
incorporation or organization)
    
    N/A
(I.R.S. employer
identification number)
 363 North Sam Houston Parkway, Suite 1200, Houston, Texas
(Address of principal executive offices)
    
    77060
(Zip code)
 
 þ o
 þ o




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TABLE OF CONTENTS  PART 1  FINANCIAL INFORMATIONITEM 1  FINANCIAL STATEMENTSITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4  CONTROLS AND PROCEDURESITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESCertification of Chairman, President and CEO pursuant to Rule 13a-14aCertification of CFO pursuant to Rule 13a-14aCertification of Chairman, President and CEO pursuant to Rule 13a-14bCertification of CFO pursuant to Rule 13a-14b    Table of Contents  
 PART 1  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
  
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Natural gas sales
    
    $
    110,665,181
    
    
    $
    54,786,316
    
    
    $
    266,692,797
    
    
    $
    144,037,747Oil sales
    
    
    22,930,586
    
    
    
    11,655,129
    
    
    
    65,242,557
    
    
    
    17,132,761Total operating revenues
    
    
    133,595,767
    
    
    
    66,441,445
    
    
    
    331,935,354
    
    
    
    161,170,508Expenses:Production expenses and taxes
    
    
    21,935,202
    
    
    
    12,598,587
    
    
    
    56,516,402
    
    
    
    31,747,884Depletion and depreciation
    
    
    13,270,825
    
    
    
    7,708,282
    
    
    
    37,166,738
    
    
    
    18,604,987General and administrative
    
    
    2,758,533
    
    
    
    1,562,379
    
    
    
    8,440,487
    
    
    
    4,306,767General and administrative  stock compensation
    
    
    1,261,173
    
    
    
    150,050
    
    
    
    2,271,832
    
    
    
    773,573Total operating expenses
    
    
    39,225,733
    
    
    
    22,019,298
    
    
    
    104,395,459
    
    
    
    55,433,211Operating income
    
    
    94,370,034
    
    
    
    44,422,147
    
    
    
    227,539,895
    
    
    
    105,737,297Other income (expense):Interest expense
    
    
    (787,604
    )
    
    
    (853,469
    )
    
    
    (2,856,011
    )
    
    
    (2,802,381
    )Interest income
    
    
    177,463
    
    
    
    20,054
    
    
    
    371,020
    
    
    
    42,698Total other income (expense)
    
    
    (610,141
    )
    
    
    (833,415
    )
    
    
    (2,484,991
    )
    
    
    (2,759,683
    )Income, before income tax provision
    
    
    93,759,893
    
    
    
    43,588,732
    
    
    
    225,054,904
    
    
    
    102,977,614Income tax provision
    
    
    32,909,724
    
    
    
    15,713,358
    
    
    
    78,994,271
    
    
    
    36,796,518Net income
    
    
    60,850,169
    
    
    
    27,875,374
    
    
    
    146,060,633
    
    
    
    66,181,096Retained earnings, beginning of period
    
    
    250,498,775
    
    
    
    94,444,238
    
    
    
    165,288,311
    
    
    
    56,138,516Retained earnings, end of period
    
    $
    311,348,944
    
    
    $
    122,319,612
    
    
    $
    311,348,944
    
    
    $
    122,319,612Income per common share  basic
    
    $
    0.40
    
    
    $
    0.19
    
    
    $
    0.96
    
    
    $
    0.44Income per common share  fully diluted
    
    $
    0.38
    
    
    $
    0.17
    
    
    $
    0.90
    
    
    $
    0.41Weighted average common shares outstanding  basic
    
    
    153,719,760
    
    
    
    150,127,868
    
    
    
    152,515,660
    
    
    
    149,858,392Weighted average common shares outstanding  fully diluted
    
    
    162,231,248
    
    
    
    160,181,814
    
    
    
    161,538,906
    
    
    
    159,914,880
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Nine Months EndedSeptember 30,2005
    
    
    2004Cash provided by (used in):Operating activities:Net income
    
    $
    146,060,633
    
    
    $
    66,181,096Add (deduct) items not involving cash:Depletion and depreciation
    
    
    37,166,738
    
    
    
    18,604,987Deferred income taxes
    
    
    78,994,271
    
    
    
    36,796,518Stock compensation
    
    
    2,271,832
    
    
    
    773,573Net changes in non-cash working capital:Restricted cash
    
    
    (1,399
    )
    
    
    (948
    )Accounts receivable
    
    
    (7,127,575
    )
    
    
    (11,882,168
    )Inventory
    
    
    (292,776
    )
    
    
    (457,656
    )Prepaid expenses and other current assets
    
    
    644,321
    
    
    
    (2,795,440
    )Accounts payable and accrued liabilities
    
    
    16,708,441
    
    
    
    1,783,174Other long-term obligations
    
    
    4,474,803
    
    
    
    7,318,786Deferred revenue
    
    
    137,500
    
    
    
    3,436,624Taxation payable
    
    
    (195,000
    )
    
    
    Cash provided by operating activities
    
    
    278,841,789
    
    
    
    119,758,546Investing activities:Oil and gas property expenditures
    
    
    (188,197,911
    )
    
    
    (130,371,223
    )Oil and gas property expenditures in accounts payable
    
    
    (3,604,699
    )
    
    
    11,331,477Inventory
    
    
    (18,938,712
    )
    
    
    6,280,929Purchase of capital assets
    
    
    (881,165
    )
    
    
    (672,524
    )Cash used in investing activities
    
    
    (211,622,487
    )
    
    
    (113,431,341
    )Financing activities:Borrowings on long-term debt, gross
    
    
    22,000,000
    
    
    
    32,000,000Payments on long-term debt, gross
    
    
    (99,000,000
    )
    
    
    (29,000,000
    )Proceeds from exercise of options
    
    
    16,051,102
    
    
    
    1,333,683Cash provided by (used in) financing activities
    
    
    (60,948,898
    )
    
    
    4,333,683Increase in cash during the period
    
    
    6,270,404
    
    
    
    10,660,888Cash and cash equivalents, beginning of period
    
    
    16,932,661
    
    
    
    1,834,112Cash and cash equivalents, end of period
    
    $
    23,203,065
    
    
    $
    12,495,000Supplemental disclosures of cash flow information
Non-cash tax benefit of stock options exercised
    
    $
    39,352,436
    
    
    $
    1,782,866
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September 30,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    23,203,065
    
    
    $
    16,932,661Restricted cash
    
    
    213,360
    
    
    
    211,961Accounts receivable
    
    
    42,876,862
    
    
    
    35,749,287Deferred tax asset
    
    
    2,076,737
    
    
    
    1,327,489Inventory
    
    
    24,646,125
    
    
    
    5,180,024Prepaid expenses and other current assets
    
    
    1,081,522
    
    
    
    1,725,843Total current assets
    
    
    94,097,671
    
    
    
    61,127,265Oil and gas properties, using the full cost method of accountingProved
    
    
    526,042,611
    
    
    
    385,794,926Unproved
    
    
    100,376,478
    
    
    
    88,839,460Capital assets
    
    
    1,741,047
    
    
    
    1,424,367Total assets
    
    $
    722,257,807
    
    
    $
    537,186,018Liabilities and shareholders equity:Current liabilities:Accounts payable and accrued liabilities
    
    $
    31,931,913
    
    
    $
    14,238,836Deferred revenue
    
    
    137,500
    
    
    
    Fair value of derivative instrument liability
    
    
    5,916,630
    
    
    
    3,739,406Capital costs accrual
    
    
    49,493,686
    
    
    
    53,118,385Total current liabilities
    
    
    87,479,729
    
    
    
    71,096,627Bank indebtedness
    
    
    25,000,000
    
    
    
    102,000,000Deferred income taxes
    
    
    125,922,323
    
    
    
    86,362,741Other long-term obligations
    
    
    14,633,365
    
    
    
    9,734,904Shareholders equity:Share capital
    
    
    162,906,990
    
    
    
    106,513,852Treasury stock
    
    
    (1,193,650
    )
    
    
    (1,193,650
    )Accumulated other comprehensive loss  fair value of
derivative instruments
    
    
    (3,839,894
    )
    
    
    (2,616,767
    )Retained earnings
    
    
    311,348,944
    
    
    
    165,288,311Total shareholders equity
    
    
    469,222,390
    
    
    
    267,991,746Total liabilities and shareholders equity
    
    $
    722,257,807
    
    
    $
    537,186,018
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DESCRIPTION OF THE BUSINESS:
  1. SIGNIFICANT ACCOUNTING POLICIES:
               5




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    60,850,169
    
    
    $
    27,875,374
    
    
    $
    146,060,633
    
    
    $
    66,181,096Weighted average common shares outstanding
during the period
    
    
    153,719,760
    
    
    
    150,127,868
    
    
    
    152,515,660
    
    
    
    149,858,392Effect of dilutive instruments
    
    
    8,511,488
    
    
    
    10,053,946
    
    
    
    9,023,246
    
    
    
    10,056,488Weighted average common shares outstanding
during the period including the effects of dilutive
Instruments
    
    
    162,231,248
    
    
    
    160,181,814
    
    
    
    161,538,906
    
    
    
    159,914,880Basic earnings per share
    
    $
    0.40
    
    
    $
    0.19
    
    
    $
    0.96
    
    
    $
    0.44Diluted earnings per share
    
    $
    0.38
    
    
    $
    0.17
    
    
    $
    0.90
    
    
    $
    0.41
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income:As reported
    
    $
    60,850,169
    
    
    $
    27,875,374
    
    
    $
    146,060,633
    
    
    $
    66,181,096Deduct: Fair value of stock options issued,
net of tax
    
    
    (3,842,861
    )
    
    
    (1,716,636
    )
    
    
    (7,335,492
    )
    
    
    (2,849,615
    )Pro forma
    
    $
    57,007,308
    
    
    $
    26,158,738
    
    
    $
    138,725,141
    
    
    $
    63,331,481Basic earnings per share:As reported
    
    $
    0.40
    
    
    $
    0.19
    
    
    $
    0.96
    
    
    $
    0.44Pro forma
    
    $
    0.37
    
    
    $
    0.17
    
    
    $
    0.91
    
    
    $
    0.42Diluted earnings per share:As reported
    
    $
    0.38
    
    
    $
    0.17
    
    
    $
    0.90
    
    
    $
    0.41Pro forma
    
    $
    0.35
    
    
    $
    0.16
    
    
    $
    0.86
    
    
    $
    0.40
      Three Months Ended
    
    

    Nine Months EndedSeptember
30, 2005
    
    

September 30, 2004
    
    
    September 30, 2005
    
    
    September 30, 2004Net income
    
    $
    60,850,169
    
    
    $
    27,575,374
    
    
    $
    146,060,633
    
    

    $
    66,181,096Unrealized loss on derivative
instruments, net of tax
    
    
    (1,405,907
    )
    

   
    518,403
    
    

    
    (1,223,127
    )
    
    
    (3,341,935
    )Total
comprehensive earnings
    
    $
    59,444,262
    
    
    $
    28,093,777
    
    

    $
    144,837,506
    
    
    $
    62,839,161
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2. ASSET RETIREMENT OBLIGATIONS:
  3. OIL AND GAS PROPERTIES:
 September 30,
    
    
    December 31,2005
    
    
    2004Developed Properties:Acquisition, equipment, exploration, drilling and environmental
costs  Domestic
    
    $
    601,473,635
    
    
    $
    429,597,822Acquisition, equipment, exploration, drilling and environmental
costs  China
    
    
    29,684,638
    
    
    
    24,552,316Less accumulated depletion, depreciation and amortization  Domestic
    
    
    (96,486,409
    )
    
    
    (65,099,325
    )Less accumulated depletion, depreciation and amortization  China
    
    
    (8,629,253
    )
    
    
    (3,255,887
    )526,042,611
    
    
    
    385,794,926Unproven Properties:Acquisition and exploration costs  Domestic
    
    
    17,570,990
    
    
    
    16,910,010Acquisition and exploration costs  China
    
    
    82,805,488
    
    
    
    71,929,450Net oil and gas properties
    
    $
    626,419,089
    
    
    $
    474,634,386
 4. LONG-TERM LIABILITIES:
 September 30,
    
    
    December 31,2005
    
    
    2004Bank indebtedness
    
    $
    25,000,000
    
    
    $
    102,000,000Other long-term obligations
    
    
    14,633,365
    
    
    
    9,734,904Total long-term debt
    
    $
    39,633,365
    
    
    $
    111,734,904
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5. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES:
        6. SEGMENT INFORMATION
  Three Months Ended September 30,2005
    
    
    2004Domestic
    
    
    China
    
    
    Total
    
    
    Domestic
    
    
    China
    
    
    TotalOil and gas sales
    
    $
    118,736,583
    
    
    $
    14,859,184
    
    
    $
    133,595,767
    
    
    $
    58,696,352
    
    
    $
    7,745,093
    
    
    $
    66,441,445Costs and Expenses:Depletion and depreciation
    
    
    12,121,758
    
    
    
    1,149,067
    
    
    
    13,270,825
    
    
    
    6,676,869
    
    
    
    1,031,413
    
    
    
    7,708,282Lease operating expenses
    
    
    2,318,646
    
    
    
    1,079,000
    
    
    
    3,397,646
    
    
    
    1,574,589
    
    
    
    889,000
    
    
    
    2,463,589Production taxes
    
    
    13,935,435
    
    
    
    
    
    
    
    13,935,435
    
    
    
    6,875,586
    
    
    
    
    
    
    
    6,875,586Gathering
    
    
    4,602,121
    
    
    
    
    
    
    
    4,602,121
    
    
    
    3,259,412
    
    
    
    
    
    
    
    3,259,412Operating income
    
    
    85,758,623
    
    
    
    12,631,117
    
    
    
    98,389,740
    
    
    
    40,309,896
    
    
    
    5,824,680
    
    
    
    46,134,576General and administrative
    
    
    
    
    
    
    
    
    
    
    4,019,706
    
    
    
    
    
    
    
    
    
    
    
    1,712,429Other expense
    
    
    
    
    
    
    
    
    
    
    610,141
    
    
    
    
    
    
    
    
    
    
    
    833,415Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    93,759,893
    
    
    
    
    
    
    
    
    
    
    $
    43,588,732Capital expenditures
    
    $
    72,225,419
    
    
    $
    4,762,429
    
    
    $
    76,987,848
    
    
    $
    62,180,753
    
    
    $
    4,516,775
    
    
    $
    66,697,528Net oil and gas properties
    
    $
    522,558,216
    
    
    $
    103,860,873
    
    
    $
    626,419,089
    
    
    $
    329,599,726
    
    
    $
    90,835,081
    
    
    $
    420,434,807
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Nine Months Ended September 30,2005
    
    
    2004Domestic
    
    
    China
    
    
    Total
    
    
    Domestic
    
    
    China
    
    
    TotalOil and gas sales
    
    $
    285,546,319
    
    
    $
    46,389,035
    
    
    $
    331,935,354
    
    
    $
    153,425,415
    
    
    $
    7,745,093
    
    
    $
    161,170,508Costs and Expenses:Depletion and depreciation
    
    
    32,027,985
    
    
    
    5,138,753
    
    
    
    37,166,738
    
    
    
    17,573,574
    
    
    
    1,031,413
    
    
    
    18,604,987Lease operating expenses
    
    
    6,336,316
    
    
    
    4,699,000
    
    
    
    11,035,316
    
    
    
    4,104,257
    
    
    
    889,000
    
    
    
    4,993,257Production taxes
    
    
    33,162,191
    
    
    
    
    
    
    
    33,162,191
    
    
    
    17,976,082
    
    
    
    
    
    
    
    17,976,082Gathering
    
    
    12,318,895
    
    
    
    
    
    
    
    12,318,895
    
    
    
    8,778,545
    
    
    
    
    
    
    
    8,778,545Operating income
    
    
    201,700,932
    
    
    
    36,551,282
    
    
    
    238,252,214
    
    
    
    104,992,957
    
    
    
    5,824,680
    
    
    
    110,817,637General and administrative
    
    
    
    
    
    
    
    
    
    
    10,712,319
    
    
    
    
    
    
    
    
    
    
    
    5,080,340Other expense
    
    
    
    
    
    
    
    
    
    
    2,484,991
    
    
    
    
    
    
    
    
    
    
    
    2,759,683Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    225,054,904
    
    
    
    
    
    
    
    
    
    
    $
    102,977,614Capital expenditures
    
    $
    172,189,550
    
    
    $
    16,008,361
    
    
    $
    188,197,911
    
    
    $
    119,331,358
    
    
    $
    11,039,866
    
    
    $
    130,371,224Net oil and gas properties
    
    $
    522,558,216
    
    
    $
    103,860,873
    
    
    $
    626,419,089
    
    
    $
    329,599,726
    
    
    $
    90,835,081
    
    
    $
    420,434,807
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
         10




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11




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Average
    
    UnrealizedRemaining Contract
    
    Volume-
    
    Price /
    
    loss atType
    
    Period
    
    MMBTU / day
    
    MMBTU
    
    9/30/05*Swap
    
    Oct 2005  Dec 2005
    
    
    10,000
    
    
    $
    4.42
    
    
    $
    5,916,630
 
 *
    
    Unrealized losses are not adjusted for income tax effect.  Volume 
    
    AverageRemaining Contract Period
    
    MMBTU / day
    
    Price / MMBTUCalendar 2005
    
    
    70,000
    
    
    $
    5.03Oct 2005
    
    
    10,000
    
    
    $
    6.03Calendar 2006
    
    
    70,000
    
    
    $
    5.86
 .
 
 ITEM 4  CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls.
 PART 2  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
         
   ULTRA PETROLEUM CORP.-s- Michael D. WatfordDate October 28, 2005
    
    Name: Michael D. WatfordTitle: Chairman, President and Chief Executive Officer-s- Marshall D. SmithName: Marshall D. SmithTitle: Chief Financial Officer
  14