##### 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 JUNE 30, 2006
 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
    
    N/A(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification number)363 North Sam Houston Parkway, Suite 1200, Houston,Texas
    
    77060(Address of principal executive offices)
    
    (Zip code)
 
 þ o
 þ o
  þ o o
 o þ




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##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONITEM 1 FINANCIAL STATEMENTSITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4 CONTROLS AND PROCEDURESPART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDSITEM 3. DEFAULTS IN SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESEXHIBIT INDEXCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
  
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Natural gas sales
    
    $
    96,044,048
    
    
    $
    82,076,643
    
    
    $
    213,836,896
    
    
    $
    156,027,616Oil sales
    
    
    33,848,564
    
    
    
    28,558,388
    
    
    
    67,305,958
    
    
    
    43,971,437Total operating revenues
    
    
    129,892,612
    
    
    
    110,635,031
    
    
    
    281,142,854
    
    
    
    199,999,053Expenses:Production expenses and taxes
    
    
    24,829,212
    
    
    
    19,626,073
    
    
    
    49,671,838
    
    
    
    36,240,667Depletion and depreciation
    
    
    18,047,788
    
    
    
    12,656,404
    
    
    
    36,687,929
    
    
    
    23,895,913General and administrative
    
    
    3,714,045
    
    
    
    3,516,253
    
    
    
    7,916,390
    
    
    
    6,692,611Total operating expenses
    
    
    46,591,045
    
    
    
    35,798,730
    
    
    
    94,276,157
    
    
    
    66,829,191Operating income
    
    
    83,301,567
    
    
    
    74,836,301
    
    
    
    186,866,697
    
    
    
    133,169,862Other income (expense):Interest expense
    
    
    (139,267
    )
    
    
    (1,167,763
    )
    
    
    (311,048
    )
    
    
    (2,068,406
    )Interest income
    
    
    771,090
    
    
    
    118,693
    
    
    
    1,344,143
    
    
    
    193,558Total other income (expense)
    
    
    631,823
    
    
    
    (1,049,070
    )
    
    
    1,033,095
    
    
    
    (1,874,848
    )Income, before income tax provision
    
    
    83,933,390
    
    
    
    73,787,231
    
    
    
    187,899,792
    
    
    
    131,295,014Income tax provision
    
    
    33,258,278
    
    
    
    25,899,316
    
    
    
    69,750,485
    
    
    
    46,084,550Net income
    
    
    50,675,112
    
    
    
    47,887,915
    
    
    
    118,149,307
    
    
    
    85,210,464Retained earnings, beginning of period
    
    
    461,062,753
    
    
    
    202,610,860
    
    
    
    393,588,558
    
    
    
    165,288,311Retained earnings, end of period
    
    $
    511,737,865
    
    
    $
    250,498,775
    
    
    $
    511,737,865
    
    
    $
    250,498,775Income per common share  basic
    
    $
    0.33
    
    
    $
    0.31
    
    
    $
    0.76
    
    
    $
    0.56Income per common share  fully diluted
    
    $
    0.31
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.53Weighted average common shares outstanding
- basic
    
    
    155,223,335
    
    
    
    152,929,693
    
    
    
    155,222,092
    
    
    
    151,903,632Weighted average common shares outstanding 
fully diluted
    
    
    162,966,067
    
    
    
    161,275,842
    
    
    
    163,114,589
    
    
    
    161,067,073
 3




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##### Table of Contents



Six Months EndedJune 30,2006
    
    
    2005Cash provided by (used in):Operating activities:Net income for the period
    
    $
    118,149,307
    
    
    $
    85,210,464Adjustments to reconcile net income to net cash provided by operating activities:Depletion and depreciation
    
    
    36,687,929
    
    
    
    23,895,913Deferred income taxes
    
    
    52,127,827
    
    
    
    46,084,550Excess tax benefit from stock based compensation
    
    
    (8,057,700
    )
    
    
    Stock compensation
    
    
    524,116
    
    
    
    1,010,659Net changes in non-cash working capital:Restricted cash
    
    
    (1,244
    )
    
    
    (878
    )Accounts receivable
    
    
    3,676,917
    
    
    
    (14,652,671
    )Inventory
    
    
    794,000
    
    
    
    (155,576
    )Prepaid expenses and other current assets
    
    
    14,804
    
    
    
    (17,917
    )Accounts payable and accrued liabilities
    
    
    28,198,271
    
    
    
    26,105,193Deferred revenue
    
    
    780,311
    
    
    
    Other long-term obligations
    
    
    1,092,180
    
    
    
    388,552Taxes payable
    
    
    3,725,010
    
    
    
    (130,000
    )Net cash provided by operating activities
    
    
    237,711,728
    
    
    
    167,738,289Investing activities:Oil and gas property expenditures
    
    
    (185,940,120
    )
    
    
    (111,001,119
    )Change in capital cost accrual
    
    
    8,777,386
    
    
    
    (14,171,171
    )Inventory
    
    
    (2,435,315
    )
    
    
    (15,185,448
    )Purchase of capital assets
    
    
    (394,149
    )
    
    
    (762,569
    )Net cash used in investing activities
    
    
    (179,992,198
    )
    
    
    (141,120,307
    )Financing activities:Borrowings on long-term debt, gross
    
    
    
    
    
    
    13,000,000Payments on long-term debt, gross
    
    
    
    
    
    
    (28,000,000
    )Repurchased shares
    
    
    (73,346,053
    )
    
    
    Stock issued for compensation
    
    
    1,741,003
    
    
    
    Excess tax benefit from stock based compensation
    
    
    8,057,700
    
    
    
    Proceeds from exercise of options
    
    
    6,682,172
    
    
    
    8,423,075Net cash (used in) financing activities
    
    
    (56,865,178
    )
    
    
    (6,576,925
    )Increase in cash during the period
    
    
    854,352
    
    
    
    20,041,057Cash and cash equivalents, beginning of period
    
    
    44,394,775
    
    
    
    16,932,661Cash and cash equivalents, end of period
    
    $
    45,249,127
    
    
    $
    36,973,718Supplemental disclosures of Cash Flow information:Non-cash tax benefit of stock options exercised
    
    
    
    
    
    $
    24,547,479
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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    45,249,127
    
    
    $
    44,394,775Restricted cash
    
    
    215,143
    
    
    
    213,899Accounts receivable
    
    
    71,979,114
    
    
    
    75,656,031Deferred tax asset
    
    
    249,431
    
    
    
    Inventory
    
    
    23,041,500
    
    
    
    22,062,585Prepaid expenses and other current assets
    
    
    113,240
    
    
    
    128,044Total current assets
    
    
    140,847,555
    
    
    
    142,455,334Oil and gas properties, net, using the full cost method of accountingProved
    
    
    783,841,375
    
    
    
    612,960,790Unproved
    
    
    70,472,987
    
    
    
    89,702,465Capital assets
    
    
    2,068,351
    
    
    
    2,147,528Total assets
    
    $
    997,230,268
    
    
    $
    847,266,117Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    77,696,130
    
    
    $
    49,297,861Deferred revenue
    
    
    780,311
    
    
    
    Current taxes payable
    
    
    7,290,000
    
    
    
    3,564,990Capital cost accrual
    
    
    55,656,675
    
    
    
    46,879,289Total current liabilities
    
    
    141,423,116
    
    
    
    99,742,140Deferred income tax liability
    
    
    200,066,014
    
    
    
    155,746,465Other long-term obligations
    
    
    22,645,113
    
    
    
    20,576,574Shareholders equityShare capital
    
    
    122,551,810
    
    
    
    178,806,030Treasury stock
    
    
    (1,193,650
    )
    
    
    (1,193,650
    )Retained earnings
    
    
    511,737,865
    
    
    
    393,588,558Total shareholders equity
    
    
    633,096,025
    
    
    
    571,200,938Total liabilities and shareholders equity
    
    $
    997,230,268
    
    
    $
    847,266,117
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DESCRIPTION OF THE BUSINESS:
  1. SIGNIFICANT ACCOUNTING POLICIES:
         6




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##### Table of Contents



Remaining
    
    Volume 
    
    AverageContract
    
    MMBTU
    
    Price /Period
    
    / day
    
    MMBTUCalendar 2006
    
    
    70,000
    
    
    $
    5.86
 .
   7




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005Net income
    
    $
    50,675,112
    
    
    $
    47,887,915
    
    
    $
    118,149,307
    
    
    $
    85,210,464Weighted average common shares outstanding
during the period
    
    
    155,223,335
    
    
    
    152,929,693
    
    
    
    155,222,092
    
    
    
    151,903,632Effect of dilutive instruments
    
    
    7,742,732
    
    
    
    8,346,149
    
    
    
    7,892,497
    
    
    
    9,163,441Weighted average common shares outstanding
during the period including the effects of dilutive
Instruments
    
    
    162,966,067
    
    
    
    161,275,842
    
    
    
    163,114,589
    
    
    
    161,067,073Basic earnings per share
    
    $
    0.33
    
    
    $
    0.31
    
    
    $
    0.76
    
    
    $
    0.56Diluted earnings per share
    
    $
    0.31
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.53
       8




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##### Table of Contents



2. ASSET RETIREMENT OBLIGATIONS:
  9




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##### Table of Contents



3. OIL AND GAS PROPERTIES:
 June 30,
    
    
    December 31,2006
    
    
    2005Developed Properties:Acquisition, equipment, exploration, drilling and environmental costs  Domestic
    
    $
    863,739,272
    
    
    $
    700,425,880Acquisition, equipment, exploration, drilling and environmental costs  China
    
    
    86,869,443
    
    
    
    43,890,413Less accumulated depletion, depreciation and amortization  Domestic
    
    
    (148,220,228
    )
    
    
    (118,172,467
    )Less accumulated depletion, depreciation and amortization  China
    
    
    (18,547,112
    )
    
    
    (13,183,036
    )783,841,375
    
    
    
    612,960,790Unproven Properties:Acquisition and exploration costs  Domestic
    
    
    27,159,855
    
    
    
    17,647,300Acquisition and exploration costs  China
    
    
    43,313,132
    
    
    
    72,055,165$
    854,314,362
    
    
    $
    702,663,255
 4. LONG-TERM LIABILITIES:
 June 30,
    
    
    December 31,2006
    
    
    2005Bank indebtedness
    
    
    
    
    
    
    Other long-term obligations
    
    
    22,645,113
    
    
    
    20,576,574$
    22,645,113
    
    
    $
    20,576,574
      10




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##### Table of Contents



5. SHARE BASED COMPENSATION
 Share-Based Payment Arrangements
     Accounting for share-based compensation
   11




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##### Table of Contents



Valuation and Expense Information under SFAS 123R
  Six MonthsEndedJune 30, 2006Total cost of share-based payment plans
    
    $
    610,947Amounts capitalized in inventory and oil and gas properties
    
    
    286,831Amounts recognized in income for amounts previously capitalized in inventory and fixed assets
    
    
    Amounts charged against income, before income tax benefit
    
    $
    324,116Amount of related income tax benefit recognized in income
    
    $
    113,765Cumulative effect from adoption of SFAS No. 123R on :Income from continuing operations
    
    $
    324,116Income before income taxes
    
    $
    324,116Net income
    
    $
    210,351Cash flow from operations
    
    $
    (8,057,700
    )Cash flow from financing activities
    
    $
    8,057,700Basic earnings per share
    
    
    Diluted earnings per share
    
    
    
  Non-Executives
    
    
    ExecutivesExpected volatility
    
    
    45.045.8
    %
    
    
    43.5
    %Expected dividends
    
    
    0
    %
    
    
    0
    %Expected term (in years)
    
    
    2.754.70
    
    
    
    3.58Risk free rate
    
    
    4.845.03
    %
    
    
    4.84
    %Expected forfeiture rate
    
    
    25.0
    %
    
    
    25.0
    %
 Securities Authorized for Issuance Under Equity Compensation Plans
  Number ofSecurities to
    
    
    
    
    
    
    Number of SecuritiesBe Issued
    
    
    
    
    
    
    Remaining Available forUpon
    
    
    Weighted-
    
    
    Future Issuance UnderExercise
    
    
    Average
    
    
    Equity Compensationof
    
    
    Exercise Price of
    
    
    Plans (ExcludingOutstanding
    
    
    Outstanding
    
    
    Securities Reflected inPlan Category
    
    Options
    
    
    Options
    
    
    the First Column)Equity compensation plans approved by security holders
    
    
    9,089,266
    
    
    $
    9.94
    
    
    
    10,924,034Equity compensation plans not approved by security holders
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    9,089,266
    
    
    $
    9.94
    
    
    
    10,924,034
 12




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##### Table of Contents



Changes in Stock Options and Stock Options Outstanding
  WeightedAverageNumber of
    
    
    Exercise PriceOptions
    
    
    (US$)Balance, December 31, 2004
    
    
    12,703,400
    
    
    $
    0.25 to $ 24.31Granted
    
    
    1,529,000
    
    
    $
    23.90 to $ 58.71Exercised
    
    
    (4,793,700
    )
    
    $
    0.32 to $ 25.68Forfeited
    
    
    (50,000
    )
    
    $
    25.68 to $ 25.68Balance, December 31, 2005
    
    
    9,388,700
    
    
    $
    0.26 to $ 58.71Granted
    
    
    194,966
    
    
    $
    57.65 to $ 67.73Exercised
    
    
    (494,400
    )
    
    $
    0.46 to $ 40.00Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance, June 30, 2006
    
    
    9,089,266
    
    
    $
    0.25 to $ 67.73
  Options OutstandingWeighted
    
    WeightedAverage
    
    Average
    
    AggregateRange of Exercise
    
    Number
    
    Remaining
    
    Exercise Price
    
    Intrinsic ValuePrice ($US)
    
    Outstanding
    
    Contractual Life
    
    ($US)
    
    ($US)$0.38  0.46
    
    
    2,577,500
    
    
    
    2.59
    
    
    $
    0.46
    
    
    $
    151,582,965$0.25  0.57
    
    
    760,000
    
    
    
    3.79
    
    
    $
    0.34
    
    
    $
    44,788,000$1.49  2.61
    
    
    1,380,000
    
    
    
    4.71
    
    
    $
    1.90
    
    
    $
    79,177,200$3.91  4.43
    
    
    665,000
    
    
    
    5.86
    
    
    $
    4.40
    
    
    $
    36,490,700$4.83  7.10
    
    
    856,600
    
    
    
    6.86
    
    
    $
    5.05
    
    
    $
    46,445,918$11.68  24.21
    
    
    1,399,000
    
    
    
    7.81
    
    
    $
    15.96
    
    
    $
    60,584,210$23.90  58.71
    
    
    1,256,200
    
    
    
    8.98
    
    
    $
    35.43
    
    
    $
    29,952,792$57.65  67.73
    
    
    194,966
    
    
    
    9.78
    
    
    $
    62.59
    
    
    $
    46,800
 Options ExercisableWeighted
    
    WeightedAverage
    
    Average
    
    AggregateRange of Exercise
    
    Number
    
    Remaining
    
    Exercise Price
    
    Intrinsic ValuePrice ($US)
    
    Exercisable
    
    Contractual Life
    
    ($US)
    
    ($US)$0.38  0.46
    
    
    2,577,500
    
    
    
    2.59
    
    
    $
    0.46
    
    
    $
    151,582,965$0.25  0.57
    
    
    760,000
    
    
    
    3.79
    
    
    $
    0.34
    
    
    $
    44,788,000$1.49  2.61
    
    
    1,380,000
    
    
    
    4.71
    
    
    $
    1.90
    
    
    $
    79,177,200$3.91  4.43
    
    
    665,000
    
    
    
    5.86
    
    
    $
    4.40
    
    
    $
    36,490,700$4.83  7.10
    
    
    856,600
    
    
    
    6.86
    
    
    $
    5.05
    
    
    $
    46,445,918$11.68  24.21
    
    
    1,399,000
    
    
    
    7.81
    
    
    $
    15.96
    
    
    $
    60,584,210$23.90  58.71
    
    
    1,256,200
    
    
    
    8.98
    
    
    $
    35.43
    
    
    $
    29,952,792$57.65  67.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net income as reported:
    
    $
    47,887,915
    
    
    $
    85,210,464Deduct: Stock based employee compensation, net of tax
    
    
    (1,649,332
    )
    
    
    (3,492,631
    )Pro Forma
    
    $
    46,238,583
    
    
    $
    81,717,833Basic Earnings per share:As Reported
    
    $
    0.31
    
    
    $
    0.56Pro Forma
    
    $
    0.30
    
    
    $
    0.54Diluted Earnings per share:As Reported
    
    $
    0.30
    
    
    $
    0.53Pro Forma
    
    $
    0.29
    
    
    $
    0.51
  Expected volatility
    
    
    30.8
    %Expected dividends
    
    
    0.0
    %Expected term (in years)
    
    
    6.50Risk free rate
    
    
    3.83%  4.32
    %Expected forfeiture rate
    
    Actual forfeitures
 PERFORMANCE SHARE PLANS:
 Long-Term Incentive Plan
    14




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##### Table of Contents



Best in Class
     6. SEGMENT INFORMATION
  Three Months Ended June 30,2006
    
    
    2005Domestic
    
    China
    
    Total
    
    Domestic
    
    China
    
    TotalOil and gas sales
    
    $
    104,821,164
    
    
    $
    25,071,448
    
    
    $
    129,892,612
    
    
    $
    87,899,347
    
    
    $
    22,735,684
    
    
    $
    110,635,031Costs and Expenses:Depletion and depreciation
    
    
    15,376,562
    
    
    
    2,671,226
    
    
    
    18,047,788
    
    
    
    10,236,718
    
    
    
    2,419,686
    
    
    
    12,656,404Lease operating expenses
    
    
    2,398,072
    
    
    
    1,926,000
    
    
    
    4,324,072
    
    
    
    2,032,364
    
    
    
    2,166,000
    
    
    
    4,198,364Production taxes
    
    
    12,048,702
    
    
    
    4,093,723
    
    
    
    16,142,425
    
    
    
    10,204,694
    
    
    
    1,136,784
    
    
    
    11,341,478Gathering
    
    
    4,362,715
    
    
    
    
    
    
    
    4,362,715
    
    
    
    4,086,231
    
    
    
    
    
    
    
    4,086,231Segment operating income
    
    
    70,635,113
    
    
    
    16,380,499
    
    
    
    87,015,612
    
    
    
    61,339,340
    
    
    
    17,013,214
    
    
    
    78,352,554General and administrative
    
    
    
    
    
    
    
    
    
    
    3,714,045
    
    
    
    
    
    
    
    
    
    
    
    3,516,253Other expense (income)
    
    
    
    
    
    
    
    
    
    
    (631,823
    )
    
    
    
    
    
    
    
    
    
    
    1,049,070Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    83,933,390
    
    
    
    
    
    
    
    
    
    
    $
    73,787,231Capital expenditures
    
    $
    105,645,183
    
    
    $
    7,095,005
    
    
    $
    112,740,188
    
    
    $
    53,416,720
    
    
    $
    3,768,152
    
    
    $
    57,184,872Net oil and gas properties
    
    $
    742,678,899
    
    
    $
    111,635,463
    
    
    $
    854,314,362
    
    
    $
    462,252,103
    
    
    $
    100,247,513
    
    
    $
    562,499,616
 15




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##### Table of Contents



Six Months Ended June 30,2006
    
    
    2005Domestic
    
    China
    
    Total
    
    Domestic
    
    China
    
    TotalOil and gas sales
    
    $
    230,639,428
    
    
    $
    50,503,426
    
    
    $
    281,142,854
    
    
    $
    166,809,736
    
    
    $
    33,189,317
    
    
    $
    199,999,053Costs and Expenses:Depletion and depreciation
    
    
    30,633,491
    
    
    
    6,054,438
    
    
    
    36,687,929
    
    
    
    19,906,227
    
    
    
    3,989,686
    
    
    
    23,895,913Lease operating expenses
    
    
    4,807,460
    
    
    
    4,713,000
    
    
    
    9,520,460
    
    
    
    4,017,670
    
    
    
    3,620,000
    
    
    
    7,637,670Production taxes
    
    
    26,673,957
    
    
    
    5,365,360
    
    
    
    32,039,317
    
    
    
    19,226,756
    
    
    
    1,659,466
    
    
    
    20,886,222Gathering
    
    
    8,112,061
    
    
    
    
    
    
    
    8,112,061
    
    
    
    7,716,775
    
    
    
    
    
    
    
    7,716,775Segment operating income
    
    
    160,412,459
    
    
    
    34,370,628
    
    
    
    194,783,087
    
    
    
    115,942,308
    
    
    
    23,920,165
    
    
    
    139,862,473General and administrative
    
    
    
    
    
    
    
    
    
    
    7,916,390
    
    
    
    
    
    
    
    
    
    
    
    6,692,611Other expense (income)
    
    
    
    
    
    
    
    
    
    
    (1,033,095
    )
    
    
    
    
    
    
    
    
    
    
    1,874,848Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    187,899,792
    
    
    
    
    
    
    
    
    
    
    $
    131,295,014Capital expenditures
    
    $
    172,184,322
    
    
    $
    13,755,798
    
    
    $
    185,940,120
    
    
    $
    100,018,868
    
    
    $
    10,982,251
    
    
    $
    111,001,119Net oil and gas properties
    
    $
    742,678,899
    
    
    $
    111,635,463
    
    
    $
    854,314,362
    
    
    $
    462,252,103
    
    
    $
    100,247,513
    
    
    $
    562,499,616
 7. LONG TERM CONTRACTS:
  8. SHARE REPURCHASE PROGRAM:
    9. INCOME TAXES:
   16




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For the three months ended June 30,
    
    
    For the six months ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Current tax expense-China
    
    $
    7,290,000
    
    
    
    
    
    
    
    13,825,000
    
    
    
    Withholding taxes-stock distribution
    
    
    3,797,658
    
    
    
    
    
    
    
    3,797,658
    
    
    
    Deferred tax expense
    
    
    22,170,620
    
    
    
    25,899,316
    
    
    
    52,127,827
    
    
    
    46,084,550Total Income Tax Expense
    
    $
    33,258,278
    
    
    $
    25,899,316
    
    
    $
    69,750,485
    
    
    $
    46,084,550
 10. LEGAL PROCEEDINGS:
  
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
        17




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18




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19




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20




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Remaining
    
    Volume 
    
    AverageContract
    
    MMBTU
    
    Price /Period
    
    / day
    
    MMBTUCalendar 2006
    
    
    70,000
    
    
    $
    5.86
 .
 
 ITEM 4  CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
   21




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(b) Changes in Internal Control Over Financial Reporting
  
    
    The Company did not maintain effective company level controls. Specifically, (i) certain
of its accounting personnel in key roles did not possess an appropriate level of technical
expertise, and (ii) the Companys monitoring of the internal audit function was not
sufficient to provide management a basis to assess the quality of the Companys internal
control performance over time. These deficiencies resulted in more than a remote likelihood
that a material misstatement of the Companys annual or interim financial statements would
not be prevented or detected.
    
    The Company did not have adequate policies and procedures regarding supervisory review of
account reconciliations and account and transaction analyses. This deficiency resulted in
material errors (as reported in the 2005 10-K) which were corrected prior to the issuance of
the Companys 2005 consolidated financial statements.
    
    The Company did not have adequate policies and procedures to ensure that accurate and
reliable interim and annual consolidated financial statements were prepared and reviewed on
a timely basis. Specifically, the Company did not have sufficient personnel with the skills
and experience in the application of U.S. generally accepted accounting principles and
policies and procedures regarding the preparation and management review of footnote
disclosures accompanying the Companys financial statements. As a result of these
deficiencies, material errors were identified in the footnotes to the Companys preliminary
2005 consolidated financial statements. These errors were corrected by management prior to
the issuance of the Companys 2005 consolidated financial statements.
   
    
    implemented an internal review and assessment process regarding its financial reporting and internal audit functions;
    
    begun a reorganization and alignment of its financial reporting and internal audit functions;
    
    engaged Protiviti to (1) review and assess current Sarbanes-Oxley process and control
documentation and compliance plans, (2) recommend remediation and project plans for 2006,
and (3) assist management with Sarbanes-Oxley compliance requirements during 2006; and
    
    engaged Grant Thornton LLP to assist in identifying and recommending any necessary
organization and procedural changes for improving the Companys controls for the purposes of
complying with Sarbanes-Oxley.
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Maximum Number (orApproximate DollarTotal Number of Shares
    
    
    Value) of Shares thatPurchased as Part of
    
    
    may yet be PurchasedTotal Number of Shares
    
    
    Average Price Paid per
    
    
    Publicly Announced
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    Plans or Programs
    
    
    ProgramsApril 1  April 30,
2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1  May 31, 2006
    
    
    283,417
    
    
    
    $   56.29
    
    
    
    283,417
    
    
    $984 millionJune 1  June 30, 2006
    
    
    1,147,157
    
    
    
    $   50.03
    
    
    
    1,147,157
    
    
    $927 millionTOTAL
    
    
    1,430,574
    
    
    
    $   51.27
    
    
    
    1,430,574
    
    
    $927 million
  
 ITEM 3. DEFAULTS IN SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
  Michael D. Watford
    
    
    
    112,854,066 voted in favor, zero voted against and 1,796,457 votes withheld.W. Charles Helton
    
    
    
    113,938,218 voted in favor, zero voted against and 712,305 votes withheld.James E. Nielson
    
    
    
    113,834,568 voted in favor, zero voted against and 815,955 votes withheld.James C. Roe
    
    
    
    113,834,138 voted in favor, zero voted against and 816,385 votes withheld.Robert E. Rigney
    
    
    
    113,797,774 voted in favor, zero voted against and 852,749 votes withheld.
 23




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ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
          
 *
    
    filed herewith 24




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ULTRA PETROLEUM CORP.Date: August 4, 2006
    By:
    /s/ Michael D. WatfordName:
    Michael D. WatfordTitle:
    Chairman, President and Chief Executive OfficerDate: August 4, 2006By:
    /s/ Marshall D. SmithName:
    Marshall D. SmithTitle:
    Chief Financial Officer 25




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EXHIBIT INDEX
         
 *
    
    filed herewith 26