##### 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 MARCH 31, 2007
 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 o
 o þ




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TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONITEM 1 FINANCIAL STATEMENTS
    
    
    3ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    14ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    17ITEM 4 CONTROLS AND PROCEDURES
    
    
    18PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    18ITEM 1A. RISK FACTORS
    
    
    18ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    
    19ITEM 3. DEFAULTS IN SENIOR SECURITIES
    
    
    19ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
    
    
    19ITEM 5. OTHER INFORMATION
    
    
    19ITEM 6. EXHIBITS
    
    
    20SIGNATURES
    
    
    21EXHIBIT INDEX
    
    
    22Credit AgreementCertification 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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PART I  FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 
 Three Months EndedMarch 31,2007
    
    
    2006Revenues:Natural gas sales
    
    $
    147,284
    
    
    $
    117,793Oil sales
    
    
    28,909
    
    
    
    33,457176,193
    
    
    
    151,250Expenses:Production expenses and taxes
    
    
    32,921
    
    
    
    24,843Depletion and depreciation
    
    
    35,025
    
    
    
    18,640General and administrative expenses
    
    
    3,268
    
    
    
    4,20271,214
    
    
    
    47,685Operating income
    
    
    104,979
    
    
    
    103,565Other (expense) income:Interest expense
    
    
    (2,700
    )
    
    
    (172
    )Interest income
    
    
    327
    
    
    
    573(2,373
    )
    
    
    401Income for the period, before income tax provision
    
    
    102,606
    
    
    
    103,966Income tax provision
    
    
    36,015
    
    
    
    36,492Net income for the period
    
    
    66,591
    
    
    
    67,474Retained earnings, beginning of period
    
    
    624,784
    
    
    
    393,589Retained earnings, end of period
    
    $
    691,375
    
    
    $
    461,063Net income per common share  basic
    
    $
    0.44
    
    
    $
    0.43Net income per common share  diluted
    
    $
    0.42
    
    
    $
    0.41Weighted average common shares outstanding  basic
    
    
    151,928
    
    
    
    155,221Weighted average common shares outstanding  diluted
    
    
    159,112
    
    
    
    163,204
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Three Months EndedMarch 31,2007
    
    
    2006Cash provided by (used in):Operating activities:Net income for the period
    
    $
    66,591
    
    
    $
    67,474Adjustments to reconcile net income to net cash provided by operating activities:Depletion and depreciation
    
    
    35,025
    
    
    
    18,640Deferred income taxes
    
    
    30,505
    
    
    
    29,957Stock compensation
    
    
    1,270
    
    
    
    1Excess tax benefit from stock-based compensation
    
    
    (3,007
    )
    
    
    (3,024
    )Net changes in non-cash working capital:Restricted cash
    
    
    (558
    )
    
    
    (1
    )Accounts receivable
    
    
    (12,281
    )
    
    
    8,900Inventory
    
    
    363
    
    
    
    711Prepaid expenses and other current assets
    
    
    2,906
    
    
    
    7Accounts payable and accrued liabilities
    
    
    25,821
    
    
    
    (269
    )Other long-term obligations
    
    
    5,466
    
    
    
    6,415Taxes payable
    
    
    (1,275
    )
    
    
    2,970Net cash provided by operating activities
    
    
    150,826
    
    
    
    131,781Investing activities:Oil and gas property expenditures
    
    
    (166,777
    )
    
    
    (73,200
    )Change in capital cost accrual
    
    
    15,588
    
    
    
    (10,148
    )Inventory
    
    
    
    
    
    
    982Purchase of capital assets
    
    
    (142
    )
    
    
    (139
    )Net cash used in investing activities
    
    
    (151,331
    )
    
    
    (82,505
    )Financing activities:Borrowings on long-term debt
    
    
    20,000
    
    
    
    Payments on long-term debt
    
    
    
    
    
    
    Repurchased Shares
    
    
    (9,544
    )
    
    
    Excess tax benefit from stock-based compensation
    
    
    3,007
    
    
    
    3,024Stock issued for compensation
    
    
    
    
    
    
    1,741Proceeds from exercise of options
    
    
    1,766
    
    
    
    2,360Net cash provided by financing activities
    
    
    15,229
    
    
    
    7,125Increase in cash during the period
    
    
    14,724
    
    
    
    56,401Cash and cash equivalents, beginning of period
    
    
    14,707
    
    
    
    44,395Cash and cash equivalents, end of period
    
    $
    29,431
    
    
    $
    100,796
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March 31,
    
    
    December 31,2007
    
    
    2006(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    29,431
    
    
    $
    14,707Restricted cash
    
    
    1,225
    
    
    
    667Accounts receivable
    
    
    102,380
    
    
    
    90,099Deferred tax asset
    
    
    8,512
    
    
    
    8,266Inventory
    
    
    18,785
    
    
    
    19,337Prepaid drilling costs and other current assets
    
    
    589
    
    
    
    3,495Total current assets
    
    
    160,922
    
    
    
    136,571Oil and gas properties, net, using the full cost method of accountingProved
    
    
    1,177,186
    
    
    
    1,048,308Unproved
    
    
    75,558
    
    
    
    71,060Capital assets
    
    
    1,719
    
    
    
    1,830Total assets
    
    $
    1,415,385
    
    
    $
    1,257,769Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    102,112
    
    
    $
    76,291Current taxes payable
    
    
    5,567
    
    
    
    6,842Capital cost accrual
    
    
    110,455
    
    
    
    94,867Total current liabilities
    
    
    218,134
    
    
    
    178,000Long-term debt
    
    
    185,000
    
    
    
    165,000Deferred income tax liability
    
    
    286,936
    
    
    
    259,191Other long-term obligations
    
    
    32,400
    
    
    
    26,573Shareholders equityShare capital
    
    
    2,734
    
    
    
    5,415Treasury stock
    
    
    (1,194
    )
    
    
    (1,194
    )Retained earnings
    
    
    691,375
    
    
    
    624,784Total shareholders equity
    
    
    692,915
    
    
    
    629,005Total liabilities and shareholders equity
    
    $
    1,415,385
    
    
    $
    1,257,769
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DESCRIPTION OF THE BUSINESS:
  1. SIGNIFICANT ACCOUNTING POLICIES:
  Basis of presentation and principles of consolidation
 Accounting principles
 Cash and cash equivalents
 Restricted cash
 Capital assets
 Oil and gas properties
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Inventories
 Forward natural gas sales transactions
 Income taxes
 Earnings per share
  Three Months EndedMarch 31, 2007
    
    
    March 31, 2006(In thousands, except per share data)Net income
    
    $
    66,591
    
    
    $
    67,474Weighted average common shares outstanding during the period
    
    
    151,928
    
    
    
    155,221Effect of dilutive instruments
    
    
    7,184
    
    
    
    7,983Weighted average common shares outstanding during the
period including the effects of dilutive Instruments
    
    
    159,112
    
    
    
    163,204Basic earnings per share
    
    $
    0.44
    
    
    $
    0.43Diluted earnings per share
    
    $
    0.42
    
    
    $
    0.41
 Use of estimates
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Accounting for share-based compensation
  Revenue Recognition
  Impact of recently issued accounting pronouncements Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109, Accounting
for Income Taxes
 2. OIL AND GAS PROPERTIES:
 March 31,
    
    
    December 31,2007
    
    
    2006(Amounts in Thousands)Developed Properties:Acquisition, equipment, exploration, drilling and environmental costs  Domestic
    
    $
    1,330,366
    
    
    $
    1,174,683Acquisition, equipment, exploration, drilling and environmental costs  China
    
    
    104,504
    
    
    
    96,874Less accumulated depletion, depreciation and amortization  Domestic
    
    
    (225,990
    )
    
    
    (196,683
    )Less accumulated depletion, depreciation and amortization  China
    
    
    (31,694
    )
    
    
    (26,566
    )1,177,186
    
    
    
    1,048,308Unproven Properties:Acquisition and exploration costs 
Domestic
    
    
    33,400
    
    
    
    28,998Acquisition and exploration costs  China
    
    
    42,158
    
    
    
    42,062$
    1,252,744
    
    
    $
    1,119,368
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3. LONG-TERM LIABILITIES:
 March 31,
    
    
    December 31,2007
    
    
    2006(Amounts in Thousands)Bank indebtedness
    
    $
    185,000
    
    
    $
    165,000Other long-term obligations
    
    
    32,400
    
    
    
    26,573$
    217,400
    
    
    $
    191,573
 Bank indebtedness
     Other long-term obligations
 4. SHARE BASED COMPENSATION
 Accounting for share-based compensation
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Valuation and Expense Information under SFAS 123R
  Three Months
    
    Three MonthsEnded
    
    EndedMarch 31, 2007
    
    March 31, 2006(Amounts in Thousands)Total cost of share-based payment plans
    
    $
    1,590
    
    
    $
    325Amounts capitalized in inventory and fixed assets
    
    
    820
    
    
    
    Amounts recognized in income for amounts previously
capitalized in inventory and fixed assets
    
    
    
    
    
    
    Amounts charged against income, before income tax benefit
    
    $
    770
    
    
    $
    1Amount of related income tax benefit recognized in income
    
    $
    270
    
    
    
    Cumulative effect from adoption of SFAS No. 123R on :Income from continuing operations
    
    $
    770
    
    
    $
    1Income before income taxes
    
    
    770
    
    
    
    1Net income
    
    
    500
    
    
    
    Cash flow from operations
    
    $
    (3,007
    )
    
    $
    (3,024
    )Cash flow from financing activities
    
    $
    3,007
    
    
    $
    3,024Basic earnings per share
    
    
    
    
    
    
    Diluted earnings per share
    
    
    
    
    
    
    
  Three Months EndedMarch 31, 2007
    
    March 31, 2006Non-Executives
    
    Executives
    
    Non-ExecutivesExpected volatility
    
    
    43.25  43.70
    %
    
    
    44.40
    %
    
    
    45.70
    %Expected dividends
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected term (in years)
    
    
    4.75  4.85
    
    
    
    5.53
    
    
    
    2.75Risk free rate
    
    
    4.52  4.68
    %
    
    
    4.69
    %
    
    
    4.84
    %Expected forfeiture rate
    
    
    14.00
    %
    
    
    14.00
    %
    
    
    25.00
    %
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Changes in Stock Options and Stock Options Outstanding
  WeightedAverageNumber of
    
    
    Exercise PriceOptions
    
    
    (US$)Balance, December 31, 2005
    
    
    9,388,700
    
    
    $
    0.26 to $58.71Granted
    
    
    379,966
    
    
    $
    46.05 to $67.73Exercised
    
    
    (655,900
    )
    
    $
    0.46 to $40.00Forfeited
    
    
    (30,010
    )
    
    $
    16.97 to $63.05Expired
    
    
    
    
    
    
    Balance, December 31, 2006
    
    
    9,082,756
    
    
    $
    0.26 to $67.73Granted
    
    
    275,976
    
    
    $
    45.95 to $51.60Exercised
    
    
    (209,250
    )
    
    $
    1.49 to $30.74Forfeited
    
    
    (51,778
    )
    
    $
    47.19 to $63.05Expired
    
    
    
    
    
    
    Balance, March 31, 2007
    
    
    9,097,704
    
    
    $
    0.26 to $67.73
 PERFORMANCE SHARE PLANS:
 Long-Term Equity-Based Incentives.
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5. SEGMENT INFORMATION
  Three Months Ended March 31,(Amounts in Thousands)2007
    
    
    2006Domestic
    
    
    China
    
    
    Total
    
    
    Domestic
    
    
    China
    
    
    TotalOil and gas sales
    
    $
    156,576
    
    
    $
    19,617
    
    
    $
    176,193
    
    
    $
    125,818
    
    
    $
    25,432
    
    
    $
    151,250Costs and Expenses:Depletion and depreciation
    
    
    29,629
    
    
    
    5,396
    
    
    
    35,025
    
    
    
    15,257
    
    
    
    3,383
    
    
    
    18,640Lease operating expenses
    
    
    4,677
    
    
    
    2,627
    
    
    
    7,304
    
    
    
    2,409
    
    
    
    2,787
    
    
    
    5,196Production taxes
    
    
    17,513
    
    
    
    1,610
    
    
    
    19,123
    
    
    
    14,626
    
    
    
    1,272
    
    
    
    15,898Gathering
    
    
    6,494
    
    
    
    
    
    
    
    6,494
    
    
    
    3,749
    
    
    
    
    
    
    
    3,749Income from operations
    
    
    98,263
    
    
    
    9,984
    
    
    
    108,247
    
    
    
    89,777
    
    
    
    17,990
    
    
    
    107,767General and administrative
    
    
    
    
    
    
    
    
    
    
    3,268
    
    
    
    
    
    
    
    
    
    
    
    4,202Other (income) expense
    
    
    
    
    
    
    
    
    
    
    2,373
    
    
    
    
    
    
    
    
    
    
    
    (401
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    $
    102,606
    
    
    
    
    
    
    
    
    
    
    $
    103,966Capital expenditures
    
    $
    159,052
    
    
    $
    7,725
    
    
    $
    166,777
    
    
    $
    66,539
    
    
    $
    6,661
    
    
    $
    73,200Net oil and gas
properties at March 31
2007 and December 31,
2006, respectively
    
    $
    1,137,776
    
    
    $
    114,968
    
    
    $
    1,252,744
    
    
    $
    1,006,998
    
    
    $
    112,370
    
    
    $
    1,119,368
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6. SHARE REPURCHASE PROGRAM:
     7. INCOME TAXES:
      8. LEGAL PROCEEDINGS:
  13




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9. SUBSEQUENT EVENT:
    1 2
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
      14




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RESULTS OF OPERATIONS
 QUARTER ENDED MARCH 31, 2007 VS. QUARTER ENDED MARCH 31, 2006
     15




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16




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 17




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Remaining
    
    Volume 
    
    AverageContract
    
    MMBTU
    
    Price /Period
    
    / day
    
    MMBTUApril 2007  October 2007
    
    
    40,000
    
    
    $
    6.20Calendar 2008
    
    
    80,000
    
    
    $
    6.71
  Remaining
    
    Volume 
    
    AverageContract
    
    MMBTU
    
    Price /Period
    
    / day
    
    MMBTUCalendar 2008
    
    
    20,000
    
    
    $
    7.31
 
 ITEM 4  CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  18




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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 Maximum Number (orApproximate DollarValue) of SharesTotal Number of Shares
    
    
    thatAverage Price Paid
    
    
    Purchased as Part of
    
    
    may yet be PurchasedTotal Number of Shares
    
    
    per
    
    
    Publicly Announced
    
    
    Under the Plans orPeriod
    
    Purchased
    
    
    Share
    
    
    Plans or Programs
    
    
    ProgramsJan 1 - Jan 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $802 millionFeb 1 - Feb 28, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $802 millionMar 1 - Mar 31, 2007
    
    
    149,900
    
    
    $
    52.66
    
    
    
    149,900
    
    
    $795 millionTOTAL
    
    
    149,900
    
    
    $
    49.87
    
    
    
    149,900
    
    
    $795 million
    
 ITEM 3. DEFAULTS IN SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  19




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ITEM
6. EXHIBITS
           
 *
    
    filed herewith 20




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ULTRA PETROLEUM CORP.Date: May 3, 2007
    By:
    /s/ Michael D. WatfordName:
    Michael D. WatfordTitle:
    Chief Executive Officer Date: May 3, 2007
    By:
    /s/ Marshall D. SmithName:
    Marshall D. SmithTitle:
    Chief Financial Officer 21




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EXHIBIT INDEX
          
 *
    
    filed herewith 22