##### 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, 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
(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)
 (281) 876-0120
 þ o
  þ o o
 o þ




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##### Table of Contents



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    21ITEM 4. CONTROLS AND PROCEDURES
    
    
    22PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    23ITEM 1A. RISK FACTORS
    
    
    23ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    24ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    24ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
    
    
    24ITEM 5. OTHER INFORMATION
    
    
    24ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26Certification of CEO Pursuant to Section 302
    
    
    27Certification of CFO Pursuant to Section 302
    
    
    28Certification of CEO Pursuant to Section 906
    
    
    29Certification of CFO Pursuant to Section 906
    
    
    30Certification 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 Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In U.S. Dollars)Revenues:Natural gas sales
    
    $
    116,364,900
    
    
    $
    110,665,181
    
    
    $
    330,201,795
    
    
    $
    266,692,797Oil sales
    
    
    29,001,147
    
    
    
    23,714,106
    
    
    
    96,307,105
    
    
    
    67,685,543Total operating revenues
    
    
    145,366,047
    
    
    
    134,379,287
    
    
    
    426,508,900
    
    
    
    334,378,340Expenses:Production expenses and taxes
    
    
    29,207,499
    
    
    
    22,718,722
    
    
    
    78,879,336
    
    
    
    58,959,388Depletion and depreciation
    
    
    22,541,118
    
    
    
    13,270,825
    
    
    
    59,229,047
    
    
    
    37,166,738General and administrative
    
    
    4,225,197
    
    
    
    4,019,706
    
    
    
    12,141,587
    
    
    
    10,712,319Total operating expenses
    
    
    55,973,814
    
    
    
    40,009,253
    
    
    
    150,249,970
    
    
    
    106,838,445Operating income
    
    
    89,392,233
    
    
    
    94,370,034
    
    
    
    276,258,930
    
    
    
    227,539,895Other income (expense):Interest expense
    
    
    (872,120
    )
    
    
    (787,604
    )
    
    
    (1,183,167
    )
    
    
    (2,856,011
    )Interest income
    
    
    284,952
    
    
    
    177,463
    
    
    
    1,629,094
    
    
    
    371,020Total other income (expense)
    
    
    (587,168
    )
    
    
    (610,141
    )
    
    
    445,927
    
    
    
    (2,484,991
    )Income, before income tax provision
    
    
    88,805,065
    
    
    
    93,759,893
    
    
    
    276,704,857
    
    
    
    225,054,904Income tax provision
    
    
    36,329,569
    
    
    
    32,909,724
    
    
    
    106,080,054
    
    
    
    78,994,271Net income
    
    
    52,475,496
    
    
    
    60,850,169
    
    
    
    170,624,803
    
    
    
    146,060,633Retained earnings, beginning of period
    
    
    511,737,865
    
    
    
    250,498,775
    
    
    
    393,588,558
    
    
    
    165,288,311Retained earnings, end of period
    
    $
    564,213,361
    
    
    $
    311,348,944
    
    
    $
    564,213,361
    
    
    $
    311,348,944Income per common share  basic
    
    $
    0.34
    
    
    $
    0.40
    
    
    $
    1.10
    
    
    $
    0.96Income per common share  fully diluted
    
    $
    0.33
    
    
    $
    0.38
    
    
    $
    1.05
    
    
    $
    0.90Weighted average common shares outstanding  basic
    
    
    153,350,518
    
    
    
    153,719,760
    
    
    
    154,591,379
    
    
    
    152,515,660Weighted average common shares outstanding 
fully diluted
    
    
    160,919,594
    
    
    
    162,231,248
    
    
    
    162,446,569
    
    
    
    161,538,906
 3




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##### Table of Contents



Nine Months EndedSeptember 30,2006
    
    
    2005(In U.S. Dollars)Cash provided by (used in):Operating activities:Net income for the period
    
    $
    170,624,803
    
    
    $
    146,060,633Adjustments to reconcile net income to net cash provided by operating activities:Depletion and depreciation
    
    
    59,229,047
    
    
    
    37,166,738Deferred income taxes
    
    
    82,908,405
    
    
    
    78,994,271Excess tax benefit from stock based compensation
    
    
    (9,515,806
    )
    
    
    Stock compensation
    
    
    1,021,632
    
    
    
    2,271,832Net changes in non-cash working capital:Restricted cash
    
    
    (2,007
    )
    
    
    (1,399
    )Accounts receivable
    
    
    (12,075,313
    )
    
    
    (7,127,575
    )Inventory
    
    
    794,000
    
    
    
    (292,776
    )Prepaid expenses and other current assets
    
    
    21,956
    
    
    
    644,321Accounts payable and accrued liabilities
    
    
    32,296,436
    
    
    
    16,708,441Deferred revenue
    
    
    1,506,580
    
    
    
    137,500Other long-term obligations
    
    
    5,255,044
    
    
    
    4,474,803Taxes payable
    
    
    (3,174,990
    )
    
    
    (195,000
    )Net cash provided by operating activities
    
    
    328,889,787
    
    
    
    278,841,789Investing activities:Oil and gas property expenditures
    
    
    (342,537,507
    )
    
    
    (188,197,911
    )Change in capital cost accrual
    
    
    34,798,341
    
    
    
    (3,604,699
    )Inventory
    
    
    (2,555,087
    )
    
    
    (18,938,712
    )Purchase of capital assets
    
    
    (565,615
    )
    
    
    (881,165
    )Net cash used in investing activities
    
    
    (310,859,868
    )
    
    
    (211,622,487
    )Financing activities:Borrowings on long-term debt, gross
    
    
    110,000,000
    
    
    
    22,000,000Payments on long-term debt, gross
    
    
    
    
    
    
    (99,000,000
    )Repurchased shares
    
    
    (174,318,943
    )
    
    
    Stock issued for compensation
    
    
    1,741,003
    
    
    
    Excess tax benefit from stock based compensation
    
    
    9,515,806
    
    
    
    Proceeds from exercise of options
    
    
    7,492,982
    
    
    
    16,051,102Net cash used in financing activities
    
    
    (45,569,152
    )
    
    
    (60,948,898
    )(Decrease)/Increase in cash during the period
    
    
    (27,539,233
    )
    
    
    6,270,404Cash and cash equivalents, beginning of period
    
    
    44,394,775
    
    
    
    16,932,661Cash and cash equivalents, end of period
    
    $
    16,855,542
    
    
    $
    23,203,065Supplemental disclosures of Cash Flow information:Non-cash tax benefit of stock options exercised
    
    
    
    
    
    $
    39,352,436
 4




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September 30,
    
    
    December 31,2006
    
    
    2005(unaudited)(In U.S. Dollars)AssetsCurrent assetsCash and cash equivalents
    
    $
    16,855,542
    
    
    $
    44,394,775Restricted cash
    
    
    215,906
    
    
    
    213,899Accounts receivable
    
    
    87,731,344
    
    
    
    75,656,031Deferred tax asset
    
    
    501,381
    
    
    
    Inventory
    
    
    23,161,272
    
    
    
    22,062,585Prepaid expenses and other current assets
    
    
    106,088
    
    
    
    128,044Total current assets
    
    
    128,571,533
    
    
    
    142,455,334Oil and gas properties, net, using the full cost method of accountingProved
    
    
    918,543,819
    
    
    
    612,960,790Unproved
    
    
    70,882,131
    
    
    
    89,702,465Capital assets
    
    
    2,013,150
    
    
    
    2,147,528Total assets
    
    $
    1,120,010,633
    
    
    $
    847,266,117Liabilities and shareholders equityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    81,894,297
    
    
    $
    49,297,861Deferred revenue
    
    
    1,506,580
    
    
    
    Current taxes payable
    
    
    390,000
    
    
    
    3,564,990Capital cost accrual
    
    
    81,677,630
    
    
    
    46,879,289Total current liabilities
    
    
    165,468,507
    
    
    
    99,742,140Long-term debt
    
    
    110,000,000
    
    
    
    Deferred income tax liability
    
    
    229,640,436
    
    
    
    155,746,465Other long-term obligations
    
    
    27,239,113
    
    
    
    20,576,574Shareholders equityShare capital
    
    
    24,642,866
    
    
    
    178,806,030Treasury stock
    
    
    (1,193,650
    )
    
    
    (1,193,650
    )Retained earnings
    
    
    564,213,361
    
    
    
    393,588,558Total shareholders equity
    
    
    587,662,577
    
    
    
    571,200,938Total liabilities and shareholders equity
    
    $
    1,120,010,633
    
    
    $
    847,266,117
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##### Table of Contents



ULTRA PETROLEUM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited
  DESCRIPTION OF THE BUSINESS:
  1. SIGNIFICANT ACCOUNTING POLICIES:
         6




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




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    52,475,496
    
    
    $
    60,850,169
    
    
    $
    170,624,803
    
    
    $
    146,060,633Weighted average common
shares outstanding during the
period
    
    
    153,350,518
    
    
    
    153,719,760
    
    
    
    154,591,379
    
    
    
    152,515,660Effect of dilutive instruments
    
    
    7,569,076
    
    
    
    8,511,488
    
    
    
    7,855,190
    
    
    
    9,023,246Weighted average common
shares outstanding during the
period including the effects
of dilutive Instruments
    
    
    160,919,594
    
    
    
    162,231,248
    
    
    
    162,446,569
    
    
    
    161,538,906Basic earnings per share
    
    $
    0.34
    
    
    $
    0.40
    
    
    $
    1.10
    
    
    $
    0.96Diluted earnings per share
    
    $
    0.33
    
    
    $
    0.38
    
    
    $
    1.05
    
    
    $
    0.90
       8




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9




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2. ASSET RETIREMENT OBLIGATIONS:
  3. OIL AND GAS PROPERTIES:
 September 30,
    
    
    December 31,2006
    
    
    2005Developed Properties:Acquisition, equipment, exploration, drilling and environmental costs  Domestic
    
    $
    1,015,620,232
    
    
    $
    700,425,880Acquisition, equipment, exploration, drilling and environmental costs  China
    
    
    91,935,200
    
    
    
    43,890,413Less accumulated depletion, depreciation and amortization  Domestic
    
    
    (167,493,316
    )
    
    
    (118,172,467
    )Less accumulated depletion, depreciation and amortization  China
    
    
    (21,518,297
    )
    
    
    (13,183,036
    )918,543,819
    
    
    
    612,960,790Unproven Properties:Acquisition and exploration costs  Domestic
    
    
    27,418,418
    
    
    
    17,647,300Acquisition and exploration costs  China
    
    
    43,463,713
    
    
    
    72,055,165$
    989,425,950
    
    
    $
    702,663,255
 4. LONG-TERM LIABILITIES:
 September 30,
    
    
    December 31,2006
    
    
    2005Bank indebtedness
    
    $
    110,000,000
    
    
    $
    Other long-term obligations
    
    
    27,239,113
    
    
    
    20,576,574$
    137,239,113
    
    
    $
    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
  Nine MonthsEndedSeptember 30, 2006Total cost of share-based payment plans
    
    $
    1,405,980Amounts capitalized in inventory and oil and gas properties
    
    
    684,347Amounts recognized in income for amounts previously capitalized in inventory and fixed assets
    
    
    Amounts charged against income, before income tax benefit
    
    $
    721,633Amount of related income tax benefit recognized in income
    
    $
    253,293Cumulative effect from adoption of SFAS No. 123R on :Income from continuing operations
    
    $
    721,633Income before income taxes
    
    $
    721,633Net income
    
    $
    468,340Cash flow from operations
    
    $
    (9,515,806
    )Cash flow from financing activities
    
    $
    9,515,806Basic earnings per share
    
    
    Diluted earnings per share
    
    
    
  Non-Executives
    
    ExecutivesExpected volatility
    
    
    44.2-45.8
    %
    
    
    43.5
    %Expected dividends
    
    
    0
    %
    
    
    0
    %Expected term (in years)
    
    
    2.75-4.71
    
    
    
    3.58Risk free rate
    
    
    4.56-5.03
    %
    
    
    4.84
    %Expected forfeiture rate
    
    
    20.0
    %
    
    
    20.0
    %
 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
    
    
    9,085,256
    
    
    $
    10.24
    
    
    
    10,856,044Equity compensation plans not approved by security holders
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    9,085,256
    
    
    $
    10.24
    
    
    
    10,856,044
 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
    
    
    264,966
    
    
    $46.05 to $67.73Exercised
    
    
    (566,400
    )
    
    $  0.46 to $40.00Forfeited
    
    
    (2,010
    )
    
    $63.05 to $63.05Expired
    
    
    
    
    
    Balance, September 30, 2006
    
    
    9,085,256
    
    
    $  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
    
    
    
    2.33
    
    
    $
    0.46
    
    
    $
    122,818,065$0.25  0.57
    
    
    760,000
    
    
    
    3.54
    
    
    $
    0.34
    
    
    $
    36,306,400$1.49  2.61
    
    
    1,355,000
    
    
    
    4.46
    
    
    $
    1.90
    
    
    $
    62,610,900$3.91  4.43
    
    
    661,000
    
    
    
    5.61
    
    
    $
    4.40
    
    
    $
    28,894,580$4.83  7.10
    
    
    856,600
    
    
    
    6.61
    
    
    $
    5.05
    
    
    $
    36,886,262$11.68  24.21
    
    
    1,359,000
    
    
    
    7.56
    
    
    $
    15.94
    
    
    $
    43,725,770$23.90  58.71
    
    
    1,253,200
    
    
    
    8.73
    
    
    $
    35.45
    
    
    $
    16,805,110$46.05  67.73
    
    
    262,956
    
    
    
    9.63
    
    
    $
    59.54
    
    
    $
    41,200
 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
    
    
    
    2.33
    
    
    $
    0.46
    
    
    $
    122,818,065$0.25  0.57
    
    
    760,000
    
    
    
    3.54
    
    
    $
    0.34
    
    
    $
    36,306,400$1.49  2.61
    
    
    1,355,000
    
    
    
    4.46
    
    
    $
    1.90
    
    
    $
    62,610,900$3.91  4.43
    
    
    661,000
    
    
    
    5.61
    
    
    $
    4.40
    
    
    $
    28,894,580$4.83  7.10
    
    
    856,600
    
    
    
    6.61
    
    
    $
    5.05
    
    
    $
    36,886,262$11.68  24.21
    
    
    1,359,000
    
    
    
    7.56
    
    
    $
    15.94
    
    
    $
    43,725,770$23.90  58.71
    
    
    1,253,200
    
    
    
    8.73
    
    
    $
    35.45
    
    
    $
    16,805,110$46.05  67.73
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Net income as reported:
    
    $
    60,850,169
    
    
    $
    146,060,633Deduct: Stock based employee compensation, net of tax
    
    
    (3,842,861
    )
    
    
    (7,335,492
    )Pro Forma
    
    $
    57,007,308
    
    
    $
    138,725,141Basic Earnings per share:As Reported
    
    $
    0.40
    
    
    $
    0.96Pro Forma
    
    $
    0.37
    
    
    $
    0.91Diluted Earnings per share:As Reported
    
    $
    0.38
    
    
    $
    0.90Pro Forma
    
    $
    0.35
    
    
    $
    0.86
  Expected volatility
    
    
    30.8%  37.31
    %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 September 30,2006
    
    
    2005Domestic
    
    
    China
    
    
    Total
    
    
    Domestic
    
    
    China
    
    
    TotalOil and gas sales
    
    $
    127,533,212
    
    
    $
    17,832,835
    
    
    $
    145,366,047
    
    
    $
    118,736,583
    
    
    $
    15,642,704
    
    
    $
    134,379,287Costs and Expenses:Depletion and
depreciation
    
    
    19,555,958
    
    
    
    2,985,160
    
    
    
    22,541,118
    
    
    
    12,121,758
    
    
    
    1,149,067
    
    
    
    13,270,825Lease operating expenses
    
    
    5,410,445
    
    
    
    2,104,000
    
    
    
    7,514,445
    
    
    
    2,318,646
    
    
    
    1,079,000
    
    
    
    3,397,646Production taxes
    
    
    14,549,006
    
    
    
    1,634,791
    
    
    
    16,183,797
    
    
    
    13,935,435
    
    
    
    783,520
    
    
    
    14,718,955Gathering
    
    
    5,509,257
    
    
    
    
    
    
    
    5,509,257
    
    
    
    4,602,121
    
    
    
    
    
    
    
    4,602,121Segment operating income
    
    
    82,508,546
    
    
    
    11,108,884
    
    
    
    93,617,430
    
    
    
    85,758,623
    
    
    
    12,631,117
    
    
    
    98,389,740General and
administrative
    
    
    
    
    
    
    
    
    
    
    4,225,197
    
    
    
    
    
    
    
    
    
    
    
    4,019,706Other expense (income)
    
    
    
    
    
    
    
    
    
    
    587,168
    
    
    
    
    
    
    
    
    
    
    
    610,141Income before
income taxes
    
    
    
    
    
    
    
    
    
    $
    88,805,065
    
    
    
    
    
    
    
    
    
    
    $
    93,759,893Capital expenditures
    
    $
    151,381,055
    
    
    $
    5,216,332
    
    
    $
    156,597,387
    
    
    $
    72,225,419
    
    
    $
    4,762,429
    
    
    $
    76,987,848Net oil and gas properties
    
    $
    875,545,334
    
    
    $
    113,880,616
    
    
    $
    989,425,950
    
    
    $
    522,558,216
    
    
    $
    103,860,873
    
    
    $
    626,419,089
 15




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##### Table of Contents



Nine Months Ended September 30,2006
    
    
    2005Domestic
    
    
    China
    
    
    Total
    
    
    Domestic
    
    
    China
    
    
    TotalOil and gas sales
    
    $
    358,172,639
    
    
    $
    68,336,261
    
    
    $
    426,508,900
    
    
    $
    285,546,319
    
    
    $
    48,832,021
    
    
    $
    334,378,340Costs and Expenses:Depletion and
depreciation
    
    
    50,189,449
    
    
    
    9,039,598
    
    
    
    59,229,047
    
    
    
    32,027,985
    
    
    
    5,138,753
    
    
    
    37,166,738Lease operating expenses
    
    
    10,217,905
    
    
    
    6,817,000
    
    
    
    17,034,905
    
    
    
    6,336,316
    
    
    
    4,699,000
    
    
    
    11,035,316Production taxes
    
    
    41,222,962
    
    
    
    7,000,151
    
    
    
    48,223,113
    
    
    
    33,162,191
    
    
    
    2,442,986
    
    
    
    35,605,177Gathering
    
    
    13,621,318
    
    
    
    
    
    
    
    13,621,318
    
    
    
    12,318,895
    
    
    
    
    
    
    
    12,318,895Segment operating income
    
    
    242,921,005
    
    
    
    45,479,512
    
    
    
    288,400,517
    
    
    
    201,700,932
    
    
    
    36,551,282
    
    
    
    238,252,214General and
administrative
    
    
    
    
    
    
    
    
    
    
    12,141,587
    
    
    
    
    
    
    
    
    
    
    
    10,712,319Other expense (income)
    
    
    
    
    
    
    
    
    
    
    (445,927
    )
    
    
    
    
    
    
    
    
    
    
    2,484,991Income before
income taxes
    
    
    
    
    
    
    
    
    
    $
    276,704,857
    
    
    
    
    
    
    
    
    
    
    $
    225,054,904Capital expenditures
    
    $
    323,565,377
    
    
    $
    18,972,130
    
    
    $
    342,537,507
    
    
    $
    172,189,550
    
    
    $
    16,008,361
    
    
    $
    188,197,911Net oil and gas properties
    
    $
    875,545,334
    
    
    $
    113,880,616
    
    
    $
    989,425,950
    
    
    $
    522,558,216
    
    
    $
    103,860,873
    
    
    $
    626,419,089
 7. LONG TERM CONTRACTS:
  8. SHARE REPURCHASE PROGRAM:
    9. INCOME TAXES:
   16




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##### Table of Contents



For the three months ended September 30,
    
    
    For the nine months ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005$
    
    
    Rate
    
    
    $
    
    
    Rate
    
    
    $
    
    
    Rate
    
    
    $
    
    
    RateCurrent:China
    
    $
    390,000
    
    
    
    0.4
    %
    
    $
    
    
    
    
    0.0
    %
    
    $
    14,215,000
    
    
    
    5.1
    %
    
    $
    
    
    
    
    0.0
    %Withholding taxes-stock distribution
    
    
    5,158,991
    
    
    
    5.8
    %
    
    
    
    
    
    
    0.0
    %
    
    
    8,956,649
    
    
    
    3.2
    %
    
    
    
    
    
    
    0.0
    %Deferred tax expense
    
    
    30,780,578
    
    
    
    34.7
    %
    
    
    32,909,724
    
    
    
    35.1
    %
    
    
    82,908,405
    
    
    
    30.0
    %
    
    
    78,994,271
    
    
    
    35.1
    %Total Income Tax Provision
    
    $
    36,329,569
    
    
    
    40.9
    %
    
    $
    32,909,724
    
    
    
    35.1
    %
    
    $
    106,080,054
    
    
    
    38.3
    %
    
    $
    78,994,271
    
    
    
    35.1
    %
 10. LEGAL PROCEEDINGS:
  
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
     17




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##### Table of Contents



RESULTS OF OPERATIONS
 QUARTER ENDED SEPTEMBER 30, 2006 VS. QUARTER ENDED SEPTEMBER 30, 2005
        18




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NINE MONTHS ENDED SEPTEMBER 30, 2006 VS. NINE MONTHS ENDED SEPTEMBER 30, 2005
         19




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LIQUIDITY AND CAPITAL RESOURCES
         20




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##### Table of Contents



OFF BALANCE SHEET ARRANGEMENTS
  CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
   
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   21




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##### Table of Contents



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
    (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.
 22




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##### Table of Contents




    
    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.
  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  23




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##### Table of Contents



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
    
    ProgramsMay 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 millionJuly 1  July 31, 2006
    
    
    572,858
    
    
    $
    53.14
    
    
    
    572,858
    
    
    $896 millionAug 1  Aug 31, 2006
    
    
    278,900
    
    
    $
    53.02
    
    
    
    278,900
    
    
    $881 millionSept 1  Sept 30, 2006
    
    
    1,198,700
    
    
    $
    46.50
    
    
    
    1,198,700
    
    
    $826 millionTOTAL
    
    
    3,481,032
    
    
    $
    50.08
    
    
    
    3,481,032
    
    
    $826 million
  
 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 AND REPORTS ON FORM 8-K
          
 *
    
    filed herewith 24




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SIGNATURES
  ULTRA PETROLEUM CORP.Date: November 2, 2006
    By:
    /s/ Michael D. WatfordName:
    Michael D. WatfordTitle:
    Chairman, President and Chief Executive OfficerDate: November 2, 2006
    By:
    /s/ Marshall D. SmithName:
    Marshall D. SmithTitle:
    Chief Financial Officer 25




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##### Table of Contents



EXHIBIT INDEX
         
 *
    
    filed herewith 26