SECURITIES AND UNITED STATES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | |
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 |
OR
¨
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
|
15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] 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.
(Exact name
(Exact Name of registrantRegistrant as specifiedSpecified in its charter)
Yukon Territory, Canada
| | N/A
|
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification Number)
|
|
16801 Greenspoint Park Drive, Suite 370, Houston, Texas
| | 77060
|
(Address of Principal Executive Offices)
| | (Zip Code)
|
Its Charter)
Yukon Territory, Canada N/A
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
363 North Sam Houston Parkway E., 77060
Suite 1200, Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
(281) 876-0120
(Registrant’s
(Registrant's Telephone Number,
Including Area Code)
Indicate by check mark whether the registrantregistrant: (1) has filed all reports
required to be filed by sectionSection 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YESx X NO¨
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YES X NO
----- -----
The number of common shares, without par value, of Ultra Petroleum Corp.,
outstanding as of November 1, 2002May 5, 2003 was 74,779,793.
74,113,918.
PART 1 –- FINANCIAL INFORMATION ITEM 1 –- FINANCIAL STATEMENTS
ULTRA PETROLEUM CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | For the Three Months Ended September 30,
| | | For the Nine Months Ended September 30,
| |
| | 2002
| | 2001
| | | 2002
| | 2001
| |
Revenues | | | | | | | | | | | | | | |
Natural gas sales | | $ | 7,578,471 | | $ | 6,077,854 | | | $ | 23,440,699 | | $ | 31,351,991 | |
Oil sales | | | 1,092,561 | | | 859,181 | | | | 2,480,039 | | | 2,380,021 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
| | | 8,671,032 | | | 6,937,035 | | | | 25,920,738 | | | 33,732,012 | |
Expenses | | | | | | | | | | | | | | |
Production expenses and taxes | | | 2,556,096 | | | 1,722,796 | | | | 7,137,225 | | | 6,797,124 | |
Depletion and depreciation | | | 2,340,270 | | | 1,690,540 | | | | 6,193,858 | | | 5,044,785 | |
General and administrative | | | 1,095,113 | | | 1,021,272 | | | | 3,154,376 | | | 3,042,268 | |
Stock compensation | | | 415,000 | | | 245,204 | | | | 1,211,165 | | | 337,029 | |
Interest | | | 706,705 | | | 471,052 | | | | 1,912,922 | | | 1,138,992 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
| | | 7,113,184 | | | 5,150,864 | | | | 19,609,546 | | | 16,360,198 | |
Operating income | | | 1,557,848 | | | 1,786,171 | | | | 6,311,192 | | | 17,371,814 | |
Other income: | | | | | | | | | | | | | | |
Interest | | | 5,221 | | | 14,201 | | | | 17,555 | | | 102,903 | |
Other | | | — | | | 45,719 | | | | — | | | 176,057 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
| | | 5,221 | | | 59,920 | | | | 17,555 | | | 278,960 | |
Income for the period, before income tax provision | | | 1,563,069 | | | 1,846,091 | | | | 6,328,747 | | | 17,650,774 | |
Income tax provision – future | | | 601,783 | | | 198,958 | | | | 2,349,157 | | | 1,844,744 | |
Net income for the period | | | 961,286 | | | 1,647,133 | | | | 3,979,590 | | | 15,806,030 | |
Retained earnings (deficit), beginning of period | | | 5,752,660 | | | (985,575 | ) | | | 2,734,356 | | | (15,144,472 | ) |
| |
|
| |
|
|
| |
|
| |
|
|
|
Retained earnings (deficit), end of period | | $ | 6,713,946 | | $ | 661,558 | | | $ | 6,713,946 | | $ | 661,558 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
Income per common share – basic | | $ | 0.01 | | $ | 0.02 | | | $ | 0.05 | | $ | 0.22 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
Income per common share – diluted | | $ | 0.01 | | $ | 0.02 | | | $ | 0.05 | | $ | 0.21 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
Weighted average common shares outstanding—basic | | | 74,757,375 | | | 73,223,070 | | | | 74,594,581 | | | 72,059,299 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
Weighted average common shares outstanding – diluted | | | 78,410,956 | | | 76,548,369 | | | | 78,285,028 | | | 75,416,668 | |
| |
|
| |
|
|
| |
|
| |
|
|
|
(Expressed in U.S. Dollars) For the Three Months Ended
March 31,
------------------------------
2003 2002
------------ ------------
Revenues:
Natural gas sales $ 23,122,589 $ 8,399,946
Oil sales 1,548,506 706,373
------------ ------------
24,671,095 9,106,319
Expenses:
Production expenses and taxes 5,201,744 2,488,932
Depletion and depreciation 3,605,846 2,108,297
General and administrative 1,237,703 848,311
Stock compensation 612,500 370,885
------------ ------------
10,657,793 5,816,425
Operating income 14,013,302 3,289,894
Other income (expense):
Interest expense (653,600) (514,061)
Interest income 8,578 6,990
------------ ------------
(645,022) (507,071)
Income for the period, before income taxes 13,368,280 2,782,823
Income tax provision - deferred 5,146,788 1,071,387
Income for the period 8,221,492 1,711,436
Retained earnings, beginning of period 10,815,877 2,734,356
------------ ------------
Retained earnings, end of period $ 19,037,369 $ 4,445,792
============ ============
Net income per common share - basic $ 0.11 $ 0.02
============ ============
Net income per common share - diluted $ 0.11 $ 0.02
============ ============
Weighted average common shares outstanding - basic 74,056,840 73,496,196
============ ============
Weighted average common shares outstanding - diluted 77,950,668 77,353,927
============ ============
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Expressed in U.S. Dollars) | | Nine Months Ended September 30,
| |
| | 2002
| | | 2001
| |
Cash flow from operating activities: | | | | | | | | |
Net income for the period | | $ | 3,979,590 | | | $ | 15,806,030 | |
Add (deduct) | | | | | | | | |
Items not involving cash: | | | | | | | | |
Depletion and depreciation | | | 6,193,858 | | | | 5,044,785 | |
Future income taxes | | | 2,349,158 | | | | 1,844,744 | |
Stock compensation | | | 1,370,677 | | | | 848,447 | |
Net changes in non-cash working capital: | | | | | | | | |
Restricted cash | | | (1,720 | ) | | | (5,890 | ) |
Accounts receivable | | | 922,893 | | | | 1,588,392 | |
Prepaid expenses and other current assets | | | (2,494,282 | ) | | | (286,562 | ) |
Note receivable | | | — | | | | (683,137 | ) |
Accounts payable and accrued liabilities | | | (6,263,595 | ) | | | 7,233,753 | |
Other long-term obligations | | | 3,369,599 | | | | — | |
Deferred revenue | | | (75,000 | ) | | | (75,000 | ) |
| |
|
|
| |
|
|
|
Net cash provided by operating activities | | | 9,351,178 | | | | 31,315,562 | |
Cash flows from investing activities: | | | | | | | | |
Oil and gas property expenditures | | | (40,030,172 | ) | | | (36,409,693 | ) |
Purchase of capital assets | | | (640,439 | ) | | | (177,415 | ) |
Cash received from Pendaries Merger | | | — | | | | 312,365 | |
| |
|
|
| |
|
|
|
Net cash used in investing activities | | | (40,670,611 | ) | | | (36,274,743 | ) |
Cash flows from financing activities: | | | | | | | | |
Long-term debt | | | 31,000,000 | | | | 4,404,060 | |
Repurchased shares | | | (1,193,650 | ) | | | — | |
Proceeds from exercise of options | | | 899,931 | | | | 574,014 | |
| |
|
|
| |
|
|
|
Net cash provided by financing activities | | | 30,706,281 | | | | 4,978,074 | |
Increase (decrease) in cash during the period | | | (613,152 | ) | | | 18,893 | |
Cash and cash equivalents, beginning of period | | | 1,379,462 | | | | 1,143,591 | |
| |
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|
| |
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Cash and cash equivalents, end of period | | $ | 766,310 | | | $ | 1,162,484 | |
| |
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|
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Supplemental statements of cash flows information | | | | | | | | |
Supplemental schedule of non-cash investing activities: | | | | | | | | |
Acquisitions | | | | | | | | |
Fair value of assets acquired | | $ | — | | | $ | 43,950,263 | |
Less: liabilities assumed | | | — | | | | (4,225,978 | ) |
Cash acquired | | | — | | | | 312,365 | |
| |
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|
| |
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Fair value of stock issued | | | — | | | | 40,036,650 | |
| |
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|
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|
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(Expressed in U.S. Dollars) Three Months Ended
March 31,
------------------------------
2003 2002
------------ ------------
Cash flows from operating activities
Income for the period $ 8,221,492 $ 1,711,436
Adjustments to reconcile income to net cash provided by operating activities:
Depletion and depreciation 3,605,846 2,108,297
Deferred income taxes 5,146,788 1,071,387
Stock compensation 612,500 370,885
Net changes in non-cash working capital:
Restricted cash (362) (768)
Accounts receivable (2,568,487) 441,251
Prepaid expenses and other current assets (344,307) 2,080,688
Accounts payable and accrued liabilities (1,389,233) (1,673,281)
Other long-term obligations 132,122 (25,000)
------------ ------------
Net cash provided by operating activities 13,416,359 6,084,895
Cash flows from investing activities:
Oil and gas property expenditures (9,115,658) (16,046,135)
Purchase of capital assets (31,137) (521,132)
------------ ------------
Net cash used in investing activities (9,146,795) (16,567,267)
Cash flows from financing activities:
Increase (decrease) in long-term debt (4,000,000) 12,500,000
Proceeds from exercise of options 146,140 594,693
------------ ------------
Net cash provided by financing activities (3,853,860) 13,094,693
Net increase in cash and cash equivalents 415,704 2,612,321
Cash and cash equivalents, beginning of period 1,417,711 1,379,462
------------ ------------
Cash and cash equivalents, end of period $ 1,833,415 $ 3,991,783
============ ============
3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Expressed in U.S. Dollars) | | September 30, 2002
| | | December 31, 2001
|
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | 766,310 | | | $ | 1,379,462 |
Restricted cash | | | 208,899 | | | | 207,179 |
Accounts receivable | | | 6,435,849 | | | | 7,358,742 |
Prepaid expenses and other current assets | | | 5,317,895 | | | | 2,823,613 |
| |
|
|
| |
|
|
| | | 12,728,953 | | | | 11,768,996 |
Oil and gas properties, using the full cost method of accounting | | | 189,749,654 | | | | 155,221,187 |
Capital assets | | | 957,186 | | | | 592,605 |
| |
|
|
| |
|
|
Total assets | | $ | 203,435,793 | | | $ | 167,582,788 |
| |
|
|
| |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable and accrued liabilities | | $ | 18,341,976 | | | $ | 18,403,862 |
Long-term debt | | | 74,000,000 | | | | 46,092,928 |
Deferred income taxes | | | 7,323,166 | | | | 4,974,008 |
Other long-term obligations | | | 3,394,599 | | | | 2,792,486 |
Shareholders’ equity | | | | | | | |
Share capital | | | 94,855,756 | | | | 92,585,148 |
Treasury stock | | | (1,193,650 | ) | | | — |
Retained earnings | | | 6,713,946 | | | | 2,734,356 |
| |
|
|
| |
|
|
| | | 100,376,052 | | | | 95,319,504 |
| |
|
|
| |
|
|
Total liabilities and shareholders’ equity | | $ | 203,435,793 | | | $ | 167,582,788 |
| |
|
|
| |
|
|
(Expressed in U.S. Dollars)
March 31, December 31,
2003 2002
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,833,415 $ 1,417,711
Restricted cash 209,668 209,306
Accounts receivable 13,966,970 11,398,483
Prepaid drilling costs and other current assets 818,586 474,279
------------- -------------
16,828,639 13,499,779
Oil and gas properties, using the full cost method of
accounting 213,048,117 207,362,408
Capital assets 922,990 1,011,699
------------- -------------
Total assets $ 230,799,746 $ 221,873,886
============= =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 19,272,291 $ 17,914,860
Long-term debt 82,000,000 86,000,000
Other long-term obligations 3,990,932 3,858,810
Deferred income taxes 15,179,961 10,033,174
Shareholders' equity:
Share capital 95,913,382 95,098,690
Treasury stock (1,193,650) (1,193,650)
Other comprehensive loss (3,400,538) (653,875)
Accumulated retained earnings 19,037,368 10,815,877
------------- -------------
110,356,562 104,067,042
------------- -------------
Total liabilities and shareholders' equity $ 230,799,746 $ 221,873,886
============= =============
4
ULTRA PETROLEUM CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed
(Expressed in U.S. dollars unless otherwise noted)
Nine
Three months ended September 30,March 31, 2003 and 2002
and 2001
DESCRIPTION OF THE BUSINESS:
BUSINESS
Ultra Petroleum Corp. (the “Corporation”"Company") is an independent oil and gas company
engaged in the acquisition, exploration, development, and production of oil and
gas properties. The Company was incorporated under the laws of British Columbia,
Canada. AtOn March 1, 2000, the CorporationCompany was continued under the laws of the Yukon
Territory, Canada and is now incorporated under the laws of the Yukon Territory. ItsCanada. The Company's principal business activity is the exploration and development of oil and gas properties locatedactivities are in the United States. The Corporation also has oilGreen
River Basin of Southwest Wyoming and gas properties inBohai Bay, China.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements, other than the balance sheet data as of
December 31, 2001,2002, are unaudited and were prepared from ourthe Company's records.
Balance sheet data as of December 31, 20012002 was derived from ourthe Company's
audited financial statements, but do not include all disclosures required by
U.S. generally accepted accounting principles. OurThe Company's management believes
that these financial statements include all adjustments necessary for a fair
presentation of ourthe Company's financial position and results of operations. All
adjustments are of a normal and recurring nature unless specifically noted. WeThe
Company prepared these statements on a basis consistent with ourthe Company's
annual audited statements and Regulation S-X. Regulation S-X allows usthe Company
to omit some of the footnote and policy disclosures required by generally
accepted accounting principles and normally included in annual reports on Form
10-K. You should read these interim financial statements together with the
financial statements, summary of significant accounting policies and notes to
ourthe Company's most recent annual report on Form 10-K.
(a) Basis of presentation:
presentation and principles of consolidation:
The consolidated financial statements include the accounts of the CorporationCompany and
its wholly owned subsidiaries UP Energy Corporation, Ultra Resources, Inc, and
Sino-American Energy Corporation.
The Company presents its financial statements
in accordance with accounting principles generally accepted in the United States
(US GAAP).
All material intercompanyinter-company transactions and balances have been eliminated upon
consolidation.
(b) Accounting principles:
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in Canada.
the United States.
(c)
Cash and cash equivalents:
We consider all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
(d) Restricted cash:
Restricted cash represents cash received by the Company from production sold
where the final division of ownership of the production is unknown or in
dispute. Wyoming law requires that these funds be held in a federally insured
bank in Wyoming.
(e) Capital assets:
Capital assets are recorded at cost and depreciated using the declining-balance
method based on a seven-year useful life.
(f) Oil and gas properties:
The Company uses the full cost method of accounting for oil and gas operations
whereby all costs associated with the exploration for and development of oil and
gas reserves are capitalized to the Company's cost centers. Such costs include
land acquisition costs, geological and geophysical expenses, carrying charges on
non-producing properties, costs of drilling both productive and non-productive
wells and overhead charges directly related to acquisition, exploration and
development activities. The Company conducts operations in both the United
States and China. Separate cost centers are maintained for each country in which
the Company has operations.
The capitalized costs, together with the costs of production equipment, are
depleted using the units-of-production method based on the proven reserves as
determined by independent petroleum engineers. Oil and gas reserves and
production are converted into equivalent units based upon relative energy
content.
Costs of acquiring and evaluating unproved properties are initially excluded
from the costs subject to depletion. These unproved properties are assessed
periodically to ascertain whether impairment has occurred. When proved reserves
are assigned or the property is considered to be impaired, the cost of the
property or the amount of the impairment is added to the costs subject to
depletion.
The total capitalized cost of oil and gas properties less accumulated depletion
is limited to an amount equal to the estimated future net cash flows from proved
reserves, discounted at 10%, using year-end prices, plus the cost (net of
impairment) of unproved properties as adjusted for related tax effects (the
"full cost ceiling test limitation").
5
Proceeds from the sale of oil and gas properties are applied against capitalized
costs, with no gain or loss recognized, unless such a sale would significantly
alter the rate of depletion.
Substantially all of the Company's exploration, development and production
activities are conducted jointly with others and, accordingly, these financial
statements reflect only the Company's proportionate interest in such activities.
(g) Hedging transactions: Beginning April 1, 2002 the Corporation
The Company has entered into commodity price risk price management transactions to
manage its exposure to gas price volatility. These transactions are in the form
of price swaps with a financial institution.institution or other credit worthy counter
parties. These transactions have been designated by the CorporationCompany as cash flow
hedges.
(d) As such, unrealized gains and losses related to the change in fair
market value of the derivative contracts are recorded in other comprehensive
income in the balance sheet.
(h) Income taxes:
The CorporationCompany uses the asset and liability method of accounting for income taxes
under which deferred tax assets and liabilities are recognized for the future
tax consequences. Accordingly, deferred tax assetsliabilities and liabilitiesassets are
determined based on the temporary differences between the financial statement
and tax basis of assets and liabilities, using the enacted tax rates in effect
for the year in which the differences are expected to reverse.
(e)
(i) Earnings per share:
Basic earnings per share is computed by dividing net earnings attributable to
common stock by the weighted average number of common shares outstanding during
each period. Diluted earnings per share is computed by adjusting the average
number of common shares outstanding for the dilutive effect, if any, of stock
options. The CorporationCompany uses the treasury stock method to determine the dilutive
effect.
The following table provides a reconciliation of the components of basic and
diluted net income per common share for the three- and nine-month periods ended September 30, 2002 and 2001:
| | Three Months Ended
| | Nine Months Ended
|
| | September 30, 2002
| | September 30, 2001
| | September 30, 2002
| | September 30, 2001
|
Net income | | $ | 961,286 | | $ | 1,647,133 | | $ | 3,979,590 | | $ | 15,806,030 |
| |
|
| |
|
| |
|
| |
|
|
Weighted average of common shares outstanding during the period | | | 74,757,375 | | | 73,223,070 | | | 74,594,581 | | | 72,059,299 |
Effect of dilutive instruments | | | 3,653,581 | | | 3,325,299 | | | 3,690,447 | | | 3,357,369 |
| |
|
| |
|
| |
|
| |
|
|
Weighted average common shares outstanding during the period including the effects of dilutive instruments | | | 78,410,956 | | | 76,548,369 | | | 78,285,028 | | | 75,416,668 |
| |
|
| |
|
| |
|
| |
|
|
Basic earnings per share | | $ | 0.01 | | $ | 0.02 | | $ | 0.05 | | $ | 0.22 |
| |
|
| |
|
| |
|
| |
|
|
Diluted earnings per share | | $ | 0.01 | | $ | 0.02 | | $ | 0.05 | | $ | 0.21 |
| |
|
| |
|
| |
|
| |
|
|
5
(f) Share repurchase program:
In October 2001 Ultra’s board of directors approved a share repurchase program whereby the Corporation may acquire shares issued in connection with the exercise of options with the intent of keeping our basic share count constant. During the first nine months of 2002, the Corporation bought back 132,500 shares for $1,193,650.
(g) Foreign currency translation:
The Corporation has adopted the United States dollar as its reporting currency, which is also its functional currency. The Corporation and its subsidiaries are considered to be integrated operations and accounts in Canadian dollars are translated using the temporal method. Under this method, monetary assets and liabilities are translated at the rates of exchange in effect at the balance sheet date; non-monetary assets at historical rates and revenue and expense items at the average rates for the period other than depletion and depreciation which are translated at the same rates of exchange as the related assets. The net effect of the foreign currency translation is included in current operations.
(h)share:
Three Months Ended
March 31,
2003 2002
---------- -----------
Net income $8,221,492 $ 1,711,436
========== ===========
Weighted average common shares outstanding during the period 74,056,840 73,496,196
Effect of dilutive instruments 3,893,828 3,857,731
---------- -----------
Weighted average common shares outstanding during the period including
the effects of dilutive instruments 77,950,668 77,353,927
========== ===========
Basic earnings per share $ 0.11 $ 0.02
========== ===========
Diluted earnings per share $ 0.11 $ 0.02
========== ===========
(j) Use of estimates:
Preparation of consolidated financial statements in accordance with generally accepted accounting principles in CanadaUS GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(i)
(k) Reclassifications:
Certain amounts in the financial statements of the prior years have been
reclassified to conform to the current year financial statement presentation.
2. OIL AND GAS PROPERTIES:
| | September 30, 2002
| | | December 31, 2001
| |
Developed Properties: | | | | | | | | |
Acquisition, equipment, exploration, drilling and environmental costs | | $ | 133,923,858 | | | $ | 100,574,404 | |
Less accumulated depletion, depreciation and amortization | | | (20,106,605 | ) | | | (13,499,605 | ) |
| |
|
|
| |
|
|
|
| | | 113,817,253 | | | | 87,074,799 | |
Unproven Properties: | | | | | | | | |
China | | | 62,182,471 | | | | 55,894,246 | |
Acquisition and exploration costs | | | 13,749,930 | | | | 12,252,142 | |
| |
|
|
| |
|
|
|
| | $ | 189,749,654 | | | $ | 155,221,187 | |
| |
|
|
| |
|
|
|
3. LONG-TERM DEBT: | | | | | | | | |
| | September 30, 2002
| | | December 31, 2001
| |
Bank indebtedness | | $ | 74,000,000 | | | $ | 43,000,000 | |
Short term obligations to be refinanced | | | — | | | | 3,092,928 | |
| |
|
|
| |
|
|
|
| | $ | 74,000,000 | | | $ | 46,092,928 | |
| |
|
|
| |
|
|
|
March 31, December 31,
2003 2002
------------- -------------
Developed properties:
Acquisition, equipment,
exploration drilling and environmental costs $ 158,809,923 $ 150,986,843
Less accumulated depletion, depreciation and
amortization (26,302,605) (22,816,605)
------------- -------------
132,507,318 128,170,238
Unproven Properties:
China 66,083,468 64,873,186
Acquisition and exploration costs 14,457,331 14,318,984
------------- -------------
$ 213,048,117 $ 207,362,408
============= =============
6
3. LONG-TERM DEBT:
March 31, December 31,
2003 2002
----------- ------------
Bank indebtedness $82,000,000 $86,000,000
Other long-term obligations 3,990,932 3,858,810
=========== ===========
$85,990,932 $89,858,810
=========== ===========
The CorporationCompany (through its subsidiary) participates inhas a long-term credit facility with a
group of banks led by Bank One N.A. The agreement specifies a maximum loan
amount of $150 million and an aggregatewith a current borrowing base of $80 million at$120 million. At
March 1, 2002. At September 30, 2002,31, 2003, the CorporationCompany had $74$82 million outstanding and $6$38 million unused
and available on the credit facility.The credit facility matures on March 1, 2005. The notes bear interest at either
the bank’sbank's prime rate plus a margin of one-half of one percent (0.50%) to one
and one-quarter percent (1.25%) based on the percentage of available credit
drawn or at LIBOR plus a margin of one and one-half percent (1.5%(1.50%) to two and
one-quarter percent (2.25%) based on the percentage of available credit drawn.
An average annual commitment fee of three-eighths of one percent (0.375%)0.375% is charged quarterly for any unused
portion of the credit line.
The borrowing base is subject to periodic (at least semi-annual) review and
re-determination by the bank and may be decreased or increased depending on a
number of factors including the Corporation’sCompany's proved reserves and the bank’sbank's
forecast of future oil and gas prices. Additionally, the CorporationCompany is subject to
quarterly reviews of compliance with the covenants under the bank facility
including minimum coverage ratios relating to interest, working capital, general
and administrative expenditures and advances to Sino-American Energy Corporation.Company. In
the event of a default under the covenants, the CorporationCompany may not be able to
access funds otherwise available under the facility orand may be required to make
immediate principal repayment. As of September 30, 2002,March 31, 2003, the CorporationCompany was in
compliance with the covenants and required ratios.
On November 4, 2002, the borrowing base was increased to $120 million.
The Corporation hascredit facility is secured this debt by a majority of its proved domestic oil and gas
properties.
6
4. STOCK-BASED COMPENSATION:
The Corporation accounts for stock options granted
Other long-term obligations: These costs relate to employees and directorsthe long-term portion of
the Corporation under the intrinsic value method. Had the Corporation reported compensation costsproduction taxes payable as determined by the fair value method of accounting for option grants to employees and directors prospectively beginning January 1, 2002,well as net income and net income per common share would approximate the following pro forma amounts:
| | Nine Months Ended September 30, 2002
|
Net income: | | | |
As reported | | $ | 3,979,590 |
Pro forma | | $ | 3,433,303 |
Net income per common share (basic): | | | |
As reported | | $ | 0.05 |
Pro forma | | $ | 0.05 |
Net income per common share (diluted): | | | |
As reported | | $ | 0.05 |
Pro forma | | $ | 0.04 |
For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the options’ vesting period. At September 30, 2002, the options issued were 25% vested. The options will be completely vested after one year with a future pro forma compensation expense of $1,638,861 assuming there are no additional grants by the Corporation to employees and directors. The weighted-average fair value of each option granted is estimated on the date of grant using the Black Scholes option pricing model with the following assumptions:
Expected volatility | | 30% |
Expected dividend yield | | 0% |
Risk free interest rate, average | | 4.85% |
Expected life of options granted | | 10 years |
Liquidity discount | | 25% |
5.liability production imbalances.
4. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND
THE UNITED STATES:
The consolidated financial statements have been prepared in accordance with
Currently under Canadian generally accepted accounting principles in Canada (“("Canadian
GAAP”GAAP"), which may differthere is not a provision in certain respects from generally acceptedplace to expense stock-based compensation as
with FASB Statement No. 123 Accounting for Stock-Based Compensation; however,
there was an exposure draft issued in December 2002 that would essentially
harmonize their accounting principlesstandards to US GAAP. The proposed effective date for
implementing Stock-Based Compensation and Other Stock-Based Payments, Section
3870, is January 1, 2004. During the quarter ended March 31, 2003, the Company
recorded to the full cost pool under capitalized general and administrative
expenses a consultant's stock-based compensation expense of $56,052. Under
current Canadian GAAP, this amount would have been recognized as a disclosure
item, with no impact on the financial statements.
Recorded in other comprehensive income in the United States (“US GAAP”).
In April 2002,Equity section of our balance
sheet is an offset to a liability that measures a future effect of the Corporation began hedging a portion of its production with a fixed
price to index price swap agreement.agreements that the Company currently has in place. We
have recorded this in compliance with FASB 133 addressing accounting impacts of
derivative instruments. Currently under Canadian GAAP the future effects of
derivative instruments are recorded through revenue in the period in which the
production is sold. The purposetotal future value of the agreementswap is to provide a measure of stability tonot captured as an
asset or liability, and the Corporation’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk. Under US GAAP, the Corporation recognizes all derivative instruments as assets or liabilities in the balance sheet at fair value. The accounting treatment of the changes in fair value as specified in FAS No. 133term Other Comprehensive Income, is dependent upon whether or not a derivative instrument is designated and qualifies as a hedge. This agreement is accounted for as cash flow hedge. As a result, changes in fair value, to the extent the hedge is effective, are recognized
in other comprehensive income until the hedged item is recognized in earnings as oil and gas revenue. For all other derivatives, changes in fair value are recognized in earnings as non-operating income or expense. At September 30,Canada. In 2002, the Corporation hadCanadian Accounting Standards Board issued a current derivative liability of $144,800. Under the current agreement, the Corporation receives the difference between a fixed price per unit of production and a price based on an agreed upon third-party index if the index price is lower. If the index price is higher, Ultra pays the difference. By entering into swap agreements the Corporation effectively fixes the price that it will receive in the future for the hedged production. Ultra settles in cash on a monthly basis. As of April 1, 2002, Ultra had the following agreementdraft
proposal to put in place basedCanadian standards which would be in harmony with U.S.
standards on the Northwest Pipeline Corp., Rocky Mountains; Index as publishedfinancial instruments. Canadian enterprises could then choose to
apply accounting policies and practices that are in Inside FERC at the first of each month. The Corporation entered into this agreement for 10,000 MMBTU per day at $2.58 through October 31, 2002. The corporation has entered into two additional agreements,accordance with both at 5,000 MMBTU per day at $3.105US
and $3.27, which begin on January 1, 2003 for a term of twelve months. The 2003 agreements are also based on Northwest Pipeline Corp., Rocky Mountains; Index as published in Inside FERC at the first of each month.
6.Canadian GAAP.
5. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards BoardFASB issued SFAS No. 143, “AccountingAccounting for Asset Retirement
Obligations”Obligations ("SFAS No. 143"). SFAS No. 143 requires entitiesthe Company to record the
fair value of liabilities foran asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company adopted SFAS No. 143 on January 1,
2003. Based on current estimates, the Company would record asset retirement
obligations (using a 10% discount rate) and a cumulative effect of acquired assets.change in
accounting principle, related to the depreciation and accretion expense that
would have been recorded had the fair value of the asset retirement obligation,
and corresponding increase in the carrying amount of the related long-lived
asset been determined in prior years. Currently the Company has determined that
the impact of adopting SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management is currently assessingnot material to its financial position or
results of operations.
The Company adopted the impact, if any,disclosure provisions of SFAS No. 143 on the Corporation’s consolidated financial statements148, Accounting for
future periods.
In July 2002, the Financial Accounting Standards Board also issuedStock-based Compensation-Transition and Disclosure" effective January 1, 2003.
SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 applies to costs associated with (1) an exit activity that does not involve an entity newly acquired in a business combination or (2) a disposal activity within the scope of148 amended FASB Statement No. 144, “Accounting123, Accounting for Stock-Based
Compensation ("Statement No. 123"), to provide alternative methods of transition
for a voluntary change to the Impairment or Disposalfair-value based method of Long-Lived Assets”. Those costs include (a) certain termination benefits (so-called one-time termination benefits), (b) costsaccounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to terminate a contract that isrequire prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The provision of SFAS No. 148 has no material impact on us, as
we do not a capital lease, and (c) other associated costs including costsplan to consolidate facilities or relocate employees. The Statement is effectiveadopt the fair-value method of accounting for exit or disposal activities that are initiated after Decemberstock options at
the current time. For the period ended March 31, 2002, however, earlier application is encouraged. Management has not yet assessed2003, the impactpro-forma net income,
had the Company adopted the provisions of this statement.
SFAS No. 123 approximates actual net
income.
7
ITEM 2—2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS RESULTS OF OPERATIONS
QUARTER
THREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2003 VS. THREE MONTHS ENDED MARCH 31, 2002
VS. QUARTER ENDED SEPTEMBER 30, 2001
OPERATING REVENUES
Oil and gas revenues increased 171% to $8,671,032 or 25%$24,671,095 for the quarter ended September 30, 2002March
31, 2003 from $6,937,035$9,106,319 for the same period in 2001.2002. This increase was
attributable to increased production and an increase in prices received for that
production. During the first quarter, the Corporation’s gasCompany's production increased by 40%60% to
46.0 Bcf of gas, and 50,000 barrels of condensate, up from 2.83.8 Bcf whileof gas and
34,000 barrels of condensate increased by 24% to 36 thousand barrels from 29 thousand barrels for the same period in 2001.2002. During the quarter
ended September 30, 2002March 31, 2003, the average product prices for gas and condensate were
$1.91$3.84 per Mcf and $30.21$30.90 per barrel, respectively, compared to $2.15$2.24 per Mcf and
$29.38$20.58 per barrel for the same period in 2001.
2002.
PRODUCTION EXPENSES AND TAXES
During the quarter ended September 30, 2002March 31, 2003, production expenses and taxes increased
48% to $2,556,096$5,201,744 from $1,722,796$2,488,932 for the quarter ended September 30, 2001.March 31, 2002. Direct lease
operating expenses increased 66% to $605,335$945,286 for the quarter ended September 30, 2002March 31, 2003
from $364,902$486,867 for the same period in 2001.2002, attributable primarily to increased
production volumes. On a per unit of production basis, these costs increased to
$.15 per Mcfe in September 2002,the first quarter 2003, as compared to $.12 per Mcfe in September 2001.the
first quarter 2002. Production taxes for the thirdfirst quarter 2002of 2003 were
$744,429,$2,663,222, compared to $683,823$935,587 in thirdfirst quarter 2001of 2002 or $.18$.42 per Mcfe in
thirdfirst quarter 2002,2003, compared to $.23$.24 per Mcfe in thirdfirst quarter 2001.of 2002.
Production taxes are calculated based on a percentage of revenue from
production, therefore lowerhigher realized prices contributed to the decrease.increase.
Gathering fees for the quarter ended September 30, 2002March 31, 2003 increased 79% to $1,206,332$1,593,236 from
$674,071$1,066,478 for the same period in 2001, primarily2002, attributable to increasedhigher production
and higher unit charges on certain gathering systems.
volumes.
DEPLETION AND DEPRECIATION
Depletion, depreciation and amortization expenses (DD&A) were $2,340,270expense increased to $3,605,846 during
the quarter ended September 30, 2002 compared to $1,690,540March 31, 2003 from $2,108,297 for the same period in 2001.2002,
primarily due to increased production volumes. On a per unit basis, DD&A remained flat atdepletion,
depreciation and amortization increased to $.57 per Mcfe, from $.53 in 2002
primarily as a rateresult of $.56 per Mcfe.
increases in the Company's estimated future development
costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $1,095,113$1,237,703 during the quarter
ended September 30, 2002March 31, 2003 from $1,021,272$848,311 for the same period in 2001.2002. The increase was
attributable to legal, professional and compensation expenses that coincide with
the Corporation’sCompany's increased activity in both Wyoming and China.
STOCK COMPENSATION
Stock compensation expense increased to $612,500 during the quarter ended March
31, 2003 from $370,885 for the same period in 2002. The increase was
attributable to the stock price at the time of grant.
INTEREST
Interest expense for the period increased 50% to $706,705$653,600 in thirdthe first quarter 2002of
2003 from $471,052$514,061 in thirdthe first quarter 2001.of 2002. This increase was attributable
to the increase in borrowings under the senior credit facility.
At March 31,
2003 the line of credit outstanding was $82,000,000, compared to $55,500,000 at
March 31, 2002.
INCOME TAXES
The CorporationCompany recorded deferred income tax expense of $601,783$5,146,788 at an effective
rate of 38.5% for the quarter ended September 30, 2002,March 31, 2003, compared to $198,958 at an effective rate of 10.5%$1,071,387 for
the quarter ended September 30, 2001.March 31, 2002. Although the CorporationCompany is not expected to pay
cash taxes in 2002,2003, in accordance with FAS No. 109 and specifically, the guidance
concerning intraperiod tax allocations, the CorporationCompany is required to recognize tax
expense evenly throughout the year. In the prior year, income tax expense, as
calculated at the statutory rate including estimated state income tax effect,
was offset by recognition of deferred tax assets for which a valuation allowance
had previously been provided.
NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. NINE MONTHS ENDED SEPTEMBER 30, 2001
OPERATING REVENUES
Oil and gas revenues decreased to $25,920,738 or 23% for the nine months ended September 30, 2002 from $33,732,012 for the same period in 2001. This decrease was attributable to a 41% decrease in prices received for that production. During the first nine months of this year, the Corporation’s production increased by 30% on an Mcf equivalent basis, to 10.7 Bcf of gas, and 99 thousand barrels of condensate, up from 8.2 Bcf of gas and 86 thousand barrels of condensate for the same nine months in 2001. During the second quarter, management estimates that the Corporation shut-in approximately 15-20% of its available production volumes of gas due to low prices for that gas in Wyoming primarily due to temporary pipeline constraints that prevented certain volumes of gas from reaching the market. Management believes that the majority of the pipeline constraints which were evidenced during the quarter have been remedied, although unforeseen events may cause curtailments of production in the future. Major expansions of gathering and interstate pipeline infrastructure are scheduled to be completed in the period through 2003. During the nine months ended September 30, 2002 the average product prices for gas and condensate were $2.18 per Mcf and $24.93 per barrel, respectively, compared to $3.84 per Mcf and $27.56 per barrel for the same period in 2001.
PRODUCTION EXPENSES AND TAXES
During the nine months ended September 30, 2002 production expenses and taxes increased 5% to $7,137,225 from $6,797,124 for the nine months ended September 30, 2001. Direct lease operating expenses increased to $1,510,479 for the nine months ended September 30, 2002 from $972,125 for the same period in 2001. On a per unit of production basis, these costs increased 19% to $.13 per Mcfe in September 2002, as compared to $.11 per Mcfe in 2001. Production taxes for the first nine months of 2002 were $2,463,468, compared to $3,683,425 in the first nine months of 2001 or $.22 per Mcfe at September 2002, compared to $.42 per Mcfe at September 2001. Production taxes are calculated based on a percentage of revenue from production. Therefore, lower realized prices contributed to the decrease. Gathering fees for the nine months ended September 30, 2002 increased 48% to $3,163,278 from $2,141,574 for the same period in 2001, primarily attributable to higher production volumes.
8
DEPLETION AND DEPRECIATION
Depletion, depreciation and amortization expenses (DD&A) increased to $6,193,858 during the nine months ended September 30, 2002 compared to $5,044,785 for the same period in 2001. On a per unit basis, DD&A decreased to $.55 per Mcfe, from $.58 per Mcfe in 2001 primarily as a result of increases in the Corporation’s proved reserves and lower estimated future development costs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses totaled $3,154,376 during the nine months ended September 30, 2002 as compared to $3,042,268 for the same period in 2001.
INTEREST
Interest expense for the period increased 68% to $1,912,922 in third quarter 2002 from $1,138,992 in third quarter 2001. This increase was attributable to the increase in borrowings under the senior credit facility.
INCOME TAXES
The Corporation recorded deferred income tax expense of $2,349,157 at an effective rate of 37% for the nine months ended September 30, 2002, compared to $1,844,744 at an effective rate of 10.5% for the nine months ended September 30, 2001. Although the Corporation is not expected to pay cash taxes in 2002, in accordance with FAS No.109 and specifically, the guidance concerning intraperiod tax allocations, the Corporation is required to recognize tax expense evenly throughout the year. In the prior year, income tax expense, as calculated at the statutory rate including estimated state income tax effect, was offset by recognition of deferred tax assets for which a valuation allowance had previously been provided.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities was $9,351,178 for the nine months ended September 30, 2002 compared to $31,315,562 for the nine months ended September 30, 2001. Operating cash flow in the nine month period decreased compared to the prior year due to decreased oil and gas prices, higher operating and other expenses and changes in working capital items.
Cash flow used in investing activities was $40,670,611 for the nine months ended September 30, 2002 compared to $36,274,743 for the nine months ended September 30, 2001.
During the nine monthsquarter ended September 30, 2002, oil and gas property and capital asset expenditures were $40,030,172 and $640,439, respectively, compared to $36,409,693 and $177,415 duringMarch 31, 2003, the same period in the prior year. Amounts expended during the nine-months ended September 30, 2001 were also offset by $312,365 of cash received from the Pendaries Merger.
NetCompany relied on cash provided by
financing activities was $30,706,281 for the nine months ended September 30, 2002 compared to cash used of $4,978,074 for the nine months ended September 30, 2001. Cash received in 2002 represented borrowings of $31,000,000 on the credit facility, proceeds from the exercise of options of $899,931 and the cost to acquire stock related to options of $(1,193,650). In the prior year, cash represented as borrowings under the credit facility was $4,404,060, offset by proceeds from the exercise of options of $574,014.
In the nine-month period ending September 30, 2002 the Corporation relied on its existing cash flow and availability under its credit facilityoperations to finance its capital expenditures. During the first nine-months of 2002, the CorporationThe Company participated in continued activity on the Pinedale Anticline in Wyoming. The Corporation participated in the drilling to total depth of twenty-one new wells. Of these, nine were on production as of the end of the third quarter. The remaining twelve wells that were drilled during the nine-month period were in various stages of completion. Capital expenditures in China were related to the participation in the
drilling of five wells in Bohai BayWyoming, and two wells in the preparation of the development plan for CFD 11-1 and CFD 11-2 fields.China blocks. For the
nine-monththree-month period ending September 30, 2002ended March 31, 2003 net capital expenditures were $40,030,171 ($33,798,171 in Wyoming and $6,232,000 in Bohai Bay).$9.1
million. At September 30, 2002,March 31, 2003, the CorporationCompany reported a cash position of $766,310$1.8 million
compared to $1,379,462$4.0 million at DecemberMarch 31, 2001.2002. Working capital at September 30, 2002March 31, 2003
was $(5,613,023)$(2.4) million as compared to $(6,634,866)$(4.8) million at DecemberMarch 31, 2001.
Based on forecasted gas prices, production2002. As of March
31, 2003, the Company had incurred bank indebtedness of $82.0 million and
bank availability, management believesother
long-term debt of $4.0 million comprised of items payable in more than one year.
The positive cash provided by operating activities that the
Corporation’s continued positive cash flow from operations andCompany continues to
produce, along with the availability under the senior credit facility,
willare
projected to be sufficient to fund the
Corporation’sCompany's budgeted capital expenditures
for
2002,2003, which are
estimatedcurrently projected to be
$60$110.0 million.
However, future cash flowsOf the $110.0
million budget, the Company plans to spend approximately $90.0 million of its
2003 budget in Wyoming and
continued availabilityapproximately $20.0 million in China. Of the $90.0
million for Wyoming, the Company plans to drill or participate in an estimated
57 gross wells in 2003, of
financing arewhich approximately 40% will be for exploration wells
and the remaining will be for development wells. Of the $20.0 million budgeted
for China, approximately 50% will be for exploratory/appraisal activity and the
balance will be for development activity. The Company currently has no budget
for acquisitions in 2003.
As of March 3, 2003, the revolving senior credit facility provides for a $150.0
million revolving credit line with a current borrowing base of $120.0 million.
The credit facility matures on March 1, 2005. The notes bear interest at either
Bank One's prime rate plus a margin of one-half of one percent (0.50%) to one
and one-quarter percent (1.25%) based on the percentage of available credit
drawn or at LIBOR plus a margin of one and one-half percent (1.50%) to two and
one-quarter percent (2.25%) based on the percentage of available credit drawn.
An average annual commitment fee of 0.375% is charged quarterly for any unused
portion of the credit line. The borrowing base is subject to
periodic (at least
semi-annual) review and re-determination by the banks and may be increased or
decreased depending on a number of
uncertainties beyondfactors including the
Corporation’s control such as production rates, the price of gas and oil, continued favorable results of the Corporation’s drilling programCompany's proved
reserves and the
general conditionbank's forecast of
the capital markets forfuture oil and gas
companies. There canprices. Additionally, the
Company is subject to quarterly reviews of compliance with the covenants under
the bank facility including minimum coverage ratios relating to interest,
working capital, general and administrative expenditures and advances to
Sino-American Energy. In the event of a default under the covenants, the Company
may not be
no assurances that adequate funding willable to access funds otherwise available under the facility and may,
in certain circumstances, be
available8
required to executerepay the Corporation’s planned futurecredit facilities. The notes are collateralized by a
majority of the Company's proved domestic oil and gas properties. At March 31,
2003, the Company had $82.0 million of outstanding borrowings under this credit
facility, with a current average interest rate of approximately 3%. The Company
was in compliance with all loan covenants at March 31, 2003.
During the quarter ended March 31, 2003, net cash provided by operating
activities was $13.4 million as compared to $6 million for the quarter ended
March 31, 2002. The increase in cash provided by operating activities was
attributable to the increase in earnings and the decrease in net changes to
non-cash working capital program.items.
During the quarter ended March 31, 2003, cash used in investing activities was
$9.1 million as compared to $16.6 million for the quarter ended March 31, 2002.
The change is primarily attributable to decrease in costs carried over for 2002
and 2001 drilling and completion activity in Wyoming.
During the quarter ended March 31, 2003, cash provided by financing activities
was $(4.0) million as compared to $13.1 million for the quarter ended March 31,
2002. The change is primarily attributable to paying down debt under the senior
credit facility.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report contains “forward-looking statements”or incorporates by reference forward-looking statements
within the meaning of Section 27A of the federal securities laws. TheseSecurities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act of 1995. All statements other than statements of
historical facts included in this document, including without limitation,
statements in Management's Discussion and Analysis of Financial Condition and
Results of Operations regarding our financial position, estimated quantities and
net present values of reserves, business strategy, plans and objectives of the
Company's management for future operations, covenant compliance and those
statements preceded by, followed by or that otherwise include the words
"believe", "expects", "anticipates", "intends", "estimates", "projects",
"target", "goal", "plans", "objective", "should", or similar expressions or
variations on such expressions are forward-looking statements. The Company can
give no assurances that the assumptions upon which such forward-looking
statements including the Corporation’s outlook for the remainder of 2002 with regard to plans for funding operations and capital expenditures, are based on a number of risks and uncertainties that are outsidewill prove to be correct nor can the Corporation’s control. For example, future cash flows and continued availability of financing are subject to a number of uncertainties beyond the Corporation’s control. There can be no assurances thatCompany assure
adequate funding will be available to execute the Corporation’sCorporation's planned future
capital program.
Other risks and uncertainties include, but are not limited to, fluctuations in
the price we receivethe Company receives for oil and gas production, reductions in the
quantity of oil and gas sold due to increased industry-wide demand and/or
curtailments in production from specific properties due to mechanical, marketing
or other problems, operating and capital expenditures that are either
significantly higher or lower than anticipated because the actual cost of
identified projects varied from original estimates and/or from the number of
exploration and development opportunities being greater or fewer than currently
anticipated and increased financing costs due to a significant increase in
interest rates.
9
See the Company's annual report on Form 10-K for the year ended
December 31,2002 for additional risks related to the Company's business.
ITEM 3—3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk.
The Corporation’sCompany's major market risk exposure is in the pricing applicable to its natural gas
and oil production. Realized pricing is primarily driven by the prevailing price
for crude oil and spot prices applicable to Ultra’s natural gas production in southwestern Wyoming which may not reflect pricing ofthe Company's United States natural
gas in general.production. Historically, prices received for gas production have been
volatile and unpredictable. Pricing volatility is expected to continue.
Ultra’s production is generally sold at prevailing market prices. However, Gas
price realizations averaged $3.84 per Mcf during the Corporationquarter ended March 31,
2003. This average wellhead price includes the effects of hedging and gas
balancing between working interest owners.
The Company periodically enters into various hedging transactionsarrangements for its
natural gas production. During the first quarter of 2003, the total impact of
the Company's hedges to the consolidated statements of income was $(518,350).
In the first quarter of 2003, the Company entered into additional swaps covering
an additional 10,000 MMBtu or approximately 9 MMcf of gas for the period from
April 1, 2003 to October 31, 2003 at a portionprice of its production when market conditions are deemed favorable in order$3.75 per MMBtu or approximately
$3.95 per Mcf (pricing referenced to manageOpal), plus an additional 5,000 MMBtu or
approximately 4 MMcf of gas per day for the same period at a price fluctuations and achieve a more predictable cash flow.of $4.25 per
MMBtu or approximately $4.48 per Mcf (pricing referenced to Opal).
The Corporation may use fixed-price physical delivery contracts and derivative instruments to manage exposures to commodity prices. The Corporation does not enter into derivative instruments for trading purposes.
At September 30, 2002,table below summarizes the Corporation had the following swaps in place. (“MMBtu” means million British thermal units.)
Contract Period
| | Instrument(s)
| | MMBtu/day
| | $/MMBtu
|
Apr 02—Oct 02 | | Swaps | | 10,000 | | $2.58 |
Jan 03—Dec 03 | | Swaps | | 5,000 | | $3.105 |
Jan 03—Dec 03 | | Swaps | | 5,000 | | $3.27 |
The swap price is based on an Index at the interstate pipeline.
The Corporation had one fixed-price physical delivery contracthedges in place
at September 30, 2002 coveringas of March 3, 2003:
Type Period Daily Volume MMBTU Price / MMBtu at OPAL WY
---- ------ ------------------ ------------------------
Fixed Price Sale Calendar 2003 5,000 $ 3.06
Swap Calendar 2003 5,000 $3.005
Swap Calendar 2003 5,000 $ 3.27
Swap April-Oct 2003 10,000 $ 3.75
Swap April-Oct 2003 5,000 $ 4.25
These hedges represent approximately 45% of the Company's forecasted production
for the period
January through Decemberfrom April 1, 2003
to October 31, 2003, and approximately 30% of
the Company's forecasted production for
5,000 MMBTU at $3.06 per MMBTU.Various gathering, processing and BTU content adjustments affect the price that the Corporation ultimately reports in its financial statements.
Interest Rate Risk. At September 30, 2002, Ultra had long-term debt outstanding of $74 million. The interest rates on the Corporation’s revolving credit facility, under which $74 million in indebtedness was outstanding at September 30, 2002, range from LIBOR plus 2% to prime plus 1% and are variable; however, they may be fixed at Ultra’s option for periods of time between 30 to 180 days. At September 30, 2002 the Corporation had $70 million at LIBOR + 2% or approximately 3.8% and $4 million at Prime plus 1% or approximately 6%.
calendar 2003.
ITEM 4—4 - CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Based on their
evaluation as of a date within 90 days of the filing date of this
Quarterly Reportquarterly report on Form 10-Q, the Corporation’sCompany's principal executive
officer and principal financial officer have concluded that the
Corporation’sCompany's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
“Exchange Act”"Exchange Act")) are effective to ensure that information required to
be disclosed by the CorporationCompany in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
Securities and Exchange Commission.
9
(b) Changes in Internal Controls. There were no significant changes in the
Corporation’sCompany's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. PART 2—2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The CorporationCompany is currently involved in various routine disputes and allegations
incidental to its business operations. While it is not possible to determine the
ultimate disposition of these matters, the CorporationCompany believes that the resolution
of all such pending or threatened litigation is not likely to have a material
adverse effect on the Corporation’sCompany's financial position, or results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Continuance of Ultra Petroleum Corp. (incorporated
by reference to Exhibit 99.1—3.1 to the Company's quarterly report on
form 10-Q for the period ended June 30, 2001)
3.2 By-Laws of Ultra Petroleum Corp. (incorporated by reference to
Exhibit 3.2 to the Company's quarterly report on form 10-Q for
the period ended June 30, 2001)
4.1 Specimen common share certificate (incorporated by reference to
Exhibit 4.1 to the Company's quarterly report on form 10-Q for
the period ended June 30, 2001)
10.1 First Amendment to First Amended and Restated Credit Agreement
dated November 4, 2002 among Ultra Resources, Inc., Bank One
N.A., Union Bank of California, N.A., Guaranty Bank, FSB,
Hibernia National Bank and Compass Bank (incorporated by
reference to Exhibit 10.1 to the Company's annual report on Form
10-K for the period ended December 31, 2002)
10.2 First Amended and Restated Credit Agreement dated March 1, 2002
among Bank One N.A., Union Bank of California N. A., Guaranty
Bank FSB, Hibernia National Bank, Banc One Capital Markets, Inc.
and Ultra Resources, Inc. (incorporated by reference to Exhibit
10.1 to the Company's annual report on Form 10-K for the period
ended December 31, 2001)
99.1 Certification of Chief Executive Officer
Exhibit 99.2—
99.2 Certification of Chief Financial Officer
(c) Reports on Form 8-K
None
10
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRA PETROLEUM CORP.
Date May 8, 2003 By: /s/ MichaelMICHAEL D. Watford
WATFORD
----------------------------
Name: Michael D. Watford
Title: Chief Executive Officer
Date: November 13, 2002
By: /s/ F. Fox BentonFOX BENTON III
----------------------------
Name: F. Fox Benton III
Title: Chief Financial Officer
11
CERTIFICATION
I, Michael D. Watford, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultra Petroleum Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
By: /s/ Michael D. Watford
Name: Michael D. Watford
Title: Principal Executive Officer
12
CERTIFICATION
I, F. Fox Benton III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ultra Petroleum Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
By: /s/ F. Fox Benton III
EXHIBIT INDEX
|
Exhibit
Number Description
- ------- -----------
3.1 Certificate of Continuance of Ultra Petroleum Corp. (incorporated by
reference to Exhibit 3.1 to the Company's quarterly report on form 10-Q
for the period ended June 30, 2001)
3.2 By-Laws of Ultra Petroleum Corp. (incorporated by reference to Exhibit
3.2 to the Company's quarterly report on form 10-Q for the period ended
June 30, 2001)
4.1 Specimen common share certificate (incorporated by reference to Exhibit
4.1 to the Company's quarterly report on form 10-Q for the period ended
June 30, 2001)
10.1 First Amendment to First Amended and Restated Credit Agreement dated
November 4, 2002 among Ultra Resources, Inc., Bank One N.A., Union Bank
of California, N.A., Guaranty Bank, FSB, Hibernia National Bank and
Compass Bank (incorporated by reference to Exhibit 10.1 to the
Company's annual report on Form 10-K for the period ended December 31, 2002)
10.2 First Amended and Restated Credit Agreement dated March 1, 2002 among
Bank One N.A., Union Bank of California N. A., Guaranty Bank FSB,
Hibernia National Bank, Banc One Capital Markets, Inc. and Ultra
Resources, Inc. (incorporated by reference to Exhibit 10.1 to the
Company's annual report on Form 10-K for the period ended December 31, 2001)
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
Name: F. Fox Benton III
Title: Principal Financial Officer
13