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Rockies Producers Ultra, Double Eagle Quarterly Gas Output Soars

November 10, 2008
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Despite having to shut in 3 Bcf in 3Q2008, Ultra Petroleum Corp. saw its natural gas and oil output from continuing operations up 35% and profit jumping 227% from the same period a year ago. Double Eagle Petroleum Corp., which like Ultra operates in the Rocky Mountains, also hit on all cylinders during the quarter, with its gas output up 149% from 3Q2007.

Houston-based Ultra reported net profit of $149 million (95 cents/share) from a year ago. Results include a noncash hedging gain of $40.9 million ($26.6 million after-tax). Adjusted net income was $122.4 million (78 cents), which was 227% above the $37.4 million (24 cents) from 3Q2007. Operating cash flow rose 166% to a record $242.5 million, compared with $91.1 million a year earlier.

"This was a great quarter for Ultra Petroleum, the best in our history," said CEO Michael D. Watford. "As is our practice, we delivered industry leading margins, financial returns and record production despite shutting in 3 Bcf of natural gas during the quarter...the sustained consistency in our growth and returns is what differentiates us from our peers and demonstrates the company's ability to focus on best-in-class metrics and capital discipline."

Ultra's output also broke records for the quarter, rising to 36.3 Bcfe, compared with production of 26.9 Bcfe in 3Q2007. Production was composed of 34.6 Bcf of gas and 287,1000 bbl of condensate.

Ultra's average realized natural gas price, including realized gains and losses on commodity derivatives, was $8.21/Mcf, which was 103% more than the $4.04 in 3Q2007. The company's average price realization for natural gas was $7.57/Mcf, excluding hedging gains and losses.

"From all accounts, 2008 is unfolding to be Ultra's best year ever as the company delivers record performance, record earnings and industry leading financial returns," said Watford.

The Bureau of Land Management (BLM) issued the Pinedale Record of Decision (ROD) in September, and under the ROD, Ultra will gain year-round access to the Pinedale Field to drill and complete some activities. After an initial transition period, this additional access is expected to lead to increased drilling efficiencies and allow for accelerated development of the field.

In September, a 26-mile portion of the Rockies Express Pipeline (REX) West pipeline completed hydrostatic testing near the ANR delivery point in Brown County, KS, Ultra noted. As a result of the hydrostatic testing, Ultra's firm transportation of 200 MMcf/d was decreased to 100 MMcf/d for most of September.

Ultra noted that at the end of the quarter, Kinder Morgan, which is building REX, confirmed that Ultra would have interim access to new delivery points on REX East in April. Once it is completed as planned in September, REX East is expected to provide maximum transportation capacity of 1.8 Bcf/d from the Rockies to Clarington, OH, which is an increase from the current 1.5 Bcf/d from the Rockies to Audrain County, MO, said Ultra.

Double Eagle, headquartered in Denver, reported quarterly net income of $1.977 million (22 cents/share), well ahead of the net loss of $5.671 million (minus 62 cents) in 3Q2007. Revenue rose a record 243% to $14 million from the same period a year ago. Cash flow from operations totaled $4.63 million, compared with negative cash flow of minus $2.04 million a year earlier.

Double Eagle's quarterly production rose to 1.91 Bcfe, which was 149% more than in 3Q2007. Total net production was 20,769 Mcfe/d from a year earlier. The producer credited the jump in output primarily to the addition of 33 new wells at its Catalina Unit, 22 new wells at the Mesa Unit and 58 new wells at the Sun Dog Unit since the beginning of the year.

"Despite the significant decline in commodity prices, we realized record production and revenue, earnings per share, and generated $4.6 million in operating cash flow for the third quarter," said Double Eagle CEO Richard Dole. "These results are attributed primarily to the organic growth at our Catalina Unit."

Double Eagle's management said the company's balance sheet was strong, with assets totaling $137.8 million and total long-term debt outstanding on its existing credit facility of $18 million. The company has a $50 million credit facility in place with a borrowing base of $35 million, based on year-end 2007 reserves.

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