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Chapter 11 Proceedings, Ability to Continue as a Going Concern Disclosure
 3 Months Ended
Mar. 31, 2017
Liquidity And Going Concern Disclosure [Abstract]  
Liquidity and Ability to Continue as a Going Concern [Text Block]

Chapter 11 Proceedings

Voluntary Reorganization Under Chapter 11 and Ability to Continue as a Going Concern

On April 29, 2016 (the “Petition Date”), to restructure their respective obligations and capital structures, the Company and each of its direct and indirect wholly owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ chapter 11 cases were jointly administered for procedural purposes under the caption In re Ultra Petroleum Corp., et al, Case No. 16-32202 (MI) (Bankr. S.D. Tex.). On February 21, 2017, the Bankruptcy Court signed an amended order approving our Disclosure Statement. The amended order: (1) approved the adequacy of our Disclosure Statement, (2) approved the solicitation and notice procedures related to confirmation of our plan of reorganization, (3) approved the forms of ballots and notices related thereto, (4) approved the rights offering procedures and matters related thereto set forth in the Plan, (5) scheduled certain dates related to our plan confirmation process and Rights Offering, and (6) granted related relief. On March 14, 2017, the Bankruptcy Court confirmed our Debtors’ Second Amended Joint Chapter 11 Plan of Reorganization (the “Plan”). On April 12, 2017 (the “Effective Date”), we emerged from bankruptcy.

As a result of its improved financial condition and successful emergence from chapter 11, the Company believes it has sufficient liquidity, including approximately $480.0 million of cash on hand as of March 31, 2017 and funds generated from ongoing operations, to fund anticipated cash requirements for operations, capital expenditures and working capital purposes. As a result, substantial doubt no longer exists regarding the Company’s ability to meet its obligations as they become due within one year after the date that the financial statements are issued.

Although the Company is no longer a debtor-in-possession, the Company was a debtor-in-possession for the quarter ended March 31, 2017 and further through April 11, 2017, the date immediately prior to the Effective Date. As such, certain aspects of the chapter 11 cases and related matters are described below in order to provide context to the Company’s financial condition and results of operations for the period presented. Please also see Note 9 – Subsequent Events in this Quarterly Report on Form 10-Q for additional information about the impact of our emergence from bankruptcy on our business, financial condition and capital structure. This Quarterly Report on Form 10-Q also includes disclosure in this introductory narrative and other places about those matters. Information about our chapter 11 cases is available at a website maintained by our claims agent, Epiq Systems ( HYPERLINK "http://dm.epiq11.com/UPT/Docket" http://dm.epiq11.com/UPT/Docket).

For the quarter ended March 31, 2017, we operated our business as a debtor-in-possession in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. After we filed our chapter 11 petitions, the Bankruptcy Court granted certain relief we requested enabling us to conduct our business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing us to pay employee wages and benefits, pay taxes and certain governmental fees and charges, continue to operate our cash management system in the ordinary course, remit funds we hold from time to time for the benefit of third parties (such as royalty owners), and pay the prepetition claims of certain of our vendors that hold liens under applicable non-bankruptcy law. For goods and services provided to us during the period between the Petition Date and the Effective Date, and during the period from and after the Effective Date now that we have emerged from bankruptcy, we intend to pay vendors in full under normal terms.

Our operations and ability to execute our business remain subject to the risks and uncertainties described in Item 1A, “Risk Factors.” In addition, the consummation of the Plan has had a material impact on our liabilities, capital structure, and shareholders. In addition, the description of our operations, properties and capital plans included in this Quarterly Report on Form 10-Q may not accurately reflect our operations, properties and capital plans going forward.

Stakeholder Committees – Appointment & Formation

On May 5, 2016, the United States Trustee for the Southern District of Texas appointed an official committee for unsecured creditors of all of the Debtors (the “UCC”). On September 26, 2016, the United States Trustee for the Southern District of Texas filed a Notice of Reconstitution of the UCC. As provided in the Plan, the UCC dissolved automatically on the Effective Date.

Certain other stakeholders also organized for purposes of participating in the Debtors’ chapter 11 cases: (i) on June 8, 2016, an informal ad hoc committee of unsecured creditors of our subsidiary, Ultra Resources, Inc. (“Ultra Resources”), notified the Bankruptcy Court it had formed and identified its members, most of which are distressed debt investors and/or hedge funds; (ii) on June 13, 2016, an informal ad hoc committee of the holders of senior notes issued by the Company notified the Bankruptcy Court it had formed and identified its members; (iii) on July 20, 2016, an informal ad hoc committee of our shareholders notified the Bankruptcy Court it had formed and identified its members; and (iv) on January 6, 2017, an informal ad hoc committee of unsecured creditors of Ultra Resources notified the Bankruptcy Court it had formed and identified its members, most of which are insurance companies.

Plan Support Agreement, Rights Offering, Backstop Commitment Agreement and Exit Financing Commitment Letter

On November 21, 2016, each of the Ultra Entities entered into a Plan Support Agreement (as amended, the “PSA”) with (i) holders of at least 66.67% of the principal amount of the Company’s outstanding 5.75% Senior Notes due 2018 and 6.125% Senior Notes due 2024 and (ii) shareholders who own at least a majority of the Company’s outstanding common stock or the economic interests therein (collectively, the “Plan Support Parties”) and a Backstop Commitment Agreement (“BCA”) with a subset thereof (collectively, the “Commitment Parties”).

Plan Support Agreement: The PSA enumerated the terms and conditions pursuant to which the Ultra Entities and the Commitment Parties agreed to seek and support a joint plan of reorganization. The Plan consummated on the Effective Date was the joint plan of reorganization contemplated in the PSA.

Rights Offering: In accordance with the Plan, the BCA and the Rights Offering procedures submitted by the Company in connection with the Plan, the Company offered eligible debt and equity holders, including the Commitment Parties, the right to purchase shares of new common stock in the Company upon effectiveness of the Plan for an aggregate purchase price of $580.0 million. The Rights Offering consisted of the following offerings:

• HoldCo Noteholders were granted rights (the “HoldCo Noteholder Rights Offering”) entitling each such holder to subscribe for the Rights Offering in an amount up to its pro rata share of new common stock (the “HoldCo Noteholder Rights Offering Shares”), which HoldCo Noteholder Rights Offering Shares, collectively, reflected an aggregate purchase price of $435.0 million.

• HoldCo Equityholders were granted rights (the “HoldCo Equityholder Rights Offering,” and, together with the HoldCo Noteholder Rights Offering, the “Rights Offering”) entitling each such holder to subscribe for the Rights Offering in an amount up to its pro rata share of new common stock (the “HoldCo Equityholder Rights Offering Shares” and, together with the HoldCo Noteholder Rights Offering Shares, the “Rights Offering Shares”), which HoldCo Equityholder Rights Offering Shares, collectively, reflected an aggregate purchase price of $145.0 million.

In connection with our emergence from bankruptcy on the Effective Date, we consummated the Rights Offering as contemplated in the Plan and the BCA.

Backstop Commitment Agreement: Under the BCA, the Commitment Parties agreed to purchase HoldCo Noteholder Rights Offering Shares and the HoldCo Equityholder Rights Offering Shares, as applicable, that are not duly subscribed for pursuant to the Rights Offering by parties other than Commitment Parties (the “Backstop Commitment”) at an implied 20% discount to the Plan Value, which is the price for the rights offering set forth in in the PSA (the “Rights Offering Price”). In connection with our emergence from bankruptcy on the Effective Date, the Commitment Parties performed the Backstop Commitment as and to the extent provided for in the BCA. In addition, on the Effective Date, the Company paid the Commitment Parties a Commitment Premium equal to 6.0% of the $580.0 million committed amount (the “Commitment Premium”). The Commitment Premium was paid in the form of new common stock at the Rights Offering Price.

Exit Financing Commitment Letter: As previously disclosed in a Current Report on Form 8-K filed with the SEC on February 9, 2017, on February 8, 2017, the Debtors obtained a commitment letter (as amended, the “Commitment Letter”) from Barclays Bank PLC (including any affiliates that may perform its responsibilities thereunder, “Barclays”), pursuant to which, in connection with the consummation of the Plan, Barclays agreed to provide us with secured and unsecured financing in an aggregate amount of up to $2.4 billion.

As previously disclosed in a Current Report on Form 8-K filed with the SEC on February 9, 2017, on February 8, 2017, the Debtors filed a motion with the Bankruptcy Court seeking authorization to enter into and perform under the Commitment Letter and the other commitment papers. The motion was heard and approved during the Company’s disclosure statement hearing on February 13, 2017.

On April 7, 2017, Ultra Resources and Barclays Capital Inc. entered into a Purchase Agreement (“Purchase Agreement”) pursuant to which Ultra Resources agreed to sell to Barclays and the other purchasers $700.0 million of its 6.875% unsecured senior notes due 2022 and $500.0 million of its 7.125% unsecured senior notes due 2025.

On the Effective Date, as previously disclosed in a Current Report on Form 8-K filed with the SEC on April 18, 2017, in connection with the consummation of our Plan:

  • Ultra Resources entered into a Credit Agreement dated April 12, 2017 with Bank of Montreal, as administrative agent, and with the other lenders party thereto (the “New Credit Agreement”), providing for a revolving credit facility for an aggregate amount of $400.0 million;

  • Ultra Resources entered into a Senior Secured Term Loan Agreement dated April 12, 2017 with Barclays Bank PLC, as administrative agent, and with the other lenders party thereto (the “Term Loan Agreement”), providing for senior secured first lien term loans for an aggregate amount of $800.0 million;

  • Ultra Resources entered into an Indenture dated April 12, 2017 with Wilmington Trust, as trustee (the “Indenture”), and also issued the $700.0 million of its 6.875% unsecured senior notes due 2022 and $500.0 million of its 7.125% unsecured senior notes due 2025 contemplated in the Purchase Agreement (the “New Unsecured Notes”). The 2022 Notes were sold at an issue price of 100% and the 2025 Notes were sold at an issue price of 98.507%, and the issuance of the 2022 Notes and the 2025 Notes resulted in net proceeds (after deducting purchasers’ discounts and commissions) to Ultra Resources of $1.185 billion.

Ultra Resources’ obligations under the New Credit Agreement, the Term Loan Agreement, the Indenture, and the New Unsecured Notes are guaranteed by the Company and each of its subsidiaries (other than Ultra Resources). In addition, as previously disclosed in a Current Report on Form 8-K filed with the SEC on April 18, 2017, the Company and each of its subsidiaries (other than Ultra Resources) entered into a Guaranty and Collateral Agreement in favor of Bank of Montreal, as administrative agent, for the benefit of the secured parties under the New Credit Agreement and the Term Loan Agreement.

Fresh Start Accounting

In connection with the Company’s emergence from bankruptcy, we will not be required to apply fresh start accounting to our financial statements because the reorganization value of our assets immediately prior to confirmation of the plan of reorganization was greater than the aggregate of postpetition liabilities and allowed claims. As a result, a new reporting entity will not be created and the effects of the bankruptcy will be recorded through the financial statements on April 12, 2017, the date on which the Company emerged from bankruptcy.

Liabilities Subject to Compromise

We have applied Accounting Standards Codification (“ASC”) 852, Reorganizations, in preparing the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. In addition, the consolidated financial statements presented herein include amounts classified as “liabilities subject to compromise.” These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 proceedings. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

The following table summarizes the components of liabilities subject to compromise included in our Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016:

March 31, 2017December 31, 2016
Accounts payable$1,300$1,322
Accrued liabilities6,3046,303
Accrued interest payable185,11299,774
Debt3,759,0003,759,000
Accrued contract settlements224,349171,642
Liabilities subject to compromise$4,176,065$4,038,041

Schedules and Statements – Magnitude of Potential Claims & Claims Resolution Process

On June 8, 2016, each of the Debtors filed a Schedule of Assets and Liabilities and Statement of Financial Affairs (collectively, the “Schedules and Statements”) with the Bankruptcy Court setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. On October 14, 2016, Ultra Wyoming LGS, LLC (“UWLGS”), one of the Debtors and our indirect, wholly owned subsidiary, filed an amendment to its Schedules and Statements. The Schedules and Statements are subject to further amendment or modification. Pursuant to the Federal Rules of Bankruptcy Procedures, some creditors who wished to assert prepetition claims were required to file proofs of claim by the deadline for filing certain proofs of claims in the Debtors’ chapter 11 cases, which deadline was September 1, 2016, for prepetition general unsecured claims and October 26, 2016, for governmental claims. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process. The claims filed against us are voluminous. Further, it is possible claimants will file amended or modified claims in the future, even after the Effective Date, including modifications or amendments to assert or assign values to claims originally filed with no designated value. These amendments or modifications may be material. Because of the volume and magnitude of the claims asserted against us, the claims resolution process is on-going, is expected to take considerable time to complete, and will continue after the Effective Date. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

To the best of our knowledge, we timely notified all of our known current or potential creditors that we filed the chapter 11 cases. The Schedules and Statements set forth, among other things, the assets and liabilities of each of the Debtors, including executory contracts to which each of the Debtors is a party, are subject to the qualifications and assumptions included therein and amendment or modification as our chapter 11 cases proceed.

Many of the claims identified in the Schedules and Statements are listed as disputed, contingent or unliquidated. In addition, there are differences between the amounts for certain claims listed in the Schedules and Statements and the amounts claimed by our creditors. Such differences, as well as other disputes and contingencies have been investigated and resolved as part of our claims resolution process in our chapter 11 cases. Please refer to Note 8 for additional information about contingent matters and commitments related to certain claims filed in our chapter 11 cases.

As a part of the claims resolution process, we are working to resolve differences between amounts we listed in our Schedules and Statements and amounts of claims filed by our creditors. We have already identified, for example, claims that we believe should be disallowed by the Bankruptcy Court because they are duplicative, have been later amended or superseded, are without merit, are overstated or for other reasons. We have previously filed, and we will continue to file and prosecute, objections with the Bankruptcy Court as necessary for claims we believe should be disallowed.

Tax Attributes; Net Operating Loss Carryforwards

We have substantial tax net operating loss carryforwards and other tax attributes. Under the U.S. Internal Revenue Code, our ability to use these net operating losses and other tax attributes may be limited if we experience a change of control, as determined under the U.S. Internal Revenue Code. Accordingly, we obtained an order from the Bankruptcy Court that is intended to protect our ability to use our tax attributes by imposing certain notice procedures and transfer restrictions on the trading of the Company’s common stock prior to the implementation of the Plan.

In general, the order applies to any person or entity that, directly or indirectly, beneficially owns (or would beneficially own as a result of a proposed transfer) at least 4.5% of the Company’s common stock. Such persons are required to notify us and the Bankruptcy Court before effecting a transaction that might result in us losing the ability to use our tax attributes, and we have the right to seek an injunction to prevent the transaction if it might adversely affect our ability to use our tax attributes.

Costs of Reorganization

We have incurred and will continue to incur significant costs associated with our reorganization and the chapter 11 proceedings. We expect these costs, which are being expensed as incurred, have affected and may continue to significantly affect our results of operations. For additional information about the costs of our reorganization and chapter 11 proceedings, see “Reorganization items, net” below.

The following table summarizes the components included in Reorganization items, net in our Consolidated Statements of Operations for the three months ended March 31, 2017:

For the Three Months Ended
March 31, 2017
Professional fees(1)$57,691
Other(2)(145)
Total Reorganization items, net$57,546

(1) The three months ended March 31, 2017 includes $49.6 million directly related to accrued, unpaid professional fees associated with the chapter 11 filings.

(2)Cash interest income earned for the period after the Petition Date on excess cash over normal invested capital.