10-Q 1 upl-10q_20170930.htm 10-Q upl-10q_20170930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

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 001-33614

 

ULTRA PETROLEUM CORP.

(Exact name of registrant as specified in its charter)

 

 

Yukon, Canada

N/A

(State or other jurisdiction of

incorporation or organization)

(I.R.S. employer

identification number)

 

 

400 North Sam Houston Parkway East,

Suite 1200, Houston, Texas

77060

(Address of principal executive offices)

(Zip code)

(281) 876-0120

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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.  YES      NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES      NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

◻  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES      NO 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distributions of securities under a plan confirmed by a court. YES      NO 

The number of shares outstanding, without par value, of Ultra Petroleum Corp., outstanding as of October 25, 2017 was 196,346,736.

 

 


TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements

 

3

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

40

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

41

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

41

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

ITEM 3.

 

Defaults upon Senior Securities

 

41

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

41

 

 

 

 

 

ITEM 5.

 

Other Information

 

41

 

 

 

 

 

ITEM 6.

 

Exhibits

 

43

 

 

 

 

 

 

 

Signatures

 

45

 

 

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

ULTRA PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

(Amounts in thousands of U.S. dollars, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

182,949

 

 

$

170,996

 

 

$

551,797

 

 

$

425,878

 

Oil sales

 

 

32,334

 

 

 

28,257

 

 

 

94,415

 

 

 

79,352

 

Other revenues

 

 

2,348

 

 

 

 

 

 

5,035

 

 

 

 

Total operating revenues

 

 

217,631

 

 

 

199,253

 

 

 

651,247

 

 

 

505,230

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

23,140

 

 

 

19,934

 

 

 

69,365

 

 

 

67,164

 

Facility lease expense

 

 

5,254

 

 

 

5,171

 

 

 

15,706

 

 

 

15,514

 

Production taxes

 

 

22,482

 

 

 

20,688

 

 

 

66,369

 

 

 

49,394

 

Gathering fees

 

 

22,182

 

 

 

21,159

 

 

 

63,753

 

 

 

65,112

 

Transportation charges

 

 

 

 

 

49

 

 

 

 

 

 

23,750

 

Depletion, depreciation and amortization

 

 

41,089

 

 

 

31,192

 

 

 

111,516

 

 

 

93,274

 

General and administrative

 

 

8,247

 

 

 

1,595

 

 

 

34,308

 

 

 

7,196

 

Total operating expenses

 

 

122,394

 

 

 

99,788

 

 

 

361,017

 

 

 

321,404

 

Operating income

 

 

95,237

 

 

 

99,465

 

 

 

290,230

 

 

 

183,826

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(210,107

)

 

 

 

 

 

(324,979

)

 

 

(66,565

)

Gain on commodity derivatives

 

 

4,650

 

 

 

 

 

 

12,149

 

 

 

 

Deferred gain on sale of liquids gathering system

 

 

2,638

 

 

 

2,638

 

 

 

7,915

 

 

 

7,915

 

Restructuring expenses

 

 

 

 

 

(28

)

 

 

 

 

 

(7,176

)

Contract settlement expense

 

 

 

 

 

 

 

 

(52,707

)

 

 

 

Other income (expense), net

 

 

92

 

 

 

(514

)

 

 

(28

)

 

 

(2,436

)

Total other (expense) income, net

 

 

(202,727

)

 

 

2,096

 

 

 

(357,650

)

 

 

(68,262

)

Reorganization items, net

 

 

(227,123

)

 

 

(3,109

)

 

 

142,147

 

 

 

(25,292

)

Income (loss) before income tax provision (benefit)

 

 

(334,613

)

 

 

98,452

 

 

 

74,727

 

 

 

90,272

 

Income tax (benefit) provision

 

 

(6,886

)

 

 

45

 

 

 

(6,884

)

 

 

(305

)

Net income (loss)

 

$

(327,727

)

 

$

98,407

 

 

$

81,611

 

 

$

90,577

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic

 

$

(1.67

)

 

$

1.23

 

 

$

0.53

 

 

$

1.13

 

Fully diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - fully diluted

 

$

(1.67

)

 

$

1.22

 

 

$

0.53

 

 

$

1.13

 

Weighted average common shares outstanding - basic

 

 

196,331

 

 

 

80,003

 

 

 

152,864

 

 

 

79,991

 

Weighted average common shares outstanding - fully diluted

 

 

196,331

 

 

 

80,384

 

 

 

153,068

 

 

 

80,361

 

 

See accompanying notes to consolidated financial statements.

3


 

ULTRA PETROLEUM CORP.

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(Amounts in thousands of

U.S. dollars, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,419

 

 

$

401,478

 

Restricted cash

 

 

401,697

 

 

 

3,571

 

Oil and gas revenue receivable

 

 

71,912

 

 

 

79,179

 

Joint interest billing and other receivables

 

 

19,082

 

 

 

10,781

 

Deposits and retainers

 

 

 

 

 

13,359

 

Derivative assets

 

 

4,153

 

 

 

 

Income tax receivable

 

 

6,886

 

 

 

2,099

 

Inventory

 

 

10,334

 

 

 

4,906

 

Other current assets

 

 

10,305

 

 

 

6,020

 

Total current assets

 

 

529,788

 

 

 

521,393

 

Oil and gas properties, net, using the full cost method of accounting:

 

 

 

 

 

 

 

 

Proven

 

 

1,315,120

 

 

 

1,010,466

 

Property, plant and equipment, net

 

 

8,764

 

 

 

7,695

 

Other

 

 

8,460

 

 

 

1,374

 

Total assets

 

$

1,862,132

 

 

$

1,540,928

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

68,109

 

 

$

28,171

 

Accrued liabilities

 

 

303,063

 

 

 

53,348

 

Production taxes payable

 

 

63,336

 

 

 

44,329

 

Interest payable

 

 

219,739

 

 

 

 

Capital cost accrual

 

 

32,875

 

 

 

12,360

 

Total current liabilities

 

 

687,122

 

 

 

138,208

 

Long-term debt

 

 

2,134,014

 

 

 

 

Deferred gain on sale of liquids gathering system

 

 

107,827

 

 

 

115,742

 

Other long-term obligations

 

 

190,922

 

 

 

177,088

 

Total liabilities not subject to compromise

 

 

3,119,885

 

 

 

431,038

 

Liabilities subject to compromise

 

 

 

 

 

4,038,041

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock - no par value; authorized - unlimited; issued and outstanding - 196,346,736 and 80,017,020 at September 30, 2017 and December 31, 2016, respectively

 

 

2,108,431

 

 

 

510,063

 

Treasury stock

 

 

(49

)

 

 

(49

)

Retained loss

 

 

(3,366,135

)

 

 

(3,438,165

)

Total shareholders' deficit

 

 

(1,257,753

)

 

 

(2,928,151

)

Total liabilities and shareholders' equity

 

$

1,862,132

 

 

$

1,540,928

 

 

See accompanying notes to consolidated financial statements.

4


 

ULTRA PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in thousands of U. S. dollars, except share data)

 

 

 

Shares

Issued and

Outstanding

(000's)

 

 

Common

Stock

 

 

Retained

Loss

 

 

Treasury

Stock

 

 

Total

Shareholders'

(Deficit)

Equity

 

Balances at December 31, 2015

 

 

79,933

 

 

$

502,050

 

 

$

(3,493,811

)

 

$

(176

)

 

$

(2,991,937

)

Employee stock plan grants

 

 

145

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares re-issued from treasury

 

 

 

 

 

 

 

 

(127

)

 

 

127

 

 

 

 

Net share settlements

 

 

(61

)

 

 

 

 

 

(378

)

 

 

 

 

 

(378

)

Fair value of employee stock plan grants

 

 

 

 

 

8,013

 

 

 

 

 

 

 

 

 

8,013

 

Net income

 

 

 

 

 

 

 

 

56,151

 

 

 

 

 

 

56,151

 

Balances at December 31, 2016

 

 

80,017

 

 

$

510,063

 

 

$

(3,438,165

)

 

$

(49

)

 

$

(2,928,151

)

Equitization of Holdco Notes

 

 

70,579

 

 

 

978,230

 

 

 

 

 

 

 

 

 

978,230

 

Rights Offering, including Backstop

 

 

44,390

 

 

 

573,774

 

 

 

 

 

 

 

 

 

573,774

 

Employee stock plan grants

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock plan grants

 

 

2,192

 

 

 

26,673

 

 

 

 

 

 

 

 

 

26,673

 

Net share settlements

 

 

(841

)

 

 

 

 

 

(9,581

)

 

 

 

 

 

(9,581

)

Fair value of employee stock plan grants

 

 

 

 

 

19,691

 

 

 

 

 

 

 

 

 

19,691

 

Net income

 

 

 

 

 

 

 

 

81,611

 

 

 

 

 

 

81,611

 

Balances at September 30, 2017

 

 

196,347

 

 

$

2,108,431

 

 

$

(3,366,135

)

 

$

(49

)

 

$

(1,257,753

)

 

See accompanying notes to consolidated financial statements.

 

Shareholders’ Equity Explanatory Note:

In conjunction with emergence from chapter 11 proceedings, the Company issued new Common Shares to holders of existing pre-petition Common Shares (the “Existing Common Shares”) at a conversion ratio of 0.521562 (the “New Equity”). As a result, the share counts have been adjusted to reflect this conversion as if it had occurred as of January 1, 2016.

Consistent with the Plan (defined below), 194,991,656 shares of New Equity were issued as follows:

 

70,579,367 shares of New Equity were issued pro rata to holders of the HoldCo Notes with claims allowed under the Debtors’ Second Amended Joint Chapter 11 Plan of Reorganization;

 

80,022,410 shares of New Equity were issued pro rata to holders of Existing Common Shares;

 

2,512,623 shares of New Equity were issued to commitment parties under the Backstop Commitment Agreement in respect of the commitment premium due thereunder;  

 

18,844,363 shares of New Equity were issued to commitment parties under the Backstop Commitment Agreement in connection with their backstop obligation thereunder; and

 

23,032,893 shares of New Equity were issued to participants in the Rights Offering.

5


 

ULTRA PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended                     September 30,

 

 

 

2017

 

 

2016

 

 

 

(Unaudited)

 

 

 

(Amounts in thousands of U.S. dollars)

 

Operating activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Net income for the period

 

$

81,611

 

 

$

90,577

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

 

 

Depletion, depreciation and amortization

 

 

111,516

 

 

 

93,274

 

Deferred income tax benefit

 

 

 

 

 

1

 

Unrealized gain on commodity derivatives

 

 

(4,133

)

 

 

 

Deferred gain on sale of liquids gathering system

 

 

(7,915

)

 

 

(7,915

)

Stock compensation

 

 

34,182

 

 

 

3,967

 

Non-cash reorganization items, net

 

 

(227,260

)

 

 

22,588

 

Amortization of deferred financing costs

 

 

4,781

 

 

 

4,194

 

Other

 

 

(1,014

)

 

 

2,424

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 

15,734

 

 

 

(3,346

)

Accounts receivable

 

 

(91

)

 

 

(6,782

)

Other current assets

 

 

9,356

 

 

 

(14,871

)

Other non-current assets

 

 

173

 

 

 

(818

)

Accounts payable

 

 

38,619

 

 

 

(67,828

)

Accrued liabilities

 

 

(134,358

)

 

 

(3,102

)

Production taxes payable

 

 

19,006

 

 

 

10,982

 

Interest payable

 

 

231,553

 

 

 

57,118

 

Other long-term obligations

 

 

(2,455

)

 

 

(9,431

)

Income taxes payable/receivable

 

 

(4,787

)

 

 

(234

)

Net cash provided by operating activities

 

 

164,518

 

 

 

170,798

 

Investing Activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Oil and gas property expenditures

 

 

(386,754

)

 

 

(189,511

)

Change in capital cost accrual

 

 

20,437

 

 

 

(10,730

)

Inventory

 

 

(5,477

)

 

 

136

 

Purchase of capital assets

 

 

(2,203

)

 

 

3

 

Net cash used in investing activities

 

 

(373,997

)

 

 

(200,102

)

Financing activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Borrowings under Credit Agreement

 

 

479,000

 

 

 

369,000

 

Payments under Credit Agreement

 

 

(459,000

)

 

 

 

Borrowings under Term Loan

 

 

975,000

 

 

 

 

Extinguishment of long-term debt - (chapter 11)

 

 

(2,459,000

)

 

 

 

Proceeds from issuance of Senior Notes

 

 

1,200,000

 

 

 

 

Deferred financing costs

 

 

(81,122

)

 

 

 

Shares issued, net of transaction costs

 

 

568,483

 

 

 

 

Repurchased shares/net share settlements

 

 

(9,581

)

 

 

(319

)

Reserve Fund

 

 

(400,360

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(186,580

)

 

 

368,681

 

(Decrease) increase in cash and cash equivalents during the period

 

 

(396,059

)

 

 

339,377

 

Cash and cash equivalents, beginning of period

 

 

401,478

 

 

 

4,143

 

Cash and cash equivalents, end of period

$

5,419

 

 

$

343,520

 

 

See accompanying notes to consolidated financial statements.

 

 

6


 

ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in this Quarterly Report on Form 10-Q are expressed in thousands of U.S. dollars (except per share data) unless otherwise noted).

DESCRIPTION OF THE BUSINESS:

Ultra Petroleum Corp. (the “Company”) is an independent oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and natural gas properties. The Company is incorporated under the laws of Yukon, Canada. The Company’s principal business activities are developing its long-life natural gas reserves in the Green River Basin of Wyoming – the Pinedale and Jonah fields, its oil reserves in the Uinta Basin in Utah and its natural gas reserves in the Appalachian Basin of Pennsylvania.

Chapter 11 Proceedings

Voluntary Reorganization Under Chapter 11

On April 29, 2016 (the “Petition Date”), the Company and its 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”). Our chapter 11 cases were jointly administered under the caption In re Ultra Petroleum Corp., et al, Case No. 16-32202 (MI) (Bankr. S.D. Tex.).

On February 13, 2017, the Bankruptcy Court approved our amended Disclosure Statement (by order subsequently amended on February 21, 2017), on March 14, 2017, the Bankruptcy Court confirmed our Debtors’ Second Amended Joint Chapter 11 Plan of Reorganization (the “Plan”), and on April 12, 2017 (the “Effective Date”), we emerged from bankruptcy.

As a result of our improved financial condition and successful emergence from chapter 11 proceedings, we believe we now have sufficient liquidity to fund our future 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.  

Because we emerged from bankruptcy during the nine months ended September 30, 2017 and because we continue our work to reconcile, resolve and pay certain prepetition claims asserted against us during our chapter 11 cases, certain aspects of our chapter 11 cases are described below to provide context to our financial condition and results of operations for the period presented in this Quarterly Report on Form 10-Q.  Information about our chapter 11 cases is available at a website maintained by our claims agent, Epiq Systems (http://dm.epiq11.com/UPT/Docket).

In addition, because our operations and ability to execute our business remain subject to various risks and uncertainties, including risks and uncertainties related to our chapter 11 cases, readers are encouraged to review and consider the items described in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

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

As previously disclosed:

 

On November 21, 2016, we entered into a Plan Support Agreement (as amended, the “PSA”) with certain holders of the Company’s prepetition indebtedness and outstanding common stock as well as a Backstop Commitment Agreement (“BCA”). Pursuant to the BCA, we agreed to conduct a rights offering for new common stock in the Company to be issued upon the effectiveness of the Plan for an aggregate purchase price of $580.0 million (the “Rights Offering”).

 

On February 8, 2017, we entered into a commitment letter with Barclays Bank PLC (“Barclays”) (as amended, the “Commitment Letter”) pursuant to which, in connection with the consummation of the Plan, Barclays agreed to provide us with secured and unsecured financings in an aggregate amount of up to $2.4 billion (the “Debt Financings”).

7


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

On the Effective Date, the principal obligations outstanding of $999.0 million under the Prepetition Credit Agreement and $1.46 billion under the Prepetition Senior Notes, as well as prepetition interest and other undisputed amounts, were paid in full.  The Company’s obligations under the Prepetition Credit Agreement and the Prepetition Senior Notes were cancelled and extinguished as provided in the Plan.  

 

On the Effective Date, the claims of $450.0 million related to the unsecured 2018 Notes and $850.0 million related to the unsecured 2024 Notes were allowed in full, each holder of a claim related to the 2018 Notes and the 2024 Notes received a distribution of common stock in the amount of the holders’ applicable claim, and the Company’s obligations under the 2018 Notes and the 2024 Notes were cancelled and extinguished as provided in the Plan.  

 

On the Effective Date, we consummated the Rights Offering and the Debt Financings and, as noted above, emerged from bankruptcy.

Fresh Start Accounting

As previously disclosed, we are not required to apply fresh start accounting to our financial statements in connection with our emergence from bankruptcy because the reorganization value of our assets immediately prior to confirmation of the Plan exceeded our aggregate postpetition liabilities and allowed claims.

Liabilities Subject to Compromise

The following table reconciles the settlement of liabilities subject to compromise included in our Consolidated Balance Sheets from December 31, 2016 through the nine months ended September 30, 2017:

 

 

 

September 30, 2017

 

Liabilities subject to compromise at December 31, 2016

 

$

4,038,041

 

Debt extinguishment - cash

 

 

(2,521,493

)

Debt extinguishment - non-cash

 

 

(1,339,740

)

Contract settlement

 

 

(169,600

)

Reclassified to accrued liabilities

 

 

(7,208

)

Liabilities subject to compromise at September 30, 2017

 

$

 

 

Bankruptcy Claims Resolution Process

The claims filed against us during our chapter 11 proceedings are voluminous. In addition, claimants may file amended or modified claims in the future, which modifications or amendments may be material. The claims resolution process is on-going, and the ultimate number and amount of prepetition claims are not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

As a part of the claims resolution process, we are working to resolve differences between amounts we listed in information filed during our bankruptcy proceedings and the amounts of claims filed by our creditors. We have filed, and we will continue to file, objections with the Bankruptcy Court as necessary with respect to claims we believe should be disallowed.

Costs of Reorganization

We have incurred 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.

8


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The following table summarizes the components included in Reorganization items, net in our Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016:

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

September 30, 2017

 

 

September 30, 2016

 

Professional fees (1)

 

$

(3,285

)

 

$

(3,215

)

 

$

(65,289

)

 

$

(6,797

)

Gains (losses) (2)

 

 

 

 

 

 

 

 

431,107

 

 

 

 

Deferred financing costs

 

 

 

 

 

 

 

 

 

 

 

(18,742

)

Make-whole fees (3)

 

 

(223,838

)

 

 

 

 

 

(223,838

)

 

 

 

Other (4)

 

 

 

 

 

106

 

 

 

167

 

 

 

247

 

Total Reorganization items, net

 

$

(227,123

)

 

$

(3,109

)

 

$

142,147

 

 

$

(25,292

)

 

(1)

The nine months ended September 30, 2017 includes $3.8 million directly related to accrued, unpaid professional fees associated with the chapter 11 filings.

(2)

Gains (losses) represent the net gain on the debt to equity exchange related to the 2018 and 2024 Notes.

(3)

Make-whole fees represent the Bankruptcy Court order denying our objection to the make-whole claims, as further described in Note 8.

(4)

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

1.  SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements, other than the balance sheet data as of December 31, 2016, are unaudited and were prepared from the Company’s records, but do not include all disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”). Balance sheet data as of December 31, 2016 was derived from the Company’s audited financial statements. The Company’s management believes that these financial statements include all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All adjustments are of a normal and recurring nature unless specifically noted. The Company prepared these statements on a basis consistent with the Company’s annual audited statements and Regulation S-X. Regulation S-X allows the Company to omit some of the footnote and policy disclosures required by GAAP 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 the Company’s most recent annual report on Form 10-K.

(a) Basis of presentation and principles of consolidation:  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company presents its financial statements in accordance with GAAP. All inter-company transactions and balances have been eliminated upon consolidation.

(b) Cash and Cash Equivalents:  The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

(c) Restricted Cash:  Restricted cash represents the funds we deposited in the $400.0 million reserve account, which is for the resolution of make-whole and postpetition interest claims (the “Reserve Fund”), as described in Note 8, and cash received by the Company from production sold where the final division of ownership of the production is unknown or in dispute.

(d) Accounts Receivable: Accounts receivable are stated at the historical carrying amount net of write-offs and an allowance for uncollectible accounts.  The carrying amount of the Company’s accounts receivable approximates fair value because of the short-term nature of the instruments. The Company routinely assesses the collectability of all material trade and other receivables.

(e) Property, Plant and Equipment:  Capital assets are recorded at cost and depreciated using the declining-balance method based on their respective useful life.

(f) Oil and Natural Gas Properties:  The Company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission (“SEC”) Release No. 33-8995, Modernization of Oil and Gas Reporting Requirements (“SEC Release No. 33-8995”) and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 932, Extractive Activities – Oil and Gas (“FASB ASC 932”). Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as

9


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

oil and gas properties. This includes any internal costs that are directly related to exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. The carrying amount of oil and natural gas properties also includes estimated asset retirement costs recorded based on the fair value of the asset retirement obligation when incurred. Gain or loss on the sale or other disposition of oil and natural gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a country.

The sum of net capitalized costs and estimated future development costs of oil and natural gas properties are amortized using the units-of-production method based on the Company’s proved reserves. Oil and natural gas reserves and production are converted into equivalent units based on relative energy content. Asset retirement costs are included in the base costs for calculating depletion.

Under the full cost method, costs of unevaluated properties and major development projects expected to require significant future costs may be excluded from capitalized costs being amortized. The Company excludes significant costs until proved reserves are found or until it is determined that the costs are impaired. The Company reviews its unproved leasehold costs quarterly or when management determines that events or circumstances indicate that the recorded carrying value of the unevaluated properties may not be recoverable. The fair values of unproved properties are evaluated utilizing a discounted net cash flows model based on management’s assumptions of future oil and gas production, commodity prices, operating and development costs, as well as appropriate discount rates. The estimated prices used in the cash flow analysis are determined by management based on forward price curves for the related commodities, adjusted for average historical location and quality differentials. Estimates of cash flows related to probable and possible reserves are reduced by additional risk-weighting factors. The amount of any impairment is transferred to the capitalized costs being amortized.

Companies that use the full cost method of accounting for oil and natural gas exploration and development activities are required to perform a ceiling test calculation each quarter. The full cost ceiling test is an impairment test prescribed by SEC Regulation S-X Rule 4-10. The ceiling test is performed quarterly, on a country-by-country basis, utilizing the average of prices in effect on the first day of the month for the preceding twelve-month period in accordance with SEC Release No. 33-8995. The ceiling limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved crude oil and natural gas reserves discounted at 10%, plus the lower of cost or market value of unproved properties, less any associated tax effects. If such capitalized costs exceed the ceiling, the Company will record a write-down to the extent of such excess as a non-cash charge to earnings. Any such write-down will reduce earnings in the period of occurrence and results in a lower depletion, depreciation and amortization (“DD&A”) rate in future periods. A write-down may not be reversed in future periods even though higher oil and natural gas prices may subsequently increase the ceiling.  The Company did not incur a ceiling test write-down during the nine months ended September 30, 2017 or 2016.

(g) Inventories:  Inventory primarily includes the cost of pipe and production equipment that will be utilized during the 2017 drilling program and crude oil inventory.  Materials and supplies inventories are carried at lower of cost or market and include expenditures and other charges directly and indirectly incurred in bringing the inventory to its existing condition and location.  Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cost.  The Company uses the weighted average method of recording its materials and supplies inventory.  Crude oil inventory is valued at lower of cost or market.

(h) Deferred Financing Costs: The Company follows ASU No. 2015-3, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs and includes the costs for issuing debt, including issuance discounts, except those related to the revolving credit facility, as a direct deduction from the carrying amount of the related debt liability. Costs related to the issuance of the revolving credit facility are recorded as an asset in the Consolidated Balance Sheets.

(i) Derivative Instruments and Hedging Activities:  The Company follows FASB ASC Topic 815, Derivatives and Hedging (“FASB ASC 815”). The Company records the fair value of its commodity derivatives as an asset or liability in the Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Consolidated Statements of Operations.  The Company does not offset the value of its derivative arrangements with the same counterparty. See Note 6 for additional details.

(j) Income Taxes:  Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary

10


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria described in FASB ASC Topic 740, Income Taxes.  In addition, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

(k) Equity Interests: In accordance with the Plan, each of the Company’s equity interests outstanding prior to the Effective Date were cancelled and each such equity interest has no further force or effect after the Effective Date. Pursuant to the Plan, the holders of the Company’s common shares outstanding prior to the Effective Date (the “Existing Common Shares”) received (i) their proportionate distribution of New Equity and (ii) the right to participate in the Rights Offering. The holders of all other equity interests in the Company received no distribution under the Plan in respect thereof.

(l) Earnings Per Share:  Basic earnings per share is computed by dividing net earnings attributable to common stockholders 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 common stock equivalents. The Company uses the treasury stock method to determine the dilutive effect.

In conjunction with our emergence from chapter 11, on April 12, 2017, the Company issued shares of New Equity to holders of Existing Common Shares at a conversion ratio of 0.521562. As a result, the basic and fully diluted share counts have been presented to reflect this conversion as if it had occurred as of January 1, 2016.

Share based payments subject to performance or market conditions are considered contingently issuable shares for purposes of calculating diluted earnings per share. Thus, they are not included in the diluted earnings per share denominator until the performance or market criteria are met. For the quarter and nine months ended September 30, 2017, the Company had 4.1 million contingently issuable shares that are not included in the diluted earnings per share denominator as the performance or market criteria have not been met (See Note 4). There were no contingently issuable shares outstanding for the quarter and nine months ended September 30, 2016.

 

 

 

Three Months

 

 

Nine Months

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

(Share amounts in 000's)

 

Net income (loss)

 

$

(327,727

)

 

$

98,407

 

 

$

81,611

 

 

$

90,577

 

Weighted average common shares outstanding - basic

 

 

196,331

 

 

 

80,003

 

 

 

152,864

 

 

 

79,991

 

Effect of dilutive instruments

 

 

 

 

 

381

 

 

 

204

 

 

 

370

 

Weighted average common shares outstanding - diluted

 

 

196,331

 

 

 

80,384

 

 

 

153,068

 

 

 

80,361

 

Net income (loss) per common share - basic

 

$

(1.67

)

 

$

1.23

 

 

$

0.53

 

 

$

1.13

 

Net income (loss) per common share - diluted

 

$

(1.67

)

 

$

1.22

 

 

$

0.53

 

 

$

1.13

 

Number of shares not included in dilutive earnings per

   share that would have been anti-dilutive because the

   exercise price was greater than the average market

   price of the common shares

 

 

 

 

 

262

 

 

 

 

 

 

756

 

 

(m) Use of Estimates:  Preparation of consolidated financial statements in accordance with U.S. 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.

(n) Share-Based Compensation:  The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values in accordance with FASB ASC Topic 718, Compensation – Stock Compensation.

(o) Fair Value Accounting:  The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“FASB ASC 820”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. This statement applies under other accounting topics that require or permit fair value measurements.  See Note 7 for additional details.

11


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

(p) Asset Retirement Obligation:  The initial estimated retirement obligation of properties is recognized as a liability with an associated increase in oil and gas properties for the asset retirement cost. Accretion expense is recognized over the estimated productive life of the related assets. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement cost. Revisions in estimated liabilities can result from revisions of estimated inflation rates, changes in service and equipment costs and changes in the estimated timing of settling asset retirement obligations. As a full cost company, settlements for asset retirement obligations for abandonment are adjusted to the full cost pool.  The asset retirement obligation is included within other long-term obligations in the accompanying Consolidated Balance Sheets.  

(q) Revenue Recognition:  The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices. The Company recognizes revenues when the oil and natural gas is delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company accounts for oil and natural gas sales using the “entitlements method.” Under the entitlements method, revenue is recorded based upon the Company’s ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. Any amount received in excess of the Company’s share is treated as a liability. If the Company receives less than its entitled share, the underproduction is recorded as a receivable.

Make-up provisions and ultimate settlements of volume imbalances are generally governed by agreements between the Company and its partners with respect to specific properties or, in the absence of such agreements, through negotiation. The value of volumes over- or under-produced can change based on changes in commodity prices. The Company prefers the entitlements method of accounting for oil and natural gas sales because it allows for recognition of revenue based on its actual share of jointly owned production, results in better matching of revenue with related operating expenses, and provides balance sheet recognition of the estimated value of product imbalances.  The Company’s imbalance obligations as of September 30, 2017 and December 31, 2016 were immaterial.

(r) Other revenues: Other revenues are comprised of fees paid to us by the operators of the gas processing plants where our gas is processed in exchange for the liquids removed from our production.

(s) Capital Cost Accrual: The Company accrues for exploration and development costs in the period incurred, while payment may occur in a subsequent period.

(t) Reclassifications:  Certain amounts in the financial statements of prior periods have been reclassified to conform to the current period financial statement presentation.

(u) Deposits and Retainers: Deposits and retainers primarily consist of payments related to surety bonds as of December 31, 2016.

(v) Recent Accounting Pronouncements:

Statement of Cash Flows.  In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). The guidance requires that an explanation is included in the cash flow statement of the change in the total of (1) cash, (2) cash equivalents, and (3) restricted cash or restricted cash equivalents. ASU No. 2016-18 also clarifies that transfers between cash, cash equivalents and restricted cash or restricted cash equivalents should not be reported as cash flow activities and requires the nature of the restrictions on cash, cash equivalents, and restricted cash or restricted cash equivalents to be disclosed. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-18 on its consolidated financial statements.

Statement of Cash Flows.  In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU No. 2016-15”). The guidance requires that debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders, be classified as cash outflows for financing activities. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with earlier application permitted. The Company does not expect the adoption of ASU No. 2016-15 to have a material impact on its consolidated financial statements.

Leases.  In February 2016, the FASB issued ASU 2016-02, Leases (“ASU No. 2016-02”).  The guidance requires that lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The ASU will also require disclosures designed to give financial statement users information

12


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-02 on its consolidated financial statements.

Stock Compensation.  In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) (“ASU No. 2017-09”), which is intended to clarify and reduce diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award.  For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with earlier application permitted.  The Company does not expect the adoption of ASU No. 2017-09 to have a material impact on its consolidated financial statements.

Revenue from Contracts with Customers.  In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and in 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), and ASU 2016-10, Revenues from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities-Oil and Gas-Revenue Recognition. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.

We are currently evaluating the provisions of ASU 2014-09 and assessing the impact, if any, it may have on our financial position and results of operations. As part of our assessment work to date, we have completed training of the new ASU’s revenue recognition model, dedicated resources to its implementation, and initiated contract review and documentation; including analyzing the standard’s impact on our contract portfolio, comparing historical accounting policies and practices to the requirements of the new standard, and identifying differences from applying the requirements of the new standards to our contracts.  We are evaluating the expanded disclosure requirements under the new standard and are also reviewing our processes, systems, and internal controls over financial reporting to ensure the appropriate information will be available for these disclosures.  While we are continuing to assess all potential impacts of the standard, we currently believe the most significant impacts relate to principal versus agent considerations and the use of the entitlements method for oil and natural gas sales, both of which are continuing to be evaluated by the Company.

The Company is required to adopt the new standards in the first quarter of 2018 using one of two application methods: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method.

2.  OIL AND GAS PROPERTIES AND EQUIPMENT:

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Proven Properties:

 

 

 

 

 

 

 

 

Acquisition, equipment, exploration, drilling and abandonment costs

 

$

11,158,940

 

 

$

10,752,642

 

Less:  Accumulated depletion, depreciation and amortization

 

 

(9,843,820

)

 

 

(9,742,176

)

 

 

$

1,315,120

 

 

$

1,010,466

 

 

13


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

3.  DEBT AND OTHER LONG-TERM OBLIGATIONS:

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016 (1)

 

Total Debt:

 

 

 

 

 

 

 

 

Term loan, secured due 2024

 

$

975,000

 

 

$

 

6.875% Senior, unsecured Notes due 2022

 

 

700,000

 

 

 

 

7.125% Senior, unsecured Notes due 2025

 

 

500,000

 

 

 

 

6.125% Senior Notes due 2024

 

 

 

 

 

850,000

 

5.75% Senior Notes due 2018

 

 

 

 

 

450,000

 

Senior Notes issued by Ultra Resources, Inc.

 

 

 

 

 

1,460,000

 

Credit Agreement

 

 

20,000

 

 

 

999,000

 

Total long-term debt

 

 

2,195,000

 

 

 

3,759,000

 

Less: Deferred financing costs

 

 

(60,986

)

 

 

 

Less: Liabilities subject to compromise (1) (See Note 1)

 

 

 

 

 

(3,759,000

)

Total long-term debt not subject to compromise

 

$

2,134,014

 

 

$

 

Other long-term obligations:

 

 

 

 

 

 

 

 

Other long-term obligations

 

$

190,922

 

 

$

177,088

 

 

(1)

All of our indebtedness that was outstanding at December 31, 2016 was classified as liabilities subject to compromise in the Consolidated Balance Sheets. See below for information about the indebtedness we incurred in connection with, and that is now outstanding, following our emergence from bankruptcy.

As previously disclosed in a Current Report on Form 8-K filed with the SEC on April 18, 2017, on the Effective Date, all principal, prepetition interest, and other undisputed amounts were paid in full for the amounts owed under the prepetition Credit Agreement and the prepetition Senior Notes shown in the table above and the Company’s obligations under the prepetition Credit Agreement and the prepetition Senior Notes were cancelled and extinguished.  The make-whole and postpetition interest claims related to the prepetition Credit Agreement and prepetition Senior Notes were settled during the quarter ended September 30, 2017, see Note 8 for additional details.  The claims related to the 2018 and 2024 Notes, shown in the table above were allowed in full, each claim holder received a distribution of our common stock in the amount of the applicable claim, and the Company’s obligations under the 2018 and 2024 Notes were cancelled and extinguished.

Ultra Resources, Inc.

Credit Agreement. On April 12, 2017, Ultra Resources, Inc. (“Ultra Resources”), as the borrower, entered into a Credit Agreement with the Company and UP Energy Corporation, as parent guarantors, with Bank of Montreal, as administrative agent, and with the other lenders party thereto from time to time (as amended, the “RBL Credit Agreement”), providing for a revolving credit facility (the “Revolving Credit Facility”) for an aggregate amount of $400.0 million and an initial borrowing base of $1.2 billion (which limits the aggregate amount of first lien debt under the Revolving Credit Facility and the Term Loan Facility (defined below)).  As previously disclosed in a Current Report Form 8-K filed with the SEC on September 19, 2017, the Bank of Montreal, as administrative agent, and the other lenders party thereto, approved an increase in the borrowing base under the RBL Credit Agreement from $1.2 billion to $1.4 billion as requested by the Company, which included an increase in the commitments under the RBL Credit Agreement to an aggregate amount of $425.0 million.  At September 30, 2017, Ultra Resources had $20.0 million in outstanding borrowings under the RBL Credit Agreement, total commitments under the RBL Credit Agreement of $425.0 million and a borrowing base of $1.4 billion.  There are no scheduled borrowing base redeterminations until April 1, 2018.

The Revolving Credit Facility has capacity for Ultra Resources to increase the commitments subject to certain conditions, and has $50.0 million of the commitments available for the issuance of letters of credit. The Revolving Credit Facility bears interest either at a rate equal to (a) a customary London interbank offered rate plus an applicable margin that varies from 250 to 350 basis points or (b) the base rate plus an applicable margin that varies from 150 to 250 basis points.  The interest rate remained the same for the Revolving Credit Facility subsequent to the approved commitments increase noted above.  The Revolving Credit Facility loans mature on January 12, 2022.

14


ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

The RBL Credit Agreement requires Ultra Resources to maintain (i) an interest coverage ratio of 2.50 to 1.00; (ii) a current ratio, including the unused portion of the Revolving Credit Facility,  of 1.00 to 1.00; (iii) a consolidated net leverage ratio of (A) 4.25 to 1.00 as of the last day of any fiscal quarter ending on or before December 31, 2017 and (B) 4.00 to 1.00, as of the last day of any fiscal quarter thereafter; and (iv) after the Company has obtained investment grade rating an asset coverage ratio of 1.50 to 1.00. At September 30, 2017, Ultra Resources was in compliance with all of its debt covenants under the RBL Credit Agreement.

Ultra Resources is required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility, which varies based upon a borrowing base utilization grid. Ultra Resources is also required to pay customary letter of credit and fronting fees.

The RBL Credit Agreement also contains customary affirmative and negative covenants, including, among other things, as to compliance with laws (including environmental laws, ERISA and anti-corruption laws), delivery of quarterly and annual financial statements and oil and gas engineering reports, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens, indebtedness, asset dispositions, fundamental changes, restricted payments, hedging requirements and other customary covenants.

The RBL Credit Agreement contains customary events of default and remedies for credit facilities of this nature. If Ultra Resources does not comply with the financial and other covenants in the RBL Credit Agreement, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the RBL Credit Agreement and any outstanding unfunded commitments may be terminated.

Term Loan. On April 12, 2017, Ultra Resources, as borrower, entered into a Senior Secured Term Loan Agreement with the Company and UP Energy Corporation, as parent guarantors, Barclays Bank PLC, as administrative agent, and 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 consisting of an initial term loan in the amount of $600.0 million and an incremental term loan in the amount of $200.0 million to be drawn immediately after the funding of the initial term loan.  As part of the Term Loan agreement, Ultra Resources agreed to pay an original issue discount equal to one percent of the principal amount, which is included in the deferred financing costs noted above.  The Te