10-Q 1 upl-10q_20180930.htm 10-Q upl-10q_20180930.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, 2018

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)

 

 

116 Inverness Drive East, Suite 400

Englewood, Colorado

80112

(Address of principal executive offices)

(Zip code)

(303) 708-9740

(Registrant’s telephone number, including area code)

 

400 N. Sam Houston Parkway E.

Suite 1200

Houston, Texas 77060

(Former name, former address and former fiscal year, if changed since last report)

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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.

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

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, without par value, of Ultra Petroleum Corp., outstanding as of October 25, 2018 was 197,053,583.

 

 


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

 

25

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

41

 

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

43

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

43

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

 

ITEM 3.

 

Defaults upon Senior Securities

 

43

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

43

 

 

 

 

 

ITEM 5.

 

Other Information

 

43

 

 

 

 

 

ITEM 6.

 

Exhibits

 

44

 

 

 

 

 

 

 

Signatures

 

45

 

 

 

 


 

PART I – FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

ULTRA PETROLEUM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

156,986

 

 

$

182,949

 

 

$

479,704

 

 

$

551,797

 

Oil sales

 

 

41,523

 

 

 

32,334

 

 

 

125,974

 

 

 

94,415

 

Other revenues

 

 

5,267

 

 

 

2,348

 

 

 

13,611

 

 

 

5,035

 

Total operating revenues

 

 

203,776

 

 

 

217,631

 

 

 

619,289

 

 

 

651,247

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating expenses

 

 

25,817

 

 

 

23,140

 

 

 

71,226

 

 

 

69,365

 

Facility lease expense

 

 

6,875

 

 

 

5,254

 

 

 

19,557

 

 

 

15,706

 

Production taxes

 

 

20,470

 

 

 

22,482

 

 

 

62,623

 

 

 

66,369

 

Gathering fees

 

 

21,810

 

 

 

22,182

 

 

 

69,046

 

 

 

63,753

 

Depletion, depreciation and amortization

 

 

49,672

 

 

 

41,089

 

 

 

151,954

 

 

 

111,516

 

General and administrative

 

 

1,482

 

 

 

8,247

 

 

 

16,233

 

 

 

34,308

 

Total operating expenses

 

 

126,126

 

 

 

122,394

 

 

 

390,639

 

 

 

361,017

 

Operating income

 

 

77,650

 

 

 

95,237

 

 

 

228,650

 

 

 

290,230

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(38,382

)

 

 

(210,107

)

 

 

(111,934

)

 

 

(324,979

)

(Loss) gain on commodity derivatives

 

 

(21,804

)

 

 

4,650

 

 

 

(75,607

)

 

 

12,149

 

Deferred gain on sale of liquids gathering system

 

 

2,638

 

 

 

2,638

 

 

 

7,915

 

 

 

7,915

 

Contract settlement expense

 

 

(2,676

)

 

 

 

 

 

(2,676

)

 

 

(52,707

)

Other income (expense), net

 

 

1,137

 

 

 

92

 

 

 

(404

)

 

 

(28

)

Total other (expense) income, net

 

 

(59,087

)

 

 

(202,727

)

 

 

(182,706

)

 

 

(357,650

)

Reorganization items, net

 

 

 

 

 

(227,123

)

 

 

 

 

 

142,147

 

Income (loss) before income tax provision

 

 

18,563

 

 

 

(334,613

)

 

 

45,944

 

 

 

74,727

 

Income tax (benefit) provision

 

 

 

 

 

(6,886

)

 

 

442

 

 

 

(6,884

)

Net income (loss)

 

$

18,563

 

 

$

(327,727

)

 

$

45,502

 

 

$

81,611

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - basic

 

$

0.09

 

 

$

(1.67

)

 

$

0.23

 

 

$

0.53

 

Fully diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - fully diluted

 

$

0.09

 

 

$

(1.67

)

 

$

0.23

 

 

$

0.53

 

Weighted average common shares outstanding - basic

 

 

197,054

 

 

 

196,331

 

 

 

196,888

 

 

 

152,864

 

Weighted average common shares outstanding - fully diluted

 

 

197,055

 

 

 

196,331

 

 

 

197,288

 

 

 

153,068

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


 

ULTRA PETROLEUM CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

 

 

(In thousands, except share data)

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,141

 

 

$

16,631

 

Restricted cash

 

 

1,990

 

 

 

1,638

 

Oil and gas revenue receivable

 

 

65,091

 

 

 

86,487

 

Joint interest billing and other receivables, net

 

 

25,521

 

 

 

16,616

 

Derivative assets

 

 

12,728

 

 

 

16,865

 

Income tax receivable

 

 

6,431

 

 

 

10,091

 

Inventory

 

 

20,202

 

 

 

13,450

 

Other current assets

 

 

2,082

 

 

 

5,647

 

Total current assets

 

 

147,186

 

 

 

167,425

 

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

 

 

 

 

 

 

 

 

Proven

 

 

1,459,666

 

 

 

1,325,068

 

Property, plant and equipment, net

 

 

10,876

 

 

 

9,569

 

Other assets

 

 

8,097

 

 

 

10,920

 

Total assets

 

$

1,625,825

 

 

$

1,512,982

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

29,898

 

 

$

59,951

 

Accrued liabilities

 

 

77,016

 

 

 

80,268

 

Production taxes payable

 

 

72,458

 

 

 

51,352

 

Current portion of long-term debt

 

 

4,875

 

 

 

 

Interest payable

 

 

41,821

 

 

 

24,406

 

Derivative liabilities

 

 

61,926

 

 

 

 

Capital cost accrual

 

 

16,468

 

 

 

32,513

 

Total current liabilities

 

 

304,462

 

 

 

248,490

 

Long-term debt

 

 

2,118,329

 

 

 

2,116,211

 

Deferred gain on sale of liquids gathering system

 

 

97,274

 

 

 

105,189

 

Other long-term obligations

 

 

199,874

 

 

 

197,728

 

Total liabilities

 

 

2,719,939

 

 

 

2,667,618

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock - no par value; authorized - unlimited; issued and outstanding - 197,053,583 and 196,346,736 at September 30, 2018 and December 31, 2017, respectively

 

 

2,131,340

 

 

 

2,116,018

 

Treasury stock

 

 

(49

)

 

 

(49

)

Retained loss

 

 

(3,225,405

)

 

 

(3,270,605

)

Total shareholders' deficit

 

 

(1,094,114

)

 

 

(1,154,636

)

Total liabilities and shareholders' equity

 

$

1,625,825

 

 

$

1,512,982

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


 

ULTRA PETROLEUM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

Issued and

Outstanding

 

 

Amount

 

 

Retained (Loss)

Earnings

 

 

Treasury

Stock

 

 

Total

Shareholders'

(Deficit)

Equity

 

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

 

 

2,191

 

 

 

26,673

 

 

 

 

 

 

 

 

 

26,673

 

Net share settlements

 

 

(840

)

 

 

 

 

 

(9,580

)

 

 

 

 

 

(9,580

)

Fair value of employee stock plan grants

 

 

 

 

 

27,278

 

 

 

 

 

 

 

 

 

27,278

 

Net income

 

 

 

 

 

 

 

 

177,140

 

 

 

 

 

 

177,140

 

Balances at December 31, 2017

 

 

196,347

 

 

$

2,116,018

 

 

$

(3,270,605

)

 

$

(49

)

 

$

(1,154,636

)

Stock plan grants

 

 

1,226

 

 

 

 

 

 

 

 

 

 

 

 

 

Net share settlements

 

 

(519

)

 

 

 

 

 

(2,061

)

 

 

 

 

 

(2,061

)

Fair value of employee stock plan grants

 

 

 

 

 

15,322

 

 

 

 

 

 

 

 

 

15,322

 

Net income

 

 

 

 

 

 

 

 

45,502

 

 

 

 

 

 

45,502

 

Initial adoption of ASC 606

 

 

 

 

 

 

 

 

1,759

 

 

 

 

 

 

1,759

 

Balances at September 30, 2018

 

 

197,054

 

 

$

2,131,340

 

 

$

(3,225,405

)

 

$

(49

)

 

$

(1,094,114

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


 

ULTRA PETROLEUM CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Operating activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Net income for the period

 

$

45,502

 

 

$

81,611

 

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

 

 

 

 

 

 

 

 

Depletion, depreciation and amortization

 

 

151,954

 

 

 

111,516

 

Unrealized loss (gain) on commodity derivatives

 

 

72,557

 

 

 

(4,133

)

Deferred gain on sale of liquids gathering system

 

 

(7,915

)

 

 

(7,915

)

Stock compensation

 

 

11,547

 

 

 

34,182

 

Non-cash reorganization items, net

 

 

 

 

 

(451,099

)

Amortization of deferred financing costs

 

 

8,333

 

 

 

4,781

 

Other

 

 

(1,046

)

 

 

(1,014

)

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

12,057

 

 

 

(91

)

Other current assets

 

 

4,829

 

 

 

9,356

 

Other non-current assets

 

 

368

 

 

 

173

 

Accounts payable

 

 

(14,396

)

 

 

38,619

 

Accrued liabilities

 

 

(6,439

)

 

 

89,481

 

Production taxes payable

 

 

21,192

 

 

 

19,006

 

Interest payable

 

 

17,414

 

 

 

231,553

 

Other long-term obligations

 

 

(8,118

)

 

 

(2,455

)

Income taxes payable/receivable

 

 

6,844

 

 

 

(4,787

)

Net cash provided by operating activities

 

 

314,683

 

 

 

148,784

 

Investing Activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Oil and gas property expenditures

 

 

(339,918

)

 

 

(386,754

)

Change in capital cost accrual and accounts payable

 

 

(31,703

)

 

 

20,437

 

Proceeds from sale of oil and gas properties

 

 

65,811

 

 

 

 

Inventory

 

 

(7,572

)

 

 

(5,477

)

Proceeds from sale of capital assets

 

 

2,872

 

 

 

 

Purchase of capital assets

 

 

(4,612

)

 

 

(2,203

)

Net cash used in investing activities

 

 

(315,122

)

 

 

(373,997

)

Financing activities - cash provided by (used in):

 

 

 

 

 

 

 

 

Borrowings under Credit Agreement

 

 

632,000

 

 

 

479,000

 

Payments under Credit Agreement

 

 

(632,000

)

 

 

(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

 

 

(638

)

 

 

(72,913

)

Shares issued, net of transaction costs

 

 

 

 

 

573,774

 

Repurchased shares/net share settlements

 

 

(2,061

)

 

 

(9,581

)

Net cash (used in) provided by financing activities

 

 

(2,699

)

 

 

227,280

 

(Decrease) increase in cash during the period

 

 

(3,138

)

 

 

2,067

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

18,269

 

 

 

405,049

 

Cash, cash equivalents and restricted cash, end of period

$

15,131

 

 

$

407,116

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

6


 

ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED 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. and its wholly-owned subsidiaries (collectively the “Company”, “Ultra”, “our”, “we”, “us”) is an independent oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and natural gas properties. Ultra Petroleum Corp. is incorporated under the laws of Yukon, Canada. The Company’s principal business activities are developing its long-life natural gas reserves in the Pinedale and Jonah fields of the Green River Basin of Wyoming.

On September 25, 2018, the Company completed the sale of its Utah assets to an unnamed third party for net cash proceeds of $69.3 million, including management fees of $0.6 million. The divested assets consisted primarily of oil and gas properties.

1.  SIGNIFICANT ACCOUNTING POLICIES:

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018.

The condensed consolidated balance sheet at December 31, 2017, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2017.

(a) Basis of Presentation and Principles of Consolidation:  The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company transactions and balances have been eliminated.

(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 cash received by the Company from production sold where the final division of ownership of the production is unknown or in dispute. Restricted cash at September 30, 2017 also includes the funds which the Company deposited in a $400.0 million reserve fund pending resolution of make-whole and postpetition interest claims (see Note 9). 

The Company follows Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash and reports the change in cash, cash equivalents, and restricted cash in total on the Condensed Consolidated Statements of Cash Flows.  See the following table for a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows.

 

Current Presentation

 

September 30, 2018

 

 

September 30, 2017

 

Cash and Cash Equivalents

 

$

13,141

 

 

$

5,419

 

Restricted Cash

 

 

1,990

 

 

 

401,697

 

Total cash, cash equivalents, and restricted cash

 

$

15,131

 

 

$

407,116

 

 

(d) Accounts Receivable, net: 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

7


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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 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, 2018 or 2017.

(g) Inventories:  Inventory primarily includes $19.0 million in pipe and production equipment that will be utilized during the 2018-2019 drilling programs and $1.2 million in crude oil inventory as of September 30, 2018.  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. 2015-03, 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 defined below), as a direct deduction from the carrying amount of the

8


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

related debt liability. Costs related to the issuance of the Revolving Credit Facility are recorded in Other assets in the Condensed 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 Condensed Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Condensed Consolidated Statements of Operations.  The Company does not offset the value of its derivative arrangements with the same counterparty. See Note 7 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 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) 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.

 

Certain 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 three and nine months ended September 30, 2018, the Company had 4.9 million and 2.5 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 5 for additional details.

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Share amounts in 000's)

 

Net income (loss)

 

$

18,563

 

 

$

(327,727

)

 

$

45,502

 

 

$

81,611

 

Weighted average common shares outstanding - basic

 

 

197,054

 

 

 

196,331

 

 

 

196,888

 

 

 

152,864

 

Effect of dilutive instruments

 

 

1

 

 

 

 

 

 

400

 

 

 

204

 

Weighted average common shares outstanding - diluted

 

 

197,055

 

 

 

196,331

 

 

 

197,288

 

 

 

153,068

 

Net income (loss) per common share - basic

 

$

0.09

 

 

$

(1.67

)

 

$

0.23

 

 

$

0.53

 

Net income (loss) per common share - fully diluted

 

$

0.09

 

 

$

(1.67

)

 

$

0.23

 

 

$

0.53

 

 

(l) Use of Estimates:  Preparation of condensed consolidated financial statements in accordance with 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.

(m) Accounting for 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.

(n) 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 8 for additional details.

9


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

(o) 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 Condensed Consolidated Balance Sheets.  

(p) Revenue Recognition:  The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices.  On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all related amendments.  See Note 2 for additional details and disclosures related to the Company’s adoption of this standard.

(q) Other revenues: Other revenue is comprised of fees paid to us by the operators of the gas processing plants where our gas is processed.

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

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

(t) Recent Accounting Pronouncements:

Leases.  In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and has subsequently issued several supplemental and/or clarifying ASUs (collectively known as “ASC 842”).  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 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. Ultra will adopt this ASU on January 1, 2019. As permitted by ASU 2018-11, Leases (Topic 842): Targeted Improvements, the Company does not expect to adjust comparative-period financial statements. To facilitate compliance with ASC 842, the Company has formed an implementation work team, developed a project plan, educated departments affected by the standard, initiated the process of reviewing its contract portfolio, and implemented appropriate changes to business systems. The Company will continue to evaluate its processes and internal controls during 2018. Additionally, we are evaluating the disclosure requirements under the new standard to ensure the appropriate information will be available for these disclosures.  While we are continuing to assess all potential impacts of the standard, we anticipate recognition of additional assets and corresponding liabilities related to leases. The overall financial impact is continuing to be evaluated by the Company.

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.  The Company adopted ASU 2017-09 on January 1, 2018 and the implementation of this ASU did not have a material impact on the Company’s consolidated financial statements.

Derivatives.  In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU No. 2017-12”), which makes significant changes to the current hedge accounting rules.  The new guidance impacts the designation of hedging relationships; measurement of hedging relationships; presentation of the effects of hedging relationships; assessment of hedge effectiveness; and disclosures.  The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods.  The Company does not expect the adoption of ASU No. 2017-12 to have a material impact on its consolidated financial statements. 

Fair Value Measurements. In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the public companies for

10


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Company is currently assessing the impact of this standard 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.

On January 1, 2018, we adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments (the “new revenue standard”) using the modified retrospective method.  We recorded a net addition to beginning retained earnings of $1.8 million as of January 1, 2018 due to the cumulative impact of adopting the new revenue standard, with the impact related to changing from the entitlements method to the sales method to account for wellhead imbalances.  The impact to revenues for the nine months ended September 30, 2018 is immaterial to the overall consolidated financial statements as a result of applying the new revenue standard.  The comparative information has not been restated and continues to be reported under the accounting standards for those periods.  See Note 2 for additional details related to the adoption of this standard. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income on an on-going basis.

2.  IMPACT OF ASC 606 ADOPTION

 

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated income statement for the nine months ended September 30, 2018 is as follows:

 

 

 

For the Nine Months Ended September 30, 2018

 

 

 

Under ASC 606

 

 

Under ASC 605

 

 

Increase/ (Decrease)

 

 

 

(Amounts in 000's)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas sales

 

$

479,704

 

 

$

479,915

 

 

$

(211

)

Oil sales

 

 

125,974

 

 

 

125,974

 

 

 

 

Other revenues

 

 

13,611

 

 

 

13,611

 

 

 

 

Total operating revenues

 

 

619,289

 

 

 

619,500

 

 

 

(211

)

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Production taxes

 

 

62,623

 

 

 

62,644

 

 

 

(21

)

Gathering fees

 

 

69,046

 

 

 

69,072

 

 

 

(26

)

Net income

 

$

45,502

 

 

$

45,666

 

 

$

(164

)

 

The change to sales of natural gas is due to the change from using the entitlements method for production imbalances to the sales method.  The Company evaluated the contracts for sales of oil and natural gas utilizing the principal versus agent indicators, noting no change in revenue recognition resulted from the analysis.

 

Revenue Recognition

 

Revenue from Contracts with Customers

 

Sales of oil and natural gas are recognized at the point control of the product is transferred to the customer, collectability is reasonably assured, and the performance obligations are satisfied. Virtually all of our contracts’ pricing provisions are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, quality of the oil or natural gas, and prevailing supply and demand conditions. As a result, the price of the oil and natural gas fluctuates to remain competitive with other available oil and natural gas supplies.

11


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

 

Natural gas sales

We sell natural gas production at the tailgate of the processing plant or at a delivery point downstream, as specified in the contracts with our customers.  The production is sold at set volumes and we collect (i) an agreed upon index price, (ii) a specific index price adjusted for pricing differentials, or (iii) a set price.  We recognize revenue when control transfers to the purchaser at the tailgate of the processing plant or at the agreed-upon delivery point at the net price received. For these contracts, we have concluded that the Company is the principal for our net revenue interest share of the volumes being sold.  Gathering fees are incurred prior to the customer taking control of the product, are not considered to be promised services, and are not included in the transaction price; thus, they are presented as expenses in the Condensed Consolidated Statement of Operations.

 

Our working interest partners are considered the principal for their working interest shares.  They have the option to take in kind their volumes.  The Company may act as an agent and market the other partners’ share of the natural gas production.  If it does so, the Company is considered the agent and revenue is recorded at the Company’s net revenue interest in the production.

Oil sales

We sell oil production at (a) the lease automatic custody transfer (“LACT”) meter for Wyoming condensate, (b) the tank battery for Utah wax/condensate, or (c) a delivery point downstream, as specified in the contracts with our customers.  The production is sold at set volumes and we collect (i) an agreed upon index price, net of pricing differentials or (ii) a set price.  We recognize revenue at the point when the customer takes control of the product.  For these contracts, we have concluded that the Company is the principal for its net revenue interest share of the volumes being sold.  Gathering fees are performed prior to the customer taking control of the product, are not considered to be promised services, and are not included in the transaction price; thus, they are presented as expenses in the Condensed Consolidated Statement of Operations.  In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no change to the method used to recognize oil sales and there was no impact to the condensed consolidated financial statements for oil sales.

Our working interest partners are considered the principal for their working interest shares.  They have the option to take in kind their volumes.  The Company may act as an agent and market the other partners’ share of the oil production.  If it does so, the Company is considered the agent and revenue is recorded at the Company’s net revenue interest in the production.  

 

Other revenues

Our other revenue is comprised of fees paid to us by the operators of the gas processing plants where our gas is processed.  Control is transferred upon completion of the processing service.  The Company is considered the principal, and revenue is recognized at the point in time that the control is transferred.  In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no change to the method used to recognize other processing revenues and there was no impact to the condensed consolidated financial statements for other revenues.

 

Production imbalances

Previously, the Company elected to utilize the entitlements method to account for natural gas imbalances, which is no longer allowed under ASC 606.  In conjunction with the adoption of ASC 606, for the nine months ended September 30, 2018, there was no material impact to the condensed consolidated financial statements due to this change in accounting for our production imbalances.

 

Transaction price allocated to remaining performance obligations

A significant number of our product sales are short-term in nature with a contract term of one year or less. For those contracts, we have utilized the practical expedient in ASC 606-10-50-14 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.

 

12


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

For our product sales that have a contract term greater than one year, we have utilized the practical expedient in ASC 606-10-50-14(a) which states that the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.

 

Contract balances

Under our product sales contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our product sales contracts do not give rise to contract assets or liabilities under ASC 606.

 

Prior-period performance obligations

We record revenue in the month production is delivered to the purchaser. However, settlement statements for certain natural gas may not be received for 30 to 90 days after the date production is delivered, and as a result, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record the differences between our estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. We have existing internal controls for our revenue estimation process and related accruals, and any identified differences between our revenue estimates and actual revenue received historically have not been significant. For the nine months ended September 30, 2018, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was not material.

3.  OIL AND GAS PROPERTIES AND EQUIPMENT:

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Proven Properties:

 

 

 

 

 

 

 

 

Acquisition, equipment, exploration, drilling and abandonment costs

 

$

11,491,066

 

 

$

11,215,563

 

Less:  Accumulated depletion, depreciation and amortization

 

 

(10,031,400

)

 

 

(9,890,495

)

Oil and gas properties, net

 

$

1,459,666

 

 

$

1,325,068

 

 

4.  DEBT AND OTHER LONG-TERM OBLIGATIONS:

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Total Debt:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

4,875

 

 

$

 

 

 

 

 

 

 

 

 

 

Term loan, secured due 2024

 

$

970,125

 

 

$

975,000

 

6.875% Senior, unsecured Notes due 2022

 

 

700,000

 

 

 

700,000

 

7.125% Senior, unsecured Notes due 2025

 

 

500,000

 

 

 

500,000

 

Credit Agreement

 

 

 

 

 

 

Total long-term debt

 

 

2,170,125

 

 

 

2,175,000

 

Less: Deferred financing costs

 

 

(51,796

)

 

 

(58,789

)

Total debt, net of deferred financing costs

 

$

2,123,204

 

 

$

2,116,211

 

Other long-term obligations:

 

 

 

 

 

 

 

 

Other long-term obligations

 

$

199,874

 

 

$

197,728

 

 

 

 

13


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

Ultra Resources, Inc.

Credit Agreement. In April 2017, Ultra Resources, Inc. (“Ultra Resources”), as the borrower, entered into a Credit Agreement (as amended, the “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, 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 Agreement (defined below)).  In September 2017, the administrative agent and the other lenders approved an increase in the borrowing base under the Credit Agreement from $1.2 billion to $1.4 billion as requested by the Company, which included an increase in the commitments under the Revolving Credit Facility to an aggregate amount of $425.0 million.  In April 2018, the administrative agent and the other lenders reaffirmed the borrowing base at $1.4 billion. In September 2018, the borrowing base was reduced to $1.3 billion in connection with the semi-annual redetermination.   At September 30, 2018, Ultra Resources had no outstanding borrowings under the Revolving Credit Facility, total commitments under the Revolving Credit Facility of $325.0 million and a borrowing base of $1.3 billion.

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.  If borrowings are outstanding during a period that the Company’s consolidated net leverage ratio exceeds 4.00 to 1.00 at the end of any fiscal quarter as described below, the interest rate on such borrowings shall be at a per annum rate that is 0.25% higher than the rate that would otherwise apply until the Company has provided financial statements indicating that the consolidated net leverage ratio no longer exceeds 4.00 to 1.00. The Revolving Credit Facility loans mature on January 12, 2022.

The Revolving Credit Facility 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 that does not exceed  (a) 4.50 to 1.00, during the period ending on the last day of the fiscal quarter ending June 30, 2019, (b) 4.25 to 1.00, during the period beginning on the last day of the fiscal quarter ending September 30, 2019 and ending on the last day of the fiscal quarter ending December 31, 2019, and (c) 4.00 to 1.00 beginning on the last day of the fiscal quarter ending on March 31, 2020; and (iv) after the Company has obtained investment grade rating, an asset coverage ratio of 1.50 to 1.00. At September 30, 2018, Ultra Resources was in compliance with all of its debt covenants under the Revolving Credit Facility.  

Under the Revolving Credit Facility, the Company is subject to the following minimum hedging requirements: through September 29, 2019, the Company is required to hedge a minimum of 65% of the quarterly projected volumes of natural gas from its proved developed producing (“PDP”) reserves; and during the period beginning on September 30, 2019 and ending on March 30, 2020, the Company is required to hedge a minimum of 50% of the quarterly projected volumes of natural gas from PDP reserves.  Beginning April 1, 2020, the Company will no longer be subject to a minimum hedging requirement. The Company expects to be in compliance with these requirements while the requirements remain effective.

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 Revolving Credit Facility 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 Revolving Credit Facility 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 Revolving Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Revolving Credit Facility and any outstanding unfunded commitments may be terminated.

Term Loan. In April 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

14


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

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.  In September 2017, the Company closed an incremental senior secured term loan offering of $175.0 million, increasing total borrowings under the Term Loan Agreement to $975.0 million.  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 Term Loan Agreement has capacity to increase the commitments subject to certain conditions.  At September 30, 2018, Ultra Resources had $975.0 million in outstanding borrowings under the Term Loan Agreement, including current maturities.

The Term Loan Agreement bears interest either at a rate equal to (a) a customary London interbank offered rate plus 300 basis points or (b) the base rate plus 200 basis points.  The Term Loan Agreement amortizes in equal quarterly installments in aggregate annual amounts equal to 0.25% of the aggregate principal amount beginning on June 30, 2019. The Term Loan Agreement matures on April 12, 2024.

The Term Loan Agreement is subject to mandatory prepayments and customary reinvestment rights. The mandatory prepayments include, without limitation, a prepayment requirement with the total net proceeds from certain asset sales and net proceeds on insurance received on account of any loss of Ultra Resources’ property or assets, in each case subject to certain exceptions. In addition, subject to certain exceptions, there is a prepayment requirement if the asset coverage ratio is less than 2.0 to 1.0. To the extent any mandatory prepayments are required, prepayments are applied to prepay the Term Loan Agreement.

The Term Loan Agreement also contains customary affirmative and negative covenants, including 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 and other customary covenants. At September 30, 2018, Ultra Resources was in compliance with all of its debt covenants under the Term Loan Agreement.

The Term Loan 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 Term Loan Agreement, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Term Loan Agreement.

Senior Unsecured Notes. In April 2017, the Company issued $700.0 million of its 6.875% senior notes due 2022 (the “2022 Notes”) and $500.0 million of its 7.125% senior notes due 2025 (the “2025 Notes,” and together with the 2022 Notes, the “Unsecured Notes”) and entered into an Indenture, dated April 12, 2017 (the “Indenture”), among Ultra Resources, as issuer, and the Company and its subsidiaries, as guarantors. The Unsecured Notes are treated as a single class of securities under the Indenture.

The Unsecured Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws, and unless so registered, the securities may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Unsecured Notes may be resold to qualified institutional buyers pursuant to Rule 144A under the Securities Act or to non-U.S. persons pursuant to Regulation S under the Securities Act.

The 2022 Notes will mature on April 15, 2022. The interest payment dates for the 2022 Notes are April 15 and October 15 of each year. The 2025 Notes will mature on April 15, 2025. The interest payment dates for the 2025 Notes are April 15 and October 15 of each year. Interest will be paid on the Unsecured Notes from the issue date until maturity.  

Prior to April 15, 2019, Ultra Resources may, at any time or from time to time, redeem in the aggregate up to 35% of the aggregate principal amount of the 2022 Notes, in an amount no greater than the net cash proceeds of certain equity offerings at a redemption price of 106.875% of the principal amount of the 2022 Notes, plus accrued and unpaid interest, if any, to the date of redemption, if at least 65% of the original principal amount of the 2022 Notes remains outstanding and the redemption occurs within 180 days of the closing of such equity offering. In addition, before April 15, 2019, Ultra Resources may redeem all or a part of the 2022 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, on or after April 15, 2019, Ultra Resources may redeem all or a part of the 2022 Notes at redemption prices (expressed as percentages of principal amount) equal to 103.438% for the twelve-month period beginning on April 15, 2019, 101.719% for the twelve-month period beginning

15


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

April 15, 2020, and 100.000% for the twelve-month period beginning April 15, 2021 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date on the 2022 Notes.

Prior to April 15, 2020, Ultra Resources may, at any time or from time to time, redeem in the aggregate up to 35% of the aggregate principal amount of the 2025 Notes, in an amount no greater than the net cash proceeds of certain equity offerings at a redemption price of 107.125% of the principal amount of the 2025 Notes, plus accrued and unpaid interest, if any, to the date of redemption, if at least 65% of the original principal amount of the 2025 Notes remains outstanding and the redemption occurs within 180 days of the closing of such equity offering. In addition, before April 15, 2020, Ultra Resources may redeem all or a part of the 2025 Notes at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) a make-whole premium at the redemption date, plus accrued and unpaid interest, if any, to the redemption date. In addition, on or after April 15, 2019, Ultra Resources may redeem all or a part of the 2025 Notes at redemption prices (expressed as percentages of principal amount) equal to 105.344% for the twelve-month period beginning on April 15, 2020, 103.563% for the twelve-month period beginning April 15, 2021, 101.781% for the twelve-month period beginning April 15, 2022, and 100.000% for the twelve-month period beginning April 15, 2023 and at any time thereafter, plus accrued and unpaid interest, if any, to the applicable redemption date on the 2025 Notes.

If Ultra Resources experiences certain change of control triggering events as set forth in the Indenture, each holder of the Unsecured Notes may require Ultra Resources to repurchase all or a portion of its Notes for cash at a price equal to 101% of the aggregate principal amount of such Unsecured Notes, plus any accrued but unpaid interest to the date of repurchase.

The Indenture contains customary covenants that restrict the ability of Ultra Resources and the guarantors and certain of its subsidiaries to: (i) sell assets and subsidiary equity; (ii) incur indebtedness; (iii) create or incur certain liens; (iv) enter into affiliate agreements; (v) enter into agreements that restrict distributions from certain restricted subsidiaries and the consummation of mergers and consolidations; (vi) consolidate, merge or transfer all or substantially all of the assets of the Company or any Restricted Subsidiary (as defined in the Indenture); and (vii) create unrestricted subsidiaries. The covenants in the Indenture are subject to important exceptions and qualifications. Subject to conditions, the Indenture provides that the Company and its subsidiaries will no longer be subject to certain covenants when the Unsecured Notes receive investment grade ratings from any two of S&P Global Ratings, Moody’s Investors Service, Inc., and Fitch Ratings, Inc. At September 30, 2018, Ultra Resources was in compliance with all of its debt covenants under the Unsecured Notes.

The Indenture contains customary events of default. Unless otherwise noted in the Indenture, upon a continuing event of default, the trustee under the Indenture (the “Trustee”), by notice to the Company, or the holders of at least 25% in principal amount of the then outstanding Unsecured Notes, by notice to the Company and the Trustee, may, declare the Unsecured Notes immediately due and payable, except that an event of default resulting from entry into a bankruptcy, insolvency or reorganization with respect to the Company, any Significant Subsidiary (as defined in the Indenture) or group of Restricted Subsidiaries (as defined in the Indenture), that taken together would constitute a Significant Subsidiary, will automatically cause the Unsecured Notes to become due and payable.

On October 17, 2018, the Company entered into an exchange agreement relating to the Unsecured Notes, as discussed further in Note 11.

Other long-term obligations:  These costs primarily relate to the long-term portion of production taxes payable and asset retirement obligations.

16


ULTRA PETROLEUM CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Unaudited)

 

5.  SHARE BASED COMPENSATION:

Valuation and Expense Information 

 

 

 

For the Three Months

 

 

For the Nine Months Ended

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Total cost of share-based payment plans

 

$

2,148

 

 

$

10,276

 

 

$

15,321

 

 

$

46,166

 

Amounts capitalized in oil and gas properties and equipment

 

$

724