Ultra Petroleum sounds going concern warning; bankruptcy a possibility

By Caroline Salls

Pittsburgh, Feb. 29 – Ultra Petroleum Corp. said in a 10-K filed Monday with the Securities and Exchange Commission that continued low oil and natural gas prices during 2015 had a significant adverse affect on its business, raising substantial doubt about its ability to continue as a going concern.

As of Monday, the company had $3.76 billion in debt, comprised of $450 million of unsecured senior notes due 2018, $850 million of unsecured senior notes due 2024, a $999 million credit agreement between wholly owned subsidiary Ultra Resources, Inc. and JPMorgan Chase Bank and $1.46 billion in unsecured senior notes issued by Ultra Resources and guaranteed by Ultra Petroleum and UP Energy Corp.

In addition, the company said it recently borrowed $266 million under the credit agreement, which represented substantially all of the remaining undrawn amount. No substantial further extensions of credit are available under the credit agreement.

The company said its cash on hand as of Feb. 29 exceeded the amount recently borrowed under the credit agreement.

Covenant compliance issues

Based on EBITDAX for the trailing four fiscal quarters ended Dec. 31, Ultra Petroleum said it was in compliance with the consolidated leverage ratio covenant in the credit agreement and the master note purchase agreement as of Dec. 31. However, based on estimates of forward commodity prices and the company’s most recent production forecasts, Ultra Petroleum expects to breach the consolidated leverage covenant for the trailing four fiscal quarters ended March 31.

Ultra Petroleum said a violation of this covenant can become an event of default under its debt agreements and result in the acceleration of all of its debt.

Based on the net present value of Ultra Resources’ oil and gas properties and Ultra Resources’ total funded consolidated debt of Dec. 31, Ultra Petroleum said it also expects to breach the PV-9 ratio in the credit agreement when it reports whether or not it is in compliance with the covenant on April 1. This breach could also result in acceleration of all of the company’s debt.

The going concern uncertainty statement included in the 10-K is also expected to result in a default under the credit agreement when the company’s financial statements are delivered to lenders on March 15.

Based on its EBITDA for the trailing four fiscal quarters ended Dec. 31, Ultra Petroleum said it was in compliance with the interest charge coverage ratio in the indentures governing its 2018 notes and 2024 notes as of Dec. 31.

However, if commodity prices stay at or decline from recent levels or if Ultra Petroleum fails to develop new properties and operate its existing properties profitably or if its interest expense increases as a result of changes in or breaches of the agreements governing its debt, the company said it may not be able to continue to comply with this covenant during the next 12 months.

If this covenant is breached, Ultra Petroleum said its ability to incur additional debt will be limited, or it may not be able to incur additional debt at all.

Restructuring options

If it is unable to cure any of these defaults or obtain a forbearance, a waiver or replacement financing and its debt is accelerated, Ultra Petroleum said it may consider various forms of negotiated restructurings of its debt obligations and/or asset sales under court supervision through a Chapter 11 bankruptcy filing or a filing under the Canadian Bankruptcy and Insolvency Act.

The company said it is also possible that its creditors may file an involuntary bankruptcy petition against Ultra Petroleum and its subsidiaries.

Ultra Petroleum is a Houston-based independent exploration and production company.

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