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Ultra Negotiating With Creditors Over $3.76 Billion Debt

Executives with Ultra Petroleum Corp. said the company has so far been unable to obtain relief on debt covenants from several of its creditors. It is working on forbearance agreements with some of them to allow more time to restructure its debt -- all unsecured -- which currently stands at $3.76 billion.

The Houston-based exploration and production (E&P) company also said that it recently borrowed the remaining $266 million from its $1 billion revolving credit facility. Ultra said its total debt obligations include $450 million of unsecured notes that are due in 2018, plus another $850 million due in 2024. Another $999 million is due under Ultra's credit agreement and $1.46 billion issued by its subsidiary, Ultra Resources Inc.

During an earnings call Thursday, CEO Michael Watford said the company has been in discussions with its creditors since early in 4Q2015, but the efforts have so far been unsuccessful.

"Due to continued deterioration in our industry, we need to restructure our debt with our creditors providing concessions and discounts," Watford said. He added that Ultra is "waiting on some sort of constructive reply...We're in a unique position. It's not all that pleasant, but we need some help from the creditors to get this thing across the finish line."

When Watford was asked if the company was still in discussions with all of the operating company's lenders, or if he would characterize the discussions as moving toward a prepackaged bankruptcy or an out-of-court exchange, the CEO replied, "Everything at this point in time is about out-of-court resolution of our credit issues."

Watford added that a proposal Ultra made in early January to the operating company's lenders "didn't have [them] taking a haircut, but that's hard to see that's a realistic proposal anymore."

Ultra's stock plummeted on the news. After opening at 62 cents/share on the New York Stock Exchange on Thursday, it was down 36.6% (24 cents/share) to 41 cents/share by late afternoon.

Brad Johnson, senior vice president for operations, said Ultra drilled 50 wells during the fourth quarter, including 37 wells from its operating program that had an average cost of $2.75 million per well. He added that 4Q2015 was the fifth consecutive quarter that well costs had significantly declined.

Johnson said the company dropped a drilling rig in December and ended 2015 with three operated and three non-operated rigs in its core asset, Wyoming's Pinedale Anticline. He added that since the beginning of 2016, Ultra has dropped another operated rig and its drilling partner has dropped two, meaning that two operated rigs and one non-operated rig are currently deployed in the Pinedale. Ultra plans to keep that setup through 2016, he said.

Ultra plans to spend $260 million on capital expenditures (capex) in 2016, an amount 43.5% less than the $460 million it allocated for capex in 2015, although it ultimately wound up spending $494 million, an amount $59 million more than cash flow. The bulk of the capex budget for 2016, $239 million, will go toward drilling and completion costs in the Pinedale, with the remaining $13 million going to corporate expenses and $8 million for other purposes.

The E&P produced 73.8 Bcfe during 4Q2015, which included 68.9 Bcf of natural gas and 818,083 bbl of crude oil and condensate. That represented a 4.5% increase from 4Q2014, which was 70.6 Bcfe, including 64.2 Bcf and 1.06 million bbl (see Shale Daily,Feb. 19, 2015). The company met its production guidance (288-292 Bcfe) for the full-year 2015 with 290.1 Bcfe, which included 269 Bcf of gas and 3.5 million bbl of oil and condensate. The 2015 total was a 16.5% increase from 2014 (249 Bcfe -- 228.5 Bcf, 3.41 million bbl).

But the collapse in commodity prices took its toll in 2015. Ultra said its realized natural gas price, including realized gains and losses on commodity hedges, was $2.61/Mcf for the fourth quarter and averaged $3.14/Mcf for the year. Meanwhile, oil and condensate fetched a realized price of $35.51/bbl during the quarter and averaged $40.31/bbl for the year. As a consequence, total operating revenues fell 40.7% from 4Q2014 ($319 million) to 4Q2015 ($189.3 million), and 31.8% between the full-years 2014 ($1.23 billion) and 2015 ($839.1 million).

The company generated $78 million (51 cents/share) in operating cash flow in 4Q2015, and $437.1 million ($2.85/share) for the full-year 2015. Cash flow declined 57.3% from 4Q2014 ($1.20/diluted share, $183.8 million) and 36.7% from the full-year 2014 ($2.60/diluted share, $690.7 million).

The company said it expects 2016 production to range between 265-280 Bcfe. Production for 1Q2016 is expected to range 70-73 Bcfe.

According to Ultra's most recent presentation, as of September 2015 the company held 67,000 net acres in the Pinedale and Jonah gas fields in Wyoming. It also held 9,000 net acres in the Three Rivers area of the Uinta Basin in Utah, and 76,000 net acres in the Marcellus Shale in Pennsylvania, where it has an area of mutual interest with Anadarko Petroleum Corp. and an affiliate of Japan's Mitsui & Co. Ltd. (see Shale DailyMay 8, 2012; Daily GPIFeb. 17, 2010).

Johnson said drilling and completion (D&C) operations in Utah remain suspended. He added that there were no D&C operations in Pennsylvania in 2015 and none are planned in 2016. Despite this, production averaged 4,003 boe/d in Utah and 40.5 MMcf/d in Pennsylvania in 4Q2015.

At the end of 2015, Ultra's proved reserves totaled 2.53 Tcfe with a PV-10 (pre-tax estimated future net cash flows discounted at 10% value) of $1.87 billion. Both values are down significantly from 2014 due to falling commodity prices. The company added that due to uncertainty over financing the development of its proved undeveloped reserves (PUDs) over the next five years, all PUDs were transferred and booked in the probable category as of Dec. 31, 2015.

Ultra reported an adjusted net loss of $39 million (minus 25 cents/share) for 4Q2015, and had adjusted net income of $46.8 million (31 cents/share) for the full-year 2015.

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