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Bankruptcy Toll Continues as Midstates, Ultra File For Chapter 11

Continuing low commodity prices and a combined $5.8 billion in debt have forced two independent exploration and production companies (E&P) with holdings in several shale plays, Midstates Petroleum Co. Inc. and Ultra Petroleum Corp., to voluntarily file separate motions for bankruptcy protection.

According to records with the U.S. Bankruptcy Court for the Southern District of Texas, Ultra filed for Chapter 11 last Friday [Case No. 16-32202], and Midstates did likewise on Saturday [Case No. 16-32237].

Ultra Failed to Reach Agreement With Creditors

According to an affidavit by CFO Garland Shaw, Houston-based Ultra currently has approximately $3.76 billion of debt, all of which is unsecured. The company's subsidiary debts account for about $2.46 billion, with the remaining $1.3 billion from senior notes.

Shaw said Ultra began negotiations with its creditors last October, and waiver and amendment agreements were signed on March 1 (see Shale DailyFeb. 19). The agreements were intended to the company time to negotiate an out-of-court restructuring transaction, and to defer about $104.7 million in principal and interest payments due between March 1 and April 30.

Although the company held meetings in March and April to discuss debt restructuring further, Shaw said a final agreement proved elusive, and Ultra realized it would probably be unable to reach one before forbearance and waiver agreements expired last Saturday.

"During the coming weeks and months, the debtors plan to engage all of their constituencies, including the to-be-formed official committee of unsecured creditors, in a productive dialogue regarding restructuring alternatives designed to maximize value for all of the company's stakeholders," Shaw said in the affidavit. "The debtors also plan to carefully evaluate their contractual obligations and identify opportunities to renegotiate or reject those that are no longer beneficial to the estate."

Shaw said Ultra's common stock has been trading at less than $1/share on the New York Stock Exchange (NYSE) for most of 2016, and warned that the company could be delisted. The company has about 153.4 million outstanding shares of common stock.

Last March, Rockies Express Pipeline LLC (REX) terminated its firm transportation service agreement with Ultra Resources Inc. after it missed a payment and failed to provide adequate credit support (see Shale DailyMarch 29). The subsidiary conducts all of the company's oil and gas operations

Ultra has an operations office in Denver and field offices in Pinedale, WY, and Vernal, UT. It has 159 full-time employees. The company has the largest acreage position in the Pinedale Field in Wyoming -- most of which was acquired in the 1990s, but it bought additional acreage there from SWEPI LP, a subsidiary of Royal Dutch Shell plc, in September 2014 (see Shale DailyFeb. 19, 2015).

Ultra also holds acreage in the Three Rivers Formation in Utah and the Marcellus Shale in Pennsylvania. At the end of 2015, Ultra held 151,000 net acres and had 1,979 net producing wells, with production for the year totaling 290 Bcfe and proved reserves of 2,528 Bcfe.

Broken down by play, Ultra held 68,000 net acres in the Pinedale, 9,000 net acres in the Three Rivers area and 74,000 net acres in the Marcellus at the end of 2015. Most of the company's wells (1,803) are in the Pinedale, but it also has 124 wells targeting the Three Rivers Formation and 52 drilled in the Marcellus. Production for 2015 was 265 Bcfe in the Pinedale, 11 Bcfe for Three Rivers and 14 Bcfe in the Marcellus. Nearly all (94%) of the company's proved reserves are in the Pinedale (2,390 Bcfe), followed by Three Rivers (1%, 34 Bcfe) and the Marcellus (4%, 104 Bcfe).

The Ultra case is being presided over by Judge Marvin Isgur.

Midstates Signs Deal With Creditors, Plans Quick Chapter 11 Exit

Meanwhile, Midstates' CFO Nelson Haight said in a separate affidavit that the company has about $2.04 billion in total funded debt, of which $625 million is due to second lien noteholders and third lien noteholders are owed $529.7 million. Midstates -- which has co-headquarters in Houston and Tulsa -- owes $249.2 million to its reserve-based revolving first lien credit facility (RBL), $293.6 million for senior notes due in 2020, and $347.7 million for 2021 senior notes.

Haight said the company met in mid-April with some of its creditors to discuss a plan support agreement (PSA), and that during the meeting the divide "between the parties grew closer and the issues narrowed to a few terms for each of the new exit facility and the overall restructuring transaction." Before last Saturday's bankruptcy filing, the parties reached a consensus "on the terms of the new exit strategy and...the economics for the debt-to-equity conversion of the remainder of the debtors' capital structure and the parameters for the parties' efforts to implement their deal."

According to Midstates, the PSA calls for the permanent pay-down of $82 million of its first lien debt, and a $170 million credit facility upon its emergence from Chapter 11, in the form of either a reserve-based revolving credit facility, a term loan, or a combination of the two. The PSA also calls for paying up to $60 million of its second lien debt, and the conversion into equity of all of the its remaining debt junior to the first lien debt.

"The sharp decline in oil prices since 2014 has put much of the oil and gas industry in financial difficulty," said Midstates CEO Jake Brace. "While our premier Mississippian Lime assets can achieve solid rates of return in the current price environment, our highly leveraged balance sheet has severely limited our ability to sustain our operations during an extended period of low prices.

"We believe that by restructuring [our] balance sheet now, we will be able to navigate through this downturn and create a much stronger and more financially sound company that will have long-term benefits for our employees, vendors, and all our stakeholders. We will operate our business as usual throughout this process and will complete our reorganization as quickly and cost effectively as possible."

According to a corporate presentation Midstates posted online on Monday, the company holds more than 205,000 net acres in the Midcontinent region with more than 2,700 drilling locations in inventory. It holds 94,500 net acres in the Mississippian Lime formation in Oklahoma, and 111,200 net acres in the Anadarko Basin, in Oklahoma and Texas.

Midstates reported average net production of 25,222 boe/d in the Mississippian Lime and 5,668 boe/d in the Anadarko Basin in 4Q2015.

Midstates and PetroQuest Energy Inc. formed a joint venture (JV) to develop Midstates' oily Fleetwood project in central Louisiana in June 2014, but the company said there are no current plans for further development of the acreage in the current commodity price environment (see Shale DailyJune 30, 2014). The JV expires in 2020.

Judge David Jones is presiding over the Midstates case.

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