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Ultra Petroleum Plans to Emerge From Bankruptcy by Early April

Less than a year after voluntarily filing for bankruptcy protection and with economic and operational news brighter, Ultra Petroleum Corp. is just weeks away from emerging and expects growth in 2017, CEO Mike Watford said Wednesday.

"2016 was certainly a difficult year for us, with low natural gas prices necessitating lower capex [capital expenditures], lower production, lower EBITDA [earnings before interest, tax, depreciation and amortization] and cash flow, and the need for restructuring of the balance sheet," Watford said during an earnings announcement. "Today, the trough has passed, with capex, production, EBITDA and cash flow all growing, and a plan to finalize restructuring."

With about $3.76 billion in unsecured debt, Houston-based Ultra filed for bankruptcy protection last April. At the time, the company's subsidiary debts accounted for about $2.46 billion, with the remaining $1.3 billion from senior notes.

The company filed in U.S. Bankruptcy Court for the Southern District of Texas [No. 16-32202]. At that time, Ultra's common stock had been trading at less than $1/share on the New York Stock Exchange; by midday Wednesday, following the earnings announcement, Ultra stock was trading at $7.93/share, up 43 cents on the day.

In November, Ultra reached agreements to reorganize with most of its shareholders and creditors. The company entered into a plan support agreement and a backstop commitment agreement with creditors holding "a substantial majority" of the principal amount outstanding on its 5.75% senior notes due in 2018, and for 6.125% senior notes due in 2024. The company also said shareholders "who own at least a majority" of its outstanding common stock had signed on to the agreements.

Earlier this month, Ultra obtained the commitment of Barclays Bank to provide financing to fund up to $2.4 billion in debt, according to CFO Garland Shaw. A disclosure statement was approved by the court Feb. 13 and a hearing to consider confirmation of the reorganization plan is scheduled for March 14. If approved, the plan would raise $580 million in equity and clear the way for it to borrow $2 billion of exit financing and put in place a $400 million revolving credit facility.

"We will repay our outstanding private placement notes at $1.46 billion plus allowable interest, as well as repay our outstanding credit facility balance of $999 million plus allowable interest," Shaw said. "Furthermore, our $1.3 billion in senior notes outstanding at the holding company level will be repaid in full in common equity. The company's existing equity holders will receive at least 41% of the reorganized equity. If all goes as planned, we expect to exit Chapter 11 by the end of March or early April."

In 2017, Ultra is focused on finishing the restructuring process, and management believes it has a clear path forward and "hopes to get back to the growth mode," Watford said. "Our capital budget for 2017, which is almost double 2016's, is $500 million. As for activity levels, we operated two rigs in Wyoming for most of 2016 and added two additional rigs in the fourth quarter; currently we are adding a fifth rig and are planning a sixth in Wyoming, and more activity will follow."

For 4Q2016, Ultra posted a net loss of $34.4 million (minus 22 cents/share), compared with a loss of $3.20 billion (minus $20.91) in 4Q2015.

In Wyoming, Ultra and its partners drilled 32 gross (24.1 net) Pinedale wells and placed in production 24 gross (17.9 net) wells in the fourth quarter. Average initial production rate for new operated wells brought online was 6.0 MMcfe/d, and quarterly production average 687.6 MMcfe/d. Total 4Q2016 production in the state was 63.3 Bcfe.

In Utah, net production during the quarter averaged 3,062 boe/d, and the company averaged 35.6 MMcf/d in Pennsylvania.

Last month, Ultra and Tallgrass Energy Partners LP (TEP) settled a $303 million breach of contract claim TEP filed over missed payments for service on the Rockies Express Pipeline LLC (REX). TEP had filed the claim as part of Ultra's Chapter 11 restructuring proceedings.   

Under terms of the settlement, Ultra will pay REX $150 million in cash within six months of emerging from bankruptcy or by Oct. 30, according to TEP. Ultra has also agreed to commit to a seven-year firm transportation agreement for 200,000 Dth/d of west-to-east service on REX. That agreement will begin Dec. 1, 2019 and total roughly $26.8 million a year. About a month before Ultra filed for bankruptcy, REX canceled the company's firm transportation contract due to missed payment and a failure to provide adequate credit support, the pipeline told the Federal Energy Regulatory Commission.

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