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Form 10-Q ULTRA PETROLEUM CORP For: Mar 31

April 29, 2016 6:15 AM EDT
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

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)

400 North Sam Houston Parkway E.,

Suite 1200, Houston, Texas

  77060
(Address of principal executive offices)   (Zip code)

(281) 876-0120

(Registrant’s telephone number, including area code)

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  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

The number of common shares, without par value, of Ultra Petroleum Corp., outstanding as of April 20, 2016 was 153,388,832.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

   PART I — FINANCIAL INFORMATION   

ITEM 1.

   Financial Statements      1   

ITEM 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   

ITEM 3.

   Quantitative and Qualitative Disclosures About Market Risk      40   

ITEM 4.

   Controls and Procedures      41   
   PART II — OTHER INFORMATION   

ITEM 1.

   Legal Proceedings      42   

ITEM 1A.

   Risk Factors      42   

ITEM 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      46   

ITEM 3.

   Defaults upon Senior Securities      46   

ITEM 4.

   Mine Safety Disclosures      46   

ITEM 5.

   Other Information      46   

ITEM 6.

   Exhibits      47   
   Signatures      48   
   Exhibit Index      49   


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

ULTRA PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

     For the Three Months Ended
March 31,
 
     2016     2015  
     (Unaudited)  
    

(Amounts in thousands, except

per share data)

 

Revenues:

    

Natural gas sales

   $ 138,102      $ 183,795   

Oil sales

     21,284        35,514   
  

 

 

   

 

 

 

Total operating revenues

     159,386        219,309   

Expenses:

    

Lease operating expenses

     25,394        26,112   

Liquids gathering system operating lease expense

     5,171        5,162   

Production taxes

     15,231        19,895   

Gathering fees

     22,450        19,757   

Transportation charges

     23,555        20,191   

Depletion, depreciation and amortization

     30,848        94,590   

General and administrative

     4,219        3,640   
  

 

 

   

 

 

 

Total operating expenses

     126,868        189,347   

Operating income

     32,518        29,962   

Other income (expense), net:

    

Interest expense

     (49,903     (42,668

Gain (loss) on commodity derivatives

     —          36,865   

Deferred gain on sale of liquids gathering system

     2,638        2,638   

Litigation expense

     —          (3,664

Restructuring expenses

     (5,579     —     

Other (expense) income, net

     (1,695     34   
  

 

 

   

 

 

 

Total other expense, net

     (54,539     (6,795

(Loss) income before income tax benefit

     (22,021     23,167   

Income tax benefit

     (190     (2,022
  

 

 

   

 

 

 

Net (loss) income

   $ (21,831   $ 25,189   
  

 

 

   

 

 

 

Net (loss) income per common share — basic

   $ (0.14   $ 0.16   
  

 

 

   

 

 

 

Net (loss) income per common share — diluted

   $ (0.14   $ 0.16   
  

 

 

   

 

 

 

Weighted average common shares outstanding — basic

     153,322        153,042   
  

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     153,322        155,703   
  

 

 

   

 

 

 

 

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ULTRA PETROLEUM CORP.

CONSOLIDATED BALANCE SHEETS

 

     March 31,
2016
    December 31,
2015
 
     (Unaudited)        
    

(Amounts in thousands of

U.S. dollars, except share data)

 
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 281,506      $ 4,143   

Restricted cash

     1,250        115   

Oil and gas revenue receivable

     46,495        61,881   

Joint interest billing and other receivables

     14,167        11,356   

Deposits and retainers

     13,690        236   

Income tax receivable

     5,340        5,150   

Inventory

     4,027        4,269   

Other current assets

     6,136        4,064   
  

 

 

   

 

 

 

Total current assets

     372,611        91,214   

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

    

Proven

     901,084        851,145   

Unproven properties not being amortized

     —          —     

Property, plant and equipment, net

     8,391        8,844   

Deferred income taxes

     1        1   

Other

     835        835   
  

 

 

   

 

 

 

Total assets

   $ 1,282,922      $ 952,039   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 42,547      $ 93,415   

Accrued liabilities

     64,916        72,428   

Production taxes payable

     51,414        52,273   

Current portion of long-term debt

     3,739,787        3,370,553   

Interest payable

     84,910        42,657   

Capital cost accrual

     9,478        20,571   
  

 

 

   

 

 

 

Total current liabilities

     3,993,052        3,651,897   

Deferred gain on sale of liquids gathering system

     123,656        126,295   

Other long-term obligations

     177,564        165,784   

Commitments and contingencies (Note 8)

    

Shareholders’ equity:

    

Common stock — no par value; authorized — unlimited; issued and outstanding — 153,388,832 and 153,255,989 at March 31, 2016 and December 31, 2015, respectively

     504,778        502,050   

Treasury stock

     (176     (176

Retained loss

     (3,515,952     (3,493,811
  

 

 

   

 

 

 

Total shareholders’ equity

     (3,011,350     (2,991,937
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,282,922      $ 952,039   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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ULTRA PETROLEUM CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Three Months Ended
March 31,
 
     2016     2015  
     (Unaudited)  
     (Amounts in thousands of U.S. dollars)  

Cash provided by (used in):

    

Operating activities:

    

Net (loss) income for the period

   $ (21,831   $ 25,189   

Adjustments to reconcile net (loss) income to cash provided by operating activities:

    

Depletion, depreciation and amortization

     30,848        94,590   

Deferred income tax benefit

     —          (258

Unrealized gain (loss) on commodity derivatives

     —          (7,506

Deferred gain on sale of liquids gathering system

     (2,638     (2,638

Stock compensation

     1,797        1,993   

Other

     4,063        3,601   

Net changes in operating assets and liabilities:

    

Restricted cash

     (1,135     2   

Accounts receivable

     10,940        35,743   

Other current assets

     (15,121     (2,265

Accounts payable

     (50,867     (22,308

Accrued liabilities

     (9,970     (9,586

Production taxes payable

     (859     (2,708

Interest payable

     42,253        (2,518

Other long-term obligations

     9,020        12,232   

Income taxes payable/receivable

     (190     (1,764
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (3,690     121,799   

Investing Activities:

    

Acquisition of oil and gas properties

     —          3,964   

Oil and gas property expenditures

     (76,672     (132,086

Change in capital cost accrual

     (11,092     (12,248

Inventory

     (8     (14

Purchase of capital assets

     132        90   
  

 

 

   

 

 

 

Net cash used in investing activities

     (87,640     (140,294

Financing activities:

    

Borrowings on long-term debt

     369,000        454,000   

Payments on long-term debt

     —          (391,000

Deferred financing costs

     —          6   

Repurchased shares/net share settlements

     (307     (2,419

Payment of contingent consideration

     —          (17,049
  

 

 

   

 

 

 

Net cash provided by financing activities

     368,693        43,538   

Increase in cash and cash equivalents during the period

     277,363        25,043   

Cash and cash equivalents, beginning of period

     4,143        8,919   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 281,506      $ 33,962   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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ULTRA PETROLEUM CORP.

NOTES TO 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. (the “Company”) is an independent oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and natural gas properties. The Company is incorporated under the laws of Yukon, Canada. The Company’s principal business activities are developing its long-life natural gas reserves in the Green River Basin of Wyoming — the Pinedale and Jonah fields, its oil reserves in the Uinta Basin in Utah and its natural gas reserves in the Appalachian Basin of Pennsylvania.

Liquidity and Ability to Continue as a Going Concern

As disclosed in our most recent Annual Report on Form 10-K, because low crude oil and natural gas prices during 2015 had a significant adverse impact on our business and our financial condition, substantial doubt exists that we will be able to continue as a going concern. Although crude oil and natural gas prices have improved somewhat in recent weeks, product prices continue to be historically low, our financial condition continues to be distressed, and substantial doubt continues to exist that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”) or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada. Investors should review the disclosures and other information, including the risk factors, provided in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K.

On March 1, 2016, we entered into a Limited Waiver Agreement with the lenders under the credit agreement between our wholly-owned subsidiary, Ultra Resources, Inc. (“Ultra Resources), as the borrower, and JPMorgan Chase Bank, as the administrative agent, and the lenders thereto (the “Credit Agreement”) (the “Bank Waiver”) and a Waiver and Amendment to Master Note Purchase Agreement, Notes and Supplement with the holders of the unsecured senior notes issued by Ultra Resources (collectively, the “Senior Notes”) pursuant to the Master Note Purchase Agreement dated March 6, 2008 (as supplemented, the “MNPA”) (the “MNPA Waiver” and, together with the Bank Waiver, the “Waiver Agreements”). Under the Waiver Agreements, the lenders and holders, as applicable, party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, as applicable, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement or the MNPA, as applicable, that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

continuing to negotiate a restructuring of our indebtedness; but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 6.125% Senior Notes due 2024 (the “2024 Notes”). The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

The following events have occurred since February 29, 2016 (when we filed our most recent Annual Report on Form 10-K):

 

   

On March 1, 2016, we entered into the Bank Waiver with the lenders under the Credit Agreement between Ultra Resources, as the borrower, and JPMorgan Chase Bank, as the administrative agent, and the lenders thereto, and the MNPA Waiver with 100% of the holders of the Senior Notes issued by Ultra Resources pursuant to the MNPA. The Waiver Agreements were effective March 1, 2016 and provide for a forbearance period extending through no later than April 30, 2016. These events were disclosed in our Current Report on Form 8-K filed March 2, 2016.

 

   

On March 1, 2016, we elected not to make a $62.0 million principal payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

 

   

On March 1, 2016, we elected not to make a $40.0 million interest payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

 

   

On March 8, 2016, we received a letter from Sempra Rockies Marketing, LLC (“Sempra”) notifying us that Sempra was exercising its alleged right to permanently recall the 50,000 MMBtu/day of capacity on the Rockies Express pipeline and that the recall would be effective as of March 9, 2016. We had previously received a letter, dated February 26, 2016, from Sempra alleging that we were in breach of our Capacity Release Agreement, dated March 5, 2009, due to nonpayment of fees for transportation service and notifying us that Sempra was authorized to recall the capacity released to us under the agreement and to pursue any claims for damages or other remedies to which Sempra was entitled.

 

   

On March 11, 16, 21, and 31, 2016, we elected not to make a total of $2.7 million of interest payments due under the Credit Agreement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On March 15, 2016, we delivered, to the lenders under the Credit Agreement, an audit report prepared by our auditors with respect to the financial statements in our most recent Annual Report on Form 10-K, which included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement requires us to deliver annual audited, consolidated financial statements without a “going concern” or like qualification or explanation. The Credit Agreement

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

 

provides a 30-day grace period related to this requirement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On March 15, 2016, we received a notice from the New York Stock Exchange (“NYSE”) that we were not in compliance with the NYSE’s continued listing standards, and, as a result, there is a significant risk our common stock will be delisted from the NYSE. This event was disclosed in our Current Report on Form 8-K filed March 18, 2016.

 

   

On March 28, 2016, we received a letter from Rockies Express Pipeline notifying us that, according to Rockies Express, our transportation agreement had terminated effective as of March 26, 2016 due to our alleged defaults under the terms of the Rockies Express tariff and our transportation agreement.

 

   

On April 1, 2016, we notified the lenders under the Credit Agreement of the annual redetermination of the PV-9 value of our proved reserves. The Credit Agreement requires Ultra Resources to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. Based on the PV-9 of its oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant (the ratio was 0.9 times at March 31, 2016). Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. This event was disclosed in our Current Report on Form 8-K filed April 1, 2016.

 

   

On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

 

   

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously.

1. SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements, other than the balance sheet data as of December 31, 2015, are unaudited and were prepared from the Company’s records, but do not include all disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”). Balance sheet data as of December 31, 2015 was derived from the Company’s audited financial statements. The Company’s management believes that these financial statements include all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All adjustments are of a normal and recurring nature unless specifically noted. The Company prepared these statements on a basis consistent with the Company’s annual audited statements and Regulation S-X. Regulation S-X allows the Company to omit some of the footnote and policy disclosures required by generally accepted accounting principles and normally included in annual reports on Form 10-K. You should read these interim financial statements together with the financial statements, summary of significant accounting policies and notes to the Company’s most recent annual report on Form 10-K.

Basis of presentation and principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company presents its financial statements in accordance with U.S. GAAP. All inter-company transactions and balances have been eliminated upon consolidation.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

(a) Cash and Cash Equivalents: The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

(b) 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.

(c) Accounts Receivable: 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 because of the short-term nature of the instruments. The Company routinely assesses the collectability of all material trade and other receivables.

(d) Property, Plant and Equipment: Capital assets are recorded at cost and depreciated using the declining-balance method based on their respective useful life.

(e) 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-

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

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 for the three months ended March 31, 2016 or 2015.

(f) Deferred Financing Costs: Included in other current assets at March 31, 2016 are costs associated with the issuance of our revolving credit facility. Costs associated with the issuance of our Senior Notes, 2018 Notes and 2024 Notes are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The remaining unamortized issuance costs are being amortized over the life of the applicable debt or facility using the straight line method.

(g) 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 Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Consolidated Statements of Operations. The Company does not offset the value of its derivative arrangements with the same counterparty. (See Note 6).

(h) 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.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

(i) 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.

 

     Three Months Ended  
     March 31,
2016
    March 31,
2015
 
     (Share amounts in 000’s)  

Net (loss) income

   $ (21,831   $ 25,189   
  

 

 

   

 

 

 

Weighted average common shares outstanding — basic

     153,322        153,042   

Effect of dilutive instruments(1)

     —          2,661   
  

 

 

   

 

 

 

Weighted average common shares outstanding — diluted

     153,322        155,703   
  

 

 

   

 

 

 

Net (loss) income per common share — basic

   $ (0.14   $ 0.16   
  

 

 

   

 

 

 

Net (loss) income per common share — diluted

   $ (0.14   $ 0.16   
  

 

 

   

 

 

 

Number of shares not included in dilutive earnings per share that would have been anti-dilutive because the exercise price was greater than the average market price of the common shares(1)

     —          776   
  

 

 

   

 

 

 

 

(1) Due to the net loss for the three months ended March 31, 2016, 1.6 million shares for options and restricted stock units were anti-dilutive and excluded from the computation of net loss per share.

(j) Use of Estimates: Preparation of consolidated financial statements in accordance with U.S. 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.

(k) 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.

(l) 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 7 for additional information.

(m) 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 Consolidated Balance Sheets.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

(n) Revenue Recognition: The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices. The Company recognizes revenues when the oil and natural gas is delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company accounts for oil and natural gas sales using the “entitlements method.” Under the entitlements method, revenue is recorded based upon the Company’s ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. Any amount received in excess of the Company’s share is treated as a liability. If the Company receives less than its entitled share, the underproduction is recorded as a receivable.

Make-up provisions and ultimate settlements of volume imbalances are generally governed by agreements between the Company and its partners with respect to specific properties or, in the absence of such agreements, through negotiation. The value of volumes over- or under-produced can change based on changes in commodity prices. The Company prefers the entitlements method of accounting for oil and natural gas sales because it allows for recognition of revenue based on its actual share of jointly owned production, results in better matching of revenue with related operating expenses, and provides balance sheet recognition of the estimated value of product imbalances. The Company’s imbalance obligations as of March 31, 2016 and December 31, 2015 were immaterial.

(o) Capitalized Interest: Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any.

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

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

(r) Recent Accounting Pronouncements: In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) to simplify some of the provisions in stock compensation accounting. The update simplifies the accounting for a stock payment’s tax consequences and amends how excess tax benefits and a business’s payments to cover the tax bills for the shares’ recipients should be classified. The amendments allow companies to estimate the number of stock awards expected to vest and revises the withholding requirements for classifying stock awards as equity. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-09 on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU No. 2016-02”). 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 also will 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. The Company is still evaluating the impact of ASU No. 2016-02 on its financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU No. 2015-17”). The guidance eliminates the requirement to present

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet. The new standard requires deferred tax assets and liabilities to be classified as noncurrent. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and may be applied either prospectively or retrospectively to all periods presented. The Company has elected early adoption of ASU No. 2015-17 and has applied these changes prospectively as of December 31, 2015. The adoption of this guidance has no impact on our results of operations or cash flows. The reclassification of amounts from current to noncurrent affects presentation of our financial position.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). Public companies will have to apply the amendments for reporting periods that start after December 15, 2016, including interim periods within those fiscal years. This ASU requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The company does not expect the adoption of ASU No. 2015-11 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs. In August 2015, the FASB issued ASU 2015-15, Interest — Imputation of Interest (Subtopic 835-30) — Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require capitalized debt issuance costs, except for those related to revolving credit facilities, to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, rather than as an asset. The Company adopted these ASUs on January 1, 2016, using a retrospective approach. The adoption resulted in a reclassification that reduced current assets and current maturities of long-term debt by $19.2 million and $19.4 million on the Company’s Consolidated Balance Sheet at March 31, 2016 and December 31, 2015, respectively.

In June 2015, the FASB issued a delay by one year of the revenue recognition standard adopted in June 2014. In June 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), which amends the FASB ASC by adding new FASB ASC Topic 606, Revenue from Contracts with Customers, and superseding the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics. ASU No. 2014-09 provides new guidance concerning recognition and measurement of revenue and requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new proposal related to ASU No. 2014-09 delays the application of the standard to reporting periods beginning after December 15, 2017 instead of December 15, 2016. The Company is still evaluating the impact of ASU No. 2014-09 on its financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that requires management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning after December 15, 2016 and for interim reporting periods thereafter. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

2. OIL AND GAS PROPERTIES AND EQUIPMENT:

 

     March 31,
2016
    December 31,
2015
 

Proven Properties:

    

Acquisition, equipment, exploration, drilling and abandonment costs

   $ 10,558,034      $ 10,480,165   

Less: Accumulated depletion, depreciation and amortization(2)

     (9,656,950     (9,629,020
  

 

 

   

 

 

 
     901,084        851,145   
  

 

 

   

 

 

 

Unproven Properties:

    

Acquisition and exploration costs not being amortized(1)

     —          —     
  

 

 

   

 

 

 

Net capitalized costs — oil and gas properties

   $ 901,084      $ 851,145   
  

 

 

   

 

 

 

 

(1) Interest is capitalized on the cost of unevaluated oil and natural gas properties that are excluded from amortization and actively being evaluated, if any. At December 31, 2015, all costs related to unevaluated properties that were previously excluded from capitalized costs not being amortized have been impaired or not considered significant and transferred to the capitalized costs being amortized in the full cost pool. For the three months ended March 31, 2016, there was no interest capitalized on the cost of unevaluated oil and natural gas properties. For the year ended December 31, 2015, total interest on outstanding debt was $185.0 million, of which, $20.4 million was capitalized on the cost of unproven oil and natural gas properties.

 

(2) The Company recorded a $3.1 billion non-cash write-down of the carrying value of its proved oil and gas properties as a result of ceiling test limitations during the quarter ended December 31, 2015.

3. DEBT AND OTHER LONG-TERM OBLIGATIONS:

 

     March 31,
2016
     December 31,
2015
 

Current portion of long-term debt:

     

6.125% Senior Notes due 2024

   $ 850,000       $ 850,000   

5.75% Senior Notes due 2018

     450,000         450,000   

Senior Notes issued by Ultra Resources, Inc.

     1,460,000         1,460,000   

Less: Deferred financing costs

     (19,213      (19,447
  

 

 

    

 

 

 
     2,740,787         2,740,553   

Credit Agreement

     999,000         630,000   
  

 

 

    

 

 

 

Total current portion of long-term debt

     3,739,787         3,370,553   
  

 

 

    

 

 

 

Other long-term obligations:

     

Other long-term obligations

     177,564         165,784   
  

 

 

    

 

 

 

Total Debt and Other Long-term Obligations

   $ 3,917,351       $ 3,536,337   
  

 

 

    

 

 

 

We have significant indebtedness, all of which we have reclassified as short-term as of December 31, 2015. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. As a result of our financial condition and the likelihood that we will be in default under our debt agreements in the near future, substantial doubt exists that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all. There is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

On March 1, 2016, we entered into the Waiver Agreements. Under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness, but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

Ultra Resources, Inc.

Bank indebtedness. The Company (through its subsidiary, Ultra Resources) is a party to the Credit Agreement with a syndicate of banks led by JP Morgan Chase Bank, N.A. Ultra Resources’ obligations under the Credit Agreement are guaranteed by the Company and UP Energy Corporation, a wholly-owned subsidiary of the Company. The Credit Agreement provides a loan commitment of $1.0 billion. At March 31, 2016, the Company had $999.0 million in outstanding borrowings, representing substantially all of the remaining undrawn amount under the Credit Agreement.

Except as otherwise provided in the Waiver Agreements, loans under the Credit Agreement are unsecured and bear interest, at the Borrower’s option, based on (A) a rate per annum equal to the prime rate or the weighted average fed funds rate on overnight transactions during the preceding business day plus 150 basis points per annum as of March 31, 2016, or (B) a base Eurodollar rate, substantially equal to the LIBOR rate, plus a margin based on a grid of the Borrower’s consolidated leverage ratio (250 basis points per annum as of March 31, 2016). Under the Bank Waiver, our outstanding indebtedness incurred pursuant to the Credit Agreement will accrue

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

interest at the contract rate otherwise applicable to such debt, except that unpaid interest that comes due and payable during the forbearance period under the Waiver Agreements accrues interest at the rate applicable thereto plus two percent per annum. We are required to pay commitment fees on the unused commitment amount under the Credit Agreement based on Ultra Resources’ consolidated leverage ratio.

The Credit Agreement contains typical and customary representations, warranties, covenants and events of default.

The Credit Agreement requires us to deliver annual audited, consolidated financial statements for the Company without a “going concern” or like qualification or explanation. On March 15, 2016, we delivered an audit report with respect to the financial statements in our most recent Annual Report on Form 10-K that included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement provides a 30-day grace period related to this requirement. In addition, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. Because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to deliver the required financial statements will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a PV-9 covenant, pursuant to which Ultra Resources is required to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. We were required to report whether we were in compliance with this covenant on April 1, 2016. Based on the PV-9 of Ultra Resources’ oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant under the Credit Agreement (the ratio was 0.9 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the PV-9 covenant will become an Event of Default under the Credit Agreement.

Senior Notes. Ultra Resources has outstanding $1.46 billion of Senior Notes. Ultra Resources’ Senior Notes rank pari passu with the Company’s Credit Agreement. Payment of the Senior Notes is guaranteed by Ultra Petroleum Corp. and UP Energy Corporation. The Senior Notes are pre-payable in whole or in part at any time following the payment of a make-whole premium and are subject to representations, warranties, covenants and events of default similar to those in the Credit Agreement.

The MNPA contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the MNPA during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the MNPA, once the forbearance period under the Waiver Agreements ends, unless the noteholders of the Senior Notes grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the MNPA.

The MNPA Waiver provides that during the forbearance period under the Waiver Agreements, the outstanding indebtedness under the Senior Notes will accrue interest at the contract rate otherwise applicable to such debt, except that the $40.0 million of unpaid interest which was due March 1, 2016 and the $62.0 million of unpaid principal which was due March 1, 2016 will accrue interest at the rate applicable thereto plus two percent per annum.

Ultra Petroleum Corp. Senior Notes

Senior Notes due 2024: On September 18, 2014, the Company issued $850.0 million of 2024 Notes. The 2024 Notes are general, unsecured senior obligations of the Company and mature on October 1, 2024. The 2024 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to the extent of the value of the collateral securing such indebtedness). The 2024 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. On and after October 1, 2019, the Company may redeem all or, from time to time, a part of the 2024 Notes at the following prices expressed as a percentage of principal amount of the 2024 Notes: 2019 – 103.063%; 2020 – 102.042%; 2021 – 101.021%; and 2022 and thereafter – 100.000%. The 2024 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2024 Notes contain events of default customary for a senior note financing. At March 31, 2016, the Company was in compliance with all of its debt covenants under the 2024 Notes.

Interest due under the 2024 Notes is payable each April 1 and October 1. On April 1, 2016, we elected to defer making an interest payment on the 2024 Notes of approximately $26.0 million due April 1, 2016. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2024 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2024 Notes.

Senior Notes due 2018: On December 12, 2013, the Company issued $450.0 million of 5.75% Senior Notes due 2018 (“2018 Notes”). The 2018 Notes are general, unsecured senior obligations of the Company and mature on December 15, 2018. The 2018 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

the extent of the value of the collateral securing such indebtedness). The 2018 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. As of December 15, 2015, the Company may redeem all or, from time to time, a part of the 2018 Notes at the following prices expressed as a percentage of principal amount of the 2018 Notes: 2015 – 102.875%; 2016 – 101.438%; and 2017 and thereafter – 100.000%. The 2018 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2018 Notes contain events of default customary for a senior note financing. Interest due under the 2018 Notes is payable each June 15 and December 15. At March 31, 2016, the Company was in compliance with all of its debt covenants under the 2018 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2018 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2018 Notes.

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

4. SHARE BASED COMPENSATION:

Valuation and Expense Information

     Three Months Ended
March 31,
 
     2016      2015  

Total cost of share-based payment plans

   $ 2,728       $ 2,970   

Amounts capitalized in oil and gas properties and equipment

   $ 931       $ 977   

Amounts charged against income, before income tax benefit (provision)

   $ 1,797       $ 1,993   

Amount of related income tax (expense) benefit recognized in income before valuation allowance

   $ 715       $ 833   

Changes in Stock Options and Stock Options Outstanding

The following table summarizes the changes in stock options for the three months ended March 31, 2016 and the year ended December 31, 2015:

 

     Number of
Options

(000’s)
     Weighted
Average
Exercise Price
(US Dollars)
 

Balance, December 31, 2014

     690       $ 25.68         to       $ 98.87   
  

 

 

    

 

 

       

 

 

 

Expired or forfeited

     (171    $ 25.68         to       $ 75.18   
  

 

 

    

 

 

       

 

 

 

Balance, December 31, 2015

     519       $ 49.05         to       $ 98.87   
  

 

 

    

 

 

       

 

 

 

Expired or forfeited

     (43    $ 57.65         to       $ 63.05   
  

 

 

    

 

 

       

 

 

 

Balance, March 31, 2016

     476       $ 49.05         to       $ 98.87   
  

 

 

    

 

 

       

 

 

 

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Performance Share Plans:

Long Term Incentive Plans. The Company offers a Long Term Incentive Plan (“LTIP”) in order to further align the interests of key employees with shareholders and to give key employees the opportunity to share in the long-term performance of the Company when specific corporate financial and operational goals are achieved. Each LTIP covers a performance period of three years.

Under each LTIP, the Compensation Committee establishes a percentage of base salary for each participant that is multiplied by the participant’s base salary at the beginning of the performance period and individual performance level to derive a Long Term Incentive Value as a “target” value. This “target” value corresponds to the number of shares of the Company’s common stock the participant is eligible to receive if the participant is employed by the Company through the date the award vests and if the target level for all performance measures are met. In addition, each participant is assigned threshold and maximum award levels in the event the Company’s actual performance is below or above the target levels.

Time-Based Measure and Performance-Based Measures:

For each LTIP award, the Committee establishes time-based and performance-based measures at the beginning of each three-year performance period. For the LTIP awards in 2015 and 2014, the Committee established the following performance-based measures: return on capital employed, debt level, and reserve replacement ratio. The fair value of the time-based and performance-based component of the LTIP award is based on the average high and low market price of the Company’s common stock on the date of award.

Market-Based Measure:

LTIP awards granted to officers during 2015 and 2014, include an additional performance metric, Total Shareholder Return. The grant-date fair value related to the market-based condition was calculated using a Monte Carlo simulation.

Valuation Assumptions

The Company estimates the fair value of the market condition related to the LTIP awards on the date of grant using a Monte Carlo simulation with the following assumptions:

 

     2015 LTIP     2014 LTIP  

Volatility of common stock

     39.0     39.2

Risk-free interest rate

     0.66     0.40

Stock-Based Compensation Cost:

For the three months ended March 31, 2016, the Company recognized $1.4 million in pre-tax compensation expense related to the 2014 and 2015 LTIP awards of restricted stock units as compared to $1.8 million during the three months ended March 31, 2015 related to the 2013, 2014 and 2015 LTIP awards of restricted stock units. The amounts recognized during the three months ended March 31, 2016 assume that performance objectives between less than threshold and up to maximum are attained for the 2014 and 2015 LTIP plans. If the Company ultimately attains these performance objectives, the associated total compensation, estimated at March 31, 2016, for each of the three year performance periods is expected to be approximately $9.8 million and $10.8 million related to the 2014 and 2015 LTIP awards of restricted stock units, respectively.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Based on the Company’s achievement relative to the 2013 LTIP’s performance-based measures, and based on the continued employment with the Company by those participants who received a payment in connection with the 2013 LTIP relative to the 2013 LTIP’s time-based measures, during the first quarter of 2016 the Compensation Committee approved payment of the 2013 LTIP. This was the first payment of an LTIP since our LTIPs were modified in 2013 to include time-based and performance-based measures. As such, the Compensation Committee elected to pay the time-based portion of the LTIP awards in cash at the award value and the performance-based portion of the LTIP awards in shares of our common stock. The 2013 LTIP award of restricted stock units was paid in shares of the Company’s stock to employees during the first quarter of 2016 and totaled $3.8 million (132,843 net shares).

5. INCOME TAXES:

The Company’s overall effective tax rate on pre-tax income was different than the statutory rate of 35% due primarily to valuation allowances, the ability to carryback current period losses, state income taxes and other permanent differences.

The Company has recorded a valuation allowance against certain deferred tax assets as of March 31, 2016. Some or all of this valuation allowance may be reversed in future periods against future income.

As further described in Note 1(r), the Company adopted ASU 2015-17 on a prospective basis in 2015. As a result, the deferred tax assets and liabilities are classified as long-term in the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

6. DERIVATIVE FINANCIAL INSTRUMENTS:

Objectives and Strategy: The Company’s major market risk exposure is in the pricing applicable to its natural gas and oil production. Realized pricing is currently driven primarily by the prevailing price for the Company’s natural gas production. Historically, prices received for natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. As a result of its hedging activities, the Company may realize prices that are less than or greater than the spot prices that it would have received otherwise.

The Company relies on various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in the Company’s forward cash flows supporting the Company’s capital investment program.

The Company’s hedging policy limits the amounts of resources hedged to not more than 50% of its forecast production without Board approval.

Fair Value of Commodity Derivatives: FASB ASC 815 requires that all derivatives be recognized on the Consolidated Balance Sheets as either an asset or liability and be measured at fair value. Changes in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not apply hedge accounting to any of its derivative instruments.

Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value on the Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current income or expense in the Consolidated Statements of Operations. Unrealized gains or losses on commodity derivatives represent the non-cash change in the fair value of these derivative instruments and do not impact operating cash flows on the cash flow statement.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Commodity Derivative Contracts: At March 31, 2016, the Company had no open commodity derivative contracts to manage price risk on a portion of its production.

The following table summarizes the pre-tax realized and unrealized gain (loss) the Company recognized related to its derivative instruments in the Consolidated Statements of Operations for the periods ended March 31, 2016 and 2015:

 

     For the Three Months
Ended March 31,
 

Commodity Derivatives:

   2016      2015  

Realized gain on commodity derivatives-natural gas(1)

   $ —         $ 29,359   

Unrealized gain on commodity derivatives(1)

     —           7,506   
  

 

 

    

 

 

 

Total gain on commodity derivatives

   $ —         $ 36,865   
  

 

 

    

 

 

 

 

(1) Included in gain on commodity derivatives in the Consolidated Statements of Operations.

The realized gain or loss on commodity derivatives relates to actual amounts received or paid or to be received or paid under the Company’s derivative contracts and the unrealized gain or loss on commodity derivatives represents the change in the fair value of these derivative instruments over the remaining term of the contract.

7. FAIR VALUE MEASUREMENTS:

As required by FASB ASC 820, the Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three level hierarchy for measuring fair value. Fair value measurements are classified and disclosed in one of the following categories:

 

Level 1:

   Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date.

Level 2:

   Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 include non-exchange traded derivatives such as over-the-counter forwards and swaps.

Level 3:

   Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability.

Fair Value of Financial Instruments

The estimated fair value of financial instruments is the estimated amount at which the instrument could be exchanged currently between willing parties. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. The Company uses available market

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

data and valuation methodologies to estimate the fair value of its debt. The valuation assumptions utilized to measure the fair value of the Company’s debt are considered Level 2 inputs. This disclosure is presented in accordance with FASB ASC Topic 825, Financial Instruments, and does not impact the Company’s financial position, results of operations or cash flows.

 

    March 31, 2016     December 31, 2015  
    Carrying
Amount
    Estimated
Fair Value
    Carrying
Amount
    Estimated
Fair Value
 

7.31% Notes due March 2016, issued 2009

    62,000        64,266        62,000        63,604   

4.98% Notes due January 2017, issued 2010

    116,000        117,636        116,000        113,420   

5.92% Notes due March 2018, issued 2008

    200,000        203,624        200,000        191,985   

5.75% Notes due December 2018, issued 2013

    450,000        39,528        450,000        111,451   

7.77% Notes due March 2019, issued 2009

    173,000        180,161        173,000        174,488   

5.50% Notes due January 2020, issued 2010

    207,000        204,305        207,000        185,052   

4.51% Notes due October 2020, issued 2010

    315,000        278,175        315,000        258,520   

5.60% Notes due January 2022, issued 2010

    87,000        83,519        87,000        73,034   

4.66% Notes due October 2022, issued 2010

    35,000        28,070        35,000        25,558   

6.125% Notes due October 2024, issued 2014

    850,000        94,091        850,000        206,321   

5.85% Notes due January 2025, issued 2010

    90,000        83,863        90,000        70,756   

4.91% Notes due October 2025, issued 2010

    175,000        134,604        175,000        115,911   

Credit Facility due October 2016

    999,000        999,000        630,000        630,000   
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 3,759,000      $ 2,510,842      $ 3,390,000      $ 2,220,100   
 

 

 

   

 

 

   

 

 

   

 

 

 

8. COMMITMENTS AND CONTINGENCIES:

Rockies Express Pipeline

On February 26, 2016, we received a letter from Sempra Rockies Marketing, LLC (“Sempra”) alleging that we were in breach of our Capacity Release Agreement, dated March 5, 2009 (the “Capacity Agreement”), resulting from nonpayment of fees for transportation service and notifying us that Sempra was authorized to recall the capacity released to us under the Capacity Agreement and to pursue any claims for damages or other remedies to which Sempra was entitled. On March 8, 2016, we received a letter from Sempra notifying us that Sempra was exercising its alleged right to permanently recall the 50,000 MMBtu/day of capacity on the Rockies Express Pipeline pursuant to the Capacity Agreement and that the recall would be effective as of March 9, 2016. The Company is not able to determine the likelihood of any potential outcome related to the alleged breach or, if and when resolved, whether such amounts, if any, would be material.

On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express Pipeline LLC (“Rockies Express”) in connection with the transportation agreement related to the Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously. Our estimate of the potential exposure ranges from approximately $19.0 million, which represents accrued unpaid invoices during the first quarter prior to contract termination, to $303.2 million related to this matter, which excludes potential interest, court costs and attorney fees.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

 

Royalties

On April 19, 2016, the Company received a preliminary determination notice from the Office of Natural Resources Revenue (“ONRR”) asserting that the Company’s allocation of certain processing costs and plant fuel use at certain processing plants were impermissibly charged as deductions in the determination of royalties owed under Federal oil and gas leases. The Company intends to submit a response to the preliminary determination asserting the reasonableness of its allocation methodology of such costs. This ONRR unbundling review could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods. The Company is not able to determine the likelihood or range of any additional royalties or, if and when assessed, whether such amounts would be material.

Other Claims

The Company is currently involved in various routine disputes and allegations incidental to its business operations. While it is not possible to determine the ultimate disposition of these matters, the Company believes that the resolution of all such pending or threatened litigation is not likely to have a material adverse effect on the Company’s financial position or results of operations.

9. SUBSEQUENT EVENTS:

The Company has evaluated the period subsequent to March 31, 2016 for events that did not exist at the balance sheet date but arose after that date and determined that no subsequent events arose that should be disclosed in order to keep the financial statements from being misleading, except as set forth below:

 

   

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to the 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate.

 

   

On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

 

   

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach.

 

   

On April 19, 2016, the Company received a preliminary determination notice from ONRR asserting that the Company’s allocation of certain processing costs and plant fuel use at a specific processing plant were impermissibly allowed as deductions in the determination of royalties owed under Federal oil and gas leases. The Company intends to submit a response to the preliminary determination asserting the reasonableness of its allocation methodology of such costs. This ONRR unbundling review could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods.

 

   

On April 26, 2016, the Board of Directors of the Company elected Patrick Ash to be its Vice President, Development, and determined to include Mr. Ash in the Company’s Key Employee Incentive Program beginning in the second quarter of 2016. Mr. Ash participated in the Company’s Key Employee Retention Program during the first quarter of 2016.

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:

The following are the financial statements of Ultra Petroleum Corp. (the “Parent Company”), which are included to provide additional information with respect to the Parent Company’s results of operations, financial position and cash flows on a stand-alone basis:

CONDENSED STATEMENT OF OPERATIONS

 

     For the Three Months
Ended March 31,
 
     2016      2015  

General and administrative expense

   $ 60       $ 99   

Other income (expense):

     

Interest expense

     (20,267      (20,267

Loss (income) from unconsolidated affiliates

     (7,993      37,720   

Guarantee fee income

     6,073         5,703   

Other income

     226         81   
  

 

 

    

 

 

 

(Loss) income before income tax benefit

     (22,021      23,138   

Income tax benefit

     (190      (2,051
  

 

 

    

 

 

 

Net (loss) income

   $ (21,831    $ 25,189   
  

 

 

    

 

 

 

CONDENSED BALANCE SHEET

 

     March 31,     December 31,  
     2016     2015  
ASSETS     

Current Assets:

    

Cash and cash equivalents

   $ 430      $ 523   

Accounts receivable

     94,930        64,542   

Other current assets

     5,370        5,150   
  

 

 

   

 

 

 

Total current assets

     100,730        70,215   

Other non-current assets

     24,103        24,197   
  

 

 

   

 

 

 

Total assets

   $ 124,833      $ 94,412   
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current Liabilities:

    

Current portion of long-term debt

   $ 1,284,015      $ 1,283,232   

Interest payable

     33,650        14,166   
  

 

 

   

 

 

 

Total current liabilities

     1,317,665        1,297,398   

Advances to unconsolidated affiliates

     1,818,518        1,788,951   

Total shareholders’ deficit

     (3,011,350     (2,991,937
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 124,833      $ 94,412   
  

 

 

   

 

 

 

 

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ULTRA PETROLEUM CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

CONDENSED STATEMENT OF CASH FLOWS

 

     For the Three Months
Ended March 31,
 
     2016      2015  

Net cash (used in) operating activities

   $ (24,088    $ (750
  

 

 

    

 

 

 

Investing Activities:

     

Dividends received

     24,089         24,073   
  

 

 

    

 

 

 

Net cash provided by investing activities

     24,089         24,073   
  

 

 

    

 

 

 

Financing Activities:

     

Shares re-issued from treasury

     —           4,557   

Deferred financing costs

     —           6   

Net share settlements

     (94      —     
  

 

 

    

 

 

 

Net cash (used in) provided by financing activities

     (94      4,563   
  

 

 

    

 

 

 

(Decrease) increase in cash during the period

     (93      27,886   

Cash and cash equivalents, beginning of period

     523         772   
  

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 430       $ 28,658   
  

 

 

    

 

 

 

 

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and operating results of the Company should be read in conjunction with the Company’s consolidated financial statements and related notes. Except as otherwise indicated, all amounts are expressed in U.S. dollars.

Overview

Ultra Petroleum Corp. is an independent exploration and production company focused on developing its long-life natural gas reserves in the Green River Basin of Wyoming — the Pinedale and Jonah fields, its oil reserves in the Uinta Basin in Utah and its natural gas reserves in the Appalachian Basin of Pennsylvania. The Company operates in one industry segment, natural gas and oil exploration and development, with one geographical segment, the United States.

The Company currently conducts operations exclusively in the United States. Substantially all of its oil and natural gas activities are conducted jointly with others and, accordingly, amounts presented reflect only the Company’s proportionate interest in such activities. The Company continues to focus on improving its drilling and production results through gaining efficiencies with the use of advanced technologies, detailed technical analysis of its properties and leveraging its experience into improved operational efficiencies. Inflation has not had, nor is it expected to have in the foreseeable future, a material impact on the Company’s results of operations.

The Company currently generates its revenue, earnings and cash flow primarily from the production and sales of natural gas and condensate from its properties in southwest Wyoming with a portion of the Company’s revenues coming from oil sales from its properties in the Uinta Basin in Utah and gas sales from wells located in the Appalachian Basin in Pennsylvania. In 2014, the Company repositioned its portfolio to higher returning assets in the western U.S. while divesting lower returning assets in the eastern U.S. Additionally, as part of the acquisition of assets in the Pinedale Field in Sublette County, Wyoming in September 2014 (the “SWEPI Transaction”), the Company acquired contracts related to NGLs providing the opportunity to realize the benefit of the NGLs from the gas it produces in Wyoming beginning in 2017.

The prices of oil and natural gas are critical factors to the Company’s business. The prices of oil and natural gas have historically been volatile, and this volatility could be detrimental to the Company’s financial performance. As a result, and from time to time, the Company tries to limit the impact of this volatility on its results by entering into swap agreements and/or fixed price forward physical delivery contracts for natural gas and oil. (See Note 6 to the Company’s Consolidated Financial Statements).

During the quarter ended March 31, 2016, the average price realization for the Company’s natural gas was $2.01 per Mcf compared with $2.84 per Mcf during the quarter ended March 31, 2015. During the first quarter of 2015, the Company’s average price realization for natural gas was $3.29 per Mcf, including realized gains and losses on commodity derivatives. The Company does not currently have any open derivative contracts for natural gas production.

During the quarter ended March 31, 2016, the average price realization for the Company’s oil was $26.95 per barrel compared to $37.34 per barrel for the quarter ended March 31, 2015.

Liquidity and Ability to Continue as a Going Concern

As disclosed in our most recent Annual Report on Form 10-K, because low crude oil and natural gas prices during 2015 had a significant adverse impact on our business and our financial condition, substantial doubt exists that we will be able to continue as a going concern. Although crude oil and natural gas prices have improved

 

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somewhat in recent weeks, product prices continue to be historically low, our financial condition continues to be distressed, and substantial doubt continues to exist that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”) or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada. Investors should review the disclosures and other information, including the risk factors, provided in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K.

On March 1, 2016, we entered into a Limited Waiver Agreement with the lenders under the credit agreement between our wholly-owned subsidiary, Ultra Resources, Inc. (“Ultra Resources), as the borrower, and JPMorgan Chase Bank, as the administrative agent, and the lenders thereto (the “Credit Agreement”) (the “Bank Waiver”) and a Waiver and Amendment to Master Note Purchase Agreement, Notes and Supplement with the holders of the unsecured senior notes issued by Ultra Resources (collectively, the “Senior Notes”) pursuant to the Master Note Purchase Agreement dated March 6, 2008 (as supplemented, the “MNPA”) (the “MNPA Waiver” and, together with the Bank Waiver, the “Waiver Agreements”). Under the Waiver Agreements, the lenders and holders, as applicable, party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, as applicable, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement or the MNPA, as applicable, that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness; but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 6.125% Senior Notes due 2024 (the “2024 Notes”). The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

The following events have occurred since February 29, 2016 (when we filed our most recent Annual Report on Form 10-K):

 

   

On March 1, 2016, we entered into the Bank Waiver with the lenders under the Credit Agreement between Ultra Resources, as the borrower, and JPMorgan Chase Bank, as the administrative agent, and

 

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the lenders thereto, and the MNPA Waiver with 100% of the holders of the Senior Notes issued by Ultra Resources pursuant to the MNPA. The Waiver Agreements were effective March 1, 2016 and provide for a forbearance period extending through no later than April 30, 2016. These events were disclosed in our Current Report on Form 8-K filed March 2, 2016.

 

   

On March 1, 2016, we elected not to make a $62.0 million principal payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

 

   

On March 1, 2016, we elected not to make a $40.0 million interest payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

 

   

On March 8, 2016, we received a letter from Sempra Rockies Marketing, LLC (“Sempra”) notifying us that Sempra was exercising its alleged right to permanently recall the 50,000 MMBtu/day of capacity on the Rockies Express pipeline and that the recall would be effective as of March 9, 2016. We had previously received a letter, dated February 26, 2016, from Sempra alleging that we were in breach of our Capacity Release Agreement, dated March 5, 2009, due to nonpayment of fees for transportation service and notifying us that Sempra was authorized to recall the capacity released to us under the agreement and to pursue any claims for damages or other remedies to which Sempra was entitled.

 

   

On March 11, 16, 21, and 31, 2016, we elected not to make a total of $2.7 million of interest payments due under the Credit Agreement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On March 15, 2016, we delivered, to the lenders under the Credit Agreement, an audit report prepared by our auditors with respect to the financial statements in our most recent Annual Report on Form 10-K, which included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement requires us to deliver annual audited, consolidated financial statements without a “going concern” or like qualification or explanation. The Credit Agreement provides a 30-day grace period related to this requirement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On March 15, 2016, we received a notice from the New York Stock Exchange (“NYSE”) that we were not in compliance with the NYSE’s continued listing standards, and, as a result, there is a significant risk our common stock will be delisted from the NYSE. This event was disclosed in our Current Report on Form 8-K filed March 18, 2016.

 

   

On March 28, 2016, we received a letter from Rockies Express Pipeline notifying us that, according to Rockies Express, our transportation agreement had terminated effective as of March 26, 2016 due to our alleged defaults under the terms of the Rockies Express tariff and our transportation agreement.

 

   

On April 1, 2016, we notified the lenders under the Credit Agreement of the annual redetermination of the PV-9 value of our proved reserves. The Credit Agreement requires Ultra Resources to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. Based on the PV-9 of its oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant (the ratio was 0.9 times at March 31, 2016). Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

 

   

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. This event was disclosed in our Current Report on Form 8-K filed April 1, 2016.

 

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On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

 

   

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously.

Critical Accounting Policies

The discussion and analysis of the Company’s financial condition and results of operations is based upon consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In addition, application of GAAP requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the revenues and expenses reported during the period. Changes in these estimates related to judgments and assumptions will occur as a result of future events, and, accordingly, actual results could differ from amounts estimated. Set forth below is a discussion of the critical accounting policies used in the preparation of our financial statements which we believe involve the most complex or subjective decisions or assessments.

Derivative Instruments and Hedging Activities. The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“FASB ASC 815”). The Company records the fair value of its commodity derivatives as an asset or liability on the Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Consolidated Statements of Operations.

Fair Value Measurements. The Company follows FASB ASC Topic 820, Fair Value Measurements and Disclosures (“FASB ASC 820”). Under FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and establishes a three level hierarchy for measuring fair value.

Asset Retirement Obligation. The Company’s asset retirement obligations (“ARO”) consist primarily of estimated costs of dismantlement, removal, site reclamation and similar activities associated with its oil and natural gas properties. FASB ASC Topic 410, Asset Retirement and Environmental Obligations (“FASB ASC 410”) requires that the fair value of a liability for an ARO be recognized in the period in which it is incurred with the associated asset retirement cost capitalized as part of the carrying cost of the oil and natural gas asset. The recognition of an ARO requires that management make numerous estimates, assumptions and judgments regarding such factors as the existence of a legal obligation for an ARO, amounts and timing of settlements, the credit-adjusted, risk-free rate to be used, inflation rates, and future advances in technology. In periods subsequent to initial measurement of the ARO, the Company must recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. Increases in the ARO liability due to the passage of time impact net income as accretion expense. The related capitalized costs, including revisions thereto, are charged to expense through depletion, depreciation and amortization (“DD&A”). 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 Consolidated Balance Sheets.

Share-Based Payment Arrangements. The Company applies FASB ASC Topic 718, Compensation — Stock Compensation (“FASB ASC 718”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values. Share-based compensation expense recognized for the three months ended March 31, 2016 and 2015 was $1.8 million and $2.0 million, respectively. See Note 4 for additional information.

Property, Plant and Equipment. Capital assets are recorded at cost and depreciated using the declining-balance method based on their respective useful life.

 

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Full Cost Method of Accounting. The Company uses the full cost method of accounting for oil and gas 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 FASB ASC Topic 932, Extractive Activities — Oil and Gas (“FASB ASC 932”). Under the full cost method of accounting, all costs associated with the exploration for and development of oil and gas reserves are capitalized on a country-by-country basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities. Substantially all of the oil and gas activities are conducted jointly with others and, accordingly, the amounts reflect only the Company’s proportionate interest in such activities.

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 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 calculation of the ceiling test is based upon estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves, in projecting the future rates of production and in the timing of development activities. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The Company did not have any write-downs related to the full cost ceiling limitation during the three months ended March 31, 2016 or 2015.

Capitalized Interest. Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any (See Note 2).

Revenue Recognition. The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices. The Company recognizes revenues when the oil and natural gas is delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company accounts for oil and natural gas sales using the “entitlements method.” Under the entitlements method, revenue is recorded based upon the Company’s ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes.

Make-up provisions and ultimate settlements of volume imbalances are generally governed by agreements between the Company and its partners with respect to specific properties or, in the absence of such agreements, through negotiation. The value of volumes over- or under-produced can change based on changes in commodity prices. The Company prefers the entitlements method of accounting for oil and natural gas sales because it allows for recognition of revenue based on its actual share of jointly owned production, results in better matching of revenue with related operating expenses, and provides balance sheet recognition of the estimated value of product imbalance. The Company’s imbalance obligations as of March 31, 2016 and December 31, 2015 were immaterial.

 

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Valuation of Deferred Tax Assets. The Company uses the asset and liability method of accounting for income taxes. Under this method, future income tax assets and liabilities are determined based on differences between the financial statement carrying values and their respective income tax basis (temporary differences).

To assess the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company has recorded a valuation allowance against certain of its deferred tax assets as of March 31, 2016. Some or all of this valuation allowance may be reversed in future periods against future income.

Deferred Financing Costs. Included in other current assets at March 31, 2016 are costs associated with the issuance of our revolving credit facility. Costs associated with the issuance of our Senior Notes, 2018 Notes and 2024 Notes are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The remaining unamortized issuance costs are being amortized over the life of the applicable debt or facility using the straight line method.

Recent accounting pronouncements. In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) to simplify some of the provisions in stock compensation accounting. The update simplifies the accounting for a stock payment’s tax consequences and amends how excess tax benefits and a business’s payments to cover the tax bills for the shares’ recipients should be classified. The amendments allow companies to estimate the number of stock awards expected to vest and revises the withholding requirements for classifying stock awards as equity. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-09 on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU No. 2016-02”). 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 also will 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. The Company is still evaluating the impact of ASU No. 2016-02 on its financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU No. 2015-17”). The guidance eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet. The new standard requires deferred tax assets and liabilities to be classified as noncurrent. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and may be applied either prospectively or retrospectively to all periods presented. The Company has elected early adoption of ASU No. 2015-17 and has applied these changes prospectively. The adoption of this guidance has no impact on our results of operations or cash flows. The reclassification of amounts from current to noncurrent affects presentation of our financial position. See Note 9 for additional information.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). Public companies will have to apply the amendments for reporting periods that

 

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start after December 15, 2016, including interim periods within those fiscal years. This ASU requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The company does not expect the adoption of ASU No. 2015-11 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs. In August 2015, the FASB issued ASU 2015-15, Interest — Imputation of Interest (Subtopic 835-30) — Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require capitalized debt issuance costs, except for those related to revolving credit facilities, to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, rather than as an asset. The Company adopted these ASUs on January 1, 2016, using a retrospective approach. The adoption resulted in a reclassification that reduced current assets and current maturities of long-term debt by $19.2 million and $19.4 million on the Company’s Consolidated Balance Sheet at March 31, 2016 and December 31, 2015, respectively.

In June 2015, the FASB issued a delay by one year of the revenue recognition standard adopted in June 2014. In June 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), which amends the FASB ASC by adding new FASB ASC Topic 606, Revenue from Contracts with Customers, and superseding the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics. ASU No. 2014-09 provides new guidance concerning recognition and measurement of revenue and requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new proposal related to ASU No. 2014-09 delays the application of the standard to reporting periods beginning after December 15, 2017 instead of December 15, 2016. The Company is still evaluating the impact of ASU No. 2014-09 on its financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that requires management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning after December 15, 2016 and for interim reporting periods thereafter. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Conversion of Barrels of Oil to Mcfe of Gas. The Company converts Bbls of oil and other liquid hydrocarbons to Mcfe at a ratio of one Bbl of oil or liquids to six Mcfe. This conversion ratio, which is typically used in the oil and gas industry, represents the approximate energy equivalent of a barrel of oil or other liquids to an Mcf of natural gas. The sales price of one Bbl of oil or liquids has been much higher than the sales price of six Mcf of natural gas over the last several years, so a six to one conversion ratio does not represent the economic equivalency of six Mcf of natural gas to a Bbl of oil or other liquids.

 

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RESULTS OF OPERATIONS:

 

         For the Three Months             
     Ended March 31,      %
         Variance        
 
             2016                  2015         
     (Amounts in thousands, except per unit data)  

Production, Commodity Prices and Revenues:

        

Production:

        

Natural gas (Mcf)

     68,605         64,704         6

Crude oil and condensate (Bbls)

     790         951         -17
  

 

 

    

 

 

    

Total production (Mcfe)

     73,345         70,410         4
  

 

 

    

 

 

    

Commodity Prices:

        

Natural gas ($/Mcf, excluding hedges)

   $ 2.01       $ 2.84         -29

Natural gas ($/Mcf, including realized hedges)

   $ 2.01       $ 3.29         -39

Oil and condensate ($/Bbl)

   $ 26.95       $ 37.34         -28

Revenues:

        

Natural gas sales

   $ 138,102       $ 183,795         -25

Oil sales

     21,284         35,514         -40
  

 

 

    

 

 

    

Total operating revenues

   $ 159,386       $ 219,309         -27
  

 

 

    

 

 

    

Derivatives:

        

Realized gain (loss) on commodity derivatives-natural gas

   $ —         $ 29,359         100

Unrealized (loss) gain on commodity derivatives

     —           7,506         100
  

 

 

    

 

 

    

Total gain (loss) on commodity derivatives

   $ —         $ 36,865         100
  

 

 

    

 

 

    

Operating Costs and Expenses:

        

Lease operating expenses

   $ 25,394       $ 26,112         -3

Liquids gathering system operating lease expense

   $ 5,171       $ 5,162         0

Production taxes

   $ 15,231       $ 19,895         -23

Gathering fees

   $ 22,450       $ 19,757         14

Transportation charges

   $ 23,555       $ 20,191         17

Depletion, depreciation and amortization

   $ 30,848       $ 94,590         -67

General and administrative expenses

   $ 4,219       $ 3,640         16

Per Unit Costs and Expenses ($/Mcfe):

        

Lease operating expenses

   $ 0.35       $ 0.37         -5

Liquids gathering system operating lease expense

   $ 0.07       $ 0.07         0

Production taxes

   $ 0.21       $ 0.28         -25

Gathering fees

   $ 0.31       $ 0.28         11

Transportation charges

   $ 0.32       $ 0.29         10

Depletion, depreciation and amortization

   $ 0.42       $ 1.34         -69

General and administrative expenses

   $ 0.06       $ 0.05         20

Quarter Ended March 31, 2016 vs. Quarter Ended March 31, 2015

Production, Commodity Derivatives and Revenues:

Production. During the quarter ended March 31, 2016, total production increased 4% on a gas equivalent basis to 73.3 Bcfe compared to 70.4 Bcfe for the same quarter in 2015. The increase is primarily attributable to our drilling program in 2015.

Commodity Prices — Natural Gas. Realized natural gas prices decreased 29% to $2.01 per Mcf in the first quarter of 2016 as compared to $2.84 per Mcf for the same quarter of 2015. The Company does not currently

 

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have any open derivative contracts for natural gas production. During the three months ended March 31, 2015, the Company’s average price for natural gas including realized gains and losses on commodity derivatives was $3.29 per Mcf.

Commodity Prices — Oil. During the quarter ended March 31, 2016, the average price realization for the Company’s oil was $26.95 per barrel compared to $37.34 per barrel for the same period in 2015. The Company does not currently have any open derivative contracts for oil production.

Revenues. The decrease in average oil and natural gas prices, offset by increased production from our drilling program resulted in revenues decreasing to $159.4 million for the quarter ended March 31, 2016 as compared to $219.3 million for the same period in 2015.

Operating Costs and Expenses:

Lease Operating Expense. Lease operating expense (“LOE”) remained relatively flat at $25.4 million during the first quarter of 2016 compared to $26.1 million during the same period in 2015. On a unit of production basis, LOE costs decreased to $0.35 per Mcfe during the first quarter of 2016 compared with $0.37 per Mcfe during the first quarter of 2015 largely related to increased production volumes during the period ended March 31, 2016.

Liquids Gathering System Operating Lease Expense. During December 2012, the Company sold a system of liquids gathering pipelines and central gathering facilities (the “LGS”) and certain associated real property rights in the Pinedale Anticline in Wyoming. The Company entered into a long-term, triple net lease agreement with the buyer relating to the use of the LGS (the “Lease Agreement”). The Lease Agreement provides for an initial term of 15 years, and annual rent for the initial term under the Lease Agreement is $20.0 million (as adjusted annually for changes based on the consumer price index) and may increase if certain volume thresholds are exceeded. The lease is classified as an operating lease. For the three months ended March 31, 2016, the Company recognized operating lease expense associated with the Lease Agreement of $5.2 million, or $0.07 per Mcfe as compared to $5.2 million, or $0.07 per Mcfe for the same period in 2015.

Production Taxes. During the three months ended March 31, 2016, production taxes were $15.2 million compared to $19.9 million during the same period in 2015, or $0.21 per Mcfe compared to $0.28 per Mcfe. Production taxes are primarily calculated based on a percentage of revenue from production in Wyoming and Utah after certain deductions and were 9.6% of revenues for the quarter ended March 31, 2016 and 9.1% of revenues for the same period in 2015. The decrease in per unit taxes is primarily attributable to decreased oil and natural gas prices during the quarter ended March 31, 2016 as compared to the same period in 2015.

Gathering Fees. Gathering fees increased to $22.5 million for the three months ended March 31, 2016 compared to $19.8 million during the same period in 2015 largely related to production increases in Wyoming. On a per unit basis, gathering fees increased to $0.31 per Mcfe for the three months ended March 31, 2016 as compared to $0.28 per Mcfe during the same period in 2015 primarily due to higher gathering rates associated with the low pressure system in the Pinedale field.

Transportation Charges. Transportation charges in association with Rockies Express Pipeline (“REX”) increased to $23.6 million for the quarter ended March 31, 2016 as compared to $20.2 million for the same period in 2015 primarily as a result of reduced royalty deductions. On a per unit basis, transportation charges increased to $0.32 per Mcfe (on total company volumes) for the quarter ended March 31, 2016 compared with $0.29 per Mcfe (on total company volumes) for the quarter ended March 31, 2015. See Note 9 for further discussion of the REX contract.

Depletion, Depreciation and Amortization. DD&A expenses decreased to $30.8 million during the three months ended March 31, 2016 from $94.6 million for the same period in 2015, primarily attributable to a

 

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decreased DD&A rate on a unit of production basis as a result of the ceiling test impairment during the fourth quarter of 2015. On a unit of production basis, the DD&A rate decreased to $0.42 per Mcfe for the quarter ended March 31, 2016 compared to $1.34 per Mcfe for the quarter ended March 31, 2015.

General and Administrative Expenses. General and administrative expenses remained relatively flat at $4.2 million for the quarter ended March 31, 2016 compared to $3.6 million for the same period in 2015. On a per unit basis, general and administrative expenses remained relatively flat at $0.06 per Mcfe for the quarter ended March 31, 2016 compared to $0.05 per Mcfe for the quarter ended March 31, 2015.

Other Income and Expenses:

Interest Expense. Interest expense increased to $49.9 million during the quarter ended March 31, 2016 compared to $42.7 million during the same period in 2015 primarily as a result of higher average borrowings outstanding for the quarter ended March 31, 2016 as compared to the same period in 2015 and decreased amounts of capitalized interest for the quarter ended March 31, 2016 as compared to the same period in 2015. For the quarter ended March 31, 2016, the Company did not capitalize any interest associated with unevaluated oil and gas properties that are excluded from amortization compared with $3.2 million in capitalized interest for the quarter ended March 31, 2015.

Debt Restructuring Fees. During the quarter ended March 31, 2016, the Company incurred $5.6 million in costs and fees in connection with its efforts to restructure its debt.

Deferred Gain on Sale of Liquids Gathering System. During the quarters ended March 31, 2016 and 2015, the Company recognized $2.6 million in deferred gain on sale of the liquids gathering system relating to the sale of a system of pipelines and central gathering facilities and certain associated real property rights in the Pinedale Anticline in Wyoming during December 2012.

Commodity Derivatives:

Gain/(Loss) on Commodity Derivatives. The Company does not currently have any open commodity derivative contracts. During the quarter ended March 31, 2015, the Company recognized a gain of $36.9 million related to commodity derivatives. Of this total, the Company recognized $29.4 million of realized gain on commodity derivatives during the quarter ended March 31, 2015. The realized gain or loss on commodity derivatives relates to actual amounts received or paid or to be received or paid under the Company’s derivative contracts. This amount also includes an unrealized gain on commodity derivatives of $7.5 million during the quarter ended March 31, 2015. The unrealized gain or loss on commodity derivatives represents the change in the fair value of these derivative instruments over the remaining term of the contract. See Note 6.

(Loss) Income from Continuing Operations:

Pretax (Loss) Income. The Company recognized a net loss before income taxes of $22.0 million for the quarter ended March 31, 2016 compared with income before income taxes of $23.2 million for the same period in 2015. The decrease in earnings is primarily due to decreased revenues, including gains on commodity derivatives, as a result of decreased oil and natural gas prices during the three months ended March 31, 2016 as compared to the same period in 2015 and partially offset by decreased DD&A during the three months ended March 31, 2016.

Income Taxes. The Company has recorded a valuation allowance against certain deferred tax assets as of March 31, 2016. Some or all of this valuation allowance may be reversed in future periods against future income.

Net (Loss) Income. For the three months ended March 31, 2016, the Company recognized net loss of $21.8 million or $0.14 per diluted share as compared with net income of $25.2 million or $0.16 per diluted share for the

 

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same period in 2015. The decrease in earnings is primarily due to decreased revenues, including gains on commodity derivatives, as a result of decreased oil and natural gas prices during the three months ended March 31, 2016 as compared to the same period in 2015 and partially offset by decreased DD&A during the three months ended March 31, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Waiver Agreements. On March 1, 2016, we entered into the Waiver Agreements. Under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness, but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

Overview. During the three month period ended March 31, 2016, the Company relied on cash provided by operations along with borrowings under the Credit Agreement (defined below) to finance its capital expenditures. At March 31, 2016, the Company reported a cash position of $281.5 million compared to $34.0 million at March 31, 2015.

Capital Expenditures. For the three month period ended March 31, 2016, total capital expenditures were $76.7 million. During this period, the Company participated in 32 gross (22.4 net) wells in Wyoming that were drilled to total depth and cased. No wells are scheduled to be drilled in Utah or Pennsylvania during 2016.

Working Capital. Working capital deficit at March 31, 2016 was $3.6 billion compared to working capital deficit of $76.1 million at March 31, 2015. At March 31, 2016, the Company had $999.0 million in outstanding borrowings, representing substantially all of the remaining undrawn amount under the Credit Agreement. As a result, no material further extensions of credit are available under the Credit Agreement. In addition, the Company had $2.76 billion outstanding in senior notes (See Note 3). Other long-term obligations of $177.6 million at March 31, 2016 were comprised of items payable in more than one year, primarily related to production taxes and asset retirement obligations.

Continued low oil and natural gas prices have had a significant adverse impact on our business, and, as a result of our financial condition, substantial doubt exists that we will be able to continue as a going concern. As a result, we have reclassified all of our total outstanding debt as short-term. A failure by us to comply with our financial covenants or to comply with the other restrictions in our financing agreements may result in reduced borrowing capacity or an event of a default under the agreements governing our indebtedness, causing our debt obligations under such financing agreements (and any other indebtedness or contractual obligations to the extent linked to it by reason of cross-default or cross-acceleration provisions) to potentially become immediately due and payable.

Maturities. At March 31, 2016, we have the following obligations outstanding under the Credit Agreement, the 2018 Notes, the 2024 Notes, and the Senior Notes (maturity dates exclude the effect of the default provisions):

 

   

$999.0 million due October 2016 under the Credit Agreement;

 

   

$450.0 million due December 2018 with respect to the 2018 Notes;

 

   

$850.0 million due September 2024 with respect to the 2024 Notes; and

 

   

$1.46 billion due between March 2016 and October 2025 with respect to the Senior Notes.

 

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A $62.0 million maturity payment under one series of the Senior Notes was due March 1, 2016 but was not paid. This is not a default under the MNPA during the forbearance period under the Waiver Agreements. However, because of our financial constraints and the significant level of our indebtedness compared to our expected business performance, we do not expect to pay this maturity before the forbearance period ends. Once the forbearance period under the Waiver Agreements ends, unless all of the parties holding our Senior Notes grant a further waiver or other relief related to this requirement, our failure to pay this maturity will become an Event of Default under the MNPA.

Going Concern. As disclosed in our most recent Annual Report on Form 10-K, because low crude oil and natural gas prices during 2015 had a significant adverse impact on our business and our financial condition, substantial doubt exists that we will be able to continue as a going concern. Although crude oil and natural gas prices have improved somewhat in recent weeks, product prices continue to be historically low, our financial condition continues to be distressed, and substantial doubt continues to exist that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and we do not expect to be able to comply with the obligations and covenants in our debt agreements. We also do not have sufficient liquidity to repay our indebtedness if it is accelerated and becomes immediately due and payable. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

In order to increase the Company’s liquidity to levels sufficient to meet the Company’s commitments, we are currently pursuing or considering a number of actions including: (i) in- and out-of-court restructuring, (ii) minimizing our capital expenditures, (iii) obtaining waivers or amendments from our lenders, (iv) effectively managing our working capital and (v) improving our cash flows from operations. There can be no assurance that sufficient liquidity can be raised from one or more of these transactions or that these transactions can be consummated within the period needed to meet certain obligations.

Investors should review the disclosures and other information, including the risk factors, provided in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K. For additional discussion of factors that may affect our ability to continue as a going concern and the potential consequences of our failure to do so, please see the risk factors in this Quarterly Report on Form 10-Q and Item 1A — Risk Factors in our Form 10-K for the year ended December 31, 2015, filed February 29, 2016.

2016 Capital Investment Plan. For 2016, our original capital budget was $260.0 million, reflecting the low commodity price environment at the beginning of the year. On April 26, 2016, our Board of Directors approved an increase to our capital budget for 2016 from $260.0 million to $295.0 million. We anticipate using the additional capital in our increased budget to complete some of our uncompleted wells in Utah and to drill additional development wells in Wyoming. We expect to fund our 2016 capital expenditures budget through cash flows from operations and cash on hand.

Subsequent Events. The Company has evaluated the period subsequent to March 31, 2016 for events that did not exist at the balance sheet date but arose after that date and determined that no subsequent events arose that should be disclosed in order to keep the financial statements from being misleading, except as set forth below:

 

   

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to the 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate.

 

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On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016

 

   

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages relating to the alleged breach. We intend to defend this lawsuit vigorously.

 

   

On April 19, 2016, the Company received a preliminary determination notice from ONRR asserting that the Company’s allocation of certain processing costs and plant fuel use at a specific processing plant were impermissibly allowed as deductions in the determination of royalties owed under Federal oil and gas leases. The Company intends to submit a response to the preliminary determination asserting the reasonableness of its allocation methodology of such costs. This ONRR unbundling review could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods.

Ultra Resources, Inc.

Bank indebtedness. The Company (through its subsidiary, Ultra Resources) is a party to the Credit Agreement with a syndicate of banks led by JP Morgan Chase Bank, N.A. Ultra Resources’ obligations under the Credit Agreement are guaranteed by the Company and UP Energy Corporation, a wholly-owned subsidiary of the Company. The Credit Agreement provides a loan commitment of $1.0 billion. At March 31, 2016, the Company had $999.0 million in outstanding borrowings, representing substantially all of the remaining undrawn amount under the Credit Agreement.

Except as otherwise provided in the Waiver Agreements, loans under the Credit Agreement are unsecured and bear interest, at the Borrower’s option, based on (A) a rate per annum equal to the prime rate or the weighted average fed funds rate on overnight transactions during the preceding business day plus 150 basis points per annum as of March 31, 2016, or (B) a base Eurodollar rate, substantially equal to the LIBOR rate, plus a margin based on a grid of the Borrower’s consolidated leverage ratio (250 basis points per annum as of March 31, 2016). Under the Bank Waiver, our outstanding indebtedness incurred pursuant to the Credit Agreement will accrue interest at the contract rate otherwise applicable to such debt, except that unpaid interest that comes due and payable during the forbearance period under the Waiver Agreements accrues interest at the rate applicable thereto plus two percent per annum. We are required to pay commitment fees on the unused commitment amount under the Credit Agreement based on Ultra Resources’ consolidated leverage ratio.

The Credit Agreement contains typical and customary representations, warranties, covenants and events of default.

The Credit Agreement requires us to deliver annual audited, consolidated financial statements for the Company without a “going concern” or like qualification or explanation. On March 15, 2016, we delivered an audit report with respect to the financial statements in our most recent Annual Report on Form 10-K that included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement provides a 30-day grace period related to this requirement. In addition, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. Because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to deliver the required financial statements will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of three and one half times to one. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the Credit Agreement

 

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during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a PV-9 covenant, pursuant to which Ultra Resources is required to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. We were required to report whether we were in compliance with this covenant on April 1, 2016. Based on the PV-9 of Ultra Resources’ oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant under the Credit Agreement (the ratio was 0.9 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the PV-9 covenant will become an Event of Default under the Credit Agreement.

Senior Notes. Ultra Resources has outstanding $1.46 billion of Senior Notes. Ultra Resources’ Senior Notes rank pari passu with the Company’s Credit Agreement. Payment of the Senior Notes is guaranteed by Ultra Petroleum Corp. and UP Energy Corporation. The Senior Notes are pre-payable in whole or in part at any time following the payment of a make-whole premium and are subject to representations, warranties, covenants and events of default similar to those in the Credit Agreement.

The MNPA contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the MNPA during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the MNPA, once the forbearance period under the Waiver Agreements ends, unless the noteholders of the Senior Notes grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the MNPA.

The MNPA Waiver provides that during the forbearance period under the Waiver Agreements, the outstanding indebtedness under the Senior Notes will accrue interest at the contract rate otherwise applicable to such debt, except that the $40.0 million of unpaid interest which was due March 1, 2016 and the $62.0 million of unpaid principal which was due March 1, 2016 will accrue interest at the rate applicable thereto plus two percent per annum.

Ultra Petroleum Corp. Senior Notes

Senior Notes due 2024: On September 18, 2014, the Company issued $850.0 million of 2024 Notes. The 2024 Notes are general, unsecured senior obligations of the Company and mature on October 1, 2024. The 2024 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to the extent of the value of the collateral securing such indebtedness). The 2024 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. On and after October 1, 2019, the Company may redeem all or, from time to time, a part of the 2024 Notes at the following prices expressed as a percentage of principal amount of the 2024 Notes: 2019 – 103.063%; 2020 – 102.042%; 2021 – 101.021%; and 2022 and thereafter – 100.000%. The 2024 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2024 Notes contain events of default customary for a senior note financing. At March 31, 2016, the Company was in

 

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compliance with all of its debt covenants under the 2024 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2024 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2024 Notes.

Interest due under the 2024 Notes is payable each April 1 and October 1. On April 1, 2016, we elected to defer making an interest payment on the 2024 Notes of approximately $26.0 million due April 1, 2016. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes.

Senior Notes due 2018: On December 12, 2013, the Company issued $450.0 million of 5.75% Senior Notes due 2018 (“2018 Notes”). The 2018 Notes are general, unsecured senior obligations of the Company and mature on December 15, 2018. The 2018 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to the extent of the value of the collateral securing such indebtedness). The 2018 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. As of December 15, 2015, the Company may redeem all or, from time to time, a part of the 2018 Notes at the following prices expressed as a percentage of principal amount of the 2018 Notes: 2015 – 102.875%; 2016 – 101.438%; and 2017 and thereafter – 100.000%. The 2018 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2018 Notes contain events of default customary for a senior note financing. Interest due under the 2018 Notes is payable each June 15 and December 15. At March 31, 2016, the Company was in compliance with all of its debt covenants under the 2018 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2018 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2018 Notes.

Operating Activities. During the three months ended March 31, 2016, net cash used in operating activities was $3.7 million, a 103% decrease from net cash provided by operating activities of $121.8 million for the same period in 2015. The decrease in net cash used in operating activities is largely attributable to decreased revenues as a result of decreased oil and natural gas price realizations during the three months ended March 31, 2016 as compared to the same period in 2015 and net changes in working capital.

Investing Activities. During the three months ended March 31, 2016, net cash used in investing activities was $87.6 million as compared to $140.3 million for the same period in 2015. The decrease in net cash used in investing activities is largely related to decreased capital investments associated with the Company’s drilling activities.

Financing Activities. During the three months ended March 31, 2016, net cash provided by financing activities was $368.7 million compared to $43.5 million for the same period in 2015. The change in net cash provided by financing activities is primarily due to increased borrowings during 2016 related to drawings under the Credit Agreement.

 

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Outlook

As disclosed in our most recent Annual Report on Form 10-K, low crude oil and natural gas prices during 2015 have had and continue to have a significant adverse impact on our business and our financial condition. We have significant indebtedness, and because we are experiencing a period of financial distress due in part to low commodity prices, substantial doubt exists that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all.

We have been working to amend, replace, refinance or restructure our debt agreements or to secure additional capital to alleviate our financial distress. On March 1, 2016, we entered into the Waiver Agreements. Under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements.

During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness, but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

OFF BALANCE SHEET ARRANGEMENTS

The Company did not have any off-balance sheet arrangements as of March 31, 2016.

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this document, including without limitation, statements in Management’s Discussion and Analysis of

 

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Financial Condition and Results of Operations regarding the Company’s financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of the Company’s management for future operations, covenant compliance and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. The Company can give no assurances that the assumptions upon which such forward-looking statements are based will prove to be correct nor can the Company assure adequate funding will be available to execute the Company’s planned future capital program.

Other risks and uncertainties include, but are not limited to, fluctuations in the price the Company receives for oil and gas production, reductions in the quantity of oil and gas sold due to increased industry-wide demand and/or curtailments in production from specific properties due to mechanical, marketing or other problems, operating and capital expenditures that are either significantly higher or lower than anticipated because the actual cost of identified projects varied from original estimates and/or from the number of exploration and development opportunities being greater or fewer than currently anticipated and increased financing costs due to a significant increase in interest rates. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and the risk factors provided in this Quarterly Report on Form 10-Q for additional risks related to the Company’s business.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Objectives and Strategy: The Company’s major market risk exposure is in the pricing applicable to its natural gas and oil production. Realized pricing is currently driven primarily by the prevailing price for the Company’s natural gas production. Historically, prices received for natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. As a result of its hedging activities, the Company may realize prices that are less than or greater than the spot prices that it would have received otherwise.

The Company relies on various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in the Company’s forward cash flows supporting the Company’s capital investment program.

The Company’s hedging policy limits the amounts of resources hedged to not more than 50% of its forecast production without Board approval.

Fair Value of Commodity Derivatives: FASB ASC 815 requires that all derivatives be recognized on the Consolidated Balance Sheets as either an asset or liability and be measured at fair value. Changes in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not apply hedge accounting to any of its derivative instruments.

Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value on the Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current expense or income in the Consolidated Statements of Operations. Unrealized gains or losses on commodity derivatives represent the non-cash change in the fair value of these derivative instruments and do not impact operating cash flows on the cash flow statement. See Note 7 for the detail of the fair value of the following derivatives.

Commodity Derivative Contracts: At March 31, 2016, the Company had no open commodity derivative contracts to manage price risk on a portion of its production.

 

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The following table summarizes the pre-tax realized and unrealized gain (loss) the Company recognized related to its derivative instruments in the Consolidated Statements of Operations for the periods ended March 31, 2016 and 2015:

 

     For the Three Months
Ended March 31,
 

Commodity Derivatives (000’s):

   2016      2015  

Realized gain on commodity derivatives-natural gas(1)

   $ —         $ 29,359   

Unrealized gain on commodity derivatives(1)

     —           7,506   
  

 

 

    

 

 

 

Total gain on commodity derivatives

   $ —         $ 36,865   
  

 

 

    

 

 

 

 

(1) Included in gain on commodity derivatives in the Consolidated Statements of Operations.

The realized gain or loss on commodity derivatives relates to actual amounts received or paid or to be received or paid under the Company’s derivative contracts and the unrealized gain or loss on commodity derivatives represents the change in the fair value of these derivative instruments over the remaining term of the contract.

ITEM 4 — CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company has performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). The Company’s disclosure controls and procedures are the controls and other procedures that it has designed to ensure that it records, processes, accumulates and communicates information to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures and submissions within the time periods specified in the SEC’s rules and forms. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those determined to be effective can provide only a reasonable assurance with respect to financial statement preparation and presentation. Based on the evaluation, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2016. There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2016 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Rockies Express Pipeline: On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously.

Other Claims: The Company is currently involved in various routine disputes and allegations incidental to its business operations. While it is not possible to determine the ultimate disposition of these matters, the Company believes that the resolution of all such pending or threatened litigation is not likely to have a material adverse effect on the Company’s financial position, or results of operations.

ITEM 1A. RISK FACTORS

The following risk factors update the Risk Factors included in our Annual Report on Form 10-K for the year ended December 31, 2015. Except as set forth below, there have been no material changes to the risks described in the Annual Report on Form 10-K.

There is substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 of the United States Bankruptcy Code or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada, any of which may have a material adverse impact on our business, financial condition, results of operations, and cash flows, would have a material adverse impact on the trading price of our securities, and could place our shareholders at significant risk of losing all of their investment in our shares.

We have engaged financial and legal advisors to assist us in, among other things, analyzing various strategic alternatives to address our liquidity and capital structure, including strategic and refinancing alternatives to restructure our indebtedness in private transactions. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

Seeking bankruptcy court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. As long as a Chapter 11 proceeding continues, our senior management would be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing on our business operations. Bankruptcy court protection also may make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, during the period of time we are involved in a bankruptcy proceeding, our customers and suppliers might lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.

Additionally, all of our indebtedness is senior to the existing common stock in our capital structure. As a result, we believe that seeking bankruptcy court protection under a Chapter 11 proceeding (or the Canadian equivalent) could cause the shares of our existing common stock to be canceled, result in a limited recovery, if any, for shareholders of our common stock, and would place shareholders of our common stock at significant risk of losing all of their investment in our shares.

The audit report we received with respect to our year-end 2015 consolidated financial statements contains an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” Our Credit Agreement requires us to deliver audited, consolidated financial statements without a “going concern” or like qualification or exception. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. Our failure to obtain a further waiver or other relief related to this requirement could result in an acceleration of all of our outstanding debt obligations.

 

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Under our Credit Agreement, we are required to deliver audited, consolidated financial statements without a “going concern” or like qualification or explanation. On March 15, 2016, we delivered to the lenders under the Credit Agreement an audit report prepared by our auditors with respect to the financial statements in our most recent Annual Report on Form 10-K that included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement provides a 30-day grace period related to this requirement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. Because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to deliver the required financial statements will become an event of default under the Credit Agreement.

If an event of default occurs under our Credit Agreement, the lenders could accelerate the loans outstanding under the Credit Agreement and deny any additional borrowing requests we might submit pursuant to the Credit Agreement. In addition, if the lenders under our Credit Agreement accelerate the loans outstanding under the Credit Agreement, we will then also be in default under the MNPA and the indentures related to our 2018 Notes and our 2024 Notes. If we default under the MNPA, the holders of the Senior Notes could accelerate the Senior Notes. Likewise, if we default under the indentures, the holders of the 2018 Notes or the 2024 Notes could accelerate those notes.

If our lenders or our noteholders accelerate the payment of amounts outstanding under the Credit Agreement, the Senior Notes, the 2018 Notes or the 2024 Notes, respectively, we do not currently have sufficient liquidity to repay such indebtedness and would need additional sources of capital to do so. We could attempt to obtain additional sources of capital from asset sales, public or private issuances of debt, equity or equity-linked securities, debt for equity swaps, or any combination thereof. However, we cannot provide any assurances that we will be successful in obtaining capital from such transactions on acceptable terms, or at all, and if we fail to obtain sufficient additional capital to repay the outstanding indebtedness and provide sufficient liquidity to meet our operating needs, it may be necessary for us to seek protection from creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

In addition, if $100.0 million or more of our debt obligations are accelerated, the lessor under our Pinedale Lease Agreement could terminate the Pinedale Lease Agreement. A termination of the Pinedale Lease Agreement would significantly disrupt our ability to produce oil and gas from Pinedale field which would have a material adverse effect on our business, financial condition, results of operations, and cash flows.

There are covenants in the agreements governing our indebtedness. Under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, but there is no guarantee we can obtain further waivers or other relief from these defaults. A default on our obligations, an acceleration of our indebtedness by our lenders or noteholders, and/or a termination of the Pinedale Lease Agreement, as applicable, would have a material adverse impact on our business, financial condition, results of operations, cash flows, and the trading price of our securities.

Our Credit Agreement contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the Credit Agreement. A violation of this covenant can become an event of default under our debt agreements and result in the acceleration of all of our indebtedness.

 

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Additionally, our Credit Agreement contains a PV-9 covenant, pursuant to which Ultra Resources is required to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. We were required to report whether we were in compliance with this covenant on April 1, 2016. Based on the PV-9 of Ultra Resources’ oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant under the Credit Agreement (the ratio was 0.9 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the PV-9 covenant will become an Event of Default under the Credit Agreement.

The Master Note Purchase Agreement contains a consolidated leverage covenant similar to the consolidated leverage covenant in our Credit Agreement. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the MNPA during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the MNPA, once the forbearance period under the Waiver Agreements ends, unless the noteholders of the Senior Notes grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the MNPA.

The indentures related to our 2018 Notes and our 2024 Notes contain an interest charge coverage ratio, pursuant to which we are required to maintain a minimum ratio of our trailing four fiscal quarters’ consolidated EBITDA to our total interest expense of no less than 2.25 to 1.00 as a precondition to our incurring additional indebtedness. Based on our EBITDA for the trailing four fiscal quarters ended March 31, 2016, we were in compliance with this covenant at March 31, 2016. However, if commodity prices stay at or decline from recent levels or if we fail to develop new properties and operate our existing properties profitably or if our interest expense increases due to changes in the agreements governing our indebtedness or due to breaches of the covenants in the agreements governing our indebtedness, we may not be able to continue to comply with this covenant during the next twelve months. If we breach this covenant, our ability to incur additional indebtedness will be limited, or we may not be able to incur additional indebtedness at all.

If our lenders or our noteholders accelerate the payment of amounts outstanding under the Credit Agreement, the Senior Notes, the 2018 Notes or the 2024 Notes, respectively, we do not currently have sufficient liquidity to repay such indebtedness and would need additional sources of capital to do so. We could attempt to obtain additional sources of capital from asset sales, public or private issuances of debt, equity or equity-linked securities, debt for equity swaps, or any combination thereof. However, we cannot provide any assurances that we will be successful in obtaining capital from such transactions on acceptable terms, or at all, and if we were unable to obtain sufficient additional capital to repay the outstanding indebtedness and sufficient liquidity to meet our operating needs, it may be necessary for us to seek protection from creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

In addition, if $100.0 million or more of our debt obligations are accelerated, the lessor under our Pinedale Liquids Gathering System Lease Agreement (“LGS Lease Agreement”) could terminate the LGS Lease Agreement. A termination of the LGS Lease Agreement would significantly disrupt our ability to produce oil and gas from Pinedale field which would have a material adverse effect on our business, financial condition, results of operations, and cash flows.

We have no borrowing capacity under our Credit Agreement. Unless we are able to successfully restructure our existing indebtedness, obtain further waivers or forbearance from our existing lenders or otherwise raise significant capital, it is unlikely that we will be able to meet our obligations as they become due, and we may not be able to continue as a going concern.

 

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Our growth has been funded through a combination of borrowings under the agreements governing our indebtedness, the sale of assets and cash flows from operating activities. We currently have limited access to additional capital. During the first quarter of 2016, we borrowed $369.0 million under our Credit Agreement, which represented substantially all of the remaining undrawn amount under the Credit Agreement.

The accompanying Consolidated Financial Statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. As a result of losses incurred and our current negative working capital, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be settled for the amounts recorded.

Furthermore, under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness, but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plans, and we can give no assurance that we will be able to do so in the future.

Unless we are able to successfully restructure our existing indebtedness, obtain further waivers or forbearance from our existing lenders or otherwise raise significant additional capital, it is unlikely that we will be able to meet our obligations as they become due, and we may not be able to continue as a going concern. We can provide no assurance that we will be successful in our efforts to restructure our existing indebtedness, obtain further waivers or forbearance from our existing lenders or otherwise raise significant additional capital.

Our substantial indebtedness, liquidity issues and potential to seek protection under the federal bankruptcy laws has impacted, and may continue to impact, our business and operations.

Our substantial indebtedness, liquidity issues and efforts to negotiate restructuring transactions may result in uncertainty about our business and cause, among other things:

 

   

third parties to lose confidence in our ability to explore and produce oil and natural gas, resulting in a significant decline in our revenues, profitability and cash flow;

 

   

difficulty retaining, attracting or replacing key employees;

 

   

employees to be distracted from performance of their duties or more easily attracted to other career opportunities; and

 

   

our suppliers, vendors, hedge counterparties and service providers to renegotiate the terms of our agreements, terminate their relationship with us or require financial assurances from us.

These events may have a material adverse effect on our business and operations.

We have received a notice of non-compliance with a continued listing standard from the NYSE for our common stock. If we are unable to avoid the delisting of our common stock from the NYSE, it could have a substantial effect on our liquidity and results of operations.

On March 15, 2016, we received a notice from the NYSE (“NYSE Notice”) that we were not in compliance with the NYSE’s continued listing standards set forth in Section 802.01C of the NYSE Listed Company Manual, which require the average closing price of our common stock to be at least $1.00 per share over a consecutive 30-trading-day period. As of March 11, 2016, the 30 trading-day average closing price of our common stock was $0.96 per share.

 

45


Table of Contents

Upon receipt of the notice of non-compliance from the NYSE, we became subject to the procedures set forth in Section 802.01C of the NYSE Listed Company Manual. As required by the NYSE, we have responded to the NYSE within 10 days following receipt of the notice acknowledging the notification. Under NYSE rules, we have six months from receipt of the notice to regain compliance with the minimum share price rule. We expect our common stock will continue to be listed and traded on the NYSE during this period, subject to our continued compliance with the NYSE’s other continued listing standards.

In the future, if our common stock ultimately were to be delisted for any reason, it could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

 

46


Table of Contents

ITEM 6. EXHIBITS

(a) Exhibits

 

    3.1    Articles of Incorporation of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
    3.2    By-Laws of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
    3.3    Articles of Amendment to Articles of Incorporation of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.3 of the Company’s Report on Form 10-K/A for the period ended December 31, 2005).
    4.1    Specimen Common Share Certificate — (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
  10.1    Limited Waiver Agreement, dated as of March 1, 2016, by and among Ultra Petroleum Corp., Ultra Resources, Inc., UP Energy Corporation, JPMorgan Chase Bank N.A., as administrative agent under the Credit Agreement, dated as of October 6, 2011, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 8-K filed on March 2, 2016).
  10.2    Waiver and Amendment to Master Note Purchase Agreement, Notes and Supplement, dated as of March 1, 2016, by and among Ultra Resources, Inc. and the holders of the unsecured senior notes issued by Ultra Resources under the Master Note Purchase Agreement, dated as of March 6, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 8-K filed on March 2, 2016).
  31.1*    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2*    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1*    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2*    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema Document.
101.CAL*    XBRL Taxonomy Calculation Linkbase Document.
101.LAB*    XBRL Label Linkbase Document.
101.PRE*    XBRL Presentation Linkbase Document.
101.DEF*    XBRL Taxonomy Extension Definition.

 

* Filed herewith.

 

47


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    ULTRA PETROLEUM CORP.
    By:  

/s/ Michael D. Watford

      Name:   Michael D. Watford
      Title:   Chairman, President and
        Chief Executive Officer
Date: April 28, 2016        
    By:  

/s/ Garland R. Shaw

      Name:   Garland R. Shaw
      Title:   Senior Vice President and
        Chief Financial Officer

Date: April 28, 2016

 

48


Table of Contents

EXHIBIT INDEX

 

    3.1    Articles of Incorporation of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
    3.2    By-Laws of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
    3.3    Articles of Amendment to Articles of Incorporation of Ultra Petroleum Corp. — (incorporated by reference to Exhibit 3.3 of the Company’s Report on Form 10-K/A for the period ended December 31, 2005).
    4.1    Specimen Common Share Certificate — (incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001).
  10.1    Limited Waiver Agreement, dated as of March 1, 2016, by and among Ultra Petroleum Corp., Ultra Resources, Inc., UP Energy Corporation, JPMorgan Chase Bank N.A., as administrative agent under the Credit Agreement, dated as of October 6, 2011, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the Company’s Report on Form 8-K filed on March 2, 2016).
  10.2    Waiver and Amendment to Master Note Purchase Agreement, Notes and Supplement, dated as of March 1, 2016, by and among Ultra Resources, Inc. and the holders of the unsecured senior notes issued by Ultra Resources under the Master Note Purchase Agreement, dated as of March 6, 2008 (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 8-K filed on March 2, 2016).
  31.1*    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  31.2*    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1*    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  32.2*    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*    XBRL Instance Document.
101.SCH*    XBRL Taxonomy Extension Schema Document.
101.CAL*    XBRL Taxonomy Calculation Linkbase Document.
101.LAB*    XBRL Label Linkbase Document.
101.PRE*    XBRL Presentation Linkbase Document.
101.DEF*    XBRL Taxonomy Extension Definition.

 

* Filed herewith.

 

49

Exhibit 31.1

CERTIFICATION

I, Michael D. Watford, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ultra Petroleum Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

/s/  Michael D. Watford

      Michael D. Watford,

Chairman, President and Chief Executive Officer (Principal Executive Officer)

Date: April 28, 2016

Exhibit 31.2

CERTIFICATION

I, Garland R. Shaw, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ultra Petroleum Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

 

/s/  Garland R. Shaw

      Garland R. Shaw,

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Date: April 28, 2016

EXHIBIT 32.1

SECTION 906 CERTIFICATION PURSUANT OF PRINCIPAL EXECUTIVE OFFICER

ULTRA PETROLEUM CORP.

In connection with the Quarterly Report of Ultra Petroleum Corp. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Watford, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/  Michael D. Watford

      Michael D. Watford,

Chairman, President and Chief Executive Officer (Principal Executive Officer)

Dated: April 28, 2016

This certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification will not be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Exhibit 32.2

SECTION 906 CERTIFICATION PURSUANT OF PRINCIPAL FINANCIAL OFFICER

ULTRA PETROLEUM CORP.

In connection with the Quarterly Report of Ultra Petroleum Corp. (the “Company”) on Form 10-Q for the fiscal quarter ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Garland R. Shaw, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/  Garland R. Shaw

      Garland R. Shaw,

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

Dated: April 28, 2016

This certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. This certification will not be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

v3.4.0.3
Document and Entity Information - USD ($)
3 Months Ended
Mar. 31, 2016
Apr. 20, 2016
Jun. 30, 2015
Document and Entity Information      
Entity Registrant Name Ultra Petroleum Corp.    
Entity Central Index Key 0001022646    
Document Type 10-Q    
Document Period End Date Mar. 31, 2016    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Public Float     $ 1,918,659,990
Entity Common Stock, Shares Outstanding   153,388,832  
Document Fiscal Year Focus 2016    
Document Fiscal Period Focus Q1    
Trading Symbol UPL    
v3.4.0.3
Consolidated Statement of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Revenues [Abstract]    
Natural gas sales $ 138,102 $ 183,795
Oil sales 21,284 35,514
Oil and Gas Revenue 159,386 219,309
Operating Expenses [Abstract]    
Lease operating expenses 25,394 26,112
LGS operating lease expense 5,171 5,162
Production taxes 15,231 19,895
Gathering fees 22,450 19,757
Transportation charges 23,555 20,191
Depletion, depreciation and amoritzation 30,848 94,590
General and administrative 4,219 3,640
Costs and Expenses 126,868 189,347
Operating Income (Loss) 32,518 29,962
Other Nonoperating Income (Expense) [Abstract]    
Interest expense (49,903) (42,668)
Gain (loss) on commodity derivatives 0 36,865
Deferred gain on sale of liquids gathering system 2,638 2,638
Litigation expense 0 (3,664)
Restructuring expenses (5,579) 0
Other income (expense), net (1,695) 34
Other Nonoperating Income (Expense) (54,539) (6,795)
Income (loss) before income taxes (22,021) 23,167
Income Tax Expense (Benefit) (190) (2,022)
Net Income (Loss) $ (21,831) $ 25,189
Earnings Per Share, Basic [Abstract]    
Earnings Per Share, Basic $ (0.14) $ 0.16
Fully Diluted Earnings per Share:    
Earnings Per Share, Diluted $ (0.14) $ 0.16
Weighted Average Number of Shares Outstanding, Basic 153,322 153,042
Weighted Average Number of Shares Outstanding, Diluted 153,322 155,703
v3.4.0.3
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current Assets [Abstract]    
Cash and cash equivalents $ 281,506 $ 4,143
Restricted cash 1,250 115
Oil and gas revenue receivable 46,495 61,881
Joint interest billing and other receivables 14,167 11,356
Deposits and retainers 13,690 236
Income tax receivable 5,340 5,150
Inventory 4,027 4,269
Other current assets 6,136 4,064
Total current assets 372,611 91,214
Oil And Gas Properties Net Using Full Cost Method Of Accounting [Abstract]    
Proven 901,084 851,145
Unproven properties not being amortized 0 0
Property, plant and equipment, net 8,391 8,844
Deferred tax assets 1 1
Other noncurrent assets 835 835
Total assets 1,282,922 952,039
Current Liabilities [Abstract]    
Accounts payable 42,547 93,415
Accrued liabilities 64,916 72,428
Current portion of long term debt 3,739,787 3,370,553
Production taxes payable 51,414 52,273
Interest payable 84,910 42,657
Capital cost accrual 9,478 20,571
Total current liabilities 3,993,052 3,651,897
Deferred gain on sale of liquids gathering system 123,656 126,295
Other long-term obligations $ 177,564 $ 165,784
Commitments and contingencies
Stockholders' Equity Attributable to Parent [Abstract]    
Common Stock, Value, Issued $ 504,778 $ 502,050
Treasury Stock, Value (176) (176)
Retained loss (3,515,952) (3,493,811)
Total shareholders' deficit (3,011,350) (2,991,937)
Total liabilities and shareholders' equity $ 1,282,922 $ 952,039
v3.4.0.3
Consolidated Balance Sheets (Parenthetical) - $ / shares
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Common Stock, No Par Value
Common stock, shares authorized unlimited unlimited
Common Stock, Shares, Issued 153,388,832 153,255,989
Common Stock, Shares, Outstanding 153,388,832 153,255,989
v3.4.0.3
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating Activities [Abstract]    
Net Income (Loss) $ (21,831) $ 25,189
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used in) Operating Activities [Abstract]    
Depletion, depreciation and amoritzation 30,848 94,590
Deferred gain on sale of liquids gathering system (2,638) (2,638)
Deferred Income Tax Provision (Benefit) 0 (258)
Unrealized Gain (Loss) on Derivatives 0 (7,506)
Stock compensation 1,797 1,993
Other 4,063 3,601
Increase (Decrease) in Operating Capital [Abstract]    
Restricted cash (1,135) 2
Accounts receivable 10,940 35,743
Other current assets (15,121) (2,265)
Accounts payable (50,867) (22,308)
Accrued liabilities (9,970) (9,586)
Production taxes payable (859) (2,708)
Interest payable 42,253 (2,518)
Other long-term obligations 9,020 12,232
Income taxes payable receivable (190) (1,764)
Net Cash Provided by (Used in) Operating Activities (3,690) 121,799
Investing Activities [Abstract]    
Acquisition Costs 0 3,964
Oil and gas property expenditures (76,672) (132,086)
Change in capital cost accrual (11,092) (12,248)
Inventory (8) (14)
Purchase of Capital Assets 132 90
Net Cash Provided by (Used in) Investing Activities (87,640) (140,294)
Net Cash Provided by (Used in) Financing Activities [Abstract]    
Borrowings on long-term debt 369,000 454,000
Payments on long-term debt 0 (391,000)
Deferred financing costs 0 6
Repurchased shares - net share settlements (307) (2,419)
Payment of contingent consideration 0 (17,049)
Net Cash Provided by (Used in) Financing Activities 368,693 43,538
Cash and Cash Equivalents, Period Increase (Decrease) 277,363 25,043
Cash and Cash Equivalents, at Carrying Value 4,143 8,919
Cash and Cash Equivalents, at Carrying Value $ 281,506 $ 33,962
v3.4.0.3
Liquidity and Going Concern Disclosure
3 Months Ended
Mar. 31, 2016
Liquidity And Going Concern Disclosure [Abstract]  
Liquidity and Ability to Continue as a Going Concern [Text Block]

Liquidity and Ability to Continue as a Going Concern

As disclosed in our most recent Annual Report on Form 10-K, because low crude oil and natural gas prices during 2015 had a significant adverse impact on our business and our financial condition, substantial doubt exists that we will be able to continue as a going concern. Although crude oil and natural gas prices have improved somewhat in recent weeks, product prices continue to be historically low, our financial condition continues to be distressed, and substantial doubt continues to exist that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”) or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada. Investors should review the disclosures and other information, including the risk factors, provided in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K.

On March 1, 2016, we entered into a Limited Waiver Agreement with the lenders under the credit agreement between our wholly-owned subsidiary, Ultra Resources, Inc. (“Ultra Resources), as the borrower, and JPMorgan Chase Bank, as the administrative agent, and the lenders thereto (the “Credit Agreement”) (the “Bank Waiver”) and a Waiver and Amendment to Master Note Purchase Agreement, Notes and Supplement with the holders of the unsecured senior notes issued by Ultra Resources (collectively, the “Senior Notes”) pursuant to the Master Note Purchase Agreement dated March 6, 2008 (as supplemented, the “MNPA”) (the “MNPA Waiver” and, together with the Bank Waiver, the “Waiver Agreements”). Under the Waiver Agreements, the lenders and holders, as applicable, party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, as applicable, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement or the MNPA, as applicable, that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness; but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 6.125% Senior Notes due 2024 (the “2024 Notes”). The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

The following events have occurred since February 29, 2016 (when we filed our most recent Annual Report on Form 10-K):

  • On March 1, 2016, we entered into the Bank Waiver with the lenders under the Credit Agreement between Ultra Resources, as the borrower, and JPMorgan Chase Bank, as the administrative agent, and the lenders thereto, and the MNPA Waiver with 100% of the holders of the Senior Notes issued by Ultra Resources pursuant to the MNPA. The Waiver Agreements were effective March 1, 2016 and provide for a forbearance period extending through no later than April 30, 2016. These events were disclosed in our Current Report on Form 8-K filed March 2, 2016.

  • On March 1, 2016, we elected not to make a $62.0 million principal payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

  • On March 1, 2016, we elected not to make a $40.0 million interest payment due under the unsecured senior notes issued by Ultra Resources. Because of the Waiver Agreements, this is not a default under the MNPA during the forbearance period under the Waiver Agreements.

  • On March 8, 2016, we received a letter from Sempra Rockies Marketing, LLC (“Sempra”) notifying us that Sempra was exercising its alleged right to permanently recall the 50,000 MMBtu/day of capacity on the Rockies Express pipeline and that the recall would be effective as of March 9, 2016. We had previously received a letter, dated February 26, 2016, from Sempra alleging that we were in breach of our Capacity Release Agreement, dated March 5, 2009, due to nonpayment of fees for transportation service and notifying us that Sempra was authorized to recall the capacity released to us under the agreement and to pursue any claims for damages or other remedies to which Sempra was entitled.

  • On March 11, 16, 21, and 31, 2016, we elected not to make a total of $2.7 million of interest payments due under the Credit Agreement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

  • On March 15, 2016, we delivered, to the lenders under the Credit Agreement, an audit report prepared by our auditors with respect to the financial statements in our most recent Annual Report on Form 10-K, which included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement requires us to deliver annual audited, consolidated financial statements without a “going concern” or like qualification or explanation. The Credit Agreement provides a 30-day grace period related to this requirement. Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

  • On March 15, 2016, we received a notice from the New York Stock Exchange (“NYSE”) that we were not in compliance with the NYSE’s continued listing standards, and, as a result, there is a significant risk our common stock will be delisted from the NYSE. This event was disclosed in our Current Report on Form 8-K filed March 18, 2016.

  • On March 28, 2016, we received a letter from Rockies Express Pipeline notifying us that, according to Rockies Express, our transportation agreement had terminated effective as of March 26, 2016 due to our alleged defaults under the terms of the Rockies Express tariff and our transportation agreement.

  • On April 1, 2016, we notified the lenders under the Credit Agreement of the annual redetermination of the PV-9 value of our proved reserves. The Credit Agreement requires Ultra Resources to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. Based on the PV-9 of its oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant (the ratio was 0.9 times at March 31, 2016). Because of the Waiver Agreements, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements.

  • On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. This event was disclosed in our Current Report on Form 8-K filed April 1, 2016.

  • On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

  • On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously.
v3.4.0.3
Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Significant Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]

1.  SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements, other than the balance sheet data as of December 31, 2015, are unaudited and were prepared from the Company’s records, but do not include all disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”). Balance sheet data as of December 31, 2015 was derived from the Company’s audited financial statements. The Company’s management believes that these financial statements include all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All adjustments are of a normal and recurring nature unless specifically noted. The Company prepared these statements on a basis consistent with the Company’s annual audited statements and Regulation S-X. Regulation S-X allows the Company to omit some of the footnote and policy disclosures required by generally accepted accounting principles and normally included in annual reports on Form 10-K. You should read these interim financial statements together with the financial statements, summary of significant accounting policies and notes to the Company’s most recent annual report on Form 10-K.

Basis of presentation and principles of consolidation:  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company presents its financial statements in accordance with U.S. GAAP. All inter-company transactions and balances have been eliminated upon consolidation.

(a) Cash and Cash Equivalents:  The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

(b) 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.

(c) Accounts Receivable: 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 because of the short-term nature of the instruments. The Company routinely assesses the collectability of all material trade and other receivables.

(d) Property, Plant and Equipment:  Capital assets are recorded at cost and depreciated using the declining-balance method based on their respective useful life.

(e) 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 for the three months ended March 31, 2016 or 2015.

(f) Deferred Financing Costs:  Included in other current assets at March 31, 2016 are costs associated with the issuance of our revolving credit facility. Costs associated with the issuance of our Senior Notes, 2018 Notes and 2024 Notes are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The remaining unamortized issuance costs are being amortized over the life of the applicable debt or facility using the straight line method.

(g) 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 Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Consolidated Statements of Operations. The Company does not offset the value of its derivative arrangements with the same counterparty. (See Note 6).

(h) 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.

(i) 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.

Three Months Ended
March 31,March 31,
20162015
(Share amounts in 000's)
Net (loss) income$(21,831)$25,189
Weighted average common shares outstanding - basic153,322153,042
Effect of dilutive instruments(1)-2,661
Weighted average common shares outstanding - diluted153,322155,703
Net (loss) income per common share - basic$(0.14)$0.16
Net (loss) income per common share - diluted$(0.14)$0.16
Number of shares not included in dilutive earnings per share that would have been anti-dilutive because the exercise price was greater than the average market price of the common
shares (1)-776
(1) Due to the net loss for the three months ended March 31, 2016, 1.6 million shares for options and restricted stock units were anti-dilutive and excluded from the computation of net loss per share.

(j) Use of Estimates:  Preparation of consolidated financial statements in accordance with U.S. 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.

(k) 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.

(l) 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 7 for additional information.

(m) 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 Consolidated Balance Sheets.

(n) Revenue Recognition:  The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices. The Company recognizes revenues when the oil and natural gas is delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company accounts for oil and natural gas sales using the “entitlements method.” Under the entitlements method, revenue is recorded based upon the Company’s ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. Any amount received in excess of the Company’s share is treated as a liability. If the Company receives less than its entitled share, the underproduction is recorded as a receivable.

Make-up provisions and ultimate settlements of volume imbalances are generally governed by agreements between the Company and its partners with respect to specific properties or, in the absence of such agreements, through negotiation. The value of volumes over- or under-produced can change based on changes in commodity prices. The Company prefers the entitlements method of accounting for oil and natural gas sales because it allows for recognition of revenue based on its actual share of jointly owned production, results in better matching of revenue with related operating expenses, and provides balance sheet recognition of the estimated value of product imbalances. The Company’s imbalance obligations as of March 31, 2016 and December 31, 2015 were immaterial.

(o) Capitalized Interest: Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any.

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

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

(r) Recent Accounting Pronouncements: In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) to simplify some of the provisions in stock compensation accounting. The update simplifies the accounting for a stock payment’s tax consequences and amends how excess tax benefits and a business’s payments to cover the tax bills for the shares’ recipients should be classified. The amendments allow companies to estimate the number of stock awards expected to vest and revises the withholding requirements for classifying stock awards as equity. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-09 on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU No. 2016-02”). 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 also will 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. The Company is still evaluating the impact of ASU No. 2016-02 on its financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU No. 2015-17”). The guidance eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet. The new standard requires deferred tax assets and liabilities to be classified as noncurrent. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and may be applied either prospectively or retrospectively to all periods presented. The Company has elected early adoption of ASU No. 2015-17 and has applied these changes prospectively as of December 31, 2015. The adoption of this guidance has no impact on our results of operations or cash flows. The reclassification of amounts from current to noncurrent affects presentation of our financial position.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). Public companies will have to apply the amendments for reporting periods that start after December 15, 2016, including interim periods within those fiscal years. This ASU requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The company does not expect the adoption of ASU No. 2015-11 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30)—Simplifying the Presentation of Debt Issuance Costs. In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30)—Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require capitalized debt issuance costs, except for those related to revolving credit facilities, to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, rather than as an asset. The Company adopted these ASUs on January 1, 2016, using a retrospective approach. The adoption resulted in a reclassification that reduced current assets and current maturities of long-term debt by $19.2 million and $19.4 million on the Company’s Consolidated Balance Sheet at March 31, 2016 and December 31, 2015, respectively.

In June 2015, the FASB issued a delay by one year of the revenue recognition standard adopted in June 2014. In June 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), which amends the FASB ASC by adding new FASB ASC Topic 606, Revenue from Contracts with Customers, and superseding the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics.  ASU No. 2014-09 provides new guidance concerning recognition and measurement of revenue and requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The new proposal related to ASU No. 2014-09 delays the application of the standard to reporting periods beginning after December 15, 2017 instead of December 15, 2016. The Company is still evaluating the impact of ASU No. 2014-09 on its financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that requires management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning after December 15, 2016 and for interim reporting periods thereafter. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

v3.4.0.3
Oil and Gas Properties and Equipment
3 Months Ended
Mar. 31, 2016
Oil And Gas Properties And Equipment [Abstract]  
Oil and Gas Exploration and Production Industries Disclosures [Text Block]
2. OIL AND GAS PROPERTIES AND EQUIPMENT:
March 31,December 31,
20162015
Proven Properties:
Acquisition, equipment, exploration, drilling and abandonment costs$10,558,034$10,480,165
Less: Accumulated depletion, depreciation and amortization(2)(9,656,950)(9,629,020)
901,084851,145
Unproven Properties:
Acquisition and exploration costs not being amortized(1)--
Net capitalized costs - oil and gas properties$901,084$851,145

(1)Interest is capitalized on the cost of unevaluated oil and natural gas properties that are excluded from amortization and actively being evaluated, if any. At December 31, 2015, all costs related to unevaluated properties that were previously excluded from capitalized costs not being amortized have been impaired or not considered significant and transferred to the capitalized costs being amortized in the full cost pool. For the three months ended March 31, 2016, there was no interest capitalized on the cost of unevaluated oil and natural gas properties. For the year ended December 31, 2015, total interest on outstanding debt was $185.0 million, of which, $20.4 million was capitalized on the cost of unproven oil and natural gas properties.

(2)The Company recorded a $3.1 billion non-cash write-down of the carrying value of its proved oil and gas properties as a result of ceiling test limitations during the quarter ended December 31, 2015.

v3.4.0.3
Long Term Liabilities
3 Months Ended
Mar. 31, 2016
Long Term Liabilities [Abstract]  
Long-term Debt [Text Block]
3. DEBT AND OTHER LONG-TERM OBLIGATIONS:
March 31,December 31,
20162015
Current portion of long-term debt:
6.125% Senior Notes due 2024$850,000$850,000
5.75% Senior Notes due 2018450,000450,000
Senior Notes issued by Ultra Resources, Inc.1,460,0001,460,000
Less: Deferred financing costs(19,213)(19,447)
2,740,7872,740,553
Credit Agreement999,000630,000
Total current portion of long-term debt3,739,7873,370,553
Other long-term obligations:
Other long-term obligations177,564165,784
Total Debt and Other Long-term Obligations$3,917,351$3,536,337

We have significant indebtedness, all of which we have reclassified as short-term as of December 31, 2015. Our level of indebtedness has adversely impacted and is continuing to adversely impact our financial condition. As a result of our financial condition and the likelihood that we will be in default under our debt agreements in the near future, substantial doubt exists that we will be able to continue as a going concern. Our ability to continue as a going concern is dependent on many factors, including our ability to comply with the obligations in our existing debt agreements, to obtain waivers or other relief if we are unable to comply, and/or to be able to repay or replace our indebtedness as it matures. We can offer no assurance that we will be able to obtain waivers or other relief, and it is unlikely we will be able to comply with all of the obligations and covenants in our debt agreements. In addition, we have substantial unpaid principal maturities and interest payments that are past due, and we have substantial additional principal maturities and interest payments coming due in the near future. We do not have sufficient liquidity to pay our unpaid and near-term principal maturities and interest payments without raising additional capital. We do not have sufficient liquidity to pay our indebtedness if it is accelerated and becomes immediately due and payable without raising additional capital. Additional capital may be available only on extremely onerous terms if it is available at all. There is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

On March 1, 2016, we entered into the Waiver Agreements. Under the Waiver Agreements, the lenders party thereto agreed to waive certain specified defaults under the Credit Agreement and the MNPA, and to forbear from exercising their rights and remedies otherwise available under the Credit Agreement and/or the MNPA, for a forbearance period extending from March 1, 2016 until the earlier of April 30, 2016, a default or event of default under the Credit Agreement that was not waived by the Waiver Agreements, or one or more of the termination events specified in the Waiver Agreements. During the forbearance period under the Waiver Agreements, we have attempted to and are continuing to negotiate a restructuring of our indebtedness, but, as of the date of this Quarterly Report on Form 10-Q, we have not been successful at accomplishing our plan. In order to extend the forbearance period under the MNPA Waiver, we would be required to obtain 100% approval by the holders of the Senior Notes, which we believe is highly unlikely.

On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to our 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. Due to our current financial constraints, including the likelihood of the occurrence of events of default under our debt agreements, there is a substantial risk that it may be necessary for us to seek protection from our creditors under Chapter 11 or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against us in the U.S. or in Canada.

Ultra Resources, Inc.

Bank indebtedness. The Company (through its subsidiary, Ultra Resources) is a party to the Credit Agreement with a syndicate of banks led by JP Morgan Chase Bank, N.A. Ultra Resources’ obligations under the Credit Agreement are guaranteed by the Company and UP Energy Corporation, a wholly-owned subsidiary of the Company. The Credit Agreement provides a loan commitment of $1.0 billion. At March 31, 2016, the Company had $999.0 million in outstanding borrowings, representing substantially all of the remaining undrawn amount under the Credit Agreement.

Except as otherwise provided in the Waiver Agreements, loans under the Credit Agreement are unsecured and bear interest, at the Borrower’s option, based on (A) a rate per annum equal to the prime rate or the weighted average fed funds rate on overnight transactions during the preceding business day plus 150 basis points per annum as of March 31, 2016, or (B) a base Eurodollar rate, substantially equal to the LIBOR rate, plus a margin based on a grid of the Borrower’s consolidated leverage ratio (250 basis points per annum as of March 31, 2016). Under the Bank Waiver, our outstanding indebtedness incurred pursuant to the Credit Agreement will accrue interest at the contract rate otherwise applicable to such debt, except that unpaid interest that comes due and payable during the forbearance period under the Waiver Agreements accrues interest at the rate applicable thereto plus two percent per annum. We are required to pay commitment fees on the unused commitment amount under the Credit Agreement based on Ultra Resources’ consolidated leverage ratio.

The Credit Agreement contains typical and customary representations, warranties, covenants and events of default.

The Credit Agreement requires us to deliver annual audited, consolidated financial statements for the Company without a “going concern” or like qualification or explanation. On March 15, 2016, we delivered an audit report with respect to the financial statements in our most recent Annual Report on Form 10-K that included an explanatory paragraph expressing uncertainty as to our ability to continue as a “going concern.” The Credit Agreement provides a 30-day grace period related to this requirement. In addition, this is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. Because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to deliver the required financial statements will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the Credit Agreement.

The Credit Agreement contains a PV-9 covenant, pursuant to which Ultra Resources is required to maintain a minimum ratio of the discounted net present value of its oil and gas properties to its total funded consolidated debt of 1.5 times. We were required to report whether we were in compliance with this covenant on April 1, 2016. Based on the PV-9 of Ultra Resources’ oil and gas properties at December 31, 2015, Ultra Resources failed to comply with the PV-9 ratio covenant under the Credit Agreement (the ratio was 0.9 times at March 31, 2016). This is not a default under the Credit Agreement during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the Credit Agreement, once the forbearance period under the Waiver Agreements ends, unless the lenders under the Credit Agreement grant a further waiver or other relief related to this requirement, our failure to comply with the PV-9 covenant will become an Event of Default under the Credit Agreement.

Senior Notes. Ultra Resources has outstanding $1.46 billion of Senior Notes. Ultra Resources’ Senior Notes rank pari passu with the Company’s Credit Agreement. Payment of the Senior Notes is guaranteed by Ultra Petroleum Corp. and UP Energy Corporation. The Senior Notes are pre-payable in whole or in part at any time following the payment of a make-whole premium and are subject to representations, warranties, covenants and events of default similar to those in the Credit Agreement.

The MNPA contains a consolidated leverage covenant, pursuant to which Ultra Resources is required to maintain a maximum ratio of its total funded consolidated debt to its trailing four fiscal quarters’ EBITDAX of 3.5 to 1.0. Based on Ultra Resources’ EBITDAX for the trailing four fiscal quarters ended March 31, 2016, we were not in compliance with this consolidated leverage covenant at March 31, 2016 (the ratio was 4.6 times at March 31, 2016). This is not a default under the MNPA during the forbearance period under the Waiver Agreements. However, because we cannot comply with this requirement under the MNPA, once the forbearance period under the Waiver Agreements ends, unless the noteholders of the Senior Notes grant a further waiver or other relief related to this requirement, our failure to comply with the consolidated leverage covenant will become an Event of Default under the MNPA.

The MNPA Waiver provides that during the forbearance period under the Waiver Agreements, the outstanding indebtedness under the Senior Notes will accrue interest at the contract rate otherwise applicable to such debt, except that the $40.0 million of unpaid interest which was due March 1, 2016 and the $62.0 million of unpaid principal which was due March 1, 2016 will accrue interest at the rate applicable thereto plus two percent per annum.

Ultra Petroleum Corp. Senior Notes

Senior Notes due 2024: On September 18, 2014, the Company issued $850.0 million of 2024 Notes. The 2024 Notes are general, unsecured senior obligations of the Company and mature on October 1, 2024. The 2024 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to the extent of the value of the collateral securing such indebtedness). The 2024 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. On and after October 1, 2019, the Company may redeem all or, from time to time, a part of the 2024 Notes at the following prices expressed as a percentage of principal amount of the 2024 Notes: 2019 – 103.063%; 2020 – 102.042%; 2021 – 101.021%; and 2022 and thereafter – 100.000%. The 2024 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2024 Notes contain events of default customary for a senior note financing. At March 31, 2016, the Company was in compliance with all of its debt covenants under the 2024 Notes.

Interest due under the 2024 Notes is payable each April 1 and October 1. On April 1, 2016, we elected to defer making an interest payment on the 2024 Notes of approximately $26.0 million due April 1, 2016. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate. We do not expect to make this interest payment before the end of the grace period under the indenture governing the 2024 Notes. If we do not make this interest payment before the end of the grace period, this will become an event of default under the indenture governing the 2024 Notes and may result in the acceleration of all of our indebtedness, including the 2024 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2024 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2024 Notes.

Senior Notes due 2018: On December 12, 2013, the Company issued $450.0 million of 5.75% Senior Notes due 2018 (“2018 Notes”). The 2018 Notes are general, unsecured senior obligations of the Company and mature on December 15, 2018. The 2018 Notes rank equally in right of payment to all existing and future senior indebtedness of the Company and effectively rank junior to all future secured indebtedness of the Company (to the extent of the value of the collateral securing such indebtedness). The 2018 Notes are not guaranteed by the Company’s subsidiaries and, as a result, are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. As of December 15, 2015, the Company may redeem all or, from time to time, a part of the 2018 Notes at the following prices expressed as a percentage of principal amount of the 2018 Notes: 2015 – 102.875%; 2016 – 101.438%; and 2017 and thereafter – 100.000%. The 2018 Notes are subject to covenants that restrict the Company’s ability to incur indebtedness, make distributions and other restricted payments, grant liens, use the proceeds of asset sales, make investments and engage in affiliate transactions. In addition, the 2018 Notes contain events of default customary for a senior note financing. Interest due under the 2018 Notes is payable each June 15 and December 15. At March 31, 2016, the Company was in compliance with all of its debt covenants under the 2018 Notes. However, as noted above with respect to the Credit Agreement and the Ultra Resources Senior Notes, once the forbearance period under the Waiver Agreements ends, unless the Ultra Resources lenders grant a further waiver or other relief, violations of covenants or events of nonpayment under the Credit Agreement and/or the Senior Notes will become Events of Default under the Credit Agreement and/or the MNPA and could also become Events of Default under the 2018 Notes, potentially resulting in the acceleration of all of our indebtedness, including the 2018 Notes.

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

v3.4.0.3
Share Based Compensation
3 Months Ended
Mar. 31, 2016
Stock Based Compensation [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
4. SHARE BASED COMPENSATION:
Valuation and Expense Information
Three Months
Ended March 31,
20162015
Total cost of share-based payment plans$2,728$2,970
Amounts capitalized in oil and gas properties
and equipment$931$977
Amounts charged against income, before
income tax benefit (provision)$1,797$1,993
Amount of related income tax (expense) benefit
recognized in income before valuation allowance$715$833

Changes in Stock Options and Stock Options Outstanding

The following table summarizes the changes in stock options for the three months ended March 31, 2016 and the year ended December 31, 2015:

Weighted
Number ofAverage
OptionsExercise Price
(000's)(US Dollars)
Balance, December 31, 2014690$25.68to$98.87
Expired or forfeited(171)$25.68to$75.18
Balance, December 31, 2015519$49.05to$98.87
Expired or forfeited(43)$57.65to$63.05
Balance, March 31, 2016476$49.05to$98.87

Performance Share Plans:

Long Term Incentive Plans.  The Company offers a Long Term Incentive Plan (“LTIP”) in order to further align the interests of key employees with shareholders and to give key employees the opportunity to share in the long-term performance of the Company when specific corporate financial and operational goals are achieved. Each LTIP covers a performance period of three years.

Under each LTIP, the Compensation Committee establishes a percentage of base salary for each participant that is multiplied by the participant’s base salary at the beginning of the performance period and individual performance level to derive a Long Term Incentive Value as a “target” value. This “target” value corresponds to the number of shares of the Company’s common stock the participant is eligible to receive if the participant is employed by the Company through the date the award vests and if the target level for all performance measures are met. In addition, each participant is assigned threshold and maximum award levels in the event the Company’s actual performance is below or above the target levels.

Time-Based Measure and Performance-Based Measures:

For each LTIP award, the Committee establishes time-based and performance-based measures at the beginning of each three-year performance period. For the LTIP awards in 2015 and 2014, the Committee established the following performance-based measures:  return on capital employed, debt level, and reserve replacement ratio. The fair value of the time-based and performance-based component of the LTIP award is based on the average high and low market price of the Company’s common stock on the date of award.

Market-Based Measure:

LTIP awards granted to officers during 2015 and 2014, include an additional performance metric, Total Shareholder Return. The grant-date fair value related to the market-based condition was calculated using a Monte Carlo simulation.

Valuation Assumptions
The Company estimates the fair value of the market condition related to the LTIP awards on the date of grant using a Monte Carlo simulation with the following assumptions:
2015 LTIP2014 LTIP
Volatility of common stock39.0%39.2%
Risk-free interest rate0.66%0.40%

Stock-Based Compensation Cost:

For the three months ended March 31, 2016, the Company recognized $1.4 million in pre-tax compensation expense related to the 2014 and 2015 LTIP awards of restricted stock units as compared to $1.8 million during the three months ended March 31, 2015 related to the 2013, 2014 and 2015 LTIP awards of restricted stock units. The amounts recognized during the three months ended March 31, 2016 assume that performance objectives between less than threshold and up to maximum are attained for the 2014 and 2015 LTIP plans. If the Company ultimately attains these performance objectives, the associated total compensation, estimated at March 31, 2016, for each of the three year performance periods is expected to be approximately $9.8 million and $10.8 million related to the 2014 and 2015 LTIP awards of restricted stock units, respectively.

Based on the Company’s achievement relative to the 2013 LTIP’s performance-based measures, and based on the continued employment with the Company by those participants who received a payment in connection with the 2013 LTIP relative to the 2013 LTIP’s time-based measures, during the first quarter of 2016 the Compensation Committee approved payment of the 2013 LTIP. This was the first payment of an LTIP since our LTIPs were modified in 2013 to include time-based and performance-based measures. As such, the Compensation Committee elected to pay the time-based portion of the LTIP awards in cash at the award value and the performance-based portion of the LTIP awards in shares of our common stock. The 2013 LTIP award of restricted stock units was paid in shares of the Company’s stock to employees during the first quarter of 2016 and totaled $3.8 million (132,843 net shares).

v3.4.0.3
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Taxes [Abstract]  
Income Tax Disclosure [Text Block]

5. INCOME TAXES:

The Company’s overall effective tax rate on pre-tax income was different than the statutory rate of 35% due primarily to valuation allowances, the ability to carryback current period losses, state income taxes and other permanent differences.

The Company has recorded a valuation allowance against certain deferred tax assets as of March 31, 2016. Some or all of this valuation allowance may be reversed in future periods against future income.

As further described in Note 1(r), the Company adopted ASU 2015-17 on a prospective basis in 2015. As a result, the deferred tax assets and liabilities are classified as long-term in the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015.

v3.4.0.3
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2016
Derivative Financial Instruments [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.  DERIVATIVE FINANCIAL INSTRUMENTS:

Objectives and Strategy: The Company’s major market risk exposure is in the pricing applicable to its natural gas and oil production. Realized pricing is currently driven primarily by the prevailing price for the Company’s natural gas production. Historically, prices received for natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. As a result of its hedging activities, the Company may realize prices that are less than or greater than the spot prices that it would have received otherwise.

The Company relies on various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in the Company’s forward cash flows supporting the Company’s capital investment program.

The Company’s hedging policy limits the amounts of resources hedged to not more than 50% of its forecast production without Board approval.

Fair Value of Commodity Derivatives: FASB ASC 815 requires that all derivatives be recognized on the Consolidated Balance Sheets as either an asset or liability and be measured at fair value. Changes in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not apply hedge accounting to any of its derivative instruments.

Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value on the Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current income or expense in the Consolidated Statements of Operations. Unrealized gains or losses on commodity derivatives represent the non-cash change in the fair value of these derivative instruments and do not impact operating cash flows on the cash flow statement.

Commodity Derivative Contracts: At March 31, 2016, the Company had no open commodity derivative contracts to manage price risk on a portion of its production.

The following table summarizes the pre-tax realized and unrealized gain (loss) the Company recognized related to its derivative instruments in the Consolidated Statements of Operations for the periods ended March 31, 2016 and 2015:

For the Three Months
Ended March 31,
Commodity Derivatives:20162015
Realized gain on commodity derivatives-natural gas (1)$-$29,359
Unrealized gain on commodity derivatives (1)-7,506
Total gain on commodity derivatives$-$36,865
(1) Included in gain on commodity derivatives in the Consolidated Statements of Operations.

The realized gain or loss on commodity derivatives relates to actual amounts received or paid or to be received or paid under the Company’s derivative contracts and the unrealized gain or loss on commodity derivatives represents the change in the fair value of these derivative instruments over the remaining term of the contract.

v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Disclosure [Abstract]  
Fair Value Disclosures [Text Block]

7.  FAIR VALUE MEASUREMENTS:

As required by FASB ASC 820, the Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three level hierarchy for measuring fair value. Fair value measurements are classified and disclosed in one of the following categories:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 include non-exchange traded derivatives such as over-the-counter forwards and swaps.

Level 3: Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability.

Fair Value of Financial Instruments

The estimated fair value of financial instruments is the estimated amount at which the instrument could be exchanged currently between willing parties. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the immediate or short-term maturity of these financial instruments. The Company uses available market data and valuation methodologies to estimate the fair value of its debt. The valuation assumptions utilized to measure the fair value of the Company’s debt are considered Level 2 inputs. This disclosure is presented in accordance with FASB ASC Topic 825, Financial Instruments, and does not impact the Company’s financial position, results of operations or cash flows.

March 31, 2016December 31, 2015
CarryingEstimatedCarryingEstimated
AmountFair ValueAmountFair Value
7.31% Notes due March 2016, issued 200962,00064,26662,00063,604
4.98% Notes due January 2017, issued 2010116,000117,636116,000113,420
5.92% Notes due March 2018, issued 2008200,000203,624200,000191,985
5.75% Notes due December 2018, issued 2013450,00039,528450,000111,451
7.77% Notes due March 2019, issued 2009173,000180,161173,000174,488
5.50% Notes due January 2020, issued 2010207,000204,305207,000185,052
4.51% Notes due October 2020, issued 2010315,000278,175315,000258,520
5.60% Notes due January 2022, issued 201087,00083,51987,00073,034
4.66% Notes due October 2022, issued 201035,00028,07035,00025,558
6.125% Notes due October 2024, issued 2014850,00094,091850,000206,321
5.85% Notes due January 2025, issued 201090,00083,86390,00070,756
4.91% Notes due October 2025, issued 2010175,000134,604175,000115,911
Credit Facility due October 2016999,000999,000630,000630,000
$3,759,000$2,510,842$3,390,000$2,220,100
v3.4.0.3
Legal Proceedings
3 Months Ended
Mar. 31, 2016
Disclosure Legal Proceedings [Abstract]  
Legal Proceedings [Text Block]

8.  COMMITMENTS AND CONTINGENCIES:

Rockies Express Pipeline

On February 26, 2016, we received a letter from Sempra Rockies Marketing, LLC (“Sempra”) alleging that we were in breach of our Capacity Release Agreement, dated March 5, 2009 (the “Capacity Agreement”), resulting from nonpayment of fees for transportation service and notifying us that Sempra was authorized to recall the capacity released to us under the Capacity Agreement and to pursue any claims for damages or other remedies to which Sempra was entitled. On March 8, 2016, we received a letter from Sempra notifying us that Sempra was exercising its alleged right to permanently recall the 50,000 MMBtu/day of capacity on the Rockies Express Pipeline pursuant to the Capacity Agreement and that the recall would be effective as of March 9, 2016. The Company is not able to determine the likelihood of any potential outcome related to the alleged breach or, if and when resolved, whether such amounts, if any, would be material.

On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express Pipeline LLC (“Rockies Express”) in connection with the transportation agreement related to the Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.

On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach. We intend to defend this lawsuit vigorously. Our estimate of the potential exposure ranges from approximately $19.0 million, which represents accrued, unpaid invoices during the first quarter prior to contract termination, to $303.2 million related to this matter, which excludes potential interest, court costs and attorney fees.

Royalties

On April 19, 2016, the Company received a preliminary determination notice from the Office of Natural Resources Revenue (“ONRR”) asserting that the Company’s allocation of certain processing costs and plant fuel use at certain processing plants were impermissibly charged as deductions in the determination of royalties owed under Federal oil and gas leases. The Company intends to submit a response to the preliminary determination asserting the reasonableness of its allocation methodology of such costs. This ONRR unbundling review could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods. The Company is not able to determine the likelihood or range of any additional royalties or, if and when assessed, whether such amounts would be material.

Other Claims

The Company is currently involved in various routine disputes and allegations incidental to its business operations. While it is not possible to determine the ultimate disposition of these matters, the Company believes that the resolution of all such pending or threatened litigation is not likely to have a material adverse effect on the Company’s financial position or results of operations.

v3.4.0.3
Subsequent Events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Schedule of Subsequent Events [Text Block]

9.  SUBSEQUENT EVENTS:

The Company has evaluated the period subsequent to March 31, 2016 for events that did not exist at the balance sheet date but arose after that date and determined that no subsequent events arose that should be disclosed in order to keep the financial statements from being misleading, except as set forth below:

  • On April 1, 2016, we elected to defer making an interest payment of approximately $26.0 million due April 1, 2016 with respect to the 2024 Notes. The indenture governing the 2024 Notes provides a 30-day grace period for us to make this interest payment. If we make this interest payment before the end of the forbearance period under the Waiver Agreements, the waivers and forbearances granted by our lenders in the Waiver Agreements will terminate.
  • On April 4, 2016, we received a demand for payment and notice of enforcement from Rockies Express related to our transportation agreement on Rockies Express Pipeline, pursuant to which Rockies Express demanded payment from us of $303.2 million by April 20, 2016.
  • On April 14, 2016, Rockies Express filed a lawsuit against us in Harris County, Texas alleging breach of contract and seeking damages related to the alleged breach.
  • On April 19, 2016, the Company received a preliminary determination notice from ONRR asserting that the Company’s allocation of certain processing costs and plant fuel use at a specific processing plant were impermissibly allowed as deductions in the determination of royalties owed under Federal oil and gas leases. The Company intends to submit a response to the preliminary determination asserting the reasonableness of its allocation methodology of such costs. This ONRR unbundling review could ultimately result in an order for payment of additional royalties under the Company’s Federal oil and gas leases for current and prior periods.
  • On April 26, 2016, the Board of Directors of the Company elected Patrick Ash to be its Vice President, Development, and determined to include Mr. Ash in the Company’s Key Employee Incentive Program beginning in the second quarter of 2016. Mr. Ash participated in the Company’s Key Employee Retention Program during the first quarter of 2016.
v3.4.0.3
Supplemental Financial Statement Information
3 Months Ended
Mar. 31, 2016
Supplemental Financial Statement Information [Abstract]  
Condensed Financial Information Of Parent Company Only Disclosure [Text Block]

10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:

The following are the financial statements of Ultra Petroleum Corp. (the “Parent Company”), which are included to provide additional information with respect to the Parent Company’s results of operations, financial position and cash flows on a stand-alone basis:

CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
20162015
General and administrative expense$60$99
Other income (expense):
Interest expense(20,267)(20,267)
Loss (income) from unconsolidated affiliates(7,993)37,720
Guarantee fee income6,0735,703
Other income22681
(Loss) income before income tax benefit(22,021)23,138
Income tax benefit(190)(2,051)
Net (loss) income$(21,831)$25,189

CONDENSED BALANCE SHEET
March 31,December 31,
20162015
ASSETS
Current Assets:
Cash and cash equivalents$430$523
Accounts receivable94,93064,542
Other current assets5,3705,150
Total current assets100,73070,215
Other non-current assets24,10324,197
Total assets$124,833$94,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt$1,284,015$1,283,232
Interest payable33,65014,166
Total current liabilities1,317,6651,297,398
Advances to unconsolidated affiliates1,818,5181,788,951
Total shareholders' deficit(3,011,350)(2,991,937)
Total liabilities and shareholders' equity$124,833$94,412

CONDENSED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31,
20162015
Net cash (used in) operating activities$(24,088)$(750)
Investing Activities:
Dividends received24,08924,073
Net cash provided by investing activities24,08924,073
Financing Activities:
Shares re-issued from treasury-4,557
Deferred financing costs-6
Net share settlements(94)-
Net cash (used in) provided by financing activities(94)4,563
(Decrease) increase in cash during the period(93)27,886
Cash and cash equivalents, beginning of period523772
Cash and cash equivalents, end of period$430$28,658
v3.4.0.3
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Statement Significant Accounting Policies [Abstract]  
Cash and Cash Equivalents [Policy Text Block]

(a) Cash and Cash Equivalents:  The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Restricted Cash [Policy Text Block]

(b) 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.

Accounts Receivable [Policy Text Block]

(c) Accounts Receivable: 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 because of the short-term nature of the instruments. The Company routinely assesses the collectability of all material trade and other receivables.

Property, Plant and Equipment [Policy Text Block]

(d) Property, Plant and Equipment:  Capital assets are recorded at cost and depreciated using the declining-balance method based on their respective useful life.

Oil And Natural Gas Properties [Policy Text Block]

(e) 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 for the three months ended March 31, 2016 or 2015.

Deferred Financing Costs [Policy Text Block]

(f) Deferred Financing Costs:  Included in other current assets at March 31, 2016 are costs associated with the issuance of our revolving credit facility. Costs associated with the issuance of our Senior Notes, 2018 Notes and 2024 Notes are presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability. The remaining unamortized issuance costs are being amortized over the life of the applicable debt or facility using the straight line method.

Derivatives [Policy Text Block]

(g) 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 Consolidated Balance Sheets, and records the changes in the fair value of its commodity derivatives in the Consolidated Statements of Operations. The Company does not offset the value of its derivative arrangements with the same counterparty. (See Note 6).

Income Tax [Policy Text Block]

(h) 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.

Earnings Per Share [Policy Text Block]

(i) 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.

Three Months Ended
March 31,March 31,
20162015
(Share amounts in 000's)
Net (loss) income$(21,831)$25,189
Weighted average common shares outstanding - basic153,322153,042
Effect of dilutive instruments(1)-2,661
Weighted average common shares outstanding - diluted153,322155,703
Net (loss) income per common share - basic$(0.14)$0.16
Net (loss) income per common share - diluted$(0.14)$0.16
Number of shares not included in dilutive earnings per share that would have been anti-dilutive because the exercise price was greater than the average market price of the common
shares (1)-776
(1) Due to the net loss for the three months ended March 31, 2016, 1.6 million shares for options and restricted stock units were anti-dilutive and excluded from the computation of net loss per share.
Use Of Estimates [Policy Text Block]

(j) Use of Estimates:  Preparation of consolidated financial statements in accordance with U.S. 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.

Compensation Related Costs [Policy Text Block]

(k) 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.

Fair Value Measurement [Policy Text Block]

(l) 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 7 for additional information.

Asset Retirement Obligations and Environmental Cost [Policy Text Block]

(m) 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 Consolidated Balance Sheets.

Revenue Recognition [Policy Text Block]

(n) Revenue Recognition:  The Company generally sells oil and natural gas under both long-term and short-term agreements at prevailing market prices. The Company recognizes revenues when the oil and natural gas is delivered, which occurs when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company accounts for oil and natural gas sales using the “entitlements method.” Under the entitlements method, revenue is recorded based upon the Company’s ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. Any amount received in excess of the Company’s share is treated as a liability. If the Company receives less than its entitled share, the underproduction is recorded as a receivable.

Make-up provisions and ultimate settlements of volume imbalances are generally governed by agreements between the Company and its partners with respect to specific properties or, in the absence of such agreements, through negotiation. The value of volumes over- or under-produced can change based on changes in commodity prices. The Company prefers the entitlements method of accounting for oil and natural gas sales because it allows for recognition of revenue based on its actual share of jointly owned production, results in better matching of revenue with related operating expenses, and provides balance sheet recognition of the estimated value of product imbalances. The Company’s imbalance obligations as of March 31, 2016 and December 31, 2015 were immaterial.

Interest Expense [Policy Text Block]

(o) Capitalized Interest: Interest is capitalized on the cost of unevaluated gas and oil properties that are excluded from amortization and actively being evaluated, if any.

Reclassifications [Policy Text Block]

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

Capital Cost Accrual [Policy Text Block]

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

Recent Accounting Pronouncements [Policy Text Block]

(r) Recent Accounting Pronouncements: In March 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”) to simplify some of the provisions in stock compensation accounting. The update simplifies the accounting for a stock payment’s tax consequences and amends how excess tax benefits and a business’s payments to cover the tax bills for the shares’ recipients should be classified. The amendments allow companies to estimate the number of stock awards expected to vest and revises the withholding requirements for classifying stock awards as equity. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016 with earlier application permitted. The Company is still evaluating the impact of ASU No. 2016-09 on its financial position and results of operations.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASU No. 2016-02”). 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 also will 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. The Company is still evaluating the impact of ASU No. 2016-02 on its financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU No. 2015-17”). The guidance eliminates the requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet. The new standard requires deferred tax assets and liabilities to be classified as noncurrent. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period and may be applied either prospectively or retrospectively to all periods presented. The Company has elected early adoption of ASU No. 2015-17 and has applied these changes prospectively as of December 31, 2015. The adoption of this guidance has no impact on our results of operations or cash flows. The reclassification of amounts from current to noncurrent affects presentation of our financial position.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU No. 2015-11”). Public companies will have to apply the amendments for reporting periods that start after December 15, 2016, including interim periods within those fiscal years. This ASU requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The company does not expect the adoption of ASU No. 2015-11 to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30)—Simplifying the Presentation of Debt Issuance Costs. In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30)—Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. These ASUs require capitalized debt issuance costs, except for those related to revolving credit facilities, to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, rather than as an asset. The Company adopted these ASUs on January 1, 2016, using a retrospective approach. The adoption resulted in a reclassification that reduced current assets and current maturities of long-term debt by $19.2 million and $19.4 million on the Company’s Consolidated Balance Sheet at March 31, 2016 and December 31, 2015, respectively.

In June 2015, the FASB issued a delay by one year of the revenue recognition standard adopted in June 2014. In June 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), which amends the FASB ASC by adding new FASB ASC Topic 606, Revenue from Contracts with Customers, and superseding the revenue recognition requirements in FASB ASC 605, Revenue Recognition, and in most industry-specific topics.  ASU No. 2014-09 provides new guidance concerning recognition and measurement of revenue and requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.  The new proposal related to ASU No. 2014-09 delays the application of the standard to reporting periods beginning after December 15, 2017 instead of December 15, 2016. The Company is still evaluating the impact of ASU No. 2014-09 on its financial position and results of operations.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”) that requires management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning after December 15, 2016 and for interim reporting periods thereafter. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

v3.4.0.3
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Significant Accounting Policies Tables [Abstract]  
Schedule Of Earnings Per Share
Three Months Ended
March 31,March 31,
20162015
(Share amounts in 000's)
Net (loss) income$(21,831)$25,189
Weighted average common shares outstanding - basic153,322153,042
Effect of dilutive instruments(1)-2,661
Weighted average common shares outstanding - diluted153,322155,703
Net (loss) income per common share - basic$(0.14)$0.16
Net (loss) income per common share - diluted$(0.14)$0.16
Number of shares not included in dilutive earnings per share that would have been anti-dilutive because the exercise price was greater than the average market price of the common
shares (1)-776
(1) Due to the net loss for the three months ended March 31, 2016, 1.6 million shares for options and restricted stock units were anti-dilutive and excluded from the computation of net loss per share.
v3.4.0.3
Oil and Gas Properties and Equipment (Tables)
3 Months Ended
Mar. 31, 2016
Oil And Gas Properties And Equipment Tables [Abstract]  
Capitalized Costs Relating to Oil and Gas Producing Activities Disclosure [Text Block]
2. OIL AND GAS PROPERTIES AND EQUIPMENT:
March 31,December 31,
20162015
Proven Properties:
Acquisition, equipment, exploration, drilling and abandonment costs$10,558,034$10,480,165
Less: Accumulated depletion, depreciation and amortization(2)(9,656,950)(9,629,020)
901,084851,145
Unproven Properties:
Acquisition and exploration costs not being amortized(1)--
Net capitalized costs - oil and gas properties$901,084$851,145

(1)Interest is capitalized on the cost of unevaluated oil and natural gas properties that are excluded from amortization and actively being evaluated, if any. At December 31, 2015, all costs related to unevaluated properties that were previously excluded from capitalized costs not being amortized have been impaired or not considered significant and transferred to the capitalized costs being amortized in the full cost pool. For the three months ended March 31, 2016, there was no interest capitalized on the cost of unevaluated oil and natural gas properties. For the year ended December 31, 2015, total interest on outstanding debt was $185.0 million, of which, $20.4 million was capitalized on the cost of unproven oil and natural gas properties.

(2)The Company recorded a $3.1 billion non-cash write-down of the carrying value of its proved oil and gas properties as a result of ceiling test limitations during the quarter ended December 31, 2015.

v3.4.0.3
Outstanding Debt and Other Long Term Obligations (Tables)
3 Months Ended
Mar. 31, 2016
Outstanding Debt And Other Long Term Obligations Tables [Abstract]  
Outstanding Debt And Other Long Term Obligations
3. DEBT AND OTHER LONG-TERM OBLIGATIONS:
March 31,December 31,
20162015
Current portion of long-term debt:
6.125% Senior Notes due 2024$850,000$850,000
5.75% Senior Notes due 2018450,000450,000
Senior Notes issued by Ultra Resources, Inc.1,460,0001,460,000
Less: Deferred financing costs(19,213)(19,447)
2,740,7872,740,553
Credit Agreement999,000630,000
Total current portion of long-term debt3,739,7873,370,553
Other long-term obligations:
Other long-term obligations177,564165,784
Total Debt and Other Long-term Obligations$3,917,351$3,536,337
v3.4.0.3
Share Based Compensation (Tables)
3 Months Ended
Mar. 31, 2016
Share Based Compensation Tables [Abstract]  
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Text Block]
4. SHARE BASED COMPENSATION:
Valuation and Expense Information
Three Months
Ended March 31,
20162015
Total cost of share-based payment plans$2,728$2,970
Amounts capitalized in oil and gas properties
and equipment$931$977
Amounts charged against income, before
income tax benefit (provision)$1,797$1,993
Amount of related income tax (expense) benefit
recognized in income before valuation allowance$715$833
Stock Option Activity TextBlock
Weighted
Number ofAverage
OptionsExercise Price
(000's)(US Dollars)
Balance, December 31, 2014690$25.68to$98.87
Expired or forfeited(171)$25.68to$75.18
Balance, December 31, 2015519$49.05to$98.87
Expired or forfeited(43)$57.65to$63.05
Balance, March 31, 2016476$49.05to$98.87
Valuation Assumptions
Valuation Assumptions
The Company estimates the fair value of the market condition related to the LTIP awards on the date of grant using a Monte Carlo simulation with the following assumptions:
2015 LTIP2014 LTIP
Volatility of common stock39.0%39.2%
Risk-free interest rate0.66%0.40%
v3.4.0.3
Derivative Financial Instruments (Tables)
3 Months Ended
Mar. 31, 2016
Derivative Financial Instruments Tables [Abstract]  
Gain or loss on derivative instruments
For the Three Months
Ended March 31,
Commodity Derivatives:20162015
Realized gain on commodity derivatives-natural gas (1)$-$29,359
Unrealized gain on commodity derivatives (1)-7,506
Total gain on commodity derivatives$-$36,865
(1) Included in gain on commodity derivatives in the Consolidated Statements of Operations.
v3.4.0.3
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Measurements Tables [Abstract]  
Schedule of Fair Value of Financial Instruments
March 31, 2016December 31, 2015
CarryingEstimatedCarryingEstimated
AmountFair ValueAmountFair Value
7.31% Notes due March 2016, issued 200962,00064,26662,00063,604
4.98% Notes due January 2017, issued 2010116,000117,636116,000113,420
5.92% Notes due March 2018, issued 2008200,000203,624200,000191,985
5.75% Notes due December 2018, issued 2013450,00039,528450,000111,451
7.77% Notes due March 2019, issued 2009173,000180,161173,000174,488
5.50% Notes due January 2020, issued 2010207,000204,305207,000185,052
4.51% Notes due October 2020, issued 2010315,000278,175315,000258,520
5.60% Notes due January 2022, issued 201087,00083,51987,00073,034
4.66% Notes due October 2022, issued 201035,00028,07035,00025,558
6.125% Notes due October 2024, issued 2014850,00094,091850,000206,321
5.85% Notes due January 2025, issued 201090,00083,86390,00070,756
4.91% Notes due October 2025, issued 2010175,000134,604175,000115,911
Credit Facility due October 2016999,000999,000630,000630,000
$3,759,000$2,510,842$3,390,000$2,220,100
v3.4.0.3
Supplemental Financial Statement Information (Parent Company) (Tables)
3 Months Ended
Mar. 31, 2016
Parent Company Financial Statements [Abstract]  
Supplemental Statement Of Operations Disclosures [Text Block]
CONDENSED STATEMENT OF OPERATIONS
For the Three Months Ended March 31,
20162015
General and administrative expense$60$99
Other income (expense):
Interest expense(20,267)(20,267)
Loss (income) from unconsolidated affiliates(7,993)37,720
Guarantee fee income6,0735,703
Other income22681
(Loss) income before income tax benefit(22,021)23,138
Income tax benefit(190)(2,051)
Net (loss) income$(21,831)$25,189
Supplemental Balance Sheet Disclosures [Text Block]
CONDENSED BALANCE SHEET
March 31,December 31,
20162015
ASSETS
Current Assets:
Cash and cash equivalents$430$523
Accounts receivable94,93064,542
Other current assets5,3705,150
Total current assets100,73070,215
Other non-current assets24,10324,197
Total assets$124,833$94,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt$1,284,015$1,283,232
Interest payable33,65014,166
Total current liabilities1,317,6651,297,398
Advances to unconsolidated affiliates1,818,5181,788,951
Total shareholders' deficit(3,011,350)(2,991,937)
Total liabilities and shareholders' equity$124,833$94,412
Supplemental Cash Flow Statement Disclosures [Text Block]
CONDENSED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31,
20162015
Net cash (used in) operating activities$(24,088)$(750)
Investing Activities:
Dividends received24,08924,073
Net cash provided by investing activities24,08924,073
Financing Activities:
Shares re-issued from treasury-4,557
Deferred financing costs-6
Net share settlements(94)-
Net cash (used in) provided by financing activities(94)4,563
(Decrease) increase in cash during the period(93)27,886
Cash and cash equivalents, beginning of period523772
Cash and cash equivalents, end of period$430$28,658
v3.4.0.3
Liquidity and Going Concern Disclosure (Narratives) (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
MMBTU
Liquidity and Going Concern [Abstract]  
Senior Notes Lender Approval 100.00%
Interest payment due Ultra Petroleum Corp Senior Notes due 2024 $ 26.0
Principal payment due Senior Notes Ultra Resources Inc 62.0
Interest payment due Senior Notes Ultra Resources Inc $ 40.0
Increased Capacity Commitment Per Day Of Natural Gas | MMBTU 50,000
Interest payment due Ultra Resources Inc Credit Agreement $ 2.7
Restrictive covenants present value Ultra Resources Inc Credit Agreement 1.5 times
Debt Instrument Restrictive Covenants Present Value Ratio 0.9
Demand For Payment $ 303.2
v3.4.0.3
Significant Accounting Policies (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Significant Accounting Policies Details [Abstract]      
Discount Rate Future Net Revenues 10.00%    
Earnings Per Share Reconciliation [Abstract]      
Net Income (Loss) $ (21,831) $ 25,189  
Weighted Average Number of Shares Outstanding, Basic 153,322 153,042  
Incremental Common Shares Attributable to Share-based Payment Arrangements 0 2,661  
Weighted Average Number of Shares Outstanding, Diluted 153,322 155,703  
Earnings Per Share, Basic $ (0.14) $ 0.16  
Earnings Per Share, Diluted $ (0.14) $ 0.16  
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount 1,600 776  
Unamortized debt issuance costs reclassified $ 19,200   $ 19,400
v3.4.0.3
Oil and Gas Properties and Equipment (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Proven Properties [Abstract]    
Acquisition, equipment, exploration, drilling and environmental costs $ 10,558,034 $ 10,480,165
Capitalized Costs, Accumulated Depreciation, Depletion, Amortization and Valuation Allowance for Relating to Oil and Gas Producing Activities (9,656,950) (9,629,020)
Proved 901,084 851,145
Capitalized Costs of Unproved Properties Excluded from Amortization [Abstract]    
Oil Gas Properties Using Full Cost Method Accounting Unproved 0 0
Capitalized Costs, Oil and Gas Producing Activities, Net 901,084 851,145
Interest Expense, Borrowings 49,900 185,000
Interest Costs, Capitalized During Period $ 0 20,400
Ceiling Test Limitation Pretax Oil and Gas Properties   $ 3,100,000
v3.4.0.3
Debt and Other Long Term Obligations (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Short-term Debt [Abstract]    
6.125% Senior Notes due 2024 $ 850,000 $ 850,000
5.75% Senior Notes due 2018 450,000 450,000
Senior Notes issued by Ultra Resources Inc 1,460,000 1,460,000
Deferred financing costs (19,213) (19,447)
Senior Notes Total, net 2,740,787 2,740,553
Credit Agreement 999,000 630,000
Current portion of long term debt 3,739,787 3,370,553
Other long-term obligations [Abstract]    
Other long-term obligations 177,564 165,784
Total debt and other long term obligations $ 3,917,351 $ 3,536,337
v3.4.0.3
Debt And Other Long Term Obligations (Narratives) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Senior Long term Notes Current And Noncurrent [Abstract]    
Interest payment due Ultra Petroleum Corp Senior Notes due 2024 $ 26,000  
Ultra Resources Inc Bank Indebtednesss [Abstract]    
Revolving Bank Loan Comitment Value 1,000,000  
Credit Agreement $ 999,000 $ 630,000
Debt Instrument Interest Rate Terms Prime 1.50%  
Debt Instrument Interest Rate Terms Libor 2.50%  
Credit Agreement Consolidated Leverage Covenant 3.5 to 1.0  
Credit Agreement Consolidated Leverage Ratio 4.6  
Restrictive covenants present value Ultra Resources Inc Credit Agreement 1.5 times  
Debt Instrument Restrictive Covenants Present Value Ratio 0.9  
Ultra Resources Inc Senior Notes [Abstract]    
Senior Notes issued by Ultra Resources Inc $ 1,460,000 1,460,000
Senior Notes Consolidated Leverage Covenant 3.5 to 1.0  
Senior Notes Consolidated Leverage Covenant Ratio 4.6  
Interest payment due Senior Notes Ultra Resources Inc $ 40,000  
Principal payment due Senior Notes Ultra Resources Inc 62,000  
Ultra Petroleum Corp Senior Notes    
Senior Notes Ultra Petroleum Corp Due 2024 $ 850,000 850,000
Debt Instrument Call Feature Ultra Petroleum Corp Senior Notes Due 2024 On and after October 1, 2019, the Company may redeem all or, from time to time, a part of the 2024 Notes at the following prices expressed as a percentage of principal amount of the 2024 Notes: 2019 – 103.063%; 2020 – 102.042%; 2021 – 101.021%; and 2022 and thereafter – 100.000%.  
Interest payment due Ultra Petroleum Corp Senior Notes due 2024 $ 26,000  
Senior Notes Ultra Petroleum Corp Due 2018 $ 450,000 $ 450,000
Senior Notes Ultra Petroleum Corp Due 2018 Interest Rate 5.75%  
Debt Instrument Call Feature As of December 15, 2015, the Company may redeem all or, from time to time, a part of the 2018 Notes at the following prices expressed as a percentage of principal amount of the 2018 Notes: 2015 – 102.875%; 2016 – 101.438%; and 2017 and thereafter – 100.000%  
v3.4.0.3
Share Based Compensation (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Dec. 31, 2014
Valuation And Expense Information [Abstract]        
Total cost of share based payment plans $ 2,728 $ 2,970    
Amounts capitalized in oil and gas properties and equipment 931 977    
Stock compensation 1,797 1,993    
Amount of related income tax benefit recognized in income before valuation allowance $ 715 $ 833    
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]        
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit $ 49.05   $ 49.05 $ 25.68
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit $ 98.87   $ 98.87 $ 98.87
Expired or forfeited (43)   (171)  
Exercise Price, Lower Range Limit Expired or Forfeited $ 57.65   $ 25.68  
Exercise Price, Upper Range Limit Expired or Forfeited $ 63.05   $ 75.18  
Number Of Options [Member]        
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]        
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Outstanding Options 519 690 690  
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Outstanding Options 476   519 690
v3.4.0.3
TSR Share Based Compensation (Details)
3 Months Ended
Mar. 31, 2016
Long Term Incentive 2015 Plan [Member]  
Total Shareholder Return Assumptions [Line Items]  
Volatility of common stock 39.00%
Risk-free interest rate 0.66%
Long Term Incentive 2014 Plan [Member]  
Total Shareholder Return Assumptions [Line Items]  
Volatility of common stock 39.20%
Risk-free interest rate 0.40%
v3.4.0.3
Share Based Compensation (Narratives) (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share Based Compensation Details [Abstract]    
Long Term Incentive Program Period $ 1.4 $ 1.8
Long Term Incentive Program Total 2014 Program 9.8  
Long Term Incentive Program Total 2015 Program 10.8  
Long Term Incentive Program Total 2013 Program $ 3.8  
Long Term Incentive Program Total 2013 Program Shares 132,843  
v3.4.0.3
Income Taxes (Details)
3 Months Ended
Mar. 31, 2016
Statement Income Taxes Details [Abstract]  
Statutory tax rate 35.00%
v3.4.0.3
Derivative Financial Instruments (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Commodity Derivatives [Abstract]    
Realized (loss) gain on commodity derivatives - natural gas $ 0 $ 29,359
Unrealized Gain (Loss) on Derivatives 0 7,506
Gain loss on commodity derivatives $ 0 $ 36,865
v3.4.0.3
Derivative Financial Instrumens (Details 1)
3 Months Ended
Mar. 31, 2016
Commodity Derivatives Authorization [Abstract]  
Commodity Derivatives Board Authorization 50.00%
v3.4.0.3
Fair Value Measurments Debt Instruments (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 3,759,000 $ 3,390,000
Notes Payable, Fair Value Disclosure 2,510,842 2,220,100
Notes Due 2018 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt 200,000 200,000
Notes Payable, Fair Value Disclosure $ 203,624 191,985
Debt Instruments Interest Rates 5.92%  
Notes Due December 2018 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 450,000 450,000
Notes Payable, Fair Value Disclosure $ 39,528 111,451
Debt Instruments Interest Rates 5.75%  
Notes Due 2016 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 62,000 62,000
Notes Payable, Fair Value Disclosure $ 64,266 63,604
Debt Instruments Interest Rates 7.31%  
Notes Due 2019 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 173,000 173,000
Notes Payable, Fair Value Disclosure $ 180,161 174,488
Debt Instruments Interest Rates 7.77%  
Notes Due 2017 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 116,000 116,000
Notes Payable, Fair Value Disclosure $ 117,636 113,420
Debt Instruments Interest Rates 4.98%  
Notes Due January 2020 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 207,000 207,000
Notes Payable, Fair Value Disclosure $ 204,305 185,052
Debt Instruments Interest Rates 5.50%  
Notes Due January 2022 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 87,000 87,000
Notes Payable, Fair Value Disclosure $ 83,519 73,034
Debt Instruments Interest Rates 5.60%  
Notes Due January 2025 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 90,000 90,000
Notes Payable, Fair Value Disclosure $ 83,863 70,756
Debt Instruments Interest Rates 5.85%  
Notes Due October 2020 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 315,000 315,000
Notes Payable, Fair Value Disclosure $ 278,175 258,520
Debt Instruments Interest Rates 4.51%  
Notes Due October 2022 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 35,000 35,000
Notes Payable, Fair Value Disclosure $ 28,070 25,558
Debt Instruments Interest Rates 4.66%  
Notes Due October 2024 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 850,000 850,000
Notes Payable, Fair Value Disclosure $ 94,091 206,321
Debt Instruments Interest Rates 6.125%  
Notes Due October 2025 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 175,000 175,000
Notes Payable, Fair Value Disclosure $ 134,604 115,911
Debt Instruments Interest Rates 4.91%  
Credit Facility    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total outstanding debt $ 999,000 630,000
Notes Payable, Fair Value Disclosure $ 999,000 $ 630,000
v3.4.0.3
Commitments and Contingencies (Narratives) (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
MMBTU
Commitments And Contingencies [Abstract]  
Sempra capacity | MMBTU 50,000
Demand For Payment $ 303.2
Contingency Lower Range 19.0
Contingency Upper Range $ 303.2
v3.4.0.3
Subsequent Events (Narratives) (Details)
$ in Millions
3 Months Ended
Mar. 31, 2016
USD ($)
Subsequent Events Details [Abstract]  
Interest payment due Ultra Petroleum Corp Senior Notes due 2024 $ 26.0
Amount demanded for payment related to Rockies Express Pipeline transportation agreement. $ 303.2
v3.4.0.3
Supplemental Financial Information (Parent - Statement of Operations) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating Expenses [Abstract]    
General and administrative $ 4,219 $ 3,640
Other Nonoperating Income (Expense) [Abstract]    
Interest expense (49,903) (42,668)
Other income (expense), net (1,695) 34
Income (loss) before income taxes (22,021) 23,167
Income Tax Expense (Benefit) (190) (2,022)
Net Income (Loss) (21,831) 25,189
Parent [Member]    
Operating Expenses [Abstract]    
General and administrative 60 99
Other Nonoperating Income (Expense) [Abstract]    
Interest expense (20,267) (20,267)
Income (loss) from unconsolidated affiliates (7,993) 37,720
Guaranty fee income 6,073 5,703
Other income (expense), net 226 81
Income (loss) before income taxes (22,021) 23,138
Income Tax Expense (Benefit) (190) (2,051)
Net Income (Loss) $ (21,831) $ 25,189
v3.4.0.3
Supplemental Financial Information (Parent - Balance Sheet) (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current Assets [Abstract]    
Cash and cash equivalents $ 281,506 $ 4,143
Other current assets 6,136 4,064
Total current assets 372,611 91,214
Other noncurrent assets 835 835
Total assets 1,282,922 952,039
Current Liabilities [Abstract]    
Current portion of long term debt 3,739,787 3,370,553
Interest payable 84,910 42,657
Total current liabilities 3,993,052 3,651,897
Total shareholders' deficit (3,011,350) (2,991,937)
Total liabilities and shareholders' equity 1,282,922 952,039
Parent [Member]    
Current Assets [Abstract]    
Cash and cash equivalents 430 523
Accounts receivable 94,930 64,542
Other current assets 5,370 5,150
Total current assets 100,730 70,215
Other noncurrent assets 24,103 24,197
Total assets 124,833 94,412
Current Liabilities [Abstract]    
Current portion of long term debt 1,284,015 1,283,232
Interest payable 33,650 14,166
Total current liabilities 1,317,665 1,297,398
Advances to unconsolidated affiliates 1,818,518 1,788,951
Total shareholders' deficit (3,011,350) (2,991,937)
Total liabilities and shareholders' equity $ 124,833 $ 94,412
v3.4.0.3
Supplemental Financial Information (Parent - Cash Flow Statement) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Operating Activities [Abstract]    
Net Cash Provided by (Used in) Operating Activities $ (3,690) $ 121,799
Investing Activities [Abstract]    
Net Cash Provided by (Used in) Investing Activities (87,640) (140,294)
Financing Activities [Abstract]    
Payments of Financing Costs 0 (6)
Repurchased shares - net share settlements 307 2,419
Net Cash Provided by (Used in) Financing Activities 368,693 43,538
Cash and Cash Equivalents, Period Increase (Decrease) 277,363 25,043
Cash and Cash Equivalents, at Carrying Value 4,143 8,919
Cash and Cash Equivalents, at Carrying Value 281,506 33,962
Parent [Member]    
Operating Activities [Abstract]    
Net Cash Provided by (Used in) Operating Activities (24,088) (750)
Investing Activities [Abstract]    
Dividends received 24,089 24,073
Net Cash Provided by (Used in) Investing Activities 24,089 24,073
Financing Activities [Abstract]    
Shares reissued from treasury 0 4,557
Payments of Financing Costs 0 6
Repurchased shares - net share settlements (94) 0
Net Cash Provided by (Used in) Financing Activities (94) 4,563
Cash and Cash Equivalents, Period Increase (Decrease) (93) 27,886
Cash and Cash Equivalents, at Carrying Value 523 772
Cash and Cash Equivalents, at Carrying Value $ 430 $ 28,658
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end

/**
 * Rivet Software Inc.
 *
 * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved.
 * Version 2.4.0.3
 *
 */

var Show = {};
Show.LastAR = null,

Show.hideAR = function(){	
	Show.LastAR.style.display = 'none';
};

Show.showAR = function ( link, id, win ){
	if( Show.LastAR ){
		Show.hideAR();
	}
		
	var ref = link;
	do {
		ref = ref.nextSibling;
	} while (ref && ref.nodeName != 'TABLE');

	if (!ref || ref.nodeName != 'TABLE') {
		var tmp = win ?
			win.document.getElementById(id) :
			document.getElementById(id);

		if( tmp ){
			ref = tmp.cloneNode(true);
			ref.id = '';
			link.parentNode.appendChild(ref);
		}
	}

	if( ref ){
		ref.style.display = 'block';
		Show.LastAR = ref;
	}
};
	
Show.toggleNext = function( link ){
	var ref = link;
	
	do{
		ref = ref.nextSibling;	
	}while( ref.nodeName != 'DIV' );

	if( ref.style &&
		ref.style.display &&
		ref.style.display == 'none' ){
		ref.style.display = 'block';

		if( link.textContent ){
			link.textContent = link.textContent.replace( '+', '-' );
		}else{
			link.innerText = link.innerText.replace( '+', '-' );
		}
	}else{
		ref.style.display = 'none';
			
		if( link.textContent ){
			link.textContent = link.textContent.replace( '-', '+' );
		}else{
			link.innerText = link.innerText.replace( '-', '+' );
		}
	}
};

/* Updated 2009-11-04 */
/* v2.2.0.24 */

/* DefRef Styles */
.report table.authRefData{
	background-color: #def;
	border: 2px solid #2F4497;
	font-size: 1em; 
	position: absolute;
}

.report table.authRefData a {
	display: block;
	font-weight: bold;
}

.report table.authRefData p {
	margin-top: 0px;
}

.report table.authRefData .hide {
	background-color: #2F4497;
	padding: 1px 3px 0px 0px;
	text-align: right;
}

.report table.authRefData .hide a:hover {
	background-color: #2F4497;
}

.report table.authRefData .body {
	height: 150px;
	overflow: auto;
	width: 400px;
}

.report table.authRefData table{
	font-size: 1em;
}

/* Report Styles */
.pl a, .pl a:visited {
	color: black;
	text-decoration: none;
}

/* table */
.report {
	background-color: white;
	border: 2px solid #acf;
	clear: both;
	color: black;
	font: normal 8pt Helvetica, Arial, san-serif;
	margin-bottom: 2em;
}

.report hr {
	border: 1px solid #acf;
}

/* Top labels */
.report th {
	background-color: #acf;
	color: black;
	font-weight: bold;
	text-align: center;
}

.report th.void	{
	background-color: transparent;
	color: #000000;
	font: bold 10pt Helvetica, Arial, san-serif;
	text-align: left;
}

.report .pl {
	text-align: left;
	vertical-align: top;
	white-space: normal;
	width: 200px;
	white-space: normal; /* word-wrap: break-word; */
}

.report td.pl a.a {
	cursor: pointer;
	display: block;
	width: 200px;
	overflow: hidden;
}

.report td.pl div.a {
	width: 200px;
}

.report td.pl a:hover {
	background-color: #ffc;
}

/* Header rows... */
.report tr.rh {
	background-color: #acf;
	color: black;
	font-weight: bold;
}

/* Calendars... */
.report .rc {
	background-color: #f0f0f0;
}

/* Even rows... */
.report .re, .report .reu {
	background-color: #def;
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