Ultra Petroleum Corp. (“Ultra Petroleum” or the “Company”) (OTCQX: UPLC) announces that it has received unanimous approval from the lenders for its revolving credit facility (the “Credit Facility”) and entered into an amendment that, among other items, removes the financial maintenance covenants from the Credit Facility. This amendment provides flexibility for the Company to suspend drilling in the Pinedale field while natural gas pricing remains near multi-year lows and preserve its highest value inventory for future development locations to be developed under more favorable commodity pricing conditions. In connection with the approval of the amendment to the Credit Facility, the fall borrowing base redetermination has been established at $1.175 billion, including $200 million of the commitment allocated to the Credit Facility.
“The decision to suspend drilling demonstrates our commitment to financial discipline. In the current price environment, it is difficult to support investment in new well development in Pinedale. Fortunately, we have a significant production profile coupled with a low-cost structure that can generate strong cash margins. We believe that our proved developed producing reserves and the low base decline of Pinedale will generate substantial free cash flow for the foreseeable future and will provide the Company sufficient liquidity to implement the reduction in capital investment. In the near term we will direct our free cash flow to the repayment of the Credit Facility, building flexibility for the Company as we continue to focus on improvement of the overall capital structure,” said Brad Johnson, Ultra Petroleum’s Chief Executive Officer and President.
The Fifth Amendment to the Credit Facility dated effective September 16, 2019, among Ultra Resources, Inc. and Bank of Montreal, as administrative agent for the lenders (the “Fifth Amendment”), provides for the following material amendments, among other items:
- Elimination of all financial maintenance covenants;
- Established the fall borrowing base at $1.175 billion;
- Set the Credit Facility commitment at $200 million in this redetermination, stepping down to $120 million in February 2020 when the Credit Facility balance nears full repayment;
- Reduces the tenor of future hedging requirements;
- Establishes maximum capital expenditures of $65 million, $10 million and $5 million, for the quarters ended September 30, 2019, December 31, 2019, and quarterly thereafter, with the ability to carryforward unused amounts up to $5 million in aggregate;
Further, the Fifth Amendment provides the ability for the Company to repurchase junior indebtedness, including borrowings under the Company’s Term Loan, Second Lien Notes and Unsecured Notes following the occurrence of certain events. These events and conditions include having no outstanding borrowings on the Credit Facility, the Company having established adequate cash reserves, satisfaction of a first lien incurrence test, each as set forth in the Fifth Amendment, and compliance with the Company’s other debt documents.
“The successful renegotiation of our Credit Facility is a significant and meaningful accomplishment for the Company and highlights the strength and durability of our assets and the commitment to our business plan. The elimination of the financial maintenance covenants in the Credit Facility coupled with our commitment to reduce capital expenditures, provides a prudent path forward that is designed to reduce debt in this commodity price environment. This is an important step in the ongoing efforts to strengthen the balance sheet as well as conserve valuable future inventory for a more constructive natural gas price market,” said David Honeyfield, Ultra Petroleum’s Senior Vice President and Chief Financial Officer.
2019 Guidance Update
The Company will be suspending drilling activity by the end of September. Given the timing of this decision, there will be minimal impact to our 3rd quarter capital or production results. As a result, the Company is maintaining its previous guidance for the 3rd quarter.
The reduction of drilling and completion capital in the 4th quarter is estimated at approximately $30 million, therefore the updated full-year capital investment guidance has been adjusted to $230 – $260 million. Full-year production guidance remains unchanged at 238 – 244 Bcfe. Base production performance continues to be strong and we expect this out-performance to offset the incremental production for the fourth quarter that would have occurred from new wells drilled. Additionally, the per Mcfe expense guidance for the third quarter and full-year are unchanged.
Preliminary Outlook for 2020
Based on this updated plan, the Company is providing a preliminary outlook for 2020 assuming no additional drilling next year. Accordingly, production next year is expected to be from proved-developed producing wells, resulting in a full-year 2020 production estimate of 180 to 195 Bcfe.
