UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 24, 2014 (Date of earliest event reported: December 12, 2013)
ULTRA PETROLEUM CORP.
(Exact name of registrant as specified in its charter)
| Yukon, Canada | 001-33614 | N/A | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
400 N. Sam Houston Parkway East
Suite 1200
Houston, Texas 77060
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (281) 876-0120
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 Financial Statements and Exhibits.
On December 12, 2013, Ultra Petroleum Corp. (the “Company” or “Ultra”) filed a Current Report on Form 8-K (“Initial 8-K) to report that a wholly owned subsidiary of Ultra completed its previously-announced acquisition of oil-producing properties and undeveloped acreage located in the Three Rivers Field in Uintah County, Utah (the “Uinta Basin Properties”) from Axia Energy, LLC for a contract price of $652.0 million, subject to customary adjustments. The effective date of the transaction was October 1, 2013. After customary effective-date adjustments and closing adjustments, the adjusted purchase price was $649.8 million and is subject to further post-closing adjustments. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of these properties referred to above are located in northeastern Utah in the United States.
The Initial 8-K also stated that the required financial statements and pro forma financial information related to the Uinta Basin Acquisition would be filed by an amendment to the Initial 8-K. This amendment on Form 8-K/A amends and supplements the Initial 8-K to include financial statements and pro forma financial information as described in Items 9.01(a) and 9.01(b). No other amendments are being made to the Initial 8-K.
(a) Financial Statements of Business Acquired.
The audited statement of revenues and direct operating expenses of the Uinta Basin Properties for the year ended December 31, 2012 and related notes; and the unaudited statements of revenues and direct operating expenses of the Uinta Basin Properties for the nine months ended September 30, 2013 and 2012 and related notes are attached as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined balance sheet as of September 30, 2013, the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013, and the related notes showing the pro forma effects of the Uinta Basin Acquisition are attached as Exhibit 99.2 hereto.
(d) Exhibits.
| Exhibit No. |
Description | |
| Exhibit 23.1 | Consent of EKS&H LLLP. | |
| Exhibit 99.1 | Audited statement of revenues and direct operating expenses of the Uinta Basin Properties for the year ended December 31, 2012 and related notes; and unaudited statements of revenues and direct operating expenses of the Uinta Basin Properties for the nine months ended September 30, 2013 and 2012 and related notes. | |
| Exhibit 99.2 | Unaudited pro forma condensed combined balance sheet as of September 30, 2013, the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2012 and for the nine months ended September 30, 2013 and the related notes showing the pro forma effects of the Uinta Basin Acquisition. | |
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 hereunto duly authorized.
| ULTRA PETROLEUM CORP. (Registrant) | ||||||
| Dated: February 24, 2014 | By: | /s/ Marshall D. Smith | ||||
| Marshall D. Smith | ||||||
| Senior Vice President and Chief Financial Officer | ||||||
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following:
| (1) | Registration Statement (Form S-8 No. 333-13342) pertaining to the Ultra Petroleum Corp. 1998 Stock Option Plan, |
| (2) | Registration Statement (Form S-8 No. 333-13278) pertaining to the Ultra Petroleum Corp. 2000 Stock Incentive Plan, and |
| (3) | Registration Statement (Form S-8 No. 333-132443) pertaining to the Ultra Petroleum Corp. 2005 Stock Incentive Plan; |
of our report dated February 24, 2014, with respect to the statement of revenues and direct operating expenses of the oil and gas properties acquired by a subsidiary of Ultra Petroleum Corp. from Axia Energy, LLC, included in this Current Report (Form 8-K/A) dated February 24, 2014.
/s/ EKS&H LLLP
Denver, Colorado
February 24, 2014
Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Ultra Petroleum Corp.
We have audited the accompanying statement of revenues and direct operating expenses of the oil and gas properties acquired by the Company from Axia Energy, LLC (the “Uinta Basin Properties”), as described in Note 2, for the year ended December 31, 2012, and the related notes to the financial statement.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of this financial statement in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses, as described in Note 2, of the Uinta Basin Properties for the year ended December 31, 2012 in conformity with U.S. generally accepted accounting principles.
Use of Incomplete Financial Statement Presentation
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Ultra Petroleum Corp.’s Form 8-K/A, and is not intended to be a complete financial presentation of the Uinta Basin Properties’ revenues and expenses.
/s/ EKS&H LLLP
Denver, Colorado
February 24, 2014
UINTA BASIN PROPERTIES
STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
| Year Ended | ||||
| December 31, 2012 | ||||
| Revenues |
$ | 4,658 | ||
| Direct operating expenses |
2,122 | |||
|
|
|
|||
| Revenues in excess of direct operating expenses |
$ | 2,536 | ||
|
|
|
|||
See accompanying notes.
UINTA BASIN PROPERTIES
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES (CONT’D)
1. The Properties
On December 12, 2013, a wholly owned subsidiary of Ultra Petroleum Corp. (the “Company” or “Ultra”) completed its previously-announced acquisition of oil-producing properties and undeveloped acreage located in the Three Rivers Field in Uintah County, Utah (the “Uinta Basin Properties”) from Axia Energy, LLC for a contract price of $652.0 million, subject to customary adjustments. The effective date of the transaction was October 1, 2013. After customary effective-date adjustments and closing adjustments, the adjusted purchase price was $649.8 million and is subject to further post-closing adjustments. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of these properties referred to above are located in northeastern Utah in the United States and began producing in May 2012.
2. Basis of Presentation
The accompanying audited statement (the “financial statement”) includes revenues from oil production and direct operating expenses associated with the Uinta Basin Properties. For purposes of this statement, all properties identified in the purchase and sale agreement between the Company and Axia Energy, LLC (“Axia”) are included herein. Revenues and direct operating expenses are presented on the accrual basis of accounting and were derived from Axia’s historical accounting records. During the period presented, the Uinta Basin Properties were not accounted for as a separate division or legal entity by Axia; therefore certain costs including, but not limited to, depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses, interest and corporate income taxes were not allocated to the individual properties. Accordingly, full separate financial statements prepared in accordance with generally accepted accounting principles are not presented because the information necessary to prepare such statements is neither readily available on an individual property basis nor practicable to obtain in these circumstances. As such, the financial statement is not intended to be a complete presentation of the operating results of the Uinta Basin Properties and is not indicative of the financial condition or results of the operation of the Uinta Basin Properties going forward due to the changes in the business and the omission of various operating expenses as described above. The historical statement of revenues and direct operating expenses of the Uinta Basin Properties is presented in lieu of the full financial statements required under Item 3-05 of Securities and Exchange Commission (“SEC”) Regulation S-X.
Revenue Recognition – Oil revenues are recognized when production is sold to purchasers at a fixed or determinable price, when delivery has occurred and title has transferred, and when collectability is reasonably assured. Revenues are reported net of overriding royalties, other royalties and other revenue interest due to third parties.
Direct Operating Expenses – Direct operating expenses are recognized when incurred and are working interest expenses related to the Uinta Basin Properties. Direct operating expenses include lease operating expenses, severance and ad valorem taxes, well repair expenses, maintenance expenses, and other direct operating expenses. 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. The Company records a receivable or a liability to the extent it receives less or more than its share of the volumes and related revenue. 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.
3. Subsequent Events
Subsequent events have been evaluated for recognition and disclosure through February 24, 2014, the date the financial statement was available to be issued.
4. Oil and Gas Reserve Estimation Process (unaudited)
The reserve estimates as of December 31, 2012 were derived using reserve estimates as of December 31, 2013 and adding back production (rolled back) to estimate the reserve quantities, as this method was deemed to provide better estimates based on information currently available. No adjustments were made for revisions, extensions, discoveries or prices as such information was not available. The reserve estimates as of December 31, 2013 were determined from internally prepared reserve reports. Reserves are assessed for economic value, as only reserves estimated to be economically producible were included. The prices used for this assessment were developed using authoritative guidance and were based on the historical twelve-month unweighted average of the first-day-of-the-month prices. The average price was adjusted for quality, transportation fees and regional price differences. The adjusted weighted-average commodity price used in the economic assessment for the reserve estimates as of December 31, 2013 was $73.65 per barrel of oil.
UINTA BASIN PROPERTIES
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES (CONT’D)
5. Supplemental Oil and Gas Disclosures (unaudited)
The following tables summarize the net ownership interest in the estimated proved reserves and the standardized measure of discounted future net cash flows (“standardized measure”) related to the proved reserves for the Uinta Basin Properties. The components of the standardized measure were determined in accordance with the authoritative guidance of the Financial Accounting Standards Board (“FASB”) and the SEC.
There are numerous uncertainties in estimating quantities of proved reserves, which incorporate estimates of the future rates of production, the timing of development expenditures and other assumptions. The following reserve data represent estimates only and are inherently imprecise and may be subject to substantial revisions as additional information becomes available, such as reservoir performance, additional drilling, technological advancements and other factors. Decreases in the prices of oil could have an adverse effect on reserve volumes and discounted future net cash flows related to the proved reserves. Similarly, the standardized measure incorporates various assumptions such as prices, costs, production rates and discount rates that are inherently imprecise. Actual results could be materially different and the results may not be comparable to estimates disclosed by other oil and gas companies.
All prices are held constant through the forecast production period. The standardized measure of discounted cash flows as of December 31, 2012 and the changes between periods were derived from these estimated reserve amounts and data from Axia’s and the Company’s records. Changes in the standardized measure were computed using data that could be reasonably obtained or estimated.
Proved Reserves
Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions (i.e., prices and costs) existing at the time the estimate was made. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. All of the reserves are located in the Uinta Basin in northeastern Utah in the United States.
The following table sets forth estimated net quantities of the proved oil reserves. The estimated net quantities were derived from internally prepared reserve reports as of December 31, 2013 and rolled back for production. No adjustments were made for revisions, extensions and discoveries due to lack of available information.
| Natural | Total Oil and Natural |
|||||||||||
| Oil | Gas | Gas | ||||||||||
| (MBbls) | (MMcf) | (MMcfe) | ||||||||||
| Proved Reserves as of December 31, 2011 |
— | — | — | |||||||||
| Extensions, discoveries and additions |
1,198 | — | 7,188 | |||||||||
| Production |
(155 | ) | — | (930 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Proved Reserves as of December 31, 2012(1) |
1,043 | — | 6,258 | |||||||||
|
|
|
|
|
|
|
|||||||
| (1) | All of the proved reserves for the period ended December 31, 2012 were classified as proved developed reserves. |
| Volume measurements: | ||||||
| MBbls - thousand barrels of crude oil | MMcfe - million cubic feet equivalent | |||||
| MMcf - million cubic feet of natural gas | ||||||
UINTA BASIN PROPERTIES
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES (CONT’D)
Standardized Measure
The standardized measure is the estimated future net cash inflows from estimated proved reserves less estimated future production and development costs, estimated plugging and abandonment costs, estimated income taxes and a discount factor. Production costs do not include depreciation, depletion and amortization of capitalized acquisition and exploration costs. Future cash inflows represent expected revenues from production of period-end quantities of estimated proved reserves based on the historical twelve-month unweighted average of the first-day-of-the-month prices and any fixed and determinable future price changes provided by contractual arrangements in existence at year end. The average price was adjusted for quality, transportation fees and regional price differences. Price changes based on inflation, federal regulatory changes and supply and demand are not considered. For the year ended December 31, 2012, the average crude oil price utilized in the standardized measure to estimate future revenues was $71.98 per barrel.
Estimated future production costs were based on historical costs. Such costs include, but are not limited to, severance and ad valorem taxes and direct operating expenses. Inflation and other anticipatory costs were not considered.
Other costs, such as development costs, plugging and abandonment costs and income taxes, were based on incurred costs and internal estimates. Estimated future net cash flows were discounted to their present values based on a 10% annual discount rate.
The standardized measure does not purport, nor should it be interpreted, to present the fair market value of the proved reserves. These estimates reflect estimated proved reserves only and ignore, among other things, future changes in prices and costs, revenues that could result from probable reserves which could become proved reserves in the future, and the risks inherent in reserve estimates. Accordingly, the estimates of future net cash flows from proved reserves and the present value thereof may not be materially correct when judged against actual subsequent results. Further, since prices and costs do not remain static, and no price or cost changes have been considered, the results are not necessarily indicative of the fair market value of estimated proved reserves, and the results may not be comparable to estimates disclosed by other oil and gas producers. In addition, the standardized measure incorporates estimates using a combination of data from the Company’s and Axia’s records which could be reasonably obtained, but this computation process may contain inconsistencies.
The standardized measure of discounted future net cash flows relating to estimated proved reserves is as follows (in thousands):
| Year Ended December 31, 2012 |
||||
| Standardized Measure |
||||
| Future cash inflows(1) |
$ | 75,027 | ||
| Future costs: |
||||
| Production(1) |
(32,434 | ) | ||
| Asset retirement(2) |
(612 | ) | ||
| Income taxes(3) |
— | |||
|
|
|
|||
| Future net cash inflows before 10% discount |
41,981 | |||
| 10% annual discount factor |
(13,992 | ) | ||
|
|
|
|||
| Standardized measure |
$ | 27,989 | ||
|
|
|
|||
UINTA BASIN PROPERTIES
NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES (CONT’D)
Changes in the standardized measure of discounted cash flows relating to proved reserves are as follows (in thousands):
| Year Ended December 31, 2012 |
||||
| Summary of Changes in Standardized Measure |
||||
| Standardized measure, beginning of year |
$ | — | ||
| Sales and transfers of oil produced, net of production costs(4) |
(2,536 | ) | ||
| Accretion of discount(5) |
— | |||
| Income taxes(3) |
— | |||
| Extensions, discoveries and additions(5) |
30,525 | |||
|
|
|
|||
| Net increase in standardized measure |
27,989 | |||
|
|
|
|||
| Standardized measure, end of year |
$ | 27,989 | ||
|
|
|
|||
The standardized measure of discounted future cash flows (discounted at 10%) as of the beginning of the period and the changes during the period were developed as follows:
| (1) | Cash inflows and production costs were estimated using reserve volumes from December 31, 2013 and rolled back for production to December 31, 2012. Prices and production cost estimates for the applicable period were derived from Axia’s records and applied to these rolled back reserves to estimate cash inflows and outflows |
| (2) | Asset retirement and other expenditures were derived from internal estimates. |
| (3) | Tax basis exceeds future income. |
| (4) | Sales and transfers were based on historical production data provided by Axia. |
| (5) | The Uinta Basin Properties began producing during 2012. |
UINTA BASIN PROPERTIES
UNAUDITED INTERIM STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
| Nine Months Ended September 30, |
||||||||
| 2013 | 2012 | |||||||
| Revenues |
$ | 28,386 | $ | 2,034 | ||||
| Direct operating expenses |
6,063 | 969 | ||||||
|
|
|
|
|
|||||
| Revenues in excess of direct operating expenses |
$ | 22,323 | $ | 1,065 | ||||
|
|
|
|
|
|||||
See accompanying notes.
UINTA BASIN PROPERTIES
UNAUDITED INTERIM STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. The Properties
On December 12, 2013, a wholly owned subsidiary of Ultra Petroleum Corp. (the “Company” or “Ultra”) completed its previously-announced acquisition of oil-producing properties and undeveloped acreage located in the Three Rivers Field in Uintah County, Utah (the “Uinta Basin Properties”) from Axia Energy, LLC for a contract price of $652.0 million, subject to customary adjustments. The effective date of the transaction was October 1, 2013. After customary effective-date adjustments and closing adjustments, the adjusted purchase price was $649.8 million and is subject to further post-closing adjustments. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of these properties referred to above are located in northeastern Utah in the United States.
2. Basis of Presentation
The accompanying unaudited statements (the “financial statements”) include revenues from oil production and direct operating expenses associated with the Uinta Basin Properties. For purposes of this statement, all properties identified in the purchase and sale agreement between the Company and Axia Energy, LLC (“Axia”) are included herein. Revenues and direct operating expenses are presented on the accrual basis of accounting and were derived from Axia’s historical accounting records. During the period presented, the Uinta Basin Properties were not accounted for as a separate division or legal entity by Axia; therefore certain costs including, but not limited to, depreciation, depletion and amortization, accretion of asset retirement obligations, general and administrative expenses, interest and corporate income taxes were not allocated to the individual properties. Accordingly, full separate financial statements prepared in accordance with generally accepted accounting principles are not presented because the information necessary to prepare such statements is neither readily available on an individual property basis nor practicable to obtain in these circumstances. As such, the financial statements are not intended to be a complete presentation of the operating results of the Uinta Basin Properties and are not indicative of the financial condition or results of the operations of the Uinta Basin Properties going forward due to the changes in the business and the omission of various operating expenses as described above. The historical statement of revenues and direct operating expenses of the Uinta Basin Properties is presented in lieu of the full financial statements required under Item 3-05 of Securities and Exchange Commission (“SEC”) Regulation S-X.
Revenue Recognition – Oil revenues are recognized when production is sold to purchasers at a fixed or determinable price, when delivery has occurred and title has transferred, and when collectability is reasonably assured. Revenues are reported net of overriding royalties, other royalties and other revenue interest due to third parties. 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. The Company records a receivable or a liability to the extent it receives less or more than its share of the volumes and related revenue. 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.
Direct Operating Expenses – Direct operating expenses are recognized when incurred and are working interest expenses related to the Uinta Basin Properties. Direct operating expenses include lease operating expenses, severance and ad valorem taxes, well repair expenses, maintenance expenses, and other direct operating expenses.
Exhibit 99.2
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 12, 2013, a wholly owned subsidiary of Ultra Petroleum Corp. (the “Company” or “Ultra”) completed its previously-announced acquisition of oil-producing properties and undeveloped acreage located in the Three Rivers Field in Uintah County, Utah (the “Uinta Basin Properties”) from Axia Energy, LLC for a contract price of $652.0 million, subject to customary adjustments. The effective date of the transaction was October 1, 2013. After customary effective-date adjustments and closing adjustments, the adjusted purchase price was $649.8 million and is subject to further post-closing adjustments. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of these properties referred to above are located in northeastern Utah in the United States.
The accompanying unaudited pro forma condensed combined financial statements and accompanying notes of the Company as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012 (the “Pro Forma Statements”), which have been prepared by Ultra’s management, are derived from (a) the unaudited consolidated financial statements of Ultra as of and for the nine months ended September 30, 2013 included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013; (b) the unaudited statements of revenues and direct operating expenses of the Uinta Basin Properties for the nine months ended September 30, 2013; (c) the audited consolidated financial statements of Ultra as of and for the year ended December 31, 2012 included in its Annual Report on Form 10-K for the year ended December 31, 2012; and (d) the audited statement of revenues and direct operating expenses of the Uinta Basin Properties for the year ended December 31, 2012.
These Pro Forma Statements are provided for illustrative purposes only and are not necessarily indicative of the results that actually would have occurred had the transaction been in effect on the dates or for the periods indicated, or of the results that may occur in the future. The pro forma statements of income are not necessarily indicative of Ultra’s operations going forward because the presentation of the operations of the Uinta Basin Properties is limited to only revenues and direct operating expenses related thereto, while other operating expenses related to these properties have been excluded. The unaudited pro forma condensed combined balance sheet was prepared assuming the purchase of the Uinta Basin Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on September 30, 2013. The unaudited pro forma condensed combined statements of income were prepared assuming the purchase of the UintaBasin Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on January 1, 2012. These Pro Forma Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, the Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and the audited Statement of Revenues and Direct Operating Expenses for the Uinta Basin Properties for the year ended December 31, 2012 and the Unaudited Interim Statements of Revenues and Direct Operating Expenses for the Uinta Basin Properties for the nine months ended September 30, 2013 and 2012 listed as Exhibit 99.1 to this Current Report on Form 8-K/A.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2013
| Historical | Pro Forma Acquisition Adjustments (a) |
Pro Forma Financing Adjustments (b) |
Pro Forma | |||||||||||||
| (in thousands) | ||||||||||||||||
| ASSETS | ||||||||||||||||
| Current Assets: |
||||||||||||||||
| Cash and cash equivalents |
$ | 4,532 | $ | (649,801 | ) | $ | 649,801 | $ | 4,532 | |||||||
| Restricted cash |
119 | — | — | 119 | ||||||||||||
| Oil and gas revenue receivable |
74,104 | 9,901 | — | 84,005 | ||||||||||||
| Joint interest billing and other receivables |
12,067 | — | — | 12,067 | ||||||||||||
| Derivative assets |
1,239 | — | — | 1,239 | ||||||||||||
| Other current assets |
3,999 | 1,665 | — | 5,664 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current assets |
96,060 | (638,235 | ) | 649,801 | 107,626 | |||||||||||
| Oil and gas properties, net, using the full cost method of accounting: |
||||||||||||||||
| Proven |
1,750,694 | 221,434 | — | 1,972,128 | ||||||||||||
| Unproven properties not being amortized |
— | 419,131 | — | 419,131 | ||||||||||||
| Property, plant and equipment, net |
212,185 | 4,710 | — | 216,895 | ||||||||||||
| Deferred financing costs and other |
10,017 | — | 8,958 | 18,975 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total assets |
$ | 2,068,956 | $ | 7,040 | $ | 658,759 | $ | 2,734,755 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: |
||||||||||||||||
| Accounts payable |
$ | 44,198 | $ | — | $ | — | $ | 44,198 | ||||||||
| Accrued liabilities |
77,669 | 1,154 | — | 78,823 | ||||||||||||
| Production taxes payable |
38,224 | — | — | 38,224 | ||||||||||||
| Interest payable |
8,568 | — | — | 8,568 | ||||||||||||
| Derivative liabilities |
716 | — | — | 716 | ||||||||||||
| Capital cost accrual |
170,539 | 4,152 | — | 174,691 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total current liabilities |
339,914 | 5,306 | — | 345,220 | ||||||||||||
| Long-term debt |
1,860,000 | — | 658,759 | 2,518,759 | ||||||||||||
| Deferred gain on sale of liquids gathering system |
150,039 | — | — | 150,039 | ||||||||||||
| Other long-term obligations |
95,843 | 1,734 | — | 97,577 | ||||||||||||
| Commitments and contingencies |
||||||||||||||||
| Shareholders’ equity: |
||||||||||||||||
| Common stock |
482,949 | — | — | 482,949 | ||||||||||||
| Treasury stock |
(2,205 | ) | — | — | (2,205 | ) | ||||||||||
| Retained loss |
(857,584 | ) | — | — | (857,584 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total shareholders’ deficit |
(376,840 | ) | — | — | (376,840 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total liabilities and shareholders’ equity |
$ | 2,068,956 | $ | 7,040 | $ | 658,759 | $ | 2,734,755 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012
| Historical | Pro Forma Acquisition Adjustments |
Pro Forma Financing Adjustments |
Pro Forma | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Natural gas sales |
$ | 695,733 | $ | — | $ | — | $ | 695,733 | ||||||||
| Oil sales |
114,241 | 4,658 | (c) | — | 118,899 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating revenues |
809,974 | 4,658 | — | 814,632 | ||||||||||||
| Expenses: |
||||||||||||||||
| Lease operating expenses |
64,468 | 1,969 | (c) | — | 66,437 | |||||||||||
| Production taxes |
60,757 | 153 | (c) | — | 60,910 | |||||||||||
| Gathering fees |
59,004 | — | — | 59,004 | ||||||||||||
| Transportation charges |
84,470 | — | — | 84,470 | ||||||||||||
| Depletion, depreciation and amortization |
388,985 | 11,595 | (d) | — | 400,580 | |||||||||||
| Ceiling test and other impairments |
2,972,464 | (h) | — | — | 2,972,464 | |||||||||||
| General and administrative |
25,104 | — | — | 25,104 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
3,655,252 | 13,717 | — | 3,668,969 | ||||||||||||
| Operating (loss) |
(2,845,278 | ) | (9,059 | ) | — | (2,854,337 | ) | |||||||||
| Other income (expense), net: |
||||||||||||||||
| Interest expense: |
||||||||||||||||
| Incurred |
(103,168 | ) | — | (31,073 | ) (e) | (134,241 | ) | |||||||||
| Capitalized |
14,988 | — | 20,341 | (f) | 35,329 | |||||||||||
| Gain on commodity derivatives |
73,581 | — | — | 73,581 | ||||||||||||
| Contract cancellation fees |
(15,469 | ) | — | — | (15,469 | ) | ||||||||||
| Other expense, net |
(1,765 | ) | — | — | (1,765 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total other (expense) income, net |
(31,833 | ) | — | (10,732 | ) | (42,565 | ) | |||||||||
| (Loss) before income tax (benefit) |
(2,877,111 | ) | (9,059 | ) | (10,732 | ) | (2,896,902 | ) | ||||||||
| Income tax (benefit) |
(700,213 | ) | — | (g) | — | (700,213 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net (loss) |
$ | (2,176,898 | ) | $ | (9,059 | ) | $ | (10,732 | ) | $ | (2,196,689 | ) | ||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net (loss) per common share - basic |
$ | (14.24 | ) | $ | $ | (14.37 | ) | |||||||||
|
|
|
|
|
|||||||||||||
| Net (loss) per common share - fully diluted |
$ | (14.24 | ) | $ | $ | (14.37 | ) | |||||||||
|
|
|
|
|
|||||||||||||
| Weighted average common shares outstanding - basic |
152,845 | 152,845 | ||||||||||||||
|
|
|
|
|
|||||||||||||
| Weighted average common shares outstanding - fully diluted |
152,845 | 152,845 | ||||||||||||||
|
|
|
|
|
|||||||||||||
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
| Historical | Pro Forma Acquisition Adjustments |
Pro Forma Financing Adjustments |
Pro Forma | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Natural gas sales |
$ | 628,438 | $ | — | $ | — | $ | 628,438 | ||||||||
| Oil sales |
79,769 | 28,386 | (c) | — | 108,155 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating revenues |
708,207 | 28,386 | — | 736,593 | ||||||||||||
| Expenses: |
||||||||||||||||
| Lease operating expenses |
52,544 | 5,126 | (c) | — | 57,670 | |||||||||||
| Liquids gathering system operating lease expense |
15,000 | — | — | 15,000 | ||||||||||||
| Production taxes |
54,640 | 937 | (c) | — | 55,577 | |||||||||||
| Gathering fees |
38,400 | — | — | 38,400 | ||||||||||||
| Transportation charges |
61,913 | — | — | 61,913 | ||||||||||||
| Depletion, depreciation and amortization |
180,993 | 13,468 | (d) | — | 194,461 | |||||||||||
| General and administrative |
15,897 | — | — | 15,897 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
419,387 | 19,531 | — | 438,918 | ||||||||||||
| Operating income |
288,820 | 8,855 | — | 297,675 | ||||||||||||
| Other income (expense), net: |
||||||||||||||||
| Interest expense: |
||||||||||||||||
| Incurred |
(76,713 | ) | — | (23,241 | ) (e) | (99,954 | ) | |||||||||
| Capitalized |
537 | — | 15,515 | (f) | 16,052 | |||||||||||
| Gain (loss) on commodity derivatives |
(20,551 | ) | — | — | (20,551 | ) | ||||||||||
| Deferred gain on sale of liquids gathering system |
7,914 | — | — | 7,914 | ||||||||||||
| Other expense, net |
(50 | ) | — | — | (50 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total other (expense) income, net |
(88,863 | ) | — | (7,726 | ) | (96,589 | ) | |||||||||
| Income (loss) before income tax provision |
199,957 | 8,855 | (7,726 | ) | 201,086 | |||||||||||
| Income tax provision |
3,240 | — | (g) | — | 3,240 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) |
$ | 196,717 | $ | 8,855 | $ | (7,726 | ) | $ | 197,846 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income per common share - basic |
$ | 1.29 | $ | $ | 1.29 | |||||||||||
|
|
|
|
|
|||||||||||||
| Net income per common share - fully diluted |
$ | 1.27 | $ | $ | 1.28 | |||||||||||
|
|
|
|
|
|||||||||||||
| Weighted average common shares outstanding - basic |
152,957 | 152,957 | ||||||||||||||
|
|
|
|
|
|||||||||||||
| Weighted average common shares outstanding - fully diluted |
154,366 | 154,366 | ||||||||||||||
|
|
|
|
|
|||||||||||||
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
On December 12, 2013, a wholly owned subsidiary of the Company completed its previously-announced acquisition of oil-producing properties and undeveloped acreage located in the Uinta Basin in Utah (the “Uinta Basin Properties”) from Axia Energy, LLC for a contract price of $652.0 million, subject to customary adjustments. The effective date of the transaction was October 1, 2013. After customary effective-date adjustments and closing adjustments, the adjusted purchase price was $649.8 million and is subject to further post-closing adjustments. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of these properties referred to above are located the Uinta Basin of northeastern Utah in the United States. These unaudited pro forma financial statements are prepared due to the acquisition being significant to the Company on a combined basis.
On December 12, 2013, the Company issued $450.0 million of 5.75% Senior Notes due 2018 (“Notes”). The Notes are general, unsecured senior obligations of the Company and mature on December 15, 2018 in order to finance a portion of the purchase price of the Uinta Basin Properties. The remainder of the purchase price was funded through borrowings under the Company’s senior revolving credit facility.
The historical financial information is derived from the historical, consolidated financial statements of the Company and the historical statements of revenues and direct operating expenses for the Uinta Basin Properties (which were based on information provided by Axia). The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2013 and the year ended December 31, 2012 have been prepared based on the Company’s historical consolidated statements of operations for such periods, and were prepared as if the Uinta Basin Properties’ acquisition and related financing had occurred on January 1, 2012. The unaudited pro forma condensed combined balance sheet at September 30, 2013 was prepared based on the Company’s historical consolidated balance sheet at September 30, 2013, and was prepared as if the Uinta Basin Properties’ acquisition and related financing had occurred on September 30, 2013. The adjustments provided in Note 2 below assume the entire cash consideration was financed with borrowings.
The pro forma adjustments were based on information and estimates by management to be directly related to the purchase of the Uinta Basin Properties. If the transaction had been in effect on the dates or for the periods indicated, the results may have been substantially different. For example, the Company may have operated the assets differently than Axia, realized sales prices may have been different and costs of operating the properties may have been different. These unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.
2. Pro Forma Adjustments and Other Information
The following adjustments were made in the preparation of the condensed combined financial statements:
| (a) | The adjusted purchase price as reported below is subject to further adjustments. The Company expects final settlement to occur in 2014. The adjusted purchase price as of December 12, 2013 is comprised of the following components (in thousands): |
| Cash consideration |
||||
| Fair value of assets acquired: |
||||
| Proven oil and gas properties |
$ | 221,434 | ||
| Unproven oil and gas properties |
419,131 | |||
| Property, plant and equipment |
4,710 | |||
| Oil inventory |
1,665 | |||
| Working capital |
4,595 | |||
|
|
|
|||
| Total assets acquired |
$ | 651,535 | ||
|
|
|
|||
| Fair value of liabilities assumed: |
||||
| Asset retirement obligations |
$ | 1,734 | ||
|
|
|
|||
| Total |
$ | 649,801 | ||
|
|
|
| (b) | For these Pro Forma Statements, the cash consideration is assumed to be funded from the net proceeds from the issuance of $450.0 million of senior notes at 5.75% and the remainder from borrowings under the Company’s senior revolving bank credit facility. |
| (c) | Revenues and direct operating expenses were derived from the historical records of Axia. |
(d) Depreciation, depletion and amortization (“DD&A”) was estimated using the full-cost method and determined as the incremental DD&A expense due to adding the costs, reserves and production of the Uinta Basin Properties into the computation. The purchase price allocation included amounts allocated to the pool of unevaluated properties for oil and gas interests. No DD&A expense was estimated for the unevaluated properties, which conforms to Ultra’s accounting policy. Asset retirement obligations, related accretion and future development costs were estimated by the Company.
(e) Interest expense was computed using an effective interest rate of 2.49%, which is the estimated interest rate for borrowings of $208.8 million on our senior revolving bank credit facility for the assumed borrowings, and an interest rate of 5.75% on the issuance of $450.0 million of senior notes.
(f) Adjustments to capitalized interest were computed for the additional amounts allocated to the pool of unevaluated properties and the capitalization interest rate was adjusted for the assumed borrowings.
(g) As a result of the ceiling test and other impairments recorded during the year ended December 31, 2012, the Company’s previously recorded net deferred tax liability fully reversed into a net deferred tax asset. The Company has recorded a full valuation allowance against its net deferred tax asset balance and no incremental income taxes are reflected on the Statement of Operations associated with the acquisition of the Uinta Basin Properties.
(h) During 2012, the Company recorded a non-cash write-down of the carrying value of the Company’s proved oil and gas properties as a result of ceiling test limitations. The impact of the acquisition was not considered in this calculation for purposes of the pro forma information presented.
3. Supplemental Oil and Gas Disclosures
Oil and Natural Gas Reserve Information
The following table presents certain unaudited pro forma information concerning Ultra’s proved oil and natural gas reserves as of December 31, 2012 assuming the acquisition of the Uinta Basin Properties occurred on January 1, 2012. There are numerous uncertainties in estimating quantities of proved reserves and in providing the future rates of production and timing of development expenditures. The following reserve data represent estimates only and are inherently imprecise and may be subject to substantial revisions as additional information such as reservoir performance, additional drilling, technological advancements and other factors become available. Decreases in the prices of oil and natural gas could have an adverse effect on the carrying value of the proved reserves and reserve volumes.
| Ultra Petroleum Corp. | Uinta Basin Properties(1) |
Ultra Petroleum Corp. Pro Forma |
||||||||||||||||||||||
| Natural | Natural | Natural | ||||||||||||||||||||||
| Oil | Gas | Oil | Gas | Oil | Gas | |||||||||||||||||||
| (MBbls) | (MMcf) | (MBbls) | (MMcf) | (MBbls) | (MMcf) | |||||||||||||||||||
| Proved Reserves as of December 31, 2011 |
33,081 | 4,778,554 | — | — | 33,081 | 4,778,554 | ||||||||||||||||||
| Extensions, discoveries and additions |
5,435 | 819,896 | 1,198 | — | 6,633 | 819,896 | ||||||||||||||||||
| Production |
(1,282 | ) | (249,310 | ) | (155 | ) | — | (1,437 | ) | (249,310 | ) | |||||||||||||
| Revisions |
(19,097 | ) | (2,382,695 | ) | — | — | (19,097 | ) | (2,382,695 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Proved Reserves as of December 31, 2012(1) |
18,137 | 2,966,445 | 1,043 | — | 19,180 | 2,966,445 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Year-end proved developed reserves: | ||||||||||||||||||||||||
| 2012 |
10,531 | 1,820,994 | 1,043 | — | 11,574 | 1,820,994 | ||||||||||||||||||
| 2011 |
11,794 | 1,973,391 | — | — | 11,794 | 1,973,391 | ||||||||||||||||||
| Year-end proved undeveloped reserves: |
||||||||||||||||||||||||
| 2012 |
7,606 | 1,145,451 | — | — | 7,606 | 1,145,451 | ||||||||||||||||||
| 2011 |
21,287 | 2,805,163 | — | — | 21,287 | 2,805,163 | ||||||||||||||||||
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| (1) | Data for the Uinta Basin Properties was derived using estimates of proved reserves as of December 31, 2013 and rolled back for production. The Uinta Basin Properties began producing in 2012. |
Volume measurements:
MBbls - thousand barrels of crude oil and condensate
MMcf - million cubic feet of natural gas
Pro Forma Standardized Measure of Discounted Future Net Cash Flows
The following tables present certain unaudited pro forma information concerning the standardized measure of discounted cash flows of the Company’s proved oil and natural gas reserves as of December 31, 2012, together with the changes therein, assuming the acquisition of the Uinta Basin Properties occurred on January 1, 2012. Future cash inflows represent expected revenues from production of period-end quantities of proved reserves based on the twelve-month unweighted average of first-day-of-the-month prices for the year ended December 31, 2012. All prices are adjusted by property for quality, transportation fees, energy content and regional price differentials. Future production, development costs and asset retirement obligations are based on costs in effect at the end of the year with no escalations. Estimated future net cash flows, net of future income taxes, have been discounted to their present values based on a 10% annual discount rate.
The standardized measure of discounted future net cash flows does not purport, nor should it be interpreted, to present the fair market value of the oil and natural gas reserves. These estimates reflect proved reserves only and ignore, among other things, future changes in prices and costs, revenues that could result from probable reserves which could become proved reserves in later years and the risks inherent in reserve estimates. The standardized measure of discounted future net cash flows relating to the Company’s and the Uinta Basin Properties’ proved oil and natural gas reserves consolidated on a pro forma basis is as follows (in thousands):
Pro Forma Standardized Measure of Discounted Future Net Cash Flows
as of December 31, 2012
| Ultra Petroleum Corp. |
Uinta Basin Properties |
Pro Forma | ||||||||||
| Future cash inflows |
$ | 9,380,970 | $ | 75,027 | $ | 9,455,997 | ||||||
| Future costs: |
||||||||||||
| Production |
(3,217,771 | ) | (32,434 | ) | (3,250,205 | ) | ||||||
| Future development costs |
(1,661,394 | ) | — | (1,661,394 | ) | |||||||
| Asset retirement |
— | (612 | ) | (612 | ) | |||||||
| Income taxes |
(733,855 | ) | — | (733,855 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Future net cash inflows before 10% discount |
3,767,950 | 41,981 | 3,809,931 | |||||||||
| 10% annual discount factor |
(1,873,633 | ) | (13,992 | ) | (1,887,625 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Standardized measure |
$ | 1,894,317 | $ | 27,989 | $ | 1,922,306 | ||||||
|
|
|
|
|
|
|
|||||||
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following table sets forth the changes in the standardized measure of discounted future net cash flows relating to the Company’s and the Uinta Basin Properties’ proved oil and natural gas reserves consolidated on a pro forma basis (in thousands):
Changes to the Pro Forma Standardized Measure of Discounted Future Net Cash Flows
for the Year Ended December 31, 2012
| Ultra Petroleum Corp. |
Uinta Basin Properties |
Pro Forma | ||||||||||
| Standardized measure, beginning of year |
$ | 3,796,056 | $ | — | $ | 3,796,056 | ||||||
| Increases (decreases): |
||||||||||||
| Net revisions of previous quantity estimates |
(2,516,159 | ) | — | (2,516,159 | ) | |||||||
| Changes in future development costs |
952,067 | — | 952,067 | |||||||||
| Sales and transfers of oil produced, net of production costs |
(625,745 | ) | (2,536 | ) | (628,281 | ) | ||||||
| Net changes in price, net of future production costs |
(2,912,698 | ) | — | (2,912,698 | ) | |||||||
| Development costs incurred during the period that reduce future development costs |
316,394 | — | 316,394 | |||||||||
| Accretion of discount |
529,696 | — | 529,696 | |||||||||
| Net changes in production rates and other |
363,788 | — | 363,788 | |||||||||
| Income taxes |
1,131,967 | — | 1,131,967 | |||||||||
| Extenstions, discoveries and additions |
858,951 | 30,525 | 889,476 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net (decrease) increase in standardized measure |
(1,901,739 | ) | 27,989 | (1,873,750 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Standardized measure, end of year |
$ | 1,894,317 | $ | 27,989 | $ | 1,922,306 | ||||||
|
|
|
|
|
|
|
|||||||