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 (Date of earliest event reported): October 1, 2014 (September 25, 2014)
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)
Registrants 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)) |
Explanatory Note
This Current Report on Form 8-K/A is being filed as an amendment (this Amendment) to the Current Report on Form 8-K which the registrant previously filed with the Securities and Exchange Commission on September 25, 2014 (the Original Filing). This Current Report on Form 8-K/A includes the financial statements and information required by such Items 9.01(a) and 9.01(b) and amends the registrants previous disclosure in Items 2.01 and 9.01 as set forth herein. Except for the foregoing, this Amendment does not modify or update any other disclosure contained in the Original Filing.
Section 2 Financial Information
Item 2.01 Completion of Acquisition or Disposition of Assets.
On September 25, 2014, a wholly owned subsidiary of Ultra Petroleum Corp. (the Company or Ultra) completed the previously announced acquisition of all producing and non-producing properties in the Pinedale field in Sublette County, Wyoming (the SWEPI Properties) from SWEPI, LP, an affiliate of Royal Dutch Shell, plc in exchange for certain of the Companys producing and non-producing properties in Pennsylvania (the Pennsylvania Properties) and a cash payment of $925.0 million (the SWEPI Transaction) pursuant to a Purchase and Sale Agreement dated August 13, 2014. The effective date of the transaction is April 1, 2014. After customary effective-date adjustments and closing adjustments, including payments in settlement of certain liabilities incurred prior to the effective date, the adjusted cash payment was $983.0 million and is subject to further post-closing adjustments. The SWEPI Properties consist primarily of 19,600 net mineral acres in Wyoming and associated oil and gas production and wells and the Pennsylvania Properties consist primarily of 155,000 net acres in Pennsylvania and associated oil and gas production and wells. The Company reported the entry by the parties into the Purchase and Sale Agreement in a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on August 19, 2014.
The required financial statements and pro forma financial information with respect to the SWEPI Transaction is provided in Items 9.01(a) and 9.01(b) of this Current Report on Form 8-K/A.
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited statements of revenues and direct operating expenses of the SWEPI Properties for the years ended December 31, 2013 and 2012; and the unaudited statements of revenues and direct operating expenses of the SWEPI Properties for the six months ended June 30, 2014 and 2013 are both attached as Exhibit 99.1 hereto.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined balance sheet as of June 30, 2014, the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and for the six months ended June 30, 2014, and the related notes are attached as Exhibit 99.2 hereto.
(d) Exhibits.
Exhibit No. | Description | |
Exhibit 23.1 | Consent of PricewaterhouseCoopers LLP. | |
Exhibit 99.1 | Audited statements of revenues and direct operating expenses of the SWEPI Properties for the years ended December 31, 2013 and 2012; and unaudited statements of revenues and direct operating expenses of the SWEPI Properties for the six months ended June 30, 2014 and 2013. |
Exhibit 99.2 | Unaudited pro forma condensed combined balance sheet as of June 30, 2014 showing the pro forma effects of the SWEPI Transaction as at June 30, 2014; the unaudited pro forma condensed combined statements of operations showing the pro forma effects of the SWEPI Transaction for the six months ended June 30, 2014; the unaudited pro forma condensed combined statements of operations showing the pro forma effects of the SWEPI Transaction and the Uinta Basin Properties acquisition for the year ended December 31, 2013; and related notes. |
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: October 1, 2014 | By: | /s/ Garland R. Shaw | ||
Garland R. Shaw | ||||
Senior Vice President and Chief Financial Officer |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-13342, 333-13278 and 333-132443) of Ultra Petroleum Corp. (Ultra) of our report dated October 1, 2014 relating to the Statements of Revenues and Direct Operating Expenses of the oil and gas properties acquired by Ultra from SWEPI, LP, which appears in this Current Report on Form 8-K/A of Ultra Petroleum Corp. dated October 1, 2014.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
October 1, 2014
Exhibit 99.1
Independent Auditors Report
To the Stockholders and Board of Directors of Ultra Petroleum Corp.:
We have audited the accompanying statements of revenue and direct operating expenses (the financial statements) of certain oil and gas properties acquired from SWEPI, LP (the SWEPI Properties) for the years ended December 31, 2013 and 2012.
Managements Responsibility for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that is free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the financial statements 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 statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the financial statements 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 Companys 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 statements. 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 accompanying financial statements present fairly, in all material respects, the revenues and direct operating expenses of the SWEPI properties for the years ended December 31, 2013 and 2012 in accordance with accounting principles generally accepted in the United States of America, using the basis of presentation in Note 2.
Use of Incomplete Financial Statement Presentations
The accompanying financial statements reflect the revenues and direct operating expenses of the SWEPI Properties using the basis of presentation described in Note 2 and are not intended to be a complete presentation of the financial position, results of operations, or cash flows of the SWEPI Properties.
/s/PricewaterhouseCoopers LLP
Houston, Texas
October 1, 2014
SWEPI PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
For the Years Ended December 31, | ||||||||
2013 | 2012 | |||||||
Revenues |
$ | 358,300 | $ | 313,405 | ||||
Direct operating expenses |
199,025 | 217,042 | ||||||
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Revenues in excess of direct operating expenses |
$ | 159,275 | $ | 96,363 | ||||
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See accompanying notes to the Statements of Revenues and Direct Operating Expenses.
SWEPI PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. The Properties
On September 25, 2014, a wholly owned subsidiary of Ultra Petroleum Corp. (the Company or Ultra) completed the previously announced acquisition of all producing and non-producing properties in the Pinedale field in Sublette County, Wyoming (the SWEPI Properties) from SWEPI, LP, an affiliate of Royal Dutch Shell, plc in exchange for certain of the Companys producing and non-producing properties in Pennsylvania (the Pennsylvania Properties) and a cash payment of $925.0 million (the SWEPI Transaction) pursuant to a Purchase and Sale Agreement dated August 13, 2014. The effective date of the transaction is April 1, 2014. After customary effective-date adjustments and closing adjustments, including payments in settlement of certain liabilities incurred prior to the effective date, the adjusted cash payment was $983.0 million and is subject to further post-closing adjustments. The SWEPI Properties consist primarily of 19,600 net mineral acres in Wyoming and associated oil and gas production and wells.
2. Basis of Presentation
The accompanying audited statements (the financial statements) include revenues from natural gas and oil production and direct operating expenses associated with the SWEPI Properties. Revenues and direct operating expenses are presented on the accrual basis of accounting and were derived from SWEPIs historical accounting records. During the periods presented, the SWEPI Properties were not accounted for as a separate division or legal entity by SWEPI; 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 SWEPI Properties and are not indicative of the financial condition or results of the operations of the SWEPI Properties going forward due to the changes in the business and the omission of various operating expenses as described above. The historical statements of revenues and direct operating expenses of the SWEPI Properties were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (SEC) and are presented in lieu of the full financial statements required under Item 3-05 of SEC Regulation S-X.
Revenue Recognition Natural gas and 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. SWEPI accounts for oil and natural gas sales using the entitlements method. Under the entitlements method, revenue is recorded based upon SWEPIs ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. SWEPI 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 SWEPIs share is treated as a liability. If SWEPI receives less than its entitled share, the underproduction is recorded as a receivable.
Significant Counterparties Sales to customers comprising greater than 10% of total revenues were as follows:
2013 | 2012 | |||||||
Shell Energy North America (SENA) |
85 | % | 80 | % | ||||
Shell Trading US Company (STUSCO) |
11 | % | 18 | % |
Related Parties A portion of the SWEPI Properties production from the Pinedale field was sold to wholly-owned Royal Dutch Shell, plc affiliates. Any margins earned by such Royal Dutch Shell, plc affiliates on the ultimate sales to third parties are excluded from the accompanying financial statements.
SWEPI PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTD)
Direct Operating Expenses Direct operating expenses are recognized when incurred and are working interest expenses related to the SWEPI Properties. Direct operating expenses include lease operating expenses, severance and ad valorem taxes, well repair expenses, maintenance expenses, and other direct operating expenses.
3. Subsequent Events
Subsequent events have been evaluated for recognition and disclosure through October 1, 2014, the date the financial statements were available to be issued.
4. Oil and Gas Reserve Estimation Process (unaudited)
The reserve estimates as of December 31, 2013 and 2012 were derived using reserve estimates as of June 30, 2014 and adding back production (rolled back) to estimate the reserve quantities. No adjustments were made for revisions, extensions, or prices as such information was not available. The reserve estimates as of June 30, 2014 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 un-weighted 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 prices used in the economic assessment for the reserve estimates as of June 30, 2014 were $3.90 per Mcf for natural gas, $93.12 per barrel of oil and $25.43 per barrel for natural gas liquids.
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 SWEPI 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 natural gas or 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, 2013 and 2012 and the changes between periods were derived from these estimated reserve amounts and data from SWEPI, LPs and the Companys 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 Pinedale field in Wyoming in the United States.
The following table sets forth estimated net quantities of the proved natural gas and oil reserves. The estimated net quantities were derived from internally prepared reserve reports as of June 30, 2014 and rolled back for production. No adjustments were made for revisions or extensions due to lack of available information.
SWEPI PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTD)
Oil (MBbls) |
Natural Gas (MMcf) |
Natural Gas Liquids (MBbls) |
Total Oil and Natural Gas (MMcfe) |
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Proved Reserves as of December 31, 2011 |
13,592 | 1,819,422 | 60,965 | 2,266,764 | ||||||||||||
Production |
(633 | ) | (88,462 | ) | | (92,260 | ) | |||||||||
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Proved Reserves as of December 31, 2012 |
12,959 | 1,730,960 | 60,965 | 2,174,504 | ||||||||||||
Production |
(572 | ) | (79,983 | ) | | (83,415 | ) | |||||||||
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Proved Reserves as of December 31, 2013 |
12,387 | 1,650,977 | 60,965 | 2,091,089 | ||||||||||||
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Proved developed reserves: |
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As of December 31, 2011 |
5,730 | 780,097 | 18,997 | 928,459 | ||||||||||||
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As of December 31, 2012 |
5,097 | 691,635 | 18,997 | 836,199 | ||||||||||||
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As of December 31, 2013 |
4,525 | 611,652 | 18,997 | 752,784 | ||||||||||||
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Proved undeveloped reserves: |
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As of December 31, 2011 |
7,862 | 1,039,325 | 41,968 | 1,338,305 | ||||||||||||
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As of December 31, 2012 |
7,862 | 1,039,325 | 41,968 | 1,338,305 | ||||||||||||
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As of December 31, 2013 |
7,862 | 1,039,325 | 41,968 | 1,338,305 | ||||||||||||
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Volume measurements: |
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MBbls - thousand barrels of crude oil | MMcfe - million cubic feet equivalent | |||||||||||||||
MMcf - million cubic feet of natural gas |
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 un-weighted 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. The calculated weighted average sales prices utilized for the purposes of estimating the proved reserves and future net revenues for the SWEPI Properties at December 31, 2013 were $3.53 per Mcf, $88.19 per barrel of oil and $24.62 per barrel for natural gas liquids. The calculated weighted average sales prices utilized for the purposes of estimating the proved reserves and future net revenues for the SWEPI Properties at December 31, 2012 were $2.58 per Mcf, $87.84 per barrel of oil and $23.96 per barrel for natural gas liquids.
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
SWEPI PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES (CONTD)
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 Companys and SWEPI, LPs 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):
As of December 31, | ||||||||
2013 | 2012 | |||||||
Standardized Measure |
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Future cash inflows(1) |
$ | 8,414,541 | $ | 7,056,794 | ||||
Future costs: |
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Production(1) |
(2,591,681 | ) | (2,620,508 | ) | ||||
Development(2) |
(1,449,111 | ) | (1,449,111 | ) | ||||
Income taxes(3) |
(1,008,809 | ) | (523,509 | ) | ||||
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Future net cash inflows before 10% discount |
3,364,940 | 2,463,666 | ||||||
10% annual discount factor |
(1,977,212 | ) | (1,527,501 | ) | ||||
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Standardized measure |
$ | 1,387,728 | $ | 936,165 | ||||
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Changes in the standardized measure of discounted cash flows relating to proved reserves are as follows (in thousands):
Year Ended December 31, | ||||||||
2013 | 2012 | |||||||
Summary of Changes in Standardized Measure |
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Standardized measure, beginning of year |
$ | 936,165 | $ | 1,603,108 | ||||
Sales and transfers of oil produced, net of production costs(4) |
(159,275 | ) | (96,363 | ) | ||||
Net changes in price, net of future production costs |
595,773 | (849,768 | ) | |||||
Accretion of discount |
110,906 | 213,389 | ||||||
Income taxes(3) |
(243,385 | ) | 357,887 | |||||
Other, net |
147,544 | (292,088 | ) | |||||
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Net increase (decrease) in standardized measure |
451,563 | (666,943 | ) | |||||
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Standardized measure, end of year |
$ | 1,387,728 | $ | 936,165 | ||||
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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 June 30, 2014 and rolled back for production to December 31, 2013 and 2012. Prices and production cost estimates for the applicable period were derived from SWEPI, LPs and the Companys records and applied to these rolled back reserves to estimate cash inflows and outflows. |
(2) | Future development costs were derived from internal estimates and are based on current costs with no escalation in future years. |
(3) | Future income taxes were calculated by applying the year-end statutory rate to the excess of pre-tax net cash flows over the Companys tax basis in the associated proved natural gas and oil properties after giving effect to timing differences caused by differing cost recovery methods. |
(4) | Sales and transfers were based on historical production data provided by SWEPI, LP. |
SWEPI PROPERTIES
UNAUDITED INTERIM STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(in thousands)
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Revenues |
$ | 197,156 | $ | 190,990 | ||||
Direct operating expenses |
91,632 | 104,844 | ||||||
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Revenues in excess of direct operating expenses |
$ | 105,524 | $ | 86,146 | ||||
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See accompanying notes to the Statements of Revenues and Direct Operating Expenses.
SWEPI PROPERTIES
NOTES TO UNAUDITED INTERIM STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. The Properties
On September 25, 2014, a wholly owned subsidiary of Ultra Petroleum Corp. (the Company or Ultra) completed the previously announced acquisition of all producing and non-producing properties in the Pinedale field in Sublette County, Wyoming (the SWEPI Properties) from SWEPI, LP, an affiliate of Royal Dutch Shell, plc in exchange for certain of the Companys producing and non-producing properties in Pennsylvania (the Pennsylvania Properties) and a cash payment of $925.0 million (the SWEPI Transaction) pursuant to a Purchase and Sale Agreement dated August 13, 2014. The effective date of the transaction is April 1, 2014. After customary effective-date adjustments and closing adjustments, including payments in settlement of certain liabilities prior to the effective date, the adjusted cash payment was $983.0 million and is subject to further post-closing adjustments. The SWEPI Properties consist primarily of 19,600 net mineral acres in Wyoming and associated oil and gas production and wells.
2. Basis of Presentation
The accompanying unaudited statements (the financial statements) include revenues from natural gas and oil production and direct operating expenses associated with the SWEPI Properties. Revenues and direct operating expenses are presented on the accrual basis of accounting and were derived from SWEPIs historical accounting records. During the periods presented, the SWEPI Properties were not accounted for as a separate division or legal entity by SWEPI; 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 SWEPI Properties and are not indicative of the financial condition or results of the operations of the SWEPI Properties going forward due to the changes in the business and the omission of various operating expenses as described above. The historical statements of revenues and direct operating expenses of the SWEPI Properties were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (SEC) and are presented in lieu of the full financial statements required under Item 3-05 of SEC Regulation S-X.
Revenue Recognition Natural gas and 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. SWEPI accounts for oil and natural gas sales using the entitlements method. Under the entitlements method, revenue is recorded based upon the SWEPIs ownership share of volumes sold, regardless of whether it has taken its ownership share of such volumes. SWEPI 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 SWEPIs share is treated as a liability. If SWEPI 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 SWEPI 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
SWEPI PROPERTIES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On September 25, 2014, a wholly owned subsidiary of Ultra Petroleum Corp. (the Company or Ultra) completed the previously announced acquisition of all producing and non-producing properties in the Pinedale field in Sublette County, Wyoming (the SWEPI Properties) from SWEPI, LP, an affiliate of Royal Dutch Shell, plc in exchange for certain of the Companys producing and non-producing properties in Pennsylvania (the Pennsylvania Properties) and a cash payment of $925.0 million (the SWEPI Transaction) pursuant to a Purchase and Sale Agreement dated August 13, 2014. The effective date of the transaction was April 1, 2014. After customary effective-date adjustments and closing adjustments, including payments in settlement of certain liabilities incurred prior to the effective date, the adjusted cash payment was $983.0 million and is subject to further post-closing adjustments. The SWEPI Properties consist primarily of 19,600 net mineral acres in Wyoming where the majority of the properties acquired are those in which the Company already owns an interest and associated oil and gas production and wells and the Pennsylvania Properties consist primarily of 155,000 net acres in Pennsylvania and associated oil and gas production and wells.
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. The Uinta Basin Properties consist primarily of a 100% operated working interest in the Three Rivers Field and undeveloped acreage. All of the Uinta Basin Properties 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 six months ended June 30, 2014 and for the year ended December 31, 2013 (the Pro Forma Statements), which have been prepared by Ultras management, are derived from (a) the unaudited consolidated financial statements of Ultra as of and for the six months ended June 30, 2014 included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2014; (b) the unaudited statements of revenues and direct operating expenses of the SWEPI Properties for six months ended June 30, 2014; (c) the audited consolidated financial statements of Ultra for the year ended December 31, 2013 included in its Annual Report on Form 10-K for the year ended December 31, 2013; (d) the audited statement of revenues and direct operating expenses of the SWEPI Properties for the year ended December 31, 2013; and, (e) the unaudited statement of revenues and direct operating expenses of the Uinta Basin Properties for the nine months ended September 30, 2013 combined with the revenues and direct operating expenses of the Uinta Basin Properties for the period from October 1, 2013 through December 11, 2013.
These Pro Forma Statements are provided for illustrative purposes only and are not necessarily indicative of the results that would have occurred had the transactions 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 Ultras operations going forward because the presentation of the operations of the SWEPI Properties and 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 SWEPI Transaction, including purchase price adjustments to date, and assumed related financing transactions occurred on June 30, 2014. The unaudited pro forma condensed combined statements of income were prepared assuming the purchase of the SWEPI Properties and the Uinta Basin Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on January 1, 2013. These Pro Forma Statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2013, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, the audited Statement of Revenues and Direct Operating Expenses for the SWEPI Properties for the year ended December 31, 2013, and the unaudited Statement of Revenues and Direct Operating Expenses for the SWEPI Properties for the six months ended June 30, 2014 listed as Exhibit 99.1 to this Current Report on Form 8-K/A and the unaudited statement of revenues and direct operating expenses of the Uinta Basin Properties for the nine months ended September 30, 2013 included in Exhibit 99.1 on the Companys Report on Form 8-K/A filed on February 24, 2014.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNUADITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2014
Historical | Pro Forma SWEPI Transaction Adjustments (a) |
Pro Forma SWEPI Transaction Financing Adjustments (b) |
Pro Forma | |||||||||||||
(in thousands) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 5,092 | $ | (983,001 | ) | $ | 983,001 | $ | 5,092 | |||||||
Restricted cash |
117 | | | 117 | ||||||||||||
Oil and gas revenue receivable |
98,325 | | | 98,325 | ||||||||||||
Joint interest billing and other receivables |
26,139 | | | 26,139 | ||||||||||||
Other current assets |
15,105 | 4,334 | | 19,439 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current assets |
144,778 | (978,667 | ) | 983,001 | 149,112 | |||||||||||
Oil and gas properties, net, using the full cost method of accounting: |
||||||||||||||||
Proven |
2,178,293 | 1,045,073 | | 3,223,366 | ||||||||||||
Unproven properties not being amortized |
399,027 | | | 399,027 | ||||||||||||
Property, plant and equipment, net |
219,691 | (98,852 | ) | | 120,839 | |||||||||||
Deferred income taxes |
6 | | | 6 | ||||||||||||
Deferred financing costs and other |
16,338 | | 13,528 | 29,866 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 2,958,133 | $ | (32,446 | ) | $ | 996,529 | $ | 3,922,216 | |||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable |
$ | 59,478 | $ | | $ | | $ | 59,478 | ||||||||
Accrued liabilities |
85,746 | 7,595 | | 93,341 | ||||||||||||
Production taxes payable |
46,717 | | | 46,717 | ||||||||||||
Current portion of long-term debt |
100,000 | | | 100,000 | ||||||||||||
Interest payable |
31,427 | | | 31,427 | ||||||||||||
Derivative liabilities |
40,007 | | | 40,007 | ||||||||||||
Capital cost accrual |
134,329 | (79,812 | ) | | 54,517 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current liabilities |
497,704 | (72,217 | ) | | 425,487 | |||||||||||
Long-term debt |
2,337,000 | | 996,529 | 3,333,529 | ||||||||||||
Deferred gain on sale of liquids gathering system |
142,124 | | | 142,124 | ||||||||||||
Other long-term obligations |
104,830 | 39,771 | | 144,601 | ||||||||||||
Commitments and contingencies |
||||||||||||||||
Shareholders equity: |
||||||||||||||||
Common stock |
489,362 | | | 489,362 | ||||||||||||
Treasury stock |
(37 | ) | | | (37 | ) | ||||||||||
Retained loss |
(612,850 | ) | | | (612,850 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total shareholders deficit |
(123,525 | ) | | | (123,525 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities and shareholders equity |
$ | 2,958,133 | $ | (32,446 | ) | $ | 996,529 | $ | 3,922,216 | |||||||
|
|
|
|
|
|
|
|
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
Historical | Pro Forma SWEPI Transaction Adjustments |
Pro Forma SWEPI Transaction Financing Adjustments |
Pro Forma Uinta Basin Properties Acquisition Adjustments |
Pro Forma Uinta Basin Properties Acquisition Financing Adjustments |
Pro Forma | |||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||
Natural gas sales |
$ | 824,266 | $ | 174,647 | (c) | | $ | | | $ | 998,913 | |||||||||||||
Oil sales |
109,138 | 49,048 | (c) | | 46,630 | (d) | | 204,816 | ||||||||||||||||
NGL sales |
| 3,295 | (c) | | | | 3,295 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating revenues |
933,404 | 226,990 | | 46,630 | | 1,207,024 | ||||||||||||||||||
Expenses: |
||||||||||||||||||||||||
Lease operating expenses |
68,106 | 29,371 | (c) | | 7,339 | (d) | | 104,816 | ||||||||||||||||
Liquids gathering system operating lease expense |
20,000 | | | | | 20,000 | ||||||||||||||||||
Production taxes |
72,398 | 34,689 | (c) | | 1,330 | (d) | | 108,417 | ||||||||||||||||
Gathering fees |
52,074 | 1,921 | (c) | | | | 53,995 | |||||||||||||||||
Transportation charges |
82,797 | 113,384 | (c) | | | | 196,181 | |||||||||||||||||
Depletion, depreciation and amortization |
243,390 | 65,579 | (e) | | 17,983 | (e) | | 326,952 | ||||||||||||||||
General and administrative |
22,373 | | | | | 22,373 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total operating expenses |
561,138 | 244,944 | | 26,652 | | 832,734 | ||||||||||||||||||
Operating income |
372,266 | (17,954 | ) | | 19,978 | | 374,290 | |||||||||||||||||
Other income (expense), net: |
||||||||||||||||||||||||
Interest expense: |
||||||||||||||||||||||||
Incurred |
(103,471 | ) | | (55,581 | )(f) | | (29,196 | )(g) | (188,248 | ) | ||||||||||||||
Capitalized |
1,985 | | | | 22,636 | (h) | 24,621 | |||||||||||||||||
(Loss) on commodity derivatives |
(46,754 | ) | | | | | (46,754 | ) | ||||||||||||||||
Deferred gain on sale of liquids gathering system |
10,553 | | | | | 10,553 | ||||||||||||||||||
Other (expense) income, net |
(357 | ) | | | | | (357 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total other (expense) income, net |
(138,044 | ) | | (55,581 | ) | | (6,560 | ) | (200,185 | ) | ||||||||||||||
Income (loss) before income tax (benefit) |
234,222 | (17,954 | ) | (55,581 | ) | 19,978 | (6,560 | ) | 174,105 | |||||||||||||||
Income tax (benefit) |
(3,616 | ) | | (i) | | | (i) | | (3,616 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | 237,838 | $ | (17,954 | ) | $ | (55,581 | ) | $ | 19,978 | (6,560 | ) | $ | 177,721 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income per common share basic |
$ | 1.55 | $ | 1.16 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net income per common share fully diluted |
$ | 1.54 | $ | 1.15 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Weighted average common shares outstanding basic |
152,963 | 152,963 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Weighted average common shares outstanding fully diluted |
154,426 | 154,426 | ||||||||||||||||||||||
|
|
|
|
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2014
Historical | Pro Forma SWEPI Transaction Adjustments |
Pro Forma SWEPI Transaction Financing Adjustments |
Pro Forma | |||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Natural gas sales |
$ | 500,111 | $ | 104,605 | (c) | $ | | $ | 604,716 | |||||||
Oil sales |
122,250 | 22,824 | (c) | | 145,074 | |||||||||||
NGL sales |
| 460 | (c) | | 460 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating revenues |
622,361 | 127,889 | | 750,250 | ||||||||||||
Expenses: |
||||||||||||||||
Lease operating expenses |
43,972 | 14,373 | (c) | | 58,345 | |||||||||||
Liquids gathering system operating lease expense |
10,153 | | | 10,153 | ||||||||||||
Production taxes |
50,525 | 20,700 | (c) | | 71,225 | |||||||||||
Gathering fees |
26,157 | 762 | (c) | | 26,919 | |||||||||||
Transportation charges |
37,848 | 50,213 | (c) | | 88,061 | |||||||||||
Depletion, depreciation and amortization |
128,522 | 30,353 | (e) | | 158,875 | |||||||||||
General and administrative |
8,503 | | | 8,503 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
305,680 | 116,401 | | 422,081 | ||||||||||||
Operating income |
316,681 | 11,488 | | 328,169 | ||||||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense: |
||||||||||||||||
Incurred |
(65,307 | ) | | (27,562 | )(f) | (92,869 | ) | |||||||||
Capitalized |
10,945 | | | 10,945 | ||||||||||||
(Loss) on commodity derivatives |
(60,375 | ) | | | (60,375 | ) | ||||||||||
Deferred gain on sale of liquids gathering system |
5,276 | | | 5,276 | ||||||||||||
Other income (expense), net |
2 | | | 2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other (expense) income, net |
(109,459 | ) | | (27,562 | ) | (137,021 | ) | |||||||||
Income (loss) before income tax benefit |
207,222 | 11,488 | (27,562 | ) | 191,148 | |||||||||||
Income tax benefit |
(541 | ) | | (i) | | (541 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 207,763 | $ | 11,488 | $ | (27,562 | ) | $ | 191,689 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Net income per common share basic |
$ | 1.36 | $ | 1.25 | ||||||||||||
|
|
|
|
|||||||||||||
Net income per common share fully diluted |
$ | 1.34 | $ | 1.24 | ||||||||||||
|
|
|
|
|||||||||||||
Weighted average common shares outstanding basic |
153,110 | 153,110 | ||||||||||||||
|
|
|
|
|||||||||||||
Weighted average common shares outstanding fully diluted |
154,915 | 154,915 | ||||||||||||||
|
|
|
|
|||||||||||||
See accompanying notes.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
On September 25, 2014, a wholly owned subsidiary of Ultra Petroleum Corp. (the Company or Ultra) completed the previously announced acquisition of all producing and non-producing properties in the Pinedale field in Sublette County, Wyoming (the SWEPI Properties) from SWEPI, LP, an affiliate of Royal Dutch Shell, plc in exchange for certain of the Companys producing and non-producing properties in Pennsylvania (the Pennsylvania Properties) and a cash payment of $925.0 million (the SWEPI Transaction) pursuant to a Purchase and Sale Agreement dated August 13, 2014. The effective date of the transaction is April 1, 2014. After customary effective-date adjustments and closing adjustments, including payments in settlement of certain liabilities incurred prior to the effective date, the adjusted cash payment was $983.0 million and is subject to further post-closing adjustments. The SWEPI Properties consist primarily of 19,600 net mineral acres in Wyoming and associated oil and gas production and wells, and the Pennsylvania Properties consist primarily of 155,000 net acres in Pennsylvania and associated natural gas production and wells.
On September 18, 2014, the Company issued $850.0 million of 6.125% Senior Notes due 2024 (Notes) in order to finance a portion of the purchase price of the SWEPI Transaction. The remainder of the cash payment of $146.5 million was funded through borrowings under the Companys senior revolving credit facility. The Notes are general, unsecured senior obligations of the Company.
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 $645.2 million. 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.
On December 12, 2013, the Company issued $450.0 million of 5.75% Senior Notes due 2018 (2018 Notes) in order to finance a portion of the purchase price of the Uinta Basin Properties. The remainder of the purchase price of $208.8 million was funded through borrowings under the Companys senior revolving credit facility. The 2018 Notes are general, unsecured senior obligations of the Company.
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 SWEPI Properties (which were based on information provided by SWEPI, LP), 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 income were prepared assuming the purchase of the SWEPI Properties and the Uinta Basin Properties, including purchase price adjustments to date, and assumed related financing transactions occurred on January 1, 2013. The unaudited pro forma condensed combined balance sheet at June 30, 2014 was prepared based on the Companys historical consolidated balance sheet at June 30, 2014, and was prepared as if the SWEPI Transaction and related financing had occurred June 30, 2014.
The unaudited pro forma combined financial statements and underlying pro forma adjustments are based upon currently available information and certain estimates and assumptions made by the Companys management; therefore, actual results could differ materially from the pro forma information. However, management believes the assumptions provide a reasonable basis for presenting the significant effects of the SWEPI Transaction and the Uinta Basin Properties acquisition. These unaudited pro forma combined financial statements are provided for illustrative purposes only and may or may not provide an indication of results in the future.
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
2. Pro Forma Adjustments and Other Information
The following adjustments were made in the preparation of the condensed combined financial statements:
(a) | The adjusted cash payment for the SWEPI Transaction as reported below is subject to further adjustments. The Company expects final settlement to occur in 2014. The adjusted cash payment as of the closing date, September 25, 2014, includes, as noted above, adjustments for revenues and expenses subsequent to April 1, 2014 as well as the settlement of certain liabilities and is comprised of the following components (in thousands): |
Adjusted cash payment |
$ | 983,001 | ||
Assets: |
||||
Other Current Assets: |
||||
Acquired condensate inventory SWEPI Properties |
$ | 819 | ||
Acquired yard inventory SWEPI Properties |
3,515 | |||
|
|
|||
Subtotal Other current assets |
4,334 | |||
|
|
|||
Proven oil and gas properties |
1,045,073 | |||
|
|
|||
Property, Plant & Equipment: |
||||
Divested Gathering System Pennsylvania Properties |
(99,700 | ) | ||
Acquired other fixed assets SWEPI Properties |
848 | |||
|
|
|||
Subtotal Property, plant and equipment |
(98,852 | ) | ||
|
|
|||
Total assets acquired, net of divested properties |
$ | 950,555 | ||
|
|
|||
Liabilities: |
||||
Net current liabilities Pennsylvania Properties |
$ | (72,217 | ) | |
|
|
|||
Other long-term obligations: |
||||
Acquired asset retirement obligations SWEPI Properties |
55,531 | |||
Divested asset retirement obligations Pennsylvania Properties |
(15,760 | ) | ||
|
|
|||
Subtotal Other long-term obligations |
39,771 | |||
|
|
|||
Total liabilities settled, net |
$ | (32,446 | ) | |
|
|
(b) | For these Pro Forma Statements, the cash consideration is assumed to be funded from the net proceeds from the issuance of $850.0 million of senior notes at 6.125% and the remainder from borrowings under the Companys senior revolving bank credit facility. |
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(c) | Revenues and direct operating expenses were derived from the historical records of SWEPI, LP for the acquired SWEPI Properties and from the historical records of the Company for the divested Pennsylvania Properties (in thousands): |
For the Year Ended December 31, 2013 | ||||||||||||
Acquired SWEPI Properties |
Divested Pennsylvania Properties |
Pro Forma SWEPI Transaction |
||||||||||
Revenues: |
||||||||||||
Natural gas sales |
$ | 305,957 | $ | (131,310 | ) | $ | 174,647 | |||||
Oil sales |
49,048 | | 49,048 | |||||||||
NGL sales |
3,295 | | 3,295 | |||||||||
|
|
|
|
|
|
|||||||
Total operating revenues |
358,300 | (131,310 | ) | 226,990 | ||||||||
|
|
|
|
|
|
|||||||
Direct Operating Expenses: |
||||||||||||
Lease operating expenses |
47,490 | (18,119 | ) | 29,371 | ||||||||
Production taxes |
38,151 | (3,462 | ) | 34,689 | ||||||||
Gathering fees |
| 1,921 | 1,921 | |||||||||
Transportation charges |
113,384 | | 113,384 | |||||||||
|
|
|
|
|
|
|||||||
Total direct operating expenses |
199,025 | (19,660 | ) | 179,365 | ||||||||
|
|
|
|
|
|
|||||||
For the Six Months Ended June 30, 2014 | ||||||||||||
Acquired SWEPI Properties |
Divested Pennsylvania Properties |
Pro Forma SWEPI Transaction |
||||||||||
Revenues: |
||||||||||||
Natural gas sales |
$ | 173,872 | $ | (69,267 | ) | $ | 104,605 | |||||
Oil sales |
22,824 | | 22,824 | |||||||||
NGL sales |
460 | | 460 | |||||||||
|
|
|
|
|
|
|||||||
Total operating revenues |
197,156 | (69,267 | ) | 127,889 | ||||||||
|
|
|
|
|
|
|||||||
Direct Operating Expenses: |
||||||||||||
Lease operating expenses |
19,287 | (4,914 | ) | 14,373 | ||||||||
Production taxes |
22,132 | (1,432 | ) | 20,700 | ||||||||
Gathering fees |
| 762 | 762 | |||||||||
Transportation charges |
50,213 | | 50,213 | |||||||||
|
|
|
|
|
|
|||||||
Total direct operating expenses |
91,632 | (5,584 | ) | 86,048 | ||||||||
|
|
|
|
|
|
(d) | Revenues and direct operating expenses were derived from the historical records of Axia through September 30, 2013 and from actual settlement statements for the period from October 1, 2013 through December 11, 2013. |
(e) | 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 SWEPI Properties and Uinta Basin Properties into the computation for the respective period and removing the costs, reserves and production of the Pennsylvania Properties. The Uinta Basin Properties 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 Ultras accounting policy. Asset retirement obligations, related accretion and future development costs were estimated by the Company. The historical depreciation expense associated with the Pennsylvania Properties gathering assets was reversed. |
(f) | Interest expense was computed using an effective interest rate of 2.40%, which is the estimated interest rate for borrowings of $146.5 million on our senior revolving bank credit facility for the assumed borrowings, and an interest rate of 6.125% on the issuance of $850.0 million of Notes. |
(g) | Interest expense was computed using an effective interest rate of 2.40%, 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 2018 Notes. |
(h) | Adjustments to capitalized interest were computed for the additional amounts allocated to the pool of unevaluated properties associated with the purchase of the Uinta Basin Properties and the capitalization interest rate was adjusted for the assumed borrowings. |
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(i) | As a result of the ceiling test and other impairments recorded during the year ended December 31, 2012, the Companys 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 SWEPI Transaction or the Uinta Basin Properties acquisition. |
3. Supplemental Oil and Gas Disclosures
Oil and Natural Gas Reserve Information
The following table presents certain unaudited pro forma information concerning Ultras proved oil and natural gas reserves as of December 31, 2013 assuming the SWEPI Transaction and the Uinta Basin Properties acquisition occurred on January 1, 2013. 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. | SWEPI Transaction(1) | Ultra Petroleum Corp. Pro Forma | ||||||||||||||||||||||||||||||
Oil (MBbls) |
Natural Gas (MMcf) |
Oil (MBbls) |
Natural Gas Liquids (MBbls) |
Natural Gas (MMcf) |
Oil (MBbls) |
Natural Gas Liquids (MBbls) |
Natural Gas (MMcf) |
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Proved Reserves as of December 31, 2012(2) |
18,137 | 2,966,445 | 12,959 | 60,965 | 1,463,588 | 31,096 | 60,965 | 4,430,033 | ||||||||||||||||||||||||
Extensions, discoveries and additions |
11,329 | 1,409,528 | | | | 11,329 | | 1,409,528 | ||||||||||||||||||||||||
Acquisitions(2) |
10,114 | | | | | 10,114 | | | ||||||||||||||||||||||||
Production |
(1,196 | ) | (224,912 | ) | (572 | ) | | (40,186 | ) | (1,768 | ) | | (265,098 | ) | ||||||||||||||||||
Revisions |
(4,265 | ) | (741,319 | ) | | | 2,770 | (4,265 | ) | | (738,549 | ) | ||||||||||||||||||||
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Proved Reserves as of December 31, 2013(1) |
34,119 | 3,409,742 | 12,387 | 60,965 | 1,426,172 | 46,506 | 60,965 | 4,835,914 | ||||||||||||||||||||||||
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Year-end proved developed reserves: |
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2013 |
20,566 | 1,777,267 | 4,525 | 18,997 | 386,847 | 25,091 | 18,997 | 2,164,114 | ||||||||||||||||||||||||
2012 |
10,531 | 1,820,994 | 5,097 | 18,997 | 424,263 | 15,628 | 18,997 | 2,245,257 | ||||||||||||||||||||||||
Year-end proved undeveloped reserves: |
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2013 |
13,553 | 1,632,475 | 7,862 | 41,968 | 1,039,325 | 21,415 | 41,968 | 2,671,800 | ||||||||||||||||||||||||
2012 |
7,606 | 1,145,451 | 7,862 | 41,968 | 1,039,325 | 15,468 | 41,968 | 2,184,776 |
(1) | Data for the SWEPI Properties was derived using estimates of proved reserves as of June 30, 2014 and rolled back for production. Data for the Pennsylvania Properties was derived from the Companys historical records. |
(2) | On December 12, 2013, the Company completed the acquisition of crude oil assets located in Three Rivers Field in Uintah County, Utah. Total production for the year ended December 31, 2013 related to the Uinta Basin Properties acquisition was 652 MBbls, of which 596 MBbls was related to the period from January 1, 2013 through December 11, 2013. |
Volume measurements:
MBbls thousand barrels of crude oil and condensate
MMcf million cubic feet of natural gas
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
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 Companys proved oil and natural gas reserves as of December 31, 2013, together with the changes therein, assuming the SWEPI Transaction (addition of reserves from the acquired SWEPI Properties less reserves sold related to the Pennsylvania Properties) occurred on January 1, 2013. Future cash inflows represent expected revenues from production of period-end quantities of proved reserves based on the twelve-month un-weighted average of first-day-of-the-month prices for the year ended December 31, 2013. 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 Companys and the SWEPI Transactions (addition of reserves from the acquired SWEPI Properties less reserves sold related to the Pennsylvania 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, 2013
Ultra Petroleum Corp. |
SWEPI Transaction(2) |
Pro Forma | ||||||||||
Future cash inflows |
$ | 14,861,131 | $ | 7,559,022 | $ | 22,420,153 | ||||||
Future costs: |
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Production |
(4,540,209 | ) | (2,252,378 | ) | (6,792,587 | ) | ||||||
Future development costs |
(2,014,751 | ) | (1,399,438 | ) | (3,414,189 | ) | ||||||
Income taxes |
(1,897,340 | ) | (1,008,810 | ) | (2,906,150 | ) | ||||||
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Future net cash inflows before 10% discount |
6,408,831 | 2,898,396 | 9,307,227 | |||||||||
10% annual discount factor |
(3,220,862 | ) | (1,827,758 | ) | (5,048,620 | ) | ||||||
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Standardized measure |
$ | 3,187,969 | $ | 1,070,638 | $ | 4,258,607 | ||||||
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The following table sets forth the changes in the standardized measure of discounted future net cash flows relating to the Companys and the SWEPI Transactions proved oil and natural gas reserves consolidated on a pro forma basis (in thousands):
ULTRA PETROLEUM CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Changes to the Pro Forma Standardized Measure of Discounted Future Net Cash Flows
for the Year Ended December 31, 2013
Ultra Petroleum Corp. |
SWEPI Transaction(2) |
Pro Forma | ||||||||||
Standardized measure, beginning of year |
$ | 1,894,317 | $ | 695,551 | $ | 2,589,868 | ||||||
Increases (decreases): |
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Net revisions of previous quantity estimates |
(1,089,316 | ) | 4,325 | (1,084,991 | ) | |||||||
Changes in future development costs |
(252,992 | ) | 10,545 | (242,447 | ) | |||||||
Sales and transfers of oil produced, net of production costs |
(720,826 | ) | (47,625 | ) | (768,455 | ) | ||||||
Net changes in price, net of future production costs |
1,204,041 | 445,601 | 1,649,642 | |||||||||
Development costs incurred during the period that reduce future development costs |
171,149 | | 171,149 | |||||||||
Accretion of discount |
226,326 | 86,845 | 313,171 | |||||||||
Net changes in production rates and other |
145,289 | (28,763 | ) | 116,529 | ||||||||
Income taxes |
(574,859 | ) | (243,385 | ) | (818,244 | ) | ||||||
Acquisition of reserves(1) |
86,196 | | 86,196 | |||||||||
Extensions, discoveries and other changes |
2,098,644 | 147,544 | 2,246,189 | |||||||||
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Net increase in standardized measure |
1,293,652 | 375,087 | 1,668,739 | |||||||||
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Standardized measure, end of year |
$ | 3,187,969 | $ | 1,070,638 | $ | 4,258,607 | ||||||
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(1) | On December 12, 2013, the Company completed the acquisition of crude oil assets located in Three Rivers Field in Uintah County, Utah. |
(2) | Represents addition of reserves from the acquired SWEPI Properties less reserves sold related to the Pennsylvania Properties. |