On May 14, 2020 (the “Petition Date”), Ultra Petroleum Corp. and all of its direct and indirect subsidiaries, including UP Energy Corporation (“UPE”), Ultra Resources, Inc. (“Ultra Resources”), Keystone Gas Gathering, LLC, Ultra Wyoming, LLC, Ultra Wyoming LGS, LLC, UPL Pinedale, LLC, and UPL Three Rivers Holdings, LLC (collectively, the “Filing Subsidiaries” and, together with the Company, the “Debtors”), filed voluntary petitions (the “Bankruptcy Petitions”) for reorganization under chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Court”). The Court entered an order to jointly administer the Chapter 11 cases under the caption In re Ultra Petroleum Corp., et al., Case No. 20-32631 (collectively, the “Chapter 11 Cases”). The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Court and in accordance with the applicable provisions of the United States Bankruptcy Code and orders of the Court.

For the duration of the Chapter 11 Cases, the Company’s operations and its ability to develop and execute its business plan are subject to risks and uncertainties associated with the Chapter 11 Cases. As a result of these risks and uncertainties, the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of its operations, properties and capital plans included in these financial statements may not accurately reflect its operations, properties and capital plans following the Chapter 11 Cases.

The commencement of a voluntary proceeding in bankruptcy constitutes an immediate event of default that accelerated the Company’s obligations under the following debt instruments:

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The Credit Agreement, dated as of April 12, 2017, as amended (the “Credit Agreement”), by and between Ultra Resources, as borrower, the Company and UPE as parent guarantors, Bank of Montreal, as administrative agent, and the lenders party thereto (the “Consenting RBL Lenders”);

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the Term Loan Agreement, dated as of April 12, 2017, as amended (the “Term Loan Agreement”), by and between Ultra Resources, as borrower, the Company and UPE as parent guarantors, Wilmington Trust, National Association (“WTNA”), as administrative and collateral agent, and the lenders party thereto (the “Consenting Term Lenders” and, together with the Consenting RBL Lenders, the “Consenting Lenders”);

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the Company’s 9.00% Cash / 2.00% PIK Senior Secured Second Lien Notes due July 2024 (the “Second Lien Notes”), issued pursuant to the indenture, dated December 21, 2018, by and between Ultra Resources, as issuer, the Company and its other subsidiaries, as guarantors, and U.S. Bank, as trustee;

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the Company’s 6.875% Senior Notes due April 2022 (the “2022 Notes”), issued pursuant to the indenture, dated April 12, 2017, by and between Ultra Resources, as issuer, the Company and its other subsidiaries, as guarantors, and UMB Bank, N.A., as trustee; and

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the Company’s 7.125% Senior Notes due April 2025 (the “2025 Notes” and together with the 2022 Notes, the “Unsecured Notes”), issued pursuant to the indenture, dated April 12, 2017, by and between Ultra Resources, as issuer, the Company and its other subsidiaries, as guarantors, and UMB Bank, N.A., as trustee. The Unsecured Notes interest payments due in April 2020 have not been paid as of the date of this filing, which also created an event of default.

Accordingly, the Company has classified all of its outstanding debt as a current liability on its condensed consolidated balance sheet as of March 31, 2020.

On the Petition Date, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with the holders of (i) 100% of the aggregate principal amount of loans outstanding under the Credit Agreement; (ii) approximately 85% of the aggregate principal amount of loans outstanding under the Term Loan Agreement; and (iii) 67% of the Second Lien Notes issued pursuant to the Second Lien Indenture, by and between Ultra Resources, as issuer, and U.S. Bank National Association, a national banking association (“U.S. Bank”), as trustee and collateral agent, (the “Consenting Noteholders” and, together with the Consenting Lenders, the “Restructuring Support Parties”).

Pursuant to the RSA, the Restructuring Support Parties agreed (subject to the terms and conditions of the RSA) to vote to accept the Debtors’ prepackaged joint Chapter 11 Plan of Reorganization (as proposed, the “Plan”) described below.

Also on the Petition Date, consistent with the RSA, the Debtors solicited acceptances of and filed with the Court the proposed Plan which, subject to Court approval and the requisite support of the Debtors’ creditors:

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equitizes or eliminates all of the Debtors’ prepetition indebtedness;

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provides for a $25 million DIP Facility (as defined below) to the Company by certain Consenting Term Lenders;

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provides for a new capital investment by the Consenting Term Lenders of up to approximately $85 million under an equity rights offering, with proceeds to be utilized by the Company to repay the value of the Credit Agreement including the letter of credit obligation associated with Rockies Express Pipeline (“REX”), net of impairment; the outstanding borrowings and balance of the DIP Facility (defined below); and, to provide the option for up to $15 million of proceeds in the event of a use of such funds;

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contemplates a term loan of up to $5 million being issued upon exit with no prepayment penalties;

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contemplates an exit revolving credit facility with a $60 million commitment amount and an initial $100 million borrowing base;

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contemplates the rejection of the obligations under the REX firm transportation agreement through December 2026 and the rejection of the lease contract with the remaining term through December 2027 for the liquids gathering system owned by Pinedale Corridor, LP;

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pays all ongoing trade obligations in the ordinary course; and

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contains customary releases and exculpations.

During the quarter ended March 31, 2020, the Company recognized $2.6 million consisting of professional, advisory, consulting, and legal fees related to the Chapter 11 Cases. These expenses are reported as Pre-petition restructuring expenses on the condensed consolidated statement of operations.

DIP Credit Agreement. In connection with the RSA and the Chapter 11 Cases, Ultra Resources entered into a senior secured super priority debtor-in-possession credit agreement (the “DIP Credit Agreement”), dated as of May 19, 2020, among Ultra Resources, as borrower, UPE and the other Filing Subsidiaries, as guarantors, WTNA, as administrative agent and collateral agent, and the lenders party thereto. The DIP Credit Agreement provides for a multi-draw term loan credit facility in an aggregate principal amount of $25 million (the “DIP Facility”). Ultra intends to use proceeds of the DIP Facility, among other things: (1) to pay interest, fees, costs and expenses related to the loans thereunder, (2) to pay the fees, costs and expenses of the estate professionals retained in the Chapter 11 Cases and approved by the Court, (3) to pay certain fees, costs, disbursements and expenses of the Consenting Term Lenders, (4) to make all permitted payments of costs of administration of the Chapter 11 Cases, (5) to pay such prepetition expenses as are consented to in writing by the Required Lenders (as defined in the DIP Credit Agreement) and approved by the Court, (6) to satisfy any adequate protection obligations owing under the DIP Orders (as defined in the RSA); and (7) for general corporate and working capital purposes of the Debtors during the Chapter 11 Cases.

The DIP Facility is subject to certain affirmative and negative covenants, including, among other covenants the Company believes to be customary in debtor-in-possession financings, reporting by the Filing Subsidiaries in the form of a rolling 13-week budget and a weekly report with a reasonably detailed written explanation of all material variances from the budget.

Ability to Continue as a Going Concern. The significant risks and uncertainties related to the Company’s liquidity and the Chapter 11 Cases described above raise substantial doubt about the Company’s ability to continue as a going concern. As such, the accompanying condensed consolidated financial statements (unaudited) are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.

As discussed above, the filing of the Chapter 11 Cases constitutes an event of default under the Company’s outstanding debt agreements, resulting in the automatic and immediate acceleration of all of the Company’s outstanding debt. The Company projects that it will not have sufficient cash on hand or available liquidity to repay such debt. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

As part of the Chapter 11 Cases, the Company submitted the Plan to the Bankruptcy Court. The Company’s operations and its ability to develop and execute its business plan are subject to a high degree of risk and uncertainty associated with the Chapter 11 Cases. The outcome of the Chapter 11 Cases is subject to a high degree of uncertainty and is dependent upon factors that are outside of the Company’s control, including actions of the Bankruptcy Court and the Company’s creditors. There can be no assurance that the Company will confirm and consummate the Plan as contemplated by the RSA or complete another plan of reorganization with respect to the Chapter 11 Cases. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern absent a successful restructuring.

Furthermore, as noted in the Annual Report on Form 10-K, the Company’s independent registered public accounting firm included an explanatory paragraph in its opinion of the audited consolidated financial statement regarding substantial doubt about the Company’s ability to continue as a going concern. As a result, the Company was in default under each of the Credit Agreement and Term Loan Agreement on April 14, 2020 when it delivered its financial statements to the lenders under the Credit Agreement and the Term Loan Agreement, respectively.

Accordingly, the Company has classified all of its outstanding debt as a current liability on its condensed consolidated balance sheet as of March 31, 2020 and December 31, 2019.