Description

Ultra Petroleum Corp.

Company Description – Ultra Petroleum (“UPL”) is an energy E&P company. Approximately 85% of revenues are from natural gas produced the tight gas formation in the Green River Basin of Wyoming (Pinedale and Jonah fields) The Wyoming gas reserves should have long producing life. UPL also owns a 100% interest in an oil opportunity In the Unita Basin as well as a shale gas property in the Marcellus Basin

Recent History & Investment Thesis

  In April 2016, near the lows of the recent trading range of natural gas, UPL filed for bankruptcy

  Bankruptcy will allow UPL to thoughtfully restructure its capital structure and right size its operations

  On October 27, 2016, UPL provided an updated business case which can be found here: https://www.sec.gov/Archives/edgar/data/1022646/000114420416129743/v451332_ex99-1.htm

The Plan Support Agreement, the Plan of Reorganization and the Disclosure Statement can be found here: http://dm.epiq11.com/#/case/UPT/info

Plan of reorganization contemplates a meaningful recovery to shareholders and gives them the opportunity to participate in a right offering at a 20% discount to Plan Value (plan value is $6 billion at current Natural Gas prices) which itself is at a meaningful discount to both comp valuation

  Restructured company should have free cash flow and liquidity, allowing it to ramp production in 2017-18 

  Valuation gap gives a lot of cushion to natural gas prices and therefore does not need any change in the trading price to achieve expected valuation

   -    The price of Natural gas futures (both spot and forward months) are currently above the price assumed in the 2017 & 2018 business case

Valuation

·         Because of the bankruptcy there are many approaches to valuation. The table below details different valuation approaches (from lowest to highest).

·         This valuation anticipates no material change in the value of natural gas and assumes, that a minimum, UPL will be able to execute their business plan and sell natural gas at the prices assumed in the plan (which for 2017 is even lower than today’s prices) 

·         Most importantly, using all the different valuation measures presented above, the resulting lowest share price (i.e., worst case scenario again assuming no material change in natural gas) is $7.05, which is the lowest “Plan Value” that would occur if gas is below $3.25, resulting in a rights offering that the most dilutive to current shareholders. As of 12/19/2016, the 12 month forward Natural Gas future (the determinant of Plan Value) was trading at $3.55

·         At current natural gas prices, Plan Value ($6 billion Enterprise Value) results in a price per share of $10.42, or approximately 38% higher than the current share price

·         The subsequent tables display the resulting value per share based on the different rights offering scenarios (which will be determined by the 12 month forward price of natural gas at the time of the offering).

Right Offering

·         Right offering will be $580 million

·         Holdco note holders will be eligible for 75%; Common Equity is eligible for 25%

·         Rights offering will be at a 20% discount to the Plan value

·         Because the amount of dilution and participation effects the stock price, the charts below will illustrate the current equity price with full participating in the right offering at the discount

·         The main illustration is that using the respective Plan Values, there is no scenario which the equity should trade below current levels

Why does this trade exist?

 UPL is currently in bankruptcy: uncertainty and risk associated with the bankruptcy process deters investors
             - Most investors would rather focus on the company once it is out of bankruptcy and trading on a National Exchange and not OTC
Confusion about the rights offering dilution
     -    As explained, the rights offering is confusing and magnifies the valuation risk associated with movements in natural gas

Key Risks
Considerable decrease in the price of Natural Gas price
Failure to attain Plan approval in a timely manner 

Catalyst

Official Pricing of the Rights Offering – 1rst Quarter 2017

Court approval of the reorg plan & Exit from bankruptcy – 1rst Quarter 2017