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Sunday, October 25, 2020

Ultra Petroleum Corp. (OTCMKTS:UPLMQ) Equity Sees the Light

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Ultra Petroleum Corp. (OTCMKTS:UPLMQ) has been one of the stronger stocks trading on the OTC so far this year. This is one of the Chapter 11 cases in the energy patch trying to rebuild after taking on way too much debt before the crushing oil bear market that got started in mid-2014. However, today, shareholders finally got the news they have been waiting for since May.

The company filed an 8k out this morning that contained the golden words: “Each holder of UPL common stock will receive (a) such holder’s pro rata share of 41% of the equity in UPL after the reorganization is consummated and (b) such holder’s pro rata share of rights to participate in the Rights Offering for 5.4% of the equity in UPL, all subject to dilution by the Management Incentive Plan (as defined below).” That is the unlikely outcome in a Chapter 11 case: common stock is going to emerge with the company when UPLMQ reverts to UPL on the big board.

Ultra Petroleum Corp. (OTCMKTS:UPLMQ) bills itself as an independent oil and gas company that engages in the acquisition, exploration, development, operation, and production of oil and natural gas properties.

The company’s principal business activities are developing its natural gas reserves in the Green River Basin of southwest Wyoming; the Pinedale and Jonah fields; its oil reserves in the Uinta Basin in northeast Utah; and its natural gas reserves in the north-central Pennsylvania area of the Appalachian Basin.

As of December 31, 2015, Ultra Petroleum Corp. owned interests in approximately 104,000 gross acres in Wyoming; and approximately 150,000 gross acres in Pennsylvania. The company also owns approximately 9,000 net acres in the Uinta Basin in Utah.

As noted above, on April 29, 2016, Ultra Petroleum Corp, along with its affiliates, filed a voluntary petition for reorganization under Chapter 11 in the US Bankruptcy Court for the Southern District of Texas.

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The news of the 8K has launched the stock about 33% higher in one-day gains, making for a total of 4,930% in gains since early May. That gaudy number springs from a major disconnect in the market as to how to value the assets the company has in the ground.

The giant move off the stock’s lows back in early May seem to be tied to a modeling of forward commodity prices that grants a particular view of the financial math involved in the restructuring negotiations that was best captured by the Company’s presentation in early August, wherein executives argued for an estimate of the present value of the Company’s proved oil and gas reserves at somewhere between $7.2-$8.7 bln. The amount of claims outstanding and up for grabs in Ultra’s estate is $4.3 bln, the vast majority of which is purely unsecured debt and interest.

With unsecured debt and a reassessment of valuation for reserves, Tuesday’s announcement was a fait accompli.

The announcement comes amid excitement in the oil market related to next week’s OPEC meeting and announcement. Our sense is that OPEC is likely to come to an agreement, but the fine print of that agreement may end up being somewhat watered down, particularly where it comes to Iran, Iraq, and any possible inclusion of Russia as a party in contractual terms. The upshot, if true, would be that the oil market will have to largely fend for itself.

That said, commodities outside of oil are outperforming the black gold right now largely on possible increasing growth trends across much of the world as well as the specter of a Trump administration that plans to engage in fiscal stimulus, tax cuts, and renegotiated trade pacts to jumpstart faster growth in the world’s largest economy, as well as a major infrastructure upgrade process.

For Ultra Petroleum Corp., the Plan Support Agreement dated November 21, 2016 provides for a comprehensive restructuring of all allowable claims against and interests in the Ultra Entities, including the conversion of the outstanding unsecured senior notes issued by UPL to newly-issued shares of common stock in UPL, the exchange of the outstanding unsecured senior notes issued by UPL’s subsidiary Ultra Resources, Inc. (“Ultra Resources”) for new unsecured notes issued by Ultra Resources and cash, and the payment in full of all other allowed claims against the Ultra Entities in cash.

Mr. Michael Watford, Chairman, President and Chief Executive Officer of the Company, said, “These agreements reflect our commitment to maximizing the value of our estates for the benefit of all our stakeholders. Even before we began our in-court reorganization, we have been steadfastly dedicated to preserving significant value for our shareholders, and entering into these agreements represents the next step in pursuit of that objective.” He continued, “We are very appreciative of the cooperation we received from our stakeholders and their recognition of the substantial value represented by our assets and hard-working employees and contractors.”

At this time, carrying a capital value in the market of $1102.9M, UPLMQ is perhaps starting to come down the home stretch of what has been a grueling and contentious Chapter 11 process. But in the end, from the standpoint of investors in the company’s equity, the process that has unfolded since entering Chapter 11 protection really could not have gone better. For continuing coverage on shares of $UPLMQ stock, as well as our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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