ULTRA PETROLEUM CORP UPLMQ
December 20, 2016 - 9:50am EST by
Fletch
2016 2017
Price: 7.55 EPS NA 0
Shares Out. (in M): 153 P/E NA 0
Market Cap (in $M): 1,158 P/FCF NA 0
Net Debt (in $M): 3,490 EBIT 0 0
TEV ($): 4,648 TEV/EBIT NA 0

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  • Oil and Gas
  • Natural gas
  • Bankruptcy
  • restructuring
  • Bankrupt Equity

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).

Valuation Method

Value

Multiple

EV

Plan Value Nat Gas <$3.25

$5,500

1.0x

$5,500

Plan 2017 Daily production Mboe

139

$40.00

$5,562

EV / PDP MMBoe

437

13.0x

$5,683

Plan 2017 EBITDA ($3.00 per MCF)

685

8.3x

$5,713

Plan 2017 Daily production Mcfe

836

$7.00

$5,853

Plan Value $3.25 < NG <$3.65

6,000

1.0x

$6,000

Plan Value Nat Gas >$3.65

6,250

1.0x

$6,250

PF 2018 EBITDA

981

6.8x

$6,701

PV-10

7,951

1.0x

$7,951

PV-10 PDP

3,105

3.0x

$9,315

EV / Total MMBoe

2,364

$7.00

$16,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·         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).

 

 

 

Gas Below $3.25

 

 

Gas between $3.25-$3.65

 

Gas above $3.65

Method

EV

Equity

Price

 

EV

Equity

Price

 

EV

Equity

Price

Plan Value Nat Gas <$3.25

5,500

3,400

$7.05

 

5,500

3,400

$9.09

 

5,500

3,400

$9.93

Plan 2017 Daily production Mboe

5,562

3,462

$7.18

 

5,562

3,462

$9.25

 

5,562

3,462

$10.11

EV / PDP MMBoe

5,683

3,583

$7.43

 

5,683

3,583

$9.58

 

5,683

3,583

$10.46

Plan 2017 EBITDA ($3.00 per MCF)

5,713

3,613

$7.49

 

5,713

3,613

$9.66

 

5,713

3,613

$10.55

Plan 2017 Daily production Mcfe

5,853

3,753

$7.78

 

5,853

3,753

$10.03

 

5,853

3,753

$10.96

Plan Value $3.25 < NG <$3.65

6,000

3,900

$8.08

 

6,000

3,900

$10.42

 

6,000

3,900

$11.39

Plan Value Nat Gas >$3.65

6,250

4,150

$8.60

 

6,250

4,150

$11.09

 

6,250

4,150

$12.12

PF 2018 EBITDA

6,701

4,601

$9.54

 

6,701

4,601

$12.30

 

6,701

4,601

$13.44

PV-10

7,951

5,851

$12.13

 

7,951

5,851

$15.64

 

7,951

5,851

$17.09

PV-10 PDP

9,315

7,215

$14.96

 

9,315

7,215

$19.28

 

9,315

7,215

$21.07

EV / Total MMBoe

16,547

14,447

$29.95

 

16,547

14,447

$38.61

 

16,547

14,447

$42.19

 

 

 

 

 

 

 

 

 

 

 

 

 

Mean

 

$10.93

 

Mean

 

$14.09

 

Mean

 

$15.39

 

Median

 

$8.08

 

Median

 

$10.42

 

Median

 

$11.39

 

Shares

 

482.4

 

Shares

 

374.1

 

Shares

 

342.4

 

 

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

 

Gas Below $3.25

 

 

Gas between $3.25-$3.65

 

Gas above $3.65

 

Current price with right offering

 

Current price with right offering

 

Current price with right offering

Shares Purchased

10,000

 

Shares Purchased

10,000

 

Shares Purchased

10,000

Rights Offering %

20%

 

Rights Offering %

13%

 

Rights Offering %

11%

Rights offering shares

1,981.1

 

Rights offering shares

1,311.0

 

Rights offering shares

1,116.1

Total shares

11,981.3

 

Total shares

11,311.1

 

Total shares

 

11,116.2

 

 

 

 

 

 

 

 

 

 

 

Current price

$7.54

 

Current price

$7.54

 

Current price

$7.54

Deal price

 

$4.77

 

Deal price

 

$7.22

 

Deal price

 

$8.47

Total Investment

84,831

 

Total Investment

84,845

 

Total Investment

84,837

 

 

 

 

 

 

 

 

 

 

 

Average price

$7.08

 

Average price

$7.50

 

Average price

$7.63

Post reorg value

$7.05

 

Post reorg value

$10.42

 

Post reorg value

$12.12

Gain to new share value

0%

 

Gain

 

39%

 

Gain

 

59%

 


 

 

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 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Official Pricing of the Rights Offering – 1rst Quarter 2017

 

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

    sort by    

    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).

    Valuation Method

    Value

    Multiple

    EV

    Plan Value Nat Gas <$3.25

    $5,500

    1.0x

    $5,500

    Plan 2017 Daily production Mboe

    139

    $40.00

    $5,562

    EV / PDP MMBoe

    437

    13.0x

    $5,683

    Plan 2017 EBITDA ($3.00 per MCF)

    685

    8.3x

    $5,713

    Plan 2017 Daily production Mcfe

    836

    $7.00

    $5,853

    Plan Value $3.25 < NG <$3.65

    6,000

    1.0x

    $6,000

    Plan Value Nat Gas >$3.65

    6,250

    1.0x

    $6,250

    PF 2018 EBITDA

    981

    6.8x

    $6,701

    PV-10

    7,951

    1.0x

    $7,951

    PV-10 PDP

    3,105

    3.0x

    $9,315

    EV / Total MMBoe

    2,364

    $7.00

    $16,547

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    ·         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).

     

     

     

    Gas Below $3.25

     

     

    Gas between $3.25-$3.65

     

    Gas above $3.65

    Method

    EV

    Equity

    Price

     

    EV

    Equity

    Price

     

    EV

    Equity

    Price

    Plan Value Nat Gas <$3.25

    5,500

    3,400

    $7.05

     

    5,500

    3,400

    $9.09

     

    5,500

    3,400

    $9.93

    Plan 2017 Daily production Mboe

    5,562

    3,462

    $7.18

     

    5,562

    3,462

    $9.25

     

    5,562

    3,462

    $10.11

    EV / PDP MMBoe

    5,683

    3,583

    $7.43

     

    5,683

    3,583

    $9.58

     

    5,683

    3,583

    $10.46

    Plan 2017 EBITDA ($3.00 per MCF)

    5,713

    3,613

    $7.49

     

    5,713

    3,613

    $9.66

     

    5,713

    3,613

    $10.55

    Plan 2017 Daily production Mcfe

    5,853

    3,753

    $7.78

     

    5,853

    3,753

    $10.03

     

    5,853

    3,753

    $10.96

    Plan Value $3.25 < NG <$3.65

    6,000

    3,900

    $8.08

     

    6,000

    3,900

    $10.42

     

    6,000

    3,900

    $11.39

    Plan Value Nat Gas >$3.65

    6,250

    4,150

    $8.60

     

    6,250

    4,150

    $11.09

     

    6,250

    4,150

    $12.12

    PF 2018 EBITDA

    6,701

    4,601

    $9.54

     

    6,701

    4,601

    $12.30

     

    6,701

    4,601

    $13.44

    PV-10

    7,951

    5,851

    $12.13

     

    7,951

    5,851

    $15.64

     

    7,951

    5,851

    $17.09

    PV-10 PDP

    9,315

    7,215

    $14.96

     

    9,315

    7,215

    $19.28

     

    9,315

    7,215

    $21.07

    EV / Total MMBoe

    16,547

    14,447

    $29.95

     

    16,547

    14,447

    $38.61

     

    16,547

    14,447

    $42.19

     

     

     

     

     

     

     

     

     

     

     

     

     

    Mean

     

    $10.93

     

    Mean

     

    $14.09

     

    Mean

     

    $15.39

     

    Median

     

    $8.08

     

    Median

     

    $10.42

     

    Median

     

    $11.39

     

    Shares

     

    482.4

     

    Shares

     

    374.1

     

    Shares

     

    342.4

     

     

    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

     

    Gas Below $3.25

     

     

    Gas between $3.25-$3.65

     

    Gas above $3.65

     

    Current price with right offering

     

    Current price with right offering

     

    Current price with right offering

    Shares Purchased

    10,000

     

    Shares Purchased

    10,000

     

    Shares Purchased

    10,000

    Rights Offering %

    20%

     

    Rights Offering %

    13%

     

    Rights Offering %

    11%

    Rights offering shares

    1,981.1

     

    Rights offering shares

    1,311.0

     

    Rights offering shares

    1,116.1

    Total shares

    11,981.3

     

    Total shares

    11,311.1

     

    Total shares

     

    11,116.2

     

     

     

     

     

     

     

     

     

     

     

    Current price

    $7.54

     

    Current price

    $7.54

     

    Current price

    $7.54

    Deal price

     

    $4.77

     

    Deal price

     

    $7.22

     

    Deal price

     

    $8.47

    Total Investment

    84,831

     

    Total Investment

    84,845

     

    Total Investment

    84,837

     

     

     

     

     

     

     

     

     

     

     

    Average price

    $7.08

     

    Average price

    $7.50

     

    Average price

    $7.63

    Post reorg value

    $7.05

     

    Post reorg value

    $10.42

     

    Post reorg value

    $12.12

    Gain to new share value

    0%

     

    Gain

     

    39%

     

    Gain

     

    59%

     


     

     

    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 

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Official Pricing of the Rights Offering – 1rst Quarter 2017

     

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

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