Annual report pursuant to Section 13 and 15(d)

Leases

v2.4.1.9
Leases
12 Months Ended
Dec. 31, 2014
Leases [Abstract]  
LEASES
LEASES
As of December 31, 2014 the Company had three significant leases. The table below displays the impact of leases on total leased properties and total lease revenues for the periods presented.

 
As a Percentage of
 
 
Leased Properties
 
Lease Revenues

 
As of
December 31, 2014
 
As of
December 31, 2013
 
For the Year Ended December 31, 2014
 
For the Year Ended December 31, 2013
 
For the Year Ended November 30, 2012
 
For the One-Month Transition Period December 31, 2012
Pinedale LGS
 
79.17%
 
94.23%
 
71.94%
 
88.68%
 
 
75.20%
Portland Terminal Facility
 
17.24%
 
 
18.98%
 
 
 
Public Service of New Mexico
 
3.07%
 
5.77%
 
9.05%
 
11.32%
 
100.00%
 
24.80%


Pinedale LGS
Pinedale LP entered into a long-term triple-net Lease Agreement on December 20, 2012, relating to the use of the Pinedale LGS (the “Pinedale Lease Agreement”) with Ultra Wyoming LGS, LLC (“Ultra Wyoming”), another indirect wholly-owned subsidiary of Ultra Petroleum. Ultra Wyoming utilizes the Pinedale LGS to gather and transport a commingled stream of oil, natural gas and water, then further utilizes the Pinedale LGS to separate this stream into its separate components. Ultra Wyoming's obligations under the Pinedale Lease Agreement are guaranteed by Ultra Petroleum and Ultra Petroleum's operating subsidiary, Ultra Resources, Inc. (“Ultra Resources”), pursuant to the terms of a related parent guaranty. Annual rent for the initial term under the Pinedale Lease Agreement is a minimum of $20 million (as adjusted annually for changes based on the Consumer Price Index (“CPI”), subject to annual maximum adjustments of 2 percent), with the exact rental amount determined by the actual volume of the components handled by the Pinedale LGS, subject to Pinedale LP not being in default under the Pinedale Lease Agreement. For 2014, the increase in quarterly rent was $76 thousand, based on the CPI adjustment as specified in the lease terms. Total annual rent may not exceed $27.5 million.
As of December 31, 2014 and December 31, 2013, approximately $796 thousand and $857 thousand, respectively, of net deferred lease costs are included in the accompanying Consolidated Balance Sheets. The deferred costs are amortized over the 15 year life of the Pinedale LGS lease. For the years ended December 31, 2014, December 31, 2013, November 30, 2012, and the one-month transition period ended December 31, 2012, $61 thousand, $61 thousand, $0, and $2 thousand, respectively, is included in amortization expense within the Consolidated Statements of Income.

The assets, which comprise the Pinedale LGS, include real property and land rights to which the purchase consideration was allocated based on relative fair values and equaled $122.3 million and $105.7 million, respectively, at the time of acquisition.  The land rights are being depreciated over the 26 year life of the related land lease with associated depreciation expense expected to be approximately $4.1 million for each of the next five years.

In view of the fact that Ultra Petroleum leases a substantial portion of the Company's net leased property, which is a significant source of revenues and operating income, its financial condition and ability and willingness to satisfy its obligations under its lease with the Company are expected to have a considerable impact on the results of operation going forward.
Ultra Petroleum is currently subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Ultra Petroleum can be found on the SEC's website at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Ultra Petroleum, but has no reason not to believe the accuracy or completeness of such information. In addition, Ultra Petroleum has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. Summary Consolidated Balance Sheets and Consolidated Statements of Operations for Ultra Petroleum are provided below.
Ultra Petroleum Corp.
Summary Consolidated Balance Sheets
(in thousands)
 
December 31, 2014
 
December 31, 2013
 
 
 
 
Current assets
$
277,138

 
$
128,631

Non-current assets
3,948,552

 
2,656,688

Total Assets
$
4,225,690

 
$
2,785,319

 
 
 
 
Current liabilities
$
445,718

 
$
407,476

Non-current liabilities
3,568,312

 
2,709,333

Total Liabilities
$
4,014,030

 
$
3,116,809

 
 
 
 
Shareholder's equity (deficit)
211,660

 
(331,490
)
Total Liabilities and Shareholder's Equity
$
4,225,690

 
$
2,785,319

 
 
 
 

Ultra Petroleum Corp.
Summary Consolidated Statements of Operations
(in thousands)
 
For the Years Ended December 31,
 
2014
 
2013
Revenues
$
1,230,020

 
$
933,404

Expenses
670,431

 
561,138

Operating Income
559,589

 
372,266

Other Income (Expense), net
(22,562
)
 
(138,044
)
Income before income tax provision (benefit)
537,027

 
234,222

Income tax provision (benefit)
(5,824
)
 
(3,616
)
Net Income
$
542,851

 
$
237,838


Portland Terminal Facility
LCP Oregon entered into the Portland Lease Agreement on January 21, 2014. Arc Logistics has guaranteed the obligations of Arc Terminals under the Portland Lease Agreement. The Portland Lease Agreement grants Arc Terminals substantially all authority to operate the Portland Terminal Facility. During the initial term, Arc Terminals will make base monthly rental payments and variable rent payments based on the volume of liquid hydrocarbons that flowed through the Portland Terminal Facility in the prior month. The base rent in the initial year of the Portland Lease Agreement increased to approximately $418 thousand per month starting with August 2014 and each month thereafter. The base rent is also expected to increase during the initial year of the Portland Lease Agreement based on a percentage of specified construction costs at the Portland Terminal Facility incurred by LCP Oregon, estimated at inception to be $10 million (unaudited). Base rent increased to approximately $471 thousand per month as of December 31, 2014. In 2014, $241 thousand in incremental rent was received due to construction completed during the year. Variable rent is capped at 30 percent of total rent, which would be the equivalent of the Portland Terminal Facility’s expected throughput capacity.
Arc Logistics is a fee-based, growth-oriented Delaware limited partnership formed by Lightfoot to own, operate, develop and acquire a diversified portfolio of complementary energy logistics assets. In November 2013, Arc Logistics completed its initial public offering ("IPO"). Arc Logistics’ public disclosures filed with the SEC indicate that Arc Logistics is principally engaged in the terminaling, storage, throughput and transloading of crude oil and petroleum products with energy logistics assets strategically located in the East Coast, Gulf Coast and Midwest regions of the U.S. Arc Terminals is a wholly-owned subsidiary of Arc Logistics.
Arc Logistics is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of Arc Logistics can be found on the SEC's web site at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of Arc Logistics but has no reason to doubt the accuracy or completeness of such information. In addition, Arc Logistics has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of Arc Logistics that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
Lease of Property Held for Sale
Public Service Company of New Mexico ("PNM")
The EIP leased asset held for sale is leased on a triple net basis through April 1, 2015 (the "PNM Lease Agreement") to PNM, an independent electric utility company serving approximately 500 thousand customers (unaudited) in New Mexico. PNM is a subsidiary of PNM Resources Inc. (NYSE: PNM) ("PNM Resources").
At the time of acquisition, the rate of the PNM Lease Agreement was determined to be above market rates for similar leased assets and the Company recorded an intangible asset of $1.1 million for this premium which is being amortized as a reduction to lease revenue over the remaining lease term. See Note 13 below for further details of the intangible asset.
On November 1, 2012 the Company entered into a definitive Purchase Agreement with PNM to sell the Company’s 40 percent undivided interest in the EIP upon termination of the PNM Lease Agreement on April 1, 2015 for $7.68 million. Upon execution of the Agreement, the schedule of the lease payments under the PNM Lease Agreement was changed so that the last scheduled semi-annual lease payment was received by the Company on October 1, 2012. Additionally, PNM's remaining basic lease payments due to the Company were accelerated. The semi-annual payments of approximately $1.4 million that were originally scheduled to be paid on April 1, and October 1, 2013, were received by the Company on November 1, 2012. The three remaining lease payments due April 1, 2014, October 1, 2014 and April 1, 2015 were paid in full on January 2, 2014. For the years ended December 31, 2014 and 2013 and November 30, 2012, revenue of $2.6 million was included in lease revenue on the income statement. For the one-month transition period ended December 31, 2012, $213 thousand was included in lease revenue on the income statement.
PNM Resources is currently subject to the reporting requirements of the Exchange Act and is required to file with the SEC annual reports containing audited financial statements and quarterly reports containing unaudited financial statements. The audited financial statements and unaudited financial statements of PNM Resources can be found on the SEC's web site at www.sec.gov. The Company makes no representation as to the accuracy or completeness of the audited and unaudited financial statements of PNM Resources but has no reason to doubt the accuracy or completeness of such information. In addition, PNM Resources has no duty, contractual or otherwise, to advise the Company of any events that might have occurred subsequent to the date of such financial statements which could affect the significance or accuracy of such information. None of the information in the public reports of PNM Resources that are filed with the SEC is incorporated by reference into, or in any way form, a part of this filing.
The future contracted minimum rental receipts for all net leases as of December 31, 2014 are as follows:
Future Minimum Lease Receipts
Years Ending December 31,
 
Amount
2015
 
$
26,342,843

2016
 
26,347,143

2017
 
26,347,143

2018
 
26,347,143

2019
 
26,451,645

Thereafter
 
223,510,092

Total
 
$
355,346,009