2009-10-26-2009-10-02

To acquire interests in TX, NM, LA, AR, MS, MI, AL, gaining 124 Bcfe proved, 32.9 MMcfe/d.

Houston's Edge Petroleum Corp. (Nasdaq: EPEX) has filed for reorganization under Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. As part of its restructuring, Edge plans to sell substantially all of its assets to PGP Gas Supply Pool No. 3 for $191 million, subject to a further bidding process. The assets comprise all of Edge's ownership interest in its direct and indirect subsidiaries, including Edge Petroleum Exploration Co., Miller Exploration Co., Edge Petroleum Operating Co. Inc., Edge Petroleum Production Co. and Miller Oil Corp. Edge announced in February it was seeking strategic alternatives including the sale of the company or assets following a failed merger with Oklahoma-based Chaparral Energy Inc. in December. Edge chief executive John W. Elias says, "During the past year, an extraordinary confluence of factors led to our need to pursue this financial restructuring, including the impact of the tightening and ultimate collapse of the credit markets, sharply declining commodity prices and a resulting deficiency in the company's borrowing base, and the large amount of unsustainable debt burdening the company's balance sheet. The board and management believe this financial restructuring is a necessary and prudent step and will allow the company to satisfy its pre-petition debts, while maintaining the integrity of its producing assets during the bankruptcy process. We are working with our secured lenders and other creditors to ensure the bankruptcy process and the sale of the company proceed as smoothly as possible." At year-end 2008, Edge held assets in Texas, New Mexico, Mississippi, Arkansas, Louisiana, Michigan and Alabama. Proved reserves at year-end were approximately 124 billion cubic feet equivalent, comprising 89.6 billion cubic feet of natural gas, 3.5 million barrels of natural gas liquids and 2.3 million barrels of crude oil. Natural gas and gas liquids represented 89% of year-end 2008 total proved reserves, and 79% of total proved reserves were classified as proved developed. Production for second-quarter 2009 was 3 billion cubic feet equivalent, averaging 32.9 million cubic feet equivalent per day. In South and southeastern Texas at year-end, Edge held an interest in 110,297 gross acres (47,264 net) acres predominantly in the Vicksburg, Queen City and Deep Frio trends with 248 gross operated wells and 162 gross nonoperated wells. Texas properties represented approximately 86% of total net production in 2008. In southeastern New Mexico, the company owned an interest in 99,837 gross acres (21,001 net) targeting shallow oil in the Yeso, San Andres, Queen and Grayburg formations, and gas in the Atoka and Morrow formations from 34 gross operated wells. Edge also owned an interest in 19,822 gross acres (10,848 net) in the Mississippi Interior Salt Basin area and 26,273 gross (21,448 net) undeveloped acres in the Floyd shale play. Production here targets the Hosston, Sligo, Rodessa and James lime sections from 10 gross operated wells in this area. South Louisiana interests include an interest in 1,583 gross acres (463 net) in Acadia and Lafayette parishes. Arkansas interests involve interest in 5,661 gross acres (4,801 net) undeveloped acres in the Fayetteville shale play. The company also holds an interest in 658 gross acres (658 net) acres in Michigan. The sale to PGP Gas Supply Pool No. 3 is subject to a higher and better offer as approved by the court. The effective date is June 30. The purchase price is subject to an adjustment for a downward adjustment related to certain changes in the Nymex strip price over the five-year period from 2010 through 2014, capped at approximately $23.9 million. PGP will be entitled to a break-up fee of $6 million and an expense reimbursement of $500,000 in certain events if the transaction does not close or PGP is not the winning bidder in the auction. Edge estimates it currently has approximately $226.5 million of outstanding debt and in excess of $12 million in cash on hand. As the asset sale is for less than the debt owed, Edge reports "its strong belief that it is likely that there will be no value for its common stockholders" following completion of the bankruptcy process. Parkman Whaling LLC is financial advisor. Akin Gump Strauss Hauer and Feld is legal counsel. Public Gas Partners Inc. (PGP) is a joint-action agency of municipally-owned gas and electric utilities whose purpose is to secure gas supplies through acquisition and development of natural gas and oil reserves for its members.