Edge Petroleum has completed the previously announced $50 million acquisition of oil and natural gas properties in South Texas from Contango Oil & Gas Company, pursuant to the Asset Purchase Agreement dated as of October 7, 2004. The properties are located primarily in Jim Hogg County, Texas and produce from the Queen City formation. The properties consist of 38 non-operated wells with an average 68% working interest and 52% net revenue interest. After giving effect to the net revenues received for production occurring after the effective date of July 1, 2004 through October 31, 2004, the preliminary adjusted purchase price was $43.2 million. Edge anticipates a further downward adjustment to the purchase price pursuant to the post-closing adjustment provisions of the Asset Purchase Agreement of approximately $3 million to reflect the results of operations from November 1, 2004 through closing. As of the end of November 2004, these properties were producing at a net daily rate of approximately 10 MMcfe.
Pre-tax proceeds to Contango after netting adjustments will equal approximately $43.2 million. Adjustments were made for net revenues that Contango received for production occurring after July 1, 2004, the effective date of sale, up to the closing date of Dec. 29, 2004. The Company estimates taxes owed as a result of this sale at approximately $8 million. The Company has no debt and estimates it will have net proceeds after taxes of $35 million.
Following the sale, the Company has remaining production of approximately 2,300 MMBtue per day. Based on current prices and production rates, the Company anticipates production revenues of $300,000 to $400,000 per month, a level believed to be sufficient to pay our ongoing estimated general and administrative expenses of $200,000 per month.
Initially, the Company expects to invest the proceeds from the sale in short-term U.S. government and investment grade debt securities. These funds will provide working capital for ongoing operations and will allow us to continue investing in our existing onshore exploration programs and to maintain our 10% limited partnership interest in the Freeport LNG plant, including any potential expansion in the plant's capacity.
Kenneth R. Peak, Contango's chairman and chief executive officer, said, "We currently expect that we will participate in approximately 20 onshore wells in calendar year 2005. Our estimated share of dry hole costs for these wells is approximately $10 million.
"Additionally, the funds will enable the Company to consider acquiring a 5% to 20% working interest position on a prospect by prospect basis in offshore Gulf of Mexico exploration opportunities developed by our two partially owned subsidiaries, Republic Exploration, LLC (REX) and Contango Offshore Exploration, LLC (COE). In the offshore our two partially owned subsidiaries, REX and COE, are scheduled to be carried in four deep shelf wells in calendar year 2005. Our EI-113B exploratory well is expected to begin production in the summer of 2005. Contango anticipates monthly net revenues of about $150,000.
"We expect to increase our investment in Contango Capital Partners Fund I by about $1.5 million in January 2005, bringing our total investment in Contango Capital related ventures to $2.1 million. Contango Capital has made and expects to close several transactions in fuel cell and hydrogen generation technologies. Trulite, one of Contango Capital's primary investments, has made significant progress in developing its portable fuel cell and expects to launch commercial products in calendar year 2005. Contango Capital expects to close Fund I at a value of approximately $10 million by January 2005."
