Edge Petroleum Corporation has executed an Asset Purchase Agreement to acquire oil and natural gas properties located in South Texas from Contango Oil & Gas Company for a cash purchase price of approximately $50 million.
These properties, located primarily in Jim Hogg County, Texas, are in a geographic area that has been one of Edge's most active and successful areas of focus in recent years. Based upon its review of the properties to be acquired and its knowledge and experience in this geographic area, Edge believes there are substantial future development and exploitation opportunities that can be pursued to enhance this acquisition. These properties produce primarily from the Queen City formation.
Edge has internally assessed Contango's independent engineering firm's reserve estimates for the properties to be acquired, which reported only proved developed producing reserves. As of July 1, 2004, Edge estimates that the properties to be acquired contain approximately 18.3 Bcfe of total net proved reserves, made up of 16 Bcfe of proved producing reserves and 2.3 Bcfe of proved undeveloped reserves. In addition, Edge's technical team has also identified a substantial number of additional drilling locations on undeveloped acreage with attractive exploitation and exploration potential. Edge expects approximately $5 million of the $50 million purchase price to be allocated to the undeveloped property.
The properties to be acquired consist of 38 non-operated producing wells with an average 68% working interest and 52% net revenue interest. Current net production from the properties is approximately 12 MMcfe per day, and is 90% natural gas.
The purchase price is subject to adjustment for the results of operations after July 1, 2004 and title and environmental defects, if any. The acquisition is subject to certain closing conditions including waivers of preferential purchase rights, obtaining certain consents and the Seller's shareholder approval. The transaction is expected to close on or before December 31, 2004.
Edge plans to finance the planned acquisition through borrowings under the unused portion of its credit line, which is expected to increase as a result of this transaction and the issuance of common stock such that it maintains its financial goal of a debt to total capital ratio of less than 30%.
Mr. John W. Elias, Chairman, President and CEO of Edge, stated, "We are excited about the opportunity to add to our core South Texas property base with this property which we believe has considerable exploitable potential. This acquisition should contribute meaningfully to the continued growth of our reserves, production and future activity. We plan to ultimately finance this transaction in a manner such that we maintain, if not increase, our financial flexibility while resulting in an accretive transaction on a per share basis."
