History
Edge Petroleum grew through south Texas acquisitions, bet the company on a $395 million Smith Production purchase, and went bankrupt in 2009 when lenders halved its credit line.
2003-2005: Building a south Texas base
Edge Petroleum set out to grow by acquisition. In June 2003 it agreed to buy Miller Exploration in an all-stock deal worth about $12.7 million, with the exchange ratio collared between $4.70 and $5.00 per Edge share. The deal closed on 4 December 2003, making Miller a wholly owned subsidiary. At the same meeting shareholders lifted the incentive-plan share reserve from 1.2 million to 1.7 million shares.
Property purchases followed. In January 2005 Edge reported paying Contango Oil & Gas $43.2 million cash for 38 non-operated producing wells in Jim Hogg County, south Texas. It was Edge's biggest property purchase to that point, and the area became its core. In March 2005 Edge restated its September 2004 quarter and corrected its 2004 figures after a spreadsheet failed to cancel out an intercompany spending accrual. The dollar effect was small and raised reported profit, but management conceded a material weakness in its accounting controls.
In September 2005 Edge agreed to pay about $62.8 million for a 44-50% working interest in the Chapman Ranch field in Nueces County, Texas, funded from its credit line. A further $5.2 million was payable if the field won a severance-tax break. Part of this was the purchase of all of Cinco Energy Corporation, which closed on 30 November 2005 for about $44.7 million in cash, borrowed under an expanded Union Bank of California facility. Cinco held nine non-operated producing wells, one well drilling and about 1,300 net acres.
2006-2007: The Smith Production bet
On 22 November 2006 Edge agreed to buy Smith Production's oil and gas properties across 13 southeast and south Texas counties, then 143 gross wells producing about 31 million cubic feet equivalent a day, 86% gas. It put down an $11.0 million deposit, and Union Bank of California committed to underwrite the whole price.
In December 2006 Edge also agreed to buy out Kerr-McGee, by then part of Anadarko, from Chapman Ranch for about $26.0 million. That doubled its interest in seven wells, added an 88% stake in two more and made Edge the operator.
Later in December the Smith deal was enlarged by a further $65 million, lifting Edge from 72 to 84 net wells. The price was about $395 million. This was the deal that defined the rest of Edge's life. Edge's own proved reserves were about 102 Bcfe at end-2006, while the Smith assets held about 123 Bcfe, so Edge was paying to more than double itself in one step. Weeks earlier its borrowing base had been only $140 million, with just $11 million of headroom.
Edge funded the purchase with equity rather than the standby bridge loan: 10.9 million common shares plus 2.875 million shares of a new 5.75% convertible preferred. This was heavy dilution, though it avoided a $250 million second-lien bridge. The deal closed on 31 January 2007, along with a 25% share of Smith's rights in the 95-square-mile Mission exploration area and 13 miles of gathering pipelines. Edge replaced its credit facility with a $750 million Union Bank revolver carrying a $320 million borrowing base, repaid $129 million on the old line, and paid a $1.3 million fee for the unused bridge.
2008: The failed Chaparral merger
The record is quiet for most of 2007 and early 2008. In July 2008, eighteen months after the Smith deal, Edge agreed to sell itself in an all-stock merger into Chaparral Energy at 0.2511 Chaparral shares per Edge share, with Edge's preferred swapped one-for-one. Edge holders would own about 14% of the combined company. CFO Michael Long left the role the same day, and C.W. MacLeod became acting CFO. The final proxy went out in September, with the annual meeting set for 23 October.
With credit markets seizing up, Edge opened the meeting on 23 October and adjourned it to 4 December rather than hold a vote. On 17 December the merger was abandoned. Chaparral's funding fell through when Magnetar and Post Oak walked away from buying its preferred stock. They paid Chaparral $5.0 million to be released, and $1.5 million of that went to Edge for expenses. Edge was left heavily indebted, saying it would consider a sale, asset disposals or new financing.
2009: Lenders close in, and the sale to Mariner
On 8 January 2009, with gas prices collapsed, lenders halved the borrowing base from $240 million to $125 million. That left about $114 million drawn that Edge could not repay. It was to prepay in six monthly instalments or pledge more property, and it hired Parkman Whaling and Akin Gump to look at restructuring.
What followed was a string of extensions. In February lenders let Edge defer the first $19 million instalment by a month in exchange for $5 million of prepayments. In March it bought seven more days, and on 16 March Amendment No. 4 set a $25 million payment for 31 May and full repayment on 30 June. In May lenders deleted the default for missing a deadline to produce a refinancing, merger or sale. They also waived the $25 million due on 31 May. The 30 June maturity passed unpaid and was pushed to 31 July for $1.14 million of prepaid interest and $7.5 million of principal. Further one-month extensions followed, the last to 30 September.
Edge and its five subsidiaries filed for Chapter 11 in Corpus Christi on 1 October 2009, the day after the last extension expired. The filing was pre-arranged: the senior lenders had signed a support agreement, and PGP Gas Supply Pool No. 3 agreed to buy the business for $191 million as opening bidder. Nasdaq delisted the common and preferred on 13 October.
Mariner Energy won the auction, beating PGP's bidding. The court confirmed the plan on 14 December. Against roughly $241 million of pre-petition debt, nothing was left for shareholders. On 31 December 2009 the sale closed, all common and 5.75% preferred shares were cancelled for nothing, and Edge deregistered its securities. The business continued inside Mariner Energy.
Written from the 34 story beats below (2003 to 31 Dec 2009), which come from the company's own announcements and filings.