Chaparral Energy Inc., for 20 years a privately held producer, is moving to the public arena with an agreement to acquire natural gas producer Edge Petroleum Corp. in an all-stock transaction. Combined proved reserves would be 1.15 Tcfe, 56% weighted to crude oil and 67% proved developed.

Edge, which is 86% weighted to natural gas, put itself on the market late last year (see Daily GPI, Dec. 20, 2007). The Houston-based independent, which was formed in 1983, focuses its operations along the onshore Gulf Coast, primarily in South Texas. Edge also has substantial stakes in other gas-heavy plays across the United States, including stakes in Arkansas’ Fayetteville Shale, Mississippi, Louisiana and southeast New Mexico.

Combined production for Chaparral and Edge in the first three months of 2008 was 172 MMcfe/d. The combined proved reserves would be tilted toward the Midcontinent (66%), with another 17% of the reserves on the Gulf Coast, 10% in the Permian Basin and 7% in other onshore basins. Present value of the combined proved reserves at the end of 2007 was $3.3 billion. The reserve-to-production ratio combined is about 18.3 years.

“This transaction represents a milestone in Chaparral’s long and successful 20-year existence as a private company,” said CEO Mark Fischer. The transaction, he said, would allow Chaparral “to achieve two of our corporate strategic initiatives of increasing our production and cash flow and also accessing the public equity markets.”

The boards of directors of both companies unanimously approved the merger agreement, but the transaction will remain subject to Edge stockholder approval. With approval, the merger is expected to close late this year. The merger would be a tax-free transaction for Edge’s existing shareholders. Under the merger, Chaparral stockholders would own 86% of the outstanding common stock of the combined company and Edge stockholders would own 14%. The company, which would retain the Chaparral name, would trade under the symbol “CPR” on the New York Stock Exchange. Edge common stockholders would receive 0.2511 shares of Chaparral common stock for each share of Edge common stock they own.

“As we disclosed when we began our review of strategic alternatives late in 2007, our primary goal was to ultimately execute a transaction that would enhance value for Edge stockholders,” said Edge CEO John Elias. “I truly believe this transaction does exactly that.”

Simultaneous with the execution of the merger agreement, Magnetar Capital, a privately held investment firm, agreed to provide a $150 million Series B convertible preferred investment. Magnetar and Post Oak Energy, through their existing relationship, worked together to complete the commitment. Chaparral also received a financing commitment for a new credit facility, led by JPMorgan.

Fischer would continue as the chairman, CEO and president of the combined company. Chaparral’s Joseph Evans would continue as CFO and executive vice president and corporate treasurer, and Robert Kelly would continue as senior vice president, general counsel and corporate secretary. The company’s headquarters would remain in Oklahoma City, and Edge’s Houston headquarters would serve as a regional office. Following the transaction, Chaparral’s board would consist of nine directors, at least two of which would be independent members of Edge’s board.

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