Houston-based Edge Petroleum Corp., whose natural gas-weighted portfolio extends from the Gulf Coast to the Permian Basin and to the Fayetteville Shale, on Friday filed for voluntary bankruptcy protection. The company plans to auction "substantially all" of its assets.
The independent, whose stock price closed at 53 cents/share Thursday, said all of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division. As part of its restructuring, the company reached an agreement with a group of its senior secured lenders under which it plans to sell substantially all of its assets to a third party.
"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," said CEO John W. Elias. "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.
"The Chapter 11 process allows us to preserve the value of our assets and to operate our business without interruption while we implement our restructuring and wind-down in a controlled, court-supervised environment."
Edge put itself on the market in late 2007, looking for a buyer or a merger deal (see NGI, Dec. 24, 2007). Subsequently, a planned merger with privately held Chaparral Energy Inc. was canceled when financing fell through (see NGI, Dec. 22, 2008).
At the end of 2008 89% of Edge's proved reserves and production were natural gas and natural gas liquids. In addition, 77% of its drilling was gas-directed. The company's assets stretch along the Gulf Coast from South Texas to Louisiana. In addition to holdings in the Fayetteville Shale, Edge also has a leasehold in the Permian Basin of West Texas and New Mexico.
Under Edge's plan, which is expected to be decided by the court in early December, the assets to be sold 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 filed its proposed plan of reorganization on Thursday and a motion was made to establish an auction process.
Edge plans to implement a sales agreement dated Sept. 30 with PGP Gas Supply Pool No. 3, unless a better offer is received in the auction process.
Under the sales agreement, which has an effective date of June 30, the purchase price for the assets is $191 million. PGP would be entitled to a $6 million breakup fee and an expense reimbursement of $500,000 if the transaction does not close or it is not the winning bidder in the auction. Edge noted that it currently has $226.5 million of outstanding principal under its credit agreement.
At the time of the Chapter 11 filing, Edge had more than $12 million in cash on hand. As it proceeds with restructuring, the company "expects, based on current commodity prices, that its cash on hand and cash from operating activities will be adequate to fund its projected cash needs, including the payment of operating costs and expenses."
In addition to the Chapter 11 filings, Edge asked the bankruptcy court to quickly consider several first-day motions concerning its employees, vendors and other service providers. Federal bankruptcy law generally prohibits Edge from paying outstanding obligations that arose prior to the bankruptcy filings; these obligations are provided for under the court's direction.
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