Houston-based Edge Petroleum Corp. agreed to merge Thursday with cross-town rival Miller Exploration Co. in a stock-for-stock deal worth about $12.7 million. The transaction of the two U.S.-focused independents would increase Edge’s estimated proved reserves and production about 10%, to between 8.8 Bcfe and 9 Bcfe this year.

According to Edge, the merger complements the company’s producing asset base along the Gulf Coast as well as an undeveloped asset base in the northern Rocky Mountains. Edge’s debt-to-capital ratio would fall to 22% with the merger, and its unused borrowing capacity would increase to $5 million from $3 million.

“The acquisition of Miller will accomplish several objectives for Edge,” said CEO John W. Elias. “The increase in reserves and production will contribute to achieving our physical growth targets. Miller’s core area properties are in an area where Edge has had considerable past experience and we believe we can quickly assimilate the operations and assess future opportunities.” Elias said that Edge would accelerate and increase its planned 2003 capital program with the merger.

Under terms of the agreement, the number of shares of Edge stock to be issued to Miller shareholders will be based upon the average closing price of Edge’s stock for a 20-trading-day period ending five days prior to the date of the Miller shareholders’ meeting to consider the merger, with a maximum value of $5.00 per Edge share and a minimum value of $4.70 per Edge share.

Based upon Edge’s closing price and the number of shares of Miller and Edge stock outstanding on May 27, Miller shareholders would receive approximately 2.54 million shares of Edge common stock and total Edge outstanding shares after this transaction would be approximately 12.038 million shares.

Miller’s exploration efforts are concentrated primarily in the Mississippi Salt Basin of central Mississippi. As of Dec. 31, 2002, Miller reported net proved reserves of 6.8 Bcfe with a PV-10 value of $19 million. Miller’s year-end 2002 production exit rate was approximately 6.7 MMcfe/d. At the end of last year, Miller had approximately 103,000 net undeveloped acres, including a large undeveloped acreage position in northern Montana.

The transaction is subject to approval of both company’s shareholders, a limitation on the number of dissenting Miller shares, delivery of certain agreements and other customary conditions. The transaction is expected to be non-taxable to the shareholders of both companies.

All of Miller’s directors as well as other shareholders who represent 50.6% of the total outstanding shares of Miller common stock have agreed to the merger. All of Edge’s directors also agreed to vote their shares in favor of the transaction.

Concurrent with the proposed transaction, Miller will sell its Alabama properties, effective Jan. 1, 2003, to an unrelated private party. Those properties were reported to have net proved reserves of 0.7 Bcfe. Edge estimates that Miller’s net proved reserves by Aug. 1, 2003, the targeted closing date, will be approximately 4.6 Bcfe. The Alabama sale will allow Miller to have no debt and positive working capital in excess of $3 million.

Also concurrent with the proposed merger, Miller and K2 Energy Corp. agreed to extinguish all claims and outstanding litigation regarding the Blackfeet Indian Reservation in Glacier County, MT. As part of the settlement, Miller has released all claims to the K2/Blackfeet Indian Mineral Development Agreement, and correspondingly, K2 has acknowledged no interest in the Miller/Blackfeet Indian Mineral Development Agreement. The settlement and anticipated exploration efforts will benefit the shareholders of Miller and K2, and more specifically, the Blackfeet Tribe.

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