Edge Petroleum Corp. announced Thursday that it purchased 14.4 Bcf of natural gas proved producing reserves and 266,000 bbls of oil reserves in South Texas from Contango Oil & Gas Co. for $50 million in cash. Net production from the properties is 11 MMcf/d and 150 bbl/d of condensate.

Contango said that based on relevant spot prices of $5.90/MMBtu at the Houston Ship Channel (which equates to a Nymex price of $6.16/MMBtu) and to a Nymex oil price of $37.05/bbl, the proved producing reserves had a present value of $54.3 million, assuming a 10% discount rate.

The sale includes Contango’s working and net revenue interests in natural gas and oil leases, wells, equipment, contracts and seismic rights related to substantially all of its South Texas natural gas and oil properties. “The south Texas natural gas and oil interests represent 93% of our proved onshore reserves and 80% of our current production,” the company said.

Located primarily in Jim Hogg County, TX, Edge said the properties are in a geographic area that has been one of its most active and successful areas of focus in recent years. Based upon a review, the company said it believes that there are substantial future development and exploitation opportunities that can be pursued to enhance the acquisition. The properties produce primarily from the Queen City formation.

The properties to be acquired consist of 38 non-operated producing wells with an average 68% working interest and 52% net revenue interest. In addition to the proved reserves, Edge’s technical team said it has located a “substantial number” of additional drilling locations. As a result, Edge said it expects $5 million of the $50 million purchase price to be allocated to the undeveloped property.

“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,” said Edge CEO John W. Elias. “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.”

Initially, Contango said it expects to invest the proceeds from the sale in short-term U.S. government securities. The funds will provide working capital for ongoing operations and allow it to continue investing in its existing onshore exploration programs and to maintain its 10% limited partnership interest in the Freeport LNG plant, including any potential expansion in the plant’s capacity. The company added that the additional liquidity will also give the company the ability to consider acquiring a 5% to 20% working interest position on a prospect by prospect basis in the offshore Gulf of Mexico.

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