Chaparral to Acquire Edge Petroleum in All-Stock Transaction
Chaparral Energy, Inc. and Edge Petroleum Corporation have entered into a definitive merger agreement that provides for Chaparral to acquire Edge in an all-stock transaction. Through the merger, Chaparral will become a publicly traded company.
The boards of directors of both companies have unanimously approved the merger agreement. The transaction will remain subject to Edge stockholder approval and other customary closing conditions. Chaparral's stockholders have already voted in favor of the merger. Chaparral and Edge plan to file a proxy statement/prospectus with the Securities Exchange Commission as promptly as practical. It is anticipated that the closing of the merger will occur in the fourth quarter of this year. The merger is expected to be a tax-free transaction for existing stockholders of Edge.
Chaparral stockholders will own approximately 86% of the outstanding common stock of the combined company and Edge stockholders will own approximately 14% of the outstanding common stock of the combined company. The common stock of the combined company is expected to begin trading under the symbol “CPR'” once the transaction is closed, pending listing approval from the New York Stock Exchange. Edge common stockholders will receive 0.2511 shares of Chaparral common stock for each share of Edge common stock they own.
Holders of Edge's 5.75% cumulative convertible perpetual preferred stock will receive one share of Chaparral 5.75% Series A cumulative convertible perpetual preferred stock for each share of Edge preferred stock they own. The Chaparral Series A preferred stock will have the same terms, rights, preferences and limitations as the Edge preferred stock, subject to appropriate adjustments to reflect the merger and the exchange ratio for the Edge common stock in the merger. The merger agreement provides for Chaparral to list the Series A preferred stock on the New York Stock Exchange.
Combining recently reported reserve and operating information for Chaparral and Edge, select pro forma statistics for the combined company include:
- Proved reserves of 1.15 trillion cubic feet equivalent as of December 31, 2007, of which 56 % is crude oil and 67% is proved developed; proved reserves are located 66% in the Mid-continent, 17% in the Gulf Coast, 10% in the Permian Basin and 7% in other onshore basins.
- Present value of the proved reserves discounted at 10% (PV10) at December 31, 2007 was $3.3 billion, as disclosed in both companies' year-end SEC filings.
- Production for the first quarter of 2008 was approximately 172 million cubic feet equivalent per day, which implies a reserve-to-production ratio of approximately 18.3 years.
Simultaneous with the execution of the merger agreement, Magnetar Capital, a privately held investment firm, executed definitive documentation 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. The Series B preferred stock will pay 6.5% annual cash dividend, or, in Chaparral's discretion, an 8.0% payable-in-kind dividend. The proceeds from this private placement will be used to reduce debt, fund the combined company's capital program and for general corporate purposes. The closing of the Series B convertible preferred stock is expected to occur concurrently with, and is contingent on, the closing of the merger.
In conjunction with the merger, Chaparral has received a financing commitment for a new credit facility, led by JP Morgan. Initial borrowings under this facility will be used to refinance Chaparral's and Edge's existing credit facilities. The initial borrowing base will be either $825 million or $1 billion, based on the amount of additional hedges put in place. Availability at closing is expected to be approximately $375 million, based on a $1 billion borrowing base and assuming proceeds from the Series B preferred stock are applied to reduce the amount outstanding. Terms of the facility will be similar to Chaparral's existing credit line.
Mark Fischer will continue as the chairman, CEO and president. Joseph Evans will continue his role as CFO and executive vice president and corporate treasurer, and Robert Kelly will continue as senior vice president, general counsel and corporate secretary. The company's headquarters will remain in Oklahoma City and the company will maintain a Gulf Coast presence utilizing Edge's headquarters as a regional office in Houston. Following the transaction, Chaparral expects its Board of Directors will consist of nine directors, at least two of which shall have been independent members of Edge's Board of Directors.