EDGE PETROLEUM CORP, S-1/A, 1997-02-05

EDGE PETROLEUM CORP
S-1/A, 1997-02-05
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1997
REGISTRATION NO. 333-17267
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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

----------------

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

EDGE PETROLEUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 1311 76-0511037
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

TEXACO HERITAGE PLAZA
1111 BAGBY, SUITE 2100
HOUSTON, TEXAS 77002
(713) 654-8960
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JAMES D. CALAWAY
PRESIDENT
EDGE PETROLEUM CORPORATION
TEXACO HERITAGE PLAZA
1111 BAGBY, SUITE 2100
HOUSTON, TEXAS 77002
(713) 654-8960
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

----------------

COPIES TO:
GENE J. OSHMAN T. MARK KELLY
BAKER & BOTTS, L.L.P. VINSON & ELKINS L.L.P.
3000 ONE SHELL PLAZA 1001 FANNIN, SUITE 2500
HOUSTON, TEXAS 77002-4995 HOUSTON, TEXAS 77002-6760
(713) 229-1234 (713) 758-2222

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

----------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION DATED FEBRUARY 4, 1997
2,000,000 SHARES
EDGE PETROLEUM CORPORATION
COMMON STOCK

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All the shares of Common Stock offered hereby (the "Offering") are being
issued and sold by Edge Petroleum Corporation (the "Company"). The Common Stock
has been approved for inclusion on the Nasdaq National Market under the symbol
"EPEX." Prior to this Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
between $15.00 and $17.00 per share. See "Underwriting" for factors to be
considered in determining the initial public offering price.

-----------

SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
Per Share................................ $ $ $
- --------------------------------------------------------------------------------
Total(3)................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock on the same terms and
conditions as the securities offered hereby solely to cover over-
allotments, if any. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."

-----------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to certain other conditions including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of the shares will be made on or about , 1997, at
the offices of Raymond James & Associates, Inc., St. Petersburg, Florida.

-----------

RAYMOND JAMES & ASSOCIATES, INC.
JEFFERIES & COMPANY, INC.
PRINCIPAL FINANCIAL SECURITIES, INC.

The date of this Prospectus is , 1997
<PAGE>

[Photograph showing an employee of the Company utlizing 3-D seismic data
visualization technology]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus (i) gives effect to the Combination Transactions (as defined
below under "--The Combination Transactions") and assumes that all interests
that are the subject of such transactions are acquired by the Company in
exchange for the issuance of approximately 4,700,000 shares of common stock,
par value $.01 per share, of the Company (the "Common Stock") and (ii) assumes
that the Underwriters' over-allotment option will not be exercised. Unless
otherwise indicated by the context, references herein to the "Company" mean
Edge Petroleum Corporation, a Delaware corporation that is the issuer of the
Common Stock offered hereby, and its corporate and partnership subsidiaries and
predecessors. Certain terms used herein relating to the oil and natural gas
industry are defined in the Glossary of Certain Industry Terms included
elsewhere in this Prospectus.

THE COMPANY

OVERVIEW

The Company explores for oil and natural gas by emphasizing the integrated
application of highly advanced data visualization techniques and computerized
3-D seismic data analysis to identify potential hydrocarbon accumulations. The
Company believes its approach to processing and analyzing geophysical data
differentiates it from other independent exploration and production companies
and is more effective than conventional 3-D seismic data interpretation
methods. The Company utilizes a fully integrated, client-server environment
including nine workstation nodes with a high performance Silicon Graphics
server. This hardware configuration enables the Company to utilize advanced
interpretation software, including both Earth Cube and Voxel Geo technology.
The Company also believes that it maintains one of the largest databases of
onshore South Texas Gulf Coast 3-D seismic data of any independent oil and gas
company, and is continuously acquiring substantial additional data within this
core region.

The Company acquires 3-D seismic data by organizing and designing regional
data acquisition surveys for its proprietary use, as well as through selective
participation in regional non-proprietary 3-D surveys. The Company negotiates
seismic options for a substantial majority of the areas encompassed by its
proprietary surveys, thereby allowing it to secure identified prospect
leasehold interests on a non-competitive, pre-arranged basis. In the Company's
non-proprietary 3-D survey areas, the Company's technical capabilities allow it
to rapidly and comprehensively evaluate large volumes of regional 3-D seismic
data, facilitating its ability to identify attractive prospects within a
surveyed region and to secure the corresponding leasehold interests ahead of
other industry participants.

The Company's extensive technical expertise has enabled it to internally
generate all of its 3-D prospects drilled to date and to assemble a large
portfolio of 3-D based drilling prospects. The Company pursues drilling
opportunities that include a blend of shallower, normally pressured reservoirs
that generally involve moderate costs and risks as well as deeper, over-
pressured reservoirs that generally involve greater costs and risks, but have
higher economic potential. The Company mitigates its exposure to exploration
costs and risk by conducting its operations with industry partners, including
major oil companies and large independents, that generally pay a
disproportionately greater share of seismic acquisition and, in many instances,
leasing and drilling costs than the Company.

The Company has experienced rapid increases in reserves, production and cash
flow since early 1995 due to the growth of its 3-D based drilling activities
and the retention of progressively larger interests in its exploration
projects. From January 1, 1995 to December 31, 1996, reserves discovered from
Company-generated prospects totaled 99.4 Bcfe, while the Company's net proved
reserves increased from 5.9 Bcfe to 17.3 Bcfe at an average cost to the Company
of $0.59 per Mcfe. The Company drilled 13 gross (0.42 net) wells in 1994, 35
gross (13.5 net) wells in 1995 and 45 gross (19.8 net) wells in 1996. For the
period from January 1, 1995 through December 31, 1996, the Company's commercial
well success rate was approximately 68% for the 80 gross (33.3 net) exploratory
wells drilled (of which 73 were based on its interpretation of 3-D seismic
data).

3
<PAGE>

The Company's future growth will be driven by the drilling and development of
existing opportunities from its prospect portfolio as well as new 3-D based
prospects that are continually being identified by the Company's exploration
team. The Company intends to substantially increase its drilling activities and
has budgeted 120 gross (46.3 net) wells to be drilled in 1997. The Company
currently anticipates increasing its capital expenditure budget to at least
$20.0 million in 1997 from $10.5 million in 1996. The Company believes the
proceeds of this Offering will enable it to increase the number and size of
additional 3-D seismic acquisition projects in which it participates,
accelerate its drilling activities and retain a greater share of the reserves
it discovers.

BUSINESS STRATEGY

The Company's business strategy is to expand its reserves, production and
cash flow through a disciplined, integrated technology-based program of
exploring for oil and natural gas, which emphasizes the following key
components:

FOCUSED EXPLORATION. The Company intends to maintain its exploration
focus along the onshore Gulf Coast with continued emphasis in South Texas
because of its 3-D seismic expertise in this region. The Company believes,
based on the results of its recent exploration activities, that significant
undiscovered reserves remain in this region. The Company also plans to
utilize its existing database consisting of 567 square miles of 3-D seismic
and geologic data (509 square miles of which are in South Texas) and its
knowledge of the region's producing fields and trends to further expand its
operations within this core region. The Company is currently in the process
of acquiring an additional 459 square miles of 3-D seismic data in South
Texas, which the Company believes will generate a significant number of
additional prospects in 1997 and beyond.

TECHNOLOGICAL EXPERTISE. The Company seeks to explore for and add oil and
natural gas reserves through its advanced 3-D seismic data visualization
and interpretation techniques. These techniques enable its exploration team
to analyze large amounts of 3-D seismic information and to rapidly identify
important patterns or attributes in the data which may indicate hydrocarbon
traps. The Company's technical abilities have allowed it to discover oil
and natural gas reservoirs in existing producing trends with geological
complexities that have eluded conventional interpretation. The Company
plans to continue to enhance its visualization and interpretation strengths
as new technologies and processes are developed.

SOPHISTICATED AND EXPERIENCED TECHNICAL TEAM. The Company has assembled a
team of highly talented geoscientists and other technical personnel who are
experienced in the use of advanced exploration methodologies, and it
actively seeks to identify and attract new members to its exploration team.
The Company provides its personnel with a technologically advanced work
environment, training and results-oriented compensation, including
participation in the Company's stock option plan. The Company believes that
the use of advanced technology by its technical personnel together with
increased capital resources will be critical components to implementing its
business strategy.

PROSPECTS WITH ATTRACTIVE RISK/REWARD BALANCE. The Company typically
retains all or the majority of its interests in prospects with normally
pressured and generally shallow reservoirs. Such prospects are often
located in areas with existing pipelines and production infrastructure,
which facilitate and expedite the commencement of production and cash flow.
The Company typically sells to industry partners, on a promoted basis, a
portion of its interests in prospects that involve higher costs and greater
risks, or consist of deep, over-pressured and often larger reservoirs, in
order to mitigate its exploration risk and fund the anticipated capital
requirements for the portion of those prospects it retains.

4
<PAGE>

and optioning process; determining seismic survey design; overseeing data
acquisition and processing; preparing, integrating and interpreting the
data; and identifying each prospect and drill site. The Company seeks
operator status and control over the remaining aspects of field operations
when it believes its expertise can add value to these functions.

CURRENT EXPLORATORY PROJECTS

The Company is currently evaluating 14 exploration project areas covering
approximately 1,026 square miles (656,640 acres) that are based on 3-D seismic
surveys ranging from regional non-proprietary group shoots to single field
proprietary surveys. To date, all project areas for which seismic data has been
interpreted have yielded multiple prospects and drill sites. The Company is
continuing to receive and interpret data covering these project areas and
believes that each project area has the potential for additional prospects and
drill sites. The Company's partners in these projects include, among others,
Belco Oil and Gas Corp., Carrizo Oil and Gas, Inc., Chevron Corporation,
Cheyenne Petroleum Company, IP Petroleum Company, Inc., KCS Energy, Inc.,
Pennzoil Company, Phillips Petroleum Company and Texaco Inc. For additional
information as to these project areas, see "Business--Significant Project
Areas."

1997 3-D BASED EXPLORATION PROGRAM

<TABLE>
<CAPTION>
SQUARE MILES OF GROSS ACREAGE
3-D SEISMIC DATA SCHEDULED ADDITIONAL LEASED OR
RELATING TO 1997 1997 BUDGETED TOTAL 1997 UNDER OPTION AT
PROJECT AREAS PROJECT AREA WELLS (/1/) WELLS (/2/) BUDGETED WELLS DECEMBER 31, 1996
- ------------- ---------------- ----------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
TEXAS
Encinitas/Kelsey...... 32 6 2 8 9,110
Everest............... 340 (/3/) 8 11 19 4,888
Cameron............... 325*(/3/) * * * *
Nita/Austin........... 42 2 2 4 19,119
Spartan............... 23 5 1 6 5,855
Belco................. 114* * 41(/4/) 41(/4/) 36,657
Tyler................. 25 1 -- 1 3,750
Buckeye............... 20* * 11(/4/) 11(/4/) 12,000
Hiawatha.............. 23 3 9 12 14,985
East McFaddin......... 11 2 5 7 6,640
Triple "A"............ 13 -- 1 1 2,830
MISSISSIPPI
Tallahala Creek....... 28 4 -- 4 3,240
Quito................. 10 1 3 4 2,760
ALABAMA
Barnett............... 20 2 -- 2 578
----- --- --- --- -------
Total................... 1,026 34 86 120 122,412
===== === === === =======
</TABLE>
- --------
* 3-D seismic data is currently being acquired and/or processed in the project
area.
(1) Consists of identified drill sites that are fully evaluated, leased and
have been or are scheduled to be drilled during 1997.
(2) Consists of budgeted wells based upon the Company's 1997 capital budget.
The number of budgeted wells drilled could be materially affected by
drilling results of other scheduled or budgeted wells. There is less
certainty as to the drilling of these wells than with scheduled wells.
(3) Represents non-proprietary group shoots in which the Company is a
participant.
(4) Includes prospects for which 3-D seismic data is being acquired. The number
of wells indicated is based upon statistical results of drilling activities
in adjoining Company 3-D project areas that the Company believes are
geologically similar.

5
<PAGE>

Although the Company is currently pursuing each scheduled or budgeted well as
set out in the preceding table, there can be no assurance that these wells will
be drilled at all or within the expected timeframe. The final determination
with respect to the drilling of any scheduled or budgeted wells will be
dependent upon a number of factors, including (i) the results of exploration
efforts and the acquisition, review and analysis of the seismic data, (ii) the
availability of sufficient capital resources by the Company and the other
participants for the drilling of the prospects, (iii) the approval of the
prospects by other participants after additional data has been compiled, (iv)
economic and industry conditions at the time of drilling, including prevailing
and anticipated prices for oil and natural gas and the availability of drilling
rigs and crews, (v) the financial resources and results of the Company, and
(vi) the availability of leases on reasonable terms and permitting for the
prospect. There can be no assurance that any of the scheduled or budgeted wells
identified on the preceding table will, if drilled, encounter reservoirs of
commercially productive oil or natural gas. See "Risk Factors--Dependence on
Exploratory Drilling Activities," "--Reserve Replacement Risk" and "--
Uncertainty of Reserve Information and Future Net Revenue Estimates."

THE COMBINATION TRANSACTIONS

Substantially all of the operations of the Company are currently conducted
through Edge Joint Venture II (the "Joint Venture"), the interests in which are
currently owned by certain affiliates of the Company. Concurrently with this
Offering, the Company plans to acquire, directly or indirectly, substantially
all of the interests in the Joint Venture in exchange for shares of Common
Stock (the "Combination Transactions"). If the Company acquires all of the
interests that are the subject of the Combination Transactions, an aggregate of
approximately 4,700,000 shares of Common Stock will be issued in the
Combination Transactions. Although the Company is seeking to acquire all of the
interests in the Joint Venture, if any interest holders elect to retain their
current interests, the Company will not own all of the interests in the Joint
Venture. The Joint Venture was dissolved on December 31, 1996 and entered into
a two year windup period. During such period the Company will continue to
develop existing properties and identified prospect areas through the Joint
Venture. Thereafter, the Joint Venture will liquidate and distribute its assets
to the Company and any interest holders who elect to retain their current
interests. The Company will be required to allow any non-exchanging offerees in
the Combination Transactions to participate in the continued development of
certain prospects and areas of mutual interest following the distribution of
such assets. See "Certain Transactions--The Combination Transactions."

6
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company...... 2,000,000 shares
Common Stock to be outstanding after this
Offering................................ 6,700,000 shares(1)
Proposed Nasdaq National Market Symbol... EPEX
Use of proceeds.......................... To repay indebtedness, to provide
working capital and for general
corporate purposes, including funding
the Company's 3-D seismic data
acquisition, exploration and
development activities. See "Use of
Proceeds."
</TABLE>
- --------
(1) Assumes approximately 4,700,000 shares will be issued in connection with
the Combination Transactions. Does not include (i) 250,585 shares of Common
Stock that will be issued pursuant to restricted stock awards that will be
granted to officers of the Company concurrent with this Offering, (ii)
approximately 350,000 shares of Common Stock issuable pursuant to options
at an exercise price per share equal to the initial public offering price
that will be granted to directors, officers and employees of the Company
concurrent with this Offering and (iii) 97,844 shares of Common Stock that
may be issued pursuant to outstanding options that will be assumed by the
Company from a predecessor entity at a weighted average exercise price of
$3.06 per share. See "Management--Incentive Plans."

RISK FACTORS

Prospective purchasers of Common Stock should carefully consider all of the
information contained in this Prospectus, particularly the factors set forth
herein under "Risk Factors."

7
<PAGE>

SUMMARY HISTORICAL SUPPLEMENTALLY COMBINED

FINANCIAL AND OPERATING DATA

The following table sets forth summary historical supplementally combined
information of the Company for the five years ended December 31, 1996. The
following table also sets forth certain pro forma net income (loss) per share
information. The following financial information should be read in conjunction
with "Capitalization," "Selected Historical Supplementally Combined and Pro
Forma Financial and Operating Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Supplementally Combined
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1992 1993 1994 1995 1996
------- ------- ------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Oil and natural gas
revenue................... $ 572 $ 1,455 $1,994 $ 2,040 $7,719
------- ------- ------ ------- ------
Costs and expenses:
Oil and natural gas
operating expenses...... 76 167 305 686 1,600
Depreciation, depletion
and amortization........ 467 441 593 813 1,613
General and
administrative.......... 2,228 1,734 2,026 2,484 2,753
------- ------- ------ ------- ------
Total operating
expenses.............. 2,771 2,342 2,924 3,983 5,966
------- ------- ------ ------- ------
Operating income (loss).... (2,199) (887) (930) (1,943) 1,753
Interest expense........... (679) (635) (385) (315) (859)
Gain on sale of oil and
gas property.............. 247 2,284 3,337
Other Income............... 233
------- ------- ------ ------- ------
Net income (loss) before
income taxes and minority
interest.................. (2,878) (1,275) 969 1,079 1,127
Income tax expense......... (292) (397) (394)
Minority interest.......... 1,868 721 (543) (576) (433)
------- ------- ------ ------- ------
Net income (loss).......... $(1,010) $ (554) $ 134 $ 106 $ 300
======= ======= ====== ======= ======
Pro forma net income
(loss) per share
(unaudited) (1)........... $ (0.21) $ (0.12) $ 0.03 $ 0.02 $ 0.06
======= ======= ====== ======= ======
Pro forma weighted average
shares outstanding
(unaudited) (1)........... 4,700 4,700 4,700 4,700 4,700
STATEMENT OF CASH FLOW DATA:
Net cash (used) provided
by operating activities
.......................... (2,035) (1,046) (604) (927) 2,278
Net cash (used) provided
by investing activities
.......................... (149) (272) 291 (1,154) (5,651)
Net cash (used) provided
by financing activities
.......................... 230 1,421 (425) 1,932 4,716
OTHER OPERATING DATA:
EBITDA (2)(4).............. $ 136 $ 522 $1,404 $ 1,631 $3,166
Operating cash flow
(3)(4).................... (2,411) (1,081) (722) (1,445) 2,740
Capital expenditures....... 3,811 3,660 6,809 8,512 10,467
</TABLE>
- --------

(2) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.

(3) Operating cash flow represents cash flows from operating activities prior
to changes in assets and liabilities.

(4) Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures commonly
used in the oil and gas industry and should not be considered in isolation
or as a substitute for net income, operating income, cash flows from
operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity. Because EBITDA
excludes some, but not all, items that affect net income and operating cash
flow excludes changes in assets and liabilities and these measures may vary
among companies, the EBITDA and operating cash flow data presented above
may not be comparable to similarly titled measures of other companies.

8
<PAGE>

SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following table sets forth summary unaudited pro forma combined financial
information of the Company for the Combination Transactions for the three years
ended December 31, 1996 as if the Combination Transactions occurred on January
1, 1994. The following financial information should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the unaudited Pro Forma Combined Financial
Statements of the Company and the related notes thereto, and the audited
Supplementally Combined Financial Statements of the Company and the related
notes thereto included elsewhere in this Prospectus. Pro forma data are based
on assumptions and include adjustments as explained in the notes to unaudited
Pro Forma Combined Financial Statements. The unaudited Pro Forma Combined
Balance Sheet as of December 31, 1996 and the unaudited Pro Forma Combined
Statements of Operations for each of the three years in the period ended
December 31, 1996 were prepared utilizing the audited Supplementally Combined
Financial Statements of the Company. The unaudited Pro Forma Combined Financial
Statements are not necessarily indicative of the results of future operations
of the Company and should be read in conjunction with the audited
Supplementally Combined Financial Statements of the Company appearing elsewhere
in this Prospectus.

Because management believes the most probable outcome of the Combination
Transactions is that substantially all of the interests in Edge Group II
Limited Partnership ("Edge Group II") and Gulfedge Limited Partnership
("Gulfedge") and the interest of Edge Group Partnership ("Edge Group") in the
Joint Venture will be exchanged, the unaudited pro forma data assume 100%
acceptance. Such pro forma data reflects the Combination Transactions as a
reorganization among commonly controlled entities and utilizes historical
costs. The table on the following page shows pro forma data assuming 90%
acceptance of the exchange offer by holders of limited partner interests in
Edge Group II and reflects the Combination Transactions utilizing purchase
accounting. For presentation of pro forma data assuming 80% acceptance of the
exchange offer by holders of limited partner interests in Edge Group II, see
"Selected Historical Supplementally Combined and Pro Forma Financial and
Operating Data." See Note 3 to the unaudited Pro Forma Combined Financial
Statements for a more complete description of the effects of varying levels of
possible acceptance of the exchange offers. For a description of the
Combination Transactions, see "Certain Transactions--The Combination
Transactions."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenue......... $ 1,994 $ 2,040 $ 7,719
------- ------- -------
Costs and expenses:
Oil and natural gas operating
expenses......................... 305 686 1,600
Depreciation, depletion and
amortization..................... 593 813 1,613
General and administrative........ 2,026 2,484 2,753
------- ------- -------
Total operating expenses........ 2,924 3,983 5,966
------- ------- -------
Operating income (loss)............. (930) (1,943) 1,753
Interest expense.................... (385) (315) (859)
Gain on sale of oil and gas
property........................... 2,284 3,337
Other income........................ 233
------- ------- -------
Net income before income taxes...... 969 1,079 1,127
Income tax expense..................
------- ------- -------
Net income...........................$ 969 $ 1,079 $ 1,127
======= ======= =======
Net income per share(1)............. $ 0.21 $ 0.23 $ 0.24
======= ======= =======
Weighted average shares
outstanding(1)..................... 4,700 4,700 4,700
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------------------
AS ADJUSTED AS ADJUSTED
FOR THE FOR THE
ACTUAL COMBINATION(2) OFFERING(3)
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 690 $ 2,024 $19,840
Property and equipment, net............... 11,989 11,989 11,989
Total assets.............................. 19,556 19,557 35,843
Long-term debt, including current
maturities............................... 11,862 11,862 412
Equity.................................... (373) 3,476 31,736
</TABLE>
- --------

(1) Pro forma net income per share has been computed assuming the estimated
4,700,000 shares of Common Stock which may be issued in connection with the
Combination Transactions were outstanding since January 1, 1994.

(2) Gives effect to the Combination Transactions reflecting the elimination of
minority interest and pro forma income taxes as if such transactions had
been consummated as of December 31, 1996.

(3) Assumes the issuance in this Offering of 2,000,000 shares of common stock
at $16.00 per share and application of the net proceeds therefrom.

9
<PAGE>

The unaudited pro forma data presented below assumes 90% acceptance by the
holders of Edge Group II limited partner interests in the Combination
Transactions and reflects the Combination Transactions utilizing purchase
accounting. The amounts shown below assume consummation of the merger involving
Edge Petroleum Corporation, a Texas corporation ("Old Edge"), and do not
include any amounts attributable to Gulfedge, Edge Group or the J.C. Calaway
Interests, which collectively do not materially affect the results.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
----------------------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C>
Oil and natural gas sales revenues..................... $6,926
Operating expenses..................................... 6,353
-------
Operating income....................................... 523
Interest expense....................................... (769)
Other income........................................... 208
-------
Net income............................................. $ 12
=======
Net income per share................................... $ --
=======
Average common shares outstanding...................... 4,322
=======
<CAPTION>
AS OF
DECEMBER 31, 1996
----------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 1,858
Property and equipment, net............................ 20,878
Total assets........................................... 27,939
Long-term debt, including current maturities........... 10,638
Equity................................................. 13,287
</TABLE>

SUMMARY SUPPLEMENTALLY COMBINED OPERATING DATA OF THE COMPANY

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil and condensate (MBbls)................. 5 26 61 64 109
Natural gas (MMcf)......................... 273 457 588 513 2,316
Natural gas equivalent (MMcfe)............. 303 613 954 896 2,972
AVERAGE SALES PRICES:
Oil and condensate ($ per Bbls)............ $19.52 $17.52 $17.66 $15.88 $19.31
Natural gas ($ per Mcf).................... 1.77 2.20 1.57 1.99 2.42
Natural gas equivalent ($ per Mcfe)........ 1.90 2.38 2.09 2.28 2.60
AVERAGE COSTS ($ PER MCFE):
Oil and natural gas operating expenses..... $ 0.25 $ 0.27 $ 0.32 $ 0.77 $ 0.52
Depreciation, depletion and amortization... 0.16 0.24 0.42 0.47 0.45
Oil and natural gas operating profit....... 1.49 1.87 1.30 1.04 1.63
NUMBER OF WELLS DRILLED:
Gross...................................... 6 12 13 35 45
Net(1)..................................... 0.54 0.27 0.42 13.51 19.78
</TABLE>
- --------
(1) Wells in which the Company holds an after payout working interest are not
included because such interests had not been earned at the time of
drilling. The percentage of the Company's wells in which it holds solely an
after payout working interest has substantially decreased in the last two
years.

10
<PAGE>

SUMMARY OIL AND NATURAL GAS RESERVE DATA

The following table sets forth summary data with respect to the Company's
estimated historical proved oil and natural gas reserves as of the dates
indicated and the estimated future net cash flows attributable thereto. Such
estimates are prepared on a pro forma basis after giving effect to the
Combination Transactions. See "Certain Transactions--The Combination
Transactions." All information in this Prospectus relating to estimated net
proved oil and natural gas reserves and the estimated future net revenues
attributable thereto is based upon the reserve report (the "Ryder Scott
Report") prepared by Ryder Scott Company, independent petroleum engineers
("Ryder Scott"). A summary of the Ryder Scott Report as of December 31, 1996 is
included as Annex A to this Prospectus. All calculations of estimated net
proved reserves have been made in accordance with the rules and regulations of
the Securities and Exchange Commission (the "Commission") and, except as
otherwise indicated, give no effect to federal or state income taxes otherwise
attributable to estimated future net revenues from the sale of oil and natural
gas. In accordance with such regulations, the Ryder Scott Report used oil and
natural gas prices in effect at December 31, 1996. Natural gas prices at such
date were high relative to prices in recent years. There are numerous
uncertainties inherent in estimating quantities of proved reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond the control of the Company. See "Risk Factors--
Uncertainty of Reserve Information and Future Net Revenue Estimates" and
"Business--Oil and Natural Gas Reserves."

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1994 1995 1996(1)
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
NET PROVED RESERVES:
Oil (MBbls)...................................... 368 709 643
Natural gas (MMcf)............................... 3,673 8,821 13,417
Total (MMcfe).................................... 5,881 13,075 17,275
NET PROVED DEVELOPED RESERVES:
Oil (MBbls)...................................... 261 653 570
Natural gas (MMcf)............................... 3,548 6,992 11,301
Total (MMcfe).................................... 5,114 10,910 14,721
Estimated future net revenues before income taxes.. $10,561 $24,463 $52,873
Present value of estimated future net revenues
before income taxes(2)............................ $ 7,946 $17,443 $39,426
Standardized measure of discounted future net cash
flows(3).......................................... $ 6,872 $13,946 $30,200
</TABLE>
- --------

(1) The prices used as of December 31, 1996 averaged $23.69 per Bbl of oil and
$3.62 per Mcf of natural gas. By comparison, the present value of estimated
future pretax net cash flows as of December 31, 1995 was determined by
using the weighted average sales prices that were being realized as of that
date of $17.77 per Bbl of oil and $2.12 per Mcf of natural gas.
(2) The present value of estimated future net revenues attributable to the
Company's reserves was prepared using constant prices as of the calculation
date, discounted at 10% per annum on a pre-tax basis.
(3) The standardized measure of discounted future net cash flows represents the
present value of estimated future net revenues after income taxes
discounted at 10% per annum.

11
<PAGE>

RISK FACTORS

Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information contained in
this Prospectus. This Prospectus contains certain forward looking statements.
Actual results may differ materially from those projected in the forward-
looking statements as a result of any number of factors, including the risk
factors set forth below.

DEPENDENCE ON EXPLORATORY DRILLING ACTIVITIES

The success of the Company will be materially dependent upon the continued
success of its exploratory drilling program, which will be funded in part with
the proceeds of this Offering. Exploratory drilling involves numerous risks,
including the risk that no commercially productive natural gas or oil
reservoirs will be encountered. The cost of drilling, completing and operating
wells is often uncertain, and drilling operations may be curtailed, delayed or
cancelled as a result of a variety of factors, including unexpected drilling
conditions, pressure or irregularities in formations, equipment failures or
accidents, adverse weather conditions, compliance with governmental
requirements and shortages or delays in the availability of drilling rigs and
the delivery of equipment. Although the Company believes that its use of 3-D
seismic data and other advanced technology should increase the probability of
success of its exploratory wells and should reduce average finding costs
through elimination of prospects that might otherwise be drilled solely on the
basis of 2-D seismic data and other traditional methods, exploratory drilling
remains a speculative activity. Even when fully utilized and properly
interpreted, 3-D seismic data and visualization techniques only assist
geoscientists in identifying subsurface structures and do not allow the
interpreter to know if hydrocarbons will in fact be present in such structures
if they are drilled. In addition, the use of 3-D seismic data and such
technologies requires greater predrilling expenditures than traditional
drilling strategies and the Company could incur losses as a result of such
expenditures. The Company's future drilling activities may not be successful
and, if unsuccessful, such failure will have an adverse effect on the
Company's future results of operations and financial condition. Prospects may
initially be identified through a number of methods, some of which do not
include interpretation of 3-D or other seismic data, and in which prospects
the Company may not have any option or lease rights. Although the Company has
identified numerous drilling prospects, there can be no assurance that such
prospects will be drilled or that natural gas or oil will be produced from any
such identified prospects or any other prospects. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

VOLATILITY OF NATURAL GAS AND OIL PRICES

The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, as well as the carrying value of its
properties, are substantially dependent upon prevailing prices of natural gas
and oil. Historically, the markets for natural gas and oil have been volatile,
and such markets are likely to continue to be volatile in the future. Prices
for natural gas and oil are subject to wide fluctuation in response to
relatively minor changes in the supply of and demand for natural gas and oil,
market uncertainty and a variety of additional factors that are beyond the
control of the Company. These factors include the level of consumer product
demand, weather conditions, domestic and foreign governmental regulations, the
price and availability of alternative fuels, political conditions in the
Middle East, the foreign supply of natural gas and oil, the price of foreign
imports and overall economic conditions. It is impossible to predict future
natural gas and oil price movements with certainty. Declines in natural gas
and oil prices may materially adversely affect the Company's financial
condition, liquidity, ability to finance planned capital expenditures and
results of operations. Lower natural gas and oil prices also may reduce the
amount of natural gas and oil that the Company can produce economically. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Marketing."

The Company periodically reviews the carrying value of its oil and natural
gas properties under the full cost accounting rules of the Commission. Under
these rules, capitalized costs of proved oil and natural gas

12
<PAGE>

properties may not exceed the present value of estimated future net revenues
from proved reserves, discounted at 10%. Application of this "ceiling" test
generally requires pricing future revenue at the unescalated prices in effect
as of the end of each fiscal quarter and requires a write down for accounting
purposes if the ceiling is exceeded, even if prices declined for only a short
period of time. The Company may be required to write down the carrying value
of its oil and natural gas properties when oil and natural gas prices are
depressed or unusually volatile. If a write down is required, it would result
in a charge to earnings and would not impact cash flow from operating
activities.

In order to reduce its exposure to short-term fluctuations in the price of
natural gas, the Company periodically enters into hedging arrangements. The
Company's hedging arrangements apply to only a portion of its production and
provide only partial price protection against declines in natural gas prices.
Such hedging arrangements may expose the Company to risk of financial loss in
certain circumstances, including instances where production is less than
expected, the Company's customers fail to purchase contracted quantities of
oil or natural gas or a sudden, unexpected event materially impacts oil or
natural gas prices. In addition, the Company's hedging arrangements limit the
benefit to the Company of increases in the price of natural gas. Total natural
gas purchased and sold under swap arrangements during the years ended December
31, 1996 and 1995 were 182 MMcf and 122 MMcf, respectively. Gains and losses
realized by the Joint Venture under such swap arrangements were $5,270 and
$(15,720) for the years ended December 31, 1996 and 1995, respectively. There
was no hedging activity in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and "Business--
Marketing."

RESERVE REPLACEMENT RISK

In general, the volume of production from natural gas and oil properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves of the Company will
decline as reserves are produced. The Company's future natural gas and oil
production is, therefore, highly dependent upon its level of success in
finding or acquiring additional reserves. The business of exploring for,
developing or acquiring reserves is capital-intensive. To the extent cash flow
from operations is reduced and external sources of capital become limited or
unavailable, the Company's ability to make the necessary capital investment to
maintain or expand its asset base of natural gas and oil reserves would be
impaired. As of December 31, 1996, the Company had participated in a
substantial percentage of its wells as non-operator pursuant to various
agreements. The failure of an operator of the Company's wells to adequately
perform operations, or such operator's breach of the applicable agreements,
could adversely impact the Company. In addition, there can be no assurance
that the Company's future exploration, development and acquisition activities
will result in additional proved reserves or that the Company will be able to
drill productive wells at acceptable costs. See "Management's Discussion of
Analysis and Financial Condition and Results of Operation."

OPERATING RISKS OF NATURAL GAS AND OIL OPERATIONS

The natural gas and oil business involves certain operating hazards such as
well blowouts, craterings, explosions, uncontrollable flows of oil, natural
gas or well fluids, fires, formations with abnormal pressures, pollution,
releases of toxic gas and other environmental hazards and risks, any of which
could result in substantial losses to the Company. The availability of a ready
market for the Company's natural gas and oil production also depends on the
proximity of reserves to, and the capacity of, natural gas and oil gathering
systems, pipelines and trucking or terminal facilities. In addition, the
Company may be liable for environmental damages caused by previous owners of
property purchased and leased by the Company. As a result, substantial
liabilities to third parties or governmental entities may be incurred, the
payment of which could reduce or eliminate the funds available for
exploration, development or acquisitions or result in the loss of the
Company's properties. In accordance with customary industry practices, the
Company maintains insurance against some, but not all, of such risks and
losses. The Company does not carry business interruption insurance. The
occurrence of an event not fully covered by insurance could have a material
adverse effect on the financial condition and results of operations of the
Company. See "Business--Operating Hazards and Insurance."

13
<PAGE>

DEPENDENCE ON KEY PERSONNEL

The Company depends to a large extent on the services of certain key
management personnel, the loss of any of which could have a material adverse
effect on the Company's operations. The Company will enter into employment
agreements with each of Mr. John E. Calaway (the Company's Chief Executive
Officer and Chairman of the Board), Mr. James D. Calaway (the Company's
President) and Mr. Michael G. Long (the Company's Chief Financial Officer)
described herein under "Management--Employment Agreements" prior to completion
of this Offering. The Company does not maintain key-man life insurance with
respect to any of its employees. The Company believes that its success is also
dependent upon its ability to continue to employ and retain skilled technical
personnel. See "Business--Exploration Technology."

RELIANCE ON TECHNOLOGICAL DEVELOPMENT AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE

The Company's business is dependent upon utilization of changing technology.
As a result, the Company's ability to adapt to evolving technologies, obtain
new products and maintain technological advantages will be important to its
future success. The Company believes that its ability to utilize state of the
art technologies currently gives it an advantage over many of its competitors.
This advantage, however, is based in part upon technologies developed by
others, and the Company may not be able to maintain this advantage. As new
technologies develop, the Company may be placed at a competitive disadvantage,
and competitive pressures may force the Company to implement such new
technologies at substantial cost. There can be no assurance that the Company
will be able to successfully utilize, or expend the financial resources
necessary to acquire, new technology, that others will not either achieve
technological expertise comparable to or exceeding that of the Company or that
others will not implement new technologies before the Company. One or more of
the technologies currently utilized by the Company or implemented in the
future may become obsolete. In such case, the Company's business, financial
condition and results of operations could be materially adversely affected. If
the Company is unable to utilize the most advanced commercially available
technology, the Company's business, financial condition and results of
operations could be materially and adversely affected. See "Business--
Exploration Technology."

SIGNIFICANT CAPITAL REQUIREMENTS

Due to its active exploration and development and technology development
programs, the Company has experienced and expects to continue to experience
substantial working capital needs. While the Company believes that the net
proceeds from this Offering, cash flow from operations and its existing credit
arrangements should allow the Company to successfully implement its present
business strategy, additional financing may be required in the future to fund
the Company's growth and developmental and exploratory drilling and continued
technological development. No assurances can be given as to the availability
or terms of any such additional financing that may be required or that
financing will continue to be available under the existing or new credit
facilities. In the event such capital resources are not available to the
Company, its drilling and other activities may be curtailed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

CERTAIN POTENTIAL CONFLICTS OF INTEREST AND EFFECTS OF THE COMBINATION
TRANSACTIONS

Upon the consummation of the Combination Transactions and this Offering, the
Company will continue as managing partner of the Joint Venture and will become
the general partner of certain limited partnerships currently holding
interests in the Joint Venture. In addition, while the Joint Venture was
dissolved on December 31, 1996 and will generally be liquidated over the next
two years, substantially all of the existing operations and assets of the
Company and the Revolving Credit Facility will remain at the Joint Venture
level during the wind-up phase and such facility will be available only to
fund such operations. In the event that any holders of interests that are the
subject of the Combination Transactions elect to retain such interests, the
Company will not own all of the interests in the Joint Venture. The Company
will have certain duties to any partners of such limited partnership who do
not exchange their limited partner interests for shares of Common Stock and
certain conflicts of interest could arise between the Company and such non-
exchanging partners. In

14
<PAGE>

addition, if certain holders elect to exercise dissenters rights in a merger
in the Combination Transactions, the Company will be required to utilize cash
resources (which may include a portion of the proceeds of this Offering) to
make payments to such holders.

CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of this Offering and the Combination Transactions, members
of the Company's board of directors and their affiliates will own
approximately 39% (38% if the Underwriters' over-allotment option is exercised
in full) of the outstanding shares of Common Stock (assuming an initial public
offering price of $16.00 per share). As a result, such stockholders will be
able to significantly influence and possibly control the outcome of certain
matters requiring a stockholder vote, including the election of directors.
Such ownership of Common Stock may have the effect of delaying, deferring or
preventing a change of control of the Company and may adversely affect the
voting and other rights of other stockholders. See "Security Ownership of
Certain Beneficial Owners and Management."

BENEFITS OF THIS OFFERING TO PARTICIPANTS IN THE COMBINATION TRANSACTIONS

This Offering will provide certain benefits to the persons who will acquire
Common Stock in the Combination Transactions, including the Company's officers
and directors and their affiliates. These benefits will include liquidity
(including, in the case of Mr. Sfondrini, margin loan arrangements) for their
respective investments resulting from the exchange of their current interests
for shares of Common Stock and the creation of a public market for the Common
Stock. In addition, the exchange of such interests for shares of Common Stock
will result in the realization of potential gains by such persons in the value
of their investments, based upon the difference between the amount of such
investments and the aggregate value of their shares of Common Stock. Mr. John
Sfondrini will receive in respect of his general partner interest in Edge
Group II shares for both accrued, but unpaid management fees as well as shares
in respect of future management fees. A portion of such shares and Mr.
Sfondrini's margin loan proceeds are expected to be paid to the parents of the
Chief Executive Officer and the President of the Company pursuant to certain
prior arrangements. A portion of the proceeds of this Offering will be used to
repay approximately $1.3 million of indebtedness of the Company owed to Mr.
James C. Calaway, the father of both the Company's Chief Executive Officer and
its President, and 42,015 shares of Common Stock (assuming an initial public
offering price of $16.00 per share) will be issued to Mr. James C. Calaway in
exchange for certain interests in properties and prospects of the Joint
Venture. As a general partner of Edge Group II, Mr. Sfondrini is personally
liable for its obligations. Upon consummation of the Combination Transactions,
Mr. Sfondrini will not be liable for any future obligations of Edge Group II.

The Company has agreed to indemnify the general partners, certain affiliates
and the directors and officers of the partners to the Joint Venture against
certain losses, damages and liabilities arising out of the Combination
Transactions. See "Certain Transactions--The Combination Transactions" and "--
Transfer of Edge Group II General Partner Interests."

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Oil and natural gas operations are subject to various federal, state and
local government regulations which may be changed from time to time in
response to economic or political conditions. Matters subject to regulation
include discharge permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, unitization and pooling of
properties and taxation. From time to time, regulatory agencies have imposed
price controls and limitations on production by restricting the rate of flow
of oil and natural gas wells below actual production capacity in order to
conserve supplies of oil and natural gas. In addition, the development,
production, handling, storage, transportation and disposal of oil and natural
gas, by-products thereof and other substances and materials produced or used
in connection with oil and natural gas operations are subject to regulation
under federal, state and local laws and regulations primarily relating to
protection of human health and the environment. The Company is also subject to
changing and extensive tax laws, the effects of which

15
<PAGE>

cannot be predicted. The Company believes that it is in substantial compliance
with applicable regulations, although there can be no assurance that this is or
will remain the case. The implementation of new, or the modification of
existing, laws or regulations could have a material adverse effect on the
Company. See "Business--Regulation."

ABILITY TO MANAGE GROWTH AND ACHIEVE BUSINESS STRATEGY

The Company has experienced significant growth in the recent past through the
expansion of its drilling program. The Company's rapid growth has placed, and
is expected to continue to place, a significant strain on the Company's
financial, technical, operational and administrative resources. As the Company
enlarges the number of projects it is evaluating or in which it is
participating, there will be additional demands on the Company's financial,
technical and administrative resources. The Company's ability to continue its
growth will depend upon a number of factors, including its ability to identify
and acquire new exploratory sites, its ability to develop existing sites, its
ability to continue to retain and attract skilled personnel, the results of its
drilling program, hydrocarbon prices, access to capital and other factors.
There can be no assurance that the Company will be successful in achieving
growth or any other aspect of its business strategy.

COMPETITION

The Company encounters competition from other oil and natural gas companies
in all areas of its operations, including the acquisition of exploratory
prospects and proven properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of
its competitors are large, well-established companies with substantially larger
operating staffs and greater capital resources than the Company's and which, in
many instances, have been engaged in the oil and natural gas business for a
much longer time than the Company. Such companies may be able to pay more for
exploratory prospects and productive natural gas and oil properties and may be
able to define, evaluate, bid for and purchase a greater number of properties
and prospects than the Company's financial or human resources permit. In
addition, such companies may be able to expend greater resources on the
existing and changing technologies that the Company believes are and will be
increasingly important to the current and future success of oil and natural gas
companies. The Company's ability to explore for oil and natural gas prospects
and to acquire additional properties in the future will be dependent upon its
ability to conduct its operations, to evaluate and select suitable properties
and to consummate transactions in this highly competitive environment. See
"Business--Competition."

UNCERTAINTY OF RESERVE INFORMATION AND FUTURE NET REVENUE ESTIMATES

There are numerous uncertainties inherent in estimating natural gas and oil
reserves and their estimated values, including many factors beyond the control
of the producer. The reserve data set forth in this Prospectus represent only
estimates. Reservoir engineering is a subjective process of estimating
underground accumulations of natural gas and oil that cannot be measured in an
exact manner. Estimates of economically recoverable natural gas and oil
reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future natural
gas and oil prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the
economically recoverable quantities of natural gas and oil attributable to any
particular group of properties, classifications of such reserves based on risk
of recovery, and estimates of the future net cash flows expected therefrom
prepared by different engineers or by the same engineers but at different times
may vary substantially and such reserve estimates may be subject to downward or
upward adjustment based upon such factors. Actual production, revenues and
expenditures with respect to the Company's reserves will likely vary from
estimates, and such variances may be material. In addition, the 10% discount
factor, which is required by the Commission to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the
most

16
<PAGE>

appropriate discount factor based on interest rates in effect from time to
time and risks associated with the Company or the oil and natural gas industry
in general. See "Business--Oil and Natural Gas Reserves."

ACQUISITION RISKS

The Company generally seeks to explore for oil and natural gas rather than
to purchase producing properties. As a result, the Company's experience in the
acquisition of such properties is limited. The successful acquisition of
producing properties requires an assessment of recoverable reserves, future
oil and natural gas prices, operating costs, potential environmental and other
liabilities and other factors. Such assessments are necessarily inexact and
their accuracy inherently uncertain. In connection with such an assessment,
the Company performs a review of the subject properties that it believes to be
generally consistent with industry practices, which generally includes on-site
inspections and the review of reports filed with various regulatory entities.
Such a review, however, will not reveal all existing or potential problems nor
will it permit a buyer to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. Inspections may not always
be performed on every well, and structural and environmental problems are not
necessarily observable even when an inspection is undertaken. Even when
problems are identified, the seller may be unwilling or unable to provide
effective contractual protection against all or part of such problems. There
can be no assurances that any acquisition of property interests by the Company
will be successful and, if unsuccessful, that such failure will not have an
adverse effect on the Company's future results of operations and financial
condition.

SHARES ELIGIBLE FOR FUTURE SALE

The holders of substantially all of the shares of Common Stock issued in the
Combination Transactions will be restricted by the Company's Bylaws from
disposing of such shares for a period of 180 days from the date of this
Prospectus without the prior consent of the representatives of the
Underwriters and the Company. Such consent may be given at any time and
without public notice. The investors receiving such shares in the Combination
Transaction have previously had no significant source of liquidity for their
investment. After such period, substantially all of the approximately
4,700,000 shares of Common Stock issued in the Combination Transactions will
be eligible for resale without restriction, except for sales by affiliates
which will be subject to the volume restrictions of Rule 144. In addition,
97,844 shares of Common Stock may be issued pursuant to currently outstanding
options that will be assumed by the Company from a predecessor at a weighted
average exercise price of $3.06 per share, approximately 350,000 shares of
Common Stock may be issued pursuant to options that will be issued under the
Company's incentive plan concurrent with this Offering at an exercise price
equal to the initial public offering price in this Offering and 250,585 shares
of Common Stock will be issued pursuant to restricted stock awards granted
under the Company's incentive plan concurrent with this Offering. Future sales
of substantial amounts of Common Stock in the public market following this
Offering could adversely affect the market price of the Common Stock. For
further information concerning Common Stock available for resale after this
Offering, see "Shares Eligible for Future Sale."

ABSENCE OF DIVIDENDS ON COMMON STOCK

The Company currently intends to retain any earnings for the future
operation and development of its business and does not currently anticipate
paying any dividends in the foreseeable future. Any future dividends also may
be restricted by the Company's then-existing loan agreements. See "Dividend
Policy," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and Note 3 to the
Company's Combined Financial Statements.

RECENT LOSSES

The Company has incurred net losses in three of the last five years of its
operations. There can be no assurance that the Company will be profitable in
the future. See "Selected Historical Supplementally Combined and Pro Forma
Financial and Operating Data."

17
<PAGE>

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation and Bylaws and the Delaware
General Corporation Law contain provisions that may have the effect of
delaying, deferring or preventing a change of control of the Company. These
provisions, among other things, provide for a classified Board of Directors
with staggered terms, restrict the ability of stockholders to take action by
written consent and authorize the Board of Directors to set the terms of
Preferred Stock. See "Description of Capital Stock."

NO PRIOR PUBLIC MARKET

Prior to this Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between the
Company and the Underwriters and may not be indicative of the price at which
the Common Stock will trade following the completion of this Offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The completion of this Offering provides no
assurance that an active trading market for the Common Stock will develop or,
if developed, that it will be sustained. The market price of the Common Stock
could also be subject to significant fluctuation and may be influenced by many
factors, including variations in results of operations, variations in natural
gas and oil prices, investor perceptions of the Company and the oil and natural
gas industry and general economic and other conditions.

DILUTION

Purchasers of Common Stock in this Offering will experience immediate and
substantial dilution in the net tangible book value of their stock of $11.26
per share (assuming an initial public offering price of $16.00 per share). See
"Dilution."

18
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from this Offering at an assumed initial
public offering price of $16.00 per share are estimated to be approximately
$28.3 million ($32.7 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use a portion of the net proceeds
to lend funds to the Joint Venture to be used to repay approximately $11.5
million of indebtedness incurred under the Revolving Credit Facility that
currently bears interest at 8% and matures on June 1, 1998 and to repay
approximately $1.3 million of subordinated indebtedness to Mr. James C.
Calaway that currently bears interest at 10% and matures on April 8, 1998. The
remainder of the net proceeds will be used to provide working capital to the
Company and for general corporate purposes, including funding the Company's
exploration, development and acquisition activities. Following application of
the proceeds of this Offering, the Company anticipates that its only long-term
indebtedness will consist of an aggregate of approximately $412,000 principal
amount of equipment loans. The indebtedness incurred under the Revolving
Credit Facility and the indebtedness to Mr. James C. Calaway was used
primarily for the Company's exploration, development and acquisition
activities and to provide working capital. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

DIVIDEND POLICY

The Company has not paid any dividends in the past and does not intend to
pay cash dividends on its Common Stock in the foreseeable future. The Company
currently intends to retain any earnings for the future operation and
development of its business, including exploration, development and
acquisition activities. Any future dividends also may be restricted by the
Company's then-existing loan agreements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

19
<PAGE>

DILUTION

As of December 31, 1996, the pro forma net tangible book value of the
Company would have been approximately $3.5 million, or approximately $0.74 per
share of Common Stock, after giving pro forma effect to the issuance of
approximately 4,700,000 shares of Common Stock in connection with the
Combination Transactions as if such transactions had been completed at such
date. Net tangible book value per share represents the amount of the Company's
tangible book value (total book value of tangible assets less total
liabilities) divided by the total number of shares of Common Stock
outstanding. After further giving effect to the receipt of the estimated net
proceeds from this Offering (net of estimated underwriting discounts and
commissions and Offering expenses) at an assumed initial public offering price
of $16.00 per share, the adjusted pro forma net tangible book value of the
Common Stock outstanding at December 31, 1996 would have been $4.74 per share,
representing an immediate increase in net tangible book value of $4.00 per
share to stockholders receiving Common Stock in the Combination Transactions
and an immediate dilution of $11.26 per share (the difference between the
assumed initial public offering price and the net tangible book value per
share after this Offering) to persons purchasing Common Stock at the assumed
initial public offering price. The following table illustrates such per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $16.00
Pro forma net tangible book value per share before this
Offering.................................................... $0.74
Increase in pro forma net tangible book value per share
attributable to sale of Common Stock in this Offering....... 4.00
-----
Adjusted pro forma net tangible book value per share after
giving effect to this Offering................................ 4.74
------
Dilution in net tangible book value to the purchasers of Common
Stock in this Offering........................................ $11.26
======
</TABLE>

The following table sets forth, on a pro forma basis as of December 31,
1996, differences between (i) the number of shares of Common Stock to be
acquired from the Company by holders of interests in predecessor entities and
by investors purchasing shares in this Offering, (ii) the combined equity of
the predecessor entities adjusted to give effect to the Combination
Transactions and the related per share amount of Common Stock to be exchanged
pursuant to the Combination Transactions and (iii) the total price and the
average price per share paid or to be paid by investors purchasing shares in
this Offering (based upon an assumed initial public offering price per share
of $16.00).

<TABLE>
<CAPTION>
SHARES PURCHASED(2) TOTAL CONSIDERATION
--------------------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Stockholders receiving
shares in the
Combination
Transactions(1)........ 4,700,000 70.1% $ 3,475,939(3) 9.8% $0.74
New investors........... 2,000,000 29.9% 32,000,000 90.2% 16.00
----------- ------- ----------- -----
Total................. 6,700,000 100.0% $35,475,939 100.0%
=========== ======= =========== =====
</TABLE>
- --------
(1) The existing investors in the Company, after giving effect to the
Combination Transactions, will have acquired all of their shares of Common
Stock in exchange for the assets acquired by the Company in the
Combination Transactions.
(2) Does not include (i) 250,585 shares of Common Stock that will be issued
pursuant to restricted stock awards that will be granted to officers of
the Company upon completion of this Offering, (ii) approximately 350,000
shares of Common Stock issuable pursuant to options at an exercise price
per share equal to the initial public offering price that will be granted
to directors, officers and employees of the Company upon completion of
this Offering and (iii) 97,844 shares of Common Stock that may be issued
pursuant to outstanding options that will be assumed by the Company from a
predecessor entity at a weighted average exercise price of $3.06 per
share. The exercise of such stock options will be dilutive to the
interests of new investors. See "Management--Incentive Plans."

(3) Total consideration for the shares received in the Combination
Transactions represents the book value at December 31, 1996 of the net
assets and liabilities contributed by the interest holders of the combined
predecessor entities. The assets and liabilities contributed by the
interest holders were recorded at historical cost rather than fair market
value by the Company in accordance with generally accepted accounting
principles.

20
<PAGE>

CAPITALIZATION

The following table sets forth (i) the historical combined capitalization of
the Company as of December 31, 1996, (ii) the pro forma capitalization of the
Company as of December 31, 1996 after giving effect to the issuance of
approximately 4,700,000 shares of Common Stock in connection with the
Combination Transactions and (iii) the pro forma capitalization of the Company
as of December 31, 1996 as adjusted to give effect to the sale of 2,000,000
shares of Common Stock in this Offering at an assumed initial public offering
price of $16.00 per share and the application of the estimated net proceeds
therefrom. This table should be read in conjunction with the Combined
Financial Statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
THE COMPANY PRO FORMA
SUPPLEMENTALLY FOR PRO FORMA
COMBINED COMBINATION(1) AS ADJUSTED
-------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents............ $ 1,543 $ 1,544 $18,836
======= ======= =======
Current portion of long-term debt.... $ 300 $ 300 $ 300
======= ======= =======
Long-term debt....................... $11,562 $11,562 $ 112
Minority interest.................... 2,267
Stockholders' equity(2):
Preferred stock, $0.01 par value,
5,000,000
shares authorized; none
outstanding....................... -- -- --
Common stock, $0.01 par value,
25,000,000
shares authorized; 4,700,000
shares issued
and outstanding pro forma;
6,700,000 shares issued and
outstanding pro forma as adjusted. -- 47 67
Additional paid in capital......... -- 3,429 31,669
Retained earnings.................. -- -- --
Combined equity.................... (373) -- --
------- ------- -------
Total stockholders' equity........... (373) 3,476 31,736
------- ------- -------
Total capitalization................. $13,456 $15,038 $31,848
======= ======= =======
</TABLE>
- --------

(1) Because management believes the most probable outcome of the Combination
Transactions is that substantially all of the interests in Edge Group II
and Gulfedge and Edge Group's interest in the Joint Venture will be
exchanged, the unaudited pro forma data assume 100% acceptance. The
following table shows pro forma data assuming possible levels of
acceptance of the exchange offer by holders of limited partner interests
in Edge Group II after giving effect to the Combination Transactions. The
80% and 90% acceptance levels reflect the Combination Transactions
utilizing purchase accounting; the 100% acceptance level reflects the
Combination Transactions as a reorganization and utilizes historical
costs. See Note 3 to the unaudited Pro Forma Combined Financial Statements
for a more complete description of the effects of varying levels of
possible acceptance of the exchange offers (amounts in thousands).

<TABLE>
<CAPTION>
ACCEPTANCE LEVELS
-----------------------
80% 90% 100%
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,504 $ 1,520 $ 1,544
======= ======= =======
Current portion of long-term debt.................... $ 249 $ 269 $ 300
======= ======= =======
Long-term debt....................................... $ 9,590 $10,369 $11,562
Stockholders' equity:
Preferred stock....................................
Common stock....................................... 41 43 47
Additional paid in capital......................... 11,921 13,244 3,429
Retained earnings..................................
------- ------- -------
Total stockholders' equity........................... 11,962 13,287 3,476
------- ------- -------
Total capitalization................................. $21,552 $23,656 $15,038
======= ======= =======
</TABLE>

(2) Does not include (i) 250,585 shares of Common Stock that will be issued
pursuant to restricted stock awards that will be granted to officers of
the Company upon completion of the Offering, (ii) approximately 350,000
shares of Common Stock issuable pursuant to options at an exercise price
per share equal to the initial public offering price in the Offering that
will be granted to directors, officers and employees of the Company upon
completion of the Offering and (iii) 97,844 shares of Common Stock
issuable pursuant to outstanding options that will be assumed by the
Company from Old Edge at a weighted average exercise price of $3.06 per
share.

21
<PAGE>

SELECTED HISTORICAL SUPPLEMENTALLY COMBINED AND PRO FORMA FINANCIAL AND
OPERATING DATA

The following table sets forth selected historical supplementally combined
financial information of the Company for the five years ended December 31,
1996. The financial information presented below, as of December 31, 1996,
reflects all adjustments, consisting of normal and recurring adjustments, that
in the opinion of management are necessary for a fair presentation of the
Company's combined results of operations and financial position for such
periods. The following table also sets forth certain pro forma net income
(loss) per share information. The following financial information should be
read in conjunction with "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
Supplementally Combined Financial Statements of the Company and the related
notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------ ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenue... $ 572 $ 1,455 $1,994 $ 2,040 $ 7,719
------- ------- ------ ------- -------
Costs and expenses:
Oil and natural gas
operating expenses......... 76 167 305 686 1,600
Depreciation, depletion and
amortization............... 467 441 593 813 1,613
General and administrative.. 2,228 1,734 2,026 2,484 2,753
------- ------- ------ ------- -------
Total operating expenses.. 2,771 2,342 2,924 3,983 5,966
------- ------- ------ ------- -------
Operating income (loss)....... (2,199) (887) (930) (1,943) 1,753
Interest expense.............. (679) (635) (385) (315) (859)
Gain on sale of oil and gas
property..................... -- 247 2,284 3,337 --
Other income.................. 233
------- ------- ------ ------- -------
Net income (loss) before
income taxes and minority
interest..................... (2,878) (1,275) 969 1,079 1,127
Income tax expense............ (292) (397) (394)
Minority interest............. 1,868 721 (543) (576) (433)
------- ------- ------ ------- -------
Net income (loss)............. (1,010) (554) 134 106 300
======= ======= ====== ======= =======
Pro forma net income (loss)
per share (unaudited) (1).... $ (0.21) $ (0.12) $ 0.03 $ 0.02 $ 0.06
======= ======= ====== ======= =======
Pro forma weighted average
shares outstanding
(unaudited)(1)............... 4,700 4,700 4,700 4,700 4,700
STATEMENTS OF CASH FLOWS DATA:
Net cash (used) provided by
operating activities......... $(2,035) $(1,046) $ (604) $ (927) $ 2,278
Net cash (used) provided by
investing activities......... (149) (272) 291 (1,154) (5,651)
Net cash (used) provided by
financing activities......... 230 1,421 (425) 1,932 4,716
OTHER OPERATING DATA:
EBITDA (2)(4)................. $ 136 $ 522 $1,404 $ 1,631 $ 3,166
Operating cash flow (3)(4).... (2,411) (1,081) (722) (1,445) 2,740
Capital expenditures.......... 3,811 3,660 6,809 8,512 10,467
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 1,699 $ (168) $ (973) $ (947) $ 690
Property and equipment, net... 2,475 2,622 4,136 7,911 11,989
Total assets.................. 6,388 5,190 6,128 9,858 19,556
Long-term debt, including
current maturities........... 4,627 4,240 4,177 6,124 11,862
Equity (deficit).............. (317) (871) (749) (658) (373)
</TABLE>
- --------

(1) Pro forma net income (loss) per share has been computed based on the net
income (loss) shown above and assuming the estimated 4,700,000 shares of
Common Stock which may be issued in connection with the Combination
Transactions were outstanding since January 1, 1992.
(2) EBITDA represents earnings before interest expense, income taxes,
depreciation, depletion and amortization.
(3) Operating cash flow represents cash flows from operating activities prior
to changes in assets and liabilities.

(4) Management of the Company believes that EBITDA and operating cash flow may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA and operating cash flow are financial measures commonly
used in the oil and gas industry and should not be considered in isolation
or as a substitute for net income, operating income, cash flows from
operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles or
as a measure of a company's profitability or liquidity. Because EBITDA
excludes some, but not all, items that affect net income and because
operating cash flow excludes changes in assets and liabilities and these
measures may vary among companies, the EBITDA and operating cash flow data
presented above may not be comparable to similarly titled measures of
other companies.

22
<PAGE>

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following table sets forth summary unaudited pro forma combined
financial information of the Company for the Combination Transactions for the
three years ended December 31, 1996. The following financial information
should be read in conjunction with "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the unaudited
Pro Forma Combined Financial Statements of the Company and the related notes
thereto, and the audited Supplementally Combined Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
Pro forma data are based on assumptions and include adjustments as explained
in the notes to unaudited Pro Forma Combined Financial Statements. The
unaudited Pro Forma Combined Balance Sheet as of December 31, 1996 and the
unaudited Pro Forma Combined Statements of Operations for each of the three
years in the period ended December 31, 1996 were prepared utilizing the
audited Supplementally Combined Financial Statements of the Company. The
unaudited Pro Forma Combined Financial Statements are not necessarily
indicative of the results of future operations of the Company and should be
read in conjunction with the audited Supplementally Combined Financial
Statements of the Company appearing elsewhere in this Prospectus.

Because management believes the most probable outcome of the Combination
Transactions is that substantially all of the interests in Edge Group II and
Gulfedge and Edge Group's interest in the Joint Venture will be exchanged, the
unaudited pro forma data assume 100% acceptance. Such pro forma data reflects
the Combination Transactions as a reorganization among commonly controlled
entities and utilizes historical costs. The table on the following page shows
pro forma data assuming possible levels of acceptance of the exchange offer by
holders of limited partner interests in Edge Group II and reflects the
Combination Transactions utilizing purchase accounting. See Note 3 to the
unaudited Pro Forma Combined Financial Statements for a more complete
description of the effects of varying levels of possible acceptance of the
exchange offers. For a description of the Combination Transactions, see
"Certain Transactions--The Combination Transactions."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Oil and natural gas revenue.......... $ 1,994 $ 2,040 $ 7,719
------- ------- -------
Costs and expenses:
Oil and natural gas operating
expenses.......................... 305 686 1,600
Depreciation, depletion and
amortization...................... 593 813 1,613
General and administrative......... 2,026 2,484 2,753
------- ------- -------
Total operating expenses......... 2,924 3,983 5,966
------- ------- -------
Operating income (loss).............. (930) (1,943) 1,753
Interest expense..................... (385) (315) (859)
Gain on sale of oil and gas
property............................ 2,284 3,337
Other income......................... 233
------- ------- -------
Net income before income taxes....... 969 1,079 1,127
Income tax expense...................
------- ------- -------
Net income............................$. 969 $ 1,079 $ 1,127
======= ======= =======
Net income per share(1).............. $ 0.21 $ 0.23 $ 0.24
======= ======= =======
Weighted average shares
outstanding(1)...................... 4,700 4,700 4,700
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------------------------
THE COMPANY AS ADJUSTED AS ADJUSTED
SUPPLEMENTALLY FOR THE FOR THE
COMBINED COMBINATION(2) OFFERING(3)
-------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ 680 $ 2,024 $19,840
Property and equipment, net......... 11,989 11,989 11,989
Total assets........................ 19,556 19,557 35,843
Long-term debt, including current
maturities......................... 11,862 11,862 412
Equity.............................. (373) 3,476 31,736
</TABLE>
- --------

(1) Net income per share has been computed assuming the estimated 4,700,000
shares of Common Stock which may be issued in connection with the
Combination Transactions were outstanding since January 1, 1994.

(2) Gives effect to the Combination Transactions reflecting the elimination of
minority interest and income taxes as if such transactions had been
consummated as of December 31, 1996.

(3) Assumes the issuance in the Offering of 2,000,000 shares of Common Stock
at $16.00 per share and the application of the net proceeds therefrom.

23
<PAGE>

The unaudited pro forma data presented below assume 90% acceptance by the
holders of Edge Group II limited partner interests in the Combination
Transactions and reflect the Combination Transactions utilizing purchase
accounting.

PRO FORMA COMBINED STATEMENT OF OPERATIONS DATAFOR THE YEAR ENDED DECEMBER
31, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<S> <C>
Oil and natural gas revenues........................................ $6,926
Operating expenses.................................................. 5,321
------
Operating income.................................................... 1,605
Interest expense.................................................... (769)
Other income........................................................ 209
------
Net income.......................................................... $1,045
======
Net income per share................................................ $ 0.24
======
Average common shares outstanding................................... 4,322
======
</TABLE>

The unaudited pro forma data presented below assume various levels of
acceptance by the holders of Edge Group II limited partner interests in the
Combination Transactions. For levels of acceptance less than 100%, the
amounts shown above and below assume consummation of the merger involving
Old Edge and do not include any amounts attributable to Gulfedge, Edge
Group or the J.C. Calaway Interests, which collectively do not materially
affect the results. The 100% level of acceptance includes 100% of the
interests to be acquired in the Combination Transactions. The 80% and 90%
acceptance levels reflect the Combination Transactions utilizing purchase
accounting; the 100% acceptance level reflects the Combination Transactions
as a reorganization and utilizes historical costs. It is a condition to the
consummation of the Combination Transactions that holders of at least 70%
of the outstanding Edge Group II limited partner interests tender their
interests. Amounts for the possible acceptance level of 70% are not shown
because management does not believe such an acceptance level is reasonably
probable.

<TABLE>
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
FOR THE YEAR ENDED DECEMBER 31, 1996 (IN ACCEPTANCE LEVEL
THOUSANDS, EXCEPT PER SHARE DATA) -------------------------
<CAPTION>
80% 90% 100%
------- ------- -------
<S> <C> <C> <C>
Oil and natural gas revenues.................... $6,408 $6,926 $7,719
Operating expenses.............................. 5,817 6,353 5,966
------- ------- -------
Operating income................................ 591 573 1,753
Interest expense................................ (711) (769) (858)
Other income.................................... 193 208 233
------- ------- -------
Net income...................................... $ 73 $ 12 $ 1,128
======= ======= =======
Net income per share............................ $ 0.02 $ -- $ 0.24
======= ======= =======
Average common share outstanding................ 4,102 4,322 4,700
======= ======= =======
PRO FORMA COMBINED BALANCE SHEET DATA ACCEPTANCE LEVELS
AT DECEMBER 31, 1996 (IN THOUSANDS) -------------------------
<CAPTION>
80% 90% 100%
------- ------- -------
<S> <C> <C> <C>
Working capital................................. $ 1,753 $ 1,858 $ 2,024
Property and equipment, net..................... 18,947 20,878 11,989
Total assets.................................... 25,678 27,939 19,557
Long-term debt, including current maturities.... 9,839 10,638 11,862
Equity.......................................... 11,962 13,287 3,476
</TABLE>

24
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

GENERAL OVERVIEW

The Company began operations in 1983 and until 1992 generated exploratory
drilling prospects based on 2-D seismic data for sale to other exploration and
production companies. During 1992, as a result of the advent of economic
onshore 3-D seismic surveys and the improvement and increased affordability of
data interpretation technologies, the Company changed its exploration strategy
to emphasize the acquisition of 3-D seismic data covering certain of its
existing 2-D based project areas. From 1992 to 1995, the Company reduced its
inventory of 2-D based prospects, began limited drilling for its own account of
certain existing 2-D based prospects and began developing prospects based on 3-
D seismic data. Since early 1995, the Company has almost exclusively drilled
prospects generated from 3-D seismic data, while accelerating its drilling
activity and increasing its working interests in new project areas. This shift
in the Company's business strategy is reflected in a number of changes in the
Company's financial results. A majority of the income in 1994 and 1995 was
attributable to gains on sales of unproved oil and gas properties. The Company
expects in the future to retain and develop a majority of its oil and gas
properties. Similarly, the Company expects depreciation, depletion and
amortization and oil and gas operating expenses will continue to increase. The
Company expects to continue retaining all or the majority of its interests in
prospects with normally pressured and generally shallow reservoirs and selling
a portion of its interests in deeper over-pressured 3-D seismic prospects,
which generally require greater capital expenditures, to industry participants
in order to fund the capital expenditures for the interests it retains.

The Company uses the full-cost method of accounting for its oil and gas
properties. Under this method, all acquisition, exploration and development
costs, including certain general and administrative costs that are directly
attributable to the Company's acquisition, exploration and development
activities, are capitalized in a "full-cost pool" as incurred. The Company
records depletion of its full-cost pool using the unit of production method. To
the extent that such capitalized costs in the full cost pool (net of
depreciation, depletion and amortization and related deferred taxes) exceed the
present value (using a 10% discount rate) of estimated future net after-tax
cash flows from proved oil and gas reserves, such excess costs are charged to
operations. Once incurred, a write-down of oil and gas properties is not
reversible at a later date.

During 1991, the Joint Venture was formed by Old Edge, Edge Group II,
Gulfedge and Edge Group to conduct the business of a predecessor partnership.
The Joint Venture purchased approximately $5.2 million in net assets (on a
historical financial statement basis) and assumed substantially all of the
liabilities of the predecessor, which had been engaged in oil and gas
exploration and production operations since 1983. A substantial portion of the
annual cash flows generated by the predecessor partnership had been distributed
to its partners resulting in a low level of equity accumulation prior to the
formation of the Joint Venture.

The Company's revenues, profitability, future growth and ability to borrow
funds or obtain additional capital, and the carrying value of its properties,
are substantially dependent on prevailing prices of natural gas and oil. It is
impossible to predict future natural gas and oil price movements with
certainty. Declines in prices received for natural gas and oil may have an
adverse affect on the Company's financial condition, liquidity, ability to
finance capital expenditures and results of operations. Lower prices may also
impact the amount of reserves that can be produced economically by the Company.

Due to the instability of oil and natural gas prices, in 1995 the Company
began utilizing, from time to time, certain hedging instruments (e.g., swaps)
for a portion of its gas production to achieve a more predictable cash flow, as
well as to reduce the exposure to price fluctuations. However, hedging
arrangements, when utilized, limit the benefit to the Company of increases in
the price of natural gas. The Company's hedging arrangements apply to only a
portion of its production and provide only partial price protection against
declines in natural gas prices and limits potential gains from future increases
in modest prices. Such hedging arrangements may expose the Company to risk of
financial loss in certain circumstances, including instances where production
is less than expected, the Company's customers fail to purchase contracted
quantities of oil or natural gas or a sudden,

25
<PAGE>

unexpected event materially impacts oil or natural gas prices. The Company
accounts for all these transactions as hedging activities and, accordingly,
gains and losses are included in oil and gas revenues during the period the
hedged transactions occur. Total natural gas purchased and sold under swap
arrangements during the years ended December 31, 1996 and 1995 were 182 MMcf
and 122 MMcf, respectively. Gains and losses realized by the Joint Venture
under such swap arrangements were $5,270 and $(15,720) for the years ended
December 31, 1996 and 1995, respectively. There was no hedging activity in
1994. The Company expects that the amount of hedges that it has in place will
vary from time to time. Outstanding hedges at December 31, 1995 were not
material and the Company had no existing hedging positions as of December 31,
1996.

Net income for the first quarter of 1997 will be adversely affected by non-
recurring expenses incurred in connection with the Combination Transactions.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Oil and natural gas revenues increased 278% from $2.0 million in 1995 to
$7.7 million in 1996. Production volumes for oil increased 70% from 64 MBbls
in 1995 to 109 MBbls in 1996. The increase in oil production increased
revenues $715,000. In addition, a 22% increase in average oil prices increased
revenue by $315,000. Production volumes for natural gas increased 351% from
513 MMcf in 1995 to 2,316 MMcf in 1996. The increase in natural gas production
increased revenues by $3.6 million. In addition, a 22% increase in average gas
prices increased revenues by $1.0 million. The increase in oil and natural gas
production was due to new wells being successfully drilled and completed
during 1996, which was partially offset by normal production declines from
existing wells. Increases in average oil and gas prices were directly
attributable to the general improved market conditions.

The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1995 and 1996.

<TABLE>
<CAPTION>
YEAR ENDED 1996 COMPARED
DECEMBER 31, TO 1995
------------- ---------------------
INCREASE % INCREASE
1995 1996 (DECREASE) (DECREASE)
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil and condensate (MBbls)................ 64 109 45 70%
Natural gas (MMcf)........................ 513 2,316 1,803 351%
AVERAGE SALES PRICES:
Oil and condensate ($ per Bbl)............ $15.88 $19.31 $ 3.43 22%
Natural gas ($ per Mcf)................... 1.99 2.42 0.43 22%
OPERATING REVENUES:
Oil and condensate (in thousands)......... $1,017 $2,109 $1,092 107%
Natural gas (in thousands)................ 1,023 5,610 4,587 448%
------ ------ ------
Total (in thousands).................... $2,040 $7,719 $5,679 278%
====== ====== ======
</TABLE>

Oil and natural gas operating expenses increased 133% from $686,000 in 1995
to $1.6 million in 1996. Oil and natural gas operating expenses increased due
to increased production generated from new oil and gas wells drilled and
completed.

Depreciation, depletion and amortization ("DD&A") expense increased 98% from
$813,000 in 1995 to $1.6 million in 1996. This increase was due to the
increase in oil and gas production, which was partially offset by an 8%
decrease in the depletion rate.

26
<PAGE>

General and administrative expense increased 11% from $2.5 million in 1995
to $2.8 million in 1996. An increase in salary expense due to the addition of
new employees was primarily responsible for this increase.

Interest expense increased 173% from $315,000 in 1995 to $859,000 in 1996.
This increase was primarily due to the repayment of a promissory note in March
1995 and increased borrowings under a new Revolving Credit Facility to fund
increased drilling activities in 1996, which was partially offset by a lower
average interest rate in 1996.

There were no gains on the sale of oil and gas property in 1996 as compared
to a gain of $3.3 million in 1995. The majority of the gain recorded in 1995
was attributable to the sale of a property for $3.4 million that resulted in a
gain of $2.8 million.

Minority interest decreased from $576,000 in 1995 to $433,000 in 1996. The
decrease was attributable to reduced earnings in the Joint Venture.

Net income (loss) was $(116,000) in 1996 as compared to $106,000 in 1995, as
a result of the factors described above.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Oil and natural gas revenues remained relatively unchanged at approximately
$2.0 million in both 1994 and 1995. Production volumes for oil increased 5%
from 61 MBbls in 1994 to 64 MBbls in 1995. Increased production was partially
offset by a 10% decrease in average oil prices. Production volumes for natural
gas decreased 13% from 588 MMcf in 1994 to 513 MMcf in 1995. The decrease in
natural gas production was offset by an 27% increase in average natural gas
prices. Oil and natural gas revenues were impacted by the addition of four new
wells, the sale of a property and declining production experienced at South
Mermentau and one other property caused by workovers that required the wells
to be shut in for a portion of the year.

The following table summarizes production volumes, average sales prices and
operating revenues for the Company's oil and natural gas operations for the
years ended December 31, 1994 and 1995.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 COMPARED TO 1994
------------- ---------------------
INCREASE % INCREASE
1994 1995 (DECREASE) (DECREASE)
------ ------ ---------- ----------
<S> <C> <C> <C> <C>
PRODUCTION VOLUMES:
Oil and condensate (MBbls)................ 61 64 3 5%
Natural gas (MMcf)........................ 588 513 (75) (13%)
AVERAGE SALES PRICES:
Oil and condensate ($ per Bbl)............ $17.66 $15.88 $(1.78) (10%)
Natural gas ($ per Mcf)................... 1.57 1.99 0.42 27%
OPERATING REVENUES:
Oil and condensate (in thousands)......... $1,071 $1,017 $ (54) (5%)
Natural gas (in thousands)................ 923 1,023 100 11%
------ ------ ------
Total (in thousands).................... $1,994 $2,040 $ 44 2%
====== ====== ======
</TABLE>

Oil and gas operating expenses increased 125% from $305,000 in 1994 to
$686,000 in 1995. The increase was primarily attributable to increased
operating expenses of approximately $223,000 on a property that was acquired
during November 1994 and nonrecurring expenses of approximately $120,000 on
another property. The remaining net increase experienced in 1995 was caused by
increased production from new wells which was offset by the sale of a property
in March 1995.

27
<PAGE>

DD&A expense increased 37% from $593,000 in 1994 to $813,000 in 1995, as a
result of increased production and a higher depletion rate. The higher
depletion rate was primarily due to costs relating to a prospect that resulted
in a dry hole. These increases were offset by a decrease in amortization of
regional seismic costs of approximately $149,000 in 1995, compared to 1994,
due to certain regional seismic costs that became fully amortized in 1995.

General and administrative expense increased 23% from $2.0 million in 1994
to $2.5 million in 1995. Approximately $241,000 of the increase was
attributable to the hiring of additional geologist and land department
employees as well as salary increases for existing employees. The remaining
increase was due to other general expenses that were directly attributable to
increased 3-D prospect generation and drilling activity.

Interest expense decreased 18% from $385,000 in 1994 to $315,000 in 1995.
This decrease in 1995 was due to a lower weighted average outstanding debt
balance and a lower effective interest rate. The weighted average outstanding
debt balance decreased from approximately $4.0 million in 1994 to
approximately $2.7 million in 1995. The decrease in the weighted average
outstanding debt balance and effective interest rate was due to the repayment
of $3.3 million of promissory notes during March 1995 which bore interest at a
rate of 10%. The Company subsequently entered into the Revolving Credit
Facility in July 1995 which had an effective interest rate of 9.25% at
December 31, 1995.

The gains on sales of oil and gas properties in 1995 and 1994 represented
sales of unproved properties and proved properties. The majority of the gains
recorded in 1995 was the result of the sale of a property for approximately
$3.4 million, resulting in a gain of approximately $2.8 million. A majority of
income recorded in 1994 was attributable to the sale of a property for
approximately $1.5 million, resulting in a gain of approximately $1.3 million.

Minority interest in 1995 was $576,000 as compared to $543,000 in 1994. The
increase was attributable to increased earnings in the Joint Venture.

Net income in 1995 was approximately $106,000 million, compared to $134,000
in 1994, as a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity have included funds generated by
operations, the sale of prospects and producing properties, equity capital
from private sources and borrowings, primarily at the Joint Venture level
under the Revolving Credit Facility and a subordinated secured loan (the
"Subordinated Loan") from Mr. James C. Calaway, the father of both the
Company's Chief Executive Officer and its President. A portion of the proceeds
from the Offering will be loaned to the Joint Venture to repay the amounts
outstanding under both the Revolving Credit Facility and the Subordinated
Loan. The Revolving Credit Facility will remain available for future
borrowings and the Subordinated Loan will be terminated. The Joint Venture is
required to comply with various operating and financial covenants under the
Revolving Credit Facility. The continued availability to the Joint Venture of
the Revolving Credit Facility is subject to continued compliance with such
covenants.

Cash flows provided (used) by operations were ($604,000), ($927,000) and
$2.3 million for the years ended December 31, 1994, 1995, 1996, respectively.
The increase in operating cash flows for the year ended December 31, 1996 was
primarily attributable to an increase in operating income of $3.7 million,
partially offset by an increase in working capital of $1.6 million and
increased interest expense. The changes in working capital were primarily due
to the Company becoming an oil and gas well operator in late 1995 and a
significant increase in drilling activities during the year ended December 31,
1996. Accrued liabilities increased by $80,000 for 1996 as compared to 1995
due to deferred offering costs accrued but not yet paid. The increase in cash
flows used in 1995 as compared to 1994 was due primarily to the increase in
operating loss, which was offset by various changes in balance sheet accounts.
Accounts receivable from joint interest owners increased by $213,000

28
<PAGE>

in 1995 due to increased drilling activity in which the Company was the
operator. Accounts payable, trade and accounts payable to related parties
increased by $420,000 and $266,000, respectively. These increases were caused
by increased drilling activity for its own account as well as an increase in
Edge Group II's management fees which have accumulated but have not yet been
paid. The decrease in cash used from operations from 1993 to 1994 was due to
decreases in various working capital accounts. Accounts receivable trade and
accounts payable trade increased $269,000 and $145,000, respectively during
1994 primarily due to the increased oil and gas production and drilling
activities in 1994 primarily attributable to higher working interests on new
wells drilled in 1994. Accounts payable to related parties increased by
$258,000 primarily due to an increase of $266,000 for Edge Group II's
management fees as referred to above.

The Company expects capital expenditures in 1997 to be at least $20.0
million. A substantial portion of capital expenditures will be invested in the
Company's portfolio of 3-D prospects to fund drilling activities and expand
its reserve base. In addition, the Company will continue to expand and improve
its technological and 3-D seismic interpretation capabilities. Based on its
existing business plan, the Company has budgeted to drill 120 gross (46.3 net)
wells in 1997. The actual number of wells drilled in 1997 may differ
significantly from the number budgeted. See "Business of the Company--
Significant Project Areas." In addition to its existing leased acreage
prospects, the Company has acquired various 3-D seismic options which will
allow it to lease approximately 59,562 gross (29,781 net) undeveloped acres.

During 1996, the Company continued to reinvest a substantial portion of its
cash flows into increasing its 3-D prospect portfolio, improving its 3-D
seismic interpretation technology and funding its drilling program. As a
result, the Company used $5.7 million in cash in investing activities during
1996 including capital expenditures of $10.5 million offset by proceeds from
the sales of oil and gas property of $4.8 million. Investing activities used
$1.2 million in cash in 1995 compared to providing $291,000 in cash in 1994.
This change was attributable to a substantial increase in capital expenditures
relating to the Company's increased exploration activities. The Company's
drilling efforts resulted in the successful completion of nine gross wells in
1994, 22 gross wells in 1995 and 32 gross wells in 1996. These wells increased
estimated pretax present value of reserves in 1994, 1995 and 1996 by $1.6
million, $10.2 million and $22.9 million, respectively. In 1995 the Company
sold one of its proved producing properties and received total cash proceeds
from such sale of $3.4 million. The Company sold another of its proved
producing properties for $2.6 million in 1996. These proceeds were used to pay
down debt and fund general working capital and corporate needs. The Company
also sold several undeveloped oil and gas prospects and received cash proceeds
of $7.1 million, $4.0 million and $2.2 million in 1994, 1995 and 1996,
respectively.

Cash flows from financing activities in 1996 were $4.7 million. These cash
flows were primarily a result of drawdowns on the Revolving Credit Facility,
which were partially offset by deferred offering costs. Cash flows from
financing activities were $1.9 million for the year ended December 31, 1995
compared to a use of cash flows of $425,000 for the previous year. The
increase in cash flows from financing activities in 1995 was due to the
proceeds from the Revolving Credit Facility, somewhat offset by the repayment
of the RIMCO Note.

Due to the Company's active exploration and development and technology
enhancement programs, the Company has experienced and expects to continue to
experience substantial working capital requirements. While the Company
believes that the net proceeds from the Offering, cash flow from operations
and borrowings by the Joint Venture under the Revolving Credit Facility should
allow the Company to successfully implement its present business strategy,
additional financing may be required in the future to fund the Company's
growth, development and exploration drilling and continued technological
enhancement. In the event such capital resources are not available to the
Company, its drilling and other activities may be curtailed.

REVOLVING CREDIT FACILITY

In July 1995, the Joint Venture entered into the two year Revolving Credit
Facility with Compass Bank-Houston ("Compass"), which provides a maximum loan
amount of $20 million, subject to borrowing base limitations. Under the
Revolving Credit Facility, principal outstanding is due and payable upon
maturity in June 1998 with interest due monthly. At December 31, 1996, the
borrowing base was $11.2 million and borrowings

29
<PAGE>

outstanding under the Revolving Credit Facility were $10.2 million. Beginning
on December 1, 1996 and on the first day of each month thereafter, the
borrowing base is required to be reduced by $325,000. The Revolving Credit
Facility is without recourse to Old Edge and the other participants in the
Joint Venture. The Company will loan a portion of the proceeds of the Offering
to the Joint Venture for the purpose of repaying all outstanding indebtedness
under the Revolving Credit Facility. See "Certain Transactions--The Combination
Transactions--Description of Joint Venture." However, the Revolving Credit
Facility will be available for future borrowings by the Joint Venture during
its wind-down period. The Joint Venture may seek to adjust the terms and
availability of the Revolving Credit Facility in the future.

Semi-annually, Compass makes, in its sole discretion, the borrowing base
determination based upon the Joint Venture's proved oil and gas properties
determined in accordance with Compass' normal and customary procedures for
evaluating oil and gas reserves and other related assets. The Joint Venture may
request two additional borrowing base redeterminations per annum, provided that
Compass will not be obligated to perform a redetermination more than one time
per quarter, including quarters that contain a scheduled redetermination.

The interest rate for borrowings is either the Base Rate plus 0.5% or LIBOR
plus 2.5%. The Base Rate is the higher of (i) the Federal Funds Rate plus 0.5%
or (ii) the prime rate. The Joint Venture also pays a quarterly commitment fee
of 0.5% per annum for the unused portion of the borrowing base and a fee of
$5,000 for each regularly scheduled and borrower requested borrowing base
redetermination.

The Joint Venture is subject to certain covenants under the terms of the
Revolving Credit Facility, including, but not limited to (i) tangible
venturer's capital (total assets exclusive of certain intangibles minus total
liabilities) must be at least equal to $2.0 million plus 50% of positive net
income and 100% of equity raised for all quarterly periods subsequent to June
30, 1996; (ii) the ratio at the end of any quarter of cash flow (net income
plus depreciation, depletion, amortization and other non-cash expenses less
non-cash net income for such quarter) to debt service coverage (cash payments
made for principal on debt or capital leases for such quarter) must be at least
1.25 to 1.00; and (iii) the dividends and distributions to the venturers, among
other things, may not exceed 50% of the cash flow in excess of the cash flow
required to maintain the ratio referred to in (ii) above. The Revolving Credit
Facility also places restrictions on additional indebtedness, liens, sales of
properties, amendment of the Joint Venture Agreement and other matters. The
Joint Venture's obligations under the Revolving Credit Facility are secured by
substantially all of the oil and gas properties of the Joint Venture.

SUBORDINATED LOAN

In December 1994, the Joint Venture entered into an agreement providing for
the Subordinated Loan ("The Subordinated Loan Agreement"). Such agreement
provides for a $1 million term loan and a $1 million line of credit. Drawdowns
under the line of credit require 30 days' notice. At December 31, 1996, the
aggregate amount outstanding under the Subordinated Loan was $1.3 million,
including $300,000 outstanding under the line of credit. The principal is due,
unless earlier retired by the Joint Venture, upon the earlier of April 8, 1998
or the conclusion of the Joint Venture's wind up period. Interest at 10% per
annum is due monthly. The Subordinated Loan is secured by certain oil and gas
properties, equipment and other assets of the Joint Venture, but is subordinate
to the Revolving Credit Facility. The mortgage and security agreement restricts
the transfer of properties, creation of liens and other matters. The
Subordinated Loan is without recourse to the participants in the Joint Venture.
Under the Subordinated Loan Agreement, Mr. James C. Calaway has a right to
receive specified reversionary and overriding royalty interests on prospects of
the Joint Venture and certain rights to convert such interests into shares of
Common Stock, which shares are expected to be issued in connection with the
Combination Transactions. See "Certain Transactions--The Combination
Transactions--The Calaway Exchange." A portion of the proceeds from the
Offering will retire the Subordinated Loan.

In addition to the financing arrangements referred to above, the Company has
historically had other subordinate credit arrangements with certain
shareholders and related parties. Following the Offering these credit
arrangements will not be available.

30
<PAGE>

EFFECTS OF INFLATION AND CHANGES IN PRICE

The Company's results of operations and cash flows are affected by changing
oil and gas prices. If the price of oil and gas increases (decreases), there
could be a corresponding increase (decrease) in the operating cost that the
Company is required to bear for operations, as well as an increase (decrease)
in revenues. Inflation has had a minimal effect on the Company.

OTHER

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121") regarding accounting
for the impairment of long-lived assets. The Company adopted SFAS No. 121
effective January 1, 1996. However, its provisions are not applicable to the
Company's oil and gas properties as they are accounted for under the full cost
method of accounting. The effect of adopting SFAS No. 121 was not material for
any period presented.

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"). SFAS No. 123 is a new
standard of accounting for stock-based compensation and establishes a fair
value method of accounting for awards granted after December 31, 1995 under
stock compensation plans. SFAS No. 123 encourages, but does not require,
companies to adopt the fair value method of accounting in place of the existing
method of accounting for stock-based compensation whereupon compensation costs
are recognized only in situations where stock compensation plans award
intrinsic value to recipients at the date of grant.

The Company has elected not to adopt the fair value accounting of SFAS No.
123 and continues to account for these plans under APB Opinion No. 25, under
which no compensation costs have been recognized.

31
<PAGE>

BUSINESS

OVERVIEW

The Company explores for oil and natural gas by emphasizing the integrated
application of highly advanced data visualization and computerized 3-D seismic
data analysis to identify potential hydrocarbon accumulations. The Company
believes its approach to processing and analyzing geophysical data
differentiates it from other independent exploration and production companies
and is more effective than conventional 3-D seismic data interpretation
methods. The Company utilizes a fully integrated, client-server environment
including nine workstation nodes with a high performance Silicon Graphics
server. This hardware configuration enables the Company to utilize advanced
interpretation software, including both Earth Cube and Voxel Geo technology.
The Company also believes that it maintains one of the largest databases of
onshore South Texas Gulf Coast 3-D seismic data of any independent oil and gas
company, and is continuously acquiring substantial additional data within this
core region.

The Company acquires 3-D seismic data by organizing and designing regional
data acquisition surveys for its proprietary use, as well as through selective
participation in regional non-proprietary 3-D surveys. The Company negotiates
seismic options for a substantial majority of the areas encompassed by its
proprietary surveys, thereby allowing it to later secure identified prospect
leasehold interests on a non-competitive, pre-arranged basis. In the Company's
non-proprietary 3-D survey areas, the Company's technical capabilities allow
it to rapidly and comprehensively evaluate large volumes of regional 3-D
seismic data, facilitating its ability to identify attractive prospects within
a surveyed region and to secure the corresponding leasehold interests ahead of
other industry participants.

The Company's extensive technical expertise has enabled it to internally
generate all of its 3-D prospects drilled to date and to assemble a large
portfolio of 3-D based drilling prospects. The Company pursues drilling
opportunities that include a blend of shallower, normally pressured reservoirs
that generally involve moderate costs and risks as well as deeper, over-
pressured reservoirs that generally involve greater costs and risk, but have
higher economic potential. The Company mitigates its exposure to exploration
costs and risks by conducting its operations with industry partners, including
major oil companies and large independents, that generally pay a
disproportionately greater share of seismic acquisition and, in many
instances, leasing and drilling costs than the Company.

The Company has experienced rapid increases in reserves, production and cash
flow since early 1995 due to the growth of its 3-D based drilling activities
and the retention of progressively larger interests in its exploration
projects. From January 1, 1995 to December 31, 1996, reserves discovered from
Company-generated prospects totaled 99.4 Bcfe, while the Company's net proved
reserves increased from 5.9 Bcfe to 17.3 Bcfe at an average cost to the
Company of $0.59 per Mcfe. The Company drilled 13 gross (0.42 net) wells in
1994, 35 gross (13.5 net) wells in 1995 and 45 gross (19.8 net) wells in 1996.
For the period from January 1, 1995 through December 31, 1996, the Company's
commercial well success rate was approximately 68% for the 80 gross (33.3 net)
exploratory wells drilled (of which 73 were based on its interpretation of 3-D
seismic data).

The Company's future growth will be driven by the drilling and development
of existing opportunities from its prospect portfolio as well as new 3-D based
prospects that are continually being identified by the Company's exploration
team. The Company intends to substantially increase its drilling activities
and has budgeted 120 gross (46.3 net) wells to be drilled in 1997. The Company
currently anticipates increasing its capital expenditure budget to at least
$20.0 million in 1997 from $10.5 million in 1996. The Company believes the
proceeds of this Offering will enable it to increase the number and size of
additional 3-D seismic acquisition projects in which it participates,
accelerate its drilling activities and retain a greater share of the reserves
it discovers.

The address of the Company's principal executive offices is Texaco Heritage
Plaza, 1111 Bagby, Suite 2100, Houston, Texas 77002, and its telephone number
is (713) 654-8960.

32
<PAGE>

BACKGROUND

The Company began operations in 1983 and until 1992 generated drilling
prospects based on 2-D seismic data for sale to other exploration and
production companies. From the Company's inception, it has generated
approximately 130 prospects, many of which were large projects with deep
targets that required substantial drilling costs. Given the uncertainties of
drilling based on 2-D seismic information, the substantial drilling costs of
the projects and the Company's limited financial resources, the Company
generally sold substantially all of its interests in such prospects for cash
while retaining a reversionary interest. A substantial portion of the annual
cash flows generated by the Company during this period was distributed to its
interest holders resulting in a low level of equity accumulation. During this
period, however, the Company developed extensive expertise in generating and
obtaining drilling prospects, particularly in the onshore Gulf Coast area.

During 1992, as a result of the advent of economic onshore 3-D seismic
surveys and the improvement and increased affordability of data interpretation
technologies, the Company changed its exploration strategy to emphasize the
acquisition of 3-D seismic data covering certain of its existing 2-D based
project areas. From 1992 to 1995, the Company reduced its inventory of 2-D
based prospects, began limited drilling for its own account of certain existing
2-D based prospects and began developing prospects based on 3-D seismic data.
Since early 1995, the Company has almost exclusively drilled prospects
generated from 3-D seismic data, while accelerating its drilling activity and
increasing its working interests in new project areas as available capital has
allowed.

BUSINESS STRATEGY

FOCUSED EXPLORATION. The Company intends to maintain its exploration
focus along the onshore Gulf Coast with continued emphasis in South Texas
because of its 3-D seismic expertise in this region. The Company believes,
based on the results of its recent exploration activities, that significant
undiscovered reserves remain in this region. The Company also plans to
utilize its existing database consisting of 567 square miles of 3-D seismic
and geologic data (509 square miles of which are in South Texas) and its
knowledge of the region's producing fields and trends to further expand its
operations within this core region. The Company is currently in the process
of acquiring an additional 459 square miles (293,760 acres) of 3-D seismic
data in South Texas, which the Company believes will generate a significant
number of additional prospects in 1997 and beyond.

SOPHISTICATED AND EXPERIENCED TECHNICAL TEAM. The Company has assembled a
team of highly talented geoscientists and other technical personnel who are
experienced in the use of advanced exploration techniques, and it actively
seeks to identify and attract new members to its exploration team. The
Company provides its personnel with a technologically advanced work
environment, training and results-oriented compensation, including
participation in the Company's stock option plan. The Company believes that
the use of advanced technology by its technical personnel together with
increased capital resources will be critical components to implementing its
business strategy.

33
<PAGE>

commencement of production and cash flow. The Company typically sells to
industry partners, on a promoted basis, a portion of its interests in
prospects that involve higher costs and greater risks, or consist of deep,
over-pressured and often larger reservoirs, in order to mitigate its
exploration risk and fund the anticipated capital requirements for the
portion of those prospects it retains.

CONTROL OVER CRITICAL EXPLORATION FUNCTIONS. In its participation
agreements with industry partners, the Company generally seeks to exercise
control over what it believes to be the most critical functions in the
exploration process. These functions include determining the area to
explore; managing the land permitting and optioning process; determining
seismic survey design; overseeing data acquisition and processing;
preparing, integrating and interpreting the data; and identifying each
prospect and drill site. The Company seeks operator status and control over
the remaining aspects of field operations when it believes its expertise
can add value to these functions.

EXPLORATION TECHNOLOGY

Since 1992, as a result of the advent of economic onshore 3-D seismic
surveys and the improvement and increased affordability of data interpretation
technologies, the Company has relied almost exclusively on the interpretation
of 3-D seismic data in its exploration strategy. The principal advantage of 3-
D seismic data over 2-D seismic data is that it affords a geoscientist the
ability to investigate the entire prospective area using a 3-D seismic data
volume, as compared to the limited number of two dimensional profiles covering
a small percentage of the prospective area that are available using 2-D
seismic data. As a consequence, a geoscientist using 3-D seismic data is able
to more fully evaluate prospective areas and produce more accurate
interpretations. The use of structural maps based upon 3-D seismic data can
significantly improve the probability of drilling commercially successful
wells, since this data allows structurally advantageous positions to be more
accurately located in highly drilled exploration plays where only 2-D seismic
data was used in the past.

The Company's methodology for interpreting 3-D seismic data has advanced
beyond traditional 3-D interpretation techniques which consist of interpreting
multiple closely spaced 2-D profiles extracted from 3-D seismic volumes to
generate 3-D structural maps. The Company's advanced visualization and data
analysis techniques and resources enable its geoscientists to view
collectively large volumes of information contained within the 3-D seismic
data. This improves the geoscientist's ability to recognize certain important
patterns or attributes in the data which may indicate hydrocarbon traps and
which, if viewed incorrectly or with the application of improper techniques,
could go undetected. Visualization techniques also enable the geoscientist to
quickly identify and prioritize key areas from the large volumes of data
reviewed in order to realize the greatest early benefit. The Company's
sophisticated computing resources and unique visualization and data analysis
techniques allow its geoscientists to more easily identify features such as
shallow amplitude anomalies, complex channel systems, sharp structural details
and fluid contacts, which might have been overlooked using less sophisticated
3-D seismic data interpretation techniques.

The application of advanced 3-D exploration technology requires large scale
information processing and graphic visualization, made possible by the rapid
improvements in computing technology. The Company has made a significant
investment in its 3-D seismic data visualization technology, which is closely
linked with the Company's well-log database and other geoscience application
software. Additionally, the Company has developed a fully integrated, client-
server environment utilizing nine scientific workstation nodes. For large
scale visualization, the Company uses a Silicon Graphics Onyx R10000 server
with the SGI Reality Engine-2. The Company uses a comprehensive suite of
Landmark Graphics geoscience applications in its interpretation environment,
including Landmark's EarthCube software, which is designed specifically to
integrate visualization and 3-D geologic interpretation. In addition, the
Company utilizes Cogniseis' Voxel Geo technology in its visualization efforts.

The Company's technological success is dependent in part upon hiring and
retaining highly skilled technical personnel. The Company has assembled a
technical team that it believes has the capacity to adapt to the rapidly
changing technological demands in the field of oil and natural gas
exploration. This team consists of seven

34
<PAGE>

geoscientists with an average of 15 years industry experience, most of which
have had extensive experience with major oil companies. The Company provides
its technical team with a sophisticated work environment and enables these
employees to participate in the upside potential of prospects by assigning them
overriding royalty interests in prospects they identify. See "Management--Other
Compensatory Arrangements." With its technical capabilities and personnel, the
Company believes that it will be able to analyze increasingly large quantities
of data without a commensurate increase in the number of employees.
Additionally, the expertise of the Company's team of geoscientists reduces its
dependence on outside technical consultants and enables the Company to
internally generate substantially all of its prospects.

EXPLORATION AND OPERATING APPROACH

The Company's exploration approach is to acquire large 3-D seismic data sets
along prolific, producing trends of the onshore Gulf Coast and to utilize
advanced visualization and interpretation techniques to identify or evaluate
prospects and then drill the prospects which it believes provide the potential
for significant returns. The Company typically seeks to explore in areas with
(i) numerous accumulations of normally pressured reserves at shallow depths and
in geologic traps that are difficult to define without the use of advanced 3-D
data visualization and interpretation and (ii) the potential for large
accumulations of deeper, over-pressured reserves. The Company typically sells a
portion of its interest in the deep, over-pressured prospects in order to
mitigate its exploration risk and fund the anticipated capital requirements for
the interests it retains in such prospects, while retaining all or the majority
of its interest in the prospects with normally pressured reservoirs.

The Company emphasizes preplanning in project development to lower capital
and operational costs and to efficiently integrate potential well locations
into the existing and planned infrastructure, including gathering systems and
other surface facilities. In constructing surface facilities, the Company seeks
to use reliable, high quality, used equipment in place of new equipment to
achieve cost savings. The Company also seeks to minimize cycle time from
drilling to hook-up of wells, thereby accelerating cash flow and improving
ultimate project economics.

An important component of the Company's exploration approach is the
acquisition of large 3-D seismic data sets at the lowest possible cost. The
Company has sought to obtain large 3-D data sets either by participating in
large seismic data acquisition programs through joint venture arrangements with
other energy companies or "group shoots" in which the Company shares the costs
and results of seismic surveys. The Company believes its technical capabilities
allow it to rapidly evaluate these large 3-D datasets and identify and secure
drilling opportunities prior to the other participants in these group shoots.
In both the joint ventures and the group shoots, the Company's partners have
borne a disproportionate share of the up-front costs of seismic data
acquisition and interpretation in return for the Company's expertise in the
management of seismic surveys, interpretation of 3-D seismic data, development
of prospects and acquisition of exploration rights. Substantially all of the
Company's operations are conducted through joint operations with industry
participants. The Company is currently actively involved in 14 joint project
areas based on 3-D seismic surveys with, among others, Belco Oil and Gas Corp.,
Carrizo Oil and Gas Inc., Chevron Corporation, Cheyenne Petroleum Company, IP
Petroleum Company, Inc., KCS Energy, Inc., Pennzoil Company, Phillips Petroleum
Company and Texaco Inc. Following this Offering, the Company intends to
increase the number and size of seismic data acquisitions and interpretation
projects it manages to accelerate its prospect generation activities and
capture a greater share of the oil and natural gas properties discovered as a
result of its technological expertise.

Under the participation agreements on its recent projects, the Company is
generally responsible for determining the area to explore; managing the land
permitting and optioning process; determining seismic survey design; overseeing
data acquisition and processing; preparing, integrating and interpreting the
data; identifying the drill site; and in selected instances, managing drilling
and production operations. The Company is therefore responsible for exercising
control over what it believes are the critical functions in the exploration
process. The Company seeks to obtain lease operator status and control over
field operations, including decisions regarding drilling and completion methods
and accounting and reporting functions, only when its expertise and planning
capabilities indicate that meaningful value can be added through its
performance of these functions. Typically,

35
<PAGE>

in cases when the Company does not have field operator status, the Company is
primarily responsible for identifying prospects for the operator and, when
necessary, asserts its rights under its joint operating agreements to ensure
drilling of such prospects. The Company began field operations of wells in 1995
and currently operates producing oil and natural gas wells in South Texas and
Alabama. These wells range in depth from 3,000 feet to greater than 14,000
feet.

The Company has developed extensive experience in the development and
management of projects along the Gulf Coast. Over the past 13 years, the
Company has generated and assembled approximately 130 prospects within the
onshore Gulf Coast area. The Company believes that the ability to develop large
scale 3-D projects in this area on an economic basis requires experience in
obtaining the rights to explore and is a source of competitive advantage for
the Company.

The Company's primary strategy for acreage acquisition is to obtain leasing
options covering large geographic areas prior to conducting its 3-D seismic
surveys. The Company, therefore, typically seeks to acquire seismic permits
that include options to lease, thereby reducing the cost and the level of
competition for leases on drilling prospects that may result upon completing a
successful seismic data acquisition program over a project area.

SIGNIFICANT PROJECT AREAS

Set forth below are descriptions of the Company's key project areas where it
is actively exploring for potential oil and natural gas prospects and in many
cases currently has production. The 3-D surveys the Company is using to analyze
its project areas range from regional non-proprietary group shoots to single
field proprietary surveys. The Company has participated in these project areas
with industry partners under agreements that typically provide for the industry
partners to bear a disproportionately greater share of the up-front costs
associated with obtaining option arrangements with landowners, seismic data
acquisition and related data interpretation than the costs incurred by the
Company.

Although the Company is currently pursuing prospects within the project areas
listed below, there can be no assurance that these prospects will be drilled at
all or within the expected timeframe. The final determination with respect to
the drilling of any scheduled or budgeted wells will be dependent on a number
of factors, including (i) the results of exploration efforts and the
acquisition, review and analysis of the seismic data, (ii) the availability of
sufficient capital resources by the Company and the other participants for the
drilling of the prospects, (iii) the approval of the prospects by other
participants after additional data has been compiled, (iv) economic and
industry conditions at the time of drilling, including prevailing and
anticipated prices for natural gas and oil and the availability of drilling
rigs and crews, (v) the financial resources and results of the Company and (vi)
the availability of leases on reasonable terms and permitting for the prospect.
There can be no assurance that these projects can be successfully developed or
that the scheduled or budgeted wells discussed will, if drilled, encounter
reservoirs of commercially productive natural gas or oil. The reserve data set
forth below for the various prospects is based upon the Ryder Scott Report.
There are numerous uncertainties in estimating quantities of proved reserves,
including many factors beyond the control of the Company. See "Risk Factors--
Dependence on Exploratory Drilling Activities," "--Reserve Replacement Risk"
and "--Uncertainty of Reserve Information and Future Net Revenue Estimates."

TEXAS

Encinitas/Kelsey Project Area: Frio-Vicksburg Trend

The Encinitas/Kelsey Project Area is located in Brooks County, Texas in the
geologically complex Frio-Vicksburg trend. The Company acquired 9,110 acres in
this project area in December 1994 to re-develop the property. Upon acquisition
of its interests in this project area, the Company undertook a comprehensive
petrophysical study and a 32 square mile 3-D survey over the area which has
resulted in the identification of numerous prospects. Four of these prospects
were drilled between January and June 1996, resulting in four new

36
<PAGE>

field discoveries. During the quarter ended December 31, 1996, the Company's
share of production from wells in this project area was 30 Bbls/d of oil and
1.4 MMcf/d of gas. As of December 31, 1996, the Company's net estimated proved
reserves in the fields were 1.3 Bcf of gas and 14 MBbls of oil. The Company
has identified six drill sites to be drilled in the first half of 1997. Two
additional wells may be drilled in 1997, depending upon the results of the six
wells scheduled to be drilled. The Company believes that continuing
interpretation of the 3-D seismic data will result in additional prospects and
drilling locations. The Company has a 22.5% working interest and an 18.8% net
revenue interest in the properties in this project area.

Everest Project Area: Frio-Vicksburg Trend

The Everest Project Area is located in Starr and Hidalgo Counties, Texas in
the prolific Frio-Vicksburg Trend. The Company and a partner licensed
approximately 340 square miles of non-proprietary 3-D seismic data in this
project area in August 1995 and June 1996. Through its data processing,
analysis and interpretation techniques, the Company has identified 64
prospects in the shallow Frio trend and the deeper structurally complex
Vicksburg Trend, and two potentially large prospects in the relatively
unexplored Eocene Trend. The Company and its partner currently control 18 of
these prospects (ten Frio, seven Vicksburg and one Eocene). As of December 31,
1996, eight of these prospects have been drilled (five Frio prospects and
three Vicksburg), resulting in six new field discoveries, one field extension
and one dry hole. These discoveries have resulted in additional estimated net
proved reserves to the Company of 4.0 Bcf of gas and 58 MBbls of oil as of
December 31, 1996. A portion of the Company's interest in the Vicksburg
prospects was sold to industry partners, the proceeds of which were used to
finance the drilling costs of the Company's retained working interest. For
1997, the Company has scheduled two development wells on previous discoveries
and six exploratory wells. The Company has also budgeted for drilling 11
additional exploratory prospects to be selected from the remaining inventory
of 48 prospects. The Company also believes that continuing interpretation of
the Everest Project 3-D data will result in additional prospects and drilling
locations. The Company is entitled to 50% of any interests acquired by the
Company and its partner in prospects developed in this project area.

Cameron Project Area: Wilcox and Jackson-Yegua Trends

The Cameron Project Area is located in Webb and Duval Counties, Texas in the
prolific structurally complex Wilcox trend and the highly stratigraphic
Jackson-Yegua trend. The Company and a partner have underwritten approximately
325 square miles of non-proprietary 3-D seismic data in this project area. The
first 100 square miles of the data is expected to be received by the Company
in March 1997, with the remainder expected to be delivered to the Company over
the remainder of 1997. As in the Everest Project, the Company's strategy is to
drill all shallow, normally pressured prospects and to sell portions of the
deeper over-pressured prospects using the resulting proceeds to finance the
drilling costs of the retained interests in such prospects. The Company
believes that, given the geologic similarities of the Everest and Cameron
Project areas, the Company's experience in the Everest Project Area will
assist it in its exploration efforts in the Cameron Project. The Company is
entitled to 50% of any interests acquired by the Company and its partner in
prospects developed in this project area.

Nita/Austin Project Area

Nita/Austin Project Area: Wilcox Formation. The Nita/Austin Project Area is
located along the Gulf Coast of South Texas in Goliad County. The Company has
identified two large Wilcox prospects in this project area. The first of these
prospects was discovered by the Company and is called the Bego Field. An
initial test well drilled in 1991 based on 2-D seismic data resulted in a new
field discovery. A second well in the Bego Field was drilled in 1994 and
experienced mechanical failure. In early 1995 the Company acquired a 42 square
mile 3-D seismic survey covering this project area. A third Bego Field well
was drilled in 1995 using the 3-D seismic data and is currently in the
developmental stage. Currently, two delineation wells are also being drilled.
Given the early stage of development and current uncertainty as to the
commerciality of the field, the Company has not included any estimate of
reserves from these wells. The second of the two large Wilcox prospects was
identified

37
<PAGE>

using 3-D seismic data and is scheduled to be drilled in the first quarter of
1997. The Company has an average 1.7% working interest and an average 6% after
payout working interest in its properties in the Wilcox formation portion of
this project area.

Nita/Austin Project Area: Shallow Frio Trend. In mid-1995, the Company,
through its analysis of the Nita/Austin 3-D seismic survey, identified 26
prospects in the shallow Frio trend. From mid-1995 to the end of 1996, 22 of
these prospects were drilled, resulting in 17 commercial wells. For the quarter
ended December 31, 1996, these wells produced 3.0 MMcf/d of natural gas net to
the Company. The estimated net proved reserves to the Company for these wells
were 4.5 Bcf of natural gas as of December 31, 1996. The Company currently
expects to drill one additional well in the shallow Frio trend portion of this
project area during the first quarter of 1997. The Company has also budgeted
two additional shallow Frio wells for the end of 1997. The Company has an
approximate average 80% working interest and an approximate average 60% net
revenue interest in the properties in the shallow Frio trend portion of this
project area.

Spartan Project Area: Frio Trend

The Spartan Project Area is a 23 square mile 3-D seismic project area located
adjacent to the Nita/Austin Project Area in Goliad and Victoria Counties,
Texas. The Company currently has approximately 5,855 acres under lease or
option in this project area. The objective for this project area is primarily
the shallow Frio trend, with additional potential in the deeper Yegua and
Wilcox formations. The Company began interpreting the 23 square miles of
seismic data in August 1996, and has identified four Frio drill sites, one deep
Wilcox prospect and one Queen City prospect to date. The Company has completed
the first Frio well, and the remaining wells are scheduled to be drilled in
1997. The Company has also budgeted for 1997 one additional well that is
currently being evaluated. The Company's primary exploration leases and
options, if exercised, provide for a 50% working interest and an average 39.5%
net revenue interest in its properties in this project area.

Belco Project Area: Frio Trend and Yegua and Wilcox Formations

The Belco Project Area is located in Goliad, Bee and Victoria Counties, Texas
where the Company controls 36,657 acres through lease or option. The primary
exploration objectives for this project area, like the Nita/Austin Project Area
and the Spartan Project Area, are the shallow Frio gas accumulations, with the
secondary objectives being the deeper Yegua and Wilcox formations. The Company
and its partner on this project area, Belco Oil & Gas Corp. ("Belco"), are
currently in the initial phase of this project which involves acquiring a total
of 250 square miles of proprietary 3-D seismic data. The first 114 square miles
of the seismic data area are currently being shot, and the seismic data is
expected to be available for interpretation during the first quarter of 1997.
If the Company is successful in the development of this initial phase, the
project is expected to expand to a total of 750 square miles of data
acquisition. The Company's agreement with Belco provides for the Company to
manage all aspects of the project's development, with Belco performing field
operations for the deep prospects developed and the Company operating any
shallow Frio wells. The Company has budgeted to drill 41 wells in this project
area in 1997 based upon statistical results of drilling activities in the
adjoining Nita/Austin and Spartan Project Areas that the Company believes are
geologically similar. The Company is entitled to 50% of any interests acquired
by the Company and Belco in prospects developed in this project area.

Tyler Project Area: Wilcox, Hockley, Pettus and Yegua Formations

The Tyler Project Area is located in Live Oak County, Texas where the Company
currently has approximately 3,750 gross acres under lease. The exploration
objectives are the deep, over-pressured zones of the expanded Upper Wilcox
formation and the shallow zones of the Hockley, Pettus and Yegua formations. A
25 square mile proprietary 3-D seismic survey over the project area was shot in
1994, from which an approximately 3,500 acre Wilcox prospect was identified. An
initial well drilled on the project area in 1995 was temporarily abandoned for
mechanical reasons, but the Company reentered and completed the well and it was
flowing at a rate of 900 Mcf/d of gas as of December 31, 1996. The Company is
currently attempting to

38
<PAGE>

complete an additional deep well that was drilled in late 1996 and experienced
mechanical problems. One additional deep prospect is anticipated to be drilled
in 1997. The Company has a 1.5% working interest and a 15.2% after payout
working interest in these wells. In addition, in the shallow zones of the
Hockley and Pettus formations, the Company has drilled and developed six
producing wells which are currently producing approximately 130 Bbls/d and 180
Mcf/d net to the Company's interest. These six discoveries have resulted in
additional estimated proved reserves of 0.4 Bcf of gas and 130 MBbls of oil
net to the Company as of December 31, 1996. The Company has working interests
ranging from 56% to 100% in the shallow producing wells.

Buckeye Project Area: Wilcox, Hockley, Pettus and Yegua Formations

The Buckeye Project Area is located in Live Oak County, Texas adjacent to
the Company's Tyler Project Area. The Company currently holds approximately
12,000 acres under option and has acquired an approximate 20 square mile 3-D
seismic survey of the area. The Company currently is processing this 3-D
seismic data. As with the Tyler Project Area, the exploration objectives for
the Buckeye Project Area are the shallow zones of the Hockley, Pettus and
Yegua formations and the deep zones of the expanded upper Wilcox formation.
The Company plans to drill any prospects it identifies in the shallow
formations and to seek to promote any deep Wilcox prospects identified to
other energy companies for cash and a reversionary interest. The Company has
budgeted to drill 11 wells in this project area in 1997 based upon statistical
results of drilling activities in the adjoining Tyler Project Area that the
Company believes is geologically similar. The Company's lease options, if
exercised, provide for a 50% working interest and an average of approximately
39% net revenue interest in the acreage in this project area.

Hiawatha Project Area: Pettus and Yegua Formations

The Hiawatha Project Area is located in Duval County, Texas. The majority of
past drilling and production activity occurred in the 1940s, with the most
recent well in the area being drilled in the 1970s. Although the area has
experienced limited recent exploration due to complex landowner and leasehold
owner problems, the Company has leased 11,754 acres and has options on an
additional 3,231 acres in this project area. A 23 square mile proprietary 3-D
seismic survey was obtained by the Company in August 1996 and is currently
being interpreted with multiple prospect leads under evaluation. Three wells
were completed in the project area during the fourth quarter of 1996, and an
additional two wells were completed in January 1997. These wells have resulted
in estimated proved reserves of 0.5 Bcf of gas and 61 MBbls of oil net to the
Company as of December 31, 1996. One additional well is currently scheduled to
be drilled during 1997. The Company has identified at least 9 additional
prospects in various stages of development which it has budgeted for drilling
in 1997. Some of these wells are dependent upon the results of the first four
scheduled wells. The Company has an average 50% working interest and an
average 38.5% net revenue interest in the acreage under lease in this project
area.

East McFaddin Project Area: Frio Formation

The East McFaddin Project Area is located in Victoria County, Texas. In
1995, the Company obtained a 40% working interest in a 4,680 acre lease in the
project area by agreeing to conduct and pay for a 3-D seismic survey of the
project area. Subsequently, the Company expanded its leasehold acreage and
purchased options for 1,760 acres. The Company then obtained a partner to fund
an approximately 11 square mile 3-D seismic survey in exchange for 50% of the
Company's 40% interest. Two successful wells and three dry holes have been
drilled on the lease since acquisition of the 3-D seismic data. The two
successful wells produced an average of over 2.3 MMcf/d of gas during the
fourth quarter of 1996 with estimated proved reserves of 0.5 Bcf of gas and 2
MBbls of oil net to the Company as of December 31, 1996. The two producing
wells are currently awaiting hook-up from a low-pressure to a high-pressure
pipeline, in order to increase production rates. The 3-D seismic data was
recently reprocessed and two prospects are currently being evaluated and are
scheduled to be drilled in 1997. Five additional wells have been budgeted to
be drilled in 1997.

39
<PAGE>

Triple "A" Project Area: Frio Formation

The Triple "A" Project Area involves the redevelopment of a mature field
located in San Patricio County, Texas. All of the prospects in this project
area are located in the normally pressured Frio trend. In 1995 the Company
acquired a 2,230 acre lease in the Triple "A" Project Area by conducting a 13
square mile 3-D seismic survey over the field area. An additional 600 acres
has been acquired by the Company to cover what the Company believes to be the
prospective areas around the field. The Company has recently drilled and
completed the first of two identified prospects. The well produced 500 Mcf/d
of gas and 8 Bbls/d of oil net to the Company's interest during December 1996
with estimated net proved reserves of 0.2 Bcf of gas and 1.0 MBbls of oil as
of December 31, 1996. Should the Company identify any additional drill sites,
it would expect to drill the normally pressured prospects and, like in the
Starr-Hidalgo Project Area, it would seek to develop and sell deeper prospects
for up-front cash and an after payout working interest. The Company has an
average 25% working interest and an average 18.8% net revenue interest in the
acreage under lease in this project area.

MISSISSIPPI

Tallahala Creek Field: Cotton Valley and Smackover Formation

The Tallahala Creek Field is located in Smith County, Mississippi, and
approximately 3,240 acres are under lease. Following acquisition of the field,
improvements in operations of producing wells and several recompletions
identified by the Company in a detailed petrophysical study of the existing
wells resulted in a production increase from 180 Bbls/d of oil at the time of
acquisition in November 1994 to 310 Bbls/d of oil during the quarter ended
December 31, 1996. As of December 31, 1996, the estimated proved reserves of
this field were 195 MBbls of oil and 65 MMcf of natural gas net to the
Company. In the fourth quarter of 1995 the Company acquired a 28 square mile
3-D seismic survey over the field. Interpretation of the 3-D data has revealed
five prospects within the field. The Company is currently drilling the first
of these locations to a depth of approximately 15,900 feet. The Company has an
18% to 23.5% working interest and a 10.6% to 17.4% net revenue interest in the
properties in this field.

Quito Prospect: Cotton Valley and Smackover Formation

The Quito Prospect is located in Wayne County, Mississippi, and
approximately 2,760 acres are under lease. The Company identified the prospect
using 2-D seismic data and acquired 3-D seismic data in November 1996 to
better delineate the prospect. The Company believes the 3-D seismic data
indicates a structure that could potentially support four producing wells. The
Company has an average 50% working interest and an average 36.3% net revenue
interest in the acreage under lease.

ALABAMA

Barnett Project Area: Smackover Formation

The Barnett Project Area is located in Escambia County, Alabama, and
approximately 578 acres are under lease. A 20 square mile 3-D seismic survey
was acquired and interpreted in 1994, resulting in the identification of six
prospects in the Smackover Formation. Four of these prospects have been
drilled, resulting in the completion of three producing wells. Production from
the first two producing wells averaged 645 Bbls/d of oil and 530 Mcf/d of gas
during the quarter ended December 31, 1996. The third well began production in
the fourth quarter of 1996. The two remaining prospects are scheduled to be
drilled during 1997. The Company has an average 18.5% after payout working
interest and an average 13.6% after payout net revenue interest in the acreage
under lease in this project area.

40
<PAGE>

LOUISIANA

South Mermentau Field

The South Mermentau Field is located in Acadia Parish, Louisiana. The
Company discovered a new natural gas reservoir in this field by drilling an
initial exploration well. A second well was drilled on an offset fault block
and was also found to be productive. The field produced approximately 8.9
MMcf/d of natural gas and 570 Bbls/d of oil during the fourth quarter of 1996.
The Company's net estimated proved reserves are 0.7 Bcf of gas and 34 Mbls of
oil as of December 31, 1996. The Company is currently attempting to permit a
3-D survey over this project area. The Company has a 15.8% working interest
and an 11.3% net revenue interest in its properties in this field.

SIGNIFICANT FULLY DEVELOPED PROPERTIES

In addition to its exploration project areas, the Company has interests in
the following significant development properties. No exploration is expected
to be conducted on such properties. The reserve data set forth below for the
properties is based on the Ryder Scott Report. There are numerous
uncertainties in estimating quantities of proved reserves, including many
factors beyond the control of the Company. See "Risk Factors--Uncertainty of
Reserve Information and Future Net Revenue Estimates."

South Maurice Field

South Maurice Field is located in Vermillion Parish, Louisiana, and is the
largest single discovery made to date by the Company. The field has produced
approximately 80 Bcf of gas since its discovery by the Company in 1987 and was
producing 24.3 MMcf/d of gas and 123 Bbls/d of oil as of December 31, 1996.
The Company distributed most of its interests in this field to its former
equity holders, but still retains a 2.7% working interest and a 2.0% average
net revenue interest with proved reserves of 0.4 Bcfe attributable to the
Company as of December 31, 1996.

North Excel Field

The North Excel Field is located in Monroe County, Alabama, and
approximately 769 acres are under lease. The North Excel Field was discovered
by the Company in November 1994. During 1994, a 3-D seismic survey was
acquired and interpreted within the Frisco City Sands and the Norphlet Sands.
Four producing wells have been completed in the field, which produced 625
Bbls/d of oil and 5,250 Mcf/d of gas during the quarter ended December 31,
1996 with estimated proved reserves of 111 MBbls of oil and 0.3 Bcf of gas net
to the Company as of December 31, 1996. The Company believes that the North
Excel Field is fully drilled and offers the potential for increased reserves
solely from operational and engineering improvements. The Company has a 13%
working interest and a 10% average net revenue interest in the acreage under
lease in this field.

ESSEX ROYALTY PROPERTIES

The Company is the managing venturer of two joint ventures (the "Essex
Royalty Joint Ventures") that have acquired royalty, overriding royalty, net
profits and other non-operating interests with respect to producing and non-
producing properties located in Louisiana, Texas, Alabama, Mississippi, New
Mexico and Oklahoma.

Pursuant to the joint venture agreements for the Essex Royalty Joint
Ventures, the Company, as managing venturer, receives certain management fees.
In addition, after the other participants in each of the two Essex Royalty
Joint Ventures receive distributions equivalent to 110% and 111.3%,
respectively, of their capital contributions, the Company will receive 40% and
25%, respectively, of the profits, losses and distributions of the Essex
Royalty Joint Ventures. As of December 31, 1996, approximately $1.1 million
and $2.5 million remained until payout with respect to the two Essex Royalty
Joint Ventures. For a more extensive discussion of the joint venture
agreements with respect to the Essex Royalty Joint Ventures, see "Certain
Transactions--Essex Royalty Joint Ventures."

41
<PAGE>

From its inception in 1992 through December 31, 1996, in addition to the
payment of management fees, the Essex Royalty Joint Ventures made
distributions of approximately $2.5 million, all of which, pursuant to the
sharing ratios described above, were distributed to the other participants in
the Essex Royalty Joint Ventures.

OIL AND NATURAL GAS RESERVES

The following table sets forth estimated net proved oil and natural gas
reserves of the Company and the present value of estimated future pretax net
cash flows related to such reserves as of December 31, 1996. The reserve data
and the present value as of December 31, 1996 were prepared by Ryder Scott.
For further information concerning Ryder Scott's estimate of the proved
reserves of the Company at December 31, 1996, see Ryder Scott's letter
included as Annex A to this Prospectus. The present value of estimated future
net revenues before income taxes was prepared using constant prices as of the
calculation date, discounted at 10% per annum on a pretax basis, and is not
intended to represent the current market value of the estimated oil and
natural gas reserves owned by the Company. For further information concerning
the present value of future net revenue from these proved reserves, see Note 9
of Notes to Combined Financial Statements. Also see "Risk Factors--Uncertainty
of Reserve Information and Future Net Revenue Estimates."

<TABLE>
<CAPTION>
PROVED RESERVES
-----------------------------
DEVELOPED UNDEVELOPED TOTAL
--------- ----------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Oil and condensate (MBbls).................... 570 73 643
Natural gas (MMcf)............................ 11,301 2,116 13,417
Total proved reserves (MMcfe)................. 14,721 2,554 17,275
Present value of estimated future net revenues
before income taxes(1)....................... $34,001 $5,425 $39,426
</TABLE>
- --------

(1) The present value of estimated future pretax net cash flows as of December
31, 1996 was determined by using the December 31, 1996 weighted average
sales prices of $23.69 per Bbl of oil and $3.62 per Mcf of natural gas.

There are numerous uncertainties inherent in estimating quantities of proved
oil and natural gas reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control
of the producer. The reserve data set forth herein represents estimates only.
Reserve engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an exact way,
and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
As a result, estimates made by different engineers often vary from one
another. In addition, results of drilling, testing and production subsequent
to the date of an estimate may justify revision of such estimates, and such
revisions may be material. Accordingly, reserve estimates are generally
different from the quantities of oil and natural gas that are ultimately
recovered. Furthermore, the estimated future net revenues from proved reserves
and the present value thereof are based upon certain assumptions, including
future prices, production levels and costs, that may not prove correct.

No estimates of proved reserves comparable to those included herein have
been included in reports to any federal agency other than the Commission.

In accordance with Commission regulations, the Ryder Scott Report used oil
and natural gas prices in effect at December 31, 1996. Natural gas prices at
such date were high relative to prices in recent years. The prices used in
calculating the estimated future net revenue attributable to proved reserves
do not necessarily reflect market prices for oil and natural gas production
subsequent to December 31, 1996. There can be no assurance that all of the
proved reserves will be produced and sold within the periods indicated, that
the assumed prices will actually be realized for such production or that
existing contracts will be honored or judicially enforced.

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<PAGE>

VOLUMES, PRICES AND OIL & GAS OPERATING EXPENSE

The following table sets forth certain information regarding the production
volumes of, average sales prices received for and average production costs
associated with the Company's sales of oil and natural gas for the periods
indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
PRODUCTION:
Oil and condensate (MBbls)........................ 61 64 109
Gas (MMcf)........................................ 588 513 2,316
Total (MMcfe)..................................... 954 896 2,972
AVERAGE SALES PRICE:
Oil and condensate ($ per Bbl).................... $ 17.66 $ 15.88 $ 19.31
Gas ($ per Mcf)................................... 1.57 1.99 2.42
Average oil & natural gas operating expense ($ per
Mcfe)(1)......................................... 0.32 0.77 0.54
</TABLE>
- --------
(1) Includes direct lifting costs (labor, repairs and maintenance, materials
and supplies), workover costs and the administrative costs of production
offices, insurance and property and severance taxes.

RESERVE REPLACEMENT COSTS

Since January 1, 1994, the Company has incurred total gross development,
exploration and acquisition costs of approximately $23.5 million and generated
proceeds of approximately $13.3 million from the sale of undeveloped
prospects. Total exploration, development and acquisition activities since
January 1, 1994 have resulted in the addition of approximately 21.7 Bcfe, net
to the Company's interest, of proved reserves at an average reserve
replacement cost of $0.47 per Mcfe. Reserve replacement costs reflect the
proceeds from the sales of unproved prospects.

The Company's reserve replacement costs have historically fluctuated on a
year to year basis. Reserve replacement costs, as measured annually, may not
be indicative of the Company's ability to economically replace oil and natural
gas reserves because the recognition of costs may not necessarily coincide
with the addition of proved reserves.

DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES

The following table sets forth certain information regarding the gross costs
incurred in the purchase of proved and unproved properties and in development
and exploration activities.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Acquisition costs:
Unproved prospects........................ $ 5,497 $ 3,659 $ 4,490
Proved properties......................... 26 91 36
Exploration................................. 670 2,642 2,633
Development................................. 238 1,150 2,343
------- ------- -------
Gross costs incurred...................... 6,431 7,542 9,502
Less proceeds from sales of prospects....... 7,071 4,008 2,230
------- ------- -------
Net costs incurred........................ $(640) $3,534 $7,272
======= ======= =======
</TABLE>

Net costs incurred do not reflect sales of proved properties which are
accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves.

DRILLING ACTIVITY

The following table sets forth the drilling activity of the Company for the
years ended December 31, 1994, 1995 and 1996. In the table, "gross" refers to
the total wells in which the Company has a working interest and

43
<PAGE>

"net" refers to gross wells multiplied by the Company's working interest
therein. Wells in which the Company holds a reversionary interest are not
included in the following table because such interests had not been earned at
the time of drilling. The percentage of the Company's wells in which it holds
solely a reversionary interest has decreased in the last two years.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ----------- -----------
GROSS NET GROSS NET GROSS NET
----- --- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells
Productive............................... 4 .09 17 8.66 32 15.82
Nonproductive............................ 4 .10 12 4.64 12 3.76
--- --- --- ----- --- -----
Total.................................. 8 .19 29 13.30 44 19.58
Development Wells
Productive............................... 5 .23 5 .20 -- --
Nonproductive............................ -- -- 1 .01 1 .20
--- --- --- ----- --- -----
Total.................................. 5 .23 6 .21 1 .20
</TABLE>

Since December 31, 1996, the Company has drilled 2 gross productive
exploratory wells (0.96 net) and 2 gross productive development wells (0.69
net). The Company is currently drilling or evaluating 1 gross exploratory well
(0.225 net) and 1 gross development well (0.22 net).

PRODUCTIVE WELLS

The following table sets forth the number of productive oil and natural gas
wells in which the Company owned an interest as of December 31, 1996.

<TABLE>
<CAPTION>
COMPANY-
OPERATED OTHER TOTAL
----------- ----------- -----------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Oil................................... 3 1.66 31 6.02 34 7.68
Natural gas........................... 24 15.92 34 6.70 58 22.62
--- ----- --- ----- --- -----
Total............................. 27 17.58 65 12.72 92 30.30
</TABLE>

ACREAGE DATA

The following table sets forth certain information regarding the Company's
developed and undeveloped lease acreage as of December 31, 1996. Developed
acres refers to acreage within producing units and undeveloped acres refers to
acreage that has not been placed in producing units.

<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
---------------- -----------------
GROSS NET GROSS NET
-------- ------- -----------------
<S> <C> <C> <C> <C>
Alabama................................ 2,925 157 7,712 1,262
Louisiana.............................. 2,841 315 117 97
Mississippi............................ 2,660 87 6,041 747
Texas.................................. 30,486 7,740 47,281 13,519
-------- ------- -------- --------
Total.............................. 38,912 8,299 61,151 15,625
======== ======= ======== ========
</TABLE>

Leases covering approximately 16,524 gross (5,140 net), 22,707 gross (4,316
net), 1,822 gross (196 net) and 1,604 gross (161 net) undeveloped acres are
scheduled to expire in 1997, 1998, 1999 and 2000, respectively.

The table does not include 59,562 gross (29,781 net) acres that the Company
has a right to acquire pursuant to various seismic option agreements. In
addition, the Company is expected to acquire options on an additional 37,900
acres pursuant to various seismic option agreements by December 31, 1997.

44
<PAGE>

MARKETING

The Company's production is marketed to third parties consistent with
industry practices. Typically, oil is sold at the wellhead at field-posted
prices and natural gas is sold under contract at a negotiated price based upon
factors normally considered in the industry, such as distance from the well to
the pipeline, well pressure, estimated reserves, quality of natural gas and
prevailing supply/demand conditions.

The Company's marketing objective is to receive the highest possible
wellhead price for its product. The Company is aided by the presence of
multiple outlets near its production in the Gulf Coast. The Company takes an
active role in determining the available pipeline alternatives for each
property based upon historical pricing, capacity, pressure, market
relationships, seasonal variances and long-term viability.

There are a variety of factors which affect the market for oil and natural
gas, including the extent of domestic production and imports of oil and
natural gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulations on oil and
natural gas production and sales. The Company has not experienced any
difficulties in marketing its oil and natural gas. The oil and natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual customers.

The Company markets its own production where feasible with a combination of
market-sensitive pricing and forward-fixed pricing. Forward pricing is
utilized to take advantage of anomalies in the futures market and to hedge a
portion of the Company's production deliverability at prices exceeding
forecast. All of such hedging transactions provide for financial rather than
physical settlement. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General Overview."

Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas sold in the
spot market due primarily to seasonality of demand and other factors beyond
the Company's control. Domestic oil prices generally follow worldwide oil
prices, which are subject to price fluctuations resulting from changes in
world supply and demand. The Company continues to evaluate the potential for
reducing these risks by entering into, and expects to enter into, additional
hedge transactions in future years. In addition, the Company may also close
out any portion of hedges that may exist from time to time as determined to be
appropriate by management. As of December 31, 1996, there were no existing
hedge positions. Total natural gas purchased and sold under swap arrangements
during the years ended December 31, 1996 and 1995 were 182 MMcf and 122 MMcf,
respectively. Gains and losses realized by the Joint Venture under such swap
arrangements were $5,270 and $(15,720) for the years ended December 31, 1996
and 1995, respectively. There was no hedging activity in 1994.

COMPETITION

The Company encounters competition from other oil and natural gas companies
in all areas of its operations, including the acquisition of exploratory
prospects and proven properties. The Company's competitors include major
integrated oil and natural gas companies and numerous independent oil and
natural gas companies, individuals and drilling and income programs. Many of
its competitors are large, well-established companies with substantially
larger operating staffs and greater capital resources than the Company's and
which, in many instances, have been engaged in the oil and natural gas
business for a much longer time than the Company. Such companies may be able
to pay more for exploratory prospects and productive natural gas and oil
properties and may be able to define, evaluate, bid for and purchase a greater
number of properties and prospects than the Company's financial or human
resources permit. In addition, such companies may be able to expend greater
resources on the existing and changing technologies that the Company believes
are and will be increasingly important to the current and future success of
oil and natural gas companies. The Company's ability to explore for oil and
natural gas prospects and to acquire additional properties in the future will
be dependent upon its ability to conduct its operations, to evaluate and
select suitable properties and to consummate transactions in this highly
competitive environment. The Company believes that its technological
expertise, its exploration, drilling

45
<PAGE>

and production capabilities and the experience of its management generally
enable it to compete effectively. Many of the Company's competitors, however,
have financial resources and exploration and development budgets that are
substantially greater than those of the Company, which may adversely affect the
Company's ability to compete with these companies.

REGULATION

The availability of a ready market for oil and gas production depends upon
numerous factors beyond the Company's control. These factors include regulation
of natural gas and oil production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates of
production by well or proration unit, the amount of natural gas and oil
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive
fuels. For example, a productive natural gas well may be "shut-in" because of
an oversupply of natural gas or lack of an available natural gas pipeline in
the areas in which the Company may conduct operations. State and federal
regulations generally are intended to prevent waste of natural gas and oil,
protect rights to produce natural gas and oil between owners in a common
reservoir, control the amount of natural gas and oil produced by assigning
allowable rates of production and control contamination of the environment.
Pipelines are subject to the jurisdiction of various federal, state and local
agencies. The following discussion summarizes the regulation of the United
States oil and gas industry. The Company believes that it is in substantial
compliance with such statutes, rules, regulations and governmental orders,
although there can be no assurance that this is or will remain the case. The
following discussion is not intended to constitute a complete discussion of the
various statutes, rules, regulations and governmental orders to which the
Company's operations may be subject.

REGULATION OF NATURAL GAS AND OIL EXPLORATION AND PRODUCTION. The Company's
operations are subject to various types of regulation at the federal, state and
local levels. Such regulation includes requiring permits for the drilling of
wells, maintaining bonding requirements in order to drill or operate wells and
regulating the location of wells, the method of drilling and casing wells, the
surface use and restoration of properties upon which wells are drilled in, the
plugging and abandoning of wells and the disposal of fluids used in connection
with operations. The Company's operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units and the density of wells which
may be drilled in and the unitization or pooling of oil and gas properties. In
this regard, some states allow the forced pooling or integration of tracts to
facilitate exploration while other states rely primarily or exclusively on
voluntary pooling of lands and leases. In areas where pooling is voluntary, it
may be more difficult to form units, and therefore, more difficult to develop a
project if the operator owns less than 100% of the leasehold. In addition,
state conservation laws establish maximum rates of production from oil and
natural gas wells, generally prohibit the venting or flaring of natural gas and
impose certain requirements regarding the ratability of production. The effect
of these regulations may limit the amount of oil and natural gas the Company
can produce from its wells and may limit the number of wells or the locations
at which the Company can drill. The regulatory burden on the oil and gas
industry increases the Company's costs of doing business and, consequently,
affects its profitability. Inasmuch as such laws and regulations are frequently
expanded, amended and reinterpreted, the Company is unable to predict the
future cost or impact of complying with such regulations.

FEDERAL REGULATION OF SALES AND TRANSPORTATION OF NATURAL GAS. Historically,
the transportation and sale for resale of natural gas in interstate commerce
have been regulated pursuant to the Natural Gas Act of 1938 (the "NGA"), the
Natural Gas Policy Act of 1978 (the "NGPA") and the regulations promulgated
thereunder by the Federal Energy Regulatory Commission (the "FERC"). Maximum
selling prices of certain categories of natural gas sold in "first sales,"
whether sold in interstate or intrastate commerce, were regulated pursuant to
the NGPA. On July 26, 1989, the Natural Gas Wellhead Decontrol Act (the
"Decontrol Act") was enacted, which removed, as of not later than January 1,
1993, all remaining federal price controls from natural gas sold in "first
sales." The FERC's jurisdiction over natural gas transportation was unaffected
by the Decontrol Act.

Historically, producers typically sold their production to intrastate and
interstate pipelines, which then functioned as the wholesalers selling to the
local distributors and other end-use customers. However, in April

46
<PAGE>

1992, the FERC issued Order No. 636, a rule designed to restructure the
interstate natural gas transportation and marketing system and remove various
barriers and practices that have historically limited non-pipeline natural gas
sellers, including producers, from effectively competing with interstate
pipelines for sales to local distribution companies and large industrial and
commercial customers. The most significant provisions of Order No. 636:
(a) require that interstate pipelines provide firm and interruptible
transportation solely on an "unbundled" basis, separate from their sales
service, and convert each pipeline's bundled firm sales service into unbundled
firm transportation service; (b) provide for the issuance of blanket
certificates to pipelines to provide unbundled sales service, giving all
customers a chance to purchase their firm supplies from nonpipeline merchants
(see the discussion of Order No. 547 below); (c) require that pipelines provide
firm and interruptible transportation service on a basis that is equal in
quality for all natural gas supplies, whether purchased from the pipeline or
elsewhere; (d) require that pipelines provide new, nondiscriminatory "no-
notice" transportation for certain of their traditional sales customers that
largely replicates the "bundled" sales service previously provided by
pipelines; (e) establish two new generic programs for the reallocation of firm
pipeline capacity; (f) require that all pipelines offer access to their storage
facilities on a firm and interruptible basis; (g) provide for pregranted
abandonment of pipeline sales agreements, interruptible and short-term (defined
as one year or less) transportation agreements and conditional pregranted
abandonment of long-term transportation service; (h) modify transportation rate
design by requiring that all fixed costs related to transportation be recovered
through the reservation charge; and (i) provide mechanisms for the recovery by
pipelines of certain types of costs likely to occur from implementation of
Order No. 636. The restructuring process has been implemented on a pipeline-by-
pipeline basis through negotiations in individual pipeline proceedings. All of
the interstate pipelines have filed their Order No. 636 compliance plans with
the FERC and most have had those plans approved, subject to certain conditions
and subject to appeals to the reviewing court respecting various issues. Since
the issuance of Order No. 636, the FERC has issued two orders making relatively
minor modifications to Order No. 636. Numerous parties have filed for judicial
review of Order No. 636 as well as for judicial review of the FERC's orders
approving restructuring plans for various individual pipelines. The United
States Court of Appeals for the District of Columbia Circuit (the "Court")
recently issued its decision in the appeal of Order No. 636. The Court largely
upheld the basic tenets of Order No. 636, including the requirements that
interstate pipelines "unbundle" their sales of gas from transportation and that
pipelines provide open-access transportation on a basis that is equal for all
gas supplies. The Court remanded five relatively narrow issues for further
explanation by the FERC. In doing so, the Court made it clear that the FERC's
existing rules on the remanded issues would remain in effect pending further
consideration. The Court's decision is still subject to rehearing and parties
could potentially petition for writ of certiorari to the United States Supreme
Court. It is not possible to predict what effect, if any, the ultimate outcome
of this judicial review process or the other appeals still pending in
individual pipeline restructuring proceedings will have on the FERC's open-
access regulations or on the Company.

For decades, the principal methodology used to set pipeline rates has been
based on the actual cost to provide that service. In recent years, regulators
have concluded that sufficient competition may exist in certain markets to
allow a relaxation of this historic approach. In January 1996, the FERC issued
a statement of policy and a request for comments concerning alternatives to its
traditional cost-of-service ratemaking methodology to establish the rates
interstate pipelines may charge for their services. The policy statement
articulates the criteria that the FERC will use to evaluate proposals to charge
market-based rates for the transportation of natural gas. The policy statement
also provides that the FERC will consider proposals for negotiated rates for
individual shippers of natural gas, so long as a cost-of-service-based rate is
available to the customer to protect against abuse. The FERC requested comments
on whether it should allow gas pipelines the flexibility to negotiate the terms
and conditions of transportation service with prospective shippers. The Company
cannot predict what further action the FERC will take on these matters;
however, the Company does not believe that it will be affected by any action
taken materially differently than other natural gas producers, gatherers and
marketers with which it competes.

The FERC recently issued a notice of proposed rulemaking ("NOPR") pursuant to
which it proposes to substantially revise its regulations regarding releases of
firm interstate pipeline capacity. In the NOPR, the FERC proposes to (i)
require pipelines to have comparable procedures for capacity release
transactions and interruptible

47
<PAGE>

transportation transactions; (ii) allow replacement shippers to release
capacity in segments and change primary receipt and delivery points; (iii)
eliminate the requirement to bid on release transactions; and (iv) lift the
price cap for released capacity, interruptible transportation, and short-term
firm pipeline capacity in markets where the shipper or the pipeline
demonstrates a lack of market power. Simultaneously with the issuance of the
NOPR, the FERC issued an order establishing an experimental pilot program that
would implement certain provisions of the NOPR during the 1996-97 winter
heating season. The FERC intends the pilot programs to help in determining
whether the criteria in the NOPR is indicative of a lack of market power. The
Company cannot predict what further action the FERC will take on these matters;
however, the Company does not believe that it will be affected by any action
taken materially differently than other natural gas producers, gatherers and
marketers with which it competes.

In May 1995, the FERC issued a policy statement on how interstate gas
pipelines can recover the costs of new pipeline facilities. While this policy
statement affects the Company only indirectly, in its present form the new
policy should enhance competition in natural gas markets and facilitate
construction of gas supply laterals. However, requests for rehearing of this
policy statement are currently pending. The Company cannot predict what action
the FERC will take on these requests.

Commencing in May 1994, the FERC issued a series of orders in individual
cases that delineate a new gathering policy in light of the interstate pipeline
industry's restructuring under Order No. 636. As a general matter, gathering is
exempt from the FERC's jurisdiction; however, the courts have held that where
the gathering is performed by the interstate pipelines in association with the
pipeline's jurisdictional transportation activities, the FERC retains
regulatory control over the associated gathering services to prevent abuses.
Among other matters, the FERC slightly narrowed its statutory tests for
establishing gathering status and reaffirmed that, except in situations in
which the gatherer acts in concert with an interstate pipeline affiliate to
frustrate the FERC's transportation policies, the FERC does not generally have
jurisdiction over natural gas gathering facilities and services. In the FERC's
opinion, such facilities and services are more properly regulated by state
authorities. In addition, the FERC has approved several transfers proposed by
interstate pipelines of gathering facilities to unregulated independent or
affiliated gathering companies. Certain of the FERC's orders delineating its
new gathering policy recently were the subject of an opinion issued by the
Court. That opinion generally upheld the FERC's policy of approving the
interstate pipeline's proposed "spindown" of its gathering facilities to an
unregulated affiliate company, but reversed and remanded to the FERC that
portion of the FERC's orders imposing so-called "default contracts" by which
the unregulated affiliate was obligated to continue existing gathering services
to customers under "default contracts" for up to two years after spindown. It
remains unclear whether the FERC will attempt to reimpose such conditions or
will otherwise act in response to producer requests for additional protection
against perceived monopolistic action by pipeline-related gatherers. In
addition, in February 1996, the FERC issued a policy statement that, among
other matters, reaffirmed, with some clarifications, its long-standing test for
determining whether particular pipeline facilities perform a jurisdictional
transmission function or non jurisdictional gathering function. While changes
to the FERC's gathering policy affect the Company only indirectly, such changes
could affect the price and availability of capacity on certain gathering
facilities, and thus access to certain interstate pipelines, which, in turn,
could affect the price of gas at the wellhead and in markets in which the
Company competes. However, the Company does not believe that it will be
affected by these changes to the FERC's gathering policy materially differently
than other natural gas producers with which it competes.

In December 1992, the FERC issued Order No. 547, governing the issuance of
blanket marketer sales certificates to all natural gas sellers other than
interstate pipelines. The order applies to non-first sales that remain subject
to the FERC's NGA jurisdiction. Among other things, the order eliminates the
need for natural gas producers and marketers to seek specific authorization
under Section 7 of the NGA from the FERC to make sales of natural gas for
resale. Instead, effective January 7, 1993, these natural gas sellers, by
operation of the order, were issued blanket certificates of public convenience
and necessity allowing them to make jurisdictional natural gas sales for resale
at negotiated rates without seeking specific FERC authorization, thus allowing
such sellers to compete with sellers making deregulated first sales. The FERC
intends Order 547, in tandem with Order

48
<PAGE>

No. 636, to foster a competitive market for natural gas by giving natural gas
purchasers access to multiple supply sources at market-driven prices. Order No.
547 may increase competition in markets in which the Company's natural gas is
sold.

In October 1992, the Energy Policy Act of 1992 was enacted. This Act
streamlined the permitting process necessary to import Canadian natural gas and
altered the treatment of such gas under the NGPA, eliminating the FERC's
jurisdiction over the price of non-pipeline sales of natural gas imported from
Canada. Canadian natural gas imports still require import authorizations from
the Department of Energy's Office of Fossil Energy under Section 3 of the NGA
and construction and siting authorizations, where applicable, from the FERC.
These changes could enhance the ability of Canadian producers to export natural
gas to the United States and increase competition in the domestic natural gas
market.

Commencing in October 1993, the FERC has modified its regulation of oil
pipeline rates and services in order to comply with the Energy Policy Act of
1992. That Act mandated the FERC to streamline oil pipeline ratemaking by
abandoning its old, cumbersome procedures. It also grandfathered certain
existing rates. To respond to the statute, the FERC issued a series of rules
(Order Nos. 561 and 561-A) establishing an indexing system under which oil
pipelines will be able to change their transportation rates, subject to
prescribed ceiling levels. The indexing system, which allows or may require
pipelines to make rate changes to track changes in the Producer Price Index for
Finished Goods, minus one percent, became effective January 1, 1995. The FERC's
decision in these matters was recently affirmed by the Court. The Company is
not able at this time to predict the effects of Order Nos. 561 and 561-A, if
any, on the transportation costs associated with oil production from the
Company's oil producing operations.

Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the FERC and the courts. The natural gas
industry historically has been very heavily regulated; therefore, there is no
assurance that the less stringent regulatory approach recently pursued by the
FERC and Congress will continue.

OIL PRICE CONTROLS AND TRANSPORTATION RATES. Sales of crude oil, condensate
and gas liquids by the Company are not currently regulated and are made at
market prices. The FERC has issued an order establishing an indexing system for
transportation rates for oil that could increase the cost of transporting oil
to the purchaser. Because this order is subject to administrative and judicial
review, the Company is not able to predict what effect, if any, this order will
have on it.

ENVIRONMENTAL REGULATIONS. The Company's operations are subject to numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Public interest in the
protection of the environment has increased dramatically in recent years. The
trend of more expansive and stricter environmental legislation and regulations
could continue. To the extent laws are enacted or other governmental action is
taken that restricts drilling or imposes environmental protection requirements
that result in increased costs to the oil and gas industry in general, the
business and prospects of the Company could be adversely affected.

The Company generates wastes, including hazardous wastes, that are subject to
the federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA and various state agencies have limited the approved
methods of disposal for certain hazardous and nonhazardous wastes. Furthermore,
certain wastes generated by the Company's oil and natural gas operations that
are currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes," and therefore be subject to more rigorous and
costly operating and disposal requirements.

The Company currently owns or leases numerous properties that for many years
have been used for the exploration and production of oil and gas. Although the
Company believes that it has utilized good operating and waste disposal
practices, prior owners and operators of these properties may not have utilized
similar practices, and, hydrocarbons or other wastes may have been disposed of
or released on or under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for disposal. In

49
<PAGE>

addition, many of these properties have been operated by third parties whose
treatment and disposal or release of hydrocarbons or other wastes was not under
the Company's control. These properties and the wastes disposed thereon may be
subject to CERCLA, RCRA and analogous state laws. Under such laws, the Company
could be required to remove or remediate previously disposed wastes (including
wastes disposed of or released by prior owners or operators) or property
contamination (including groundwater contamination) or to perform remedial
plugging operations to prevent future contamination.

The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from the
operations of the Company. The EPA and states have been developing regulations
to implement these requirements. The Company may be required to incur certain
capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining operating permits and
approvals addressing other air emissionrelated issues. However, the Company
does not believe its operations will be materially adversely affected by any
such requirements.

Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control, countermeasure and response plans relating to the
possible discharge of oil into surface waters. The Oil Pollution Act of 1990,
as amended ("OPA"), contains numerous requirements relating to the prevention
of and response to oil spills into waters of the United States. The OPA
subjects owners of facilities to strict joint and several liability for all
containment and cleanup costs and certain other damages arising from a spill,
including, but not limited to, the costs of responding to a release of oil to
surface waters. The OPA also requires owners and operators of offshore
facilities that could be the source of an oil spill into waters of the United
States, including wetlands, to post a bond, letter of credit or other form of
financial assurance in the amount of $35 million, subject to later increase to
as much as $150 million if a formal risk assessment indicates that the increase
is warranted, to cover costs that could be incurred by governmental authorities
in responding to an oil spill. In addition to OPA, other federal and state laws
for the control of water pollution also provide varying civil and criminal
penalties and liabilities in the case of releases of petroleum or its
derivatives into surface waters or into the ground. Regulations are currently
being developed under OPA and state laws concerning oil pollution prevention
and other matters that may impose additional regulatory burdens on the Company.
In addition, the CWA and analogous state laws require permits to be obtained to
authorize discharge into surface waters or to construct facilities in wetland
areas. With respect to certain of its operations, the Company is required to
maintain such permits or meet general permit requirements. The EPA recently
adopted regulations concerning discharges of storm water runoff. This program
requires covered facilities to obtain individual permits, participate in a
group permit or seek coverage under an EPA general permit. The Company believes
that it will be able to obtain, or be included under, such permits, where
necessary, and minor modifications to existing facilities and operations that
would not have a material effect on the Company.

The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources, and it is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by the hazardous
substances released into the environment.

The Company also is subject to a variety of federal, state and local
permitting and registration requirements relating to protection of the
environment. Management believes that the Company is in substantial compliance

50
<PAGE>

with current applicable environmental laws and regulations and that continued
compliance with existing requirements will not have a material adverse effect
on the Company.

OPERATING HAZARDS AND INSURANCE

The oil and natural gas business involves a variety of operating risks,
including the risk of fire, explosion, blow-out, pipe failure, casing collapse,
abnormally pressured formations and environmental hazards such as oil spills,
gas leaks, ruptures and discharges of toxic gases, the occurrence of any of
which could result in substantial losses to the Company due to injury or loss
of life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, cleanup responsibilities,
regulatory investigation and penalties and suspension of operations.

In accordance with customary industry practice, the Company maintains
insurance against some, but not all, of the risks described above. The
Company's insurance does not cover business interruption or protect against
loss of revenues. There can be no assurance that any insurance obtained by the
Company will be adequate to cover any losses or liabilities. The Company cannot
predict the continued availability of insurance or the availability of
insurance at premium levels that justify its purchase. The occurrence of a
significant event not fully insured or indemnified against could materially and
adversely affect the Company's financial condition and operations.

TITLE TO PROPERTIES

The Company believes it has satisfactory title to all of its producing
properties in accordance with standards generally accepted in the oil and
natural gas industry. The Company's properties are subject to customary royalty
interests, liens incident to operating agreements, liens for current taxes and
other burdens which the Company believes do not materially interfere with the
use of or affect the value of such properties. As is customary in the industry
in the case of undeveloped properties, little investigation of record title is
made at the time of acquisition (other than a preliminary review of local
records). Investigations, including a title opinion of local counsel, are
generally made before commencement of drilling operations. The Revolving Credit
Facility is secured by substantially all of the Company's oil and natural gas
properties.

EMPLOYEES

At December 31, 1996, the Company had approximately 28 full-time and three
part-time employees, primarily professionals, including five
geologists/geophysicists, two data visualization geoscientists and two
engineers. The Company believes that its relationships with its employees are
good. None of the Company's employees are covered by a collective bargaining
agreement. From time to time, the Company utilizes the services of independent
consultants and contractors to perform various professional services,
particularly in the areas of construction, design, well site surveillance,
permitting and environmental assessment. Field and on-site production operation
services, such as pumping, maintenance, dispatching, inspection and testing,
are generally provided by independent contractors.

LEGAL PROCEEDINGS

From time to time the Company is a party to various legal proceedings arising
in the ordinary course of business. The Company is not currently a party to any
litigation that it believes could have a material adverse effect on the
financial position of the Company.

51
<PAGE>

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES

Following the completion of the Combination Transactions and this Offering,
the officers, directors and key employees of the Company will be substantially
the same as those of Old Edge, immediately prior to such events. The following
table sets forth certain information with respect to directors, executive
officers and certain employees of the Company, together with their ages (as of
January 1, 1997) and positions:

<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE POSITION ENDING
---- --- -------- ----------
<S> <C> <C> <C>
Executive Officers and
Directors:
John E. Calaway........ 39 Chief Executive Officer and Chairman of the 2000
Board
James D. Calaway....... 39 President and Director 2000
Michael G. Long........ 44 Chief Financial Officer
Richard S. Dale........ 41 Controller, Treasurer and Secretary
Vincent Andrews........ 56 Director 1999
David B. Benedict...... 57 Director 1999
Nils P. Peterson....... 60 Director 1999
Stanley S. Raphael..... 61 Director 1998
John Sfondrini......... 48 Director 2000
Robert W. Shower....... 59 Director* 1998
Other Key Employees:
David L. Blake......... 35 Director of Exploration
Mark J. Gabrisch....... 36 Director of Land
John O. Hastings, Jr... 36 Director of Exploration
John O. Tugwell........ 33 Director of Production Engineering
</TABLE>
- --------
*Mr. Shower will become a director of the Company following the completion of
this Offering.

The Company's Board of Directors is divided into three classes with staggered
terms of office, initially ending as set forth above. Thereafter, the term for
each class will expire on the date of the third annual stockholders' meeting
for the election of directors following the most recent election of directors
for such class. Each director holds office until the next annual meeting of
stockholders for the election of directors of his class and until his successor
has been duly elected and qualified. The 1997 Annual Meeting of Stockholders
will be held prior to the completion of this Offering. Officers serve at the
discretion of the Board of Directors.

The Board of Directors will have three standing committees: the Audit
Committee, the Compensation Committee and the Nominating Committee.

JOHN E. CALAWAY is the Chief Executive Officer and Chairman of the Board of
the Company. He was a founder of the predecessor of Old Edge and has served as
the Chief Executive Officer and Chairman of the Board of Old Edge or its
predecessor since 1986. Mr. John E. Calaway has more than 20 years of
experience in the oil and natural gas exploration and production business.

JAMES D. CALAWAY is the President and a director of the Company. He served as
a director of Old Edge since April 1991. Since January 1994, Mr. James D.
Calaway has served as Special Advisor to Old Edge. From 1989 to January 1994,
Mr. James D. Calaway was primarily engaged in the organization and
capitalization of several high technology companies, including The Forefront
Group, Inc. Prior thereto, he served as Vice President of Business Development
for Space Industries International, Inc., a company he co-founded in 1982 that
develops, fabricates, integrates and operates spacecraft and spaceflight
equipment. Mr. James D. Calaway received a B.A. in Economics from the
University of Texas and an M.A. in Politics, Philosophy and Economics from
Oxford University.

52
<PAGE>

MICHAEL G. LONG is the Chief Financial Officer of the Company and has held
this position since December 1996. Mr. Long served as Vice President--Finance
of W&T Offshore, Inc., an oil and gas exploration and production company, from
July 1995 to December 1996. From May 1994 to July 1995, he served as Vice
President of the Southwest Petroleum Division for Chase Manhattan Bank, N.A.
Prior thereto, he served in various capacities with First National Bank of
Chicago, most recently that of Vice President and Senior Corporate Banker of
the Energy and Transportation Department, from March 1992 to May 1994. Mr. Long
received a B.A. in Political Science and an M.S. in Economics from the
University of Illinois.

RICHARD S. DALE is the Controller, Treasurer and Secretary of the Company. He
has held the same positions with Old Edge and its predecessor since 1986. Prior
thereto, Mr. Dale was a Senior Accountant at the public accounting firm of
Kares & Cihlar and a staff accountant with Texaco Inc. He is a Certified Public
Accountant, a member of the American Institute of Certified Public Accountants
and holds a B.B.A. in Accounting from the University of Mississippi.

VINCENT ANDREWS is a director of the Company and has served as a director of
Old Edge since April 1991. Mr. Andrews has, for more than five years, served as
President of Vincent Andrews Management Corporation, a privately held
investment company primarily involved in personal financial management. He
received a B.S. in Business Administration from Georgetown University. In 1994,
Mr. Andrews and Vincent Andrews Management Corporation, a company of which Mr.
Andrews is the President, each filed a voluntary petition for reorganization
pursuant to Chapter 11 of the United States Bankruptcy Code.

DAVID B. BENEDICT is a director of the Company. He was appointed a director
of Old Edge in March 1995, and has been an active investor in Old Edge and its
predecessor since 1983. Since 1987, Mr. Benedict has served as Managing
Director of Capital Markets for First Albany Corporation, an investment banking
and brokerage firm. Prior thereto, he served in various capacities with other
investment banking firms, including Dillon Read & Company, Bear Stearns
Companies Inc. and Oppenheimer Capital L.P. Mr. Benedict holds a B.A. and a
B.S. in Metallurgical Engineering from Lehigh University.

NILS P. PETERSON is a director of the Company and has served as a director of
Old Edge since March 1995. Since January 1991 he has been primarily engaged as
a private investor and formerly served as a director of the Eastern Bancorp,
Inc. and the Boston Mutual Life Insurance Co. Prior thereto, he was Chief
Investment Officer of the Harvard Management Company, investment manager of the
Harvard University endowment funds.

STANLEY S. RAPHAEL is a director of the Company and has served as a director
of Old Edge since April 1991. For more than five years, Mr. Raphael has been
primarily engaged as a private investor and is presently a director of American
Polymers Inc., a polystyrene manufacturer, Big City Bagels Inc., a publicly
held bagel store franchisor, and Trade Consultants, Inc., a management
consulting firm. Previously, he was active in trading crude oil, petroleum
products, LPG, petrochemicals, and plastics worldwide. Mr. Raphael received a
B.B.A. in Foreign Trade and Economics from the City College of New York.

JOHN SFONDRINI is a director of the Company and has served as a director of
Old Edge or its predecessor since 1986, when he arranged for the capitalization
of the Joint Venture's predecessor. For more than five years, he has managed
various general and limited partnerships that invest primarily in the oil and
natural gas industry. He holds a B.S. in Economics from the Wharton School of
Finance. Mr. Sfondrini and Napamco, Ltd. ("Napamco"), a corporation wholly
owned by Mr. Sfondrini of which he is the President, are the general partners
of certain partnerships that are affiliates of Old Edge.

ROBERT W. SHOWER will become a director of the Company following the
completion of this Offering. Mr. Shower served as Executive Vice President and
Chief Financial Officer of Seagull Energy Corporation, an oil and gas
exploration, development and production company, from December 1993 until his
retirement in April 1996. From March 1992 to December 1993, he served as such
company's Senior Vice President. From 1991 to 1992, Mr. Shower served as Senior
Vice President, Corporate Development for Albert Fisher, Inc., a company

53
<PAGE>

engaged in produce distribution. Prior thereto, he served as Senior Vice
President and Chief Financial Officer of Ameriserv. Mr. Shower also serves as a
director of Lear Corporation and Highlands Insurance Group, Inc.

There are no family relations, of first cousin or closer, among the Company's
directors or executive officers, by blood, marriage or adoption, except that
Mr. John E. Calaway and Mr. James D. Calaway are twin brothers.

OTHER KEY EMPLOYEES

DAVID L. BLAKE is a Director of Exploration for the Company and served as a
geophysicist/geologist with Old Edge since July 1989. From 1984 to July 1989,
he held the position of geophysicist for Mobil Exploration and Production
Company. Mr. Blake holds a B.S. in Geophysics from Texas A&M University.

MARK J. GABRISCH is the Director of Land for the Company. Since November
1994, he served in a similar capacity with Old Edge. From 1985 to October 1994,
he was a land man, most recently a Senior Land man, for Shell Oil Company. Mr.
Gabrisch holds a B.S. in Petroleum Land Management from the University of
Houston.

JOHN O. HASTINGS, JR. is a Director of Exploration for the Company and served
in a similar capacity with Old Edge since February 1994. From 1984 to February
1994, he was an exploration geologist with Shell Oil Company, serving as Senior
Geologist before his departure. Mr. Hastings holds a B.A. from Dartmouth in
Earth Sciences and an M.S. in Geology from Texas A&M University.

JOHN O. TUGWELL is the Director of Production Engineering for the Company and
served as Senior Petroleum Engineer of Old Edge since May 1995. From 1986 to
May 1995, he held various reservoir/production engineering positions with Shell
Oil Company, most recently that of Senior Reservoir Engineer. Mr. Tugwell holds
a B.S. in Petroleum Engineering from Louisiana State University. Mr. Tugwell is
a registered Professional Engineer in the State of Texas.

DIRECTOR COMPENSATION

Directors who are employees of the Company are not entitled to receive
additional compensation for serving as directors. Following this Offering, each
director who is not an employee of the Company or a subsidiary (a "Nonemployee
Director") will receive, subject to attending a minimum of three Board meetings
per year, an annual retainer of $10,000 to be paid 50% in cash and 50% in
shares of restricted Common Stock (the "Director Restricted Stock") pursuant to
the Incentive Plan of Edge Petroleum Corporation (the "Incentive Plan"). The
Director Restricted Stock will vest ratably, subject to continued service as a
director, over three years beginning on the first anniversary of the date of
grant. Each Nonemployee Director shall receive a $1,000 cash payment for in-
person attendance at a meeting of the Board of Directors ($400 if such
attendance is telephonic) and $400 for each meeting of a Committee of the Board
of Directors attended (whether in-person or telephonic). All directors will be
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board or Board committees and for other expenses incurred in their capacity as
directors. In addition, Nonemployee Directors will receive options for the
purchase of Common Stock pursuant to the Incentive Plan. See "--Incentive
Plans--Incentive Plan."

OFFICER AND DIRECTOR INDEMNIFICATION

The Company's Bylaws provide for the indemnification of its officers and
directors, and the advancement to them of expenses in connection with
proceedings and claims, to the fullest extent permitted by the Delaware General
Corporation Law. The Bylaws include related provisions meant to facilitate the
indemnitee's receipt of such benefits. These provisions cover, among other
things: (i) specification of the method of determining entitlement to
indemnification and the selection of independent counsel that will in some
cases make such determination; (ii) specification of certain time periods by
which certain payments or determinations must be made and actions must be
taken; and (iii) the establishment of certain presumptions in favor of an
indemnitee. The benefits of certain of these provisions are available to an
indemnitee only if there has been a change in

54
<PAGE>

control (as defined therein). The Company intends to enter into
indemnification agreements with its directors and officers that provide for
similar protections. In addition, the Company expects to purchase directors'
and officers' liability insurance policies that will take effect upon the
closing of this Offering.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation provided by Old Edge to its Chief Executive Officer and each of
the other persons that will serve as executive officers of the Company who
earned more than $100,000 in combined salary and bonus from Old Edge during
the year ended December 31, 1996 (collectively, the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
------------------ ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2)
--------------------------- ---------- ----------------------
<S> <C> <C> <C>
John E. Calaway............................. $ 331,647 -- $67,095
Chief Executive Officer and Chairman of the
Board
James D. Calaway............................ 200,000 -- 44,730
Special Advisor(3)
Richard S. Dale............................. 100,000 -- 40,840
Controller, Treasurer and Secretary
</TABLE>
- --------

(1) Other annual compensation for the named individuals during 1996 did not
exceed the lesser of $50,000 or 10% of the annual compensation earned by
such individual.

(2) Represents the value of overriding royalty interests granted in 1996 in
respect of certain arrangements described under "--Other Compensatory
Arrangements" and in the case of Mr. John E. Calaway, $1,180 paid by Old
Edge for life insurance premiums. Substantially all of such overriding
royalty interests were sold shortly after the grant thereof. Accordingly,
such valuation is based primarily on the proceeds received from the sales
of such interests, and in cases where such interests have not been sold,
on sales of comparable interests.

(3) Mr. James D. Calaway served as Special Advisor of Old Edge during 1996. He
currently serves as President of the Company.

No options were granted to any of the Named Executive Officers in 1996
pursuant to the Edge Petroleum Corporation 1994 Incentive Stock Option Plan
(the "Old Edge Plan"). In connection with the Combination Transactions, all
options previously granted under the Old Edge Plan will be converted into
options for the purchase of Common Stock. See "--Incentive Plans--Old Edge
Plan." The following table summarizes the number and value of the outstanding
options granted under the Old Edge Plan with respect to the Named Executive
Officers, adjusted for such conversion into options for the purchase of Common
Stock. None of the Named Executive Officers exercised any stock options during
1996. There are no outstanding stock appreciation rights, shares of restricted
stock or long-term incentive plans with respect to Old Edge.

55
<PAGE>

1995 YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---- ---------------------------- ----------------------------
<S> <C> <C>
John E. Calaway...... -- --
James D. Calaway..... 2,193/0 $582,661/--
Richard S. Dale...... 2,193/0 $682,951/--
</TABLE>
- --------

(1) Represents the number of shares of Common Stock that may be issued pursuant
to options outstanding at December 31, 1996 that will be assumed by the
Company from Old Edge in connection with the Combination Transactions.
(2) Prior to this Offering, there was no public market for common stock of Old
Edge and, therefore, the value of each unexercised in-the-money stock
option is calculated as the difference between an estimated initial public
offering price of $16.00 per share and the exercise price of the stock
option, as adjusted for the conversion of shares of common stock of Old
Edge into shares of Common Stock. See "--Incentive Plans--Old Edge Plan."

EMPLOYMENT AGREEMENTS

Prior to the completion of this Offering, the Company expects to enter into
employment agreements with each of Mr. John E. Calaway and Mr. James D.
Calaway. The following describes possible terms of such agreements; however, if
entered into, the terms of such agreements may differ from that described
below. Each of these agreements is expected to provide for an annual base
salary in an amount not less than $295,000 in the case of Mr. John E. Calaway
and $200,000 in the case of Mr. James D. Calaway and to entitle the employee to
participate in all of the Company's incentive, savings, retirement and welfare
benefit plans in which other executive officers of the Company participate. The
agreement for Mr. John E. Calaway's employment is expected to provide for the
award of an annual cash bonus of $55,000 if the Company's audited annual net
cash flow increases by 15% or more relative to the audited net cash flow of the
prior calendar year, which bonus will be increased by $50,000 to $105,000 if
such increase in audited net cash flow is 25% or more. In the case of Mr. James
D. Calaway, his employment agreement is expected to provide that he receive an
annual bonus in an amount comparable to the annual bonus of other Company
executives, taking into account his position and responsibilities. The
agreements of each of Mr. John E. Calaway and Mr. James D. Calaway will provide
for restricted stock awards pursuant to the Incentive Plan of (a) 66,823 and
58,470 shares of Common Stock, respectively, that it is expected will vest
ratably over five years beginning on the first anniversary of the date of grant
and (b) 66,822 and 58,470 shares of Common Stock, respectively (together, the
"Performance Shares"), that it is expected will vest on the earlier to occur of
ten years or the achievement of certain performance milestones. If the average
closing price per share for the Common Stock for the month of December for any
given year, as compared with the month of January for that same year (the
"Annual Growth"), has increased by 25% or more, then 20% of the Performance
Shares will vest. If the Annual Growth for a particular year is not at least
25% and as a result none of the Performance Shares vest for such year (a
"Nonachieving Year"), then a deficit equal to 25% less the Nonachieving Year
Annual Growth shall exist. In the year subsequent to a Nonachieving Year, an
additional 20% of the Performance Shares will vest if the Annual Growth for
such subsequent year is at least 25% plus the deficit of the Nonachieving Year.
Upon completion of this Offering, Mr. John E. Calaway and Mr. James D. Calaway
will also each receive option grants, pursuant to the Incentive Plan, to
purchase 133,645 and 116,940 shares of Common Stock, respectively. See "--
Incentive Plans--Incentive Plan."

Each of the employment agreements of Mr. John E. Calaway and Mr. James D.
Calaway is expected to have an initial five-year term provided that beginning
at the end of the second year of such initial term and every anniversary
thereafter, the term of each such employment agreement will automatically be
extended for one year, such that the remaining term of the agreement shall
never be less than three years. Each agreement will be subject to the right of
the Company and the employee to terminate the employee's employment at any
time. It is expected that, upon termination of employment on account of
disability or if employment is terminated by the Company

56
<PAGE>

for any reason, except under certain limited circumstances defined as "for
cause" in the agreement, or by the employee subsequent to a change of control
(as defined) or with good reason (as defined), the employee will generally be
entitled to (i) cash payment(s) equal to his annual base salary, an amount
equivalent to the benefits which would otherwise have been earned under
incentive, savings and retirement plans, and cash bonuses (in the case of
performance bonuses, payment shall be made in the amount of the projected bonus
for subsequent periods based on the average of the applicable performance
measure for the prior three years), for the remainder of the term of the
applicable agreement, (ii) continued participation in all the Company's welfare
benefit plans and (iii) the immediate vesting of any stock options or
restricted stock previously granted to such employee and outstanding as of the
time immediately prior to the date of his termination. Each agreement is
expected to provide that the Company will provide a $2 million term life
insurance policy for the employee.

The Company has entered into an employment agreement with Mr. Michael Long.
The following summary of that agreement does not purport to be complete and is
qualified by reference to it, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The agreement
provides for an annual base salary in an amount not less than $125,000 and
entitles Mr. Long to participate in all the Company's incentive, savings,
retirement and welfare benefit plans. Such annual base salary is subject to
increase to $150,000 as of July 1, 1997 if this Offering is completed and
certain specified objectives relating to investor relations, risk management
and employee benefits administration are completed. Mr. Long is entitled to an
annual bonus of up to 50% of his base salary, to be paid approximately 25% in
cash and 75% in shares of Common Stock, which bonus shall be based on the
achievement of the Company's annual performance goals with respect to increases
in per share reserves and audited annual net cash flow per share. The agreement
provides that Mr. Long receive an option for the purchase of 33,513 shares of
Common Stock upon completion of the Offering, pursuant to the Incentive Plan.
See "--Incentive Plans--Incentive Plan." Mr. Long's employment agreement has an
automatically renewing two-year term. The agreement is subject to the right of
the Company and Mr. Long to terminate his employment at any time. Upon
termination of employment on account of disability or if employment is
terminated by the Company without cause (as defined) or by Mr. Long subsequent
to a change of control (as defined) or with good reason (as defined), Mr. Long
will be entitled to (i) a payment equal to his annual base salary and (ii) the
immediate vesting of any stock options or restricted stock previously granted
to him and outstanding as of the time immediately prior to the date of his
termination. Upon termination on account of death, the Company shall be
obligated to pay, in addition to any accrued benefits, an amount equal to one-
half of his annual base salary.

The employment agreement of Michael G. Long described above provides that the
employee shall not divulge any of the Company's confidential information,
knowledge or data following the termination of employment. The employment
agreements of each of Messrs. John E. Calaway and James D. Calaway are expected
to contain a similar provision. Mr. Long's agreement provides, and the
employment agreements of each of John E. Calaway and James D. Calaway are
expected to provide, for a covenant limiting competition with the Company
during employment with the Company, and, if the employment ends by reason of
the employee terminating his employment for other than good reason or
disability, for one year thereafter in the case of Mr. Long, and for two years
thereafter in the case of each of John E. Calaway and James D. Calaway. Such
covenant provides that the employee will not, within a 75 mile radius of
certain geographic locations, (i) accept employment or render services to a
competitor of the Company or (ii) enter into or take part in any business that
would be competitive with the Company.

Old Edge and Mr. John E. Calaway entered into an employment agreement as of
April 1991 that expired in April 1996. This agreement will be superseded by the
new employment agreement described above. Such agreement provided that Mr. John
E. Calaway was to receive base compensation of at least $295,000 per year,
subject to automatic upward adjustment based on certain price index changes and
discretionary upward adjustment upon the vote of two-thirds of the board of
directors of Old Edge. Pursuant to such agreement, Mr. John E. Calaway was also
entitled to receive a .3% overriding royalty interest in new prospects of Old
Edge or the Joint Venture during the term of the agreement. Such overriding
royalty interest was assigned to Mr. John E. Calaway as described under "--
Other Compensatory Arrangements." The agreement also provides that Old Edge
will provide at its expense a $1 million life insurance policy payable to Mr.
John E. Calaway or his designated beneficiaries.

57
<PAGE>

INCENTIVE PLANS

Incentive Plan. Prior to the completion of this Offering, the Company expects
to adopt the Incentive Plan. The objectives of the Incentive Plan are to (i)
attract and retain the services of key employees, qualified independent
directors and qualified consultants and other independent contractors and (ii)
encourage the sense of proprietorship in and stimulate the active interest of
those persons in the development and financial success of the Company by making
awards ("Awards") designed to provide participants in the Incentive Plan with
proprietary interest in the growth and performance of the Company.

The Company plans to reserve 1,000,000 shares of Common Stock for use in
connection with the Incentive Plan. Persons eligible for Awards are (i)
employees holding positions of responsibility with the Company or any of its
subsidiaries and whose performance can have a significant effect on the success
of the Company, (ii) Nonemployee Directors and (iii) certain nonemployee
consultants and other independent contractors providing, or who will provide,
services to the Company or any of its subsidiaries.

The Compensation Committee of the Company's Board of Directors (the
"Committee") will administer the Incentive Plan. With respect to Awards to
employees and independent contractors, the Committee has the exclusive power to
administer the Incentive Plan, to take all actions specifically contemplated
thereby or necessary or appropriate in connection with the administration
thereof, to interpret the Incentive Plan and to adopt such rules, regulations
and guidelines for carrying out its purposes as the Committee may deem
necessary or proper in keeping with the objectives of such plan. With respect
to Awards to employees and independent contractors, the Committee may, in its
discretion, among other things, extend or accelerate the exercisability of,
accelerate the vesting of or eliminate or make less restrictive any
restrictions contained in any Award, waive any restriction or other provision
of the Incentive Plan or in any Award or otherwise amend or modify any Award in
any manner that is either (i) not adverse to that participant holding the Award
or (ii) consented to by that participant. The Committee also may delegate to
the chief executive officer and other senior officers of the Company its duties
under the Incentive Plan.

The Board of Directors may amend, modify, suspend or terminate the Incentive
Plan for the purpose of addressing any changes in legal requirements or for any
other lawful purpose, except that (i) no amendment or alteration that would
adversely affect the rights of any participant under any Award previously
granted to such participant shall be made without the consent of such
participant and (ii) no amendment or alteration shall be effective prior to its
approval by the stockholders of the Company to the extent such approval is then
required pursuant to Rule 16b-3 in order to preserve the applicability of any
exemption provided by such rule to any Award then outstanding (unless the
holder of such Award consents) or to the extent stockholder approval is
otherwise required by applicable legal requirements. The Board of Directors may
make certain adjustments in the event of any subdivision, split or
consolidation of outstanding shares of Common Stock, any declaration of a stock
dividend payable in shares of Common Stock, any recapitalization or capital
reorganization of the Company, any consolidation or merger of the Company with
another corporation or entity, any adoption by the Company of any plan of
exchange affecting the Common Stock or any distribution to holders of Common
Stock of securities or property (other than normal cash dividends).

Awards to employees and independent contractors may be in the form of (i)
rights to purchase a specified number of shares of Common Stock at a specified
price ("Options"), (ii) rights to receive a payment, in cash or Common Stock,
equal to the fair market value or other specified value of a number of shares
of Common Stock on the rights exercise date over a specified strike price,
(iii) grants of restricted or unrestricted Common Stock or units denominated in
Common Stock, (iv) grants denominated in cash and (v) grants denominated in
cash, Common Stock, units denominated in Common Stock or any other property
which are made subject to the attainment of one or more performance goals
("Performance Awards"). An Option may be either an incentive stock option
("ISO") that qualifies, or a nonqualified stock option ("NSO") that does not
qualify, with the requirements of Section 422 of the Code; provided, that
independent contractors cannot be awarded ISOs. The Committee will determine
the employees and independent contractors to receive Awards and the terms,
conditions and limitations applicable to each such Award, which conditions may,
but need not, include

58
<PAGE>

continuous service with the Company, achievement of specific business
objectives, attainment of specified growth rates, increases in specified
indices or other comparable measures of performance. Performance Awards may
include more than one performance goal, and a performance goal may be based on
one or more business criteria applicable to the grantee, the Company as a whole
or one or more of the Company's business units and may include any of the
following: increased revenue, net income, stock price, market share, earnings
per share, return on equity or assets or decrease in costs.

On the date this Offering closes, Options under the Incentive Plan will be
granted to approximately 16 employees of the Company to purchase a total of
approximately 350,000 shares of Common Stock at an exercise price per share
equal to the initial public offering price per share set forth on the cover
page of this Prospectus. These awards include options to be granted to Messrs.
John E. Calaway, James D. Calaway, Michael G. Long and Richard S. Dale to
purchase 133,645, 116,940, 33,513 and 16,706 shares of Common Stock,
respectively. All such options will have a term of ten years and become
exercisable in cumulative annual increments of one-fifth of the total number of
shares of Common Stock subject thereto, beginning on the first anniversary of
the date of grant.

On the date this Offering closes, each of the current Nonemployee Directors:
Messrs. Andrews, Benedict, Peterson, Raphael and Sfondrini, automatically will
be granted NSOs (based on years of service) to purchase 8,000, 2,000, 2,000,
8,000 and 8,000 shares of Common Stock, respectively. In addition, on the first
business day following the date on which each annual meeting of the Company's
stockholders is held, each Nonemployee Director then serving will automatically
be granted NSOs to purchase 3,000 shares of Common Stock. Any person who first
becomes a Nonemployee Director on or after the date this Offering closes
automatically will be granted, on the date of his or her election, NSOs to
purchase 5,000 shares of Common Stock. Consequently, on the date this Offering
closes, Mr. Shower will be granted NSOs to purchase 5,000 shares of Common
Stock. Each NSO granted to Nonemployee Directors will (i) have a ten year term,
(ii) have an exercise price per share equal to the fair market value of a
Common Stock share on the date of grant (the initial public offering price in
the case of NSOs granted on the closing of this Offering) and (iii) become
exercisable in cumulative annual increments of one-fifth of the total number of
shares of Common Stock subject thereto, beginning on the first anniversary of
the date of grant. If a Nonemployee Director resigns from the Board without the
consent of a majority of the other directors, such director's NSOs may be
exercised only to the extent they were exercisable on the resignation date.

The foregoing description summarizes the principal terms and conditions of
the Incentive Plan, does not purport to be complete and is qualified in its
entirety by reference to the Incentive Plan, a copy of which has been filed as
an exhibit to the Registration Statement of which this Prospectus is a part.

401(K) Plan. Following the completion of this Offering, the Company expects
to adopt a 401(k) Employee Savings Plan (the "401(k) Plan") for its employees.
The following describes possible terms of such plan; however, the decision to
adopt any such plan and the terms thereof will be in the discretion of the
Compensation Committee and the Board of Directors, and, if adopted, may differ
from that described below. Under the 401(k) Plan, eligible employees will be
permitted to defer receipt of up to 15% of their compensation (subject to
certain limitations imposed under the Internal Revenue Code of 1986, as amended
(the "Code")). The 401(k) Plan is expected to provide that a discretionary
match of employee deferrals may be made by the Company in cash. Pursuant to the
401(k) Plan, the Company currently expects to elect to match 50% of the first
6% of employee deferral, with the Company's contribution not to exceed $9,000,
subject to limitations imposed by the Internal Revenue Service. The amounts
held under the 401(k) Plan are expected to be invested among various investment
funds maintained under the 401(k) Plan in accordance with the directions of
each participant, except that matching contributions are expected to be
invested in securities of the Company. Salary deferral contributions under the
401(k) Plan are expected to be 100% vested. Participants or their beneficiaries
are expected to be entitled to payment of vested benefits upon termination of
employment.

Old Edge Plan. Old Edge adopted the Old Edge Plan pursuant to which, in 1994,
all of the options held by Messrs. James D. Calaway and Dale were granted. The
Old Edge Plan was administered by nonemployee

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<PAGE>

members of the Board of Directors of Old Edge. In connection with the
Combination Transactions, such options will be converted into incentive stock
options for the purchase of such number of shares of Common Stock as each of
Messrs. James D. Calaway and Dale would have received in the Combination
Transactions if such options had been exercised immediately prior to the
Combination Transactions. After adjustment for such conversion, the option
exercise price per share of Common Stock will be approximately $4.09 and $2.04
for Messrs. James D. Calaway and Dale, respectively.

OTHER COMPENSATORY ARRANGEMENTS

Overriding Royalty Income. Overriding royalty interests are assigned to
certain employees of Old Edge to reward such employees with incentive
compensation based on the results of the oil and natural gas drilling
activities conducted through the Joint Venture. Pursuant to the Joint Venture
Agreement, Old Edge as managing joint venturer has the right to cause the Joint
Venture to grant overriding royalty interests on prospects sold by the Joint
Venture to geologists, scientists or other persons who originate prospects and
to grant up to a .8% overriding royalty interest to any of certain Old Edge
executives. In the past, Old Edge has caused the Joint Venture to assign
overriding royalty interests in certain oil and natural gas leases pursuant to
this arrangement to certain employees employed at the time of the execution of
the lease. The percentage of overriding royalty interest assigned to employees
as a group for a given lease typically has ranged from 2.6% to 3.8% of the
Joint Venture's total interest in such lease. An individual employee's
overriding royalty interest in a lease was determined in the discretion of Old
Edge's management. Employees receiving overriding royalty interests were
entitled to receive revenues immediately upon the assignment thereof, and such
interests were not subject to forfeiture.

Following the completion of this Offering, the Company intends to assign
overriding royalty interests on a more limited basis with respect to leases
entered into by the Joint Venture or otherwise by the Company that are included
in projects that were not in existence as of December 31, 1996 and subsequent
projects that are not based on 3-D seismic work firmly committed as of such
date ("New Projects"). Only members of the generating geological team for a
given lease in a New Project will receive overriding royalty interests, and the
Company currently does not expect such interests in the aggregate to exceed
1.5% of the Company's total interest in such lease. The Company expects that
the director of engineering production and the director of land would continue
to receive overriding royalty interests in leases that are not in New Projects.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to this Offering, the Company expects to establish a Compensation
Committee. In the past, matters with respect to the compensation of executive
officers of Old Edge were determined by the nonemployee members of the Board of
Directors, as a whole.

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<PAGE>

CERTAIN TRANSACTIONS

THE COMBINATION TRANSACTIONS

The Company was incorporated in Delaware in August 1996. In the Combination
Transactions, the Company plans to complete (i) a merger (the "Merger") of Old
Edge with Edge Mergeco, Inc., a wholly owned subsidiary of the Company
organized solely to effect the merger ("Mergeco"), in which the shareholders of
Old Edge will receive Common Stock, (ii) an exchange offer (the "Edge Group II
Exchange Offer") to the general and limited partners of Edge Group II in which
such partners will have the opportunity to exchange their interests in Edge
Group II for Common Stock, (iii) an exchange offer (the "Gulfedge Exchange
Offer" and, together with the Edge Group II Exchange Offer, the "Limited
Partnership Exchange Offers") to the limited partners of Gulfedge, of which Old
Edge is the general partner (Edge Group II and Gulfedge are collectively
referred to as the "Limited Partnerships"), in which such limited partners will
have the opportunity to exchange their interests in Gulfedge for Common Stock,
(iv) an offer to purchase (the "Purchase Offer") from Edge Group its interest
in the Joint Venture, for consideration consisting of Common Stock and (v) an
exchange (the "Calaway Exchange") of interests in certain oil and natural gas
properties held by Mr. James C. Calaway for Common Stock. Upon consummation of
the Combination Transactions, the Company expects to acquire directly or
indirectly substantially all of the interests in the Joint Venture. The Company
does not expect to seek to consummate this Offering unless both the Merger and
the Edge Group II Exchange Offer (with at least a 70% acceptance level) are
closed; however, the Company would seek to consummate this Offering even in the
absence of the closing of any or all of the Calaway Exchange, the Purchase
Offer or the Gulfedge Exchange Offer. The number of shares of Common Stock to
be issued in the Combination Transactions will depend primarily on (i) the
number of partners who elect to retain their current interests in the Limited
Partnerships in lieu of receiving Common Stock and (ii) whether Edge Group
accepts the Purchase Offer. The disclosures in this Prospectus relating to the
shares of Common Stock to be issued in connection with the Combination
Transactions are estimated based on the assumptions that all of the partners
will tender their interests in the Limited Partnerships in exchange for Common
Stock and that Edge Group will accept the Purchase Offer.

The following table illustrates the number of shares to be issued in this
Offering and the Combination Transactions assuming all parties accept Common
Stock in the Combination Transactions (excluding any restricted stock and stock
options and assuming that the Underwriters' over-allotment option is not
exercised):

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
TRANSACTION SHARES ISSUED SHARES ISSUED
----------- ------------- -------------
<S> <C> <C>
Shares to be issued in the Merger............ 2,334,085 34.8%
Shares to be issued in the Edge Group II
Exchange Offer.............................. 2,209,306 33.0
Shares to be issued in the Gulfedge Exchange
Offer....................................... 74,317 1.1
Shares to be issued in the Purchase Offer.... 42,896 0.7
Shares to be issued in the Calaway
Exchange(1)................................. 42,015 0.6
Shares to be issued in this Offering......... 2,000,000 29.8
--------- -----
6,702,619 100.0%
</TABLE>
- --------
(1)Assumes an initial public offering price of $16.00 per share.

Description of Joint Venture. Substantially all of the operations of the
Company are currently conducted through the Joint Venture. The Joint Venture
was formed on April 8, 1991 by Old Edge, Edge Group II, Gulfedge and Edge
Group, with approximately $5.2 million in net assets (on an historical
financial statement basis). On that date the Joint Venture purchased
substantially all of the assets and assumed substantially all of the
liabilities of a related entity, Edge Group Joint Venture, which had been
engaged in oil and natural gas exploration and production operations since
1983. The initial sharing ratio, which determines the allocation of net income
and other items, as well as the allocation of distributable cash, was
approximately 29.1%, 67.3%, 2.3% and 1.3%, respectively. Such sharing ratio is
applicable until the value of cash and carried interests and other property
distributed to each venturer is equal to $5,750,000, $13,324,500, $451,500 and
$258,000, respectively (the "Sharing Ratio Shift A Amounts"), which has not yet
occurred. At such time, the sharing ratio shifts to 50%,

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<PAGE>

47.5%, 1.6% and 0.9%, respectively, which continues until the value of cash and
carried interests and other property distributed to each venturer is six times
the Sharing Ratio Shift A Amounts (the "Sharing Ratio Shift B Amounts"). When
the Sharing Ratio Shift B Amounts are met, the applicable sharing ratio for the
duration of the Joint Venture will be 55%, 42.7%, 1.5% and 0.8%, respectively.

The term of the Joint Venture was to have expired on April 8, 1996; however,
the parties to the Joint Venture extended the dissolution date to December 31,
1996. On December 31, 1996, the Joint Venture entered a windup period that will
generally last for two years during which time most of the existing oil and gas
properties of the Joint Venture will continue to be held by the Joint Venture.
By the end of the windup period, the Joint Venture will distribute
substantially all of its assets, including working interests, to the venturers,
in accordance with the applicable sharing ratios or as otherwise specified in
the Joint Venture Agreement. Pursuant to the Joint Venture Agreement, Old Edge
generally owns all 3-D seismic data owned by the Joint Venture at the date of
dissolution, provided that the other venturers have the right to access and use
such data and, provided further that, if such data is later sold, Old Edge will
pay a portion of the proceeds to the other venturers. Additionally, with
respect to Joint Venture projects existing at the date of dissolution, the
Joint Venture Agreement provided for the creation of areas of mutual interest
("AMIs"), which allow the venturers to acquire a portion of any interest
acquired by any other venturer in such AMI. Initially following this Offering,
substantially all of the Company's activities will consist of continued
operations and will be conducted through the Joint Venture or with the partners
of the Joint Venture. Thereafter, the Company expects that it will initiate
operations outside of and unrelated to those conducted by the Joint Venture at
the time of its dissolution. To the extent they do not exchange in the
Combination Transactions, limited partners and Edge Group generally will not
participate in new prospects or operations unrelated to the Joint Venture's
operations as of December 1996, except as provided for in the provisions of the
Joint Venture Agreement with respect to 150 square miles in the Belco Project
Area and another 50 square miles of 3-D seismic data to be selected. All or
portions of each of the areas subject to the Belco Right, the Fifty Square Mile
Right and certain other specified areas will be developed outside of the Joint
Venture.

Old Edge is the managing venturer of the Joint Venture and generally directs
and exercises control over all activities of the Joint Venture. However, Old
Edge is restricted from causing the Joint Venture to acquire leases, purchase
capital assets, adopt a budget, create debt or mortgages on its assets or sell
all or substantially all of its assets without the consent of Edge Group II.
After giving effect to the Combination Transactions, the Company will direct
and exercise full control over all activities of the Joint Venture as its
managing venturer and as the general partner of Edge Group II, subject to its
contractual and fiduciary duties owed to those partners of the Limited
Partnerships who do not exchange their partner interests for shares of Common
Stock. See "Risk Factors--Certain Potential Conflicts of Interest."

Immediately following this Offering, the Company will loan a portion of the
proceeds of this Offering to the Joint Venture to repay indebtedness
outstanding under the Revolving Credit Facility and to repay approximately $1.3
million outstanding under the Subordinated Loan. See "Use of Proceeds."

The Merger. In the Merger, Mergeco will merge with and into Old Edge. Mergeco
is a wholly owned subsidiary of the Company organized for the purpose of
effecting the Merger. In the Merger, all of the outstanding shares of common
stock of Old Edge will be converted into an aggregate of 2,334,085 shares of
Common Stock of the Company, assuming no shareholders of Old Edge exercise
dissenters' rights. Old Edge will survive the Merger as a wholly owned
subsidiary of the Company. As a result of the Merger, the Company will
indirectly control all of the assets of Old Edge, which consist primarily of
its interest in the Joint Venture. The Company's obligation to consummate the
Combination Transactions is conditioned, among other things, on the
consummation of the Merger.

The Limited Partnership Exchange Offers. In the Limited Partnership Exchange
Offers, the Company will offer to exchange shares of Common Stock for the
general and limited partner interests in Edge Group II and for the limited
partner interests in Gulfedge. An aggregate of 2,209,306 shares of Common Stock
will be offered in exchange for all the general and limited partner interests
in Edge Group II, and an aggregate of 74,317 shares of

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<PAGE>

Common Stock will be offered in exchange for all the limited partner interests
in Gulfedge. The number of shares of Common Stock that will be offered in
exchange for the general partner interest in Edge Group II will be equal to the
whole number nearest to the sum of (i) the GP's Before Payout Shares (which
shares are attributable to the general partners' 1% interest in distributions
before Edge Group II distributes to its partners $20,188,636 (the "Payout
Amount")), (ii) the GP's Management Fee Shares (which shares are attributable
to the general partners' accrued but unpaid and future cash flow-based
management fees) and (iii) the GP's After Payout Shares (which shares are
attributable to the general partners' 25% interest in distributions after Edge
Group II distributes to its partners the Payout Amount) (the shares referred to
in (i), (ii) and (iii) collectively referred to herein as the "GP Exchange
Shares"). The GP's Before Payout Shares are a number of shares of Common Stock
equal to the quotient of (i) $201,886 (which equals 1% of the Payout Amount)
divided by (ii) the initial public offering price in this Offering per share of
Common Stock (the "IPO Price"). The GP's Management Fee Shares are a number of
shares of Common Stock equal to the quotient of (i) the sum of (A) $1,332,450
(which equals the general partners' accrued but unpaid management fees) plus
(B) 3% multiplied by 2,209,306 (which equals to total number of shares of
Common Stock allocable to Edge Group II) multiplied by the IPO Price (which
product in (B) is attributable to the general partners' future cash flow-based
management fees) (such sum in (i) is referred to herein as the "Management Fee
Amount") divided by (ii) the IPO Price. The GP's After Payout Shares are a
number of shares of Common Stock equal to the quotient of (i) 25% of the
difference between (A) the product of the IPO Price multiplied by 2,209,306 and
(B) the sum of (x) the Payout Amount plus (y) the Management Fee Amount divided
by (ii) the IPO Price. The aggregate number of shares of Common Stock that will
be offered in exchange for the limited partner interest in Edge Group II will
be equal to the difference between 2,209,306 and the GP Exchange Shares. The
Company's obligation to consummate the Combination Transactions is conditioned,
among other things, upon the general partners and at least 70% of the limited
partners of Edge Group II exchanging their partner interests for shares of
Common Stock, but it is not conditioned upon the exchange by any partner of
Gulfedge. The obligation of each partner of the Limited Partnerships to
exchange his interests is conditioned upon, among other things, the closing of
this Offering at an IPO Price of at least $14.50 per share. The partners of
each Limited Partnership will have the option of receiving Common Stock or
retaining their partner interest. There can be no assurance as to the number of
such partners, if any, who will tender their partner interests for shares of
Common Stock.

The Calaway Exchange. Effective December 20, 1994, Mr. James C. Calaway
acquired a reversionary working interest (the "Calaway RWI") and an overriding
royalty interest (the "Calaway ORRI," and together with the Calaway RWI, the
"J. C. Calaway Interests") in certain undrilled prospects and subsequently
acquired properties of the Joint Venture pursuant to the Subordinated Loan
Agreement. Pursuant to the Subordinated Loan Agreement, if, as a result of the
termination of the Joint Venture, Old Edge enters into a transaction whereby
the oil and natural gas interests attributable to the limited partner interests
of Edge Group II are acquired by Old Edge or another entity for stock, Mr.
James C. Calaway would similarly have the opportunity to sell the J.C. Calaway
Interests on the same valuation basis as the limited partners of Edge Group II.
See "--Subordinated Loan Agreement." Pursuant to a Purchase Agreement dated as
of December 2, 1996, Mr. James C. Calaway agreed to exchange the portion of the
J.C. Calaway Interests consisting of producing properties for that number of
shares of Common Stock equal to the higher of (i) the quotient of (a) $346,697
(which is the estimated future net revenues as of September 30, 1996
attributable to the J.C. Calaway Interests being exchanged as determined by
Ryder Scott Company) divided by (b) the IPO price (such quotient in (i) is
referred to herein as the "1996 Valuation Shares") and (ii) the quotient of (a)
the estimated future net reserves attributable to the J.C. Calaway Interests
being exchanged as determined by Ryder Scott Company in a reserve report as of
a date subsequent to September 30, 1996 but prior to the closing of the
Purchase Agreement (such date is hereinafter referred to as the "1997
Determination Date") and for which the results of such reserve report are
included in the final prospectus for this Offering and (b) the IPO price (such
quotient in (ii) is referred to herein as the "1997 Valuation Shares").
According to a reserve report prepared by Ryder Scott Company (the "December
31, 1996 Reserve Report"), the estimated future net revenues as of December 31,
1996 attributable to the J.C. Calaway Interests were $672,245. Assuming an IPO
Price of $16.00 per share and that the results of the December 31, 1996 Reserve
Report are included in the final prospectus for this Offering, Mr. James C.
Calaway would be entitled to receive 42,015 shares of Common Stock pursuant to
the Purchase Agreement. The shares of Common

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<PAGE>

Stock to be purchased by Mr. James C. Calaway pursuant to the Purchase
Agreement are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), but will be "restricted securities," as that term is
defined in Rule 144 thereunder. Mr. James C. Calaway has also agreed to pay
the Company the dollar amount of any revenues attributable to the J.C. Calaway
Interests received by him for income for production after either September 30,
1996 (if the 1996 Valuation Shares are higher in number) or the 1997
Determination Date (if the 1997 Valuation Shares are higher in number) and
prior to the closing of the Purchase Agreement. In addition, because of the
difficulties involved in valuing the portion of the J. C. Calaway Interests
consisting of exploratory properties, Mr. James C. Calaway agreed that he
would retain these interests and waived his rights under the Subordinated Loan
Agreement to exchange such interests for shares of Common Stock.

The Edge Group Purchase. In the Purchase Offer, the Company will offer to
purchase the interest in the Joint Venture held by Edge Group in exchange for
shares of Common Stock. Such purchase will occur only with the consent of each
of the partners of Edge Group. Neither the closing of this Offering nor the
Company's obligation to consummate the Combination Transactions will be
conditioned on the Company's purchase of the interest in the Joint Venture
held by Edge Group. The obligation of Edge Group to sell its interest in the
Joint Venture to the Company will be conditioned upon, among other things, the
closing of this Offering at an IPO Price of $14.50 per share. In addition, the
sale of Edge Group's interest in the Joint Venture to the Company requires the
consent of the other venturers--Old Edge, Edge Group II and Gulfedge--which
has already been obtained.

Effect of the Combination Transactions. Upon the closing of the Combination
Transactions and this Offering and assuming the issuance of Common Stock to
all parties to the Combination Transactions (i.e., each offeree elects to
exchange its interests for shares of Common Stock), (i) the Company will
become an independent, publicly held company, (ii) holders of Old Edge common
stock will become stockholders of the Company rather than of Old Edge, (iii)
the partners who exchange their interests in the Limited Partnerships in
exchange for shares of Common Stock will become stockholders of the Company
rather than partners of the Limited Partnerships, (iv) the Company will become
the general partner of Edge Group II, and will own all of the partner
interests in Edge Group II and Gulfedge, (v) Edge Group will become a
stockholder of the Company and (vi) direct and indirect ownership of all the
interests in the Joint Venture will be combined in the Company. In the event
that any limited partner does not exchange his or her interests in the Limited
Partner Exchange Offers, such limited partner and the Company will continue as
the limited partners of such partnership. In the event that the Edge Group
Purchase is not consummated, Edge Group will continue as a general partner of
the Joint Venture. The Joint Venture will continue in existence following this
Offering until its final liquidation. It is currently expected that most of
the Joint Venture's assets will be distributed to its partners during the two-
year windup period, which began December 31, 1996; however, certain assets may
be retained in the Joint Venture over a longer term. Initially following this
Offering, substantially all of the Company's activities will consist of
continued operations and will be conducted through the Joint Venture or with
the partners in the Joint Venture. The Company expects that it will initiate
new operations outside of and unrelated to those conducted by the Joint
Venture at the time of its dissolution.

TRANSFER OF EDGE GROUP II GENERAL PARTNER INTERESTS

In exchange for the general partner interests in Edge Group II held by Mr.
Sfondrini and Napamco, a corporation wholly owned by Mr. Sfondrini. Mr.
Sfondrini and Napamco will receive the number of shares of Common Stock
equivalent to the GP Exchange Shares. The Combination Transactions will allow
the general partners of Edge Group II to receive Common Stock in respect of
both management fees that have been deferred to date because no cash was
available for payment, as well as the estimated value of future management
fees that have not been earned to date. Pursuant to certain prior personal
loan agreements, Mr. Sfondrini and Napamco assigned a portion of their
management fee with respect to Edge Group II and the right to a percentage of
their distributions as its general partners, to, among others, Mr. James C.
Calaway, who is the father of both the Chief Executive Officer and the
President of the Company, Ms. Marlin Geiger, the mother of both such persons
and to Mr. David Benedict who is a director of the Company. As a result, Mr.
James C. Calaway, Ms. Geiger and Mr. Benedict will receive 12,830, 995 and
2,122 shares, respectively, of Common Stock that is distributable to

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Mr. Sfondrini pursuant to the Edge Group II Exchange Offer. In the absence of
the Combination Transactions and this Offering, it is unlikely that any of the
accrued management fees or distributions would be paid in the near term.

Following the consummation of this Offering, Mr. Sfondrini expects to enter
into a margin loan arrangement described in "Underwriting." Mr. Sfondrini
expects to use a portion of the proceeds of such borrowings to repay the
indebtedness under the above described loan agreements.

CERTAIN AFFILIATE RELATIONSHIPS

The Joint Venture is owned by Old Edge, Edge Group II, Gulfedge and Edge
Group, as described above. John Sfondrini and Napamco, a company Mr. Sfondrini
owns and is the President of, are the general partners of Edge Group II and
each of the three limited partnerships that are the general partners in Edge
Group. Mr. Sfondrini and Napamco are also the general partners of Edge Holding
Company, which owns, prior to the Combination Transactions, approximately 37%
of the common stock of Old Edge. In the case of Edge Group II, in the event of
the death, incapacity or withdrawal of Mr. Sfondrini from his position as
general partner, Mr. Andrews would, if he so chose, serve as a general partner
of Edge Group II. Old Edge is the general partner of Gulfedge. Napamco is the
general partner of each of Essex Royalty Limited Partnership ("Essex I L.P.")
and Essex Royalty Limited Partnership II ("Essex II L.P."). Resource Investors
Management Company Limited Partnership ("RIMCO") is the general partner of each
of two limited partnerships (the "RIMCO Partnerships") that, in the aggregate
own, prior to the Combination Transactions, approximately 5% of the common
stock of Old Edge.

Mr. James D. Calaway and Mr. John E. Calaway are twin brothers and their
father is Mr. James C. Calaway.

ESSEX ROYALTY JOINT VENTURES

In April 1992, the Joint Venture and Essex I L.P. entered into a Joint
Venture Agreement (the "Essex I Joint Venture") with respect to the purchase of
certain royalty interests in oil and natural gas properties. The initial term
of the Essex I Joint Venture was four years, but by consent of both parties to
such agreement, it has been extended until April 1997. Under the terms of the
Essex I Joint Venture Agreement, Essex I L.P. made capital contributions
aggregating $3 million and the Joint Venture made no capital contributions. The
Essex I Joint Venture Agreement provides that quarterly distributions of cash
be made, in accordance with the sharing ratios, in an amount, subject to
certain adjustments, not less than that equal to revenues received from
royalties less the management fee paid to the Joint Venture, as managing
venturer. Initially, Essex I L.P. receives 100% of all cash distributions
pursuant to the sharing ratios. At such time as the cash and value of property
distributed to Essex I L.P. is equal to 110% of its capital contribution, the
sharing ratio shifts to 40% for the Joint Venture and 60% for Essex I L.P. Such
40% is to be allocated directly to the venturers of the Joint Venture, and does
not affect the sharing ratio calculations with respect to the Joint Venture. As
managing venturer of the Essex I Joint Venture, the Joint Venture receives
reimbursement for costs incurred to acquire royalty interests, certain
administrative costs, a portion of the payroll costs attributable to the Essex
II Joint Venture and, prior to the sharing ratio shift, a management fee
(allocated directly to Old Edge) equal to 1% of the capital contributions of
Essex I L.P.

In May 1994, the Joint Venture and Essex II L.P. entered into a Joint Venture
Agreement (the "Essex II Joint Venture") effective until December 1997 and
similar in nature to the Essex I Joint Venture. Essex II L.P. made capital
contributions aggregating approximately $2.8 million and the Joint Venture made
no capital contributions. Initially, Essex II L.P. receives 100% of all cash
distributions pursuant to the sharing ratios. At such time as the cash and
property distributed to Essex II L.P. is equivalent to 111.3% of its capital
contribution, the Joint Venture will thereafter receive 25% of distributions.
Provisions with respect to mandatory distributions and dissolution are similar
to those described for the Essex I Joint Venture. As managing venturer of the
Essex II Joint Venture, the Joint Venture receives reimbursement for costs
incurred to acquire royalty interests, certain administrative costs, a portion
of the payroll costs attributable to the Essex II Joint Venture and, prior to
the earlier of the expenditure by the Essex II Joint Venture of its capital or
the sharing ratio shift, a management fee (allocated directly to Old Edge) of
$30,000 every six months.

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The management fees earned by Old Edge pursuant to the Essex I and II Joint
Ventures (combined), in 1996, 1995 and 1994 were $120,000, $120,000 and
$80,000, respectively. Old Edge invoiced the Essex I and II Joint Ventures
(combined) for reimbursement for expenses in 1996, 1995 and 1994 in the amounts
of $67,000, $40,250 and $18,750, respectively. At December 31, 1996 and 1995,
Old Edge had accrued receivables for such management fees and reimbursements of
$172,132 and $115,000, respectively.

In May 1993, the Joint Venture received a short-term $1 million loan from
the Essex I Joint Venture secured by the Joint Venture's interests in certain
prospects. In addition to interest of 10% per annum, the loan agreement
provided for an assignment to the Essex I Joint Venture of overriding royalty
interests in the collateral. In October 1993, the Joint Venture borrowed
$125,000 on a short-term basis from the Essex I Joint Venture. Such note
carried interest of 11% per year and was unsecured. In August 1994, the Joint
Venture borrowed $125,000 on a short-term basis from the Essex II Joint Venture
at an interest rate of 10% per year. In December 1993, the Essex I Joint
Venture borrowed $30,000 on a short-term basis from the Joint Venture. Such
note carried interest of 11% per year and was unsecured. In May 1994, the Joint
Venture loaned, on a short-term basis, $46,800 to the Essex II Joint Venture.
No loans between the Joint Venture and either of the Essex I Joint Venture or
the Essex II Joint Venture are presently outstanding.

RIMCO INTERESTS

In April 1991, the Joint Venture borrowed, in the aggregate, $4,500,000 from
the RIMCO Partnerships and another partnership of which RIMCO is the general
partner, at an annual interest rate of 15.5% (the "RIMCO Note"). The Joint
Venture and such partnerships agreed to reduce the interest rate of the RIMCO
Note from 15.5% to 10% for the period from October 1, 1993 through September
30, 1995. Pursuant to such agreement, the Joint Venture conveyed to such
partnerships a 0.4% after-payout royalty interest, in the aggregate, in all
prospects sold by the Joint Venture during such period. The RIMCO Note was
repaid in March 1995.

SUBORDINATED LOAN AGREEMENT

In December 1994, the Joint Venture and Mr. James C. Calaway entered into the
Subordinated Loan Agreement, which has since been amended as described below. A
portion of the proceeds from this Offering will be used to pay the amounts
outstanding on such loan, which will be terminated. The Subordinated Loan
Agreement provides for a $1 million term loan and a $1 million line of credit.
At December 31, 1996, the aggregate amount outstanding under the Subordinated
Loan was $1.3 million, which includes $300,000 outstanding under the line of
credit. The principal is due, unless earlier retired by the Joint Venture, upon
the earlier of April 8, 1998 or the conclusion of the Joint Venture's windup
period. Interest at 10% per annum is due monthly. Mr. James C. Calaway also has
the option, pursuant to the Subordinated Loan, to participate in certain future
debt financing of the Joint Venture to the extent of the amount outstanding
under the Subordinated Loan. The Subordinated Loan is secured by certain oil
and natural gas properties, equipment and other assets of the Joint Venture,
but is subordinated to the Revolving Credit Facility. The mortgage and security
agreement restricts the transfer of properties, creation of liens and other
matters. The Subordinated Loan is without recourse to the venturers.

The Subordinated Loan provides that Mr. James C. Calaway will receive, with
respect to prospects of the Joint Venture which were undrilled as of December
20, 1994 and any acquisition subsequent to such date by the Joint Venture of
interests in existing production or proven reserves, (i) a Calaway RWI of 1%
and (ii) on all prospects that had not been marketed as of such date, a Calaway
ORRI of .2%, each of which is subject to proportionate reduction under certain
circumstances. The Calaway ORRI is reduced to .1% with respect to any well
located in certain specified 3-D areas that is proposed after August 1, 1996
but prior to the later of the repayment in full of the Subordinated Loan or the
dissolution of the Joint Venture (the "Change of Interest Date"). Effective
upon the Change of Interest Date AMIs will be created consisting of all acreage
in which the Joint Venture has, as of such date, shot or acquired or has a
commitment to shoot or acquire 3-D geophysical data. The Calaway ORRI and the
Calaway RWI will be reduced to .1% and .05%, respectively, with respect to

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<PAGE>

each well and lease proposed after the Change of Interest Date located within
such an AMI. After the Change of Interest Date, Mr. Calaway is not entitled to
receive any additional interests in any Joint Venture prospects or 3-D areas
other than those situated within such AMIs or as provided for originally in
the Subordinated Loan Agreement.

The Subordinated Loan Agreement provides for certain rights, on the part of
Mr. James C. Calaway, to exchange the J.C. Calaway Interests for Common Stock.
Accordingly, the portion of the J.C. Calaway Interests consisting of producing
properties is being purchased by the Company pursuant to the Calaway Exchange
by valuing such interests at $672,245. See "--The Combination Transactions--
The Calaway Exchange."

A portion of the Subordinated Loan replaced an unsecured loan in the
aggregate principal amount of $400,000 made by Mr. James C. Calaway to the
Joint Venture in June 1994. Interest at 10% per annum was due monthly. As
additional consideration for such loan, Mr. James C. Calaway received a .5%
RWI and a .05% ORRI in five prospects generated by the Joint Venture
subsequent to the date of such note. Prior to the loan of June 1994, Mr. James
C. Calaway had made loans of $250,000 and $205,000 to the Joint Venture, which
were repaid in 1994 and 1993, respectively. Each of such loans provided for an
interest rate of 10% and the granting of interests in certain specified oil
and natural gas properties to Mr. James C. Calaway.

JAMES C. CALAWAY CONSULTING AGREEMENT

The Company is obligated to pay Mr. James C. Calaway $40,000 annually for
the remainder of his natural life pursuant to a March 1989 consulting
agreement. Under the terms of such agreement, Mr. James C. Calaway is
obligated to provide consulting services as and to the extent mutually agreed
upon.

SALES OF PROSPECTS TO AFFILIATES

In 1994, the Joint Venture sold certain drilling prospects to partnerships
owned by Mr. James D. Calaway for $241,395, and to an affiliate of the RIMCO
Partnerships for $60,000. No sales of prospects to affiliates of the Company
took place in 1995 or 1996. The cost to develop such prospects was $153,520
and $39,593, respectively. The purchase price was based on the amounts paid
for interests in such prospects by energy industry participants.

Napamco and another corporation of which Mr. Andrews is an officer, are the
general partners of each of two limited partnerships that have invested, on
the same basis as outside parties, in two wells that the Company acts as
operator for. Such partnerships, in the aggregate, have a working interest of
8.33% in a well in the Barnett Project Area and a working interest of
approximately 30% in a well in the Tyler Project Area. As of December 31,
1996, the partnerships had paid to the Company, in the aggregate,
approximately $116,311 with respect to the Barnett Project Area well and
$672,386 with respect to the Tyler Project Area well, which represents, in the
aggregate such partnerships' share of the costs to develop each such well
proportionate to their relative working interests therein.

REGISTRATION RIGHTS AGREEMENT OF EDGE HOLDING COMPANY LIMITED PARTNERSHIP

In connection with this Offering, the Company will enter into a registration
rights agreement with Edge Holding Company (the "Registration Rights
Agreement"). The Registration Rights Agreement will provide that, upon the
request of Edge Holding Company, the Company will file a registration
statement under the Securities Act to register the Common Stock being issued
to Edge Holding Company pursuant to the Merger for distribution to the
partners of Edge Holding Company. Such request may not be made before six
months after the closing of this Offering. The Registration Rights Agreement
will terminate on December 31, 1998, or earlier in certain circumstances. An
aggregate of 858,853 outstanding shares of Common Stock will be subject to the
Registration Rights Agreement.

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The Company is required to pay all costs associated with such registration
other than underwriting commissions and transfer taxes attributable to the
shares distributed. The Company will indemnify Edge Holding Company, and Edge
Holding Company will indemnify the Company, against certain liabilities in
respect of any registration statement or offering covered by the Registration
Rights Agreement.

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<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to beneficial
ownership of the Common Stock both after giving effect to the Combination
Transactions but before giving effect to this Offering and after giving effect
to the Combination Transactions and this Offering by: (i) all persons,
assuming 100% conversion of the interests in the Limited Partnerships, who
will be the beneficial owner of 5% or more of the outstanding Common Stock;
(ii) each director or nominee for director; (iii) each executive officer of
the Company; and (iv) all officers and directors of the Company as a group,
assuming in each case, the issuance of an aggregate of 4,702,619 shares of
Common Stock to all parties to the Combination Transactions and an initial
public offering price of $16.00 per share.

<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED PERCENT OF COMMON STOCK
AS A RESULT OF THE BENEFICIALLY OWNED
COMBINATION AS A RESULT OF THE
TRANSACTIONS COMBINATION TRANSACTIONS
------------------ -------------------------
PRIOR TO THIS AFTER THIS
NAME(1) NUMBER OF SHARES OFFERING OFFERING(2)
------- ------------------ ------------- -----------
<S> <C> <C> <C>
John E. Calaway(3).......... 481,541 10.24% 8.85%
James D. Calaway(4)......... 195,498 4.11% 4.46%
Michael G. Long............. -- -- --
Richard S. Dale(5).......... 48,922 1.03% *
Vincent Andrews(6).......... 206,814 4.40% 2.97%
David B. Benedict(7)........ 36,338 * *
Nils Peterson(8)............ 14,664 * *
Stanley S. Raphael(9)....... 277,987 5.91% 4.00%
John Sfondrini(10).......... 1,254,110 26.67% 18.04%
Robert W. Shower............ -- -- --
Edge Holding Company........ 858,853 18.26% 12.35%
36 Catoonah St., #16
Ridgefield, Connecticut
06877
All directors and executive
officers as a group (10
persons)(1)(11)............ 2,515,874 52.95% 39.23%
</TABLE>
- --------
*Less than one percent.
(1) Except as otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.

(2) Percentages shown include 250,585 shares of restricted Common Stock to be
issued concurrent with this Offering.

(3) Shares shown represent (i) 364,938 shares of Common Stock that could be
acquired through the Merger by Calaway Oil and Gas Corporation ("COG"), a
company wholly owned by Mr. John E. Calaway and his wife and (ii) 116,603
shares that could be acquired through the Merger by Calaway Partners, a
Texas general partnership of which COG is a partner. In the case of After
this Offering, the percentage shown includes 133,645 shares of restricted
Common Stock to be issued concurrent with this Offering. Pursuant to the
partnership agreement for Calaway Partners, COG has the exclusive right to
vote such 116,603 shares.

(4) Shares shown include (i) 118,366 shares of Common Stock that could be
acquired through the Merger by KPC Interests, Inc., a company owned by Mr.
James D. Calaway and (ii) 48,922 shares of Common Stock that could be
acquired pursuant to immediately exercisable stock options. In the case of
After this Offering, the percentage shown includes 116,940 shares of
restricted Common Stock to be issued concurrent with this Offering.

(5) Shares shown represent 48,922 shares of Common Stock that could be
acquired pursuant to immediately exercisable stock options.

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<PAGE>

(6) Shares shown represent 146,757 shares of Common Stock that could be
acquired through the Merger by Bama Edge Limited Partnership, the general
partner of which is Andex Energy Corp., a company owned by members of Mr.
Andrews' family and of which Mr. Andrews is an officer; 45,598 shares of
Common Stock that could be acquired through the Merger by Texedge Energy
Corporation, of which Mr. Andrews is an officer; and 14,460 shares that
could be acquired through the Edge Group II Exchange Offer by a
partnership owned in part by Mr. Andrews' wife. Mr. Andrews may be deemed
the beneficial owner of the shares of Common Stock held by Bama Edge
Limited Partnership, Texedge Energy Corporation and the shares that may be
acquired through the Edge Group II Exchange Offer. Mr. Andrews disclaims
such beneficial ownership.

(7) Shares shown represent shares of Common Stock that could be acquired
through the Edge Group II Exchange Offer.

(8) Shares shown represent shares of Common Stock that could be acquired
through the Edge Group II Exchange Offer.

(9) Shares shown represent 147,673 shares of Common Stock (of which 19,552
could be acquired through the Edge Group II Exchange Offer and the
remainder through the Merger) owned by the Trade Consultants, Inc. Pension
Plan, of which Mr. Raphael is the trustee, 46,194 shares of Common Stock
that could be acquired by Mr. Raphael's wife (of which 19,552 could be
acquired through the Edge Group II Exchange Offer and the remainder
through the Merger), and 84,120 shares that could be acquired directly by
Mr. Raphael (of which 19,552 shares could be acquired through the Edge
Group II Exchange Offer and the remainder through the Merger). Mr. Raphael
may be deemed the beneficial owner of shares of Common Stock held by the
Trade Consultants, Inc. Pension Plan and his wife. Mr. Raphael disclaims
such beneficial ownership.

(10) Shares shown represent (i) 858,853 shares of Common Stock that could be
acquired through the Merger by Edge Holding Company, a limited
partnership of which Mr. Sfondrini and Napamco are the general partners,
(ii) 42,896 shares of stock which could be acquired in the Purchase Offer
by Edge Group, whose partners are certain limited partnerships, each of
which Mr. Sfondrini and Napamco are the general partners of and (iii)
352,361 shares which could be acquired pursuant to the Edge Group II
Exchange Offer. Mr. Sfondrini may be deemed the beneficial owner of the
shares which could be acquired by Edge Holding Company and Edge Group.
Mr. Sfondrini disclaims such beneficial ownership. Mr. Sfondrini's
address is the same as for Edge Holding Company.

(11) Shares shown include 97,844 shares of Common Stock that may be acquired
pursuant to immediately exercisable stock options.

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<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Combination Transactions and this Offering,
approximately 6,700,000 shares of Common Stock will be outstanding. The shares
of Common Stock sold in this Offering and received in the Combination
Transactions (except for the shares of Common Stock issued in the Calaway
Exchange) will be registered under the Securities Act and will be freely
tradeable without restriction or further registration under the Securities
Act, except for certain manner of sale, volume limitations and other
restrictions with respect to any shares (i) purchased in this Offering or
received in connection with the Combination Transactions by an affiliate of
the Company (a "Company Affiliate"), which will be subject to the resale
limitations of Rule 144 (not including the holding period requirement) under
the Securities Act, and (ii) received in the Merger by any affiliates of Old
Edge or the Company (the "Prior Affiliates"), which may be resold by them only
pursuant to an effective registration statement under the Securities Act
covering such securities or in transactions permitted by the resale provisions
of Rule 145(d) under the Securities Act or as otherwise permitted under the
Securities Act. Under Rule 144 under the Securities Act, a person is an
affiliate of an entity if such person directly or indirectly controls or is
controlled by or is under common control with such entity and may include
certain officers and directors, principal shareholders and certain other
shareholders with special relationships. This Prospectus may not be used by
Company Affiliates or Prior Affiliates in connection with any resale of shares
of Common Stock acquired in the manner described in (i) and (ii) above.

In general, under Rule 144 as currently in effect, if a minimum of two years
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who
may be deemed "affiliates" of the Company, would be entitled to sell within
any three-month period a number of shares of Common Stock that does not exceed
the greater of (i) 1% of the then-outstanding shares of Common Stock (i.e.,
approximately 67,000 shares immediately after consummation of this Offering)
and (ii) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain provisions as to the manner
of sale, notice requirements and the availability of current public
information about the Company. In addition, under Rule 144(k), if a period of
at least three years has elapsed since the later of the date restricted
securities were acquired from the Company or the date they were acquired from
an affiliate of the Company, a stockholder who is not an affiliate of the
Company at the time of sale and who has not been an affiliate for at least
three months prior to the sale would be entitled to sell shares of Common
Stock in the public market immediately without compliance with the foregoing
requirements under Rule 144. Rule 144 does not require the same person to have
held the securities for the applicable periods. The foregoing summary of Rule
144 is not intended to be a complete description thereof. The Commission has
proposed an amendment to Rule 144 that would shorten the three- and two-year
holding periods described above to two years and one year, respectively.

Rule 145 requires that, in a resale of securities acquired in the Merger,
Prior Affiliates comply with a volume restriction and other restrictions on
the manner of sale and that certain information about the Company be currently
available to the public. The volume restriction limits the number of shares
that an affiliate may transfer, in the aggregate, within any three-month
period to the greater of (i) 1% of the outstanding Common Stock or (ii) the
average weekly reported trading volume in the Common Stock during the
preceding four calendar weeks. A Prior Affiliate may sell its shares of Common
Stock without regard to the volume restrictions and restrictions on the manner
of sale if it has owned the shares for at least two years, certain information
about the Company is currently available to the public and the Prior Affiliate
is not then a Company Affiliate. A Prior Affiliate may also sell its shares of
Common Stock without regard to the foregoing restrictions (including the
requirement that certain information about the Company is currently available
to the public) if it has held its shares of Common Stock for a period of at
least three years and such person has not been a Company Affiliate for at
least three months. A Prior Affiliate who is also a Company Affiliate may sell
its shares of Common Stock, subject to the volume restrictions and
restrictions on the manner of sale, if it has held the shares of Common Stock
for a period of at least two years and certain information about the Company
is currently available to the public.

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<PAGE>

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Long-Term Incentive Plan. Shares of
Common Stock issued pursuant to such plan generally will be available for sale
in the open market by holders who are not Company Affiliates and, subject to
the volume and other limitations of Rule 144, by holders who are Company
Affiliates.

The Company has also agreed with the Underwriters that it will not offer for
sale or otherwise voluntarily dispose of any shares of Common Stock or any
securities convertible into or exercisable for shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Raymond James & Associates, Inc., as representative of the
Underwriters, with certain exceptions. Additionally, the Company's Bylaws
restrict the sale of substantially all of the shares issued in the Combination
Transactions for a period of 180 days after the date of this Prospectus without
the prior consent of the Company and the Underwriters, subject to certain
exceptions. See "Underwriting."

Prior to this Offering, there has been no public market for the Common Stock
(or any equity interest for which the Common Stock will be issued in the
Combination Transactions), and no prediction can be made of the effect, if any,
that sales of Common Stock or the availability of shares for sale will have on
the market price prevailing from time to time. Following this Offering, sales
of substantial amounts of Common Stock in the public market or otherwise, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the Common Stock.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. Following consummation of
this Offering and the Combination Transactions there will be approximately
6,700,000 shares of Common Stock outstanding (assuming the over-allotment
option is not exercised and that all parties accept shares of Common Stock in
the Combination Transactions), and no shares of Preferred Stock will be
outstanding. The following summary does not purport to be complete, and
reference is made to the more detailed provisions of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Bylaws,
which are filed as exhibits to the registration statement of which this
Prospectus is a part.

COMMON STOCK

The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders of
a majority of the shares voting for the election of directors can elect all the
directors if they choose to do so. The Common Stock carries no preemptive
rights and is not convertible, redeemable or assessable, or entitled to the
benefits of any sinking fund. The holders of Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy" for
information regarding dividend policy.

PREFERRED STOCK

The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine the powers, designations,
preferences and relative, participating, optional or other rights (including,
without limitation, voting powers, full or limited, preferential rights to
receive dividends or assets upon liquidation, rights of conversion or exchange
into Common Stock, Preferred Stock of any Series or other securities,
redemption provisions and sinking fund provisions) between series and between
the Preferred Stock or any series thereof and the Common Stock, and the
qualifications, limitations or restrictions of such rights.

Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would provide
a required percentage vote of the stockholders. In addition, under certain
circumstances, the issuance of Preferred Stock could adversely affect the
voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or the
rules of any market on which the Company's securities are traded.

OTHER MATTERS

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment

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<PAGE>

based on all material information reasonably available to them. Absent the
limitations authorized by Delaware law, directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Certificate of Incorporation limits the
liability of directors of the Company to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically, directors of the
Company will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit.

The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters, and the Company has entered into agreements with each of its directors
providing for indemnification with respect to certain matters.

The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written
consent. The Bylaws provide that special meetings of the stockholders can be
called only by the Chairman of the Board, the President or a majority of the
Board of Directors of the Company.

The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered three-year terms.
As a result, approximately one-third of the Company's Board of Directors will
be elected each year. The classified board provision could prevent a party who
acquires control of a majority of the outstanding voting stock of the Company
from obtaining control of the Board of Directors until the second annual
stockholders' meeting following the date the acquiror obtains the controlling
interest. See "Management."

The Certificate of Incorporation provides that the number of directors will
be no greater than 12 and no less than three. The Certificate of Incorporation
further provides that directors may be removed only for cause (as defined in
the Certificate of Incorporation), and then only by the affirmative vote of the
holders of at least a majority of all outstanding voting stock entitled to
vote. This provision, in conjunction with the provisions of the Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees. The Company's Bylaws
also provide that the Board of Directors will include at least a majority of
directors who are not employees of the Company. In addition, the Bylaws provide
that the Compensation Committee will consist solely of members who are not
employees of the Company and the Audit Committee will include at least a
majority of members who are not employees of the Company.

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of

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the corporation and by employee stock plans that do not provide employees with
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation not owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
No stockholder will be subject to the restrictions of Section 203 with respect
to the Common Stock as a result of the Combination Transactions.

STOCKHOLDER PROPOSALS

The Company's Bylaws contain provisions requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders, and providing for certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors of the Company. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder (i) in the event of business to be brought by a stockholder before
an annual meeting, not less than 45 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date) and (ii) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, (a) with respect to an election to be held at the annual meeting
of stockholders, not less than 45 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date) and (b) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, not later than the close of business on the tenth day following the
day on which notice of the date of the special meeting was mailed to
stockholders or public disclosure of the date of the special meeting was made,
whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.

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UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters") and each of the Underwriters
named below, for whom Raymond James & Associates, Inc., Jefferies & Company,
Inc. and Principal Financial Securities, Inc. are acting as Representatives
(the "Representatives"), has severally agreed to purchase from the Company the
respective number of shares set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ----------
<S> <C>
Raymond James & Associates, Inc. ..............................
Jefferies & Company, Inc. .....................................
Principal Financial Securities, Inc. ..........................
----------
Total...................................................... 2,000,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent. The nature of the Underwriters'
obligations under the Underwriting Agreement is such that they are obligated to
purchase all of the shares of Common Stock offered hereby (other than the
shares subject to the over-allotment option described below) if any are
purchased. In the event of a failure by any Underwriter to purchase its portion
of the Common Stock, the Underwriting Agreement provides, depending upon the
total number of shares of Common Stock involved in the default, that the
purchase commitments of the other Underwriters may be increased or that the
Underwriting Agreement may be terminated, without prejudice to the right of any
party as against any defaulting Underwriter.

The Underwriters propose to offer part of the Common Stock directly to the
public at the price set forth on the cover page of this Prospectus. The
Underwriters may allow a concession to selected dealers who are members of the
National Association of Securities Dealers, Inc. (the "NASD") not in excess of
$. per share, and the Underwriters may allow and such dealers may reallow to
members of the NASD a concession not to exceed $. per share. After this
Offering, the public offering price and other selling terms may be varied by
the Representatives. The Underwriters do not intend to confirm sales to any
account over which they exercise discretionary authority.

The Company has granted the Underwriters an option, exercisable during the
30-day period immediately following the date of this Prospectus, to purchase at
the public offering price, less the underwriting discounts and commissions, up
to 300,000 additional shares of Common Stock, solely to cover over-allotments,
if any, in the sale of the shares that the Underwriters have agreed to
purchase. In such event, the Underwriters have severally agreed, subject to
certain conditions, to each purchase a percentage of the over-allotment shares
approximately equal to the percentage of the initial shares purchased by the
Underwriters.

The Company has agreed to indemnify the Underwriters and certain related
persons against certain civil liabilities relating to this Offering, including
liabilities under the Securities Act.

76
<PAGE>

The Company, may not, without the prior written consent of the
Representatives, offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or rights to purchase shares of Common Stock or any
other securities convertible into or exercisable or exchangeable for shares of
Common Stock (other than pursuant to employee options, pursuant to the
Company's Long-Term Incentive Plan and pursuant to acquisitions in which the
shares issued remain subject to a lock-up agreement) for a period of 180 days
from the date of this Prospectus. Additionally, under the Company's Bylaws the
holders of the shares of Common Stock issued in the Combination Transactions
(who will beneficially own an aggregate of approximately 4,700,000 shares of
Common Stock upon the completion of this Offering, may not sell such shares
for a period of 180 days from the date of this Prospectus, other than certain
private transfers in which the transferee assumes such transfer restrictions.
Following the consummation of this Offering, Mr. Sfondrini expects to enter
into a margin loan arrangement with one of the Representatives. Under this
arrangement, Mr. Sfondrini expects to make borrowings in an approximate amount
of at least $650,000 at an interest rate equal to a published prime rate. The
loan will be secured by Common Stock with an initial market value of $1.5
million (valued at the initial public offering price).

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be
negotiated between the Company and the representatives of the Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Common Stock, in addition to prevailing market conditions, will
be the cash flow and earnings of the Company and comparable companies in
recent periods, the Company's business potential and cash flow and earning
prospects, current and historical natural gas and oil prices, current and
prospective conditions in the supply and demand for natural gas and oil,
reserve and production quantities for the Company's natural gas and oil
properties, the history of, and prospects for, the industry in which the
Company operates, and the price earnings multiples of publicly traded common
stocks of comparable companies.

LEGAL MATTERS

Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
Houston, Texas, and for the Underwriters by Vinson & Elkins L.L.P., Houston,
Texas.

EXPERTS

The Supplementally Combined Financial Statements of Old Edge as of December
31, 1996, and 1995, and each of the three years in the period ended December
31, 1996 and the Balance Sheet of the Company as of December 3, 1996, included
in this Prospectus, have been audited by Deloitte & Touche llp, independent
auditors, as stated in their reports appearing herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.

The letter report of Ryder Scott included as Annex A to this Prospectus and
certain information with respect to the Company's oil and natural gas reserves
derived therefrom have been included herein in reliance upon such firm as
experts with respect to such matters.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements of
the Exchange Act. The Company has filed a Registration Statement on Form S-1
(the "Form S-1 Registration Statement") under the Securities Act with the
Commission with respect to this Offering. The Company has also filed a
Registration Statement on Form S-4 (the "Form S-4 Registration Statement")
under the Securities Act with the Commission with respect to the Combination
Transactions. This Prospectus, filed as a part of the Form S-1 Registration

77
<PAGE>

Statement, does not contain all of the information set forth in the Form S-1
Registration Statement or the exhibits and schedules thereto in accordance with
the rules and regulations of the Commission, and reference is hereby made to
such omitted information. Statements made in this Prospectus concerning any
document filed as an exhibit to the Form S-1 Registration Statement are not
necessarily complete, and in each instance reference is made to such exhibit
for a complete statement of its provisions. The Form S-1 Registration
Statement, the Form S-4 Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, at the public reference facilities of
the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and its regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
portion of the Form S-1 Registration Statement and the Form S-4 Registration
Statement can be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
(http://www.sec.gov).

78
<PAGE>

GLOSSARY OF CERTAIN INDUSTRY TERMS

The definitions set forth below shall apply to the indicated terms as used in
this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.

After payout. With respect to an oil or gas interest in a property, refers to
the time period after which the costs to drill and equip a well have been
recovered.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in
reference to crude oil or other liquid hydrocarbons.

Bbls/d. Stock tank barrels per day.

Bcf. Billion cubic feet.

Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf of
natural gas to one Bbl of crude oil, condensate or natural gas liquids.

Before payout. With respect to an oil or gas interest in a property, refers
to the time period before which the costs to drill and equip a well have been
recovered.

Completion. The installation of permanent equipment for the production of oil
or gas or, in the case of a dry hole, the reporting of abandonment to the
appropriate agency.

Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.

Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.

Exploratory well. A well drilled to find and produce oil or gas reserves not
classified as proved, to find a new reservoir in a field previously found to be
productive of oil or gas in another reservoir or to extend a known reservoir.

Farm-in or farm-out. An agreement whereunder the owner of a working interest
in an oil and natural gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in"
while the interest transferred by the assignor is a "farm-out."

Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.

Finding costs. Costs associated with acquiring and developing proved oil and
natural gas reserves which are capitalized by the Company pursuant to generally
accepted accounting principles, including all costs involved in acquiring
acreage, geological and geophysical work and the cost of drilling and
completing wells.

Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

79
<PAGE>

MBbls/d. One thousand barrels of crude oil or other liquid hydrocarbons per
day.

Mcf. One thousand cubic feet.

Mcf/d. One thousand cubic feet per day.

Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

MMcf. One million cubic feet.

MMcf/d. One million cubic feet per day.

MMcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids,
which approximates the relative energy content of crude oil, condensate and
natural gas liquids as compared to natural gas. Prices have historically been
higher or substantially higher for crude oil than natural gas on an energy
equivalent basis.

Net acres or net wells. The sum of the fractional working interests owned in
gross acres or gross wells.

Normally pressured reservoirs. Reservoirs with a formation-fluid pressure
equivalent to 0.465 psi per foot of depth from the surface. For example, if the
formation pressure is 4,650 psi at 10,000 feet, then the pressure is considered
to be normal.

Over-pressured reservoirs. Reservoirs subject to abnormally high pressure as
a result of certain types of subsurface formations.

Petrophysical study. Study of rock and fluid properties based on well log and
core analysis.

Present value. When used with respect to oil and natural gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using
prices and costs in effect as of the date indicated, without giving effect to
nonproperty-related expenses such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.

Productive well. A well that is found to be capable of producing hydrocarbons
in sufficient quantities such that proceeds from the sale of such production
exceed production expenses and taxes.

Proved developed nonproducing reserves. Proved developed reserves expected to
be recovered from zones behind casing in existing wells.

Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
wells and able to produce to market.

Proved developed reserves. Proved reserves that can be expected to be
recovered from existing wells with existing equipment and operating methods.

Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.

80
<PAGE>

Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.

Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.

Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.

Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible oil and/or gas that is confined by impermeable rock
or water barriers and is individual and separate from other reservoirs.

Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or gas production free of costs of production.

3-D seismic. Advanced technology method of detecting accumulations of
hydrocarbons identified through a three-dimensional picture of the subsurface
created by the collection and measurement of the intensity and timing of sound
waves transmitted into the earth as they reflect back to the surface.

Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.

Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.

Workover. Operations on a producing well to restore or increase production.

81
<PAGE>

INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EDGE PETROLEUM CORPORATION UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS:
Pro Forma Combined Balance Sheet (Unaudited), December 31, 1996......... F-4
Pro Forma Combined Statement of Operations (Unaudited) for the Year
Ended December 31, 1996................................................ F-6
Pro Forma Combined Statement of Operations (Unaudited) for the Year
Ended December 31, 1995................................................ F-7
Pro Forma Combined Statement of Operations (Unaudited) for the Year
Ended December 31, 1994................................................ F-8
Notes to Unaudited Pro Forma Combined Financial Statements.............. F-9
EDGE PETROLEUM CORPORATION (A DELAWARE CORPORATION):
Independent Auditors' Report............................................ F-13
Balance Sheet, December 3, 1996......................................... F-14
Notes to Balance Sheet.................................................. F-15
EDGE PETROLEUM CORPORATION (A TEXAS CORPORATION) SUPPLEMENTALLY COMBINED:
Independent Auditors' Report............................................ F-16
Supplementally Combined Balance Sheets, December 31, 1996 and 1995...... F-17
Supplementally Combined Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994....................................... F-18
Supplementally Combined Statements of Equity for the Years Ended
December 31, 1996, 1995 and 1994....................................... F-19
Supplementally Combined Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ...................................... F-20
Notes to Supplementally Combined Financial Statements................... F-21
</TABLE>

F-1
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited Pro Forma Combined Financial Statements and related
notes are presented to show the pro forma effects of the proposed Combination
Transactions and the Offering in which Edge Petroleum Corporation, a recently
formed Delaware corporation (the "Company"), will issue approximately
4,702,619 shares of its common stock for the combined net assets of Edge
Petroleum Corporation (a Texas corporation) ("Old Edge"), affiliated entities
and direct interests and 2,000,000 shares of previously unissued common stock
in a public offering of shares. The unaudited Pro Forma Combined Financial
Statements are not necessarily indicative of the results of future operations
of the Company and should be read in conjunction with the historical
supplementally combined financial statements of Old Edge appearing elsewhere
in this Prospectus.

In the Combination Transactions, the Company plans to complete (i) the
Merger, (ii) the Edge Group II Exchange Offer, (iii) the Gulfedge Exchange
Offer, (iv) the Edge Group Purchase Offer and (v) the Calaway Exchange. Upon
consummation of the Combination Transactions, the Company expects to acquire
directly or indirectly substantially all of the interests in the Joint
Venture. See "Certain Transactions--The Combination Transactions." The Company
does not expect to seek to consummate any of the Combination Transactions
unless the Merger, the Edge Group II Exchange Offer (with at least a 70%
acceptance level) and the Offering are each closed. The number of shares of
Common Stock to be issued in the Combination Transactions will depend on (i)
the number of shareholders of Old Edge who exercise dissenters' rights in
connection with the Merger, (ii) the number of partners who elect to retain
their current interests in Gulfedge and Edge Group II in lieu of receiving
Common Stock, (iii) whether Edge Group accepts the Edge Group Purchase Offer
and (iv) the number of shares issued in the Calaway Exchange.

Consummation of the Combination Transactions is subject to certain
conditions, including, among other things: (i) the approval of the Merger by
the shareholders of Old Edge with no more than 10% of such shareholders
exercising dissenters' rights, (ii) the acceptance of the Edge Group II
Exchange Offer by the general partners and by limited partners holding at
least 70% of the outstanding limited partner interests in Edge Group II (which
will thereby include the requisite approval of the change of general partners
of Edge Group II by partners of Edge Group II whose aggregate contributions to
capital represent at least 60% of the aggregate contributions to capital of
all partners of Edge Group II) and (iii) the closing of the Offering at an
initial public offering price to the public of at least $14.50 per share.

Pro forma data are based on assumptions and include adjustments as explained
in the notes to unaudited Pro Forma Combined Financial Statements. The
unaudited Pro Forma Combined Balance Sheet as of December 31, 1996 and the
unaudited Pro Forma Combined Statements of Operations for each of the three
years in the period ended December 31, 1996 of the Company were prepared
utilizing the historical supplementally combined financial statements of Old
Edge as described in Note 2 hereto.

F-2
<PAGE>

Management of the Company believes the Combination Transactions will be
accounted for as a reorganization pursuant to Staff Accounting Bulletin 47
because of the high degree of common ownership among the combining entities
and only equity ownership interests in the entities will be exchanged.
Accordingly, management expects that the net assets acquired in the
Combination Transactions will be recorded at the historical cost basis of the
affiliated predecessor owners.

However, if 10% or more of the general and limited interests of Edge Group
II or Gulfedge are not exchanged in their respective exchange offers, then
such exchange offer would not be considered a reorganization and purchase
accounting would be applied. Under purchase accounting, the net assets
acquired in the Combination Transactions would be recorded at the fair market
value of the interests exchanged. It is a condition to the consummation of the
Combination Transactions that no more than 10% of the shareholders of Old Edge
shall have exercised their dissenter's rights with respect to the Merger.
Management does not expect any dissenters to such merger.

Because management of the Company believes the most probable outcome of the
Combination Transactions is that substantially all of the interests in Edge
Group II and Gulfedge, and Edge Group's interest in the Joint Venture will be
exchanged, the unaudited Pro Forma Combined Financial Statements assume 100%
acceptance. Refer to Note 3 hereto for pro forma results for a range of
possible outcomes.

F-3
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)

DECEMBER 31, 1996

<TABLE>
<CAPTION>
EDGE
PETROLEUM
CORPORATION OLD EDGE PRO FORMA PRO FORMA
DECEMBER 3, SUPPLEMENTALLY PRO FORMA FOR THE PRO FORMA FOR THE
ASSETS 1996 COMBINED ADJUSTMENTS COMBINATION ADJUSTMENTS OFFERING
------ ----------- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $1,000 $ 1,543,228 $ 1,544,228 $17,291,913 (4) $18,836,141
Accounts receivable,
trade................ 2,038,889 2,038,889 2,038,889
Accounts receivable,
joint interest
owners............... 2,659,025 2,659,025 2,659,025
Receivables from
related parties...... 186,562 186,562 186,562
Other current assets.. 91,059 91,059 91,059
Advances to
stockholder.......... 23,397 23,397 23,397
------ ----------- ------- ----------- ----------- -----------
Total current assets. 1,000 6,542,160 6,543,160 17,291,913 23,835,073
PROPERTY AND EQUIPMENT,
Net--full cost method
of accounting for oil
and gas property..... 11,989,241 11,989,241 11,989,241
DEFERRED OFFERING COSTS. 1,006,379 1,006,379 (1,006,379)(3)
OTHER ASSETS............ 18,320 18,320 18,320
------ ----------- ------- ----------- ----------- -----------
TOTAL ASSETS............ $1,000 $19,556,100 $19,557,100 $16,285,534 $35,842,634
====== =========== ======= =========== =========== ===========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-4
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)--(CONTINUED)

DECEMBER 31, 1996

<TABLE>
<CAPTION>
EDGE
PETROLEUM
CORPORATION OLD EDGE PRO FORMA PRO FORMA
LIABILITIES AND DECEMBER 3, SUPPLEMENTALLY PRO FORMA FOR THE PRO FORMA FOR THE
STOCKHOLDERS' EQUITY 1996 COMBINED ADJUSTMENTS COMBINATION ADJUSTMENTS OFFERING
-------------------- ----------- -------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable,
trade................ $ 1,695,366 $ 1,695,366 (524,466)(4) $ 1,170,900
Accounts payable to
related party........ 1,372,450 $(1,332,450)(2) 40,000 40,000
Accounts payable,
joint interest
owners............... 2,087,230 2,087,230 2,087,230
Accrued interest
payable.............. 74,354 74,354 74,354
Accrued liabilities... 322,309 322,309 322,309
Current portion of
notes payable........ 300,058 300,058 300,058
------ ----------- ----------- ----------- ----------- -----------
Total current
liabilities......... 5,851,767 (1,332,450) 4,519,317 (524,466) 3,994,851
NOTES PAYABLE........... 11,561,844 11,561,844 (11,450,000)(4) 111,844
DEFERRED INCOME TAXES... 248,673 (248,673)(5)
MINORITY INTEREST....... 2,267,185 (2,267,185)(6)
------ ----------- ----------- ----------- ----------- -----------
Total liabilities.... 19,929,469 (3,848,308) 16,081,161 (11,974,466) 4,106,695
Common stock, $.01 par
value; 40,000,000
shares authorized;
4,700,000 shares
issued and
outstanding pro forma
for the combination;
6,700,000 shares
issued outstanding
pro forma for the
offering............. $ 10 47,000 (1) 47,000 20,000 (4) 67,000
Additional paid-in
capital.............. 990 (420,369)(1) 3,428,939 29,740,000 (4) 31,668,939
1,332,450 (2) (1,500,000)(3)
248,673 (5)
2,267,185 (6)
Retained earnings.....
Supplementally
Combined Equity
(deficit)............ (373,369) 373,369 (1)
------ ----------- ----------- ----------- ----------- -----------
Total stockholders'
equity.............. 1,000 (373,369) 3,848,308 3,475,939 28,260,000 31,735,939
------ ----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $1,000 $19,556,100 $ $19,557,100 $16,285,534 $35,842,634
====== =========== =========== =========== =========== ===========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-5
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
OLD EDGE PRO FORMA PRO FORMA
SUPPLEMENTALLY PRO FORMA FOR THE PRO FORMA FOR THE
COMBINED ADJUSTMENTS COMBINATION ADJUSTMENTS OFFERING
-------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OIL AND NATURAL GAS
SALES.................. $7,719,478 $7,719,478 $7,719,478
---------- -------- ---------- -------- ----------
OPERATING EXPENSES:
Oil & natural gas
operating expenses... 1,600,085 1,600,085 1,600,085
Depreciation,
depletion and
amortization......... 1,613,022 1,613,022 1,613,022
General and
administrative....... 2,752,562 2,752,562 2,752,562
---------- -------- ---------- -------- ----------
Total operating
expenses........... 5,965,669 5,965,669 5,965,669
---------- -------- ---------- -------- ----------
OPERATING INCOME........ 1,753,809 1,753,809 1,753,809
OTHER INCOME AND
EXPENSES:
Interest expense...... (858,663) (858,663) $858,663(4)
Other income.......... 232,500 232,500 232,500
---------- -------- ---------- -------- ----------
NET INCOME BEFORE INCOME
TAXES AND MINORITY
INTEREST............... 1,127,646 1,127,646 858,663 1,986,309
INCOME TAX EXPENSE...... (394,675) $394,675(5)
MINORITY INTEREST....... (432,786) 432,786(6)
---------- -------- ---------- -------- ----------
NET INCOME.............. $ 300,185 $827,461 $1,127,646 $858,663 $1,986,309
========== ======== ========== ======== ==========
EARNINGS PER SHARE...... $ 0.24 $ 0.36
========== ==========
Weighted Average Shares
Outstanding............ 4,700,000 5,509,375
========== ==========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-6
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
OLD EDGE PRO FORMA PRO FORMA
SUPPLEMENTALLY PRO FORMA FOR THE PRO FORMA FOR THE
COMBINED ADJUSTMENTS COMBINATION ADJUSTMENTS OFFERING
-------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OIL AND NATURAL GAS
SALES.................. $ 2,040,446 $ 2,040,446 $ 2,040,446
----------- -------- ----------- -------- -----------
OPERATING EXPENSES:
Oil & natural gas
operating expenses... 686,438 686,438 686,438
Depreciation,
depletion and
amortization......... 813,402 813,402 813,402
General and
administrative....... 2,483,560 2,483,560 2,483,560
----------- -------- ----------- -------- -----------
Total operating
expenses........... 3,983,400 3,983,400 3,983,400
----------- -------- ----------- -------- -----------
OPERATING LOSS.......... (1,942,954) (1,942,954) (1,942,954)
OTHER INCOME AND
EXPENSES:
Interest expense...... (315,342) (315,342) $315,342(4)
Gain on sale of oil
and gas property..... 3,337,076 3,337,076 3,337,076
----------- -------- ----------- -------- -----------
NET INCOME BEFORE INCOME
TAXES AND MINORITY
INTEREST............... 1,078,780 1,078,780 315,342 1,394,122
INCOME TAX EXPENSE...... (397,088) $397,088(5)
MINORITY INTEREST....... (575,811) 575,811(6)
----------- -------- ----------- -------- -----------
NET INCOME.............. $ 105,881 $972,899 $ 1,078,780 $315,342 $ 1,394,122
=========== ======== =========== ======== ===========
EARNINGS PER SHARE...... $ 0.23 $ 0.25
=========== ===========
Weighted Average Shares
Outstanding............ 4,700,000 5,509,375
=========== ===========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-7
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1994

<TABLE>
<CAPTION>
OLD EDGE PRO FORMA PRO FORMA
SUPPLEMENTALLY PRO FORMA FOR THE PRO FORMA FOR THE
COMBINED ADJUSTMENTS COMBINATION ADJUSTMENTS OFFERING
-------------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OIL AND NATURAL GAS
SALES.................. $1,993,796 $1,993,796 $1,993,796
---------- -------- ---------- -------- ----------
OPERATING EXPENSES:
Oil & natural gas
operating expenses... 304,627 304,627 304,627
Depreciation,
depletion and
amortization......... 593,398 593,398 593,398
General and
administrative....... 2,026,499 2,026,499 2,026,499
---------- -------- ---------- -------- ----------
Total operating
expenses........... 2,924,524 2,924,524 2,924,524
---------- -------- ---------- -------- ----------
OPERATING LOSS.......... (930,728) (930,728) (930,728)
OTHER INCOME AND
EXPENSES:
Interest expense...... (384,927) (384,927) $384,927(4)
Gain on sale of oil
and gas property..... 2,284,419 2,284,419 2,284,419
---------- -------- ---------- -------- ----------
NET INCOME BEFORE INCOME
TAXES AND MINORITY
INTEREST............... 968,764 968,764 384,927 1,353,691
INCOME TAX EXPENSE ..... (292,207) $292,207(5)
Minority interest..... (542,671) 542,671(6)
---------- -------- ---------- -------- ----------
NET INCOME.............. $ 133,886 $834,878 $ 968,764 $384,927 $1,353,691
========== ======== ========== ======== ==========
EARNINGS PER SHARE...... $ 0.21 $ 0.25
========== ==========
Weighted Average Shares
Outstanding............ 4,700,000 5,509,375
========== ==========
</TABLE>

See notes to unaudited pro forma combined financial statements.

F-8
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The Combination will be accounted for as a reorganization of entities under
common control because of the high degree of common ownership of the Company
by stockholders and by virtue of their direct ownership of the entities and
interests exchanged. Accordingly, the net assets acquired in the exchange
transactions will be recorded at the historical cost basis of the affiliate
predecessor owners.

Net income for the first quarter of 1997 will be adversely affected by non-
recurring expenses incurred in connection with the Combination Transactions.

2. PRO FORMA ADJUSTMENTS

The Pro Forma Combined Balance Sheet and Statements of Operations are based
on the supplementally combined balance sheet and statements of operations of
Old Edge as of December 31, 1996 and for each of the three years in the period
ended December 31, 1996, and gives effect to the consummation of the
Combination and the Offering as if such transactions had occurred on December
31, 1996 for the Pro Forma Combined Balance Sheet and on January 1, 1994 for
the Pro Forma Combined Statements of Operations, reflecting the adjustments
and assumptions described below:

(1) Reflects the proposed issuance of up to approximately 4,700,000
shares of common stock of the Company in connection with the exchange
offer, merger and acquisition transactions for the combined net assets of
the combined predecessor entities (the "Combination"). Accordingly, the
supplementally combined equity of Old Edge was reclassified to common stock
and additional paid-in capital.

(2) Reflects the satisfaction of an accrued administrative fee due the
general partner of Edge Group II, a combined predecessor entity, which will
be purchased with common stock of the Company, as a component of the
exchange offer transactions.

(3) Reflects the elimination of deferred offering costs accrued by the
Joint Venture which will be reimbursed by the Company from proceeds
received from the Offering.

(4) Reflects the receipt of the net proceeds from the Offering at an
assumed initial public offering price of $16.00 per share, estimated to be
approximately $28.3 million ($33.8 million if the Underwriters' over-
allotment option is exercised in full). The Company intends to use a
portion of the net proceeds to lend funds to the Joint Venture to repay
approximately $10.2 million of indebtedness incurred under the Revolving
Credit Facility that currently bears interest at 8% and matures on June 1,
1998, approximately $1.3 million of subordinated indebtedness that
currently bears interest at 10% and matures on April 8, 1998 and
approximately $1.5 million of offering costs including approximately
$524,000 incurred but not paid at December 31, 1996. The remainder of the
net proceeds will be used to provide working capital to the Company and for
general corporate purposes, including funding the Company's exploration,
development and acquisition activities. Following application of the
proceeds of the Offering, the Company anticipates its only long-term
indebtedness will consist of an aggregate of approximately $412,000
principal amount of equipment loans. On a pro forma basis, interest expense
would have been reduced by $384,927, and $315,342 and $858,662 for each of
the three years in the period ended December 31, 1996, respectively.

(5) See Pro Forma taxes at footnote 4.

(6) The Supplementally Combined Financial Statements of Old Edge combine
the results of Old Edge and the Joint Venture. The Joint Venture interests
not owned by Old Edge are recorded as minority interest. As a result of the
Combination Transactions, the minority interest has been eliminated from
the Pro Forma Combined Balance Sheet and Statements of Operations.

F-9
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCEPTANCE OF THE OFFER

The following table shows the Pro Forma Combined Balance Sheet and
Statements of Operations assuming possible levels of acceptance of the
exchange offer by limited partnership unit holders in Edge Group II giving
effect for the Combination Transactions.

PRO FORMA COMBINED BALANCE SHEET, DECEMBER 31, 1996

<TABLE>
<CAPTION>
LEVELS OF ACCEPTANCE
-----------------------------------
ASSETS 80% 90% 100%
------ ----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ 1,504,423 $ 1,519,750 $ 1,544,228
Accounts receivable, trade............... 1,759,798 1,870,025 2,038,889
Accounts receivable, joint interest
owners.................................. 2,295,039 2,438,791 2,659,025
Accounts receivable from related
parties................................. 239,494 226,516 186,562
Advances to stockholders................. 3,371 3,371 23,397
Other current assets..................... 77,295 82,730 91,059
----------- ----------- -----------
Total current assets................... 5,879,420 6,141,183 6,543,160
PROPERTY AND EQUIPMENT, Net--full cost
method of accounting for oil and gas
property.................................. 18,946,667 20,878,241 11,989,241
DEFERRED OFFERING COSTS.................... 834,731 902,511 1,006,379
OTHER ASSETS............................... 16,867 17,336 18,320
----------- ----------- -----------
TOTAL...................................... $25,677,685 $27,939,271 $19,557,100
=========== =========== ===========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable, trade.................. $ 1,182,594 $ 1,208,198 $ 1,695,366
Accounts payable, joint interests
owners.................................. 2,317,751 2,403,998 2,087,230
Accounts payable to related party........ 40,000 40,000 40,000
Accrued interest payable................. 61,672 66,690 74,354
Accrued liabilities...................... 275,189 295,520 322,309
Current portion of notes payable......... 248,880 269,089 300,058
----------- ----------- -----------
Total current liabilities.............. 4,126,086 4,283,495 4,519,317
NOTES PAYABLE.............................. 9,589,856 10,368,546 11,561,844
COMMITMENTS AND CONTINGENCIES.............. -- -- --
----------- ----------- -----------
Total liabilities...................... 13,715,942 14,652,041 16,081,161
EQUITY..................................... 11,961,743 13,287,230 3,475,939
----------- ----------- -----------
TOTAL...................................... $25,677,685 $27,939,271 $19,557,100
=========== =========== ===========
</TABLE>

F-10
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<CAPTION>
LEVELS OF ACCEPTANCE
-------------------------------------
80% 90% 100%
----------- ----------- -----------
<S> <C> <C> <C>
Oil and natural gas sales............. $ 6,407,752 $ 6,925,721 $ 7,719,478
----------- ----------- -----------
Operating expenses:
Oil and natural gas operating
expenses........................... 1,327,591 1,435,192 1,600,085
Depreciation, depletion and
amortization....................... 2,254,117 2,476,536 1,613,022
General and administrative.......... 2,234,806 2,441,435 2,752,562
----------- ----------- -----------
Total operating expenses.......... 5,816,514 6,353,163 5,965,669
----------- ----------- -----------
Income from operations................ 591,238 572,558 1,753,809
Other income and expenses:
Interest expense.................... (710,579) (769,053) (858,663)
Other income........................ 192,845 208,504 232,500
----------- ----------- -----------
Net Income before income taxes........ 73,504 12,009 1,127,646
Income tax expense....................
----------- ----------- -----------
Net Income............................ $ 73,504 $ 12,009 $ 1,127,646
=========== =========== ===========
Net Income per share.................. $0.02 $ -- $0.24
=========== =========== ===========
Average common share outstanding (in
thousands)........................... 4,102 4,322 4,700
=========== =========== ===========
</TABLE>

For levels of acceptance less than 100% the amounts shown above assume
consummation of the Merger with Old Edge and do not include any amounts
attributable to Gulfedge, Edge Group or the J.C. Calaway Interests, which
collectively do not materially affect the results. The 100% level of
acceptance includes 100% of the interests to be acquired in the Combination
Transactions. It is a condition to the consummation of the Combination
Transactions that holders of at least 70% of the outstanding Edge Group II
units must tender their interests. Amounts for the possible acceptance level
of 70% are not shown because management does not believe such an acceptance
level is reasonably probable.

Management of the Company believes the Combination Transactions will be
acounted for as a reorganization of entities under common control because of
the high degree of common ownership of the stockholders of the Company and by
virtue of their direct ownership of the entities and interests exchanged.
Accordingly, management expects that the net assets acquired in the
Combination Transactions will be recorded at the historical cost basis of the
affiliated predecessor owners.

However, if 10% or more of the general and limited partner interests of Edge
Group II or Gulfedge are not exchanged in their respective exchange offers,
then such exchange offer would not be considered a reorganization under common
control and purchase accounting would be applied. Under purchase accounting,
the net assets acquired in the Combination Transactions would be recorded at
the fair market value of the interests exchanged. Accordingly, the amounts
shown for the possible acceptance levels of 80% and 90% include adjustments to
the Pro forma Combined Balance Sheet for property and equipment, net and
equity and adjustments to the Pro Forma Combined Statements of Operations for
depreciation, depletion and amortization.

4. INCOME TAXES

The following pro forma income tax amounts have been presented for
disclosure purposes only. These amounts represent the Company"s estimated
provision for income taxes under the assumption that the Company has been a
taxpaying entity since inception of the Joint Venture (April 8, 1991). The
Joint Venture is not a taxpaying entity, and the applicable taxes are directly
taxable to the individual affiliate owners of the Joint Venture. Old Edge is a
taxpaying entity and, accordingly, the applicable taxes were paid by Old Edge.

F-11
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Under SFAS No. 109, deferred income taxes are recognized based on the
estimated future tax effect of differences between the financial statement and
tax bases of assets and liabilities given the provisions of enacted laws. At
December 31, 1996, the estimated tax basis of the Company's net assets is
approximately $3.2 million above the recorded financial statement amounts. In
addition, the Company had net operating loss carryforwards of approximately
$1.9 million. Had the combined companies been a tax paying entity a deferred
tax asset of approximately $1.8 million would have been available for future
use to offset future tax liabilities of the Company, subject to any limitations
imposed by the Combination. Upon consummation of the Combination Transactions,
the Company will become a taxable corporation. Due to the uncertainty of future
earnings, a valuation allowance may be used to offset the net tax asset.

The difference between the statutory federal income taxes and the Company's
pro forma effective taxes is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- --------- ---
<S> <C> <C> <C> <C>
Statutory federal income taxes......... $ 339,067 $ 377,573 $ 394,626
Recognition of net operating loss
carryforwards......................... (339,067) (377,573) (394,626)
--------- --------- ---------
Income tax expense..................... $ -- $ -- $ --
========= ========= =========
</TABLE>

The ultimate tax basis and related difference from financial basis cannot be
ultimately determined until consummation of the Combination Transactions and
such basis difference will change depending upon the level and nature of
operations and the amount of taxable income and deductions allocated to the
individual owners, limited partners and interests of the affiliated entities
through the date of the Combination. Such basis differences could vary
materially from the estimate.

F-12
<PAGE>

INDEPENDENT AUDITORS' REPORT

To Edge Petroleum Corporation:

We have audited the accompanying balance sheet of Edge Petroleum Corporation,
a recently formed Delaware corporation (the "Company"), as of December 3, 1996.
This financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Edge Petroleum Corporation as of
December 3, 1996, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Houston, Texas
December 3, 1996

F-13
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 3,
ASSETS 1996
- ------ -----------
<S> <C>
Cash............................................................... $1,000
======
<CAPTION>
STOCKHOLDERS' EQUITY
- --------------------
<S> <C>
Preferred stock; $.01 par value, 10,000,000 shares authorized; no
shares issued and outstanding..................................... $ --
Common stock; $.01 par value, 40,000,000 shares authorized; 1,000
shares issued and outstanding..................................... 10
Additional paid-in capital......................................... 990
------
Total stockholders' equity....................................... $1,000
======
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-14
<PAGE>

EDGE PETROLEUM CORPORATION
(A RECENTLY FORMED DELAWARE CORPORATION)

NOTES TO BALANCE SHEET

1. ORGANIZATION

Edge Petroleum Corporation (the "Company") was organized as a Delaware
corporation in August 1996 in connection with a pending combination of certain
properties and businesses (the "Combined Assets") in anticipation of the
closing of its proposed initial public offering of common stock. The Combined
Assets will consist of ownership interests in certain entities (the
"Predecessor Entities") and direct interests in oil and gas properties
currently held by Edge Joint Venture II (the "Joint Venture"). In the
"Combination Transactions," the Company plans to complete (i) a merger (the
"Merger") of Old Edge with Edge Mergeco, Inc. ("Mergeco"), a wholly owned
subsidiary of the Company organized for this purpose, in which the shareholders
of Old Edge will receive common stock; (ii) an exchange offer (the "Edge Group
II Exchange Offer") to the general and limited partners of Edge Group II
Limited Partnership ("Edge Group II"), in which such partners will have the
opportunity to exchange their interests in Edge Group II for common stock,
(iii) an exchange offer (the "Gulfedge Exchange Offer" and, together with the
Edge Group II Exchange Offer, the "Limited Partnership Exchange Offers") to the
limited partners of Gulfedge Limited Partnership, of which Old Edge is the
general partner ("Gulfedge" and, together with Edge Group II, the "Limited
Partnerships"), in which such limited partners will have the opportunity to
exchange their interests in Gulfedge for common stock; (iv) an offer to
purchase (the "Purchase Offer") from Edge Group Partnership ("Edge Group") its
interest in the Joint Venture, for consideration consisting of common stock;
and (v) an exchange (the "Calaway Exchange") of interests in certain oil and
gas properties held by Mr. James C. Calaway ("Mr. J.C. Calaway") for common
stock. Upon consummation of the Combination Transactions, the Company expects
to acquire directly or indirectly substantially all of the interests in the
Joint Venture.

2. PREFERRED STOCK

The Board of Directors (the "Board") of the Company is empowered, without
approval of the stockholders, to cause shares of preferred stock to be issued
in one or more series, with the number of shares of each series to be
determined by the Board. The Board is authorized to fix and determine
variations in the voting power designations, preferences, and relative,
participating, optional or other special rights (including, without limitation,
special voting rights, rights to receive dividends or assets upon liquidation,
rights of conversion into common stock or other securities, redemption
provisions and sinking fund provisions) between series and between the
preferred stock and common stock.

Prior to completion of the Offering, the Company expects to change the number
of authorized shares of Preferred Stock to 5,000,000, and the number of
authorized shares of Common Stock to 25,000,000.

F-15
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders of
Edge Petroleum Corporation,
a Texas corporation

We have audited the accompanying supplementally combined balance sheets of
Edge Petroleum Corporation, a Texas corporation ("Old Edge"), (the "Company")
as of December 31, 1995 and 1996, and the related supplementally combined
statements of operations, equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996 These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the supplementally combined financial position of the Company at
December 31, 1995 and 1996, and the supplementally combined results of its
operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Houston, Texas

February 4, 1997

F-16
<PAGE>

EDGE PETROLEUM CORPORATION

SUPPLEMENTALLY COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1995 1996
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 200,831 $ 1,543,228
Accounts receivable, trade......................... 1,167,920 2,038,889
Accounts receivable, joint interest owners......... 333,552 2,659,025
Accounts receivable from related parties........... 118,515 186,562
Advances to stockholders........................... 30,826 23,397
Other current assets............................... 36,954 91,059
----------- -----------
Total current assets............................. 1,888,598 6,542,160
PROPERTY AND EQUIPMENT, Net--full cost method of
accounting for oil and gas property................. 7,911,068 11,989,241
DEFERRED OFFERING COSTS.............................. 1,006,379
OTHER ASSETS......................................... 58,541 18,320
----------- -----------
TOTAL................................................ $ 9,858,207 $19,556,100
=========== ===========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable, trade............................ $ 1,144,408 $ 1,695,366
Accounts payable, joint interest owners............ 2,087,230
Accounts payable to related party.................. 1,305,827 1,372,450
Accrued interest payable........................... 46,418 74,354
Accrued liabilities................................ 160,493 322,309
Current portion of notes payable................... 178,898 300,058
----------- -----------
Total current liabilities........................ 2,836,044 5,851,767
NOTES PAYABLE........................................ 5,945,076 11,561,844
LONG-TERM LIABILITY.................................. 46,245 --
DEFERRED INCOME TAXES................................ 87,036 248,673
MINORITY INTEREST.................................... 1,601,360 2,267,185
COMMITMENTS AND CONTINGENCIES........................ -- --
----------- -----------
Total liabilities................................ 10,515,761 19,929,469
EQUITY (DEFICIT)..................................... (657,554) (373,369)
----------- -----------
TOTAL................................................ $ 9,858,207 $19,556,100
=========== ===========
</TABLE>

See notes to supplementally combined financial statements.

F-17
<PAGE>

EDGE PETROLEUM CORPORATION,

SUPPLEMENTALLY COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
OIL AND NATURAL GAS SALES................. $1,993,796 $ 2,040,446 $7,719,478
---------- ----------- ----------
OPERATING EXPENSES:
Oil and natural gas operating expenses.. 304,627 686,438 1,600,085
Depreciation, depletion and
amortization........................... 593,398 813,402 1,613,022
General and administrative.............. 2,026,499 2,483,560 2,752,562
---------- ----------- ----------
Total operating expenses.............. 2,924,524 3,983,400 5,965,669
---------- ----------- ----------
OPERATING INCOME (LOSS)................... (930,728) (1,942,954) 1,753,809
OTHER INCOME AND EXPENSES:
Interest expense........................ (384,927) (315,342) (858,663)
Other Income............................ 232,500
Gain on sale of oil and gas property.... 2,284,419 3,337,076
---------- ----------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTEREST........................ 968,764 1,078,780 1,127,646
INCOME TAX EXPENSE ....................... (292,207) (397,088) (394,675)
MINORITY INTEREST......................... (542,671) (575,811) (432,786)
---------- ----------- ----------
NET INCOME................................ $ 133,886 $ 105,881 $ 300,185
========== =========== ==========
</TABLE>

See notes to supplementally combined financial statements.

F-18
<PAGE>

EDGE PETROLEUM CORPORATION

SUPPLEMENTALLY COMBINED STATEMENTS OF EQUITY (DEFICIT)

<TABLE>
<S> <C>
BALANCE, JANUARY 1, 1994............................................ $(871,321)
Net income........................................................ 133,886
Treasury stock acquired........................................... (24,000)
Treasury stock reissued........................................... 12,000
---------
BALANCE, DECEMBER 31, 1994.......................................... (749,435)
Net income........................................................ 105,881
Treasury stock acquired........................................... (28,000)
Treasury stock reissued........................................... 14,000
---------
BALANCE, DECEMBER 31, 1995.......................................... (657,554)
Net income........................................................ 300,185
Treasury stock acquired........................................... (32,000)
Treasury stock reissued........................................... 16,000
---------
BALANCE, DECEMBER 31, 1996.......................................... $(373,369)
=========
</TABLE>

See notes to supplementally combined financial statements.

F-19
<PAGE>

EDGE PETROLEUM CORPORATION

SUPPLEMENTALLY COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 133,886 $ 105,881 $ 300,185
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation, depletion and
amortization........................ 593,398 813,402 1,613,022
Gain on sale of oil and gas property. (2,284,419) (3,337,076)
Deferred income taxes................ 292,207 397,088 394,675
Minority interest.................... 542,671 575,811 432,786
Changes in assets and liabilities:
Accounts receivable, trade........... (268,785) 60,098 (870,969)
Accounts receivable, working interest
owners.............................. 54,302 (213,300) (2,325,473)
Accounts receivable from related
parties............................. (62,196) (23,480) (68,047)
Advance to stockholders.............. (14,111) 156 7,429
Other current assets................. (4,724) 16,778 (54,105)
Refundable federal income taxes......
Other assets......................... (41,133)
Accounts payable, trade.............. 145,424 420,257 550,958
Accounts payable, working interest
owners.............................. 2,087,230
Accounts payable to related parties.. 258,066 266,490 66,623
Accrued interest payable............. 32,199 12,996 27,936
Accrued liabilities.................. (32,345) 50,818 161,816
Deferred management fee revenues..... (20,000)
Long-term liability.................. 30,413 (31,557) (46,245)
----------- ----------- -----------
Net cash provided (used) by operating
activities.......................... (604,014) (926,771) 2,277,821
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas property and equipment
purchases............................ (6,809,437) (8,511,991) (10,466,754)
Proceeds from the sale of oil and gas
properties........................... 7,071,025 7,358,189 4,815,779
Proceeds from notes receivable........ 154,250
Issue of notes receivable............. (125,000)
----------- ----------- -----------
Net cash (used) provided by investing
activities.......................... 290,838 (1,153,802) (5,650,975)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........... 105,000 313,131 5,987,000
Payment on notes payable.............. (475,000) (83,691) (249,070)
Proceeds from long-term notes payable. 590,000 5,300,000
Payment on long-term notes payable.... (652,696) (3,582,955)
Accounts receivable, subscriptions.... 20,000
Net treasury stock transactions....... (12,000) (14,000) (16,000)
Deferred offering costs............... (1,006,379)
----------- ----------- -----------
Net cash (used) provided by financing
activities.......................... (424,696) 1,932,485 4,715,551
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ (737,872) (148,088) 1,342,397
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR................................... 1,086,791 348,919 200,831
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ 348,919 $ 200,831 $ 1,543,228
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES--Cash
paid for interest...................... $ 381,833 $ 307,510 $ 844,849
</TABLE>

See notes to supplementally combined financial statements.

F-20
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMBINATION TRANSACTIONS--Edge Petroleum Corporation, a recently formed
Delaware corporation ("New Edge"), was incorporated in August 1996. In the
"Combination Transactions," New Edge plans to complete (i) a merger (the
"Merger") of Edge Petroleum Corporation, a Texas corporation ("Old Edge"),
with Edge Mergeco, Inc. ("Mergeco"), a wholly owned subsidiary of New Edge
organized for this purpose, in which the shareholders of Old Edge will receive
common stock of New Edge, (ii) an exchange offer (the "Edge Group II Exchange
Offer") to the general and limited partners of Edge Group II Limited
Partnership ("Edge Group II") in which such partners will have the opportunity
to exchange their interests in Edge Group II for common stock (iii) an
exchange offer (the "Gulfedge Exchange Offer") and, together with the Edge
Group II Exchange Offer (the "Limited Partnership Exchange Offers") to the
limited partners of Gulfedge Limited Partnership, of which Old Edge is the
general partner ("Gulfedge" and, together with Edge Group II, the "Limited
Partnerships"), in which such limited partners will have the opportunity to
exchange their interests in Gulfedge for common stock, (iv) an offer to
purchase (the "Purchase Offer") from Edge Group Partnership ("Edge Group") its
interest in the Edge Joint Venture II (the "Joint Venture"), for consideration
consisting of common stock and (v) an exchange (the "Calaway Exchange") of
interests in certain oil and gas properties held by Mr. James C. Calaway ("Mr.
J.C. Calaway") for common stock. Upon consummation of the Combination
Transactions, New Edge expects to acquire directly or indirectly substantially
all of the interest in the Joint Venture. The Combination Transactions will be
accounted for as a reorganization of entities under common control because of
the high degree of common ownership of the stockholders of the Company and by
virtue of their direct ownership of the entities and interest exchanged.
Accordingly, the combined accounts will be prepared using the historical costs
and results of operations of the affiliated entities as if such entities had
always been combined. All intercompany balances will be eliminated in
combination.

PRINCIPLES OF COMBINATION--The Combination Transactions are expected to be
accounted for as a reorganization pursuant to Staff Accounting Bulletin 47
because of the high degree of common ownership among the combining entities
and only equity ownership interests in the entities will be exchanged.
Accordingly, the consolidated accounts are presented using the historical
costs and results of operations of the affiliated entities as if such entities
had always been combined. All intercompany balances will be eliminated in
combination.

However, if 10% or more of the general and limited partner interests of Edge
Group II or Gulfedge are not exchanged in their respective exchange offers,
then such exchange offer would not be considered a reorganization and purchase
accounting would be applied. Under purchase accounting, the net assets
acquired in the Combination Transactions would be recorded at the fair market
value of the interests exchanged. It is a condition to the Combination
Transactions that no more 10% of the shareholders of Old Edge shall have
exercised their dissenter's rights with respect to the Merger. Management does
not expect any such dissenters to the Merger.

The accompanying supplementally combined financial statements include the
accounts of Old Edge and the Joint Venture both of which share common
ownership and management (collectively, the "Company"). The Joint Venture, a
general partnership, was formed by Old Edge, Edge Group II, Edge Group and
Gulfedge. The Joint Venture interests not owned by Old Edge are recorded as
minority interest.

NATURE OF OPERATIONS--The Company is an independent oil and gas exploration
and production company with operations primarily along the onshore United
States Gulf Coast. In its exploration efforts the Company emphasizes an
integrated geologic interpretation method incorporating 3-D seismic technology
and advanced visualization and data analysis techniques utilizing state-of-
the-art computer hardware and software. The Company focuses a majority of its
resources toward the development of its South Texas projects.

The term of the Joint Venture was to have expired on April 8, 1996 according
to the Joint Venture Agreement; however, the venturers extended the
dissolution date to December 31, 1996. The Joint Venture will continue to
operate under the terms of the original Joint Venture Agreement, as amended,
until the dissolution is completed.

F-21
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

REVENUE RECOGNITION. The Company recognizes oil and gas revenue from its
interests in producing wells as oil and gas is produced and sold from those
wells. Oil and gas sold in production operations is not significantly
different from the Company's share of production.

OIL AND GAS PROPERTY--During 1996, the Company changed its method of
accounting from the successful efforts method to the full cost method of
accounting for oil and gas property and adjusted all historical periods to
reflect the change in accounting. Management believes that the full cost
method of accounting better reflects the results of its oil and natural gas
exploration activities.

Investments in oil and gas properties are accounted for using the full cost
method of accounting. All costs associated with the acquisition, exploration
and development of oil and gas properties are capitalized.

Oil and gas properties are amortized using the unit-of-production method
using estimates of proved reserve quantities. Investments in unproved
properties are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of impairment
is added to the proved oil and gas property costs to be amortized. The
amortizable base includes estimated future development costs and, where
significant, dismantlement, restoration and abandonment costs, net of
estimated salvage values. The depletion rate per Mcfe for the years ended
December 31, 1994, 1995 and 1996 was $0.42, $0.47 and $0.45, respectively.

Sales of proved and unproved properties are accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments
would significantly alter the relationship between capitalized costs and
proved reserves. Abandonments of properties are accounted for as adjustments
of capitalized costs with no loss recognized.

In addition, the capitalized costs of oil and gas properties are subject to
a "ceiling test," which limits such costs to the estimated present value,
discounted at a 10% interest rate, of future net cash flows from proved
reserves, based on current economic and operating conditions, plus the cost of
unproved prospects. If capitalized costs exceed this limit, the excess is
charged to depreciation, depletion and amortization. For the years ended
December 31, 1996, 1995, and 1994, no write-down of the Company's oil and gas
assets was necessary.

Depreciation of other property and equipment is provided using the straight-
line method based on estimated useful lives ranging from five to ten years.

DEFERRED LOAN AND ORGANIZATION COSTS--Deferred loan costs are capitalized as
deferred assets and amortized over five years or the term of the loan.
Organization costs have been capitalized and are amortized on a straight-line
basis over five years.

HEDGING ACTIVITIES--The Company periodically uses derivative financial
instruments to manage price risks related to natural gas sales and not for
speculative purposes. For book purposes, gains and losses related to the
hedging of anticipated transactions are recognized as income when the hedged
transaction occurs. The natural gas swap agreements generally provide for the
Company to receive or make counter-party payments on the differential between
a fixed price and a variable indexed price for natural gas. Total natural gas
purchased and sold under swap arrangements during the years ended December 31,
1996 and 1995 were 182 MMcf and 122 MMcf, respectively. Gains (losses)
realized by the Company under such swap arrangements were $5,270 and $(15,720)
for the years ended December 31, 1996 and 1995, respectively. There was no
hedging activity during 1994. Outstanding hedges at December 31, 1995 were not
material, and the Company had no existing hedging positions as of December 31,
1996.

STATEMENTS OF CASH FLOWS--The statements of cash flows are presented using
the indirect method and consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.

F-22
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

FINANCIAL INSTRUMENTS--The Company's financial instruments consist of cash,
receivables, payables, long-term debt and natural gas commodity hedges. The
carrying amount of cash, receivables and payables approximates fair value
because of the short-term nature of these items. The carrying amount of long-
term debt approximates fair value since the individual borrowings were
negotiated or renegotiated during or after 1993 and/or bear interest at
floating market interest rates. The carrying amount of natural gas commodity
hedges approximates fair value based on the expected settlement amounts of
these transactions in 1996.

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from these estimates.
Significant estimates include depreciation, depletion and amortization of
proved producing oil and gas properties; estimates of proved oil and gas
reserve volumes; and discounted future net cash flows (see Note 8).

CONCENTRATION OF CREDIT RISK--Substantially all of the Company's accounts
receivable result from oil and natural gas sales or joint interest billings to
third parties in the oil and gas industry. This concentration of customers and
joint interest owners may impact the Company's overall credit risk in that
these entities may be similarly affected by changes in economic and other
conditions. Historically, the Company has not experienced credit losses on such
receivables.

2. PROPERTY AND EQUIPMENT

At December 31, 1995 and 1996, property and equipment consisted of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Oil and gas property.... $ 9,029,797 $13,860,040
Computer equipment...... 1,004,509 1,819,080
Other property and
equipment.............. 184,018 194,933
----------- -----------
Total property and
equipment.............. 10,218,324 15,874,053
Accumulated
depreciation, depletion
and amortization....... (2,307,256) (3,884,812)
----------- -----------
Property and equipment,
net.................... $ 7,911,068 $11,989,241
=========== ===========
</TABLE>

Oil and natural gas properties not subject to amortization consist of the
cost of undeveloped leaseholds, exploratory and developmental wells in
progress, and secondary recovery projects before the assignment of proved
reserves. These costs are reviewed periodically by management for impairment,
with the impairment provision included in the cost of oil and natural gas
properties subject to amortization. Factors considered by management in its
impairment assessment include drilling results by the Company and other
operators, the terms of oil and gas leases not held by production, production
response to secondary recovery activities and available funds for exploration
and development. The following table summarizes the cost of the properties not
subject to amortization for the year the cost was incurred:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Year cost incurred:
Remainder............................................ $ 503,390 $ 513,679
1994................................................. 744,744 564,789
1995................................................. 696,418 551,205
1996................................................. 2,255,293
---------- ----------
$1,944,552 $3,884,966
========== ==========
</TABLE>

F-23
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)
During 1994 the Joint Venture issued a note payable for $91,695 to the seller
of certain seismic data. Subsequently, the Joint Venture entered into a sales
agreement with the same entity to sell the Joint Venture's interest in an
undeveloped oil and gas property for $1,491,695 resulting in a gain of
$1,288,363. As a component of the sales agreement, the note payable was used to
reduce the proceeds from the sale.

3. LONG-TERM DEBT

In April 1991 the Joint Venture borrowed, in the aggregate, $4,500,000 from
the RIMCO Partnerships and another partnership of which RIMCO is the general
partner, at an annual interest rate of 15.5% (the "RIMCO Note"). The Joint
Venture and such partnerships agreed to reduce the interest rate of the RIMCO
Note from 15.5% to 10% for the period from October 1, 1993 through September
30, 1995. Pursuant to such agreement, the Joint Venture conveyed to such
partnerships a 0.4% after-payout royalty interest, in the aggregate, in all
prospects sold by the Joint Venture during such period. The RIMCO Note was
repaid in March 1995.

During July 1995, the Joint Venture entered into a revolving credit facility
(the "Revolving Credit Facility") with a bank to finance temporary working
capital requirements. The Revolving Credit Facility provides up to $20,000,000
in available borrowings limited by a borrowing base (as defined by the
Revolving Credit Facility) which was $4,500,000 and $11,175,000 at December 31,
1995 and 1996, respectively. At December 31, 1995 and 1996, borrowings
outstanding under the Revolving Credit Facility totaled $4,500,000 and
$10,150,000, respectively. The Revolving Credit Facility provides for interest
at the lender's prime rate plus 0.75% (9.25% and 9.0% at December 31, 1995 and
1996, respectively). The borrowing base is subject to review by the bank on a
quarterly basis and may be adjusted subject to the provisions of the Revolving
Credit Facility.

In January 1995 the Joint Venture entered into a Subordinated Loan Agreement
(the "Subordinated Loan") with a shareholder of Old Edge. Such agreement
provides for a $1 million term loan and a $1 million line of credit. Drawdowns
under the line of credit require 30 days notice. At both December 31, 1995 and
1996, the aggregate amount outstanding under the Subordinated Loan was $1.3
million, including $0.3 million outstanding under the line of credit. The
principal is due, unless retired earlier by the Joint Venture, upon the earlier
of April 8, 1998 or the conclusion of the Joint Venture's wind-up period.
Interest at 10% per annum is due monthly. The Subordinated Loan is secured by
certain oil and gas properties, equipment and other assets of the Joint
Venture, but is subordinate to the Revolving Credit Facility. The mortgage and
security agreement restricts the transfer of properties, creation of liens and
other matters. The Subordinated Loan is without recourse to the venturers.
Under the Subordinated Loan Agreement, the shareholder has a right to receive
specified reversionary and overriding royalty interests on prospects of the
Joint Venture and certain rights to convert such interests into common stock
which is triggered by the execution of certain transactions by the Joint
Venture as defined within the Subordinated Loan Agreement.

F-24
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1995 and 1996, notes payable and long-term debt consisted of
the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------- ---
<S> <C> <C> <C>
Revolving credit facility, lenders' prime rate
plus 0.75%, interest payable monthly, maturing
June 1, 1998.................................... $4,500,000 $10,150,000
Note payable to bank, lenders' prime rate plus
0.75%, payable in monthly principal installments
of $7,500 plus accrued interest, matures March
1, 1997......................................... 180,000 90,000
Note payable to bank, lenders' prime rate plus
1.5%, payable in monthly principal installments
of $5,547 plus accrued interest, matures March
1, 1997......................................... 83,207 16,642
Note payable, 10.996% interest, payable in
monthly installments of principal and interest
of $2,326, matures June 22, 1998................ 60,767 38,470
Note payable, lenders' prime plus 0.75%, payable
in monthly principal installments of $14,042
plus accrued interest, matures July 1, 1998..... 266,790
Subordinated note payable to a shareholder of Old
Edge, 10% interest, interest payable monthly,
matures April 8, 1998........................... 1,300,000 1,300,000
---------- -----------
Total............................................ 6,123,974 11,861,902
Current portion.................................. (178,898) (300,058)
---------- -----------
Long-term portion................................ $5,945,076 $11,561,844
========== ===========
</TABLE>

Substantially all of the Joint Venture's property and equipment are pledged
as collateral on certain notes payable.

At December 31, 1996, notes payable require minimum principal payments as
follows:

<TABLE>
<S> <C>
1997.......................................................... $ 300,058
1998.......................................................... 11,561,844
-----------
Total....................................................... $11,861,902
===========
</TABLE>

The Revolving Credit Facility and certain other note agreements provide for
certain financial covenants and restrictions on the Joint Venture including,
but not limited to, limitations on additional borrowings, sales of its oil and
gas properties or other collateral, a prohibition of dividends and certain
distributions of cash or properties, a prohibition on certain liens, a
limitation on annual lease payments, and a requirement to maintain minimum
tangible net worth and other financial ratios. For the quarters ended March 31,
1996 and June 30, 1996, the Joint Venture was not in compliance with the
original cash flow/debt service ratio covenant. The Joint Venture has received
a waiver for such non-compliance, and the provisions of the covenants were
subsequently amended in August 1996 to be less stringent.

4. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is party to certain lawsuits and claims
arising in the ordinary course of business. While the outcome of lawsuits and
claims cannot be predicted with certainty, management does not expect these
matters to have a materially adverse effect on the Company's financial
condition, results of operations or cash flows.

At December 31, 1996, Old Edge was obligated under a noncancelable operating
lease for office space. Following is a schedule of the remaining future minimum
lease payments under this lease:

Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$164,436, $165,317 and $204,376, respectively.

F-25
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

5. INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts calculated for income tax purposes.

Significant components of Old Edge's deferred tax liabilities and assets as
of December 31, 1994, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Deferred tax liability:
Loss allowed for tax purposes in excess of book
loss from Old Edge's partnership interest in the
Joint Venture................................... $279,455 $784,789 $920,119
Other............................................ 651 538 538
-------- -------- --------
Total.............................................. 280,106 785,327 920,657
-------- -------- --------
Deferred tax assets:
Net operating tax loss carryforwards............. 439,968 646,340 620,033
Other............................................ 49,725 51,951 51,951
Less valuation allowance......................... (209,587)
-------- -------- --------
Total deferred tax assets.......................... 280,106 698,291 671,984
-------- -------- --------
Net deferred tax liability......................... $ -- $ 87,036 $248,673
======== ======== ========
</TABLE>

The differences between the statutory federal income taxes and the Company's
effective taxes is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income taxes..................... $339,068 $377,575 $394,675
Recognition of operating loss carryforwards........ (46,861)
Expense not deductible for tax purposes............ 19,513
-------- -------- --------
Income tax expense................................. $292,207 $397,088 $394,675
======== ======== ========
</TABLE>

As of December 31, 1996, Old Edge has net operating tax loss carryforwards
of $1.9 million which will begin to expire in the year 2007.

6. EQUITY

In 1991, Old Edge entered into an agreement with a related party to
repurchase 5,263 shares of its outstanding common stock. The repurchase
obligation is effective if holders of such shares demand repurchase between
January 1995 and January 1998. However, Old Edge will have no obligation to
repurchase these shares if it has registered common stock under the Securities
Exchange Act of 1933 prior to demand for repurchase. The amount to be paid for
these shares equals the percentage obtained by dividing 5,263 shares by the
total number of outstanding shares of Old Edge and multiplying this percentage
by the greater of (1) the net cash flow of Old Edge (as defined in the
agreement) or (2) the adjusted net worth of Old Edge (as defined in the
agreement).

During 1994, a third party entered into an agreement to acquire shares of
Old Edge's outstanding common stock from a shareholder. These shares are held
in escrow as security for a nonrecourse promissory note issued to the third
party by the shareholder. The final payment is due January 15, 1997. Upon
payment of each annual

F-26
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

principal amount, a proportionate number of shares will be released by the
shareholder from escrow to the third party. A stock repurchase agreement gives
Old Edge the option of participating in these annual principal payments. Upon
participation, Old Edge would take possession of its pro rata share of the
stock acquired. If Old Edge elects not to participate in a principal payment,
Old Edge shall be deemed to have forfeited the ownership rights in the stock
for which the payment pertains. As of December 31, 1996, approximately 1,264
shares had been repurchased by Old Edge through the agreement.

In 1994, Old Edge adopted the 1994 Incentive Stock Option Plan which
provides for the granting of options to certain key employees to purchase up
to 6,000 shares of Old Edge common stock. The recipient, timing and number of
shares are determined by the Board of Directors of Old Edge. The exercise
price of any options granted may not be less than 110% of the fair market
value of Old Edge's stock at the date of grant. In 1994 options to acquire
4,386 shares of Old Edge common stock were granted and were immediately vested
at prices ranging from $45.60 to $91.20 per share. No options were granted in
1995. The options expire in April 2004. No options were exercised or forfeited
during 1994, 1995 or 1996; thus all shares originally granted remained
exercisable at December 31, 1996.

In October 1995, the Financial Accounting Standards Board issued No. 123
("SFAS No. 123"). SFAS No. 123 is a new standard of accounting for stock-based
compensation and establishes a fair value method of accounting for awards
granted after December 31, 1995 under stock compensation plans. SFAS No. 123
encourages, but does not require, companies to adopt the fair value method of
accounting in place of the existing method of accounting for stock-based
compensation whereupon compensation costs are recognized only in situations
where stock compensation plans award intrinsic value to recipients at the date
of grant. Companies that do not adopt the fair value method of accounting
prescribed in SFAS No. 123 must, nonetheless, make annual pro forma
disclosures of the estimated effects on net income and earnings per share in
their year-end 1996 financial statements as if the fair value method had been
used for grants after December 31, 1994.

7. RELATED PARTY TRANSACTIONS

Edge Group II incurred management fees from the General Partner of $266,490
for each of the two years ended December 31, 1995 and $66,623 for the year
ended December 31, 1996. Included in accounts payable to related party at
December 31, 1995 and 1996 was $1,265,827 and $1,332,450, respectively,
representing accrued management fees due the General Partner.

At December 31, 1995 and 1996, included in advances to stockholders, was
$27,455 and $23,397, respectively, due from directors of Old Edge. At December
31, 1995, 1996, an employee owed Old Edge $3,492, which was included in
receivables from related parties.

At both December 31, 1995 and 1996, the Joint Venture was liable to a
shareholder of Old Edge for $1,300,000 of notes payable and at December 31,
1995, $11,041, of accrued interest (see Note 3).

Old Edge receives revenue from various related parties for maintaining
certain oil and gas properties. Representation fees amounted to $24,000,
$24,000 and $30,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. At December 31, 1995 and 1996, was $3,306 and $10,188,
respectively, of representation fees due Old Edge was included in receivables
from related parties.

In May 1992, the Joint Venture became the managing venturer of the Essex
Royalty Joint Venture ("Essex") and Old Edge entered into a management
agreement with Essex. In September 1994, the Joint Venture became the managing
venturer of the Essex Royalty Joint Venture II ("Essex II") and Old Edge
entered into a management agreement with Essex II. During 1993, the Joint
Venture issued a $30,000 note receivable to Essex which was collected in 1994.
During 1994, the Joint Venture loaned $125,000 to Essex II. This loan, plus

F-27
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

accrued interest, was repaid during 1994. Under the management agreements with
Essex and Essex II (collectively, the "Essex Joint Ventures"), Old Edge
receives a monthly management fee for managing oil and gas joint ventures. For
the years ended December 31, 1994, 1995 and 1996, Old Edge recorded management
fee proceeds totaling $80,000, $120,000 and $120,000, respectively, and have
netted these amounts within general and administrative expenses. In addition,
these agreements stipulate that Old Edge is entitled to be reimbursed for
certain general and administrative expenses. Such expenses invoiced by Old Edge
to the Essex Joint Ventures for the years ended December 31, 1994, 1995 and
1996, amounted to $18,750, $40,250 and $67,000 respectively. At December 31,
1995 and 1996, Old Edge had a receivable from the Essex Joint Ventures of
$115,000 and $172,000, respectively, relating to these expenses and management
fees.

8. SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND GAS EXPLORATION, DEVELOPMENT
AND PRODUCTION ACTIVITIES (UNAUDITED)

This footnote provides supplementally combined unaudited information required
by SFAS No. 69, "Disclosures About Oil and Gas Producing Activities."

CAPITALIZED COSTS--Capitalized costs and accumulated depreciation, depletion
and amortization relating to the Company's oil and gas producing activities,
all of which are conducted within the continental United States, are summarized
below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Proved producing oil and gas
properties....................... $ 3,098,702 $ 7,085,245 $11,794,154
Accumulated depreciation,
depletion and amortization....... (1,178,985) (1,746,663) (3,210,838)
----------- ----------- -----------
Net capitalized costs............. $ 1,919,717 $ 5,338,582 $ 8,583,316
=========== =========== ===========
</TABLE>

COSTS INCURRED--Costs incurred in oil and gas property acquisition,
exploration and development activities are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Acquisition costs:
Unproved.............................. $5,496,613 $3,658,573 $4,489,740
Proved................................ 26,236 91,025 36,386
Exploration costs....................... 670,270 2,642,025 2,632,696
Development costs....................... 238,341 1,149,548 2,342,831
---------- ---------- ----------
Gross costs incurred.................. 6,431,460 7,541,171 9,501,653
Less proceeds from sales of prospects... 7,071,025 4,008,189 2,229,835
---------- ---------- ----------
Net cost incurred..................... $ (639,565) $3,532,982 $7,271,818
========== ========== ==========
</TABLE>

Gross cost incurred excludes sales of proved and unproved properties which
are accounted for as adjustments of capitalized costs with no gain or loss
recognized, unless such adjustments would significantly alter the relationship
between capitalized costs and proved reserves.

RESERVES--Proved reserves are estimated quantities of oil and natural gas
which geological and engineering data demonstrate with reasonable certainty to
be recoverable in future years from known reservoirs under existing economic
and operating conditions. Proved developed reserves are proved reserves that
can reasonably be expected to be recovered through existing wells with existing
equipment and operating methods.

F-28
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Proved oil and natural gas reserve quantities and the related discounted
future net cash flows before income taxes for the periods presented are based
on estimates prepared by Ryder Scott Company, independent petroleum engineers.
Such estimates have been prepared in accordance with guidelines established by
the Securities and Exchange Commission.

The Company's net ownership interests in estimated quantities of proved oil
and natural gas reserves and changes in net proved reserves, all of which are
located in the continental United States, are summarized below. These
quantities include the minority interest in the Joint Venture as the Joint
Venture is consolidated.

<TABLE>
<CAPTION>
OIL, CONDENSATE AND NATURAL GAS
LIQUIDS (BBLS)
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year..................... 169,947 368,160 708,933
Revisions of previous estimates....... 28,492 156,687 (36,746)
Purchases of oil and gas properties... 84,116 6,275
Extensions and discoveries............ 146,213 278,268 245,703
Sales of oil and gas properties....... (36,572) (165,951)
Production............................ (60,608) (63,885) (109,225)
--------- ---------- ----------
End of year........................... 368,160 708,933 642,714
========= ========== ==========
Proved developed reserves at end of
year................................... 244,441 652,843 569,856
========= ========== ==========
Minority Interest:
Proved developed and undeveloped, end
of year.............................. 261,158 502,889 455,916
========= ========== ==========
Proved developed, end of year......... 173,397 463,101 404,233
========= ========== ==========
<CAPTION>
NATURAL GAS (MCF)
--------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year..................... 2,550,000 3,673,000 8,821,000
Revisions of previous estimates....... 1,465,329 277,863 (1,178,453)
Purchases of oil and gas properties... 37,000 1,047,000
Extensions and discoveries............ 204,000 6,247,000 8,154,000
Sales of oil and gas properties....... (1,910,962) (63,442)
Production............................ (583,329) (512,901) (2,316,105)
--------- ---------- ----------
End of year........................... 3,673,000 8,821,000 13,417,000
========= ========== ==========
Proved developed reserves at year end... 3,548,000 6,692,000 11,301,000
========= ========== ==========
Minority Interest:
Proved developed and undeveloped, end
of year.............................. 2,605,479 6,257,265 9,517,483
========= ========== ==========
Proved developed, end of year......... 2,516,809 4,747,037 8,016,477
========= ========== ==========
</TABLE>

F-29
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONTINUED)

STANDARDIZED MEASURE--The table of the Standardized Measure of Discounted
Future Net Cash Flows relating to the Company's ownership interests in proved
oil and gas reserves as of period end is shown below:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Future cash inflows..................... $13,143,411 $31,011,202 $63,446,170
Future oil and natural gas operating
expenses............................... (2,417,571) (5,906,519) (9,590,565)
Future development costs................ (164,894) (641,475) (982,603)
Future income tax expenses.............. (2,055,590) (5,883,983) (13,797,568)
----------- ----------- -----------
Future net cash flows................... 8,505,356 18,579,225 39,075,434
10% annual discount for estimating
timing of cash flows................... (1,725,504) (4,633,593) (8,875,265)
----------- ----------- -----------
Standardized measure of discounted
future net cash flows.................. $ 6,779,852 $13,945,632 $30,200,169
=========== =========== ===========
</TABLE>

The table of standardized measure of Discounted Future Net Cash Flows
includes the consolidation of the Joint Venture. The Minority Interest's share
of standardized measure of future net cash flows is $4,809,356, $9,892,474 and
$21,422,792, at December 31, 1994, 1995 and 1996, respectively.

Future cash flows are computed by applying year end prices of oil and natural
gas to year end quantities of proved oil and natural gas reserves. Future
operating expenses and development costs are computed primarily by the
Company's petroleum engineers by estimating the expenditures to be incurred in
developing and producing the Company's proved oil and natural gas reserves at
the end of the year, based on year end costs and assuming the continuation of
existing economic conditions.

Future income taxes are based on year end statutory rates, adjusted for
operating loss carryforwards and tax credits. A discount factor of 10% was used
to reflect the timing of future net cash flows. The standardized measure of
discounted future net cash flows is not intended to represent the replacement
cost or fair market value of the Company's oil and gas properties.

The standardized measure of discounted future net cash flows does not
purport, nor should it be interpreted, to present the fair value of the
Company's oil and natural gas reserves. An estimate of fair value would also
take into account, among other things, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs, a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.

F-30
<PAGE>

EDGE PETROLEUM CORPORATION

NOTES TO SUPPLEMENTALLY COMBINED FINANCIAL STATEMENTS--(CONCLUDED)

CHANGES IN STANDARDIZED MEASURE--Changes in standardized measure of future
net cash flows relating to proved oil and gas reserves are summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Changes due to current year operations:
Sales of oil and natural gas, net of
oil and natural gas operating
expenses............................. $(1,689,169) $(1,354,008) $(6,358,807)
Sales of oil and gas properties....... (3,113,415) (1,884,221)
Extensions and discoveries............ 1,612,402 10,194,038 22,901,796
Purchases of oil and gas properties... 485,609 540,345
Changes due to revisions in standardized
variables:
Prices and operating expenses......... (505,924) 408,398 8,668,053
Revisions of previous quantity
estimates............................ 2,060,290 1,935,454 (2,970,834)
Estimated future development costs.... (573) 62,740 (341,128)
Income taxes.......................... (654,726) (2,330,338) (5,728,481)
Accretion of discount................. 577,807 794,640 1,744,261
Production rates (timing) and other... (372,014) 27,926 223,898
----------- ----------- -----------
Net change.............................. 1,513,702 7,165,780 16,254,537
----------- ----------- -----------
Beginning of year....................... 5,266,150 6,779,852 13,945,632
----------- ----------- -----------
End of year............................. $ 6,779,852 $13,945,632 $30,200,169
=========== =========== ===========
</TABLE>

Sales of oil and natural gas, net of oil and natural gas operating expenses,
are based on historical pre-tax results. Sales of oil and gas properties,
extensions and discoveries, purchases of minerals in place and the changes due
to revisions in standardized variables are reported on a pre-tax discounted
basis, while the accretion of discount is presented on an after tax basis.

* * * * * *

F-31
<PAGE>

January 30, 1997

Edge Petroleum Corporation
2100 Texaco Heritage Plaza
Houston, Texas 77002

Gentlemen:

At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain combined leasehold and royalty
interests that are sought to be combined in Edge Petroleum Corporation, a
Delaware corporation, and which are currently held by Edge Joint Venture II
(Edge) and James C. Calaway as of December 31, 1996. The subject properties
are located in the states of Alabama, Louisiana, Mississippi, and Texas. The
income data were estimated using the Securities and Exchange Commission (SEC)
guidelines for future cost and price parameters.

The estimated reserves and future income amounts presented in this report
are related to hydrocarbon prices. December 1996 hydrocarbon prices were used
in the preparation of this report as required by SEC guidelines; however,
actual future prices may vary significantly from these prices. Therefore,
volumes of reserves actually recovered and amounts of income actually received
may differ significantly from the estimated quantities presented in this
report. A summary of the results of this study is shown below.

SEC PARAMETERS
ESTIMATED NET RESERVES AND INCOME DATA
CERTAIN LEASEHOLD AND ROYALTY INTERESTS OF
EDGE JOINT VENTURE II AND JAMES C. CALAWAY

AS OF DECEMBER 31, 1996

<TABLE>
<CAPTION>
PROVED
-----------------------------------------------
DEVELOPED
-----------------------
NON- TOTAL
PRODUCING PRODUCING UNDEVELOPED PROVED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REMAINING RESERVES
Oil/Condensate--Barrels....... 346,395 172,474 71,584 590,453
Plant Products--Barrels....... 40,658 10,329 1,274 52,261
Gas--MMCF..................... 7,573 3,728 2,116 13,417
INCOME DATA
Future Gross Revenue.......... $33,402,147 $16,830,099 $8,835,357 $59,067,603
Deductions.................... 3,164,330 1,763,487 1,266,784 6,194,601
----------- ----------- ---------- -----------
Future Net Income (FNI)....... $30,237,817 $15,066,612 $7,568,573 $52,873,002
Discounted FNI @ 10%.......... $24,954,311 $ 9,046,705 $5,424,615 $39,425,631
</TABLE>

Liquid hydrocarbons are expressed in standard 42 gallon barrels. All gas
volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.

The proved developed non-producing reserves included herein are comprised of
behind-pipe and shut-in categories. A substantial portion of the proved
undeveloped reserves are associated with wells that have been drilled, but
require major expenditures for facilities, pipelines, and completions prior to
production. The various producing status categories are defined in the section
entitled "Definitions of Producing Status Categories" which is attached with
this report.

A-1
<PAGE>

The future gross revenue is after the deduction of production taxes. The
deductions are comprised of the normal direct costs of operating the wells
(including processing fees and ad valorem taxes), recompletion costs and
development costs. The future net income is before the deduction of state and
federal income taxes and general administrative overhead, and has not been
adjusted for outstanding loans that may exist nor does it include any
adjustment for cash on hand or undistributed income. No attempt was made to
quantify or otherwise account for any accumulated gas production imbalances
that may exist. Gas reserves account for approximately 77 percent and liquid
hydrocarbon reserves account for the remaining 23 percent of total future
gross revenue from proved reserves.

RESERVES INCLUDED IN THIS REPORT

The proved reserves included herein conform to the definition as set forth
in the Securities and Exchange Commission's Regulation S-X Part 210.4-10(a) as
clarified by subsequent Commission Staff Accounting Bulletins. Our definition
of proved reserves is included in the section entitled "Definitions of
Reserves" which is attached with this report.

ESTIMATES OF RESERVES

In general, the reserves included herein were predominantly estimated by the
volumetric method due to the limited production history of the wells
considered in this study. However, performance methods were used in certain
cases where characteristics of the data indicated this method was more
appropriate in our opinion. The reserves estimated by the performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in
those cases where there were inadequate historical performance data to
establish a definitive trend or where the use of production performance data
as a basis for the reserve estimates was considered to be inappropriate.

The reserves included in this report are estimates only and should not be
construed as being exact quantities. They may or may not be actually
recovered, and if recovered, the revenues therefrom and the actual costs
related thereto could be more or less than the estimated amounts. Moreover,
estimates of reserves may increase or decrease as a result of future
operations.

FUTURE PRODUCTION RATES

Initial production rates are based on the current producing rates for those
wells now on production. Test data and other related information were used to
estimate the anticipated initial production rates for those wells or locations
which are not currently producing. If no production decline trend has been
established, future production rates were held constant, or adjusted for the
effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Edge.

In general, we estimate that future gas production rates will continue to be
the same as the average rate for the latest available 12 months of actual
production until such time that the well or wells are incapable of producing
at this rate. The well or wells were then projected to decline at their
decreasing delivery capacity rate. Our general policy on estimates of future
gas production rates is adjusted when necessary to reflect actual gas market
conditions in specific cases.

The future production rates from wells now on production may be more or less
than estimated because of changes in market demand or allowables set by
regulatory bodies. Wells or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.

HYDROCARBON PRICES

Edge furnished us with prices in effect at December 31, 1996 and these
prices were held constant except for known and determinable escalations.
Product prices which were actually used for each property reflect

A-2
<PAGE>

adjustment for gravity, quality, local conditions, and/or distance from
market. In accordance with SEC guidelines, changes in liquid and gas prices
subsequent to December 31, 1996 were not taken into account in this report.
Future prices used in this report are discussed in more detail in the section
entitled "Hydrocarbon Pricing Parameters" which is attached with this report.

COSTS

Operating costs for the leases and wells in this report are based on the
operating expense reports of Edge and include only those costs directly
applicable to the leases or wells. When applicable, the operating costs
include a portion of general and administrative costs allocated directly to
the leases and wells under terms of operating agreements. Development costs
were furnished to us by Edge and are based on authorizations for expenditure
for the proposed work or actual costs for similar projects. The current
operating and development costs were held constant throughout the life of the
properties. At the request of Edge, their estimate of zero net abandonment
costs after salvage value was used in this report. Ryder Scott has not
performed a detailed study of the abandonment cost nor the salvage value and
makes no warranty for Edge's estimate. No deduction was made for indirect
costs such as general administration and overhead expenses, loan repayments,
interest expenses, and exploration and development prepayments that are not
charged directly to the leases or wells.

GENERAL

While it may reasonably be anticipated that the future prices received for
the sale of production and the operating costs and other costs relating to
such production may increase or decrease from existing levels, such changes
were, in accordance with the rules adopted by the SEC, omitted from
consideration in making this evaluation.

The estimates of reserves presented herein were based upon a detailed study
of the properties in which Edge owns an interest; however, we have not made
any field examination of the properties. No consideration was given in this
report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if
any, caused by past operating practices. Edge has informed us that they have
furnished us all of the accounts, records, geological and engineering data,
and reports and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by Edge were accepted
without independent verification. The estimates presented in this report are
based on data available through December 1996.

Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.

This report was prepared for the exclusive use of Edge Petroleum
Corporation. The data, work papers, and maps used in the preparation of this
report are available for examination by authorized parties in our offices.
Please contact us if we can be of further service.

Very truly yours,

RYDER SCOTT COMPANY
PETROLEUM ENGINEERS

/s/ Michael F. Stell
_____________________________________
Michael F. Stell, P.E.
Petroleum Engineer
MFS/sw

Approved:

/s/ Don P. Roesle
- -------------------------------------
Don P. Roesle, P.E.
Senior Vice President

A-3
<PAGE>

DEFINITIONS OF RESERVES

PROVED RESERVES (SEC DEFINITION)

Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs
as of the date the estimate is made. Prices include consideration of changes
in existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.

Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. In certain instances,
proved reserves are assigned on the basis of a combination of core analysis
and electrical and other type logs which indicate the reservoirs are analogous
to reservoirs in the same field which are producing or have demonstrated the
ability to produce on a formation test. The area of a reservoir considered
proved includes (1) that portion delineated by drilling and defined by fluid
contacts, if any, and (2) the adjoining portions not yet drilled that can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of data on fluid contacts, the
lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.

Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.

Proved natural gas reserves are comprised of non-associated, associated and
dissolved gas. An appropriate reduction in gas reserves has been made for the
expected removal of natural gas liquids, for lease and plant fuel, and for the
exclusion of non-hydrocarbon gases if they occur in significant quantities and
are removed prior to sale. Estimates of proved reserves do not include crude
oil, natural gas, or natural gas liquids being held in underground or surface
storage.

Proved reserves are estimates of hydrocarbons to be recovered from a given
date forward. They may be revised as hydrocarbons are produced and additional
data become available.

A-4
<PAGE>

RESERVE STATUS CATEGORIES

Reserve status categories define the development and producing status of
wells and/or reservoirs.

PROVED DEVELOPED (SEC DEFINITION)

Proved developed oil and gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.

Developed reserves may be subcategorized as producing or non-producing using
the SPE/SPEE Definitions:

Producing

Producing reserves are expected to be recovered from completion
intervals open at the time of the estimate and producing. Improved
recovery reserves are considered to be producing only after an
improved recovery project is in operation.

Non-Producing

Non-producing reserves include shut-in and behind pipe reserves.
Shut-in reserves are expected to be recovered from completion
intervals open at the time of the estimate, but which had not started
producing, or were shut-in for market conditions or pipeline
connection, or were not capable of production for mechanical reasons,
and the time when sales will start is uncertain. Behind pipe reserves
are expected to be recovered from zones behind casing in existing
wells, which will require additional completion work or a future
recompletion prior to the start of production.

PROVED UNDEVELOPED (SEC DEFINITION)

Proved undeveloped oil and gas reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled.
Proved reserves for other undrilled units can be claimed only where it can be
demonstrated with reasonable certainty that there is continuity of production
from the existing productive formation. Under no circumstances should
estimates for proved undeveloped reserves be attributable to any acreage for
which an application of fluid injection or other improved technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.

A-5
<PAGE>

HYDROCARBON PRICING PARAMETERS

SEC PARAMETERS

OIL AND CONDENSATE

Edge furnished us with oil and condensate prices in effect at December 31,
1996 and these prices were held constant to depletion of the properties. In
accordance with Securities and Exchange Commission guidelines, changes in
liquid prices subsequent to December 31, 1996 were not considered in the
report.

PLANT PRODUCTS

Edge furnished us with plant product prices in effect at December 31, 1996
and these prices were held constant to depletion of the properties.

GAS

Edge furnished us with gas prices in effect at December 31, 1996 and with
its forecasts of future gas prices which take into account SEC guidelines,
current spot market prices, contract prices, and fixed and determinable price
escalations where applicable. In accordance with SEC guidelines, the future
gas prices used in this report make no allowances for future gas price
increases which may occur as a result of inflation nor do they make any
allowance for seasonal variations in gas prices which may cause future yearly
average gas prices to differ from December 1996 gas prices. For gas sold under
contract, the contract gas price including fixed and determinable escalations,
exclusive of inflation adjustments, was used until the contract expires and
then was adjusted to the current market price for the area and held at this
adjusted price to depletion of the reserves.

A-6
<PAGE>

[Map of the Gulf Coast showing the Company's active 3-D project areas]

<PAGE>

[Photograph showing Earth Cube visualization of 3-D seismic data cube]

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

-----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Capitalization............................................................ 21
Selected Historical Supplementally Combined and Pro Forma Financial and
Operating Data........................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 32
Management................................................................ 52
Certain Transactions...................................................... 61
Security Ownership of Certain Beneficial Owners and Management............ 69
Shares Eligible for Future Sale........................................... 71
Description of Capital Stock.............................................. 73
Underwriting.............................................................. 76
Legal Matters............................................................. 77
Experts................................................................... 77
Additional Information.................................................... 77
Glossary of Certain Industry Terms........................................ 79
Financial Statements...................................................... F-1
Letter of Ryder Scott..................................................... A-1
</TABLE>

-----------------

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES

EDGE PETROLEUM
CORPORATION

COMMON STOCK

-----------------
PROSPECTUS
-----------------

RAYMOND JAMES & ASSOCIATES, INC.

JEFFERIES & COMPANY, INC.

PRINCIPAL FINANCIAL SECURITIES, INC.

, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses (other than underwriting discounts
and commission) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 11,849
NASD Filing Fee............................................... 4,410
Nasdaq National Market Fees*.................................. 34,823
Printing Expenses*............................................ 310,000
Legal Fees and Expenses*...................................... 625,000
Engineering Fees and Expenses*................................ 35,000
Accountants' Fees and Expenses*............................... 450,000
Blue Sky Fees and Expenses.................................... 10,000
Transfer Agent and Registrar Fees*............................ 2,000
Miscellaneous Expenses*....................................... 16,918
----------
Total....................................................... $1,500,000
==========
</TABLE>
- --------
* Amount shown also includes expenses associated with the Company's related
Registration Statement on Form S-4.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Delaware General Corporation Law

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses that the Court
of Chancery or such other court shall deem proper.

II-1
<PAGE>

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding or (2) if such a quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (3) by the
stockholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it ultimately is determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145.
Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in this official capacity and as to action in
another capacity while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

Certificate of Incorporation

The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any repeal or modification of such
provision of the Restated Certificate of Incorporation by the stockholders of
the Company shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such repeal or modification.

II-2
<PAGE>

Bylaws

The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was or has agreed to become a director or officer
of the Company or is or was serving or has agreed to serve at the request of
the Company as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving or having agreed to serve as a director
or officer, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the DGCL, as the same exists or may thereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment) against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to serve in the capacity which initially entitled such person
to indemnity thereunder, and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Company. The
Bylaws further provide that the right to indemnification conferred thereby
shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a current, former or proposed director or
officer in his or her capacity as a director or officer or proposed director
or officer (and not in any other capacity in which service was or is or has
been agreed to be rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such indemnified person, to
repay all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under the Bylaws or
otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification to employees and agents of the Company, individually or as a
group, with the same scope and effect as the indemnification of directors and
officers provided for in the Bylaws.

The Bylaws include related provisions meant to facilitate the indemnitee's
receipt of such benefits. These provisions cover, among other things: (i)
specification of the method of determining entitlement to indemnification and
the selection of independent counsel that will in some cases make such
determination; (ii) specification of certain time periods by which certain
payments or determinations must be made and actions must be taken; and (iii)
the establishment of certain presumptions in favor of an indemnitee. The
benefits of certain of these provisions are available to an indemnitee only if
there has been a change in control (as defined therein).

Indemnification Agreements

The Company expects to enter into Indemnification Agreements with each of
its directors. The Indemnification Agreements will provide that the Company
shall indemnify the director and hold him harmless from any losses and
expenses which, in type or amount, are not insured under the directors and
officers' liability insurance maintained by the Company, and generally
indemnifies the director against losses and expenses as a result of a claim or
claims made against him for any breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted by
the director or any of the foregoing alleged by any claimant or any claim
against the director solely by reason of him being a director or officer of
the Company, subject to certain exclusions. The Indemnification Agreements
will also provide certain procedures regarding the right to indemnification
and for the advancement of expenses.

II-3
<PAGE>

Underwriting Agreement

The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.

Insurance

The Company intends to obtain a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Edge Petroleum Corporation, a Delaware corporation, has not sold any
securities, registered or otherwise, within the past three years. Concurrently
with the closing of the Combination Transactions and this Offering, the
Company anticipates selling securities that are not registered with the
Commission as described below.

Pursuant to the Combination Agreement options to purchase an aggregate of
4,386 shares of Old Edge Common Stock granted under the Old Edge Plan to Mr.
Richard Dale and Mr. James D. Calaway on November 4, 1994, will be converted
into options to purchase 97,844 shares of Common Stock. Such transaction is
exempt from the registration requirements of the Securities Act by virtue of
Rule 701 thereunder and as not involving a sale under Section 2(3) thereof.
Such transaction will occur only if the Merger is consummated, which is itself
conditioned on the consummation of this Offering and the Edge Group II
Exchange Offer.

Pursuant to the Purchase Agreement between the Company and James C. Calaway
dated as of December 2, 1996, the Company agreed to purchase certain oil and
natural gas interests from Mr. Calaway in exchange for 42,015 shares of Common
Stock (assuming an initial public offering price of $16.00 per share). The
closing of such purchase is contingent on the consummation of this Offering,
the Merger and the Edge Group II Exchange Offer. Such transaction is exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof as a transaction not involving any public Offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.
+2.1 --Amended and Restated Combination Agreement by and among (i) Edge
Group II Limited Partnership, (ii) Gulfedge Limited Partnership,
(iii) Edge Group Partnership, (iv) Edge Petroleum Corporation, (v)
Edge Mergeco, Inc. and (vi) the Company, dated as of January 13,
1997.
3.1 --Restated Certificate of Incorporation of the Company, as amended.
+3.2 --Bylaws of the Company.
+4.1 --Form of certificate representing Common Stock.
+4.2 --Subordinated Promissory Note of Edge Joint Venture II dated January
3, 1995 in the original principal amount of $2,000,000 payable to
James C. Calaway, and related agreement, as amended.
+4.3 --Credit Agreement, as amended, dated as of July 11, 1995, between
Edge Joint Venture II and Compass Bank--Houston, as lender.
+4.4 --Security Agreements, as amended, dated as of July 11, 1995 of Edge
Joint Venture II in favor of Compass Bank--Houston.
--The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the
Commission upon request.
+5 --Opinion of Baker & Botts, L.L.P.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.1 --Joint Venture Agreement, as amended, dated April 8, 1991 among Edge
Group II Limited Partnership, New Edge Petroleum Corporation,
Gulfedge Limited Partnership and Edge Group Partnership.
+10.2 --Joint Venture Agreement between Edge Joint Venture II and Essex
Royalty Limited Partnership II, dated as of May 10, 1994.
+10.3 --Joint Venture Agreement between Edge Joint Venture II and Essex
Royalty Limited Partnership, dated as of April 11, 1992.
+10.4 --Agreement of Limited Partnership of Edge Group II Limited
Partnership, among John Sfondrini, Napamco, Ltd. and the limited
partners named therein.
+10.5 --Agreement of Limited Partnership of Gulfedge Limited Partnership by
and among Edge Petroleum Corporation, a Texas corporation, as general
partner, and the limited partners named therein, dated as of April 1,
1991.
+10.6 --Registration Rights Agreement between Edge Holding Company Limited
Partnership and the Company.
+10.7 --Form of Indemnification Agreement between the Company and each of
its directors.
+10.8 --Employment Agreement dated April 9, 1991 between Edge Petroleum
Corporation and John E. Calaway.
+10.9 --Incentive Plan of Edge Petroleum Corporation.
+10.10 --Employment Agreement between the Company and Michael G. Long.
+10.11 --Purchase Agreement between the Company and James C. Calaway dated as
of December 2, 1996.
+10.12 --Consulting Agreement of James C. Calaway dated March 18, 1989.
+10.13 --Stock Option Plan of Edge Petroleum Corporation, a Texas
corporation.
+21.1 --Subsidiaries of the Company.
23.1 --Consent of Deloitte & Touche LLP.
23.2 --Consent of Ryder Scott Company.
+23.3 --Consent of Baker & Botts, L.L.P. (included in Exhibit 5.1).
+23.4 --Consent of Robert W. Shower as nominee for director.
+24.1 --Power of Attorney.
+27.1 --Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+ Incorporated by reference from the exhibit bearing the same number attached
to the Registration Statement on Form S-4 (Registration No. 333-17269) filed
by Edge Petroleum Corporation, a Delaware corporation.
+ Previously filed.

(b) Financial Statement Schedules.

All schedules are omitted because they are not applicable or because the
required information is contained in the financial statements or notes thereto
included in this Registration Statement.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Purchase Agreement, certificates representing
the shares of Common Stock offered hereby in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a

II-5
<PAGE>

claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and this Offering of such securities at that
time shall be deemed to be the initial bona fide Offering thereof.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON THE 4TH DAY OF FEBRUARY, 1997.

EDGE PETROLEUM CORPORATION

/s/ James D. Calaway
By:__________________________________
James D. Calaway
President

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON FEBRUARY 4, 1997.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----

<S> <C>
/s/ John E. Calaway Chief Executive Officer and
____________________________________ Director (Principal Executive
John E. Calaway Officer)

/s/ Michael G. Long Chief Financial Officer
____________________________________ (Principal Financial Officer)
Michael G. Long

/s/ Richard S. Dale Controller, Treasurer and
____________________________________ Secretary (Principal Accounting
Richard S. Dale Officer)

/s/ James D. Calaway Director
____________________________________
James D. Calaway

* Director
____________________________________
Vincent Andrews

* Director
____________________________________
David B. Benedict

* Director
____________________________________
Nils Peterson

* Director
____________________________________
Stanley S. Raphael

* Director
____________________________________
John Sfondrini
</TABLE>

/s/ James D. Calaway
*By: ________________________________
(James D. Calaway, Attorney-in-Fact)

II-7

<PAGE>

2,000,000 SHARES

EDGE PETROLEUM CORPORATION

COMMON STOCK

________

UNDERWRITING AGREEMENT

St. Petersburg, Florida
__________, 1997

Raymond James & Associates, Inc.
Jefferies & Company, Inc.
Principal Financial Securities, Inc.
As Representatives of the Several Underwriters
c/o Raymond James & Associates, Inc.
880 Carillon Parkway
St. Petersburg, Florida 33716

Dear Sirs:

Edge Petroleum Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule I annexed
hereto (the "Underwriters") an aggregate of 2,000,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company. The aggregate
of 2,000,000 shares to be purchased from the Company are herein called the "Firm
Shares." In addition, the Company has agreed to sell to the Underwriters, upon
the terms and conditions set forth herein, up to 300,000 additional shares of
Common Stock (the "Additional Shares") to cover over-allotments by the
Underwriters, if any. The Firm Shares and, to the extent such option is
exercised, the Additional Shares are hereinafter collectively referred to as the
"Shares." Raymond James & Associates, Inc, Jefferies & Company, Inc. and
Principal Financial Securities, Inc. are acting as the representatives of the
several Underwriters and in such capacity are hereinafter referred to as the
"Representatives."

The Company wishes to confirm as follows its agreement with you and the
other several Underwriters, on whose behalf you are acting, in connection with
the several purchases of the Shares from the Company.

SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (Registration
No. 333-17267), including a prospectus subject to completion, relating to the
Shares. Such
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 2

registration statement (including all financial schedules and exhibits), as
amended at the time when it becomes effective and as thereafter amended by any
post effective amendment, is referred to in this Agreement as the "Registration
Statement." The term "Prospectus" as used in this Agreement means (i) the
prospectus in the form included in the Registration Statement, or (ii) if the
prospectus included in the Registration Statement omits information in reliance
upon Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act or as part of a
post-effective amendment to the Registration Statement after the Registration
Statement becomes effective, the prospectus as so filed, or (iii) if the
prospectus included in the Registration Statement omits information in reliance
upon Rule 430A under the Act and such information is included in a term sheet
(as described in Rule 434(b) under the Act) filed with the Commission pursuant
to Rule 424(b) under the Act, the prospectus included in the Registration
Statement and such term sheet, taken together. The prospectus subject to
completion in the form included in the Registration Statement dated February __,
1997, and as such prospectus is amended from time to time until the date upon
which the Registration Statement is declared effective by the Commission is
referred to in this Agreement as the "Prepricing Prospectus." Any registration
statement filed by the Company pursuant to Rule 462(b) of the 1933 Act
Regulations to register a portion of the Securities is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.

SECTION 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to
sell 2,000,000 Firm Shares to the Underwriters and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company at a purchase
price of $_______ per Share (the "purchase price per Share"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares as adjusted pursuant to Section 10 hereof).

The Company also agrees to sell up to 300,000 Additional Shares to the
Underwriters and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, the Underwriters shall have the right for 30 days
from the date of this Agreement to purchase from the Company up to 300,000
Additional Shares at the purchase price per Share for the Firm Shares. The
Additional Shares may be purchased solely for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments as you may determine to avoid factional shares) which bears the same
proportion to the number of Additional Shares to be sold as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares as adjusted pursuant to Section 10 hereof) bears to
2,000,000.

SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 3

after the Registration Statement and this Agreement have become effective as in
your judgment is advisable and initially to offer the Shares upon the terms set
forth in the Prospectus.

SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the
Underwriters of the Firm Shares and payment therefor shall be made at the
offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St.
Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, three (or
four, if priced after 4:00 p.m. on the relevant date) business days after the
date hereof (the "Closing Date"). The place of delivery for the Firm Shares and
the Closing Date may be varied by agreement between you and the Company.

Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the offices of Raymond James &
Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m.,
St. Petersburg, Florida time, on such date or dates (the "Additional Closing
Date") (which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than three nor later than ten business
days after the giving of the notice hereinafter referred to), as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company, of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares. Such notice may be given to the Company by
you at any time within 30 days after the date of this Agreement. The place of
delivery for the Additional Shares and the Additional Closing Date may be varied
by agreement between you and the Company.

Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, on the
second business day preceding the Closing Date or the Additional Closing Date,
as the case may be. Such certificates shall be made available to you in St.
Petersburg, Florida for inspection and packaging not later than 9:30 a.m., St.
Petersburg, Florida time, on the business day immediately preceding the Closing
Date or the Additional Closing Date, as the case may be. The certificates
evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Additional Closing Date, as
the case may be, against payment of the purchase price therefor by wire transfer
in immediately available funds, to the account specified by the Company to the
Underwriters no later than the business day prior to the Closing Date.

SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:

(a) The Company will use commercially reasonable efforts to cause the
Registration Statement to become effective and will advise you promptly
and, if requested by you, will confirm such advice in writing (i) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (ii) if Rule 430A under the Act is
employed, when the Prospectus or term sheet (as described in Rule 434(b)
under the Act) has been timely filed pursuant to Rule 424(b) under the Act,
(iii) of any request by the Commission for amendments or supplements to the
Registration
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 4

Statement, any Prepricing Prospectus or the Prospectus or for additional
information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Shares for offering or sale in any
jurisdiction or the initiation (or threatened initiation) of any proceeding
for such purposes, and (v) within the period of time referred to in Section
5(e) below, of any change in the Company's condition (financial or other),
business, prospects, properties, net worth or results of operations, or of
any event that comes to the attention of the Company that makes any
statement made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue in any material respect or that requires
the making of any additions thereto or changes therein in order to make the
statements therein not misleading in any material respect, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will use commercially reasonable
efforts to obtain the withdrawal of such order at the earliest possible
time.

(b) The Company will furnish to you, without charge, three signed
copies of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements
and all exhibits thereto, and will also furnish to you, without charge,
such number of conformed copies of the Registration Statement as originally
filed and of each amendment thereto as you may reasonably request.

(c) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which
you shall not previously have been advised (with a reasonable opportunity
to review such amendment or supplement) or to which you have reasonably
objected after being so advised.

(d) Prior to the execution and delivery of this Agreement, the Company
has delivered or will deliver to you, without charge, in such quantities as
you have requested or may hereafter reasonably request, copies of each form
of the Prepricing Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue
Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.

(e) As soon after the execution and delivery of this Agreement as is
reasonably practicable and thereafter from time to time for such period as
in the reasonable opinion of counsel for the Underwriters a prospectus is
required by the Act to be delivered in connection with sales by any
Underwriter or a dealer, the Company will deliver to each Underwriter and
each dealer, without charge, as many copies of the Prospectus (and of any
amendment or supplement thereto) as they may reasonably request. The
Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Act and with
the securities or Blue Sky laws of the jurisdictions in which
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 5

the Shares are offered by the several Underwriters and by all dealers to
whom Shares may be sold, both in connection with the offering and sale of
the Shares and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any
Underwriter or dealer. If during such period of time any event shall occur
that in the judgment of the Company or in the opinion of counsel for the
Underwriters is required to be set forth in the Prospectus (as then amended
or supplemented) or should be set forth therein in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and file with the Commission an appropriate supplement or
amendment thereto, and will furnish to each Underwriter and to each dealer
who has previously requested Prospectuses, without charge, reasonable
number of copies thereof.

(f) The Company will cooperate with you and counsel for the
Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers
under the securities or Blue Sky laws of such jurisdictions as you may
reasonably designate and will file such consents to service of process or
other documents as may be reasonably necessary in order to effect such
registration or qualification; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not
now so qualified, to subject itself to taxation as a result of doing
business in any jurisdiction where it is not now so subject to taxation, to
qualify as a dealer in securities in any jurisdiction or to take any action
which would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction
where it is not now so subject. In the event that the qualification of the
Shares in any jurisdiction is suspended, the Company shall so advise you
promptly in writing.

(g) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering a
period of at least twelve-months commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as reasonably practicable after the end of such period, which
consolidated earnings statement shall satisfy the provisions of Section
11(a) of the Act and Rule 158 promulgated thereunder.

(h) During the period of five years hereafter, the Company will
furnish to you as soon as practicable after the end of each fiscal year, a
copy of its annual report to shareholders for such year; and the Company
will furnish to you (i) as soon as available, a copy of each report or
definitive proxy statement of the Company filed with the Commission under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
mailed to shareholders, and (ii) from time to time such other information
concerning the Company as you may reasonably request.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 6

(i) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (other than as a result of a
failure by the Representatives or any Underwriter to fulfill their or its
obligations hereunder) or if this Agreement shall be terminated by the
Underwriters because of any failure or refusal on the part of the Company
to comply with the terms or fulfill any of the conditions of this
Agreement, the Company agrees to reimburse the Representatives for all out-
of-pocket expenses (including fees and expenses of counsel for the
Underwriters but excluding wages and salaries paid by the Representatives)
reasonably incurred by you in connection herewith.

(j) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus under the caption "Use of
Proceeds."

(k) If Rule 430A under the Act is employed, the Company will timely
file the Prospectus or term sheet (as described in Rule 434(b) under the
Act) pursuant to Rule 424(b) under the Act.

(l) The Company will not offer, sell, contract to sell or otherwise
dispose of any Common Stock or rights to purchase Common Stock, or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock except to the Underwriters pursuant to this Agreement, for a
period of 180 days from the date of the Prospectus without the prior
written consent of the Representatives; provided, however, that the Company
may issue shares of Common Stock pursuant to the Combination Transactions
(as defined in the Prospectus), pursuant to the Company's Long-Term
Incentive Plan, and other employee benefit and compensation arrangements
currently in effect or as consideration to sellers in connection with
business acquisitions by the Company, but only if such sellers agree in
writing not to offer, sell, contract to sell or otherwise dispose of such
shares of Common Stock for a period of 180 days from the date of the
Prospectus.

(m) The Company will not, directly or indirectly, take any action
which would constitute, or any action designed or which might reasonably be
expected to cause or result in or constitute, under Act or otherwise,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares.

(n) If at any time during the 25-day period after the first date that
any of the Shares are released by you for sale to the public, any
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Common Stock
(including the Shares) has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith consult with you concerning the advisability and substance of,
and, if appropriate, disseminate, a press release or other public statement
responding to or commenting on such publication or event.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 7

(o) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of its incorporation or the rules of the Nasdaq Stock
Market or any national securities exchange on which the Common Stock is
listed, a registrar (which, if permitted by applicable laws and rules, may
be the same entity as the transfer agent) for its Common Stock.

(p) The Company agrees that any dispute hereunder shall be litigated
solely in the Circuit Court of the State of Florida in Pinellas County,
Florida or in the United States District Court for the Middle District of
Florida, Tampa Division, and further agrees to submit itself to the
personal jurisdiction of such courts.

SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter on the date hereof, and shall be
deemed to represent and warrant to each Underwriter on the Closing Date and the
Additional Closing Date, as the case may be, that:

(a) Each Prepricing Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424(a) under the Act, complied when so
filed with the provisions of the Act and did not include any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein not
misleading, except that this representation and warranty does not apply to
statements in such Prepricing Prospectus (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating
to any Underwriter furnished to the Company in writing by or on behalf of
any Underwriter through you expressly for use therein.

(b) The Commission has not issued any order preventing or suspending
the use of any Prepricing Prospectus, and the Prepricing Prospectus
included as part of the Registration Statement declared effective by the
Commission complies as to form with the requirements of the Act. The
Registration Statement, in the form in which it becomes effective and also
in such form as it may be when any post-effective amendment thereto shall
become effective, and the Prospectus, and any supplement or amendment
thereto when filed with the Commission under Rule 424(b) under the Act,
will comply with the provisions of the Act and will not at any such times
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the
Prospectus (or any amendment or supplement thereto) made in reliance upon
and in conformity with information relating to any Underwriter furnished to
the Company in writing by or on behalf of any Underwriter through you
expressly for use therein.

(c) The capitalization of the Company is as set forth in the
Prospectus as of the date set forth therein. All the outstanding shares of
Common Stock of the Company have
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 8

been duly authorized by all necessary corporate action on the part of the
Company and validly issued, are fully paid and nonassessable and were not
issued in violation of or subject to any preemptive rights arising under
the Company's Restated Certificate of Incorporation or Bylaws or under the
Delaware General Corporation Law or similar rights; the Shares to be issued
and sold to the Underwriters by the Company hereunder have been duly
authorized by all necessary corporate action on the part of the Company
and, when issued and delivered to the Underwriters against payment therefor
in accordance with the terms hereof, will be validly issued, fully paid and
nonassessable and will not have been issued in violation of or subject to
any preemptive rights arising under the Company's Restated Certificate of
Incorporation or Bylaws or under the Delaware General Corporation Law or
similar rights; the capital stock of the Company conforms to the
description thereof in the Registration Statement and the Prospectus (or
any amendment or supplement thereto); and upon delivery of certificates for
the Shares pursuant to the terms of this Agreement and payment for the
Shares the Underwriters will receive valid and marketable title to the
Shares, free and clear of any voting trust arrangements, liens,
encumbrances, equities, claims or defects in title to the several
Underwriters purchasing the Shares in good faith and without notice of any
lien, claim or encumbrance.

(d) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or conduct of its business requires such registration or
qualification, except where the failure to so register or qualify does not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company.

(e) Each of the subsidiaries of the Company identified in Exhibit 21.1
to the Registration Statement ("Subsidiary" or, collectively, the
"Subsidiaries") is a corporation duly organized, validly existing and in
good standing in its jurisdiction of incorporation or is a limited or
general partnership duly formed and validly existing in its jurisdiction of
organization, as the case may be, and each Subsidiary has full corporate or
partnership power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as described in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), and is duly registered and qualified to conduct its business and
is in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such qualification or
registration, except where the failure to so qualify or register does not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole. All of the outstanding
shares of capital stock of, or partnership or other equity ownership
interests in, each of the Subsidiaries has been duly authorized and validly
issued, are fully paid and nonassessable,
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 9

and are owned by the Company directly or indirectly through one of the
other Subsidiaries, free and clear on any lien, adverse claim, security
interest, equity or other encumbrance (except as set forth in the
Prospectus). Except for the Subsidiaries, upon consummation of the
Combination Transactions (as defined in the Prospectus) the Company will
not own a material interest in or control, directly or indirectly, any
other corporation, partnership, joint venture, association, trust or other
business organization or entity.

(f) The Combination Transactions (as defined in the Prospectus) have
been carried out in compliance with all federal and state securities laws,
and each contract, agreement or arrangement to effect the Combination
Transactions to which the Company or Subsidiary is a party or by which it
is bound, or to which any of the property or assets of the Company or any
Subsidiary is subject has been duly and validly authorized, executed and
delivered by the Company or such Subsidiary, as applicable, and neither the
Company nor any Subsidiary is in breach or default of any obligation,
agreement, covenant or condition contained in any such contract, agreement
or arrangement.

(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which any of their property, is subject, that are
required to be described in the Registration Statement or the Prospectus
(or any amendment or supplement thereto) but are not described as required.
Except as described in the Prospectus, there is no action, suit, inquiry,
proceeding, or investigation by or before any court or governmental or
other regulatory or administrative agency or commission pending or, to the
best knowledge of the Company, threatened against or involving the Company
or any Subsidiary, nor is there any basis for such action, suit, inquiry,
proceeding or investigation. There are no agreements, contracts,
indentures, leases or other instruments that are required to be described
in the Registration Statement or the Prospectus (or any amendment or
supplement thereto) or to be filed as an exhibit to the Registration
Statement that are not described or filed as required. All agreements,
contracts, indentures, leases or other instruments described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or filed as an exhibit to the Registration Statement have been
duly authorized, executed and delivered by the Company or a Subsidiary,
constitute valid and binding agreements of the Company or such Subsidiary
and are enforceable against the Company or such Subsidiary in accordance
with the terms thereof.

(h) Neither the Company nor any Subsidiary is in violation of its
certificate or articles of incorporation or bylaws, or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any Subsidiary or of any decree of
any court or governmental agency or body having jurisdiction over the
Company or any Subsidiary, or in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any material agreement,
indenture, lease or other instrument to which the Company or any Subsidiary
is a party or by which any of their respective
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 10

properties may be bound, except for such violations or defaults which would
not have a material adverse effect on the condition (financial or
otherwise), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole.

(i) The execution and delivery of this Agreement and the performance
by the Company of its obligations under this Agreement have been duly and
validly authorized by the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms.

(j) None of the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby (i) is
or may be void or voidable by any person or entity, (ii) requires any
consent, approval, authorization or other order of or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for
the registration of the Shares under the Act and compliance with the
securities or Blue Sky laws of various jurisdictions and the clearance of
the offering of the Shares with the National Association of Securities
Dealers, Inc. (the "NASD"), all of which will be, or have been, effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any Subsidiary, or (iii) conflicts or will
conflict with or constitutes a breach of, or a default under, any
agreement, contract, indenture, lease or other instrument to which the
Company or any Subsidiary is a party or by which any of them or any of
their respective properties may be bound, or violates any statute, law,
regulation or filing or judgment, injunction, order or decree applicable to
the Company or any Subsidiary or any of their respective properties, or
results in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary pursuant to
the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of their property or
assets is subject.

(k) Each contract, agreement or arrangement to which the Company or
any Subsidiary is a party or by which it is bound, or to which any of the
property or assets of the Company or any Subsidiary is subject, which is
material to the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and its
Subsidiaries, taken as a whole, has been duly and validly authorized,
executed and delivered by the Company or such Subsidiary, as applicable,
and neither the Company nor any Subsidiary is in breach or default of any
obligation, agreement, covenant or condition contained in any such
contract, agreement or arrangement, except for such breaches or defaults as
would not have a material adverse effect on the condition (financial or
otherwise), business, prospects, properties, net worth or results or
operations of the Company and its Subsidiaries, taken as a whole; the
Company knows of no present condition or fact which
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 11

would prevent compliance by the Company or any Subsidiary or any other
party thereto with the terms of any such contract, agreement or arrangement
in all material respects; neither the Company nor any of its Subsidiaries
has any present intention to exercise any rights that it may have to cancel
any such contract, agreement or arrangement or otherwise to terminate its
rights and obligations thereunder, and none of them has any knowledge that
any other party to any such contract, agreement or arrangement has any
intention not to render full performance in all material respects as
contemplated by the terms thereof.

(l) Except as described in the Prospectus, the Company does not have
outstanding and at the Closing Date (and the Additional Closing Date, if
applicable) will not have outstanding any options to purchase, or any
warrants to subscribe for, or any securities or obligations convertible
into or exchangeable for, or any contracts or commitments to issue or sell,
any shares of Common Stock or any such warrants or convertible or
exchangeable securities or obligations. No holder of securities of the
Company has rights to the registration of any securities of the Company
because of the filing of the Registration Statement, except (i) with
respect to the Shares and (ii) any such rights for which the Company has
received valid and enforceable waivers.

(m) Deloitte & Touche LLP, the certified public accountants who have
certified the financial statements filed as part of the Registration
Statement and the Prospectus (or any amendment or supplement thereto) are
independent public accountants as required by the Act.

(n) The financial statements, together with related schedules and
notes, forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly in all material
respects both the historical and pro forma consolidated financial position,
results of operations and changes in financial position of the Company and
the Subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data (including the reserve data)
set forth in the Registration Statement and Prospectus (and any amendment
or supplement thereto) is in all material respects accurately presented and
prepared on a basis consistent with such financial statements and the books
and records of the Company.

(o) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto),
neither the Company nor any Subsidiary has incurred any liability or
obligation, direct or contingent, or entered into any transactions, not in
the ordinary course of business, that is material to the Company and the
Subsidiaries, taken as a whole, and there has not been material change in
the capital stock, or material increase in the short-term debt
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 12

or long-term debt, of the Company or any Subsidiary, or any development
involving or which may reasonably be expected to involve a potential future
material adverse change, in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company
and the Subsidiaries, taken as a whole.

(p) The Company or each Subsidiary, as the case may be, has (i)
generally satisfactory title to all their interests in the oil and gas
properties described in the Prospectus as being owned by them, title
investigations having been carried out by the Company in accordance with
the customary practice in the oil and gas industry, and (ii) good and
marketable title to all other real property and all property described in
the Prospectus as being owned by them, in each case free and clear of all
liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus or in a document
filed as an exhibit to the Registration Statement or such as are not
materially burdensome and do not interfere in any material respect with the
use of the property or the conduct of the business of the Company and the
Subsidiaries, taken as a whole, and the property (real and personal) held
under lease by each of the Company or the Subsidiaries, as the case may be,
is held by it under valid, subsisting and enforceable leases with only such
exceptions as in the aggregate are not materially burdensome and do not
interfere in any material respect with the conduct of the business of the
Company and the Subsidiaries, taken as a whole.

(q) The Company has not distributed and will not distribute prior to
the Closing Date any offering material in connection with the offering and
sale of the Shares other than the Prepricing Prospectus, the Registration
Statement, the Prospectus and such other materials permitted by the Act.

(r) The Company has not taken, directly or indirectly, any action
which constituted, or any action designed or which might reasonably be
expected to cause or result in or constitute, under the Act or otherwise,
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares.

(s) The Company is not an "investment company," an "affiliated person"
of, or "promoter" or "principal underwriter" for an investment company
within the meaning of the Investment Company Act of 1940, as amended.

(t) The Company and each of the Subsidiaries have all permits,
licenses, franchises, approvals, consents and authorizations of
governmental or regulatory authorities or private persons or entities
(hereinafter "permit" or "permits") as are necessary to own its properties
and to conduct its business in the manner described in the Prospectus,
subject to such qualifications as may be set forth in the Prospectus,
except where the failure to have obtained any such permit has not and will
not have a material adverse effect upon the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole; the Company and each
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 13

of the Subsidiaries have fulfilled and performed all of their material
obligations with respect to each such permit and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination of any such permit or result in any other material impairment
of the rights of the holder of any such permit, subject in each case to
such qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company or any Subsidiary.

(u) The Company and each Subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which it is
engaged; and neither the Company nor any Subsidiary has reason to believe
that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a comparable cost,
except as disclosed in the Registration Statement and the Prospectus.

(v) The Company and the Subsidiaries have complied and will comply in
all material respects with wage and hour determinations issued by the U.S.
Department of Labor under the Service Contract Act of 1965 and the Fair
Labor Standards Act in paying its employees' salaries, fringe benefits and
other compensation for the performance of work or other duties in
connection with contracts with the U.S. government, and have complied and
will comply in all material respects with the requirements of the Americans
with Disabilities Act of 1990, the Family and Medical Leave Act of 1993,
the Employee Retirement Income Security Act of 1974, the Civil Rights Act
of 1964 (Title VII), the Age Discrimination in Employment Act and state
labor laws, each as amended, except where the failure to comply with any
such requirements has not, and will not, have a material adverse effect on
the condition (financial or other) business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries taken as
a whole.

(w) The Company and the Subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorizations; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(x) Neither the Company nor any Subsidiary has directly or indirectly,
at any time during the past five years (i) made any unlawful contribution
to any candidate for political office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal,
state or foreign governmental official, or other person charged with
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 14

similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof or
applicable foreign jurisdictions.

(y) The Company and the Subsidiaries have obtained all required
permits, licenses and other authorizations, if any, which are required
under federal, state, regional, county, local and foreign statutes, codes,
ordinances and other laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases,
spilling, injecting, leaching, or disposing into the environment or
threatened releases of pollutants, contaminants, chemicals or industrial,
hazardous or toxic materials or wastes into the environment (including,
without limitation, ambient air, surface water, ground water, land surface,
or subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, discharge into the
environment, transport, or handling of pollutants, contaminants, chemicals
or industrial, hazardous or toxic materials or wastes, or any regulation,
rule, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated, or approved thereunder ("Environmental
Laws"), except for such permits, licenses and other authorizations which if
not obtained would not have a material adverse effect on the condition
(financial or otherwise), business, prospects, properties, net worth or
results of operations of the Company and the Subsidiaries taken as a whole.
The Company and the Subsidiaries are in material compliance with all terms
and conditions of all required permits, licenses, and authorizations, and
is also in material compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules
and timetables contained in the Environmental Laws. There is no pending or,
to the best knowledge of the Company, after due inquiry, threatened civil
or criminal litigation, notice of violation, warning letter or
administrative proceeding relating in any way to the Environmental Laws
(including, without limitation, notices, demand letters or claims under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), as amended by the Superfund Amendments
Reauthorization Act of 1987 ("SARA"), the Toxic Substances Control Act of
1976, the Emergency Planning and Community Right-to-Know Act of 1986, the
Clean Water Act of 1977, and the Clear Air Act of 1966, all as amended, and
similar foreign, state, or local laws) involving the Company. There have
not been and there are not any past, present, or foreseeable future events,
conditions, circumstances, activities, practices, incidents, actions or
plans involving the Company which may interfere with or prevent continued
compliance, or which may give rise to any common law or legal liability, or
otherwise form the basis of any present or future claim, action, demand,
suit, proceeding, hearing, study or investigation, based on or related to
the manufacture, processing, distribution, use, treatment, storage,
disposal, arrangement for disposal, transport, arrangement for transport or
handling, or the emission, discharge, release, or threatened release into
the environment, of any pollutant, contaminant, chemical or industrial,
hazardous or toxic material or waste, including, without limitation, any
liability arising, or any claim, action, demand, suit, proceeding, hearing,
study or investigation which may be brought, under RCRA, CERCLA, SARA, or
similar foreign, state, regional, county, or local laws.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 15

(z) All offers and sales of the Company's capital stock and debt or
other securities prior to the date hereof were made in compliance with or
were the subject of an available exemption from the Act and all other
applicable state and federal laws or regulations, or any actions under the
Act or any state or federal laws or regulations in respect of any such
offers or sales are effectively barred by effective waivers or statutes of
limitation.

(aa) All federal, state and local tax returns required to be filed by
or on behalf of the Company and each Subsidiary with respect to all periods
ended prior to the date of this Agreement have been filed (or are the
subject of valid extensions) with the appropriate federal, state and local
authorities and all such tax returns, as filed, are accurate in all
material respects. All federal, state and local taxes (including estimated
tax payments) required to be shown on all such tax returns or claimed to be
due from or with respect to the business of the Company and each Subsidiary
has been paid or reflected as a liability on the financial statements of
the Company and the Subsidiaries for appropriate periods. All deficiencies
asserted as a result of any federal, state or local tax audits have been
paid or finally settled and, except as previously disclosed to the
Representatives in writing, no issue has been raised in any such audit
which by application of the same or similar principals, reasonably could be
expected to result in a proposed deficiency for any other period not so
audited. To the best knowledge of the Company, no state of facts exists or
has existed which would constitute grounds for the assessment of any tax
liability with respect to the periods which have not been audited by
appropriate federal, state or local authorities. There are no outstanding
agreements or waivers extending the statutory period of limitation
applicable to any federal, state or local tax return for any period.

(bb) Ryder Scott Company is an independent petroleum engineer with
respect to the Company.

(cc) Except as described or reflected in the financial statements set
forth in the Prospectus, as of the date hereof, (1) all royalties, rentals,
deposits and other amounts due on the oil and gas properties of the Company
or any Subsidiary have been properly and timely paid, and no proceeds from
the sale or production attributable to the oil and gas properties of the
Company or any Subsidiary are currently being held in suspense by any
purchaser thereof, except where such amounts due would not, singly or in
the aggregate, have a material adverse effect on the condition (financial
or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole, and (2)
there are no claims under take-or-pay contracts pursuant to which natural
gas purchasers have any make-up rights affecting the interest of the
Company or any Subsidiary in their oil and gas properties, except where
such claims would not, singly or in the aggregate, have a material adverse
effect on the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and the
Subsidiaries, taken as a whole.

(dd) As of the date hereof, the net aggregate undiscounted monetary
liability of the Company or any Subsidiary for petroleum taken or received
under any operating or gas
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 16

balancing and storage agreement relating to its oil and gas properties that
permits any person to receive any portion of the interest of the Company or
any Subsidiary in any petroleum or to receive cash or other payments to
balance any disproportionate allocation of petroleum would not, singly or
in the aggregate, have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results
of operations of the Company and the Subsidiaries, taken as a whole.

(ee) No relationship, direct or indirect, exists between or among the
Company or any Subsidiary on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any Subsidiary on
the other hand, which is required by the Act to be described in the
Registration Statement and the Prospectus which is not so described.

SECTION 7. EXPENSES. The Company hereby agrees with the several
Underwriters that the Company will pay or cause to be paid the costs and
expenses associated with the following: (i) the preparation, printing or
reproduction, and filing with the Commission of the Registration Statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
Registration Statement, each Prepricing Prospectus, the Prospectus, and all
amendments or supplements to any of them as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the offering of the Shares; (iv)
the printing (or reproduction) and delivery of this Agreement, the preliminary
and supplemental Blue Sky Memoranda and all other agreements or documents
printed (or reproduced) and delivered in connection with the offering of the
Shares; (v) the registration of the Common Stock under the Exchange Act and the
listing of the Shares on the Nasdaq National Market; (vi) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(f) hereof (including the
reasonable fees and expenses of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the filing fees in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. in connection with the
offering; (viii) the transportation and other expenses to the extent incurred by
or on behalf of representatives of the Company in connection with the
presentations to prospective purchasers of the Shares; (ix) the fees and
expenses of the Company's accountants and the fees and expenses of counsel for
the Company; and (x) the performance by the Company of its other obligations
under this Agreement. Notwithstanding the foregoing, in the event that the
proposed offering is terminated for the reasons set forth in Section 5(i)
hereof, the Company agrees to reimburse the Underwriters as provided in Section
5(i).

SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees to
indemnify and hold harmless you and each other Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation)
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 17

arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Prepricing Prospectus or in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or arising out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in any audio or visual materials
used in connection with the marketing of the Shares, including, without
limitation, slides, videos, films and tape recordings, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
an untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to an Underwriter furnished in writing to the
Company by or on behalf of any Underwriter through you expressly for use in
connection therewith or arise out of materials prepared solely by the
Underwriters without the knowledge of the Company or any of its representatives
based upon material information obtained form sources other than, directly or
indirectly, the Company or its representatives.

If any action or claim shall be brought against any Underwriter or any
person controlling any Underwriter in respect of which indemnity may be sought
against the Company, such Underwriter or such controlling person shall promptly
notify in writing the party or parties against whom indemnification is being
sought (the "indemnifying party" or "indemnifying parties"), and such
indemnifying party or parties shall assume the defense thereof, including the
employment of counsel reasonably acceptable to such Underwriter or such
controlling person and payment of all fees and expenses. Such Underwriter or
any such controlling person shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the indemnifying party or parties has or have
agreed in writing to pay such fees and expenses, (ii) the indemnifying party or
parties has or have failed to assume the defense and employ counsel reasonably
acceptable to the Underwriter or such controlling person within a reasonable
period of time following notice from such Underwriter or such controlling
person, or (iii) the named parties to any such action (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying party or parties, and such Underwriter or such controlling person
shall have been advised by such counsel that representation of such indemnified
party and any indemnifying party or parties by the same counsel would be
inappropriate under applicable standards of professional conduct (whether or not
such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying party
or parties shall not have the right to assume the defense of such action on
behalf of such Underwriter or such controlling person). The indemnifying party
or parties shall not be liable for any settlement of any such action effected
without its or their prior written consent, but if settled with such prior
written consent, or if there be a final judgment for the plaintiff in any such
action, the indemnifying party or parties agree to indemnify and hold harmless
any Underwriter and any such controlling person form and against any loss,
claim, damage, liability or expense by reason of such settlement or judgment,
but in the case of a judgment only to the extent stated in the immediately
preceding paragraph.
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RAYMOND JAMES & ASSOCIATES, INC. Page 18

Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, and any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with respect
to information relating to such Underwriter furnished in writing by or on behalf
of such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any Prepricing Prospectus, or any amendment or supplement
thereto. If any action or claim shall be brought or asserted against the
Company, any of its directors, any such officers, or any such controlling person
based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph, such
Underwriter shall have the rights and duties given to the Company by the
preceding paragraph (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officers, and any such controlling persons
shall have the rights and duties given to the Underwriters by the immediately
preceding paragraph.

In any event, the Company will not, without the prior written consent of
the Representatives, settle or compromise or consent to the entry of any
judgment in any proceeding or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Representatives or any person who controls the Representatives within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of all Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.

If the indemnification provided for in this Section 8 is unavailable to an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then an indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus (or
any related term sheet used in reliance on Rule 434(b) under the Act); provided
that, in the event that the Underwriters shall
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 19

have purchased any Additional Shares hereunder, any determination of the
relative benefits received by the Company or the Underwriters from the offering
of the Shares shall include the net proceeds (before deducting expenses)
received by the Company, and the underwriting discounts and commissions received
by the Underwriters, from the sale of such Additional Shares, in each case
computed on the basis of the respective amounts set forth in the notes to the
table on the cover page of the Prospectus (or any related term sheet used in
reliance on Rule 434(b) under the Act). The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8 was determined by a pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in this Section 8 shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Shares
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective numbers of Firm Shares set forth opposite their names in Schedule I
hereto (or such numbers of Firm Shares increased as set forth in Section 10
hereof) and not joint.

Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 8.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 20

SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:

(a) The Registration Statement shall have become effective not later
than 12:00 noon, New York City time, on the date hereof, or at such later
date and time as shall be consented to in writing by you, and all filings
required by Rules 424(b) and 430A under the Act shall have been timely
made.

(b) Subsequent to the effective date of the Registration Statement
there shall not have occurred any change, or any development involving, or
which might reasonably be expected to involve, a potential future material
adverse change, in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company, not
contemplated by the Prospectus (or any supplement thereto), that in your
reasonable opinion, as Representatives of the several Underwriters, would
materially and adversely affect the market for the Shares.

(c) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Baker & Botts, L.L.P., counsel for the
Company, dated the Closing Date (and the Additional Closing Date, if any),
satisfactory to you, to the effect that:

(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto), and is duly registered and qualified to conduct
its business as a foreign corporation in good standing in the State of
Texas.

(ii) The authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof
contained in the Prospectus under the caption "Description of Capital
Stock."

(iii) All shares of capital stock of the Company outstanding
prior to the issuance of the Shares to be issued and sold by the
Company hereunder have been duly authorized and validly issued, are
fully paid and nonassessable and have not been issued in violation of
or subject to any preemptive rights arising under the Company's
Restated Certificate of Incorporation or Bylaws or under the Delaware
General Corporation Law or, to the knowledge of such counsel similar
rights that entitle or will entitle any person to acquire any Shares
upon issuance of such shares of capital stock by the Company.

(iv) All offers and sales of the Company's capital stock prior to
the date hereof were made in compliance with or were the subject of an
available exemption from the registration provisions of the Act and
the registration provisions of all other
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 21

applicable state and federal laws or regulations or any actions under
the Act or any state or federal laws or regulations in respect of any
such offers or sales are effectively barred by effective waivers or
statutes of limitation.

(v) The Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized by all necessary corporate
action on the part of the Company and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable and will
have not been issued in violation of or subject to any preemptive
rights under the Company's Restated Certificate of Incorporation or
Bylaws or under the Delaware General Corporation Law or, to the
knowledge of such counsel, similar rights that entitle or will entitle
any person to acquire any Shares upon the issuance of such shares of
capital stock by the Company.

(vi) The form of certificates for the Shares conforms to the
requirements of the applicable corporate laws of the State of
Delaware.

(vii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose are pending before or contemplated by the
Commission.

(viii) The Company has all requisite corporate power and
authority to enter into this Agreement and to issue, sell and deliver
the Shares to be sold by it to the Underwriters as provided herein,
and this Agreement has been duly authorized, executed and delivered by
the Company and is a valid, legal and binding agreement of the Company
enforceable against the Company in accordance with its terms, except
insofar as the enforcement may be limited by (i) any bankruptcy,
reorganization, insolvency, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditor's
rights generally, and (ii) general principals of equity (regardless of
whether such is considered at law or in equity).

(ix) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by
the Company with all provisions hereof nor consummation by the Company
of the transactions contemplated hereby conflicts or will conflict
with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any Subsidiary or
any agreement, indenture, lease or other instrument to which the
Company or any Subsidiary is a party or by which it or any of their
properties is bound that is made an exhibit to the Registration
Statement, or results or will result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary; nor will any such action result in any
violation of any
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 22

existing law, regulation, ruling (assuming compliance with all
applicable state securities and Blue Sky laws), judgment, injunction,
order or decree known to such counsel after reasonable inquiry,
applicable to the Company, the Subsidiaries or any of their respective
properties.

(x) No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official
is required on the part of the Company (except such as have been
obtained under the Act or such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of
the Shares) for the valid issuance and sale of the Shares to the
Underwriters under this Agreement.

(xi) The Registration Statement and the Prospectus and any
supplements or amendments thereto (except for the financial statements
and the schedules (including the notes thereto and the auditors report
thereon) included therein, the summary reserve report of Ryder Scott
Company Petroleum Engineers, the other financial, reserve and
statistical information included therein, and the exhibits thereto as
to which such counsel need not express any opinion) comply as to form
in all material respects with the requirements of the Act.

(xii) To the knowledge of such counsel, (A) other than as
described or contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto), there are no
legal or governmental proceedings pending or threatened against the
Company or any Subsidiary, or to which the Company or any Subsidiary,
or any of their respective property, is subject, that are required to
be described in the Registration Statement or Prospectus (or any
amendment or supplement thereto) that are not described as required
therein, and (B) there are no agreements, contracts, indentures or
other instruments, that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement that are not described or filed as
required, as the case may be.

(xiii) Such counsel has reviewed all agreements, contracts,
indentures, leases or other documents or instruments described in the
Registration Statement and the Prospectus (other than routine
contracts entered into by the Company or any Subsidiary for the
purchase of materials or the sale of products, entered into in the
normal course of business) and such agreements, contracts, indentures,
leases or other documents or instruments are fairly summarized or
described therein, and filed as exhibits thereto as required.

(xiv) Such counsel has no reason to believe that the descriptions
in the Prospectus under the caption "Business -- Regulation" of
statutes, regulations or
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 23

legal or governmental proceedings are other than accurate or fail to
present fairly the information required to be shown.

(xv) The Company is not an "investment Company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an
"investment Company," as such terms are defined in the Investment
Company Act of 1940, as amended.

In rendering such opinion, counsel may rely, to the extent they deem such
reliance proper, as to matters of fact upon certificates of officers of the
Company and of government officials and in rendering the opinion set forth in
paragraph (viii) above, state that they have relied on oral advice of the
Commission that the Commission has declared the Registration Statement effective
under the Act. Copies of all such certificates shall be furnished to you and
your counsel on the Closing Date (and the Additional Closing Data, if
applicable). Such counsel shall also be entitled to state that its opinion is
limited to the federal laws of the United States of America, the laws of the
State of Texas and the General Corporation Law of the State of Delaware.

In rendering such opinion, in each case where such opinion is qualified by
"the best knowledge of such counsel after reasonable inquiry," such counsel may
rely as to matters of fact upon certificates of executive and other officers and
employees of the Company or its Subsidiaries as you and such counsel shall deem
are appropriate and such other procedures as you and such counsel shall mutually
agree; provided, however, in each such case, such counsel shall state that it
has no knowledge contrary to the information contained in such certificates or
developed by such procedures and knows of no reason why you should not
reasonably rely upon the information contained in such certificates or developed
by such procedures.

In addition to the opinion set forth above, such counsel shall state the
following: Such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and your representatives at which the contents of the
Registration Statement and the Prospectus and related matters were discussed.
Although such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus, such counsel advises
you that, on the basis of the foregoing (relying as to materiality to a large
extent upon officers and other representatives of the Company and your
representatives), no facts have come to the attention of such counsel which lead
such counsel to believe that the Registration Statement (other than (i) the
financial statements and schedules (including the notes thereto and the
auditors' reports thereon) included therein, (ii) the summary reserve report of
Ryder Scott Company Petroleum Engineers included therein, (iii) the other
financial, reserve and statistical information included therein and (iv) the
exhibits thereto, as to which such counsel has not been asked to comment), as of
the time it became effective, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus (other than
(i) the financial statements (including the notes thereto and the auditors'
report thereon) including therein, (ii) the summary reserve report or Ryder
Scott Company Petroleum Engineers included therein and (iii) the other

<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 24

financial, reserve and statistical information included therein, as to which
such counsel has not been asked to comment), as of the issue date thereof,
contained any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

(d) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Robert Thomas, general counsel of the
Company, dated the Clsoign Date (and the Additional Closing Date, if any),
satisfactory to you, to the effect that:

(i) The Company is duly registered and qualified to conduct
business and is in good standing in each jurisdiction or place
set forth opposite its name on Schedule II hereto.

(ii) Each of the Subsidiaries is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its organization or is duly formed and validly
existing as a limited or general partnership, as the case may be, with
full corporate or partnership power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto); and is duly registered and qualified to conduct
its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure
to so register or qualify does not have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operation of the Company and the Subsidiaries,
taken as a whole, and all of the outstanding shares of capital stock
of, or partnership or other equity ownership interests in, each of the
Subsidiaries have been duly authorized by all necessary corporate
action on the part of the Company and validly issued, and are fully
paid and nonassessable, and are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of
any security interest, or to the best knowledge of such counsel after
reasonable inquiry, any other voting trust arrangements, liens,
encumbrances, equities, claims or defects in title.

(iii) Neither the Company nor any Subsidiary is in violation
of its certificate or articles of incorporation or bylaws, or other
organizational documents, or to the best knowledge of such counsel
after reasonable inquiry, is in default in the performance of any
material obligation, agreement or condition contained in any bond,
indenture, note or other evidence of indebtedness or in any other
agreement material to the Company and the Subsidiaries, taken as a
whole, except as has been disclosed in the Prospectus.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 25

(iv) To the best knowledge of such counsel after reasonable
inquiry, neither the Company nor any Subsidiary is in material
violation of any law, ordinance, administrative or governmental rule
or regulation applicable to the Company or any Subsidiary or any of
their respective properties, or of any decree of any court or
governmental agency or body having jurisdiction over the Company or
any Subsidiary or any of their respective properties, except where
such violation does not and will not have a material adverse effect on
the condition (financial or other), business, prospects, properties,
net worth or results of operation of the Company and the Subsidiaries,
taken as a whole.

(v) To the best knowledge of such counsel after reasonable
inquiry, the Company and each Subsidiary has such permits, licenses
franchises, approvals, consents and authorizations of governmental or
regulatory authorities ("permits"), as are necessary to own their
properties and to conduct their business in the manner described in
the Prospectus, subject to such qualifications as may be set forth in
the Prospectus, except where the failure to have obtained any such
permit has not and will not have a material adverse effect on the
condition (financial or otherwise), business, prospects, properties,
net worth or results of operations of the Company and the
Subsidiaries, taken as a whole; the Company and each Subsidiary has
fulfilled and performed all of their material obligations with respect
to such permits and no event has occurred which allows, or after
notice or lapse of time would allow, revocation or termination thereof
or result in any other material impairment of the rights of the holder
of any such permit, subject in each case to such qualification as may
be set forth in the Prospectus; and, except as described in the
Prospectus, such permits contain no restrictions that are materially
burdensome to the Company or any Subsidiary.

(e) You shall have received on the Closing Date (and the Additional
Closing Date, if any) an opinion of Vinson & Elkins L.L.P., counsel for the
Underwriters, dated the Closing Date (and the Additional Closing Date, if
any), with respect to the issuance and sale of the Firm Shares, the
Registration Statement and other related matters as you may reasonably
request and the Company and its counsel shall have furnished to your
counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.

(f) You shall have received letters addressed to you and dated the
date hereof and the Closing Date (and the Additional Closing Date, if any)
from Deloitte & Touche LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 26

(g) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company (other
than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto), or any development involving or which may
reasonably be expected to involve a potential future material adverse
change (present or potential future) in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole; (iii) the Company and the
Subsidiaries shall not have any liabilities or obligations, direct or
contingent (whether or not in the ordinary course of business) that are
material to the Company and the Subsidiaries, taken as a whole, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); and (iv) the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and on and as
of the Closing Date (and the Additional Closing Date, if any) as if made on
and as of the Closing Date (and the Additional Closing Date, if any), and
you shall have received a certificate, dated the Closing Date (and the
Additional Closing Date, if any) and signed by the chief executive officer
or president and the chief financial officer or treasurer of the Company
(or such other officers as are acceptable to you) to the effect set forth
in this Section 9(f) and in Section 9(g) hereof.

(h) The Company shall not have failed in any material respect at or
prior to the Closing Date (and the Additional Closing Date, if any) to have
performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to
the Closing Date (and the Additional Closing Date, if any).

(i) The Company shall have furnished or caused to have been furnished
to you such further certificates and documents as you shall have reasonably
requested.

(j) The provisions of the Company's Bylaws as filed as an exhibit to
the Registration Statement shall be in full force and effect. At or prior
to the Closing Date, you shall have received the written commitment of each
of the Company's directors and executive officers and certain other
shareholders not to offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or rights to purchase Common Stock or any
securities convertible into or exercisable or exchangeable for, Common
Stock, other than in accordance with this Agreement for a period of 180
days after commencement of the public offering of the Shares by the
Underwriters without the prior written consent of Raymond James &
Associates, Inc.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 27

(k) The Company shall have received the requisite board and
shareholder approvals to carry out the Combination Transactions and the
Combination Transactions shall have closed or will close simultaneously
with the closing.

All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you.

The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of the Additional Closing
Date of the conditions set forth in this Section 9, except that, if the
Additional Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in paragraphs (c) through (i) shall be dated as
of the Additional Closing Date and the opinions called for by paragraphs (c),
(d) and (e) shall be revised to reflect the sale of Additional Shares.

SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective upon the later of (a) the execution and delivery hereof by the parties
hereto, or (b) release of oral notification of the effectiveness of the
Registration Statement by the Commission.

If any one or more of the Underwriters shall fail or refuse to purchase
Firm Shares which it or they have agreed to purchase hereunder, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of the Firm Shares, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I hereto bears to the aggregate number
of Firm Shares set forth opposite the names of all non-defaulting Underwriters
or in such other proportion as you may specify in the Agreement Among
Underwriters, to purchase the Firm Shares which such defaulting Underwriter or
Underwriters agreed, but failed or refused, to purchase. If any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares and arrangements satisfactory
to you and the Company for the purchase of such Firm Shares are not made within
96 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven (7) days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement.

SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company by notice to the Company, if prior to the Closing
Date or the Additional Closing Date (if different from the Closing Date and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq
Stock Market
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 28

shall have been suspended or materially limited, (ii) trading of any securities
of the Company, including the Shares, on the Nasdaq Stock Market shall have been
suspended or materially limited, whether as the result of a stop order by the
Commission or otherwise, (iii) a general moratorium on commercial banking
activities in New York, Texas, or Florida shall have been declared by either
federal or state authorities, (iv) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions or other material event
the effect of which on the financial markets of the United States is such as to
make it, in your judgment, impracticable or inadvisable to market the Shares or
to enforce contracts for the sale of the Shares, or (v) the Company or any
Subsidiary shall have, in the sole judgment of the Representatives, sustained
any material loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident, or other calamity, whether or not covered
by insurance, or from any labor disputes or any legal or governmental
proceeding, or there shall have been any material adverse change (including,
without limitation, a material change in management or control of the Company)
in the condition (financial or otherwise), business, prospects, properties, net
worth or results of operations of the Company and the Subsidiaries, taken as a
whole, except in each case as described in, or contemplated by, the Prospectus
(excluding any amendment or supplement thereto). Notice of such cancellation
shall be promptly given to the Company and its counsel by facsimile or telephone
and shall be subsequently confirmed by letter.

SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The Company
acknowledges that the paragraph of text immediately following footnote (3) on
the front cover page of the Prospectus, the stabilizing legend appearing as the
first paragraph of text on page 2 of the Prospectus, the information set forth
in the table on page ____ of the Prospectus under the caption Underwriting and
the information set forth in the _____ paragraph on page ___ of the Prospectus
under the caption Underwriting, constitute all the information furnished by or
on behalf of the Underwriters through you or on your behalf as such information
is referred to in Sections 6(a), 6(b) and 8 hereof.

SECTION 13. MISCELLANEOUS. Except as otherwise provided in Sections 5, 10
and 11 hereof, notice given pursuant to any of the provisions of this Agreement
shall be in writing and shall be delivered

(i) to the Company:

Edge Petroleum Corporation
1111 Bagby, Suite 2100
Houston, Texas 77002
Attention: John Calaway, President
Facsimile: (713) 654-7722
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 29

with copy to:

Baker & Botts, L.L.P.
3000 One Shell Plaza
Houston, Texas 77002-4995
Attention: Gene J. Oshman
Facsimile: (713) 229-1522

(ii) to the Underwriters:

Raymond James & Associates, Inc.
2001 Ross Avenue, Suite 1100
Dallas, Texas 75201
Attention: James A. McDaniel, Senior Vice President
Facsimile: (214) 720-1315

and to:

Jefferies & Company, Inc.
909 Fannin Street, Suite 3100
Houston, Texas 77010
Attention: David E.K. Frischkorn, Jr.
Facsimile: (713) 650-8730

and to:

Principal Financial Securities, Inc.
909 Fannin, Suite 1900
Houston, Texas 77010-1006
Attention: John Bishop
Facsimile: (713) 651-7444

with copy to:

Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002
Attention: T. Mark Kelly
Facsimile: (713) 758-2346

This Agreement has been and is solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other controlling
persons referred to in Section 8 hereof, and their respective successors and
assigns, to the extent provided herein, and no other person shall
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 30

acquire or have any right under or by virtue of this Agreement. Neither of the
terms "successor" and "successors and assigns" as used in this Agreement shall
include a purchaser from you of any of the Shares in his status as such
purchaser.

SECTION 14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without reference to choice of law principles thereunder. This Agreement may be
signed in various counterparts which together shall constitute one and the same
instrument. This Agreement shall be effective when, but only when, at least one
counterpart hereof shall have been executed on behalf of each party hereto.
<PAGE>

RAYMOND JAMES & ASSOCIATES, INC. Page 31

If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.

Very truly yours,

EDGE PETROLEUM CORPORATION

By:
-----------------------------------
Name:
----------------------------
Title:
----------------------------

CONFIRMED as of the date first above
mentioned, on behalf of itself and the other
several Underwriters named in Schedule I
hereto.

RAYMOND JAMES & ASSOCIATES, INC.
JEFFERIES & COMPANY, INC.
PRINCIPAL FINANCIAL SECURITIES, INC.

By: RAYMOND JAMES & ASSOCIATES, INC.

By:
---------------------------------
Authorized Representative
<PAGE>

SCHEDULE I

NUMBER
OF FIRM
NAME SHARES
- ---- ---------

Raymond James & Associates, Inc.
Jefferies & Company, Inc.
Principal Financial Securities, Inc.

---------
TOTAL ......................................................... 2,000,000
=========

<PAGE>
Exhibit 3.1

CERTIFICATE OF AMENDMENT

TO THE

RESTATED CERTIFICATE OF INCORPORATION

EDGE PETROLEUM CORPORATION

Edge Petroleum Corporation (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), hereby adopts this Certificate of Amendment (this
"Certificate of Amendment"), which amends its Restated Certificate of
Incorporation, as heretofore amended (the "Certificate of Incorporation"), as
described below, and does hereby further certify that:

1. The Board of Directors of the Corporation duly adopted a resolution
proposing and declaring advisable the amendment to the Certificate of
Incorporation as described herein, and the Corporation's stockholders duly
adopted such amendment, all in accordance with the provisions of Sections 242
and 228 of the DGCL.

2. The Certificate of Incorporation is hereby amended by deleting Article
Fourth thereof and replacing in lieu thereof a new Article Fourth reading in its
entirety as follows:

FOURTH: The aggregate number of shares of capital stock that the
Corporation shall have authority to issue is Thirty Million (30,000,000),
divided into Twenty-five Million (25,000,000) shares of common stock, par value
$0.01 per share ("Common Stock"), and Five Million (5,000,000) shares of
preferred stock, par value $0.01 per share ("Preferred Stock"). Shares of any
class of capital stock of the Corporation may be issued for such consideration
and for such corporate purposes as the Board of Directors of the Corporation
(the "Board of Directors") may from time to time determine. Each share of
Common Stock shall be entitled to one vote.

The Preferred Stock may be divided into and issued from time to time in one
or more series as may be fixed and determined by the Board of Directors. The
relative rights and preferences of the Preferred Stock of each series shall be
such as shall be stated in any resolution or resolutions adopted by the Board of
Directors setting forth the designation of the series and fixing and determining
the relative rights and preferences thereof, any such resolution or resolutions
being herein called a "Directors' Resolution." The Board of Directors is hereby
authorized to fix and determine the powers, designations, preferences, and
relative, participating, optional or other rights (including, without
limitation, voting powers, full or limited, preferential rights to receive
dividends or assets upon liquidation, rights of conversion or exchange into
Common Stock, Preferred Stock of any series or other securities, any right of
the Corporation to exchange or convert shares into Common Stock, Preferred Stock
of any series or other securities, or redemption provisions or sinking fund
provisions) as between series and as between the Preferred Stock or any series
thereof and the Common Stock, and the qualifications, limitations or
restrictions thereof, if any, all as shall be stated

1
<PAGE>

in a Directors' Resolution, and the shares of Preferred Stock or any series
thereof may have full or limited voting powers, or be without voting powers, all
as shall be stated in a Directors' Resolution.

No stockholder shall, by reason of the holding of shares of any class or
series of capital stock of the Corporation, have a preemptive or preferential
right to acquire or subscribe for any shares or securities of any class, whether
now or hereafter authorized, which may at any time be issued, sold or offered
for sale by the Corporation, unless specifically provided for in a Directors'
Resolution with respect to a series of Preferred Stock. Furthermore, Common
Stock is not convertible, redeemable or assessable, or entitled to the benefits
of any sinking fund.

Cumulative voting of shares of any class or series of capital stock having
voting rights is prohibited unless specifically provided for in a Directors'
Resolution with respect to a series of Preferred Stock.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed this 31st day of January, 1997.

EDGE PETROLEUM CORPORATION

By: /s/ John E. Calaway
-------------------------
John E. Calaway
Chief Executive Officer

2
<PAGE>

RESTATED CERTIFICATE OF INCORPORATION

EDGE PETROLEUM CORPORATION

Edge Petroleum Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware (the "DGCL"), hereby adopts this Restated Certificate of
Incorporation, which accurately restates and integrates the provisions of the
existing Certificate of Incorporation of the Corporation and all amendments
thereto that are in effect on the date hereof (the "Certificate of
Incorporation") and further amends the provisions of the Certificate of
Incorporation as described below, and does hereby further certify that:

1. The name of the Corporation is Edge Petroleum Corporation and the
original certificate of incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on August 13, 1996.

2. The Board of Directors of the Corporation duly adopted a
resolution proposing and declaring advisable the amendments to the Certificate
of Incorporation as described herein, and the Corporation's sole stockholder
duly adopted such amendments, all in accordance with the provisions of Sections
228, 242 and 245 of the DGCL.

3. The Certificate of Incorporation is hereby restated and further
amended to read in its entirety as follows:

RESTATED CERTIFICATE OF INCORPORATION

FIRST: The name of the Corporation is Edge Petroleum Corporation
(hereinafter the "Corporation").

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware or any successor statute (the "DGCL").

FOURTH: The aggregate number of shares of capital stock that the
Corporation shall have authority to issue is Fifty Million (50,000,000), divided
into Forty Million (40,000,000) shares of common stock, par value $0.01 per
share ("Common Stock"), and Ten Million (10,000,000) shares of preferred stock,
par value $0.01 per share ("Preferred Stock"). Shares of any

3
<PAGE>

class of capital stock of the Corporation may be issued for such consideration
and for such corporate purposes as the Board of Directors of the Corporation
(the "Board of Directors") may from time to time determine. Each share of
Common Stock shall be entitled to one vote.

The Preferred Stock may be divided into and issued from time to time
in one or more series as may be fixed and determined by the Board of Directors.
The relative rights and preferences of the Preferred Stock of each series shall
be such as shall be stated in any resolution or resolutions adopted by the Board
of Directors setting forth the designation of the series and fixing and
determining the relative rights and preferences thereof, any such resolution or
resolutions being herein called a "Directors' Resolution." The Board of
Directors is hereby authorized to fix and determine the powers, designations,
preferences, and relative, participating, optional or other rights (including,
without limitation, voting powers, full or limited, preferential rights to
receive dividends or assets upon liquidation, rights of conversion or exchange
into Common Stock, Preferred Stock of any series or other securities, any right
of the Corporation to exchange or convert shares into Common Stock, Preferred
Stock of any series or other securities, or redemption provisions or sinking
fund provisions) as between series and as between the Preferred Stock or any
series thereof and the Common Stock, and the qualifications, limitations or
restrictions thereof, if any, all as shall be stated in a Directors' Resolution,
and the shares of Preferred Stock or any series thereof may have full or limited
voting powers, or be without voting powers, all as shall be stated in a
Directors' Resolution.

No stockholder shall, by reason of the holding of shares of any class
or series of capital stock of the Corporation, have a preemptive or preferential
right to acquire or subscribe for any shares or securities of any class, whether
now or hereafter authorized, which may at any time be issued, sold or offered
for sale by the Corporation, unless specifically provided for in a Directors'
Resolution with respect to a series of Preferred Stock. Furthermore, Common
Stock is not convertible, redeemable or assessable, or entitled to the benefits
of any sinking fund.

Cumulative voting of shares of any class or series of capital stock
having voting rights is prohibited unless specifically provided for in a
Directors' Resolution with respect to a series of Preferred Stock.

FIFTH: (a) Directors. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to the authority and powers conferred upon the Board of Directors by
the DGCL or by the other provisions of this Restated Certificate of
Incorporation, the Board of Directors is hereby authorized and empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject to the provisions of the DGCL, this Restated
Certificate of Incorporation and any Bylaws adopted by the stockholders of the
Corporation; provided, however, that no Bylaws hereafter adopted by the
stockholders of the Corporation, or any amendments thereto, shall invalidate any
prior act of the Board of Directors that would have been valid if such Bylaws or
amendment had not been adopted.

(b) Number, Election and Terms of Directors. The number of directors
that shall constitute the whole Board of Directors shall be fixed from time to
time by a majority of the directors then in office, but shall not be less than
three nor more than twelve, except in the case of an increase in the number of
directors by reason of any provisions contained in or established

4
<PAGE>

pursuant to Article Fourth. The directors, other than those who may be elected
by the holders of any series of Preferred Stock, shall be divided into three
classes, Class I, Class II and Class III. Each director shall serve for a term
ending on the third annual meeting following the annual meeting at which such
director was elected; provided, however, that Stanley S. Raphael is hereby
appointed to Class I and shall serve for a term expiring at the annual meeting
next following the end of the calendar year 1997, that each of Vincent Andrews,
David B. Benedict and Nils Peterson is hereby appointed to Class II and shall
serve for a term expiring at the annual meeting next following the end of the
calendar year 1998, and that each of John E. Calaway, James D. Calaway and John
Sfondrini is hereby appointed to Class III and shall serve for a term expiring
at the annual meeting next following the end of the calendar year 1999. Each
director shall hold office until the annual meeting at which such director's
term expires and, the foregoing notwithstanding, shall serve until his successor
shall have been duly elected and qualified or until his earlier death,
resignation or removal.

At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.

In the event of any change in the authorized number of directors, each
director then continuing to serve as such shall nevertheless continue as a
director of the class of which he is a member until the expiration of his
current term, or his prior death, resignation or removal. The Board of Directors
shall specify the class to which a newly created directorship shall be
allocated.

Election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.

(c) Removal of Directors. No director of the Corporation shall be
removed from office as a director by vote or other action of the stockholders or
otherwise except for cause, and then only by the affirmative vote of the holders
of at least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Except as may otherwise be
provided by law, cause for removal of a director shall be deemed to exist only
if: (i) the director whose removal is proposed has been convicted, or when a
director is granted immunity to testify when another has been convicted, of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal; (ii) such director has been found by the affirmative
vote of a majority of the entire Board of Directors at any regular or special
meeting of the Board of Directors called for that purpose or by a court of
competent jurisdiction to have been grossly negligent or guilty of misconduct in
the performance of his duties to the Corporation in a matter of substantial
importance to the Corporation; or (iii) such director has been adjudicated by a
court of competent jurisdiction to be mentally incompetent, which mental
incompetency directly affects his ability as a director of the Corporation.

(d) Vacancies. Except as provided in Article Fourth hereof, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause shall be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a

5
<PAGE>

quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been elected and
qualified or until his earlier death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.

SIXTH: From and after the first date of the closing of the initial
public offering of the Common Stock to the public for cash that has been
registered on a registration statement that has been filed with and declared
effective by the Securities and Exchange Commission, any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders. Except as otherwise
required by law, or as may be prescribed in a Directors' Resolution, special
meetings of stockholders of the Corporation may be called only by the Chairman
of the Board of Directors, or by the Chief Executive Officer of the Corporation
or by the President of the Corporation or by the Board of Directors pursuant to
a resolution approved by the affirmative vote of a majority of the entire Board
of Directors.

SEVENTH: No director of the Corporation shall be personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that the foregoing provisions
shall not eliminate or limit the liability of a director (i) for any breach of
such director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, as the same
exists or as such provision may hereafter be amended, supplemented or replaced,
or (iv) for any transactions from which such director derived an improper
personal benefit. If the DGCL is amended after the filing of this Certificate of
Incorporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by such law, as so
amended. Any repeal or modification of this Article Seventh by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.

EIGHTH: In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation, or adopt new Bylaws, without any
action on the part of the stockholders, except as may be otherwise provided by
applicable law or the Bylaws of the Corporation.

NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under Section 279 of Title 8 of the Delaware Code, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said

6
<PAGE>

court directs. If the majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed this 27th day of January, 1997.

EDGE PETROLEUM CORPORATION

By:/s/ James D. Calaway
-----------------------------
James D. Calaway
President

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Edge Petroleum
Corporation, a Delaware corporation, on Amendment No. 3 to Form S-1 of our
report dated February 4, 1997, relating to the supplementally combined
financial statements of Edge Petroleum Corporation, a Texas corporation, and
our report dated December 3, 1996, relating to the balance sheet of Edge
Petroleum Corporation, a Delaware corporation, appearing in the Prospectus,
which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP
Houston, Texas

February 4, 1997

<PAGE>

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

We hereby consent to (i) the use in the Prospectus constituting a part of
the Registration Statement on Form S-1, as amended, filed by Edge Petroleum
Corporation, a Delaware corporation (the "Company"), under the Securities Act
of 1933, of information contained in our reserve report that is summarized as
of December 31, 1996 in our summary letter dated January 30, 1997, relating to
the oil and gas reserves and revenue, as of December 31, 1996 of certain
properties that are sought to be combined in the Company which are currently
held by Edge Joint Venture II and James C. Calaway, which summary letter is
attached thereto on Annex A, and (ii) all references to such report, letter
and/or to this firm in such Prospectus, and further consent to our being named
as an expert therein.

Ryder Scott Company
Petroleum Engineers

Houston, Texas

January 30, 1997